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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C.  20549

________________________________________________

FORM 10-K

________________________________________________



           Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2017  



            Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

001-9731

(Commission file number)

MICRON SOLUTIONS, INC.

(Name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation of organization)

 

72-0925679

(IRS Employer Identification Number)

25 Sawyer Passway, Fitchburg, MA

(Address of principal executive offices)

 

01420

(Zip Code)



(978) 345-5000

( Registrant's telephone number)

________________________________________________



Securities Registered pursuant to Section 12 (b) of the Act:

Common Stock, $.01 par value

(Title of Each Class)

 

NYSE AMERICAN

(Name of each exchange on which registered)



Securities Registered pursuant to Section 12 (g) of the Act:

None

________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 if the Securities Act.  Yes      No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  Yes      No 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes      No 

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large  Accelerated  filer          Accelerated filer         Non ‑Accelerated filer         Smaller reporting company 

Emerging growth company    

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $10,867,502 .

On March 26, 2018 , there were 2,844,935 shares of the registrant's common stock, par value $.01, outstanding, which is the only class of common or voting stock of the issuer.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days following the fiscal year ended December 31, 2017. Portions of such proxy statement are incorporated by reference into Part III of this Form 10-K.  

 


 

Table of Contents

 

Micron Solutions, Inc.



TABLE OF CONTENTS





 

 

 



 Part I

Item 1

Business

 

Item 1A

Risk Factors

 

Item 1B

Unresolved Staff Comments

11 

 

Item 2

Properties

11 

 

Item 3

Legal Proceedings

12 

 

Item 4

Mine Safety Disclosures

12 

 Part II

Item 5

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

13 

 

Item 6

Selected Financial Data

13 

 

Item 7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14 

 

Item 7A

Quantitative and Qualitative Disclosures about Market Risk

21 

 

Item 8

Financial Statements and Supplementary Data

21 

 

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

21 

 

Item 9A

Controls and Procedures

21 

 

Item 9B

Other Information

22 

 Part III

Item 10

Directors, Executive Officers and Corporate Governance

23 

 

Item 11

Executive Compensation

23 

 

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

23 

 

Item 13

Certain Relationships and Related Transactions and Director Independence

23 

 

Item 14

Principal Accounting Fees and Services

23 

 Part IV

Item 15

Exhibits, Financial Statement Schedules

23 



Item 16

Form 10-K Summary

23 

 

 

Signatures

24 

 Exhibit Index

 

25 



 



Micron Solutions, Micron Products and our other registered or common law trademarks, service marks or trade names appearing in this annual report on Form 10-K are the property of Micron Solutions and/or Micron Products.  Other trademarks and trade names referred to in this annual report on Form 10-K are the property of their respective owners. 

 

 


 

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PA RT I



Ite m 1. BUSINESS



OVERVIEW



Micron Solutions ® , Inc., a Delaware corporation ("Micron Solutions”), through its wholly-owned Massachusetts operating subsidiary, Micron Products ® , Inc. (“Micron” and together with Micron Solutions, the "Company"), is a diversified contract manufacturing organization (“CMO”) that produces highly-engineered, innovative medical device components requiring precision machining and injection molding. The Company also manufactures components, devices and equipment for military, law enforcement, automotive and consumer product applications. The Company is engaged in the production and sale of silver/silver chloride coated and conductive resin sensors used as consumable component parts in the manufacture of integrated disposable electrophysiological sensors. These disposable medical devices are used worldwide in the monitoring of electrical signals in various medical applications. The Company's machining operations produce quick-turn, high volume and patient-specific finished orthopedic implant components. The Company has custom thermoplastic injection molding capabilities as well, and provides a full array of design, engineering, production services and management. The Company competes globally, with approximately 42% of its revenue derived from exports.



The Company's common stock has been listed on the NYSE American exchange since 1992 and traded under the ticker symbol HRT until March of 2017 when the Company changed its ticker symbol to MICR in conjunction with its name change from Arrhythmia Research Technology, Inc. to Micron Solutions, Inc.



Micron is a diversified contract manufacturing organization and provides design, engineering, quality and regulatory expertise across the Company’s three product lines, machining, thermoplastic injection molding and sensors, with lean and fast fulfillment systems using proprietary manufacturing processes to enable the Company’s customers to be competitive throughout the product life cycle.  



Contract Manufacturing



Machining



The Company is a contract manufacturer of components and instruments for medical devices including, but not limited to large joint replacements, wrist plates, rib fixation plates, and screws. The Company also manufactures machined components for a variety of industries including aerospace and defense.  Specialized components used in Total Knee Arthroscopy including femoral surface replacements, tibia trays, ultra-high-molecular-weight polyethylene (“UHMWPE”) inserts, trials and instrumentation as well as hip stems and fixation plates used in rib and wrist fractures are fabricated, machined and polished, heat treated and passivated at Micron.  These parts are primarily made from investment castings (F-75, stainless steel), machining wrought bar (F-75, stainless steel, F-136 Ti 6A-4V ELI), UHMWPE, polyether ether ketone (“PEEK”), Raydel® and other materials.  The Company also employs validated processes and controls suitable for medical device components including heat treating, finishing, polishing, ultrasonic cleaning and passivation. The manufacturing process includes computer aided design ("CAD"), computer-aided manufacturing (“CAM”), computer numerical controlled ("CNC") machining using single piece flow manufacturing methods for personalized orthopedic implant components as well as higher volume off-the-shelf components in a variety of sizes.  The Company deploys the latest technologies in computer aided design, computer aided manufacturing (CAD/CAM) methodology, and up to 11-axis CNC vertical milling, mill-turning and wire electrical discharge machining (“EDM”).  These products involve complex programming and machining of wrought, cast and forged cobalt-chromium-molybdenum, titanium, and stainless steel alloys, as well as ultra-high molecular weight and other polymers to customer specifications. The Company brings articular surfaces of implant components to a highly polished state as part of the manufacturing process, ready for sterilization and packaging.  The Company produces superior contoured machined surfaces on metal and high molecular weight polymers to complete the implant kit. Whether patient-specific, where each implant is a different geometry, or standard-sized off-the-shelf products, each requires precision, speed, and adherence to the most stringent of quality standards. Additional capabilities include laser marking, automated polishing, passivation, and coatings.  The Company also offers contract inspection and packaging in its own clean room facilities.



Thermoplastic Injection Molding



The Company's custom thermoplastic injection molding services are especially suited to meet the needs of customers who require very high quality parts, clean room molding, assembly and packaging to tight tolerances using engineered materials. The Company offers highly automated pick and place packaging, assembly, and in-cycle vision inspection. Micron’s ITAR registration, Federal Firearms class-10 and Federal Explosive licenses assures military and defense customers that their stringent regulatory requirements are in compliance. The Company also offers over-molding, insert molding, high volume/low change, and low volume/high change injection molding.  The Company adds value with highly repeatable and reliable manufacturing with ongoing innovations for cost improvements.  Other value added services including packaging, assembly, pad printing, ultrasonic welding, stamping, laser marking, clean room molding, clean room assembly, specialty coatings, and plastic machining. 



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Other Products and Services



The Company provides its customers with key value added services, including the design, manufacture, and rehabilitation of injection molding tools. These capabilities leverage significant cost savings and speed by vertically integrating mold making and repair into the Company’s sensor and thermoplastic injection molding businesses. The Company’s engineers and mold designers work with customers’ product development engineers to design and produce unique tooling for their products. The Company creates a sustainable partnership with the customers from prototyping to full scale production. The design and manufacture of tooling is an indicator of future product revenue.



The Company's product life cycle management program is focused on the integration of plastic and metal components into sub-assemblies. The value added service of in-house production capabilities combined with a network of subcontracted specialty coatings, metallurgical treatments, and unique production capabilities has enabled the Company to diversify its capabilities to include defense industry consumables and equipment sub-assemblies.



Sensors



Micron is a leading manufacturer and distributor of silver-plated and non-silver plated conductive resin sensors for use in the manufacture of disposable electrodes for electrocardiogram ("ECG") diagnostic, monitoring and related instrumentation. Micron's sensors consist of a molded plastic substrate plated with a silver/silver chloride surface, which is a highly sensitive conductor of electrical signals. Silver/silver chloride-plated disposable electrodes are utilized in coronary care units, telemetry units, and for other monitoring purposes. In addition to the traditional ECG tests, disposable electrodes incorporating Micron’s sensors are used in connection with cardiac stress tests, Holter monitoring, and event recorders.



Micron also manufactures sensors and conductive plastic studs used in the manufacture of radio translucent electrodes. The radio translucent conductive plastic studs are manufactured with uniquely engineered resin to enable electrical conductivity between the sensor and the recording instrument without the use of a metal snap. The radio translucent electrodes are virtually invisible to X-rays and are preferred in some medical environments such as nuclear medicine, cardiac catheterization laboratories, and certain stress procedures. Micron also manufactures the mating conductive resin snaps, which replace traditional metal snap fasteners in the radio translucent applications. These sensors and snaps have undergone testing and received a MR-Conditional designation in accordance with the American Society for Testing and Materials (ASTM) specifications F2052-06e1, F2182-09 and F2119-07 from a licensed, accredited, independent testing laboratory. Other custom designed sensors are manufactured for specific unique applications in the electroencephalogram (EEG), electro-muscular stimulation (EMG) or thermo-electrical neural stimulation (TENS) markets.



Customers and Net Sales



The Company offers its products and services to customers of all sizes, including large original equipment manufacturers (OEMs) and other contract manufacturing organizations.  The Company manufactures products upon receipt of purchase orders.  The Company generally does not receive purchase volume commitments extending beyond several months; however, the Company has a track record of establishing long term relationships with customers which results in repeat business year over year.



During the year ended December 31, 2017 , the Company had net sales to two customers constituting 17% and 10% of total 2017 net sales. Accounts receivable from these two customers at December 31, 2017 was 13% and 3%, respectively, of the total accounts receivable balance at year end. During the year ended December 31, 2016 , the Company had net sales to two customers constituting 19% and 12% , respectively, of total 2016 net sales. Accounts receivable from these two customers at December 31, 2016 was 26% and 7%, respectively, of the total accounts receivable balance at year end.



The following table sets forth, for the periods indicated, the consolidated revenue and percentages of revenue derived from the sales of the Company’s products and services in certain industries.







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

Revenue for the Year Ended December 31,



 

2017

 

   %

 

2016

 

%

Medical

 

$

15,170,382 

 

76 

 

$

14,543,315 

 

74 

Automotive/Industrial

 

 

3,648,393 

 

18 

 

 

3,787,312 

 

19 

Military and Law Enforcement

 

 

417,358 

 

 

 

744,738 

 

Consumer Products

 

 

848,210 

 

 

 

383,254 

 

Other

 

 

18,319 

 

 —

 

 

179,598 

 

Total

 

$

20,102,662 

 

100 

 

$

19,638,217 

 

100 

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The following table sets forth, for the periods indicated, the consolidated revenue and percentages of revenue derived from the sales of all of the Company's products and services by geographic market.







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

Revenue for the Year Ended December 31,



 

2017

 

   %

 

2016

 

%

United States 

 

$

11,721,117 

 

58 

 

$

12,206,761 

 

62 

Asia

 

 

4,641,806 

 

23 

 

 

4,283,180 

 

22 

Europe 

 

 

1,629,297 

 

 

 

1,677,100 

 

Canada 

 

 

1,998,683 

 

10 

 

 

1,268,817 

 

Other 

 

 

111,759 

 

 

 

202,359 

 

Total 

 

$

20,102,662 

 

100 

 

$

19,638,217 

 

100 



While some risks exist in foreign markets, the Company’s customers have historically been based in stable regions.  Approximately 42% of the Company’s revenue is derived from exports.  To reduce the risks associated with foreign shipments and currency exchange fluctuations, the title to most of the products are transferred to the customers when shipped.  Payment is required in U.S. Dollars.  The Company also has agreements with certain foreign customers to hold inventory at customer locations where title transfers and revenue is recognized when the product is consumed by the customer.  To further reduce risk, the Company sells to certain markets only with cash-in-advance or letter-of-credit terms.  In addition, accounts receivable insurance is used where available and appropriate to further reduce risk in these markets.



Marketing and Competition



The Company markets its capabilities and services to current and potential customers to provide full product life-cycle support to their product manufacturing needs. The Company's sales force leverages its long standing relationships and targets new and potential customers through direct marketing via Micron’s website ( www.micronproducts.com ) and regularly attending industry trade shows. As part of a total marketing and sales strategy the Company continues to invest in website enhancements and a variety of internet marketing and lead generation programs.  The Company provides value added U.S. based manufacturing capabilities with plating/coating, injection molding, machining, mold making, maintenance and repair. Customers seek the Company's ability to produce complex products on short time lines and to their specifications. Micron’s ISO 13485:2003 and ISO 9001:2008, registrations, the international quality standards for medical devices and manufacturing, qualify Micron to supply products requiring tight process controls and high standards.  The Company’s International Traffic in Arms Regulation ("ITAR") registration with the U.S. Department of State ("State Department") allows the Company to compete in military and law enforcement applications restricted by export controls and the U.S. Department of Defense ("DOD"). Micron also holds a class-10 federal firearms license and a federal explosives license for manufacture of products for the military and law enforcement.



The Company's U.S. based manufacturing capabilities are offered in a global and highly competitive market. Free trade agreements increase global competition, making every company in the same manufacturing arena around the world a potential customer or competitor. To meet this challenge, the Company focuses its development efforts on complex engineered products. Some of these products require specialty material, such as engineered resins, exotic metals, and alloys. Micron has over forty-five years of experience in some product areas with long customer relationships and has developed competitive advantages through decades of process improvement and utilization of Lean/Six Sigma principles. The Company competes on the basis of quality and speed to market. The Company also believes its expertise in manufacturing and processes to comply with governmental regulations governing medical devices provides a competitive advantage in the marketplace. To remain competitive and to expand market share, the Company invests in training and educating its workforce, expanding manufacturing capacity and automating processes to increase productivity.



Manufacturing and Suppliers



The Company has registered its facilities with the U.S. Food and Drug Administration ("FDA") as well as under the U.S. State Department's ITAR registration. Micron is ISO 13485:2003 and ISO 9001:2008 registered.  Micron's injection molding machine capacity ranges from 15 to 220 tons and includes an ISO class 7 clean room. Machining, mold making and tooling capabilities include up to 11 axis CNC machining and mill-turn centers, wire electrical discharge machining ("EDM"), milling, turning, grinding, polishing, cleaning, passivation, assembly and packaging. Surface coating capabilities include electroless and electrolytic silver plating.  A skilled employee base provides expertise in engineering, complex manufacturing, materials, process control, quality and automation.



While some customers may require engineered raw materials, the Company also uses commodity raw materials as the basis for its value-added manufacturing operations. Many of these commodities are widely available from multiple sources. Some specialty plastics are single sourced and, in a few cases, proprietary to the products the Company manufactures. The Company monitors the supply chain for commodity materials to manage availability in case of breaks in the global supply chain. For many products, the Company is one step in a complex supply chain for OEM customers. This requires coordination with upstream and downstream vendors in the supply chain. Coordination of production scheduling is imperative to meeting customer expectations.



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Inventory Requirements



The Company stocks inventory of raw materials, work in process, and finished goods.



The Company manages inventory levels to balance customer delivery requirements, manufacturing production scheduling efficiencies and supply chain coordination from suppliers and to customers. In many cases, the Company produces to a purchase order in a single production run to optimize production efficiency and holds inventory for customers to support multiple delivery dates. The Company also has supply agreements with certain foreign customers to hold inventory at their warehouses.  Customers benefit from Micron's ability to hold inventory on their behalf for just-in-time deliveries while the Company benefits from being able to optimize efficiencies of production scheduling and raw material volume purchasing.



Research and Development



Research and development of a unique process to improve silver coating and sensor performance is ongoing and includes the design and testing of specific process improvements for certain medical device components. The Company also conducts customer funded research and development of new products in the military and law enforcement industry.  For the year ended December 31, 2017 the Company spent $111,014 on research and development compared to $97,234 for the year ended December 31, 2016.  The Company regularly explores new product ideas and concepts as part of its core strategy for growth.



Patents and Proprietary Technology



The Company develops and utilizes proprietary manufacturing processes to establish and maintain a competitive advantage. By having internal engineering, mold making, automation and manufacturing expertise, the Company is able to develop specialized processes throughout the product development and product manufacturing cycle.  The Company has submitted a patent application for an innovation integrated into an ammunition component used worldwide by military and law enforcement.  The innovation allows for a more consistent velocity of a projectile which is found in most high/low pressure small arms ammunition platforms.  The Company also applied for patent protection for the design of a novel sensor eyelet used in Electrocardiographic (ECG) recording.  The design may provide a better conductive path and longer shelf life of silver/silver chloride sensor components.  The Company is currently working on several other projects which may qualify for patent protection.



Government Regulation



The Company's operations are subject to government regulations which establish compliance standards. As a result, there may be additional costs incurred to comply with such regulations in order to participate in certain markets. The medical device industry in particular requires strict compliance with governmental standards. The Company believes its expertise in manufacturing and processes to comply with these regulations provides a competitive advantage in the marketplace.  The FDA and the European Union equivalent ("CE Mark") promulgate quality systems requirements under which a medical device is to be developed, validated and manufactured. The DOD, Bureau of Alcohol, Tobacco, Firearms and Explosives (BATFE) and the State Department also impose regulations on the production and transfer of certain goods and technical data. Because customers own the product designs, they may be directly subject to such regulations.  The development or manufacture of such products must be managed in accordance with applicable regulatory requirements and any special controls required by customers. The Company's manufacturing facilities are subject to periodic inspections by the FDA and other agencies to determine compliance with regulations and other requirements.



Conflict Minerals



The Financial Reform Bill (H.R. 4173) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, also known as the Dodd-Frank Act, imposed reporting requirements relating to the use of a group of minerals extracted from the Democratic Republic of Congo ("DRC") and surrounding regions. These minerals are known as “Conflict Minerals” and include tin, tungsten, tantalum and gold. The Company uses tin in parts of its production and its suppliers have confirmed that none of the tin or tin concentrates used by the Company in the production of products originate from the DRC or surrounding regions.



Environmental Regulation



The Company's operations involve use of hazardous and toxic materials and generate hazardous, toxic and other regulated wastes.  Its operations are subject to federal, state and local laws, regulations and directives governing the use, storage, handling and disposal of such materials and certain waste products. Micron practices and reaffirms its commitment to and performance of the highest standards of environmental controls and occupational health and safety standards.  Micron has developed an internal system of compliance as well as retained independent environmental consulting firms to regularly review, monitor and upgrade its air and waste water treatment facilities.  The Company has introduced several new initiatives including the use of solar energy and energy efficient machinery and lighting to benefit from renewable energy generation and reduce overall costs associated with production. The Company employs best practices to reduce waste from its manufacturing operations and reclaims, recovers, and reuses materials to reduce pollutants and to minimize the impact on the environment.   The Company also works closely with state and local officials to ensure

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compliance with current and proposed regulations while supporting a regulatory environment that allows complex manufacturing to be competitive globally.



Seasonality



In general, the Company does not experience significant seasonality in its business. However, as a component supplier within broad manufacturing supply chains, occasional seasonal adjustments to production schedules may impact timing of orders from customers and consequently result in quarterly fluctuations in revenue.



Employees



As of December 31, 2017 , the Company had a total of 95 employees, of which 94 were full time employees as compared to 107, of which 106 were full time at December 31, 2016. Management believes that continued success will depend on its ability to retain and recruit skilled personnel. The Company has never had a work stoppage and none of the Company's employees are represented by a union. Management believes the Company has a good relationship with its employees.



Periodic Reporting and Financial Information



The Company registered its common stock under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and has reporting obligations, including the requirement that it file annual and quarterly reports with the SEC.  The public may read and copy materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, on official business days during the hours of 10:00 am to 3:00 pm.  You may obtain information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The Company also makes available through its website the annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports as soon as reasonably practical after filing with the SEC. Its website address is http ://www.micronsolutionsinc.com. Information on the Company's website is not part of this Annual Report on Form 10-K.



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Ite m 1A. RISK FACTORS



In addition to the other information in this Form 10-K, the following factors should be considered in evaluating the Company and its business.  The risks and uncertainties described below are not the only ones facing the Company.  Further, the market price of the Company’s common stock could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties described in this “Risk Factors” section.  Additional risks and uncertainties that the Company does not presently know or that are currently not deemed significant to the Company's business may also impair the Company’s business, results of operations and financial condition.



The Company’s operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of the Company's control.  These factors include:

·

the Company's ability to obtain and retain order volumes from customers who represent high proportions of revenue;

·

the Company's ability to maintain the pricing model, offset higher costs with price increases and/or decrease the cost of sales;

·

the variability of customer delivery requirements and the ability of the Company to anticipate and respond thereto;

·

the level of sales of higher margin products and services and the Company's ability to increase such sales;

·

volatility in commodity and energy prices and the Company's ability to offset higher costs with price increases;

·

the Company's ability to manage its level of debt which makes the Company sensitive to the effects of economic downturns; the Company's level of debt and provisions in the debt agreements could limit the Company's ability to react to changes in the economy or its industry;

·

the Company's failure to comply with the financial and other covenants contained in its asset based credit and security agreement, including as a result of events beyond its control, which could result in an event of default, and adversely affect the Company's operating results and financial condition;

·

the Company’s reliance on revenue from exports and the impact on the Company’s financial results due to economic uncertainty, changes in trade policy, tax laws and regulations, or downturns in foreign markets;

·

continued availability of supplies or materials used in manufacturing at competitive prices;

·

the amount and timing of investments in capital equipment, sales and marketing, engineering and information technology resources;

·

the Company's ability to attract and retain employees with the skills to meet the technically complex demands of manufacturing;

·

entrance of competitive products and services in the Company's markets;

·

the Company's ability to develop and implement plans and motivate personnel in the execution of those plans;

·

the Company's ability to protect and retain trade secrets related to the Company's manufacturing processes;

·

adverse claims relating to the Company's intellectual property and product liability claims affecting the Company's products;

·

adoption of new, or changes in, accounting principles; and passage of new, or changes in regulations;

·

adverse regulatory developments specifically healthcare policy changes, environmental and other regulatory changes;

·

the costs inherent with complying with statutes and regulations applicable to public reporting companies, such as the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010;

·

the Company’s ability to prevent information systems interruptions, cybersecurity attacks or other disruptions;

·

the Company's ability to efficiently integrate future acquisitions and new lines of business that the Company may enter in the future, if any;

·

the Company's ability to maintain compliance with the NYSE American requirements for continued listing of the Company's common stock in which event the Company's securities may be delisted from the NYSE American which could limit investors' ability to effect transactions in the Company's securities and subject the stock to additional trading restrictions;

·

other risks referenced from time to time elsewhere in this report and in the Company’s filings with the SEC; and

·

general economic conditions.



As a response to changes in the competitive or economic environment, the Company may from time to time make certain pricing, delivery, service, technology or marketing decisions, or business or technology acquisitions, or experience fluctuations or reductions in customer orders that could have a material adverse effect on the quarterly and annual results.  Due to all of these factors, the operating results may not meet the expectations of stockholders and investors in any future period and make period to period comparisons difficult.



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The Company is dependent on a limited number of large customers. The loss of, or inability to obtain and retain order volumes from, one or more of these customers, could have an adverse effect on the Company's financial results.



During the year ended December 31, 2017 , the Company had net sales to two customers constituting 17% and 10% of total 2017 net sales. Accounts receivable from these two customers at December 31, 2017 was 13% and 3%, respectively, of the total accounts receivable balance at year end. During the year ended December 31, 2016 , the Company had net sales to two customers constituting 19% and 12% , respectively, of total 2016 net sales. Accounts receivable from these two customers at December 31, 2016 was 26% and 7%, respectively, of the total accounts receivable balance at year end.



Large corporations can change their demand for the Company's products and services with little or no warning making it difficult to forecast beyond the current or next quarter. In the case of precious metal plating, customer purchase arrangements take into account the fluctuating price of precious metals.



The loss of, or significant reduction in order volume, from one or more of these customers, could have an adverse effect on the Company's financial results.



The Company competes globally, with a large portion of its revenue derived from exports.  Economic uncertainty or downturns in foreign markets could result in variability or have an adverse effect on the Company’s financial results. 



While some risks exist in foreign markets, the Company’s customers have historically been based in stable regions.  Approximately 42% of the Company’s revenue is derived from exports. To reduce the risks associated with foreign shipments and currency exchange fluctuations, the title to most of the products are transferred to the customers when shipped.  The Company also has agreements with certain foreign customers to hold inventory at customer locations where revenue is recognized when the product is consumed by the customer. Payment for all product is required in U.S. Dollars.  Additionally, the strength of the U.S. Dollar could affect the demand for the Company’s products, or the timing of orders.  This uncertainty could have an adverse effect on the Company’s financial results. 



In June 2016, the United Kingdom (the “U.K .”) held a referendum in which voters approved an exit from the European Union (the “E.U.”), commonly referred to as “Brexit”.  On March 29, 2017, the U.K. formally notified the E.U. of its intentions to withdraw pursuant to the Lisbon Treaty.  The uncertainty surrounding the negotiation of the terms of the U.K.’s withdrawal and its consequences may create global economic uncertainty, or disrupt trade between the U.K. and the E.U.  This uncertainty may cause the Company’s customers to closely monitor their costs and reduce their spending budget which could adversely affect the Company’s financial condition.



Adverse developments in U.S. government trade policy and legislation, the imposition of tariffs or changes in diplomatic relations with countries in which our customers are located or conduct business may adversely affect our financial condition and results of operations.



The 2016 presidential and 2016 and 2018 congressional elections in the United States could result in significant changes in, and uncertainty with respect to, legislation, regulations and monetary, tax and trade policy, among other things.  Potential changes in U.S. government trade policy and legislation, withdrawal from or modification of international trade agreements, the imposition of additional tariffs on goods or other restrictions on trade and any changes in diplomatic relations with countries in which our customers are located or in which they conduct business may adversely affect our customers and, as a result, could materially affect our operating results. 



Quarter to quarter variables, such as customer mix and profitability by product line, can be expected to result in fluctuations in quarterly results and make quarter to quarter comparisons difficult.



The Company is a contract manufacturing organization providing components to a wide array of industries and supplying OEM’s of various sizes up to and including Fortune 500 companies.  As a result of the diversity of components and the Company’s reliance on large OEM’s, who can change their demand with little or no notice, the Company will continue to see fluctuations in quarterly revenue and earnings, which could make quarter to quarter and year over year comparisons difficult.



The Company’s top five customers, comprised 49% of sales in 2017 and 51% of sales in 2016.  As the Company continues to diversify its revenue base across all its product lines, the broader customer mix results in additional variables which can affect operating results, product mix, product line gross margins and customer ordering patterns.



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If the Company is unable to keep up with rapid technological changes, the processes or services it offers, or products it manufactures, may become obsolete or if the Company is no longer able to effectively manufacture, market and distribute these products, it could have a material adverse effect on the Company's financial condition.



The medical device industry is characterized by continual technological change.  Although the Company attempts to expand technological capabilities in order to remain competitive, the Company may be unable to effectively develop and market competitive products, processes and services, or be able to meet the manufacturing needs related to new discoveries or developments by others, on a timely basis. This may make the Company’s processes, products or services obsolete or uneconomical.  Any substantial technological advance that eliminates one or more of the Company’s product lines could have a material adverse effect on the Company's operating results.  The Company generally does not receive purchase volume commitments extending beyond several months. Large corporations can shift focus away from a need for the Company’s products and services with little or no warning. Additionally, should any of the Company’s large OEM customers decide to vertically integrate the manufacturing of a product line, or chose to limit the number of qualified suppliers, the Company’s operating results may be adversely impacted.  If the Company cannot compete effectively in the marketplace, the Company's future prospects and financial results may be adversely impacted.



The Company's dependence on large OEM customers, which can change demand on short notice, adds to the unpredictability of quarterly sales and earnings.



The Company’s large OEM customers are not required to have purchase volume commitments extending beyond several months and often lack dependable long-term forecasts. In addition, the Company’s large OEM customers may change their demand schedule, either up or down, within a relatively short time horizon.  Further, large OEM customers may choose to develop the capability of producing their own products. In addition, new customers may experience development delays, such as delays in FDA approvals, marketing delays in the development of sales channels or inadequate financing, any of which may delay the launch of new products and therefore may affect the timing of sales.



The Company's quarterly results have in the past and can be expected in the future to vary due to changes in demand within a quarter from large OEM customers. These changes in demand may also result in the Company incurring additional working capital costs and increased manufacturing unit cost due to these short-term fluctuations.  The expense levels and inventory, to a large extent, are based on shipment expectations in the quarter.  If sales levels fall below these expectations, through a delay in orders or otherwise, operating results are likely to be adversely affected.  An inability to accurately predict customer requirements makes cost-saving measures more difficult to implement.



Although the Company seeks to leverage its demonstrated product quality and expertise to expand its customer base and lessen its dependence on a few large customers, it can provide no assurance that it will be able to materially alter this dependency in the immediate future, if at all.



The failure to make timely payments on our asset based credit and security agreement or to comply with financial and other covenants contained therein, including as a result of events beyond the Company's control, could result in an event of default, which, if incurred, could materially and adversely affect operating results and financial condition.



The debt service obligations under the Company's asset based credit and security agreement will require the Company to use a portion of its operating cash flow to pay interest and principal on indebtedness instead of for other corporate purposes, including funding future expansion of its business, acquisitions, and ongoing capital expenditures, which could impede growth.  The asset based credit and security agreement contains covenants that relate to various matters including certain financial covenants, prohibitions on further borrowings and security interests, merger or consolidation, acquisitions, guarantees, sales of assets other than in the normal course of business, leasing and payment of dividends. The Company's ability to make payments on the indebtedness depends on the ability to generate cash.    Failure to generate sufficient cash flow may result in a violation of financial covenants and default under the Company's debt agreements, and make it more difficult to obtain financing on terms that are acceptable, or at all. Management cannot assure that the Company's future cash flow would be sufficient to fully repay borrowings under the outstanding debt instruments, either upon maturity or upon an event of default, or that the Company would be able to extend, refinance or restructure the payments on those debt instruments.



The level of debt makes the Company more sensitive to the effects of economic downturns; the level of debt and provisions in the debt agreements could limit the Company's ability to react to changes in the economy or industry.



The level of debt makes the Company more vulnerable to changes in the results of operations. The Company's level of debt could have other negative consequences, including the following:

·

Limiting the Company's ability to borrow money or sell stock for working capital, capital expenditures, debt service requirements or other general corporate purposes;

·

Limiting the Company's flexibility in planning for, or reacting to, changes in operations, business or the industries in which the Company competes; and

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·

Leverage may place the Company at a competitive disadvantage by limiting its ability to invest in the business or in further research and development.



In addition, the Company's asset based credit and security agreement contains covenants that limit the flexibility in planning for or reacting to changes in the business and industry, including limitations on incurring additional indebtedness, making investments, granting liens and merging or consolidating with other companies. Complying with these covenants may impair the Company's ability to finance the future operations or capital needs or to engage in other favorable business activities.



The Company may from time to time assess alternate ways to generate value for shareholders, including reviewing opportunities that may lead to acquisitions, dispositions or other strategic that may disrupt the business and divert management’s attention, cause the Company to incur additional costs, debt or issue equity securities and adversely impact its results of operations and financial condition.



The Company may periodically assess alternate ways to generate value for shareholders, including reviewing opportunities that may lead to acquisitions, dispositions or other strategic transactions.   It also may choose to invest in the development, either alone or with a strategic customer, of products or technologies from time to time.    Such activities may divert management's attention, increase short term costs, require capital expenditures or result in an inability to realize the expected benefits from such activities.  Any acquisitions will require the assimilation of the operations, products and personnel of the acquired businesses or products and the training and motivation of employees and exposure to unexpected liabilities of the acquired company. The Company also may have to, or choose to, incur additional costs for experts and other advisors, incur debt or issue equity securities to investigate and/or to pay for any future acquisitions, dispositions or other strategic transactions. Financing for such activities may not be available to the Company or may be on terms that involve covenants and financial ratios that may restrict the Company's ability to operate its business. The issuance of common stock, preferred stock or other equity securities in connection with an acquisition or other business opportunity could be dilutive to the stockholders’ holdings.  The Company cannot give any assurance that any such acquisitions, dispositions or other strategic transactions will not adversely impact our operating results or ultimately become profitable.  The Company is not currently party to any agreements, written or oral, for the acquisition or disposition of any company, product or technology.



Medical devices are subject to extensive governmental regulations relating to the manufacturing, labeling and marketing of such products and failure to comply with such regulations may adversely impact the Company’s operations and results of operations.



The medical device components the Company manufactures for its machining customers are subject to regulation by the FDA in the United States and other governmental authorities internationally. The process of obtaining regulatory approvals to market a medical device can be costly and time consuming for the Company's customers and approvals might not be granted for future products on a timely basis, if at all. Any such approvals may delay the Company's ability to commence production of a new or modified product. Under FDA regulations such products and the Company's manufacturing facilities are subject to periodic inspections by the FDA to determine compliance with the quality system and medical device reporting regulations and other requirements. If the Company fails to fully comply with applicable regulatory requirements, the Company or its customers may be subject to a range of sanctions, including warning letters, product recalls and the suspension of product manufacturing, monetary fines and criminal prosecution.



Economic uncertainty, as well as impact of healthcare reform legislation, may reduce patient demand for knee or other joint replacement procedures.  If there is not sufficient patient demand for the procedures for which orthopedic implant products are used, customer demand for the Company’s orthopedic implant components and instruments would likely drop, and its business, financial condition and results of operations could be harmed.



The orthopedics industry in which the Company’s machining customers operate is vulnerable to economic trends and the impact of healthcare reform legislation. If joint replacement procedures are deemed to be elective procedures, the cost of the procedure may not be fully covered by or reimbursable through government, including Medicare or Medicaid, or private health insurance. In times of economic uncertainty or recession, individuals may reduce the amount of money that they spend on deferrable medical procedures, including joint replacement procedures.  Economic downturns in the United States and international markets could have an adverse effect on demand for the Company’s orthopedic implant components and instruments.  In addition, these customers may be impacted by current or future executive orders and legislative actions impacting healthcare reform.



Failure to comply with Quality System Regulations or industry standards could result in a material adverse effect on the Company's business and results of operations.



The Company's Quality Management System complies with the requirements of ISO 13485:2003 and ISO 9001:2008. In addition the Company has registered its manufacturing facilities under ITAR and with the FDA.  If the Company is not able to comply with the Company’s Quality Management System or industry-defined standards, it may not be able to fill customer orders to the satisfaction of its customers.  Failure to produce products compliant with these standards could lead to a loss of customers which would have an adverse impact on the Company's business and results of operations. Violations of the ITAR, FDA and other regulations may subject the Company to significant fines or penalties, which could have an adverse impact on the Company’s results of operations.  The

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Company is preparing for the changes in ISO Quality Standards which become effective in 2018 and expects to maintain and enhance its quality system.  It’s inability to do so may adversely impact the Company’s results of operations.



If trade secrets are not kept confidential, the secrets may be used by others to compete against the Company.



The Company relies on trade secrets to protect its proprietary processes and there are no assurances that others will not independently develop or acquire substantially equivalent technologies or otherwise gain access to the proprietary process.  The meaningful protection of such proprietary technology cannot be guaranteed.  The Company relies on confidentiality agreements with its employees.  Remedies for any breach by a party to these confidentiality agreements may not be adequate to prevent such actions.  Failure to maintain trade secret protection, for any reason, could have a material adverse effect on the Company.



The Company is subject to stringent environmental regulations.



The Company's manufacturing operations are subject to a variety of federal, state and local requirements governing the protection of the environment.  These environmental regulations include those related to the use, storage, handling, discharge and disposal of toxic or otherwise hazardous materials used in or resulting from the Company's manufacturing processes.  Failure to comply with environmental laws could subject the Company to substantial liability or force the Company to significantly change its manufacturing operations.  In addition, under some of these laws and regulations, the Company could be held financially responsible for remedial measures if its properties are contaminated, even if it did not cause the contamination.



A product liability suit could adversely affect the Company's operating results.



The testing, manufacturing, marketing and sale of the customer's and Company's medical devices and/or components, including orthopedic implant components and instruments, as well as components for the military and law enforcement industry, entail the inherent risk of liability claims or product recalls. If the Company's customers are involved in a lawsuit, it is possible that the Company would also be named.  Although the Company maintains product liability insurance, coverage may not be adequate. Product liability insurance is expensive, and in the future may not be available on acceptable terms, if at all. In addition, the Company may incur significant legal expenses and damage to the Company’s reputation in the event of any such claim regardless of whether the Company is found to be liable. A successful product liability claim or product recall could have a material adverse effect on the business, financial condition, and ability to market the Company's products and services in the future.



The effect of comprehensive U.S. tax reform legislation on the Company, whether adverse or favorable is uncertain.



On December 22, 2017, President Trump signed into law H.R. 1, "An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018" (informally titled the "Tax Cuts and Jobs Act"). Among a number of significant changes to the U.S. federal income tax rules, the Tax Cuts and Jobs Act (the "Act") reduces the marginal U.S. corporate income tax rate from 35% to 21%, limits the deduction for net interest expense, limits the deduction for net operating losses and eliminates net operating loss carrybacks, modifies or repeals many business deductions and credits, shifts the United States toward a more territorial tax system, and imposes new taxes to combat erosion of the U.S. federal income tax base. The Company’s net deferred tax assets and liabilities will be revalued at the newly enacted U.S. corporate rate, and the impact will be recognized in tax expense in the year of enactment.  The Company continues to examine the impact this tax reform legislation may have on its business.  However, the effect of the Act on the Company and the Company’s customers, whether adverse or favorable, is uncertain, and may not become evident for some period of time.



The market price of the Company’s common stock is volatile.

 

The market price of the Company’s common stock has in the past been, and may in the future continue to be, volatile.  A variety of events may cause the market price of the Company’s common stock to fluctuate significantly, including, but not limited to, quarter to quarter variations in operating results, adverse or positive news reports or public announcements and market conditions within the Company’s industry.  Due to the relatively small public float for the Company’s common stock, trading of such shares may have a disproportionate effect on the stock price.  Trading in the Company’s stock or market fluctuations may adversely affect the price of the Company’s common stock.



The Company could be negatively affected as a result of the actions of activist or hostile stockholders.



The Company could be negatively affected as a result of shareholder activism, which could cause the Company to incur significant expense, hinder execution of its business strategy and impact the trading value of the Company’s stock. Shareholder activism, which could take many forms or arise in a variety of situations, has been increasing in publicly traded companies in recent years.  Shareholder activism, including potential proxy contests, requires significant time and attention by management and the Board of Directors, potentially interfering with the Company’s ability to execute its strategic plan. Additionally, such shareholder activism could give rise to perceived uncertainties as to the Company’s future direction, adversely affect its relationships with key executives, customers and other business partners, or make it more difficult to attract and retain qualified personnel. Also, the Company has been, and may in

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the future be, required to incur significant legal fees and other expenses related to activist shareholder matters. Any of these impacts could materially and adversely affect the Company and its operating results.



The Company could be adversely affected by information systems interruptions, cybersecurity attacks or other disruptions which could have a material adverse effect on our business and result of operations.



We depend upon information technology infrastructure, including network, hardware and software systems to conduct our business.  Despite our implementation of network and other cybersecurity measures, our information technology system and networks could be disrupted or experience a security breach from computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems.  Our security measures may not be adequate to protect against highly targeted sophisticated cyber-attacks, or other improper disclosures of confidential and/or sensitive information.  Additionally, we may have access to confidential or other sensitive information of our customers, which, despite our efforts to protect, may be vulnerable to security breaches, theft, or other improper disclosure, any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.



The Company may be exposed to potential risks relating to internal control over financial reporting.



As required by Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”), the SEC adopted rules requiring public companies to include a report of management on the Company’s internal control over financial reporting in their annual reports, including Form 10-K.  In addition, if a reporting company is an accelerated filer or a large accelerated filer (as defined by the Exchange Act), the independent registered public accounting firm auditing a reporting Company’s financial statements must also attest to and report on the reporting company’s internal control over financial reporting as well as the operating effectiveness of the reporting company’s internal control.  The Company was only subject to the management evaluation and review portion of these requirements for the fiscal year ended December 31, 2017. The Company's failure to satisfy the requirements of Section 404 of SOX on an ongoing, timely basis could result in the loss of investor confidence in the reliability of the Company’s financial statements, which in turn could harm the Company’s business and negatively impact the trading price of the Company’s common stock. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Company’s operating results or cause the Company to fail to meet its reporting obligations.



Failure to comply with the listing requirements of the NYSE American could lead to the commencement of delisting proceedings in accordance the NYSE American’s Company Guide. Delisting could limit investors' ability to effect transactions in the Company's securities and subject the stock to additional trading restrictions.



The Company’s common stock is listed on the NYSE American, a national securities exchange. To maintain such listing, the Company is required to meet the continued listing requirements of the NYSE American as set forth in its Company Guide. If the Company is unable to maintain the listing of its stock on the NYSE American or another exchange for failure to comply with the continued listing requirements, including timely filing of Exchange Act reports and compliance with the NYSE American’s corporate governance requirements, the Company and its security holders could face significant material adverse consequences including a limited availability of market quotations for its stock and a decreased ability to issue additional securities or obtain additional financing in the future.



Ite m 1B. UNRESOLVED STAFF COMMENTS



Not applicable.



Ite m 2. PROPERTIES



The manufacturing facilities and offices of the Company are located in two buildings in an industrial area in Fitchburg, Massachusetts. The first building consists of an approximately 22,000 square foot, six story building. The second building is over 94,000 square feet.  The property on which the two buildings are situated is subject of a mortgage in favor of the Company’s asset based lender entered into in December 2017.  See Note 5 to the consolidated financial statements.  The Company believes its current facilities are sufficient to meet current and future production needs through the fiscal year ending December 31, 2018.  Additionally, the Company owns two unoccupied buildings in the complex with a total of approximately 52,000 square feet.



In January 2016, the Company entered into a Purchase and Sale Agreement (the “Agreement”) with a Buyer for the sale of the two unoccupied buildings and land. Since that date, the Company has entered into four amendments to the Agreement.  The amendments extended the term of the agreement, permitted assignment of the Buyer’s rights under the Agreement to a third party, provided for the payment of extension fee and other matters.  In January 2018, the Company was notified that the National Park Service of the Department of the Interior designated the area in which the buildings are located as a Historic District, which will enable the Buyer to move forward with securing historical tax credits as agreed between the Parties.  The closing under the Agreement is subject to permitting and approvals from the City of Fitchburg and the Commonwealth of Massachusetts and is expected to take place by the end of 2018. 



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I tem 3. LEGAL PROCEEDINGS



In the ordinary course of its business, the Company is involved in various legal proceedings involving a variety of matters. The Company does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position or results of operations.



Ite m 4. MINE SAFETY DISCLOSURES



Not applicable.

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PA RT II



Ite m 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Market Information



The Company's common stock has been listed on the NYSE American since 1992 and traded under the ticker symbol HRT until March of 2017 when the Company changed its ticker symbol to MICR in conjunction with the Company name change from Arrhythmia Research Technology, Inc. to Micron Solutions, Inc.



The following table sets forth, for the periods indicated, the high, low and quarter end sale prices per share of common stock as quoted by the NYSE American.





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Year Ended December 31, 2017

 

High

 

Low

 

Close

1st Quarter                                      

 

$

4.50 

 

$

3.59 

 

$

4.02 

2nd Quarter                                      

 

 

4.23 

 

 

3.60 

 

 

3.90 

3rd Quarter                                      

 

 

4.29 

 

 

3.19 

 

 

3.80 

4th Quarter                                      

 

 

3.79 

 

 

3.21 

 

 

3.50 

Year Ended December 31, 2016

 

High

 

Low

 

Close

1st Quarter                                      

 

$

5.45 

 

$

3.55 

 

$

4.25 

2nd Quarter                                      

 

 

4.83 

 

 

3.52 

 

 

4.40 

3rd Quarter                                      

 

 

4.68 

 

 

3.47 

 

 

4.19 

4th Quarter                                      

 

 

4.44 

 

 

3.56 

 

 

3.80 







Holders



As of March 26, 2018, the number of holders of the Company's common stock is estimated to be in excess of 1,500, including beneficial and record holders of our common stock.



Dividend Policy



No dividends were declared or paid in 2017 or 2016. Future determination as to the payment of cash dividends, if any, will be at the discretion of the Board of Directors and will be dependent upon the Company’s financial condition, results of operations, capital requirements, potential acquisitions, and other such factors as the Board of Directors may deem relevant, including any restrictions under any credit facilities in place now or in the future.  The Company's asset based credit and security agreement provides that the Company shall not declare or pay any dividend. 



It em 6. SELECTED FINANCIAL DATA



Not Applicable.

 

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It em 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following discussion of the Company’s results of operations and financial condition should be read in conjunction with the consolidated financial statements and notes pertaining to them that appear elsewhere in this Form 10-K. Any forward-looking statements made herein are based on current expectations of the Company that involve a number of risks and uncertainties and should not be considered as guarantees of future performance.  These statements are made under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements may be identified by the use of words such as “expect,” “anticipate,” “believe,” “intend,” “plans,” “predict,” or “will”. Although the Company believes that expectations are based on reasonable assumptions, management can give no assurance that the expectations will materialize.  Many factors could cause actual results to differ materially from the Company’s forward-looking statements.  These factors include those contained in more detail in Item 1A,“Risk Factors”. The Company is under no obligation and does not intend to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events.



Results of Operations



The following table sets forth, for the periods indicated, the percentages of the net sales represented by certain items reflected in the Company's statements of operations.





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Year Ended



 

December 31,

 

December 31,



 

2017 

%

 

2016 

%

 

2017 

%

 

2016 

%

Net sales 

 

100.0 

 

 

100.0 

 

 

100.0 

 

 

100.0 

 

Cost of sales 

 

87.6 

 

 

90.5 

 

 

88.6 

 

 

85.2 

 

Gross profit 

 

12.4 

 

 

9.5 

 

 

11.4 

 

 

14.8 

 

Selling and marketing 

 

3.7 

 

 

5.3 

 

 

4.2 

 

 

5.9 

 

General and administrative 

 

12.6 

 

 

10.1 

 

 

11.7 

 

 

11.0 

 

Research and development 

 

0.6 

 

 

0.5 

 

 

0.6 

 

 

0.5 

 

Other expense

 

3.5 

 

 

0.4 

 

 

1.7 

 

 

1.1 

 

Loss before income taxes

 

(8.0)

 

 

(6.8)

 

 

(6.8)

 

 

(3.7)

 

Income tax provision

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Net loss

 

(8.0)

%

 

(6.8)

%

 

(6.8)

%

 

(3.7)

%



Net Sales







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Net sales

 

2017

 

2016

 

$ Change

 

% Change

Year ended December 31,

 

$

20,102,662 

 

$

19,638,217 

 

$

464,445 

 

2.4% 



The increase in consolidated net sales for 2017 versus 2016 was due primarily to increased net sales of sensors, as well as an increase in orthopedic implant components and instruments, partly offset by a decrease in tooling sales as well as a decrease in net sales of thermoplastic injection molding.



The increase in net sales was largely due to an 11.5% increase in net sales of sensors for the year ended December 31, 2017 when compared to the same period in the prior year.  The increase in net sales was due primarily to a 15.6% increase in production volume, to the highest in the Company’s history.  The increase in net sales was also due in part to changes in supply agreements with certain foreign customers, in the third and fourth quarter of 2016, which resulted in a change in the timing of the title transfer of goods.



The increase in net sales due to volume was partly offset by the impact of customer mix, product mix and competitive pricing S ilver surcharge billed increased 14.4% due largely to the increased volume. 

 

Net sales of orthopedic implant components and instruments for the year ended December 31, 2017 increased less than 1% when compared to the same period in the prior year.  The increase in net sales was due primarily to new business from new customers.  The Company manufactured and shipped new surgical instrumentation components including cutting and drill guides.  The Company also fulfilled orders of a new hip stem line, new tibia trays, new wrist plates, new rib plates, and other orthopedic components.  The increase was largely offset by reduced demand of a personalized femoral component line from one customer who substantially completed a vertical implementation strategy in 2017.  The Company also received new orders for, and resumed shipping of, a uni-femoral product line which had been previously paused by a large orthopedic OEM.  



14


 

The increase in net sales was partly offset by a 2.8% decrease in net sales of thermoplastic injection molding for the year ended December 31, 2017 when compared to 2016.  The decrease was due primarily to lower sales of medical components to two customers in 2017 when compared to 2016.  Additionally, the increase in net sales was partially offset by a 39.3% decrease in tooling net sales due largely to the 2016 sale of a large tool to the Company’s largest customer. 



Gross Profit







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

2017

 

2016

 

$ Change

 

% Change

Year ended December 31,

 

$

2,292,378 

 

$

2,898,691 

 

$

(606,313)

 

(20.9)%

As a percentage of sales

 

 

11.4% 

 

 

14.8% 

 

 

 

 

 



The decrease in consolidated gross profit for the year ended December 31, 2017 versus 2016 was due to lower gross profit from orthopedic implant components and instruments and well as from thermoplastic injection molding, partly offset by increased gross profit from sensors. 



The decrease in gross profit was due in part to a 30.1% decrease in gross profit from orthopedic implant components and instruments .  The decrease was due in part to aggressive initial pricing to secure new customers, as well as the impact of reworking many of the related parts, as the Company refined its production process in the first half of 2017.  The increased costs included costs related to increased scrap, tooling, labor, rework, expediting charges from suppliers, shift premiums and overtime, in order to meet customer delivery requirements.   The decrease was also due in part to decreased sales due to lower demand from two customers, as noted above.  Gross profit as a percentage of sales from orthopedic implant components and instruments decreased 6.5 percentage points due to the impact of the aggressive pricing and reworking of parts.



The decrease in gross profit was also due to a 12.1% decrease in gross profit from thermoplastic injection molding due primarily to lower demand from customers in the medical device industry as well as customer and product mix.  Gross profit as a percentage of sales from thermoplastic injection molding decreased 3.2 percentage points due primarily to customer and product mix. 



Partly offsetting the decreases above was an 11.5% increase in gross profit from sensors.  The increase in gross profit was due to an increase in net sales from record volumes in 2017.  Gross profit as a percentage of sales from sensors remained unchanged from the prior year.



The decrease in gross profit for the year ended December 31, 2017 was also due in part to a 9.6% increase in expenses for other indirect manufacturing overhead departments. The higher expenses were due largely to higher quality and mold shop maintenance expenses.  Other manufacturing overhead as a percentage of sales increased to 9.7% for the year ended December 31, 2017 as compared to 9.1% in the same period last year.



Selling and Marketing



The Company's consolidated selling and marketing expenses decreased to $841,845 , or 4.2% of net sales, in 2017 from $1,153,044 , or 5.9% of net sales, in 2016,   a decrease of $311,199 or 27.0 % .  For the year ended December 31, 2017, the decrease was primarily due to decreased compensation of $268,923 as a result of the departure of a sales person and customer service representative in the first quarter of 2017 and an additional departure of a sales person in the third quarter of 2017.  Additionally, commissions were lower by $65,065 due in part to fewer sales persons and the mix of commissionable parts.  Travel expenses were also lower by $34,125 due in part to fewer sales people.  Partly offsetting these decreases was an increase in marketing and advertising expenses of approximately $35,000 related to trade shows, web site enhancements and the development of an online marketing and lead generation program.



General and Administrative Expenses



The Company's consolidated general and administrative expenses increased to $2,357,909 , or 11.7% of net sales, in 2017 compared to $2,151,244 , or 11.0% of net sales, in 2016 ;   an increase of $206,665 or 9.6%.  The increase in general and administrative expenses is due in part to non-recurring charges of $77,606 related to outside consulting services in the third quarter of 2017 and  $15,467 of other non-recurring charges in the fourth quarter of 2017.  The increase is also due in part to an increase of $119,499 of compensation expense due in part to new hires in IT, administration and accounting as well as an increase in benefit costs.  Directors’ fees increased $37,604 compared to 2016 primarily as a result of the Board members foregoing their fees for the second quarter of 2016.  General and product liability insurance increased $27,822 due in part to increased premiums related to military and law enforcement operations and directors’ and officers’ insurance.  Bad debt expense increased $29,556 due primarily to the prior year impact of insurance proceeds received related to collections of an outstanding insured receivable.  Additionally, accounting and other professional fees increased $66,187 due to increased external audit, financial report writing and outsourcing the environmental, health and safety function.



15


 

The increases above were partially offset by a decrease of $38,286 in legal expenses.  The decrease in legal fees was due in part to the prior year impact of corporate governance and shareholder relations matters as well as general employment matters, partly offset by increased legal fees related to banking.  The increase in general and administrative expenses was also partially offset by $51,600 of recruiting agency fees related to the replacement of three positions in the first quarter of 2016. Investor relations expenses also decreased $19,767 when compared to the prior year.



Research and Development



The Company's consolidated research and development expenses increased to $111,014 , or 0.6% of net sales in 2017 from $97,235, or $0.5% of net sales in 2016 ;   an increase of $13,780 , or 14.2% .  The increase is due largely to an increase in compensation expense. 



Other Income (Expense)



Other expense, net, was $337,666 in 2017 compared to $209,631 in 2016 , an increase of $128,035.  Interest expense was $395,085 in 2017 compared to $259,762 in 2016 , an increase of $135,323.  The increase in interest expense was due in part to a prepayment penalty of $39,843 related to the discharge of term loans with the Company’s previous lender upon entering into the asset based credit and security agreement.  The increase in interest expense was also due in part to the non-cash write off of $24,360 of deferred financing fees related to the Company’s previous credit facility as well as non-cash amortization of debt issuance costs of $8,994 related to the discharge of the subordinated debt.  Interest expense also increased as a result of higher balances drawn on the revolver.



The increase in other expense, net was also partly due to a decrease in other income of $12,750, due in part to the impact of a prior year increase in the value of real estate held for sale of $23,750 partly offset by an increase in extension fees related to the real estate held for sale.



Income Tax Provision



The tax provisions for the years ended December 31, 2017 and 2016 are attributable to the U.S. federal and state income taxes. The Company’s combined federal and state effective income tax rate was 0% and 0% in 2017 and 2016, respectively, due to the impact of deferred tax assets reserved for with a valuation allowance.



Earnings Per Share



Consolidated basic and diluted loss per share for the year ended December 31, 2017 was $0.48 per share compared with loss per share of $0.25 for the year ended December 31, 2016, an increase in loss per share of $0.23 per share.  The increased loss per share for the year ended December 31, 2017, is due largely to a decrease of $606,313 in gross profit despite a $464,445 increase in net sales compared to the prior year period. 



Off-Balance Sheet Arrangements



Lease expense under all operating leases was approximately $24,954 and $20,453 for the years ended December 31, 2017 and 2016, respectively.  Future minimum lease payments for the years ending December 31 are as follows:







 

 

 

 

 

 

 

 



 

 

2018

$

19,191 

 

 

 



 

 

2019

 

17,191 

 

 

 



 

 

2020

 

17,191 

 

 

 



 

 

2021

 

10,028 

 

 

 



 

Liquidity and Capital Resources



Working capital was $2,548,692 at December 31, 2017 as compared to $1,530,773 at December 31, 2016 an increase of $1,017,919.  The increase is primarily due to increases in cash and cash equivalents, restricted cash, accounts receivable and inventory.  The increase in working capital is also due to decreases in accounts payable, accrued expenses and other current liabilities, current portion of term debt, and the current portion of deferred revenue.  The increase in working capital was partially offset by a decrease in prepaid expenses and other current assets, an increase in the borrowings under the asset based credit and security agreement and an increase in customer deposits.  Also offsetting the increase in working capital was the reclassification of subordinated promissory notes from long-term liabilities to current liabilities as a part of the discharge of the promissory notes in conjunction with entering into the asset based credit and security agreement (see Note 5 to the consolidated financial statements). 

 

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Cash on hand was $956,988 and $380,381 at December 31, 2017 and 2016 , respectively.  Substantially all of these funds are maintained in bank deposit accounts.  Cash on hand consisted of cash and cash equivalents of $606,988 and restricted cash of $350,000  at December 31, 2017 compared to cash and cash equivalents of $380,381 and restricted cash of $0 at December 31, 2016, increases of $226,607 and $350,000, respectively.  The increase in cash and cash equivalents is due in part to $250,000 in proceeds from the asset based credit and security agreement for the purpose of providing adequate float for the transitioning of operating accounts from the previous lender.  The $350,000 increase in restricted cash is due to proceeds of $450,000 from the asset based credit and security agreement for the purpose of paying off subordinated promissory notes.  One promissory note with a principal balance of $100,000 was discharged on December 29, 2017.  The remaining five notes aggregating $350,000 were discharged on January 2, 2018.



Trade accounts receivable, net of allowance for doubtful accounts were $2,595,248 and $2,276,608 at December 31, 2017 and December 31, 2016, respectively, an increase of $318,640.  The increase is primarily due to the impact of the timing of shipments at the end of 2017 primarily related to orthopedic implant components and instruments.



Inventories were $3,413,199 at December 31, 2017 as compared to $3,060,085 at December 31, 2016 , an increase of $353,114 due largely to an increase in work-in-process inventory related to tooling orders. 



Accounts payable decreased $209,912 due to the timing of disbursements for the year ended December 31, 2017 as compared to December 31, 2016. Accrued expenses and other current liabilities decreased $13,296 while the current portion of deferred revenue decreased $139,155 as certain deferred tooling became fully amortized to revenue.  Customer deposits increased $218,334 primarily as a result of large tooling deposits for two customer projects.



Capital equipment expenditures were $924,62 1 in 2017 as compared to $1,354,091 in 2016.  The decrease in capital spending is due primarily to higher 2016 investments in machinery and equipment primarily for the contract manufacturing of components for orthopedic implants and instruments as well as thermoplastic injection molding.  



On December 29, 2017 the Company entered into a three-year $9,500,000 asset based credit and security agreement (the “Agreement”), with a Massachusetts trust company, replacing the credit facility and forbearance agreement with the Company’s previous lender.  The Agreement also provided funds for discharging the outstanding subordinated promissory notes (see Note 5 to the consolidated financial statements).

The Agreement includes a revolving line of credit of up to $5.0 million (“Revolver”), a machinery and equipment term loan of $2.5 million (“Equipment Loan”) and a real estate term loan of $2.0 million (“Real Estate Loan” and together with the “Equipment Loan” the “Term Loans”). 

At December 31, 2017 the Company’s total debt, net of debt issuance costs, was $6,575,241 as compared to $4,778,637 at December 31, 2016, an increase of $1,796,604 or 37.6%.  The in crease is due largely to $1,232,176 in net borrowing from the Company’s revolver from its prior lender.  The revolver had a balance of $3,017,971 when it was refinanced in December 2017 through the Company’s asset based credit and security agreement as noted above. 



The total outstanding debt at December 31, 2017 was comprised of outstanding principal amounts of $4,346,194 of Term Loans, net of debt issuances costs, $1,879,047 on the Revolver, and $350,000 of subordinated promissory notes as discussed in more detail below.



The Revolver provides for borrowings of up to 85% or 90% on certain accounts receivable and up to 60% or 80% of certain eligible inventory.  The interest rate on the Revolver is based upon either the Wall Street Journal prime rate plus 0.5%, or daily one-month LIBOR plus 3.25% at the Company’s discretion (4.875% at December 31, 2017)



The Equipment Loan requires monthly principal payments of approximately $29,762, payable on the first day of each month commencing February 1, 2018.  The Equipment Loan is based upon an 84 month amortization with a balloon payment of approximately $1,458,333 due and payable in full upon maturity on December 29, 2020.  The outstanding balance on the Equipment Loan was $2,500,000 as of December 31, 2017. 



The Real Estate Loan requires monthly principal payments of approximately $8,333, payable on the first day of each month commencing February 1, 2018.  The Real Estate Loan is based upon a 240 month amortization with a balloon payment of approximately $1,708,333 due and payable in full upon maturity on December 29, 2020.  The outstanding balance on the Real Estate Loan was $2,000,000 as of December 31, 2017.



The interest rate on the Terms Loans is based upon either the Wall Street Journal prime rate plus 0.75%, or daily one-month LIBOR plus 3.5%, at the Company’s discretion (5.125% at December 31, 2017). 



This three-year Agreement contains covenants related to various matters including certain financial covenants, prohibitions on further borrowings and security interests, merger or consolidation, acquisitions, guarantees, sales of assets other than in the normal

17


 

course of business, leasing, and payment of dividends. The lender has a security interest in all assets and a mortgage encumbering certain real property.  The Company was in compliance with all bank covenants as of December 31, 2017.



At December 31, 2016, the Company had a multi-year credit facility with a Massachusetts based bank consisting of a revolving line of credit (the "revolver"), a commercial term loan and an equipment line of credit.  That credit facility was replaced by the asset based credit and security agreement on December 29, 2017.



In January 2013, the Company entered into two equipment notes totaling $272,500 with a financing company to acquire production equipment. The notes bear interest at 4.66% and require monthly payments of principal and interest totaling approximately $5,000 over the term of five years.  The equipment note was paid in full as of December 31, 2017.



In December 2013, the Company completed a private offering in which the Company sold an aggregate of $500,000 in subordinated promissory notes (“subordinated notes”) and issued an aggregate of 100,000 warrants to purchase common stock.  The unsecured subordinated notes required quarterly interest-only payments at a rate of 10% per annum for the first two years.  Beginning in December 2015, the interest rate on the subordinated notes increased to 12% per annum.  Three related parties participated in the private offering.  See Note 5 to the consolidated financial statements.



In October 2016, the Company and six of the seven investors in the private offering, aggregating $450,000 of the subordinated notes, including the three related parties holding $250,000 of the subordinated notes, agreed to extend the maturity dates of the subordinated notes to December 31, 2018 at a reduced interest rate of 10% per annum.  One investor did not extend the maturity date and that $50,000 note was discharged at maturity in December 2016.   In the fourth quarter of 2016, the Company calculated the incremental fair value of extending the expiration date of the subordinated notes and warrants and determined that the amendment represented a debt modification in accordance with the guidance outlined in ASC-470, “Debt”.  Using the Black-Scholes model, and the 10% test, the Company determined that the incremental fair value of the warrants to be $18,310 which was recorded as a reduction against the subordinated notes and an increase in Additional Paid-in Capital in 2016.



The discount on the subordinated notes is being recognized as non-cash interest expense over the term of the subordinated notes. The Company recorded $17,989 and $27,186 for the years ended December 31, 2017 and 2016, respectively.  The unamortized discount which is net against the outstanding balance of the subordinated notes was $0 at December 31, 2017 and $17,989 at December 31, 2016.  The unamortized discount was fully amortized onto the balance sheet on December 29, 2017 as a result of the Company having entered into the asset based credit and security agreement which provided for the payment in full of the subordinated notes.



On December 29, 2017 through entering into the three-year asset based credit and security agreement, the Company obtained funds to discharge the remaining $450,000 of subordinated debt.  On December 29, 2017, the Company discharged one of the subordinated notes in the principal amount of $100,000.  The remaining five subordinated notes, totaling an aggregate principal amount of $350,000, were discharged on January 2, 2018, including the notes held by the three related parties.  The Company carried the $350,000 as restricted cash at December 31, 2017 for this purpose. 



The outstanding warrants were initially exercisable through December 2016 at an exercise price of $3.51 per share.  In October 2016, in connection with the extension of the maturity dates of the subordinated notes, the expiration date of the remaining 70,000 warrants was extended to December 31, 2018.  The discharge of the subordinated notes as described above did not affect the maturity date of the warrants.  The exercise price remained unchanged at $3.51 per share.  No warrants were exercised in 2017 or 2016.  The 70,000 warrants, including 50,000 warrants held by related parties, remain unexercised at December 31, 2017.  See Note 5 to the consolidated financial statements.



No dividends were declared or paid in 2017 or 2016.



The Company believes that cash flows from its operations, together with its existing working capital, increased booked orders, the asset based credit and security agreement and other resources, will be sufficient to fund operations at current levels and repay the next twelve months of debt obligations.



Summary of Changes in Cash Position



At December 31, 2017, the Company had cash on hand of $956,988, an increase of $576,607 from December 31, 2016. Cash on hand includes $350,000 of restricted cash.  Net cash used in operating activities in 2017 totaled $2 36,823 . Net cash used in investing activities in 2017 was $919,328. Net cash provided by financing activities in 2017 totaled $1,732,758. The net cash flows for the year ended December 31, 2017 are discussed in further detail below.



18


 

Operating Cash Flows



Net cash used in operating activities in 2017 was $236,823.  The use of cash was largely due to the net loss of $1,355,096.  Cash was also used as a result of increases in inventory and accounts receivable as well as decreases in other non-current liabilities, current portion of deferred revenue, accounts payable and accrued expenses and other current liabilities.  Additionally, net cash used was impacted by the non-cash gain on sale of fixed assets. 



Net cash used in operating activities was partly offset by cash provided from decreases in prepaid expenses and other current assets, other non-current assets and an increase in customer deposits.  In addition, operating activities was impacted by non-cash add-backs for depreciation and amortization of $1,611,139, share-based compensation of $136,653, non-cash interest expense of $63,847 and an increase of $10,000 in the allowance for doubtful accounts. 



Investing Cash Flows



Net cash used in investing activities in 2017 was $919,328, primarily for capital expenditures, largely for machinery and equipment for the contract manufacturing of orthopedic implants and instruments as well as thermoplastic injection molding.



Financing Cash Flows



Net cash provided by financing activities in 2017 was $1,732,758.  The increase in financing acti vities was due largely to $1,232,176 in net borrowing from the Company’s revolver from its prior lender.  The revolver had a balance of $3,017,971 when it was refinanced as part of the Company’s asset based credit and security agreement as noted above. 



The asset based credit and security agreement provided cash in the form of a $2.5 million Equipment Loan, a $2.0 million Real Estate Loan and a net borrowing of $1,879,047 on the Revolver, including $153,806 of debt issuance costs.  These proceeds discharged the outstanding balances of the Company’s revolver and term debt with its previous bank lender, totaling $5,553,041, which included $39,843 of prepayment penalties on the term debt.  As part of the asset based credit and security agreement, the Company obtained $450,000 in the form of restricted cash for the purpose of discharging the subordinated debt.  One subordinated note in the principal amount of $100,000 was discharged on December 29, 2017 while the remaining five notes totaling an aggregate principal amount of $350,000 were discharged on January 2, 2018, including the subordinated notes held by the three related parties.  S ee Note 5 to the consolidated financial statements.



Inflation



The Company believes that inflation in the United States or international markets has not had a significant effect on its results of operations. However, there has been considerable volatility in both energy and commodity prices, particularly the cost of silver.



Environmental Matters



Similar to many industrial processes, the Company's manufacturing processes utilize hazardous and non-hazardous chemicals, the treatment and disposal of which are subject to federal and state regulation.  Since its inception, the Company has expended significant funds to train its personnel, install waste treatment and recovery equipment and retain independent environmental consulting firms to regularly review, monitor and upgrade its air and waste water treatment activities.  The Company believes that the operations of its manufacturing facility are in compliance with currently applicable safety, health and environmental laws and regulations.



Based on the Company’s analysis, the Company does not expect future costs in connection with environmental matters to have a material adverse effect on its financial condition, result of operations or liquidity aside from the cost of regulatory compliance and maintaining certifications and processes related to compliance with environmental regulations.



Critical Accounting Policies



The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported.  Note 2 to the consolidated financial statements describes the significant accounting policies used in the preparation of the consolidated financial statements.  Some of these significant accounting policies are considered to be critical accounting policies, as defined below.



A critical accounting policy is defined as one that is both material to the presentation of the Company’s financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on the Company’s financial condition and results of operations.  Specifically, critical accounting estimates have the following attributes: 1) the Company is required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates the Company could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on the

19


 

Company’s financial condition or results of operations. Estimates and assumptions about future events and their effects cannot be determined with certainty.  The Company bases its estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances.  These estimates may change as new events occur, as additional information is obtained and as the Company’s operating environment changes.  These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known.  In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time.  These uncertainties are discussed in Item 1A, “ Risk Factors ” above. Based on a critical assessment of its accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that the Company’s consolidated financial statements are fairly stated in accordance with generally accepted accounting principles, and present a meaningful presentation of the Company’s financial condition and results of operations.



Management believes that the following are critical accounting policies:



Revenue Recognition



Revenue is recorded when all criteria for revenue recognition have been satisfied.  Revenue is recognized in the period when persuasive evidence of an arrangement with a customer exists, the products are shipped and title has transferred or when exclusive control has been transferred to the customer, the price is fixed or determinable and collection is probable.  The Company has entered into supply agreements with certain foreign customers where revenue is not recognized when the product is shipped but instead is recognized when the customer consumes the product and title is transferred. 



The Company enters into arrangements containing multiple elements which may include a combination of the sale of molds, tooling, engineering and validation services ("tooling") and production units. The Company has determined that certain tooling arrangements, and the related production units, represent one unit of accounting, based on an assessment of the respective standalone value. When the Company determines that an arrangement represents one unit of accounting, the revenue is deferred over the estimated product life-cycle, based upon historical knowledge of the customer, which is generally three years. The Company carries the sales and tooling costs, associated with the related arrangement, as deferred revenue and other current and non-current assets, respectively, on the Company's balance sheet. As the deferred revenue is amortized to sales, the associated prepaid tooling costs are amortized to cost of sales.



The Company cannot effectively predict short-term or long-term production volume in a consistent and meaningful manner due to the nature of these molds and associated products. Therefore, the Company is unable to account for the transactions under the Units of Production method and management has determined the most appropriate amortization method to be the Straight-Line method.



The Company may from time to time, at the customer's request, enter into a bill and hold arrangement. The Company evaluates the nature of the arrangement including, but not limited to (i) the customer's business purpose, (ii) the transfer of risk of ownership to the customer and (iii) the segregation of inventory, along with other elements in accordance with the Company's revenue recognition policy and relevant accounting guidance.



In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). The core principle behind ASU 2014-09 is that an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering goods and services. This model involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when the entity satisfies the performance obligations. This ASU allows two methods of adoption; a full retrospective approach where historical financial information is presented in accordance with the new standard, and a modified retrospective approach where this ASU is applied to the most current period presented in the financial statements.

  

The Company has adopted ASU 2014-09 effective January 1, 2018 using the modified retrospective approach. While the Company has made substantial progress in its implementation analysis, it is continuing to evaluate certain aspects of the standard. The Company’s analysis includes reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements under the new standard. The Company has reviewed a sample of supply and manufacturing contracts with customers that are believed to represent the Company’s revenue streams and continues to review additional contracts to finalize a new accounting policy. The determination of the impact of adoption of this ASU on the financial condition, results of operations, cash flows and disclosures is ongoing, and, as such, the Company is not able to reasonably estimate the quantitative effect that the adoption of the new standard will have on its financial statements.



Based on our ongoing assessment, ASU 2014-09 will affect the timing of certain revenue related transactions primarily resulting from the earlier recognition of the Company's tooling sales and costs. Upon adoption of ASU 2014-09 tooling sales and costs will be recorded over time as the Company satisfies its performance obligations. Similarly, t he Company manufactures parts that have no alternative use to the Company (since the parts are custom made to specific customer orders), and the Company believes for certain customers there is a legally enforceable right to payment for performance completed to date on these manufactured parts. For those

20


 

manufactured parts that meet these two criteria, the Company will recognize revenue over time.  The Company has determined that sales of certain propriety products will continue to be recorded at the point in time of shipment as the Company does meet any of the over-time revenue recognition criteria for the related contracts. 



Accounts Receivable and Allowance for Doubtful Accounts



Accounts receivable represent amounts invoiced by the Company. Management maintains allowance for doubtful accounts based on information obtained regarding individual accounts and historical experience. Amounts deemed uncollectible are written off against the allowance for doubtful accounts.  Bad debts have not had a significant impact on the Company’s financial position, results of operations and cash flows. 



The Company insures receivables for certain customers based upon several factors.  Such factors include the customer’s payment terms, ordering patterns and volume requirements, the customer’s payment history, or general economic conditions of the region in which a customer is located.



Inventory and Inventory Reserves



The Company values its inventory at the lower of average cost or net realizable value, and cost is determined using first in first out (FIFO) or weighted average cost. The Company reviews its inventory for quantities in excess of production requirements, obsolescence and for compliance with internal quality specifications. A review of inventory on hand is made at least annually and obsolete inventory may be disposed of and/or recycled.  Any adjustments to inventory would be equal to the difference between the cost of inventory and the estimated net market value based upon assumptions about future demand, market conditions and expected cost to distribute those products to market.  The Company has entered into supply agreements with certain foreign customers to hold inventory at their warehouses. 



Deferred Tax Assets



The Company assesses the realization of its deferred tax assets based upon a more likely than not criteria.  The Company considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for valuation allowances.  The Company recognizes the benefits of a tax position if that position is more likely than not to be sustained on audit, based on the technical merit of the position.  As of December 31, 2017, the Company continues to maintain a valuation allowance against all of its deferred tax assets except for its AMT Credit carryforward, which is treated as a refundable attribute under the amendments to the federal tax laws enacted in December 2016 and is included in other assets on the Company’s consolidated balance sheet.



Asset Impairment – Long-Lived Assets



The Company assesses the impairment of long-lived assets and intangible assets with finite lives annually or whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. Based upon the annual review, the Company recorded an impairment charge of $1,771 in 2017.  In 2017, the Company determined that the trade name, Arrhythmia Research Technology, Inc., no longer provided any future economic benefit and recorded an impairment charge of $1,771 for the remaining unamortized balance of the trade name.  No impairment charges were recorded in 2016.

 

Ite m 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Not Applicable.



Ite m 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



The information required by this item may be found on pages F-1 through F-24 of this Annual Report on Form 10-K.



It em 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES



None.



Ite m 9A. CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and Procedures



As of the end of the period covered by this annual report the Company's management, with the participation of the Company's principal executive officer and principal financial officer (“the Certifying Officers”), conducted evaluations of the Company's disclosure controls and procedures as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the

21


 

Table of Contents

 

“Exchange Act”). Based upon the evaluations, the Certifying Officers have concluded that as of December 31, 2017, the Company's disclosure controls and procedures were effective.



Management’s Report on Internal Control Over Financial Reporting



The Company's Certifying Officers are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act.



Internal control over financial reporting is a process designed by, or under the supervision of, the Certifying Officers and effected by the Company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

·

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company's assets;

·

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company's receipts and expenditures are being made only in accordance with authorizations of the Company's management and directors; and

·

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition or disposition of the Company's assets that could have a material effect on the financial statements.



Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations.  It is a process that involves human diligence and compliance and is subject to lapses in judgment or breakdowns resulting from human failures.  Internal control over financial reporting also can be circumvented by collusion or improper management override.  While process safeguards can reduce risks, because of inherent limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



The Company, under the supervision and with the participation of the Certifying Officers, has evaluated the effectiveness of the Company's internal control over financial reporting as of December 31, 2017 based upon the framework in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on such evaluations, the Certifying Officers have concluded that the Company's internal control over financial reporting was effective as of December 31, 2017.



Changes in Internal Control Over Financial Reporting



During the three months ended December 31, 2017, there have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 



Ite m 9B. OTHER INFORMATION



None.

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PA RT III



It em 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



The information required under this item is incorporated by reference to the applicable information set forth in the Proxy Statement for the 2017 Annual Meeting of Stockholders.



Ite m 11. EXECUTIVE COMPENSATION



The information required under this item is incorporated by reference to the applicable information set forth in the Proxy Statement for the 2017 Annual Meeting of Stockholders.



It em 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The information required under this item is incorporated by reference to the applicable information set forth in the Proxy Statement for the 2017 Annual Meeting of Stockholders.



It em 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE



The information required under this item is incorporated by reference to the applicable information set forth in the Proxy Statement for the 2017 Annual Meeting of Stockholders.



Ite m 14. PRINCIPAL ACCOUNTING FEES AND SERVICES



The information required under this item is incorporated by reference to the applicable information set forth in the Proxy Statement for the 2017 Annual Meeting of Stockholders.



P ART IV



It em 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



We have filed the following documents as part of this report:



1. Consolidated Financial Statements



 



 



Report of Independent Registered Public Accounting Firm



Consolidated Financial Statements:



Balance sheets



Statements of operations



Statements of changes in shareholders' equity



Statements of cash flows



Notes to consolidated financial statements



2. Financial Statement Schedules



Schedules have been omitted because they are not required, not applicable, or the required information is otherwise included.



3. Exhibits



The Company hereby furnishes the exhibits listed on the attached exhibit index.  Exhibits, which are incorporated herein by reference, may be inspected and copied at the public reference facilities maintained by the SEC at Room 1580, Washington, D.C. 20549.  Copies of such material may be obtained by mail from the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates.  The SEC also maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov.  The Company maintains a web site that contains reports, proxy and information statements and other information electronically at the address http://www.micronsolutionsinc.com.  Information on our website is not a part of this Annual Report on Form 10-K.



Ite m 16. FORM 10-K SUMMARY



Not applicable .

23


 

Table of Contents

 

SIG NATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





MICRON SOLUTIONS, INC.







 

 

 

By:

/s/

Salvatore Emma, Jr.

 



 

Salvatore Emma, Jr.,

 



 

President, Chief Executive Officer

 



 

March 26, 2018

 



KNOW ALL PERSONS BY THESE PRESENTS , that each person whose signature appears below constitutes and appoints Salvatore Emma, Jr. and Derek T. Welch, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K for the year ended December 31, 2017, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.  



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.







 

 

 

 

Signature

 

Capacity

 

Date

 

 

 

 

 

/s/ Salvatore Emma, Jr.

 

President and Chief Executive Officer and Director

 

March 26, 2018

Salvatore Emma, Jr.

 

(principal executive officer)

 

 

 

 

 

 

 

/s/ Derek T. Welch

 

Chief Financial Officer

 

March 26, 2018

Derek T. Welch

 

(principal financial and accounting officer)

 

 

 

 

 

 

 

/s/ Jason R. Chambers

 

Chairman of the Board

 

March 26, 2018

Jason R. Chambers

 

 

 

 

 

 

 

 

 

/s/ Marco F. Benedetti

 

Director

 

March 26, 2018

Marco F. Benedetti

 

 

 

 

 

 

 

 

 

/s/ Rodd E. Friedman

 

Director

 

March 26, 2018

Rodd E. Friedman

 

 

 

 

 

 

 

 

 

/s/ Robert A. Mello

 

Director

 

March 26, 2018

Robert A. Mello

 

 

 

 

 

 

 

 

 

/s/ Andrei Soran

 

Director

 

March 26, 2018

Andrei Soran

 

 

 

 

 

 

 

 

 

/s/ Paul F. Walter, MD

 

Director

 

March 26, 2018

Paul F. Walter, MD

 

 

 

 



 

24


 

EX HIBIT INDEX





 

 

 

 



 

 

 

 

Exhibit Number

 

Description of Exhibit

 

Page

3.0

 

Certificate of Incorporation (incorporated by reference to the Company’s Registration Statement on Form S-18 as filed with the Commission in April 1988, Registration Statement No. 33-20945-FW).

 

 

 3.1

 

Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K as filed with the Commission on July 1, 2011).

 

 

 3.2

 

Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q as filed with the Commission on August 13, 2015).

 

 

 3.3

 

Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 4.1 to the Company's C urrent Report on Form 8-K as filed with the Commission on March 14, 2017).

 

 

4.0

 

Form of Certificate evidencing shares of the Company's Common Stock (incorporated by reference to the Company’s Registration Statement on Form S-18 as filed with the Commission in April 1988, Registration Statement No. 33-20945-FW).

 

 

 4.10 *

 

2010 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 as filed with the Commission on May 6, 2010, Registration Statement No. 333-166600).

 

 

 4.11

 

Form of Subordinated Note (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K as filed with the Commission on December 23, 2013).

 

 

 4.12

 

Form of Subordination Agreement (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K as filed with the Commission on December 23, 2013)

 

 

 4.13

 

Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K as filed with the Commission on December 23, 2013).

 

 

 4.14

 

Form of Amended and Restated Subordinated Promissory Note (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K as filed with the Commission on October 17, 2016).

 

 

 4.15

 

Form of Amendment No. 1 to Warrant to Purchase Shares of Common Stock (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K as filed with the Commission on October 17, 2016).

 

 

 10.51

 

Loan and Security Agreement between UniBank for Savings and Micron Solutions, Inc. and Micron Products, Inc. dated March 29, 2013 (incorporated by reference to Exhibit 10.51 to the Company’s Quarterly Report on Form 10-Q as filed with the Commission on July 1, 2013).

 

 

 10.61

 

Fourth Amendment to Loan and Security Agreement and Commercial Equipment Line of Credit Promissory Note dated June 19, 2015 (incorporated by reference to Exhibit 10.61 to the Company’s Quarterly Report on Form 10-Q as filed with the Commission on August 13, 2015).

 

 

 10.62

 

Fifth Amendment to Loan and Security Agreement dated as of November 15, 2016 (incorporated by reference to Exhibit 10.62 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 as filed with the Commission on March 22, 2017).

 

 

 10.63

 

Commercial Term Promissory Note dated November 15, 2016 (incorporated by reference to Exhibit 10.63 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 as filed with the Commission on March 22, 2017).

 

 

 10.64

 

Commercial Equipment Line of Credit Promissory Note dated November 15, 2016 (incorporated by reference to Exhibit 10.64 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 as filed with the Commission on March 22, 2017).

 

 

 10.65 *

 

Executive Incentive Plan (incorporated by reference to Exhibit 10.65 to the Company's Current Report on Form 8-K as filed with the Commission on December 6, 2016).

 

 



25


 



 

 

 

 

 10.66 *

 

Employment Agreement between the Company and Salvatore Emma, Jr. dated as of January 1, 2017 (incorporated by reference to Exhibit 10.66 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2016 as filed with the Commission on March 22, 2017).

 

 

 10.67 *

 

Employment Agreement between the Company and Derek T. Welch dated as of January 1, 2017 (incorporated by reference to Exhibit 10.67 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2016 as filed with the Commission on March 22, 2017).

 

 

 10.68

 

Sixth Amendment to Loan and Security Agreement dated June 16, 2017 (incorporated by reference to Exhibit 10.68 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 as filed with the Commission on August 11, 2017).

 

 

 10.69

 

Forbearance Agreement between UniBank for Savings, Micron Solutions, Inc. and Micron Products, Inc. dated September 29, 2017 (incorporated by reference to Exhibit 10.69 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 as filed with the Commission on November13, 2017).

 

 

 10.70 **

 

Credit and Security Agreement between Micron Products, Inc. and Rockland Trust Company dated December 29, 2017.

 

X-1

 10.71 **

 

General Security Agreement between the Company and Rockland Trust Company dated December 29, 2017.

 

X-2

 10.72 **

 

Mortgage, Security Agreement and Financing Statement entered into by Micron Products, Inc. dated December 29, 2017.

 

X-3

 10.73 **

 

M&E Term Loan Note entered into by Micron Products, Inc. dated December 29, 2017.

 

X-4

 10.74 **

 

Real Estate Term Loan Note entered into by Micron Products, Inc. dated December 29, 2017.

 

X-5

 10.75 **

 

Revolver Note entered into by Micron Products, Inc. dated December 29, 2017.

 

X-6

 10.76 **

 

General Continuing Guarantee entered into by the Company dated as of December 29, 2017.

 

X-7

 21

 

Subsidiaries (incorporated by reference to Exhibit 21.0 to the Company’s Annual Report on Form 10-K for fiscal year ended December 31, 2010 as filed with the Commission on March 23, 2011).

 

 

 23.1 **

 

Consent of Wolf & Company, P.C.

 

X-8

 31.1 **

 

Certification of the CEO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)

 

X-9

 31.2 **

 

Certification of the CFO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)

 

X-10

 32.1 **

 

Certification of the CEO pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

X-11

 32.2 **

 

Certification of the CFO pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

X-12

101.INS†

 

XBRL Instance Document

 

 

101.SCH†

 

XBRL Taxonomy Extension Schema Document

 

 

101.CAL†

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101.PRE†

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

101.DEF†

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

*  Indicates a management contract or compensatory plan required to be filed as an exhibit.

**Filed herewith

† XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.



 



 

26


 

Table of Contents

 

Micron Solutions, Inc.

and Subsidiary



Contents





 

 

 Report of Independent Registered Public Accounting Firm

 

F- 2

Consolidated Financial Statements:

 

 

 Consolidated balance sheets

 

F- 3

 Consolidated statements of operations

 

F- 4

 Consolidated statements of changes in shareholders' equity

 

F- 5

 Consolidated statements of cash flows

 

F- 6

 Notes to consolidated financial statements

 

F- 8



 

F- 1


 

Table of Contents

 

Re port of Independent Registered Public Accounting Firm





To the Shareholders and Board of Directors of Micron Solutions, Inc. and Subsidiary



Opinion on the Financial Statements



We have audited the accompanying consolidated balance sheets of Micron Solutions, Inc. and Subsidiary (the "Company") as of December 31, 2017 and 2016, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the years then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.



Basis for Opinion



These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.  We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.



Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.



/s/ WOLF & COMPANY, P.C.



We have served as the Company’s auditor since 2013.



Boston, Massachusetts

March 26, 2018  



 

F- 2


 

Table of Contents

 

Micron Solutions, Inc. and Subsidiary

Consolidated Balance Sheets







 

 

 

 

 

 



 

 

 

 

 

 



 

December 31,

 

December 31,



 

2017

 

2016

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

606,988 

 

$

380,381 

Restricted cash

 

 

350,000 

 

 

 —

Trade accounts receivable, net of allowance for doubtful accounts of $40,000 at December 31, 2017 and $30,000 at December 31, 2016

 

 

2,595,248 

 

 

2,276,608 

Inventories

 

 

3,413,199 

 

 

3,060,085 

Prepaid expenses and other current assets

 

 

460,954 

 

 

614,362 

Total current assets

 

 

7,426,389 

 

 

6,331,436 

Property, plant and equipment, net

 

 

5,744,039 

 

 

6,440,911 

Assets held for sale, net

 

 

688,750 

 

 

688,750 

Intangible assets, net

 

 

55,133 

 

 

30,093 

Other assets

 

 

10,289 

 

 

156,231 

Total assets

 

$

13,924,600 

 

$

13,647,421 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Revolving line of credit

 

$

1,879,047 

 

$

1,785,795 

Equipment line of credit

 

 

 —

 

 

102,500 

Term notes payable, current portion

 

 

367,779 

 

 

487,468 

Subordinated promissory notes, current portion

 

 

350,000 

 

 

 —

Accounts payable

 

 

1,534,349 

 

 

1,744,261 

Accrued expenses and other current liabilities

 

 

320,065 

 

 

333,361 

Customer deposits

 

 

340,624 

 

 

122,290 

Deferred revenue, current

 

 

85,833 

 

 

224,988 

Total current liabilities

 

 

4,877,697 

 

 

4,800,663 

Long-term liabilities:

 

 

 

 

 

 

Term notes payable, non-current portion

 

 

3,978,415 

 

 

1,970,863 

Subordinated promissory notes, non-current portion

 

 

 —

 

 

432,011 

Deferred revenue, non-current portion

 

 

 —

 

 

156,953 

Total long-term liabilities

 

 

3,978,415 

 

 

2,559,827 

Total liabilities

 

 

8,856,112 

 

 

7,360,490 

Commitments and Contingencies

 

 

 

 

 

 

Shareholders’ equity :

 

 

 

 

 

 

Preferred stock, $0.001 par value; 2,000,000 shares authorized, none issued

 

 

 —

 

 

 —

Common stock, $0.01 par value; 10,000,000 shares authorized; 3,926,491 issued, 2,839,274 outstanding at December 31, 2017 and 3,926,491 issued, 2,816,639 outstanding at December 31, 2016

 

 

39,265 

 

 

39,265 

Additional paid-in-capital

 

 

11,532,207 

 

 

11,457,320 

Treasury stock at cost, 1,087,217 shares at December 31, 2017 and 1,109,852 shares at December 31, 2016

 

 

(2,966,798)

 

 

(3,028,564)

Accumulated deficit

 

 

(3,536,186)

 

 

(2,181,090)

Total shareholders’ equity

 

 

5,068,488 

 

 

6,286,931 

Total liabilities and shareholders’ equity

 

$

13,924,600 

 

$

13,647,421 



S ee accompanying notes to consolidated financial statements.

 

F- 3


 

Table of Contents

 

Micron Solutions, Inc.   and Subsidiary

Consolidated Statements of Operations









 

 

 

 

 

 



 

 

 

 

 

 



 

Year Ended



 

December 31,



 

2017

 

2016

Net sales

 

$

20,102,662 

 

$

19,638,217 

Cost of sales

 

 

17,810,284 

 

 

16,739,526 

Gross profit

 

 

2,292,378 

 

 

2,898,691 



 

 

 

 

 

 

Selling and marketing

 

 

841,845 

 

 

1,153,044 

General and administrative

 

 

2,357,909 

 

 

2,151,244 

Research and development

 

 

111,014 

 

 

97,234 

Total operating expenses

 

 

3,310,768 

 

 

3,401,522 



 

 

 

 

 

 

Net loss from operations

 

 

(1,018,390)

 

 

(502,831)

Other income (expense):

 

 

 

 

 

 

Interest expense

 

 

(395,085)

 

 

(259,762)

Other income, net

 

 

57,419 

 

 

50,131 

Total other expense, net

 

 

(337,666)

 

 

(209,631)

Net loss before income tax benefit

 

 

(1,356,056)

 

 

(712,462)

Income tax benefit

 

 

(960)

 

 

 —

Net loss

 

$

(1,355,096)

 

$

(712,462)

Earnings (loss) per share - basic and diluted

 

$

(0.48)

 

$

(0.25)

Weighted average common shares outstanding -
  basic and diluted

 

 

2,824,061 

 

 

2,816,516 



 

 

 

 

 

 





See accompanying notes to consolidated financial statements.

 





F- 4


 

Table of Contents

 

Micron Solutions, Inc. and Subsidiary  

Consolidated Statements of Changes in Shareholders' Equity







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 



 

Common stock

 

paid-in

 

 Treasury stock

 

 

Accumulated

 

 

 



 

Shares

 

Amount

 

capital

 

Shares

 

Amount

 

 

deficit

 

Total

December 31, 2015

 

3,926,491 

 

$

39,265 

 

$

11,381,536 

 

1,124,852 

 

$

(3,069,496)

 

 

$

(1,468,628)

 

$

6,882,677 

Share-based compensation
- options

 

 

 

 

 

 

 

47,256 

 

 

 

 

 

 

 

 

 

 

 

47,256 

Change in the incremental value
of warrants

 

 

 

 

 

 

 

18,310 

 

 

 

 

 

 

 

 

 

 

 

18,310 

Issuance of common stock
from treasury

 

 

 

 

 

 

 

10,218 

 

(15,000)

 

 

40,932 

 

 

 

 

 

 

51,150 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(712,462)

 

 

(712,462)

December 31, 2016

 

3,926,491 

 

$

39,265 

 

$

11,457,320 

 

1,109,852 

 

$

(3,028,564)

 

 

$

(2,181,090)

 

$

6,286,931 

Share-based compensation
- options

 

 

 

 

 

 

 

48,129 

 

 

 

 

 

 

 

 

 

 

 

48,129 

Issuance of common stock from
treasury for directors fees

 

 

 

 

 

 

 

26,758 

 

(22,635)

 

 

61,766 

 

 

 

 

 

 

88,524 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,355,096)

 

 

(1,355,096)

December 31, 2017

 

3,926,491 

 

$

39,265 

 

$

11,532,207 

 

1,087,217 

 

$

(2,966,798)

 

 

$

(3,536,186)

 

$

5,068,488 



See accompanying notes to consolidated financial statements.

 

F- 5


 

Table of Contents

 

Micron Solutions, Inc. and Subsidiary

Consolidated Statements of Cash Flows

 





 

 

 

 

 

 



 

 

 

 

 

 



 

Year Ended



 

December 31,



 

2017

 

2016

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(1,355,096)

 

$

(712,462)

Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:

 

 

 

 

 

 

Gain on sale of property, plant and equipment

 

 

(21,750)

 

 

 —

Change in fair value of assets held for sale

 

 

 —

 

 

(23,750)

Depreciation and amortization

 

 

1,611,139 

 

 

1,541,006 

Impairment of intangibles

 

 

1,771 

 

 

 —

Non-cash interest expense

 

 

63,846 

 

 

27,186 

Change in allowance for doubtful accounts

 

 

10,000 

 

 

(30,000)

Share-based compensation expense

 

 

136,653 

 

 

47,256 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(328,640)

 

 

551,745 

Inventories

 

 

(353,114)

 

 

(941,373)

Prepaid expenses and other current assets

 

 

153,408 

 

 

(25,228)

Other non-current assets

 

 

145,942 

 

 

112,604 

Accounts payable

 

 

(209,912)

 

 

190,873 

Accrued expenses and other current liabilities

 

 

(13,296)

 

 

57,584 

Customer deposits

 

 

218,334 

 

 

28,883 

Deferred revenue, current

 

 

(139,155)

 

 

(47,849)

Other non-current liabilities

 

 

(156,953)

 

 

(115,228)

Net cash provided by (used in) operating activities

 

 

(236,823)

 

 

661,247 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(924,621)

 

 

(1,354,091)

Proceeds from sale of property, plant and equipment

 

 

34,600 

 

 

 —

Cash paid for patents and trademarks

 

 

(29,307)

 

 

(13,205)

Net cash provided by (used in) investing activities

 

 

(919,328)

 

 

(1,367,296)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from (payments on) refinanced revolving line of credit, net

 

 

(1,785,795)

 

 

274,300 

Proceeds from new revolving line of credit

 

 

1,879,047 

 

 

 —

Proceeds from equipment line of credit

 

 

 —

 

 

647,351 

Proceeds from term notes payable

 

 

 —

 

 

500,000 

Proceeds from machinery and equipment term loan

 

 

2,500,000 

 

 

 —

Proceeds from real estate term loan

 

 

2,000,000 

 

 

 —

Payments on term notes payable

 

 

(2,606,688)

 

 

(587,799)

Payments of debt issuance costs

 

 

(153,806)

 

 

(20,863)

Payment on subordinated debt

 

 

(100,000)

 

 

(50,000)

Proceeds from stock option exercises

 

 

 —

 

 

51,150 

Net cash provided by (used in) financing activities

 

 

1,732,758 

 

 

814,139 

Net increase in cash and cash equivalents

 

 

576,607 

 

 

108,090 

Cash and cash equivalents , beginning of period

 

 

380,381 

 

 

272,291 

Cash and cash equivalents and restricted cash , end of period

 

$

956,988 

 

$

380,381 



See accompanying notes to consolidated financial statements.

 

F- 6


 

Table of Contents

 

Micron Solutions, Inc. and Subsidiaries

Consolidated Statements of Cash Flows Supplemental Information







 

 

 

 

 

 



 

 

 

 

 

 



 

Year Ended



 

December 31,

Supplemental Cash Flow Information

 

2017

 

2016

Cash paid for interest

 

$

324,641 

 

$

233,330 



 

 

 

 

 

 

Non-cash activities:

 

 

 

 

 

 

Issuance of treasury stock for directors fees

 

$

88,524 

 

$

 —

Change in incremental value of warrants

 

$

 —

 

$

18,310 

Non-cash payoff of revolver as part of refinancing

 

$

 —

 

$

500,000 

Non-cash payoff of notes as part of refinancing

 

$

 —

 

$

457,828 

Equipment line of credit converted to term notes payable

 

$

 —

 

$

1,524,115 



See accompanying notes to consolidated financial statements.

 

F- 7


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

1.  De scription of Business



Micron Solutions ® , Inc., a Delaware corporation ("Micron Solutions"), through its wholly-owned Massachusetts operating subsidiary, Micron Products ® , Inc. (“Micron” and together with Micron Solutions, the "Company"), is a diversified contract manufacturing organization (“CMO”)  that produces highly-engineered, innovative components requiring precision machining and thermoplastic injection molding. The Company also manufactures components, devices and equipment for military, law enforcement, automotive and consumer products applications.  The Company's capabilities include the production and sale of silver/silver chloride coated and conductive resin sensors used as consumable component parts in the manufacture of integrated disposable electrophysiological sensors.  The Company’s machining operations produce quick-turn, high volume and patient-specific orthopedic implant components and instruments.  The Company also has custom thermoplastic injection molding capabilities as well as a full array of design, engineering, production services and management.  The Company competes globally, with approximately 42% of its revenue derived from exports. 



The Company's common stock has been listed on the NYSE American exchange since 1992 and traded under the ticker symbol HRT until March of 2017 when the Company changed its ticker symbol to MICR in conjunction with its name change from Arrhythmia Research Technology, Inc. to Micron Solutions, Inc.



Today, the Company has diversified manufacturing capabilities with the capacity to participate in full product life-cycle activities from early stage development and engineering and prototyping to full scale manufacturing as well as packaging and product fulfillment services.

 

Operating matters and liquidity



On December 29, 2017 the Company entered into a new three-year $9,500,000 asset based credit and security agreement, with a Massachusetts trust company, replacing the credit facility and forbearance agreement with the Company’s previous lender.  The asset based credit and security agreement includes a revolving line of credit of up to $5.0 million (“Revolver”), a machinery and equipment term loan of $2.5 million (“Equipment Loan”) and a real estate term loan of $2.0 million (“Real Estate Loan” and together with the “Equipment Loan” the “Term Loans”).   At December 31, 2017, the outstanding balance on the revolver was $1,879,047. 

In addition to providing funds to discharge all the indebtedness with the Company’s previous lender, the asset based credit and security agreement provided $450,000 designated to discharge the outstanding subordinated promissory notes.  On December 29, 2017, one subordinated note in the principal balance of $100,000 was discharged in full.  The remaining five subordinated notes totaling an aggregate principal balance of $350,000 were discharged on January 2, 2018 (see Note 12).

The Company believes that cash flows from its operations, together with its existing working capital, booked orders, the asset based credit and security agreement and other resources, will be sufficient to fund operations at current levels and repay debt obligations over the next twelve months and beyond; however, there can be no assurance that the Company will be able to do so.



Assessment of going concern



At December 31, 2017, the Company identified certain conditions and events which in the aggregate required management to perform an assessment of the Company’s ability to continue as a going concern. These conditions included the Company’s negative financial history and the Company’s ability to generate sufficient cash to support the Company’s operations and to meet debt service requirements under the Company‘s new lending agreement entered into on December 29, 2017.



Management’s analysis includes forecasting future revenues and cash flows, taking into consideration past performance and the requirements under the credit and security agreement. Revenue and cash flow forecasts are dependent on the Company’s ability to fill booked orders from existing customers, including the three-year exclusive supply agreement with its largest customer effective January 1, 2018 and its ability close new and expanded business. Based on management’s analysis, the Company expects to generate sufficient cash flows to fulfill its payment obligations over the next twelve months from the date these financial statements were issued.



2.  Accounting Policies



Principles of consolidation



The consolidated financial statements (the "financial statements") include the accounts of Micron Solutions, Inc. and its operating subsidiary, Micron Products, Inc.  All intercompany balances and transactions have been eliminated in consolidation.



F- 8


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

Use of estimates



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.  Actual results could differ from those estimates.



Revenue recognition



Revenue is recorded when all criteria for revenue recognition have been satisfied.  Revenue is recognized in the period when persuasive evidence of an arrangement with a customer exists, the products are shipped and title has transferred or when exclusive control has been transferred to the customer, the price is fixed or determinable and collection is probable.  The Company has entered into supply agreements with certain foreign customers where revenue is not recognized when the product is shipped but instead is recognized when the customer consumes the product and title is transferred. 



The Company enters into arrangements containing multiple elements which may include a combination of the sale of molds, tooling, engineering and validation services ("tooling") and production units. The Company has determined that certain engineering and tooling arrangements, and the related production units, represent one unit of accounting, based on an assessment of the respective standalone value. When the Company determines that an arrangement represents one unit of accounting, the revenue is deferred over the estimated product life-cycle, based upon historical knowledge of the customer, which is generally one to three years. The Company carries the sales and tooling costs, associated with the related arrangement, as deferred revenue and other current and non-current assets, respectively, on the Company's balance sheet. As the deferred revenue is amortized to sales over the product lifecycle, the associated prepaid tooling costs are amortized to cost of sales.



The Company cannot effectively predict short-term or long-term production volume in a consistent and meaningful manner, due to the nature of these molds and associated products. Therefore, the Company is unable to account for the transactions under the Units of Production method and management has determined the most appropriate amortization method to be the Straight-Line method.



The Company may from time to time, at the customer's request, enter into a bill and hold arrangement. The Company evaluates the nature of the arrangement including, but not limited to (i) the customer's business purpose, (ii) the transfer of risk of ownership to the customer and (iii) the segregation of inventory, along with other elements in accordance with relevant accounting guidance to determine the appropriate method of revenue recognition for each arrangement.



Revenue for software license sales is recognized when licenses are sold as the revenue cycle is completed with no warranty, returns or technical support to customers. Total revenue from software sales was immaterial in relation to consolidated revenues.



In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers”. The core principle behind ASU 2014-09 is that an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering goods and services. This model involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when the entity satisfies the performance obligations. This ASU allows two methods of adoption; a full retrospective approach where historical financial information is presented in accordance with the new standard, and a modified retrospective approach where this ASU is applied to the most current period presented in the financial statements. In August 2015, the FASB issued ASU No. 2015-14 “Revenue from Contracts with Customers: Deferral of the Effective Date,” which deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, with earlier application permitted as of annual reporting periods beginning after December 15, 2016.

  

The Company has adopted ASU 2014-09 effective January 1, 2018 using the modified retrospective approach. While the Company has made substantial progress in its implementation analysis, it is continuing to evaluate certain aspects of the standard. The Company’s analysis includes reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements under the new standard. The Company has reviewed a sample of supply and manufacturing contracts with customers that are believed to represent the Company’s revenue streams and continue to review additional contracts to finalize a new accounting policy. The determination of the impact of adoption of this ASU on the financial condition, results of operations, cash flows and disclosures is ongoing, and, as such, the Company is not able to reasonably estimate the quantitative effect that the adoption of the new standard will have on its financial statements.



Based on our ongoing assessment, ASU 2014-09 will affect the timing of certain revenue related transactions primarily resulting from the earlier recognition of the Company's tooling sales and costs. Upon adoption of ASU 2014-09 tooling sales and costs will be recorded over time as the Company satisfies its performance obligations. Similarly, t he Company manufactures parts that have no

F- 9


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

alternative use to the Company (since the parts are custom made to specific customer orders), and the Company believes for certain customers there is a legally enforceable right to payment for performance completed to date on these manufactured parts. For those manufactured parts that meet these two criteria, the Company will recognize revenue over time.  The Company has determined that sales of certain propriety products will continue to be recorded at the point in time of shipment as the Company does meet any of the over-time revenue recognition criteria for the related contracts.  



Fair value of financial instruments



The carrying amount reported in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the immediate or short-term nature of such instruments. The carrying value of debt approximates fair value since it provides for market terms and interest rates.



Concentration of credit risk



Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of accounts receivable and cash and cash equivalents. It is the Company’s policy to place its cash in high quality financial institutions. The Company does not believe significant credit risk exists above federally insured limits with respect to these institutions.



Accounts receivable are customer obligations due under normal trade terms. A large portion of the Company's products are sold to large diversified medical, military and law enforcement product manufacturers. The Company does not generally require collateral for its sales; however, the Company believes that its terms of sale provide adequate protection against credit risk.  While the Company has a strong record of collecting on its receivables, the Company maintains accounts receivables insurance in order to mitigate concentration of credit risk where its top five customers in revenue constituted 49% of the accounts receivable at December 31, 2017 as compared to 51% at December 31, 2016.



During the year ended December 31, 2017 , the Company had net sales to two customers constituting 17% and 10%, respectively, of total 2017 net sales. Accounts receivable from these two customers at December 31, 2017 was 13% and 3%, respectively, of the total accounts receivable balance at year end. During the year ended December 31, 2016 , the Company had net sales to two customers constituting 19% and 12% , respectively, of total 2016 net sales. Accounts receivable from these two customers at December 31, 2016 was 26% and 7%, respectively, of the total accounts receivable balance at year end.



Cash and cash equivalents



Cash and cash equivalents consist of cash on hand and on deposit in high quality financial institutions with maturities of three months or less at the time of purchase.



Restricted cash



Restricted cash represents cash obtained pursuant to the Company's asset based credit and security agreement for the designated purpose of discharging the subordinated promissory notes, which occurred on January 2, 2018 (see Note 5).



Accounts receivable and allowance for doubtful accounts



Accounts receivable represent amounts invoiced by the Company. Management maintains an allowance for doubtful accounts based on information obtained regarding individual accounts and historical experience. Amounts deemed uncollectible are written off against the allowance for doubtful accounts.  Bad debts have not had a significant impact on the Company’s financial position, results of operations and cash flows.



The Company insures receivables for certain customers based upon several factors.  Such factors include the customer’s payment terms, ordering patterns and volume requirements, the customer’s payment history, or general economic conditions of the region in which a customer is located.



Inventories



The Company values its inventory at the lower of average cost, or net realizable value, and cost is determined using first in first out (FIFO) or average cost. The Company reviews its inventory for quantities in excess of production requirements, obsolescence and for compliance with internal quality specifications. A review of inventory on hand is made at least annually and obsolete inventory may be disposed of and/or recycled.  Any adjustments to inventory would be equal to the difference between the cost of inventory and the estimated net market value based upon assumptions about future demand, market conditions and expected cost to distribute those

F- 10


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

products to market.  The Company also has supply agreements with certain foreign customers to hold inventory at the customer’s warehouses. 



Property, plant and equipment



Property, plant and equipment are recorded at cost and include expenditures which substantially extend their useful lives. Depreciation on property, plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets. Expenditures for maintenance and repairs are charged to earnings as incurred. When equipment is retired or sold, the resulting gain or loss is reflected in earnings.



Assets held for sale



Property classified as held for sale is measured at the lower of its carrying value or fair value less cost to sell.  Gains or losses are recognized for any subsequent changes to fair value less cost to sell; however, gains that may be recognized are limited by cumulative losses previously recognized.  Property held for sale is not depreciated.



Property is classified as held for sale in the period in which management with the appropriate authority commits to a plan to sell the asset; the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; an active program to locate a buyer and other actions required to complete the plan of sale have been initiated; the sale of the property or asset within one year is probable and will qualify for accounting purposes as a sale; the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.  Long-lived assets classified as held for sale are presented separately in the statement of financial position of the current period (see Note 4). 



Fair value hierarchy



The Company groups its assets and liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. 



Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities.  Valuations are obtained from readily available pricing sources.



Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  



Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  Level 3 assets and liabilities include financial instruments whose value is determined using unobservable inputs to pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.  



In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.  The Company recognizes transfers between levels at the end of the reporting period.  There were no changes in levels in 2017.



At December 31, 2017 and 2016, assets held for sale is the only item in the financial statements reflected at fair value.    Assets held for sale are considered level 3.  The fair value of assets held for sale was determined using the sales price per the amended  purchase and sale agreement, less the estimated cost to sell (see Note 4).



Long-lived and intangible assets



The Company assesses the impairment of long-lived assets and intangible assets with finite lives annually or whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. Based upon the annual review, the Company recorded impairment charges of $1,771 in 2017.  In 2017, the Company determined that the trade name, Arrhythmia Research Technology, Inc., no longer provided any future economic benefit and recorded an impairment charge of $1,771 for the remaining unamortized balance of the trade name.  No impairment charges were recorded in 2016.



F- 11


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

Intangible assets consist of the following:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Estimated

 

December 31, 2017

 

December 31, 2016



 

Useful Life

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Accumulated

 

 

 



 

(in years)

 

Gross

 

Amortization

 

Net

 

Gross

 

Amortization

 

Net

Patents and trademarks

 

10 

 

$

22,911 

 

$

9,888 

 

$

13,023 

 

$

22,911 

 

$

8,358 

 

$

14,553 

Patents and trademarks pending

 

 —

 

 

13,786 

 

 

 —

 

 

13,786 

 

 

13,541 

 

 

 —

 

 

13,541 

Trade names

 

15 

 

 

29,062 

 

 

738 

 

 

28,324 

 

 

3,379 

 

 

1,380 

 

 

1,999 

Total intangible assets

 

 

 

$

65,759 

 

$

10,626 

 

$

55,133 

 

$

39,831 

 

$

9,738 

 

$

30,093 



Amortization expense related to intangible assets, excluding the 2017 impairment charge noted above, was $2,496 and $1,757 in 2017 and 2016, respectively. Estimated future annual amortization expense for currently amortizing intangible assets is expected to approximate $10,716.



Income taxes



The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. 



The Company follows the provisions of FASB ASC 740, “Accounting for Uncertainty in Income Taxes - An Interpretation of FASB No. 109.” FASB ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements in accordance with SFAS No. 109. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of FASB ASC 740 and in subsequent periods. No interest and penalties related to uncertain tax positions were accrued at December 31, 2017.  The Company’s primary operations are located in the U.S. Tax years ended December 31, 2014 or later remain subject to examination by the IRS and state taxing authorities.



Share-based compensation



Share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the share-based grant).



Earnings per share data



Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding.  The computation of diluted earnings (loss) per share is similar to the computation of basic earnings (loss) per share except that the denominator is increased to include the average number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.  In addition, the numerator is adjusted for any changes in net income (loss) that would result from the assumed conversions of those potential shares.



Research and development



Research and development expenses include costs directly attributable to conducting research and development programs primarily related to the development of a unique process to improve silver coating during the manufacturing processes, including the design and testing of specific process improvements for certain medical device components. Such costs include salaries, payroll taxes, employee benefit costs, materials, supplies, depreciation on research equipment, and services provided by outside contractors.  All costs associated with research and development programs are expensed as incurred.



Recently Issued Accounting Pronouncements



In the normal course of business, management evaluates all new accounting pronouncements issued by the Financial Accounting Standard Board (“FASB”), Securities and Exchange Commission (“SEC”), Emerging Issues Task Force (“EITF”), or other authoritative accounting bodies to determine the potential impact they may have on the Company’s Consolidated Financial Statements. Based upon this review, except as noted below, management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company’s consolidated financial statements.

F- 12


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 



In August 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-15, “ Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments” . This standard provides guidance for eight cash flow classification issues in current GAAP. The standard is effective for interim and annual reporting periods beginning after December 15, 2017.  The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.



In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”).  The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures.  The standard is intended to reduce the cost and complexity with maintaining or improving the usefulness of information provided to users of financial statements. The standard is effective for interim and annual reporting periods beginning after December 15, 2016.   As a result of the Company’s adoption of ASU 2016-09 in 2017, the Company recognizes the excess tax benefits as a reduction of income tax expense regardless of whether the benefit reduces income taxes payable. The Company has elected to continue to estimate and apply a forfeiture rate based on awards expected to vest.  The adoption of this standard had no impact on the Company's consolidated financial statements.



In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, (“ASU 2016-02”) which requires companies to recognize all leases as assets and liabilities on the consolidated balance sheet. The standard retains a distinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting literature. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in ASU 2016-02, the effect of leases in a consolidated statement of comprehensive income and a consolidated statement of cash flows is largely unchanged from previous GAAP.  The amendments in this standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.



In November 2015, the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes" (“ASU 2015-17”) which requires the presentation of deferred tax assets and deferred tax liabilities, and any related valuation allowances, as noncurrent on the consolidated balance sheets.  The standard is effective for interim and annual reporting periods beginning after December 15, 2016 and early adoption is permitted.  The adoption of ASU 2015-17 had no cumulative effect on shareholders’ equity, results of operations or cash flows.



In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory,” (“ASU 2015-11”) which simplifies the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This standard is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted this standard in the first quarter of 2017 which had no impact on the consolidated financial statements.



In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). The core principle behind ASU 2014-09 is that an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering goods and services. This model involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when the entity satisfies the performance obligations. This ASU allows two methods of adoption; a full retrospective approach where historical financial information is presented in accordance with the new standard, and a modified retrospective approach where this ASU is applied to the most current period presented in the financial statements. In August 2015, the FASB issued ASU No 2015-14 “Revenue from Contracts with Customers: Deferral of the Effective Date,” which deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, with earlier application permitted as of annual reporting periods beginning after December 15, 2016.



Reclassification of prior period balances



Amounts in prior year financial statements are reclassified when necessary to conform to the current year presentation.

 

F- 13


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

3.  Inventories



Inventories consist of the following:







 

 

 

 

 

 



 

 

 

 

 

 



 

December 31,

 

December 31,



 

2017

 

2016

Raw materials

 

$

1,100,187 

 

$

1,027,474 

Work-in-process

 

 

822,244 

 

 

537,858 

Finished goods

 

 

1,490,768 

 

 

1,494,753 

Total

 

$

3,413,199 

 

$

3,060,085 



The total cost of silver in our inventory as raw materials, as work-in-process or as a plated surface on finished goods had an estimated cost of $536,963 and $521,746 at December 31, 2017 and 2016 , respectively.  The increase in inventory was due largely to an increase in work-in-process inventory related to tooling orders.

 

4.  Property, Plant and Equipment, Net



Property, plant and equipment, net consist of the following:







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

Asset Lives

 

December 31,

 

December 31,



 

(in years)

 

2017

 

2016

Machinery and equipment

 

3

to

15

 

$

17,498,586 

 

$

16,647,302 

Building and improvements

 

5

to

25

 

 

3,986,715 

 

 

3,986,715 

Vehicles

 

3

to

5

 

 

90,713 

 

 

90,713 

Furniture, fixtures, computers and software

 

3

to

5

 

 

1,542,027 

 

 

1,504,776 

Construction in progress

 

 

 

 

 

 

17,412 

 

 

402,099 

Total property, plant and equipment

 

 

 

 

 

 

23,135,453 

 

 

22,631,605 

Less: accumulated depreciation

 

 

 

 

 

 

(17,391,414)

 

 

(16,190,694)

Property, plant and equipment, net

 

 

 

 

 

$

5,744,039 

 

$

6,440,911 



For the year ended December 31, 2017 , the Company recorded $1,608,643 of depreciation expense compared to $1,539,249 for the year ended December 31, 2016 . There are no commitments related to the completion of construction in process as of December 31, 2017 .



In December 2015, the Company entered into a Letter of Intent with a Buyer (collectively the “Parties”) to sell two unoccupied buildings, with a total of approximately 52,000 square feet, and land, at its Fitchburg, Massachusetts campus.  Subsequently, in January 2016, the Parties entered into a Purchase and Sale Agreement (“Agreement”) for this real estate to close within twelve months from the date of the Agreement.  As these buildings were under agreement to be sold at December 31, 2015 they were classified as Assets Held for Sale valued at $665,000 as of December 31, 2015.  The carrying value approximated the fair value less the cost to sell.



In December 2016, the Parties entered into a First Amendment to the Purchase and Sale Agreement (the “First Amendment”).  The First Amendment extended the time to close to January 13, 2018.  As consideration for extending the Agreement, the Buyer agreed to (i) release the $25,000 being held as a deposit to the Company; (ii) increase the purchase price by $25,000; (iii) pay the Company $4,000 per month as an extension fee beginning in January 2017 through January 2018, or the culmination of the Agreement, and (iv) pay the Company $7,500 per month for a 150 day additional extension, to June 2018, only for the purpose of the Buyer securing historical tax credits until the termination or culmination of the Agreement.  The $25,000 deposit released to the Company, and the extension fees, were recorded as other income for the year ended December 31, 2016.



As a result of the increase in sale price and other considerations, the Company determined the carrying value at December 31, 2016 to be $688,750.  The increase in the carrying value was recorded as Other Income for the year ended December 31, 2016 and did not exceed the amount of previously recorded losses in accordance with the appropriate accounting guidance.  At December 31, 2017, the carrying value of the assets held for sale remains at $688,750, the approximated fair value less the cost to sell. 



In January 2017, the Parties entered into a Second Amendment to the Purchase and Sale Agreement (the “Second Amendment”).  The Second Amendment (i) permits the Buyer to assign the Agreement to a third party; (ii) extends the term of the

F- 14


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

$4,000 per month extension fee from January 2018 to March 2018 and (iii) and amends the term of the additional extension fee of $7,500  per month for the period April 2018 through July 2018.



In July 2017, the Parties entered into a Third Amendment to the Agreement (the “Third Amendment”) to further extend the time to close to June 2019. The Third Amendment permitted the Buyer to contract with outside parties to conduct certain due diligence activities on the property up until August 13, 2017. Additionally, the Third Amendment further extended the extension fees through June 2019, or the culmination of the Agreement, and allows for the Buyer to defer the last six months of extension fees to be settled at closing.



In September 2017, the Parties entered into a Fourth Amendment to the Agreement (the “Fourth Amendment”) to extend the time allowed to the Buyer to complete due diligence activities on the property from August 13, 2017 until October 13, 2017.



In January 2018, the Company was notified that the National Park Service of the Department of the Interior designated the area in which the buildings are located as a Historic District, which will enable the Buyer to proceed with securing historical tax credits as agreed between the Parties in the Second Amendment.

The closing is subject to permitting and approvals from the City of Fitchburg and the Commonwealth of Massachusetts and is expected to take place by the end of 2018.



5.  Debt



The following table sets forth the items which comprise debt for the Company:







 

 

 

 

 

 



 

 

 

 

 

 



 

December 31,

 

December 31,



 

2017

 

2016

Revolving line of credit

 

$

1,879,047 

 

$

1,785,795 

Equipment line of credit

 

$

 —

 

$

102,500 

Subordinated promissory notes

 

$

350,000 

 

$

432,011 



 

 

 

 

 

 

Term notes payable:

 

 

 

 

 

 

Commercial term loan

 

$

 —

 

$

2,444,728 

Machinery & equipment term loan

 

 

2,500,000 

 

 

 —

Real estate term loan

 

 

2,000,000 

 

 

 —

Equipment notes

 

 

 —

 

 

59,461 

Debt issuance costs

 

 

(153,806)

 

 

(45,858)

Total term notes payable, net

 

$

4,346,194 

 

$

2,458,331 

Less current portion, net of debt issuance costs of $51,269 and $20,413 for the years ended December 31, 2017 and 2016, respectively

 

 

367,779 

 

 

487,468 

Term notes payable, non-current

 

 

3,978,415 

 

 

1,970,863 



 

 

 

 

 

 

Total short and long term debt, net

 

$

6,575,241 

 

$

4,778,637 



Bank Debt - 2017



On December 29, 2017, the Company entered into a new three-year $9,500,000 asset based credit and security agreement, with a Massachusetts trust company, replacing the credit facility and forbearance agreement with the Company’s previous lender.  The asset based credit and security agreement also provided funds with which to discharge the subordinated promissory notes. 



The asset based credit and security agreement includes a revolving line of credit of up to $5.0 million (“Revolver”), a machinery and equipment term loan of $2.5 million (“Equipment Loan”) and a real estate term loan of $2.0 million (“Real Estate Loan” and together with the “Equipment Loan” the “Term Loans”). 



Revolver

The $5.0 million Revolver provides for borrowings up to:

(i)

Up to 85% of the face amount of eligible accounts (other than credit insured accounts), plus

(ii)

Up to 90% of the face amount of credit insured accounts, plus

F- 15


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

(iii)

The lesser of (a) up to 60% of the cost of eligible inventory, (b) up to 80% of the net orderly liquidation value of the cost of such eligible inventory, and (iii) $1,500,000 minus the amount of eligible consigned inventory included in the Borrowing Base, plus

(iv)

The lesser of (a) up to 60% of the cost of eligible consigned inventory (as determined from an initial and subsequent periodic appraisals), and (b) $400,000, minus

(v)

Certain reserves established in Lender’s discretion.



The Revolver allows for interest only payments during the term of the facility with the full principal outstanding balance to be paid upon maturity on December 29, 2020.  Interest on all borrowings from the Revolver shall be equal to the Wall Street Journal prime rate (“Prime Rate”) plus 0.5% (4.875% at December 31, 2017).  In lieu of having interest charged at the Prime Rate, the Company shall have the option, on the last day of each month, (the “LIBOR Option”) to have interest charged at a rate of interest equal to the daily one-month LIBOR plus 3.25% for the following month.  The interest rate will automatically convert back to the Prime Rate at the beginning of the next month unless the Company elects the LIBOR Option for the next month.  This Revolver carries a provision for a quarterly unused facility fee equal to 0.25% per annum of the average daily undisbursed face amount of the Revolver during the three months immediately preceding the applicable due date and has no prepayment penalty.  Amounts available to borrow under the revolver are $1,001,430 at December 31, 2017.



Term Loans



The Equipment Loan requires monthly principal payments of approximately $29,762, payable on the first day of each month commencing February 1, 2018.  The Equipment Loan is based upon an 84 month amortization with a balloon payment of approximately $1,458,333 due and payable in full upon maturity on December 29, 2020. 



The Real Estate Loan requires monthly principal payments of approximately $8,333, payable on the first day of each month commencing February 1, 2018.  The Real Estate Loan is based upon a 240 month amortization with a balloon payment of approximately $1,708,333 due and payable in full upon maturity on December 29, 2020. 



Interest on the Term Loans shall be at such Wall Street Journal prime rate plus 0.75% (5.125% at December 31, 2017).  In lieu of having interest charged at the Prime Rate, the Company shall have a LIBOR Option, as described above, to have interest charged at a rate of interest equal to the daily one-month LIBOR plus 3.5% for the following month. 



All interest will be calculated based upon a year of 360 days for actual days elapsed.  All interest will accrue from the Closing Date and will be payable monthly in arrears.  Upon the occurrence and during the continuation of an Event of Default, all interest will be increased by 2% above the per annum rate otherwise applicable thereto.  The Term Loans carry a prepayment penalty with respect to the prepayment of any portion of either Term Loan equal to 3%, 2%, and 1% of the amount prepaid in the first, second, and third years, respectively, of the asset based credit and security agreement .  



This three-year asset based credit and security agreement contains covenants related to various matters including certain financial covenants, prohibitions on further borrowings and security interests, merger or consolidation, acquisitions, guarantees, sales of assets other than in the normal course of business, leasing, and payment of dividends. The lender has a security interest in all assets and a mortgage encumbering certain real property.



Bank Debt – 2016



At December 31, 2016 the Company had a multi-year credit facility with a Massachusetts based bank consisting of a revolving line of credit (the "revolver"), a commercial term loan and an equipment line of credit.  The debt was secured by substantially all assets of the Company with the exception of real property. 



Due to a non-compliance with the debt service coverage ratio covenant at June 30, 2017, the Company and the bank entered into a forbearance agreement on September 29, 2017. Under the agreement the bank agreed to forbear from collections on all outstanding debt prior to March 31, 2018, provided no further events of default occur, and agreed to extend the revolver to March 31, 2018 subject to certain modifications of the agreement.



Pursuant to the agreement, the interest rate under the revolver increased from the Prime Rate plus 0.25%, to the Prime Rate plus 1.00%, an increase of 75 basis points. The Company also agreed to provide monthly financial reporting and daily cash sweeps and to a modification of the equipment line to immediately terminate the availability of further advances under the equipment line rather than expiration thereof in November 2017 at which time the equipment line converted into a five-year term note. In addition, the bank agreed to modify the debt service coverage ratio calculation for the September 30, 2017 measurement date. The Company is in compliance with this revised third quarter covenant calculation.

F- 16


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 



The credit facility and forbearance agreement were replaced on December 29, 2017 by the asset based credit and security agreement as further described above.



Revolver



The revolver provided for borrowings up to 80% of eligible accounts receivable and 50% of eligible raw materials inventory.  The interest rate on the revolver was calculated at the bank's prime rate plus 0.25% (4.0% at December 31, 2016).  In November 2016 the Company refinanced and consolidated $500,000 from the revolver into a new term loan as further described below.  The revolver was paid in full on December 29, 2017 as part of the asset based credit and security agreement described above.



Commercial term loan



In November 2016, the Company refinanced its bank term debt, including the commercial term loan and three equipment term loans, along with $500,000 from the revolver, into a new $2,481,943 consolidated five year commercial term loan with a maturity date in November 2021. The interest rate on the loan was a fixed 4.65% per annum and the loan required monthly payments of principal and interest of approximately $46,500.  The commercial term loan was paid in full on December 29, 2017 as part of the asset based credit and security agreement described above.



Equipment line of credit and equipment term loans



In March 2013, the Company entered into an equipment line of credit that allowed for advances of up to $1.0 million and included a one-year draw period during which payments were interest only. The draw period ended in March 2014 and the then outstanding balance on the equipment line of credit of $740,999 was converted to an equipment term loan with a five-year term, maturing in March 2019. In November 2016, the outstanding principal and accrued interest of $380,791 on the equipment term loan was refinanced and consolidated into a new commercial term loan as described above.



In June 2014, the Company entered into an equipment line of credit that allowed for advances of up to $1.0 million and included a one-year draw period during which payments were interest only. The draw period ended in June 2015 and the then outstanding balance on the equipment line of credit of $415,785 was converted to an equipment term loan with a five-year term, maturing in June 2020. In November 2016, the outstanding principal and accrued interest of $315,272 on the equipment term loan was refinanced and consolidated into a new commercial term loan with the bank as described above.



In June 2015, the Company entered into an equipment line of credit that allowed for advances of up to $1.0 million and included a one-year draw period during which payments were interest only.  At December 31, 2015, the Company had drawn $336,850 on the equipment line of credit. The draw period ended in June 2016 and the then outstanding balance on the equipment line of credit of $881,701 was converted to an equipment term loan with a five-year term, maturing in June 2021.  In November 2016, the outstanding principal and accrued interest of $832,420 on the equipment term loan was refinanced and consolidated into a new bank term loan with the bank as described above.



In November 2016, the Company entered into a new equipment line of credit that allowed for advances of up to $1.0 million under the Company's multi-year credit facility. At December 31, 2016, $102,500 has been drawn on the new equipment line of credit. Pursuant to the Company’s September 29, 2017 forbearance agreement with the bank, the bank terminated the availability of further advances under the equipment line rather than the expiration thereof in November 2017 at which time the balance on the equipment line of $504,781 converted into a five-year term note.  The equipment term loan was discharged in full on December 29, 2017 as part of the asset based credit and security agreement described above.



Other debt



Equipment notes



In January 2013, the Company entered into two equipment notes totaling $272,500 with a financing company to acquire production equipment. The notes bear interest at 4.66% and require monthly payments of principal and interest totaling approximately $5,000 over the term of five years.  The equipment notes were paid in full as of December 31, 2017.



Subordinated promissory notes



In December 2013, the Company completed a private offering in which the Company sold an aggregate of $500,000 in subordinated promissory notes and issued warrants to purchase 100,000 shares of common stock. The unsecured notes required quarterly

F- 17


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

interest-only payments at a rate of 10% per annum for the first two years.  In December 2015, the interest rate increased to 12% per annum.  Three related parties participated in the private offering as follows:  REF Securities, LLP, and with Mr. Rodd E. Friedman, a director of the Company since July 21, 2017, a beneficial owner of approximately 12% of the Company’s common stock, invested $100,000 in the offering; the Chambers Medical Foundation (the “Foundation”), beneficial owner of approximately 11% of the Company’s common stock, invested $100,000 in the offering; and Mr. E.P. Marinos, then a director, invested $50,000 in the offering.  The Company’s Chairman of the Board is a co-trustee of the Foundation but has held no dispositive powers since his appointment as such.



In October 2016, the Company and six of the seven investors in the private offering, aggregating $450,000 of the notes, including the three related parties holding $250,000 of the notes, agreed to extend the maturity dates of the notes to December 31, 2018 at a rate of 10% per annum.  One investor did not extend the maturity date and that $50,000 note was paid at maturity in December 2016.   In the fourth quarter of 2016, the Company calculated the incremental fair value of extending the expiration date of the Notes and Warrants and determined that the amendment represented a debt modification in accordance with the guidance outlined in ASC-470, “Debt”.  Using the Black-Scholes model, and the 10% test, the Company determined that the incremental fair value of the warrants to be $18,310 which was recorded as a reduction against the Notes and an increase in Additional Paid-in Capital in 2016.



The discount on the notes is being recognized as non-cash interest expense over the term of the notes. The Company recorded $17,989 and $27,186 for the years ended December 31, 2017 and 2016, respectively.  The unamortized discount, which is net against the outstanding balance of the subordinated promissory notes, was $0 at December 31, 2017 and $17,989 at December 31, 2016.  The unamortized discount was fully amortized onto the balance sheet on December 29, 2017 as a result of the asset based credit and security agreement providing for the discharge of the subordinated promissory notes before or immediately after December 31, 2017.



On December 29, 2017, as part of entering into the three-year asset based credit and security agreement, the Company obtained funds to discharge the remaining $450,000 of subordinated debt.  On December 29, 2017, the Company paid one of the subordinated notes in the principal amount of $100,000.  The remaining five notes, totaling an aggregate principal amount $350,000, were discharged on January 2, 2018, including the subordinated notes held by the three related parties mentioned above.  The Company carried $350,000 as restricted cash at December 31, 2017 for this purpose.



In connection with the private offering of subordinated promissory notes, the Company issued 100,000 warrants to purchase the Company's common stock, including 20,000 warrants to REF Securities, LLP, 20,000 warrants to the Foundation and 10,000 warrants to Mr. Marinos.  The warrants were initially exercisable through December 2016 at an exercise price of $3.51 per share.  In October 2016, in connection with the extension of the maturity dates of the subordinated promissory notes, the expiration date of the remaining unexercised 70,000 warrants was extended to December 31, 2018.  The discharge of the subordinated promissory notes as described above did not affect the maturity date of the warrants.  The exercise price remained unchanged at $3.51 per share.  No warrants were exercised in 2017 or 2016.  The 70,000 warrants remain unexercised at December 31, 2017.



Future maturities of debt for the years ending December 31 are as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



2018

 

2019

 

2020

 

2021

 

2022

Thereafter

 

Total

Revolver

$

1,879,047 

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 —

 

$

1,879,047 

Subordinated promissory notes

 

350,000 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 —

 

 

350,000 

Machinery and equipment note

 

327,381 

 

 

357,143 

 

 

1,815,476 

 

 

 —

 

 

 —

 —

 

 

2,500,000 

Real estate note

 

91,667 

 

 

100,000 

 

 

1,808,333 

 

 

 —

 

 

 —

 —

 

 

2,000,000 

Total

$

2,648,095 

 

$

457,143 

 

$

3,623,809 

 

$

 —

 

$

 —

 —

 

$

6,729,047 

 

F- 18


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

6.  Income Taxes



The income tax provision consists of the following:







 

 

 

 

 

 



 

 

 

 

 

 



 

Year Ended



 

December 31,



 

2017

 

2016

Current:

 

 

 

 

 

 

Federal

 

$

 —

 

$

 —

State

 

 

2,140 

 

 

 —

Total current income taxes

 

 

2,140 

 

 

 —

Deferred:

 

 

 

 

 

 

Federal

 

 

(3,100)

 

 

 —

State

 

 

 —

 

 

 —

Total deferred income taxes

 

 

(3,100)

 

 

 —

Total income tax benefit

 

$

(960)

 

$

 —



The components of deferred income taxes are as follows:







 

 

 

 

 

 



 

 

 

 

 

 



 

Year Ended



 

December 31,



 

2017

 

2016

Deferred tax assets:

 

 

 

 

 

 



 

 

 

 

 

 

Net operating loss carryforwards

 

$

2,936,800 

 

$

3,671,600 

Federal and state tax credit carryforwards

 

 

517,700 

 

 

493,800 

Accruals and reserves

 

 

81,500 

 

 

104,600 

Stock based compensation

 

 

64,300 

 

 

96,000 

Patents and intangibles

 

 

22,000 

 

 

51,100 

Other long-term

 

 

21,400 

 

 

500 

    Total long-term deferred tax assets

 

 

3,643,700 

 

 

4,417,600 



 

 

 

 

 

 

Deferred tax valuation allowance

 

 

(3,172,100)

 

 

(3,812,900)

Deferred tax assets, net of allowance

 

 

471,600 

 

 

604,700 



 

 

 

 

 

 

Property, plant and equipment

 

 

(45,300)

 

 

(544,000)

Prepaid expenses

 

 

(423,200)

 

 

(60,700)

    Total deferred tax liabilities

 

 

(468,500)

 

 

(604,700)



 

 

 

 

 

 

Net deferred tax assets

 

$

3,100 

 

$

 —



In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax-planning strategies in making this assessment. As of December 31, 2017, the Company continues to maintain a valuation allowance against all of its deferred tax assets except for its AMT Credit carryforward, which is treated as a refundable attribute under the amendments to the tax laws enacted in December 2017 and is included in other assets on the Company’s consolidated balance sheet.



In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting”, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows. The standard became effective beginning with the first quarter of 2017.  As a result of the Company’s adoption of ASU No. 2016-09 in 2017, the Company recognizes the excess tax benefits as a reduction of income tax expense regardless of whether the benefit reduces

F- 19


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

income taxes payable. The Company has elected to continue to estimate and apply a forfeiture rate based on awards expected to vest.  The adoption of this standard had no impact on the Company's consolidated financial statements.



On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The Tax Reform Act makes broad and complex changes to the U.S. tax code that affect fiscal 2017 including, but not limited to, a reduction of the U.S. federal corporate tax rate from 35% to 21% starting 1/1/2018, changes to bonus depreciation starting late September 2017, repeal of the domestic manufacturing deduction, and the elimination of the Alternative Minimum Tax starting in 2018.  As a result of the Tax Reform Act, the Company has remeasured its deferred tax assets as of December 31, 2017 to the new 21% federal tax rate, which resulted in a reduction of $1,002,994 to the net deferred tax asset, offset by a corresponding change to the valuation allowance.  



In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for income tax effects of the Tax Reform Act.  The final amounts may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Reform Act.



For the year ended December 31, 2017 , the Company has federal and state net operating loss carryforwards totaling $10,275,000 and $12,317,000 respectively, which begin to expire in 2031. The Company also had federal and state tax credit carryovers of $306,000 and $268,000, respectively. The federal and state credits begin to expire in 2027 and 2017, respectively.



The Company files a consolidated federal income tax return.  The actual income tax provision differs from applying the Federal statutory income tax rate (34%) to the pre-income tax loss from continuing operations as follows:





 

 

 

 

 

 



 

 

 

 

 

 



 

Year Ended



 

December 31,



 

2017

 

2016

Tax benefit computed at statutory rate

 

$

(461,347)

 

$

(250,071)

Increases (reductions) due to:

 

 

 

 

 

 

Change in valuation allowance

 

 

(640,800)

 

 

340,600 

State income taxes, net of federal benefit

 

 

1,431 

 

 

(27,646)

Permanent differences

 

 

13,636 

 

 

15,124 

Tax credits (federal and state)

 

 

(73,618)

 

 

(32,577)

Change in tax rates

 

 

1,002,994 

 

 

 —

Differences on prior returns (federal and state)

 

 

156,744 

 

 

(45,430)

Income tax benefit

 

$

(960)

 

$

 —



The Company follows the provisions of ASC 740, “Accounting for Uncertainty in Income Taxes - An Interpretation of SFAS No. 109” (“ASC 740”).  ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements in accordance with SFAS No. 109. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods. No interest and penalties related to uncertain tax positions were accrued at December 31, 2017. 



The Company’s tax years ended December 31, 2014 or later remain subject to examination by the IRS and state taxing authorities.







7.  Employee Benefit Plans



The Company sponsors an Employee Savings and Investment Plan under Section 401(k) of the Internal Revenue Code covering all eligible employees of the Company.  Employees can contribute up to 90% of their eligible compensation to the maximum allowable by the IRS.  The Company’s matching contributions are at the discretion of the Company.  The Company’s matching contributions in 2017 and 2016 were $42,215 and $41,072, respectively.

 

F- 20


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

8.  Commitments and Contingencies



Legal matters



In the ordinary course of its business, the Company is involved in various legal proceedings involving a variety of matters. The Company does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position or results of operations.



Operating lease agreements



Lease expense under all operating leases was approximately $24,954 and $20,453 for the years ended December 31, 2017 and 2016, respectively.  Future minimum lease payments for the years ending December 31 are as follows:







 

 

 

 

 

 

 

 



 

 

2018

$

19,191 

 

 

 



 

 

2019

 

17,191 

 

 

 



 

 

2020

 

17,191 

 

 

 



 

 

2021

 

10,028 

 

 

 

 

9.  Shareholders’ equity



Common stock



In 2017, the Company issued 22,635 shares of the Company’s common stock from treasury, pursuant to the 2010 Equity Incentive Plan, with a fair value of $88,524 for director fees in lieu of cash payments.  No such grants were issued in 2016.



In 2017, no shares were issued as a result of the exercise of stock options.  In 2016, 15,000 shares were issued from treasury as a result of the exercise of stock options. 



No warrants were exercised in 2017 or 2016. 



No dividends were declared or paid in 2017 or 2016.



Warrants



In connection with the subordinated promissory notes issued in December 2013 (see Note 5), the Company issued warrants to purchase 100,000 shares of the Company's common stock. The warrants were exercisable through December 2016 at an exercise price of $3.51 per share.  In 2014, 30,000 warrants were exercised.  No warrants were exercised in 2015 or 2016.  In October 2016, in connection with the extension of the maturity dates of the subordinated promissory notes, the expiration date of the remaining 70,000 warrants was extended to December 31, 2018.  The Company determined that the amendment represented a debt modification and did not constitute an extinguishment for accounting purposes (see Note 5).  The exercise price remained unchanged at $3.51 per share.  The 70,000 warrants remain unexercised at December 31, 2017.



Stock options and Share-Based Incentive Plan



In March 2010, the Company's Board of Directors adopted the Micron Solutions, Inc. 2010 Equity Incentive Plan (the “Plan”). The Plan authorizes the issuance of an aggregate of 500,000 shares. The Plan provides the Company flexibility to award a mix of stock options, equity incentive grants, performance awards and other types of stock-based compensation to certain eligible employees, non-employee directors, or consultants and under which an aggregate of 500,000 shares have been reserved for such grants. The options granted have ten year contractual terms that vest annually between three to five-year terms.



At December 31, 2017, there were options to acquire an aggregate of 205,500 shares outstanding. At December 31, 2016, there were options to acquire an aggregate of 214,500 shares outstanding.



At December 31, 2017 and 2016, there were 282,000 and 273,000 shares available for future grants under the Plan, after giving effect to shares which became available for reissuance due to expired or forfeited options.



The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of the Common Stock using

F- 21


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

historical periods consistent with the expected term of the options. The expected term of options granted under the Company’s equity incentive plan, all of which qualify as “plain vanilla,” is based on the average of the contractual term and the vesting period as permitted under SEC Staff Accounting Bulletin Nos. 107 and 110. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option.



During 2016 there were 45,000 new option grants.  No options were granted in 2017. The assumptions used to measure the fair value of option grants in 2017 and 2016 were as follows:







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

Year Ended



 

December 31,



 

2017

 

2016

Expected option term

 

 

-

 

 

 

6.0 to 6.5

 

Expected volatility factor

 

 

-

 

 

 

23.7% to 24.4%

 

Risk-free rate

 

 

-

 

 

 

0.90% to 0.99%

 

Expected annual dividend yield

 

 

-

 

 

 

—%

 



The following table sets forth the stock option transactions for the year ended December 31, 2017:







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Weighted

 

 

 



 

 

 

Weighted

 

average

 

 

 



 

 

 

Average

 

remaining

 

Aggregate



 

Number of

 

Exercise

 

contractual

 

Intrinsic



 

options

 

Price

 

term (in years)

 

Value

Outstanding at December 31, 2016

 

214,500 

 

$

5.96 

 

7.12 

 

$

17,340 

Forfeited

 

(7,000)

 

 

4.26 

 

 

 

 

 

Expired

 

(2,000)

 

 

3.67 

 

 

 

 

 

Outstanding at December 31, 2017

 

205,500 

 

$

6.04 

 

6.07 

 

$

28,750 

Exercisable at December 31, 2017

 

114,583 

 

$

6.42 

 

5.30 

 

$

20,551 

Exercisable at December 31, 2016

 

109,495 

 

$

6.90 

 

5.47 

 

$

8,880 



The total intrinsic value of options exercised during 2016 was $30,600. For the years ended December 31, 2017 and 2016, share-based compensation expense related to stock options and the non-cash issuance of common stock amounted to $48,129 and $47,256, respectively, and is included in general and administrative expenses. As of December 31, 2017, there was $79,737 of unrecognized compensation costs, respectively, related to non-vested share-based compensation arrangements granted under the stock option plan.  This cost is expected to be recognized over a weighted average period of 1.7 years.  The weighted average grant date fair value of options issued in 2016 was $1.05.

 

10.  Earnings per share



Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding.  The computation of diluted earnings (loss) per share is similar to the computation of basic earnings (loss) per share except that the denominator is increased to include the average number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.  In addition, the numerator is adjusted for any changes in net income (loss) that would result from the assumed conversions of those potential shares.



As of December 31, 2017 there were options to purchase 205,500 shares and warrants to purchase 70,000 shares of the Company's common stock outstanding, all of which were anti-dilutive. Therefore, none of these options or warrants were included in the calculation of loss per share in 2017.



As of December 31, 2016 there were options to purchase 214,500 shares and warrants to purchase 70,000 shares of the Company's common stock outstanding, all of which were anti-dilutive. Therefore, none of these options or warrants were included in the calculation of loss per share in 2016.



F- 22


 

Table of Contents

Micron Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

The following table shows the calculation of earnings (loss) per share for the years ended December 31, 2017 and 2016:







 

 

 

 

 

 



 

 

 

 

 

 



 

Year Ended



 

December 31,



 

2017

 

2016

Net loss

 

$

(1,355,096)

 

$

(712,462)

Net loss available to common shareholders

 

$

(1,355,096)

 

$

(712,462)

Basic EPS:

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

2,824,061 

 

 

2,816,516 

Earnings (loss) per share - basic and diluted

 

$

(0.48)

 

$

(0.25)

 



11.  Industry and Geographic Segments



The Company’s Chief Operating and Decision Maker ("CODM") manages the operations and reviews the results of operations as a single reporting unit. While the Company operates its business as one segment, the Company has diversified manufacturing capabilities as evidenced by its product offerings across several industry categories supporting customers around the globe.



The following table sets forth, for the periods indicated, the consolidated revenue and percentages of revenue derived from the sales of the Company's products and services in certain industries.







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

Revenue for the Year Ended December 31,



 

2017

 

   %

 

2016

 

%

Medical

 

$

15,170,382 

 

76 

 

$

14,543,315 

 

74 

Automotive/Industrial

 

 

3,648,393 

 

18 

 

 

3,787,312 

 

19 

Military and Law Enforcement

 

 

417,358 

 

 

 

744,738 

 

Consumer Products

 

 

848,210 

 

 

 

383,254 

 

Other

 

 

18,319 

 

 —

 

 

179,598 

 

Total

 

$

20,102,662 

 

100 

 

$

19,638,217 

 

100 



The following table sets forth, for the periods indicated, the consolidated revenue and percentages of revenue derived from the sales of all of the Company's products and services by geographic market.







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

Revenue for the Year Ended December 31,



 

2017

 

   %

 

2016

 

%

United States 

 

$

11,721,117 

 

58 

 

$

12,206,761 

 

62 

Asia

 

 

4,641,806 

 

23 

 

 

4,283,180 

 

22 

Europe 

 

 

1,629,297 

 

 

 

1,677,100 

 

Canada 

 

 

1,998,683 

 

10 

 

 

1,268,817 

 

Other 

 

 

111,759 

 

 

 

202,359 

 

Total 

 

$

20,102,662 

 

100 

 

$

19,638,217 

 

100 

 

12.  Subsequent Events



Discharge of subordinated debt



On December 29, 2017, upon entering into the three-year asset based credit and security agreement, the Company obtained funds to discharge the remaining $450,000 of subordinated debt.  On December 29, 2017, the Company discharged one of the subordinated notes in the principal amount of $100,000.  The remaining five notes, totaling in aggregate outstanding principal amount of $350,000, were discharged on January 2, 2018, including the subordinated notes held by the three related parties mentioned above (see Note 5 to the consolidated financial statements).  The Company carried $350,000 as restricted cash at December 31, 2017 for this purpose.





F- 23


Exhibit 10.70

 

CREDIT AND SECURITY AGREEMENT



THIS CREDIT AND SECURITY AGREEMENT (this “ Agreement ”), dated as of December 29, 2017, is between MICRON PRODUCTS INC., a Massachusetts corporation (“ Borrower ”) and ROCKLAND TRUST COMPANY, a Massachusetts trust company (“ Lender ”). Except as set forth in Section 7.1 , capitalized terms used and not otherwise defined in this Agreement shall have the meanings given to them in Schedule A annexed hereto.



The parties agree as follows:



ARTICLE I

CREDIT TERMS



SECTION 1.1     LINE OF CREDIT .



(a)     Advances . Subject to the terms and conditions of this Agreement, Lender shall make Advances to Borrower under this Section 1.1 from time to time up to and including the Termination Date, in a total amount at any time outstanding not to exceed the lesser of (i) the Maximum Revolver Amount and (ii) the Borrowing Base. In no event shall the aggregate outstanding Advances exceed the Maximum Revolver Amount.



(b)     Determination of Borrowing Base . The Borrowing Base will be determined by Lender upon receipt and review of all collateral reports required under this Agreement pursuant to Schedule E attached hereto.



(c)     Borrowing and Repayment . Borrower may from time to time prior to the Termination Date request Advances, partially or wholly repay amounts outstanding under the Line of Credit, and request to re-borrow the same, subject to all of the limitations, terms and conditions contained in this Agreement. Any request for an Advance must be received by Lender no later than 10:00 a.m. (Eastern time) on the Business Day immediately preceding the Business Day that funding is requested. If Lender has received a timely request for an Advance in accordance with the provisions hereof, and subject to the satisfaction of the applicable terms and conditions set forth herein, Lender shall fund such Advance on the requested funding date; otherwise if such request is after 10:00 a.m. (Eastern time) on a Business Day, the next succeeding Business Day. All Advances will be repaid by Borrower even if the Person requesting the Advance on behalf of Borrower lacks authorization.



(d)     Protective Advances: Advances to Pay Obligations Due . Lender may make Advances under the Line of Credit in its sole discretion without request of Borrower and without Borrower's compliance with any of the conditions of this Agreement, to (i) pay third Persons in order to protect Lender's interest in Collateral or to perform any of Borrower's obligations under this Agreement, or (ii) pay any Obligations then due and payable.



SECTION 1.2     REAL ESTATE TERM LOAN .



(a)    Subject to the terms and conditions of this Agreement, on the Closing Date Lender agrees to make a term loan (the “ Real Estate Term Loan ”) to Borrower in an amount equal to the Real Estate Term Loan Amount. The Real Estate Term Loan shall be repaid in equal monthly payments of $8,333.33, payable on the first day of each month commencing February 1, 2018. As set forth in Section 1.7(a) , the outstanding principal balance of the Real Estate Term Loan shall be due and payable on the Termination Date.



(b)    Any prepayment of the Real Estate Term Loan shall be accompanied by a prepayment premium equal to 3% of the principal amount prepaid during the period from the Closing Date until the first anniversary thereof, 2% of the principal amount prepaid during the period thereafter until the second anniversary thereof, and 1% of the principal amount prepaid during the period thereafter until the third anniversary thereof. Each prepayment of the Real Estate Term Loan shall be accompanied by all interest thereon and shall be applied to principal in the inverse order of maturity.



SECTION 1.3     M&E TERM LOAN .



(a)    Subject to the terms and conditions of this Agreement, on the Closing Date Lender agrees to make a term loan (the “ M&E Term Loan ”) to Borrower in an amount equal to the M&E Term Loan Amount. The M&E Term Loan shall be repaid in equal monthly payments of $29,761.90, payable on the first day of each month commencing February 1, 2018. As set forth in Section 1.7(a) , the outstanding principal of the M&E Term Loan shall be due and payable on the Termination Date.


 

(b)    Any prepayment of the M&E Term Loan shall be accompanied by a prepayment premium equal to 3% of the principal amount prepaid during the period from the Closing Date until the first anniversary thereof, 2% of the principal amount prepaid during the period thereafter until the second anniversary thereof, and 1% of the principal amount prepaid during the period thereafter until the third anniversary thereof. Each prepayment of the M&E Term Loan shall be accompanied by all interest thereon and shall be applied to principal in the inverse order of maturity.





SECTION 1.4     PAYMENTS AND COLLECTIONS .



(a)     Collection Accounts, Etc . All payments by Borrower will be made as specified in the Loan Documents or as otherwise directed by Lender, without setoff, counterclaim or defense. Within 30 days of the Closing Date, Borrower shall establish and maintain at Lender, at the expense of Borrower, such blocked accounts or such lockboxes and related blocked accounts with Lender may specify (collectively, the “ Collection Accounts ”). Borrower shall use commercially reasonable efforts to cause all payments of Accounts and other Collateral to be remitted, and Borrower shall instruct and use commercially reasonable efforts to cause all Account Debtors obligated in respect of such Accounts to remit all payments, to the Collection Accounts or as otherwise directed by Lender. Without prior written consent of Lender, Borrower shall (i) not withdraw any funds from any Collection Account, (ii) cause all funds on deposit in or deposited into the Collection Accounts to be remitted to Lender, on a daily basis, at Lender's Account and (iii) execute and deliver to Lender, in form and substance satisfactory to Lender, a deposit account control agreement with respect to each Collection Account (collectively, the “ Deposit Account Control Agreements ”), including each Collection Account existing at the Closing Date and whether or not maintained at Lender. Each Deposit Account Control Agreement shall provide for remittance to Lender at Lender's Account, on a daily basis, of all funds on deposit in or deposited into the Collection Accounts. Lender is irrevocably authorized, at any time, to give instructions pursuant to such Deposit Account Control Agreements directing the disposition of funds in the Collection Accounts to Lender's Account or to such other account(s) as Lender may determine. If any Obligor receives payment or the proceeds of Collateral directly, Borrower shall or shall cause such other Obligor, as applicable, to promptly deposit, and in any event on or before the next Business Day following receipt thereof, such payment or proceeds into a Collection Account (or, prior to the opening of such Collection Accounts, to Lender's Account or as otherwise directed by Lender). Until so deposited, Borrower shall hold, or as applicable shall cause such Obligor to hold, all such payments and proceeds in trust for Lender without commingling with other funds or property. Borrower shall, at the request of Lender, deliver to Lender bank statements for the Collection Accounts and grant Lender access, including by all available electronic means, to such Collection Accounts.



(b)     Application of Payments . All payments of and proceeds of Collateral received by Lender, in immediately available funds, will be applied (i) so long as no Event of Default has occurred and is continuing, to reduce the balance of the Advances then outstanding and, thereafter, to Borrower or such other Person entitled thereto under applicable law and (ii) if an Event of Default has occurred and is continuing, to reduce the Obligations then due in such manner as Lender determines in its sole discretion. After payment in full in cash of all Obligations, any remaining balance shall be paid to Borrower or such other Person entitled thereto under applicable law. For purposes of calculating Availability, each payment will be applied to the Obligations as of the first Business Day following receipt by Lender in Lender's Account of such payment in immediately available funds, provided such payment is received in accordance with Lender's usual and customary practices as in effect from time to time. Any payment received by Lender that is not a transfer of immediately available funds will be considered provisional until the item or items representing such payment have been finally paid under applicable law. Should any payment item not be honored when presented for payment, then Borrower will be deemed not to have made such payment, and that portion of Borrower's outstanding Obligations corresponding to the amount of such dishonored payment item will be deemed to bear interest as if the dishonored payment item had never been received by Lender. Each reduction in outstanding Obligations resulting from the application to such Obligations of payments of Accounts will be accompanied by an equal reduction in the amount of outstanding Accounts.



(c)     Loan Account; Clearance Charge . Lender will record in the Loan Account all Advances made by Lender, the Real Estate Term Loan, the M&E Term Loan and all other payment Obligations, and the Revolver Note, the Real Estate Term Loan Note and the M&E Term Loan Note also shall evidence the Advances, the Real Estate Term Loan the M&E Term Loan, respectively. Borrower authorizes Lender to collect all principal, interest and fees due under the Line of Credit and with respect to the Real Estate Term Loan and M&E Term Loan by charging the Loan Account and, any contrary provision of this Agreement or any other Loan Document notwithstanding, the charging thereof will be deemed to be an Advance and will bear interest at the rate per annum applicable thereto. All Collections received by Lender will be applied as provided in Section 1.4(b) .   All postings to the Loan Account shall be subject to subsequent adjustment by Lender but shall, absent manifest error, be conclusively presumed to be correct and accurate. All monthly statements relating to the Loan Account or such account will be conclusively presumed to be

- 2 -


 

correct and accurate and constitute an account stated between Borrower and Lender unless Borrower delivers written objection to Lender within 45 days after receipt by Borrower. Advances paid with Collections will continue to accrue interest at the rate then applicable to Advances for the number of Settlement Days following the Business Day that such Collections were applied to the Obligations. Any such clearance charge on Collections is acknowledged by the parties to constitute an integral aspect of the pricing of the financing of Borrower. The parties acknowledge and agree that the economic benefit of these provisions will accrue exclusively to Lender.



(d)     Mandatory Payment of Advances . If at any time an Overadvance Amount is outstanding, then Borrower shall immediately upon demand by Lender repay the Advances in an aggregate amount equal to such Overadvance Amount.



SECTION 1.5     INTEREST/FEES .



(a)     Interest . Except as provided in Section 1.5(b) or Section 1.5(c) , the outstanding principal balances of Advances, the Real Estate Term Loan, and the M&E Term Loan (collectively, the “ Loans ”) will bear interest on the Daily Balance of such Loans, as applicable, at a variable per annum rate equal to the Contract Prime Rate.



(b)     LIBOR Option . In lieu of having interest charged at the Contract Prime Rate, Borrower shall have the option (the “ LIBOR Option ”) to have interest on all of the Loans be charged at a rate of interest equal to the Contract LIBOR Rate. On the last day of each applicable month, unless Borrower properly has exercised the LIBOR Option with respect to the outstanding balances of the Loans, the interest rate applicable to such principal balances automatically shall convert to the Contract Prime Rate. At any time that an Event of Default has occurred and is continuing, Borrower no longer shall have the option to request that the outstanding principal balances of the Loans bear interest at a rate based upon Daily One Month LIBOR and Lender shall have the right to convert the interest rate on such outstanding principal balances to the Contract Prime Rate. Borrower may, at any time and from time to time, so long as no Event of Default has occurred and is continuing, elect to exercise the LIBOR Option by notifying Lender prior to 2:00 p.m. Eastern Time at least two Business Days prior to the commencement of any month (the “ LIBOR Deadline ”). Notice of Borrower's election of the LIBOR Option shall be made by delivery to Lender of LIBOR Notice, received by Lender in writing, or by telephonic notice received by Lender before the LIBOR Deadline (to be confirmed by delivery to Lender of a LIBOR Notice received by Lender prior to 3:00 p.m. on the same day).



(c)     Default Rate . During a Default Period, and at any time following the Termination Date, the outstanding principal balances of the Loans will, at the sole discretion of Lender, bear interest on the Daily Balance of such Obligations at the Default Rate. Lender may assess the Default Rate commencing as of the date of the occurrence of an Event of Default or as of any date after the occurrence of an Event of Default regardless of the date of reporting or declaration of such Event of Default.



(d)     Payment of Interest . Interest will be payable monthly in arrears on the first day of each month and on the Termination Date, commencing February 1, 2018. After the Termination Date, interest will be payable on demand.



(e)     Payment of Fees . Borrower will pay to Lender the fees set forth in Schedule B-2 , all of which shall be fully earned and payable when due, may be charged by Lender to the Loan Account and shall not be subject to refund, rebate or proration for any reason whatsoever.



(f)     Computation of Interest and Fees . Interest and fees will be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.



SECTION 1.6     ADDITIONAL COSTS .



(a)     Capital Requirements . Borrower will pay Lender, on demand, for Lender's costs or losses arising from any Change in Law which are allocated to this Agreement or any credit outstanding under this Agreement. The allocation will be made as determined by Lender, using any reasonable method. The costs include, without limitation, (i) any reserve or deposit requirements (excluding any reserve requirement already reflected in the calculation of the interest rate in this Agreement), and (ii) any capital requirements relating to Lender's assets and commitments for credit.



(b)     Illegality; Impractibility; Increased Costs . In the event that (i) any change in market conditions or any Change in Law makes it unlawful or impractical for Lender to fund or maintain extensions of credit with

- 3 -


 

interest based upon Daily One Month LIBOR or to continue to so fund or maintain, or to determine or charge interest rates based upon Daily One Month LIBOR, (ii) Lender determines that by reasons affecting the London Interbank Eurodollar market, adequate and reasonable means do not exist for ascertaining Daily One Month LIBOR, or (iii) Lender determines that the interest rate based on the Daily One Month LIBOR will not adequately and fairly reflect the cost to Lender of maintaining or funding Loans at the interest rate based upon Daily One Month LIBOR, Lender will give notice of such changed circumstances to Borrower and interest on the principal amount of such extensions of credit will then accrue interest at a rate equal to the Contract Prime Rate until Lender determines that the conditions described in clauses (i) through (iii) no longer exist.



SECTION 1.7     TERM AND TERMINATION .



(a)     Termination Date . On the Termination Date, (i) the Line of Credit will terminate,(ii) Borrower shall have no right to request further Advances or other extensions of credit under this Agreement, (iii) all of the Obligations including without limitation, the Termination Fee, if any, will immediately become due and payable without notice or demand, and (iv) Borrower will immediately repay all of the Obligations in full. No termination of this Agreement will relieve or discharge the Obligors of their duties, obligations, or covenants under this Agreement or under any other Loan Document. Lender may require cash collateralization of Obligations with respect to any then existing Bank Product in an amount determined by Lender as sufficient to satisfy the reasonably estimated credit exposure therefor.



(b)     Termination of Liens, etc . Upon satisfaction of the Lien Release Conditions, Lender will, at Borrower's expense, release or terminate any filings or other agreements that perfect the Liens granted to Lender under the Loan Documents in the Collateral.



(c)     Termination by Borrower . Subject to payment of any prepayment premium provided hereunder, Borrower may terminate the Line of Credit at any time prior to any Maturity Date, if it (i) pays to Lender the applicable termination fee specified in this Agreement, and (ii) pays the Obligations in full. Any such termination will be irrevocable.



(d)     Termination by Lender . Lender may terminate the Line of Credit, immediately and without any advance notice to Borrower, upon the occurrence of an Event of Default or at any time when a Default Period exists.



ARTICLE II

SECURITY INTERESTS



SECTION 2.1     GRANT OF SECURITY INTEREST . As security for the Obligations, Borrower hereby grants to Lender a continuing security interest in and Lien upon all of the Collateral.



SECTION 2.2     PERFECTION . Borrower shall take, and shall cause each other Obligor to take, all actions reasonably requested by Lender from time to time to cause the attachment, perfection and, subject to Permitted Liens, first priority of, and Lender's ability to enforce, Lender's security interest in and Lien upon any and all of the Collateral. Borrower irrevocably and unconditionally authorizes Lender (or Lender's agent) to complete and file, and Borrower ratifies such filing, at any time and from time to time, without notice to Borrower, such financing statements with respect to the Collateral naming Lender as the secured party and Borrower as debtor, as Lender may reasonably require, together with all amendments and continuations with respect thereto. Any such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Lender's discretion.



SECTION 2.3     OTHER COLLATERAL .



(a)     Commercial Tort Claims . Borrower shall promptly notify Lender in writing if it has a Commercial Tort Claim (other than, as long as no Default or Event of Default exists, a Commercial Tort Claim for less than $50,000) and shall take such actions as Lender deems appropriate to subject such claim to a duly perfected, first priority Lien in favor of Lender.



(b)     Certain After-Acquired Collateral . Borrower shall promptly notify Lender in writing if, after the Closing Date, it obtains any interest in any Collateral consisting of Deposit Accounts, Chattel Paper (with a face value greater than $25,000), Documents, Instruments (with a face value greater than $25,000), Intellectual Property, Investment Property or Letter-of-Credit Rights (with a face value greater than $25,000) and, upon Lender's request,

- 4 -


 

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 or control agreement.



(c)     Real Estate Collateral . On the Closing Date, to secure the Obligations, Borrower will grant to Lender mortgages, assignments of rents, and security interests, in form and substance satisfactory to Lender, in the Real Estate Collateral.



SECTION 2.4     FURTHER ASSURANCES . Borrower shall, at its own cost and expense, promptly and duly take, execute, acknowledge and deliver (or cause such other applicable Person to take, execute, acknowledge and deliver) all such acts, documents, agreements and instruments as may from time to time be necessary or desirable as determined by Lender or as Lender may from time to time reasonably require in order to (a) carry out the intent and purposes of the Loan Documents and the transactions contemplated thereby, (b) establish, create, preserve, protect and perfect a first priority Lien (subject only to Permitted Liens) in favor of Lender in all real and personal property (wherever located) from time to time owned by any Corporate Obligors and in all Stock and from time to time issued by Corporate Obligors (other than Borrower), (c) cause each Subsidiary of Borrower or other Corporate Obligor which is not a CFC to guarantee all of the Obligations, all pursuant to documentation that is in form and substance reasonably satisfactory to Lender, and (d) facilitate the collection of the Collateral. Without limiting the foregoing, Borrower shall, and shall cause each other Obligor to, at its own cost and expense, promptly and duly take, execute, acknowledge and deliver (or cause such other applicable Person to take, execute, acknowledge and deliver) to Lender all promissory notes, security agreements, agreements with landlords, mortgagees and processors and other bailees, subordination and intercreditor agreements and other agreements, instruments and documents, in each case in form and substance reasonably acceptable to Lender, as Lender may request from time to time to perfect, protect, and maintain Lender's security interests in the Collateral, including the required priority thereof, and to fully carry out the transactions contemplated by the Loan Documents.



SECTION 2.5     WAIVERS . Borrower waives any right to require Lender to (a) proceed against any Obligor or any other Person, (b) marshal assets or proceed against or exhaust any security from any Obligor or any other Person, (c) perform any obligation of any Obligor with respect to any Collateral, and (d) make any presentment or demand, or give any notice of nonpayment or nonperformance, protest, notice of protest or notice of dishonor hereunder or in connection with any Collateral.



ARTICLE III

REPRESENTATIONS AND WARRANTIES



Borrower makes the following representations and warranties to Lender, which representations and warranties will survive the execution of this Agreement.



SECTION 3.1     LEGAL STATUS . Each Corporate Obligor is duly organized, validly existing and in good standing under the laws of the State of its organization and is qualified or licensed to do business and is in good standing in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could reasonably be expected to cause a Material Adverse Change. Each Corporate Obligor possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law, except where the failure to so possess the same could not reasonably be expected to cause a Material Adverse Change.



SECTION 3.2     AUTHORIZATION AND VALIDITY . The Loan Documents have been duly authorized and constitute legal, valid and binding agreements and obligations of each Obligor party thereto, enforceable in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally. The execution, delivery and performance by each Obligor of each of the Loan Documents to which it is a party do not (a) violate any provision of any law or regulation, (b) contravene any provision of any Obligor's organizational documents, (c) result in any breach of or default under any material contract, obligation, indenture or other instrument to which any Obligor is a party or by which any Obligor or its assets may be bound, (d) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, or (e) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority except to the extent related to the perfection of Lender's Liens in the Collateral and to compliance with the Assignment of Claims Act.

- 5 -


 

SECTION 3.3     LITIGATION . There are no pending, or to Borrower's knowledge on the Closing Date threatened, actions, claims, investigations, suits or proceedings by or before any Governmental Authority, arbitrator, court or administrative agency which could reasonably be expected to cause a Material Adverse Change other than those disclosed in Schedule C .



SECTION 3.4     FINANCIAL STATEMENTS . The annual financial statements of Borrower and its Subsidiaries dated for such Borrower's most recent fiscal year ended, and all interim financial statements delivered to Lender since such date and prior to the date of this Agreement (a) are complete and correct and present fairly the financial condition of Borrower and its Subsidiaries, (b) disclose all liabilities of Borrower and its Subsidiaries that are required to be reflected or reserved against GAAP, whether liquidated or unliquidated, fixed or contingent, and (c) have been prepared in accordance with GAAP consistently applied except, in the case of internally prepared statements, for year-end adjustments and the lack of footnotes).



SECTION 3.5     TAXES . Each Obligor has timely filed (taking into account any requested extension) all tax returns and reports of such Obligor required to be filed by it, and paid when due all taxes (including payroll taxes) shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon such Obligor and its assets, income, businesses and franchises that are due and payable except taxes, assessments, fees and governmental charges which are subject to Permitted Protests. Borrower is not aware of any unpaid material tax (including payroll tax) or assessment or proposed tax (including payroll tax) or assessment against any Obligor except (a) as set forth in Schedule C and (b) taxes (including payroll taxes) owing for current or future periods that are not yet due and payable.



SECTION 3.6     SOLVENCY . Corporate Obligors, taken as a whole, are solvent, are able to pay their debts as they mature, have capital sufficient to carry on their businesses and all businesses in which they are about to engage and the fair saleable value of their assets (calculated on a going concern basis) is in excess of their liabilities.



SECTION 3.7     COMPLIANCE WITH LAWS, ETC . Each Corporate Obligor operates its business in material compliance with all applicable local, state and federal laws, except to the extent non-compliance therewith could not reasonably be expected to cause a Material Adverse Change.



SECTION 3.8     ACCURACY OF INFORMATION . All of the written information submitted by Obligors to Lender and all written disclosures, representations, and warranties made by Obligors to Lender, including in any certification of officers, are true, complete, correct and accurate in all material respects as of the date submitted or made by Obligors to Lender.



SECTION 3.9     NO EVENT OF DEFAULT . No Default or Event of Default has occurred or is continuing under this Agreement.



SECTION 3.10     TITLE; NO OTHER LIENS . Each Obligor has good title to the Collateral and the Real Estate Collateral that is pledged by it pursuant to this Agreement or the other Loan Documents and has exclusive right to grant a security interest in the Collateral and the Real Estate Collateral. The Collateral and the Real Estate Collateral are not subject to any Liens except in favor of Lender and except for Permitted Liens.



SECTION 3.11     ACCOUNTS . Each Eligible Account and Credit Insured Account of Borrower set forth in a borrowing base certificate delivered to Lender, as of the date of such certificate: (a) evidences an absolute, bona fide sale and delivery of goods or rendition of services in the applicable Borrower's ordinary course of business and such goods or services have been accepted by the Account Debtor obligated thereon; (b) is genuine, valid and enforceable against the Account Debtor obligated thereon in the full amount set forth on the invoice evidencing such Account, without offset, defense, counterclaim, deduction, recoupment or contra account (except to the extent the same has reduced the amount thereof in accordance with the definition of “Eligible Accounts”); (c) is owing by an Account Debtor located in the United States of America (or, with respect to each Eligible Credit Insured Account, is insured pursuant to credit insurance in all respects satisfactory to Lender) and is payable in United States dollars; (d) is owing by an Account Debtor that is not an Affiliate of any Obligor; (e) does not represent goods delivered upon “bill and hold,” “consignment,” “guaranteed sale,” “sale or return,” “payment on reorder” or similar terms; (f) the invoice evidencing such Account and all other documents delivered to Lender in connection therewith are genuine and valid and are not mistaken, misleading, fraudulent, incorrect, incomplete or erroneous in any respect (subject to a materiality qualifier with respect to “incorrect,” “incomplete” and “erroneous”); (g) if arising from the sale of Inventory, such Inventory was owned by Borrower and was not subject to any consignment arrangement, encumbrance, security interest or Lien other

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than in favor of Lender; and (h) has been issued in the name of Borrower or a trade style of Borrower specifically disclosed by Borrower in writing and acknowledged by Lender in writing.



SECTION 3.12     ELIGIBLE INVENTORY .   All Eligible Inventory and Eligible Consigned Inventory of Borrower set forth in a borrowing base certificate delivered to Lender, as of the date of such certificate, is of good and merchantable quality, free from defects. As to each item of such Inventory, it is: (a) owned by a Borrower free and clear of all Liens other than Liens in favor of Lender (and third party carriers' Liens or custom brokers' Liens arising in the ordinary course of business); (b) not located on real property leased by a Borrower or in a contract warehouse, in each case, unless subject to a Collateral Access Agreement executed by the lessor, the warehouseman, or other third party or otherwise constitutes Eligible Consigned Inventory, as the case may be, and unless segregated or otherwise separately identifiable from goods of others, if any, stored on the premises; (c) not goods that have been returned or rejected by Borrower's customers; and (d) not goods that are obsolete or slow moving, that constitute spare parts, packaging and shipping materials, supplies used or consumed in Borrower's business, bill and hold goods, defective goods, “seconds,” or Inventory acquired on consignment. Except as disclosed on Schedule C, the Inventory of Borrower is not stored with a bailee, warehouseman, or similar party; and the Inventory of Borrower is located only at, or in-transit between the locations disclosed on Schedule C (as such Schedule may be updated pursuant to Section 5.8 ).



SECTION 3.13     ERISA .



(a)    Each Pension Plan is in compliance in all material respects with the applicable provisions of ERISA, the Internal Revenue Code and other Federal or state laws. Each Pension Plan that is intended to be a qualified plan under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the Internal Revenue Service to the effect that the form of such Plan is qualified under Section 401(a) of the Internal Revenue Code and the trust related thereto has been determined by the Internal Revenue Service to be exempt from federal income tax under Section 501(a) of the Internal Revenue Code, an application for such a letter is currently being processed by the Internal Revenue Service, or the Plan is entitled to rely on a favorable determination letter issued to a prototype or volume submitter plan sponsor. To the best knowledge of Borrower, nothing has occurred that would prevent or cause the loss of such tax-qualified status.



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



(c)    (i) Other than as disclosed in Schedule C , no ERISA Event has occurred, and neither Borrower nor any ERISA Affiliate is aware of any fact, event or circumstance that could reasonably be expected to constitute or result in an ERISA Event with respect to any Plan, (ii) Borrower and each ERISA Affiliate have met all applicable requirements under the Pension Funding Rules in respect of each Pension Plan, and no waiver of the minimum funding standards under the Pension Funding Rules has been applied for or obtained, (iii) neither Borrower nor any ERISA Affiliate has incurred any liability to the PBGC other than for the payment of premiums, and there are no premium payments which have become due that are unpaid, (iv) neither Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or Section 4212(c) of ERISA, and (v) no Pension Plan has been terminated by the plan administrator thereof nor by the PBGC, and no event or circumstance has occurred or exists that could reasonably be expected to cause the PBGC to institute proceedings under Title IV of ERISA to terminate any Pension Plan.



SECTION 3.14     ADDITIONAL REPRESENTATIONS AND WARRANTIES . The representations and warranties of Borrower contained in this Agreement and in the other Loan Documents shall be true and correct in all material respects on and as of the Closing Date and on and as of the date of each request by Borrower thereafter for any Advance, except to the extent such representations and warranties expressly relate to an earlier date. Without limiting the foregoing, Borrower represents that no Default or Event of Default shall exist on the Closing Date and on the date of any request by Borrower thereafter for an Advance. The absence of a Default or Event of Default is a condition precedent to any obligation of Lender to make any Advance or other Loan hereunder.



SECTION 3.15     ENVIRONMENTAL COMPLIANCE .



(a)    Except as disclosed in Schedule C , to the knowledge of Borrower, neither it nor any other Obligor (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has



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received notice of any claim with respect to any Environmental Liability or (iv) has been advised in writing of any basis for any Environmental Liability, except, in each case, as could not, individually or in the aggregate, reasonably be expected to cause a Material Adverse Change.



(b)    Except as disclosed in Schedule C , none of the properties currently or formerly owned or operated by Borrower or any other Obligor is listed or proposed for listing on the NPL, the CERCLIS or any analogous federal, state or local list.



(c)    Except as disclosed in Schedule C , neither Borrower nor any other Obligor is undertaking, or has completed, either individually or together with other potentially responsible parties, any material investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law.



SECTION 3.16     LABOR MATTERS . There are no strikes, lockouts, slowdowns or other material labor disputes against any Corporate Obligor pending or, to the knowledge of Borrower, threatened in writing. The hours worked by and payments made to employees of Corporate Obligors comply with the Fair Labor Standards Act and any other applicable federal, state, local or foreign Law dealing with such matters except to the extent that any such violation could not reasonably be expected to cause a Material Adverse Change. No Corporate Obligor has incurred any liability or obligation under the Worker Adjustment and Retraining Act or similar state law. All payments due from Corporate Obligors, or for which any claim may be made against Corporate Obligors, on account of wages and employee health and welfare insurance and other benefits, have been paid or properly accrued in accordance with GAAP as a liability on books of the applicable Corporate Obligor. Except as disclosed in Schedule C , no Corporate Obligor is party to or bound by any collective bargaining agreement, management agreement, employment agreement, bonus, restricted stock, stock option, or stock appreciation plan or agreement or any similar plan, agreement or arrangement. There are no representation proceedings pending or, to Borrower's knowledge, threatened to be filed with the National Labor Relations Board, and no labor organization or group of employees of any Corporate Obligor has made a pending demand for recognition. There are no complaints, unfair labor practice charges, grievances, arbitrations, unfair employment practices charges or any other claims or complaints against any Corporate Obligor pending or, to the knowledge of Borrower, threatened in writing to be filed with any Governmental Authority or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment of any employee of any Corporate Obligor. The consummation of the transactions contemplated by the Loan Documents will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which any Corporate Obligor is bound.



SECTION 3.17     MATERIAL CONTRACTS .   Schedule C sets forth all Material Contracts to which any Corporate Obligor is a party or is bound as of the Closing Date. Borrower has delivered true, correct and complete copies of such Material Contracts to Lender on or before the Closing Date. No Corporate Obligor is in breach or in default in any material respect of or under any Material Contract or has received any notice of default under, or of the intention of any other party thereto to terminate, any Material Contract.



SECTION 3.18     TITLED VEHICLES .   Schedule C sets forth a description of all vehicles subject to a certificate of title statute which are owned by any Obligor as of the Closing Date.



SECTION 3.19     CAPITALIZATION .   Schedule C sets forth a complete and accurate description of the authorized capital Stock of Borrower and each of its Subsidiaries, by class, and as of the Closing Date, a description of the number of shares of each such class that are issued and outstanding and the legal and beneficial owners thereof. Except as set forth on Schedule C, there are no options, warrants or calls relating to any such shares.



ARTICLE IV

AFFIRMATIVE COVENANTS



Borrower covenants that prior to satisfaction, as determined by Lender, of the Lien Release Conditions, Borrower will:



SECTION 4.1     FINANCIAL STATEMENTS . Provide to Lender the financial information set forth in Schedule D, in form and detail satisfactory to Lender, within the time periods set forth in Schedule D .



SECTION 4.2     COLLATERAL REPORTING AND RECORDS . (i) Maintain, and cause each Obligor to maintain, complete and accurate records in all material respects regarding the Collateral, and (ii) provide to Lender all of

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the information set forth in Schedule E , in form and detail satisfactory to Lender, within the time periods set forth in Schedule E .



SECTION 4.3     FINANCIAL COVENANTS . Comply with the Financial Covenants.



SECTION 4.4     ACCOUNTING RECORDS; INSPECTIONS . Maintain a system of accounting that enables Borrower to produce financial statements in accordance with GAAP, and permit Lender from time to time, subject (except when a Default or Event of Default exists) to reasonable notice and normal business hours, to visit and inspect the properties of any Corporate Obligor, inspect, audit and make extracts from Borrower's or any other Corporate Obligor's books and records, and discuss with its and their officers, employees, agents, advisors and independent accountants Borrower's and other Corporate Obligors' business, financial condition, assets, prospects and results of operations. Lender shall not have any duty to Borrower to make any inspection, nor to share any results of any inspection, appraisal or report with Borrower. Borrower acknowledges that all inspections, appraisals and reports are prepared by Lender for its purposes, and Borrower shall not be entitled to rely upon them; Borrower shall reimburse Lender for all reasonable charges, costs and expenses of Lender in connection with examinations of any Corporate Obligor's books and records or any other financial or Collateral matters (including inspections, field exams and appraisals) as Lender deems appropriate. Borrower agrees to pay Lender's then standard charges for examination activities, including the standard charges of Lender's internal examination and appraisal groups, as well as the charges of any third party used for such purposes, provided ,   however , so long as no Default or Event of Default exists, Borrower shall not be responsible to pay for more than 1 appraisal of Collateral and 2 field exams conducted by Lender in any calendar year.



SECTION 4.5     COMMUNICATIONS WITH CUSTOMERS; NOTICES OF ASSIGNMENT . Permit Lender

(in Lender's name or in the name of a nominee of Lender) to, and Borrower hereby irrevocably authorizes Lender (in Lender's name or in the name of a nominee of Lender) to, communicate with any Account Debtor obligated on an Account, by mail, telephone, facsimile transmission or otherwise, to verify the validity, amount or any other matter relating to any Account and to confirm Borrower's sale of goods or rendition of services to such Account Debtor. Borrower agrees to take such actions as may be reasonably requested by Lender in connection with such verifications. Without limiting the foregoing, Borrower irrevocably authorizes Lender to, at any time, notify Account Debtors of the interest of Lender in Accounts, including pursuant to a Notice of Assignment of Accounts.



SECTION 4.6     COMPLIANCE . Preserve and maintain, and cause each other Corporate Obligor to preserve and maintain, all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business, and comply with the provisions of all documents under which such Obligor is organized and/or which govern such Obligor's continued existence, and with the requirements of all laws, rules, regulations and orders of any Governmental Authority applicable to each such Obligor and/or its business, the failure to maintain or comply with which could reasonably be expected to cause a Material Adverse Change.



SECTION 4.7     USA PATRIOT ACT . (a) Ensure, and cause each Obligor and each Subsidiary of each Corporate Obligor to ensure, that none of its equity owners shall be listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by the Office of Foreign Assets Control, the Department of the Treasury or included in any Executive Orders of the President of the United States, (b) not use or permit the use of the proceeds of any Advance hereunder or any other financial accommodation from Lender to violate any of the foreign asset control regulations of the Office of Foreign Assets Control or other applicable law, rule or regulation, (c) comply, and cause each other Obligor and each Subsidiary of each Corporate Obligor to comply, with all applicable Bank Secrecy Act laws and regulations, as amended from time to time, and (d) otherwise comply with the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) as required by federal law and Lender's policies and practices.



SECTION 4.8     MAINTENANCE OF PROPERTIES . Keep all properties useful or necessary to each Obligor's business in good repair and condition (ordinary wear and tear and casualty excepted), and from time to time make all repairs, renewals and replacements in respect of such properties as determined to be necessary by Borrower using commercially reasonable business judgment.



SECTION 4.9     TAXES . Pay and discharge when due, and cause each Obligor to pay and discharge when due, any and all assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, and payroll taxes, except to the extent the validity of any such assessment or tax shall be subject to a Permitted Protest.





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SECTION 4.10     NOTICE TO LENDER . Promptly (but in no event more than five (5) days after the occurrence of each such event or matter except for clause (b) below, in respect of which such period shall be ten (10) days, give written notice to Lender in reasonable detail of: (a) the occurrence of any Default or Event of Default; (b) any known material dispute (including, without limitation, any known Commercial Dispute) between an Account Debtor and Borrower, or of the return by or repossession of Goods by Borrower from any Account Debtor other than returns for warranty repair in the ordinary course of business; and (c) the commencement of an Insolvency Proceeding with respect to any Account Debtor of Borrower owing more than $50,000.



SECTION 4.11     INSURANCE . Maintain, and cause each Obligor to maintain, insurance customary for the business in which it is engaged and maintain all risk property insurance coverage covering the full replacement cost of the Collateral, together with general liability insurance, business interruption insurance and credit insurance, in each case, in form, substance, amounts, under agreements and with insurers reasonably acceptable to Lender. The insurance policies must be issued by an insurance company acceptable to Lender and contain a lender loss payable endorsement acceptable to Lender, naming Lender hereunder with respect to assets as lender loss payee with regard to property coverage and as additional insured with regard to liability coverage and collateral assignee or as lender loss payee, as applicable, with regard to business interruption insurance and credit insurance. Borrower shall give Lender prompt notice of any loss exceeding $50,000 covered by the casualty, business interruption or credit insurance of any Obligor. Upon the occurrence and during the continuance of an Event of Default, Lender shall have the sole right to file claims under any property, general liability insurance and credit insurance policies in respect of the Collateral and under any business interruption insurance policy, to receive and give acquittance for any payments that may be payable thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments or other documents that may be necessary to effect the collection, compromise or settlement of any claims under any such insurance policies.



SECTION 4.12     COOPERATION . Take, and cause each Obligor to take, such actions and execute and deliver to Lender such instruments and documents as Lender reasonably requests (including obtaining collateral access and other agreements from third parties as Lender deems necessary) to create, maintain, preserve and protect Lender's (a) first priority security interests in the Collateral other than the Closing Date Equipment (subject only to Permitted Liens), (b) the Lender’s first priority Lien in the Real Property Collateral, and (c) Lender's rights in the Collateral (including the Real Property Collateral), and to carry out the intent of this Agreement and the other Loan Documents.



SECTION 4.13     SUBSIDIARY GUARANTORS . At any time that any Corporate Obligor forms or acquires any direct or indirect domestic Subsidiary at any time after the Closing Date, and such Corporate Obligor is the direct or indirect holder of more than 50% of the Stock in such Subsidiary, such Corporate Obligor shall, within ten (10) days of such formation or acquisition, cause such new Subsidiary to execute in favor of Lender a Guaranty, together with a general security agreement, in form and substance satisfactory to Lender, granting to Lender a Lien on all assets and properties of such Subsidiary other than assets and properties that would constitute Excluded Collateral.



SECTION 4.14     CERTAIN BANK ACCOUNTS . Borrower shall deliver to Lender, within ninety (90) days of the Closing Date, evidence, reasonably acceptable to Lender, of the closure of all Deposit Accounts of Borrower and each other Corporate Obligor not at Lender.



SECTION 4.15     ENVIRONMENTAL COMPLIANCE .



(a)    Borrower shall and shall cause each other Obligor to:



(i)    Comply with, and cause all operators, tenants, subtenants, licensees and occupants of any Mortgage Property to comply with, in all material respects all applicable Environmental Laws and shall obtain and comply with, and cause all operators, tenants, subtenants, licensees and occupants of any Mortgage Property to obtain and comply with, in all material respects all permits, licenses and approvals required by Environmental Laws;



(ii)    At reasonable times, allow Lender and its officers, employees, agents, representatives, contractors and subcontractors reasonable access after reasonable prior notice to any Mortgage Property for the purposes of ascertaining compliance with Environmental Laws and site conditions, including subsurface conditions;





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(iii)    Deliver promptly to Lender notice of any Environmental Claim pending or overtly threatened against Borrower or other Obligor or any past or present acts, omissions, events or circumstances (including but not limited to any dumping, leaching, deposition, removal, abandonment, escape, emission, discharge or release of any Hazardous Materials, at, on or under any facility or property now or previously owned, operated or leased by any Obligor that could form the basis of such Environmental Claim, which Environmental Claim, if adversely resolved, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect).



(b)    If at any time Lender obtains any reasonable evidence or information which suggests that a material environmental problem may exist with respect to any Obligor or any Mortgage Property, at Lender’s request, provide or cause the applicable Obligor to provide to Lender an environmental inspection and audit report regarding alleged or actual material noncompliance with Environmental Laws prepared by an environmental engineer or other qualified person reasonably acceptable to Lender at Borrower’s or other applicable Obligor’s expense. If such audit report indicates the presence of any Hazardous Materials not in compliance with Environmental Laws in all material respects, or the threat of a release of any Hazardous Materials, on at or from any Mortgage Property or any other location controlled by Borrower or any other Obligor, the applicable Obligor shall promptly undertake and diligently pursue to completion all legally required investigative, containment, removal, clean-up and other remedial actions, using methods recommended by the engineer or other Person who prepared said audit report or a Person that is reasonably acceptable to Lender selected by such Obligor that is otherwise qualified to make such recommendations, and all of which actions shall be acceptable under Environmental Laws.



(c)    Indemnify, defend and hold harmless Lender and cause each other Obligor to defend and hold harmless Lender from and against any and all liabilities, claims, damages, penalties, expenditures, losses or charges, including, but not limited to, all costs of investigation, monitoring, legal representation, remedial response, removal, restoration or permit acquisition of any kind whatsoever, which may now or in the future be undertaken, suffered, paid, awarded, assessed, or otherwise incurred by Lender (or any other Person affiliated with Lender or representing or acting for Lender or at Lender’s behest, or with a claim on Lender or to whom Lender has liability or responsibility of any sort related to this Section 4.15 ) relating to, resulting from or arising out of (i) the use of any Mortgage Property or any other location controlled by any Obligor for the storage, treatment, generation, transportation, processing, handling, production or disposal of any Hazardous Materials or as a landfill or other waste disposal site, (ii) the presence of any Hazardous Materials or a release or the threat of a release of any Hazardous Materials on, at or from any Mortgage Property or any other location controlled by any Obligor, (iii) the failure to promptly undertake and diligently pursue to completion all reasonably appropriate or legally required investigative, containment, removal, clean-up and other remedial actions with respect to a release or the threat of a release of any Hazardous Materials on, at or from any Mortgage Property or any other location controlled by any Obligor, (iv) human exposure to any Hazardous Materials or nuisances of whatever kind to the extent the same arise from the condition of any Mortgage Property or any other location controlled by any Obligor, or the ownership, use, operation, sale, transfer or conveyance thereof, (v) a violation of or non-compliance with any applicable Environmental Laws, or (vi) a material misrepresentation or inaccuracy in any representation or warranty, or a material breach of or failure to perform any covenant made by any Obligor or respecting any location controlled by any Obligor, in this Agreement. Such costs or other liabilities incurred by Lender or other Person described in this Section 4.15 shall be deemed to include any sums which Lender deems necessary or desirable to expend to protect its Liens.



(d)    The liability of Borrower under this Section 4.15 shall in no way be limited, abridged, impaired or otherwise affected by (i) any amendment or modification of this Agreement or any other Loan Document by or for the benefit of any Obligor or any subsequent owner of any Mortgage Property except for an amendment or modification which expressly refers to this Section 4.15 , (ii) any extensions of time for payment or performance required by this Agreement or any other Loan Document, (iii) the release of any Obligor or any other Person from the performance or observance of any of the agreements, covenants, terms or conditions contained in this Agreement or any other Loan Document by operation of law, Lender’s voluntary act or otherwise, (iv) the invalidity or unenforceability of any of the terms or provisions of this Agreement or any other Loan Document, (v) any exculpatory provision contained in this Agreement or any other Loan Document limiting Lender’s recourse to property encumbered by any mortgage or to any other security or limiting Lender’s rights to a deficiency judgment against any Obligor, (vi) any applicable statute of limitations, (vii) any investigation or inquiry conducted by or on behalf of Lender or any information which Lender may have or obtain with respect to the environmental or ecological condition of any Mortgage Property, (viii) the sale, assignment or foreclosure of any interest in the Collateral or Real Estate Collateral, (ix) the sale, transfer or conveyance of all or part of any Mortgage Property, (x) the dissolution and liquidation of any Obligor, (xi) the release or discharge, in whole or in part, of any Obligor in any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceeding, or (xii) any other circumstances which might otherwise constitute a legal or equitable release or discharge of any Obligor, in whole or in part.



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(e)    Notwithstanding anything to the contrary contained herein, the liability and obligations of Borrower under this Section 4.15 shall survive the payment in full of all of the Obligations, unless such liability and obligations are terminated by Lender with express reference to this Section 4.15 .



SECTION 4.16     POST-CLOSING OBLIGATIONS . The obligation of Lender to continue to make Advances after the Closing Date, in addition to the other conditions set forth in this Agreement, is subject to the fulfillment by Borrower, on or before the date applicable thereto, of each of the conditions subsequent set forth below (the failure by Borrower to so fulfill any such subsequent condition shall constitute an Event of Default):



(a)    within 30 days of the Closing Date, deliver to Lender endorsements (or, if applicable, collateral assignments) in form and substance reasonably satisfactory to Lender with respect to insurance required by Section 4.11 ;



(b)    within 60 days of the Closing Date, deliver to Lender an ALTA survey of the property described in the Mortgage together with an endorsement to the title insurance policy deleting the survey exception, in each case in form and substance satisfactory to Lender in its discretion;



(c)    provided the survey set forth in clause (c) above is satisfactory to the Lender as set forth therein, within 30 days after delivery to Lender of such survey Borrower also shall submit a new perimeter plan, prepared by the surveyor and based upon such survey together with a new legal description based on said perimeter plan, in each case in form and substance satisfactory to Lender in its sole discretion, and shall execute and deliver to Lender an amendment to the Mortgage, in form and substance satisfactory to Lender in its sole discretion, amending the legal description in such Mortgage to be as set forth in said perimeter plan, as well as an endorsement from the title insurance company amending the description in the title policy to conform to the perimeter plan;



(d)    on or before January 5, 2018, deliver to Lender evidence that all obligations in respect of the Parent Subordinated Debt have been paid in full and the holders thereof have acknowledged the same in writing; and



(e)    on or before January 5, 2018, deliver to Lender the original stock certificate representing the Stock of Borrower owned by Parent, together with an undated stock power executed in blank.



ARTICLE V

NEGATIVE COVENANTS



Borrower covenants that, prior to satisfaction, as determined by Lender, of the Lien Release Conditions:



SECTION 5.1     USE OF FUNDS . No Obligor will use any of the proceeds of any Loan or any other credit extended under this Agreement, as the case may be, for purposes other than (a) to pay Lender Expenses incurred in connection with this Agreement and the other Loan Documents; (b) to refinance outstanding principal, accrued interest and accrued fees and expenses owing to UniBank for Savings; (c) to fully repay the Parent Subordinated Debt and accrued and unpaid interest thereon; or (d) thereafter, consistent with the terms of this Agreement, for lawful purposes. Borrower will not use the proceeds of any extension of credit to purchase or carry margin stock or for any other purpose that violates the terms of Regulation T, U, or X of the Board of Governors of the Federal Reserve System.



SECTION 5.2     MERGER, CONSOLIDATION, TRANSFER OF ASSETS, TRANSACTIONS OUTSIDE THE ORDINARY COURSE OF BUSINESS . No Corporate Obligor will (a) merge with or consolidate with any other Person (except that a Corporate Obligor may merge with and into Borrower provided Borrower is the surviving entity); (b) make any substantial change in the nature of any of its business as conducted as of the Closing Date; (c) become a member or partner in a joint venture, partnership or limited liability company; (d) acquire all or substantially all of the assets of any other Person (or any division, business unit or line of business of any other entity), or acquire any assets outside the ordinary course of such Corporate Obligor's business; (e) sell, lease, transfer or otherwise dispose of any of its assets, except for Permitted Dispositions; (f) create or acquire any Subsidiary; (g) enter into any other transaction outside the ordinary course of business (including any sale and leaseback transaction); or (h) liquidate, wind up, or dissolve itself or suspend or cease operation of a substantial portion of its business.



SECTION 5.3     LOANS, ADVANCES, INVESTMENTS . No Corporate Obligor will make any investment in any Person, whether in the form of loans, advances, guarantees, capital contributions or other investment, other than Permitted Investments.

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SECTION 5.4     DIVIDENDS, DISTRIBUTIONS . No Corporate Obligor will declare or pay any dividend or distribution either in cash or any other property in respect of any Stock in any Corporate Obligor, or redeem, retire, repurchase or otherwise acquire any Stock of any Corporate Obligor; provided ,   that any Subsidiary of a Corporate Obligor may pay dividends or distributions to such Corporate Obligor.



SECTION 5.5     LIENS . No Corporate Obligor will mortgage, pledge, grant or permit to exist a security interest in, or Lien upon, all or any portion of any Corporate Obligor's assets now owned or subsequently acquired, except Permitted Liens.



SECTION 5.6     INDEBTEDNESS .   No Corporate Obligor will incur Indebtedness other than Permitted Indebtedness.



SECTION 5.7     AFFILIATE TRANSACTIONS . No Corporate Obligor will, directly or indirectly, enter into, or permit to exist, any transaction with any Affiliate of such Obligor, except for (a) transactions expressly permitted by this Agreement, (b) transactions existing on the Closing Date and set forth in Schedule C , (c) transactions that are in the ordinary course of such Obligor's business, and are on fair and reasonable terms that are no less favorable to such Obligor than would be obtained in an arm's length transaction with a non-affiliated Person, and (d) to the extent not otherwise permitted by this Section 5.7 , the payment of reasonable compensation, severance, or employee benefit arrangements to employees, officers, and directors of such Corporate Obligor who are Affiliates in the ordinary course of business and consistent with industry practice.



SECTION 5.8     ORGANIZATIONAL CHANGES AND LOCATIONS OF INVENTORY . Without giving Lender at least 30 days prior written notice, (a) no Corporate Obligor will change its name, chief executive office, principal residence, organizational documents, organizational identification number, state of organization, organizational identity, or “location” as defined in Section 9-307 of the Code and (b) no Obligor that is a natural Person will change its name as set forth on such Obligor's driver's license or other special identification card issued by any state. Borrower will not permit Inventory to be located at any location such that the representations and warranty in the last sentence of Section 3.12 no longer shall be true, provided that Borrower may amend Schedule C as it pertains to Inventory locations so long as such amendment occurs by written notice to Lender not less than 10 days prior to the date on which such Inventory is moved to a new location and so long as Lender, in its sole discretion, has consented to such amendment.



SECTION 5.9     CHANGE OF ACCOUNTING METHOD . No Obligor will modify or change its fiscal year or its method of accounting (other than as may be required to conform to GAAP).



SECTION 5.10     PAYMENTS OF SUBORDINATED DEBT . No Obligor will make any payment of Subordinated Debt except to the extent no Default or Event of Default then exists and such payment is otherwise permitted by the applicable subordination agreement.



SECTION 5.11     SUBORDINATED DEBT DOCUMENTS . No Obligor will enter into or execute any amendment or modification to any Subordinated Debt Document except (a) extensions of the maturity date of any Subordinated Debt or (b) with the prior written consent of Lender.



ARTICLE VI

EVENTS OF DEFAULT



SECTION 6.1     EVENTS OF DEFAULT . Any one of the following shall constitute an “Event of Default” under this Agreement:



(a)    Borrower fails to pay when due any Obligation.



(b)    Any financial statement or certificate furnished by an Obligor to Lender in connection with, or any representation or warranty made or deemed made by an Obligor under, this Agreement or any other Loan Document proves to be incorrect, false or misleading in any material respect when furnished or made (or deemed made).



(c)    Borrower fails to perform or observe any covenant or other agreement contained in this Agreement other than Section 4.8 and Section 4.1 (with respect only to each clause (a) and (b) in Schedule D ).



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(d)    Borrower fails to perform or observe any covenant or other agreement contained in (i) Section 4.8 and such failure continues for a period of ten (10) days after the earlier of (x) the date on which such failure shall first become known to any officer of Borrower or (y) written notice thereof is given to Borrower by Lender, and (ii) Section 4.1 (with respect only to each clause (a) and (b) in Schedule D ) and such failure continues for a period of five (5) days.



(e)    Borrower or any other Obligor fails to perform or observe any covenant or other agreement in any of the other Loan Documents, and such failure continues for a period of ten (10) days after the earlier of (i) the date on which such failure shall first become known to any officer of Borrower or (ii) written notice thereof is given to Borrower by Lender.



(f)    Any breach or default by a Corporate Obligor under any document, instrument or agreement to which it is a party or by which such Corporate Obligor or any of its properties is bound, relating to Indebtedness (other than Subordinated Debt) in excess of $25,000, if the maturity of or any payment with respect to such Indebtedness may be accelerated or demanded due to such breach or default.



(g)    There shall be issued or filed against a Corporate Obligor any attachment, injunction, order, writ, or judgment (not covered by insurance), involving an amount in excess of $50,000.



(h)    Any Corporate Obligor is enjoined, restrained or in any way prevented by any Governmental Authority from conducting any material part of its business.



(i)    Any Obligor becomes the subject of an Insolvency Proceeding, or any Corporate Obligor suspends or ceases operation of all or a material portion or line of its business.



(j)    The dissolution or liquidation of any Corporate Obligor or the death or incapacity of any Obligor that is a natural Person, or any time a Change of Control occurs.



(k)    (i) An ERISA Event occurs subsequent to the Closing Date with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $250,000 which could reasonably likely cause a Material Adverse Change, or (ii) Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $250,000 or which could reasonably likely cause in a Material Adverse Change.



(l)    Any Obligor or any senior management of any Corporate Obligor is, or at any time has been, criminally indicted or convicted of a state or federal felony criminal offense.



(m)    The results of any background investigation or report conducted by Lender with respect to any of a Corporate Obligor's senior management or senior financial personnel who becomes an employee after the Closing Date fail to be satisfactory to Lender, in Lender's reasonable discretion.



(n)    Any Obligor repudiates or revokes or purports to repudiate or revoke any obligation under its Guaranty or under any other Loan Document to which it is a party.



SECTION 6.2     REMEDIES .



Upon the occurrence and during the continuation of an Event of Default, Lender may (a) declare the Obligations (including the Revolver Note, Real Estate Term Loan Note, and M&E Term Loan Note) to be immediately due and payable, at which time such Obligations shall be immediately due and payable and Borrower shall be obligated to immediately repay all of such Obligations in full, without presentment, demand, protest, notice of dishonor, or other notice of any kind or other requirement of any kind, all of which are hereby expressly waived by Borrower, (b) terminate the Line of Credit and decline to make further Advances or other extensions of credit under this Agreement and any of the Loan Documents, and (c) exercise any or all rights, powers and remedies available hereunder and under each of the other Loan Documents, or accorded by law or equity, provided ,   however , upon the occurrence of an Event of Default specified in Section 6.1(i) , the Obligations (and the Revolver Note, Real Estate Term Loan Note, and M&E Term Loan Note) automatically shall become due and payable without any further act of Lender. All rights, powers and remedies of Lender may be exercised at any time by Lender and from time to time after the occurrence and during the

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continuation of an Event of Default, and the same are cumulative and not exclusive, and will be in addition to any other rights, powers or remedies provided by law or equity.



SECTION 6.3     REMEDIES WITH RESPECT TO COLLATERAL .



Without limiting any rights or remedies Lender may have pursuant to this Agreement, the other Loan Documents, under applicable law or otherwise, upon the occurrence and during the continuation of an Event of Default:



(a)    Lender may take any and all actions and avail itself of any and all rights and remedies available to Lender under this Agreement, any other Loan Document, under law or in equity (including all rights of a secured creditor under the Code), and the rights and remedies herein and therein provided shall be cumulative and not exclusive of any rights or remedies provided by applicable law or otherwise.



(b)    Lender may but shall be under no obligation to (i) notify all appropriate parties that the Collateral, or any part thereof, has been assigned to Lender; (ii) demand, sue for, collect and give receipts for and take all necessary or desirable steps to collect any Collateral or Proceeds in its or any Obligor's name, and apply any such collections against the Obligations as Lender may elect; (iii) take control of any Collateral and any cash and non-cash Proceeds of any Collateral; (iv) enforce, compromise, extend, renew, settle or discharge any rights or benefits of each Obligor with respect to or in and to any Collateral, or deal with the Collateral as Lender may deem advisable; and (v) make any compromises, exchanges, substitutions or surrenders of Collateral as Lender deems necessary or proper in its reasonable discretion, including extending the time of payment, permitting payment in installments, or otherwise modifying the terms or rights relating to any of the Collateral, all of which may be effected without notice to, consent of, or any other action of any Obligor and without otherwise discharging or affecting the Obligations, the Collateral or the security interests granted to Lender under this Agreement or any other Loan Document.



(c)    Lender may file proofs of loss and claim with respect to any of the Collateral with the appropriate insurer, and may endorse in its own and Borrower's name any checks or drafts constituting Proceeds of insurance. Any Proceeds of insurance received by Lender may be applied by Lender against payment of all or any portion of the Obligations as Lender may elect in its reasonable discretion.



(d)    Lender may take possession of the Collateral and, without removal, render Borrower's Equipment unusable. Upon Lender's request, each Obligor shall assemble the Collateral and make it available to Lender at a place or places to be designated by Lender.



(e)    Lender may and without any notice to, consent of or any other action by Borrower's (such notice, consent or other action being expressly waived), set-off or apply (i) any and all deposits (general or special, time or demand, provisional or final) at any time held by or for the account of Lender or any Affiliate of Lender, and (ii) any Indebtedness at any time owing by Lender or any Affiliate of Lender to or for the credit or the account of Borrower, to the repayment of the Obligations irrespective of whether any demand for payment of the Obligations has been made.



(f)    (i) Lender may, without demand, advertising or notice, all of which Borrower hereby waives (except as the same may be required by the Code or other applicable law and is not waivable under the Code or such other applicable law), at any time or times in one or more public or private sales or other dispositions, for cash, on credit or otherwise, at such prices and upon such terms as determined by Lender (provided such price and terms are commercially reasonable within the meaning of the Code to the extent such sale or other disposition is subject to the Code requirements that such sale or other disposition must be commercially reasonable), (A) sell, lease, license or otherwise dispose of any and all Collateral, or (B) deliver and grant options to a third party to purchase, lease, license or otherwise dispose of any and all Collateral. Lender may sell, lease, license or otherwise dispose of any Collateral in its then-present condition or following any preparation or processing deemed necessary by Lender in its reasonable discretion. To the extent permitted by applicable law, Lender may be the purchaser at any such public or private sale or other disposition of Collateral, and in such case Lender may make payment of all or any portion of the purchase price therefor by the application of all or any portion of the Obligations due to Lender to the purchase price payable in connection with such sale or disposition. Lender may, if it deems it reasonable, postpone or adjourn any public sale of any Collateral from time to time by an announcement at the time and place of the sale to be so postponed or adjourned without being required to give a new notice of sale or disposition; provided ,   however , that Lender shall provide Borrower with written notice of the time and place of such postponed or adjourned sale. Borrower hereby acknowledges and agrees that Lender's compliance with any requirements of applicable law in connection with a sale, lease, license or other disposition of Collateral will not be considered to adversely affect the commercial reasonableness of any sale, lease, license or other disposition of such Collateral.



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(ii)    Borrower shall remain liable for all amounts of the Obligations remaining unpaid as a result of any deficiency of the Proceeds of the sale, lease, license or other disposition of Collateral after such Proceeds are applied to the Obligations as provided in this Agreement.



(iii)    Lender may sell, lease, license or otherwise dispose of the Collateral without giving any warranties and may specifically disclaim any and all warranties, including warranties of title, possession, merchantability and fitness for a particular purpose. Borrower hereby acknowledges and agrees that Lender's disclaimer of any and all warranties in connection with a sale, lease, license or other disposition of Collateral will not be considered to adversely affect the commercial reasonableness of any such disposition of the Collateral. If Lender sells, leases, licenses or otherwise disposes of any of the Collateral on credit, Borrower will be credited only with payments actually made in cash by the recipient of such Collateral and received by Lender and applied to the Obligations. If any Person fails to pay for Collateral acquired pursuant this Section 6.3(f) on credit, Lender may re-offer the Collateral for sale, lease, license or other disposition.



(g)    (i) All rights of Borrower to exercise any of the voting and other consensual rights which it would otherwise be entitled to exercise in accordance with the terms hereof with respect to any Investment Property, and to receive any dividends, payments, and other distributions which it would otherwise be authorized to receive and retain in accordance with the terms hereof with respect to any Investment Property, shall immediately, at the election of Lender (without requiring any notice) cease, and all such rights shall thereupon become vested solely in Lender, and Lender (personally or through an agent) shall thereupon be solely authorized and empowered, without notice, to (a) transfer and register in its name, or in the name of its nominee, the whole or any part of the Investment Property, it being acknowledged by Borrower that any such transfer and registration may be effected by Lender through its irrevocable appointment as attorney-in-fact pursuant to Section 6.3(g)(ii) , (b) exchange certificates and/or instruments representing or evidencing Investment Property for certificates and/or instruments of smaller or larger denominations, (c) exercise the voting and all other rights as a holder with respect to all or any portion of the Investment Property (including all economic rights, all control rights, authority and powers, and all status rights of Borrower as a member or as a shareholder (as applicable) of the issuer of such Investment Property), (d) collect and receive all dividends and other payments and distributions made thereon, (e) notify the parties obligated on any Investment Property to make payment to Lender of any amounts due or to become due thereunder, (f) endorse instruments in the name of Borrower to allow collection of any Investment Property, (g) enforce collection of any of the Investment Property by suit or otherwise, and surrender, release, or exchange all or any part thereof, or compromise or renew for any period (whether or not longer than the original period) any liabilities of any nature of any Person with respect thereto, (h) consummate any sales of Investment Property or exercise any other rights as set forth in Section 6.3(f) , (i) otherwise act with respect to the Investment Property as though Lender were the outright owner thereof, and (j) exercise any other rights or remedies Lender may have under the other Loan Documents, the Code, other applicable law, or otherwise.



(ii)    BORROWER HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS LENDER AS ITS PROXY AND ATTORNEY-IN-FACT FOR SUCH OBLIGOR WITH RESPECT TO ALL OF BORROWER'S INVESTMENT PROPERTY WITH THE RIGHT, DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, WITHOUT NOTICE, TO TAKE ANY OF THE FOLLOWING ACTIONS: (A) TRANSFER AND REGISTER IN LENDER'S NAME, OR IN THE NAME OF ITS NOMINEE, THE WHOLE OR ANY PART OF THE INVESTMENT PROPERTY, (B) VOTE THE INVESTMENT PROPERTY, WITH FULL POWER OF SUBSTITUTION TO DO SO, (C) RECEIVE AND COLLECT ANY DIVIDEND OR ANY OTHER PAYMENT OR DISTRIBUTION IN RESPECT OF, OR IN EXCHANGE FOR, THE INVESTMENT PROPERTY OR ANY PORTION THEREOF, TO GIVE FULL DISCHARGE FOR THE SAME AND TO INDORSE ANY INSTRUMENT MADE PAYABLE TO BORROWER FOR THE SAME, (D) EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES, AND REMEDIES (INCLUDING ALL ECONOMIC RIGHTS, ALL CONTROL RIGHTS, AUTHORITY AND POWERS, AND ALL STATUS RIGHTS OF BORROWER AS A MEMBER OR AS A SHAREHOLDER (AS APPLICABLE) OF THE ISSUER OF SUCH INVESTMENT PROPERTY) TO WHICH A HOLDER OF THE INVESTMENT PROPERTY WOULD BE ENTITLED (INCLUDING, WITH RESPECT TO THE INVESTMENT PROPERTY, GIVING OR WITHHOLDING WRITTEN CONSENTS OF MEMBERS OR SHAREHOLDERS, CALLING SPECIAL MEETINGS OF MEMBERS OR SHAREHOLDERS, AND VOTING AT SUCH MEETINGS), AND (E) TAKE ANY ACTION AND EXECUTE ANY INSTRUMENT WHICH LENDER MAY DEEM NECESSARY OR ADVISABLE TO ACCOMPLISH THE PURPOSES OF THIS AGREEMENT.



(iii)    In order to further effect the foregoing transfer of rights in favor of Lender, during the continuance of an Event of Default, Borrower hereby authorizes and instructs each issuer of Investment Property pledged by Borrower to comply with any instruction received by such issuer from Lender without any other or further instruction from Borrower, and Borrower acknowledges and agrees that each such issuer shall be fully protected in so

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complying, and to pay any dividends, distributions, or other payments with respect to any of the Investment Property directly to Lender.



(iv)    Upon exercise of the proxy set forth herein, all prior proxies given by Borrower with respect to any Investment Property, as applicable (other than to Lender), are hereby revoked, and no subsequent proxies (other than to Lender) will be given with respect to any Investment Property, unless Lender otherwise subsequently agrees in writing. Lender, as proxy, will be empowered and may exercise the irrevocable proxy to vote the other Investment Property at any and all times during the existence of an Event of Default, including at any meeting of shareholders or members, as the case may be, however called, and at any adjournment thereof, or in any action by written consent, and may waive any notice otherwise required in connection therewith. To the fullest extent permitted by applicable law, Lender shall have no agency, fiduciary, or other implied duties to Borrower, any issuer of Investment Property, or any other Person when acting in its capacity as such proxy or attorney-in-fact. Borrower hereby waives and releases any claims that it may otherwise have against Lender with respect to any breach, or alleged breach, of any such agency, fiduciary, or other duty.



(v)    Any transfer to Lender or its nominee, or registration in the name of Lender or its nominee, of the whole or any part of the Investment Property shall be made solely for purposes of effectuating voting or other consensual rights with respect to the Investment Property in accordance with the terms of this Agreement and is not intended to effectuate any transfer of ownership of any of the Investment Property. Notwithstanding the delivery by Lender of any instruction to any issuer of Investment Property or any exercise by Lender of an irrevocable proxy or otherwise, Lender shall not be deemed the owner of, or assume any obligations or any liabilities whatsoever of the owner or holder of, any Investment Property unless and until Lender expressly accepts such obligations in a duly authorized and executed writing and agrees in writing to become bound by the applicable organizational documents or otherwise becomes the owner thereof under applicable law (including through a sale as described in Section 6.3(f) ). The execution and delivery of this Agreement shall not subject Lender to, or transfer or pass to Lender, or in any way affect or modify, the liability of Borrower under the organizational documents of any issuer or any related agreements, documents, or instruments or otherwise. In no event shall the execution and delivery of this Agreement by Lender, or the exercise by Lender of any rights hereunder or assigned hereby, constitute an assumption of any liability or obligation whatsoever of Borrower to, under, or in connection with any of the issuer or any related agreements, documents, or instruments or otherwise.



(h)    Lender shall have the right in Lender's sole discretion to determine which rights, security, Liens or remedies Lender may at any time pursue, foreclose upon, relinquish, subordinate, modify or take any other action with respect to, without in any way impairing, modifying or affecting any of Lender's other rights, security, Liens or remedies with respect to such Property, or any of Lender's rights or remedies under this Agreement or any other Loan Document.



(i)    Borrower agrees that Lender shall not have any obligation to preserve rights to any Collateral against prior parties or to marshal any Collateral of any kind for the benefit of any other creditor of Borrower or any other Person. Lender shall not be responsible to Borrower or any other Person for loss or damage resulting from Lender's failure to enforce its Liens or collect any Collateral or Proceeds or any monies due or to become due under the Obligations or any other liability or obligation of Borrower to Lender.



(j)    Except as otherwise expressly provided for in this Agreement or by non-waivable applicable law, Borrower waives: (a) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Lender on which Borrower may in any way be liable, and hereby ratifies and confirms whatever Lender may do in this regard, (b) to the extent permitted by applicable law, all rights to notice and a hearing prior to Lender's taking possession or control of, or to Lender's replevy, attachment or levy upon, the Collateral or any bond or security which might be required by any court prior to allowing Lender to exercise any of its remedies and (c) the benefit of all valuation, appraisal, marshalling and exemption laws.



ARTICLE VII

MISCELLANEOUS



SECTION 7.1     UCC TERMS . When used herein, unless otherwise indicated herein, the terms “Account,” “Account Debtor,” “Chattel Paper,” “Commercial Tort Claim,” “Deposit Account,” “Document,” “Electronic Chattel Paper,” “Equipment,” “General Intangible,” “Goods,” “Instrument,” “Inventory,” “Investment Property,” “Letter-of-Credit Right,” “Proceeds,” “Record” and “Supporting Obligation” shall have their respective meanings set forth in the Code.

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SECTION 7.2     NO WAIVER . No delay, failure or discontinuance of Lender in exercising any right, power or remedy under any of the Loan Documents will affect or operate as a waiver of such right, power or remedy; nor will any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Lender of any breach of or default (including any Default or Event of Default) under any of the Loan Documents must be in writing and will be effective only to the extent set forth in such writing.



SECTION 7.3     NOTICES . All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the address for such party set forth below each party's name on the signature pages of this Agreement or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand will be deemed given or made as follows: (a) if sent by hand delivery or overnight courier, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; (c) if sent by telecopy, upon receipt; and (d) if sent by electronic mail, upon sender's receipt of an acknowledgment from the intended recipient (such as by “return receipt requested” function, as available, return email or other written acknowledgment).



SECTION 7.4     COSTS, EXPENSES AND ATTORNEYS' FEES . Borrower will pay to Lender immediately upon demand the full amount of all then outstanding and invoiced Lender Expenses. All such costs, fees and expenses shall be payable on demand and, with respect to Lender, may be charged by Lender to the Loan Account. Borrower's obligations set forth in this Section 7.4 will survive any termination of this Agreement or repayment of the Obligations and will for all purposes continue in full force and effect.



SECTION 7.5     TAXES . All payments made by Borrower hereunder or under any note or other Loan Document will be made without setoff, counterclaim, or other defense. In addition, all such payments will be made free and clear of, and without deduction or withholding for, any present or future Taxes, and in the event any deduction or withholding of such Taxes is required, Borrower agrees to pay the full amount of such Taxes. This provision shall apply only if Lender has delivered to Borrower a completed Form W-9 that is effective prior to any payment.



SECTION 7.6     GENERAL . This Agreement will be binding upon and inure to the benefit of the successors and assigns of the parties; provided that Borrower may not assign or transfer any of its interests, rights or obligations under this Agreement without Lender's prior written consent. Lender reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Lender's rights and benefits under this Agreement and the other Loan Documents. In the event of any assignment by Lender of all of its rights and obligations as “Lender” under this Agreement and the other Loan Documents, Borrower agrees that Lender shall have no ongoing obligations in such capacity hereunder and thereunder and shall look only to assignee for performance after such assignment of the obligations of “Lender” hereunder and thereunder. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Lender with respect to each credit subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter of this Agreement. This Agreement may be amended or modified only in writing signed by each party to this Agreement. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other Person will be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. If any provision of this Agreement or any other Loan Document will be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement or the other Loan Documents. This Agreement may be executed in any number of counterparts, each of which when executed and delivered will be deemed to be an original, and all of which when taken together will constitute one and the same Agreement. Delivery of an executed counterpart of this Agreement by facsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement and any party's failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement.



SECTION 7.7     INDEMNITY . Borrower indemnifies Lender and its Affiliates, Subsidiaries, directors, officers, employees, representatives, agents, and attorneys, and holds them harmless from and against any and all claims, debts, liabilities, demands, obligations, actions, causes of action, penalties, costs and expenses (including reasonable attorneys' fees), of every kind, which they may sustain or incur based upon or arising out of any of the Obligations, this Agreement, any of the Loan Documents, or the Collateral or any relationship or agreement between Lender and the Obligors, provided that this indemnity will not extend to damages that a court of competent jurisdiction finally determines in a non-appealable judgment to have been caused by the indemnitee's own gross negligence or willful misconduct. Regardless of any provision in this Agreement to the contrary, the indemnity agreement set forth in

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this Section will survive any termination of this Agreement or repayment of the Obligations and will for all purposes continue in full force and effect.



SECTION 7.8     GOVERNING LAW . The validity of this Agreement and the other Loan Documents (unless otherwise expressly provided in such Loan Document) and the construction, interpretation, and enforcement of this Agreement and the other Loan Documents, and the rights of the parties, as well as all claims, controversies or disputes arising under or related to this Agreement and the other Loan Documents will be determined under, governed by and construed in accordance with the laws of the Applicable State, without regard to conflicts of laws principles.



SECTION 7.9     CONSEQUENTIAL DAMAGES . No claim may be made by Borrower against Lender, or any Affiliate, Subsidiary, director, officer, employee, representative, agent, attorney or attorney-in-fact of any of them for any special, indirect, consequential, or punitive damages in respect of any claim for breach of contract or other theory of liability arising out of or related to the transactions contemplated by this Agreement or any other Loan Document or any related act, omission, or event, and Borrower waives, releases, and agrees not to sue upon any claim for such damages, whether or not accrued and whether or not known or suspected to exist in its favor.



SECTION 7.10     SAVINGS CLAUSE .



(a)    No provision of this Agreement or of any other Loan Document shall require the payment or the collection of interest in excess of the maximum amount permitted by applicable law. If any excess of interest in such respect is hereby provided for, or shall be adjudicated to be so provided, in this Agreement or any other Loan Document or otherwise in connection with this Agreement, the provisions of this Section shall govern and prevail and neither Borrower nor the sureties, guarantors, successors, or assigns of Borrower shall be obligated to pay the excess amount of such interest or any other excess sum paid for the use, forbearance, or detention of sums owed pursuant hereto. In the event Lender ever receives, collects, or applies as interest any such sum, such amount which would be in excess of the maximum amount permitted by applicable law shall be applied as a payment and reduction of the principal of the Obligations of Borrower hereunder; if the principal of such Obligations has been paid in full, any remaining excess shall forthwith be paid to Borrower. In determining whether or not the interest paid or payable exceeds the maximum rate permitted by applicable law, Borrower and Lender shall, to the extent permitted by applicable law, (i) characterize any non-principal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the entire contemplated term of this Agreement so that interest for the entire term does not exceed the maximum rate permitted by law.



(b)    If at any time the rate of interest applicable to the Obligations of Borrower hereunder ,   together with any other fees and other amounts payable pursuant to this Agreement and the other Loan Documents and deemed interest under applicable law, exceeds that amount that would have accrued at the maximum rate permitted by applicable law, then the amount of interest and any such fees and other amounts to accrue to Lender pursuant to this Agreement and the other Loan Documents shall be limited, notwithstanding anything to the contrary in this Agreement or any other Loan Document, to that amount that would have accrued at the maximum rate permitted by applicable law, but to the extent permitted by applicable law, any subsequent reductions, as applicable, shall not reduce the interest to accrue to Lender pursuant to this Agreement and the other Loan Documents below the maximum rate permitted by applicable law until the total amount of interest accrued pursuant to this Agreement and the other Loan Documents and such fees and other amounts deemed to be interest equals the amount of interest, fees and other amounts that would have accrued to Lender but for the effect of this Section 7.10 .



SECTION 7.11     RIGHT OF SETOFF; DEPOSIT ACCOUNTS . Upon and after the occurrence of an Event of Default which is continuing, (a) Borrower authorizes Lender, at any time and from time to time, without notice, which is hereby expressly waived by Borrower, and whether or not Lender will have declared any extension of credit under this Agreement to be due and payable in accordance with the terms of this Agreement, to set off against, and to appropriate and apply to the payment of, the Obligations then owing, any and all amounts then owing by Lender to any Borrower (whether payable in U.S. dollars or any other currency, whether matured or unmatured, and in the case of deposits, whether general or special (except trust, escrow and payroll accounts), time or demand and however evidenced), and (b) pending any such action, to the extent necessary, to hold such amounts as collateral to secure such the Obligations and to return as unpaid for insufficient funds any and all checks and other items drawn against any deposits so held as Lender, in its sole discretion, may elect. Borrower grants to Lender a security interest in all deposits and accounts maintained with Lender to secure the payment of all Obligations.



SECTION 7.12     CONFIDENTIALITY . Lender agrees that material, non-public information regarding Borrower, its operations, assets, and existing and contemplated business plans will be treated by Lender in a

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confidential manner, and will not be disclosed by Lender to Persons who are not parties to this Agreement, except (i) to Lender's Affiliates, attorneys, representatives, agents and other advisors to the extent such Persons are directed not to disclose such information as required under this Agreement and to officers, directors and employees of Lender, (ii) as required by law or by any court, governmental or regulatory authority, (iii) as agreed by Borrower, (iv) if such information becomes generally available to the public, (v) in connection with any litigation or adversary proceeding involving claims related to this Agreement or the assignment, participation or pledge of Lender's interest in this Agreement, provided that any prospective participant or assignee has been directed not to disclose such information as required under this Agreement, (vi) to equity owners of any Obligor (other than equity owners of Parent who are not officers of any Obligor), or (vii) in connection with the exercise by Lender of any right or remedy under this Agreement, any other Loan Document or at law. Lender may use the name, logos, and other insignia of Borrower and the maximum amount of the credit facilities provided under this Agreement in any “tombstone” or comparable advertising, on its website or in other marketing materials of Lender.



SECTION 7.13     DATA TRANSMISSION . Lender assumes no responsibility for privacy or security risks as a result of the method of data transmission selected by Borrower or any other Obligor. Lender only assumes responsibility for data transmitted from Borrower once the data is received within Lender's internal network. Lender assumes no responsibility for privacy or security for data transmitted from Lender to any Obligor once the data is dispensed from internal network.



SECTION 7.14     PATRIOT ACT NOTICE . Lender hereby notifies Borrower that pursuant to the requirements of the Patriot Act, Lender is required to obtain, verify and record information that identifies Borrower and each other Obligor, which information includes the name and address of such Obligor and other information that will allow Lender to identify each Obligor in accordance with the Patriot Act. In addition, if Lender is required by law or regulation or internal policies to do so, it shall have the right to periodically conduct (a) Patriot Act searches, OFAC/PEP searches, and customary individual background checks for each Obligor, and (b) OFAC/PEP searches and customary individual background checks of each Corporate Obligor's senior management and key principals, and Borrower agrees to cooperate, and to cause each other Obligor to cooperate, in respect of the conduct of such searches and further agree that the reasonable costs and charges for such searches shall constitute Lender Expenses.



SECTION 7.15     VENUE . THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE TRIED AND LITIGATED IN THE APPLICABLE STATE (AS DEFINED BELOW) AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE DISTRICT OF MASSACHUSETTS; PROVIDED , HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER AND LENDER WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 7.15 .



SECTION 7.16     WAIVER OF JURY TRIAL . BORROWER AND LENDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH BORROWER AND LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT OR (B) THE LOAN DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY BORROWER AND LENDER, AND BORROWER AND LENDER HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. BORROWER AND LENDER FURTHER REPRESENT THAT EACH HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT EACH OF BORROWER AND LENDER HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.



SECTION 7.17     CONSTRUCTION .



(a)    Any reference herein or in any other Loan Document to the satisfaction, repayment, or payment in full of the Obligations shall mean: (i) the payment or repayment in full in immediately available funds of (x) the principal amount of, and interest accrued and unpaid with respect to, all outstanding Loans together with the payment of any premium applicable to the repayment of the Loans, (y) all Lender Expenses that have accrued and are

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unpaid regardless of whether demand has been made therefor and (z) all fees or charges that have accrued hereunder or under any other Loan Document and are unpaid; (ii) in the case of obligations with respect to Bank Products (other than in respect of Hedge Agreements), providing Lender cash collateral for such Bank Products in an amount determined by Lender as sufficient to satisfy the reasonably estimated credit exposure therefor; (iii) the receipt by Lender of cash collateral in order to secure any other contingent Obligations for which a claim or demand for payment has been made on or prior to such time or in respect of matters or circumstances known to Lender at such time that are reasonably expected to result in any loss, cost, damage, or expense (including attorneys' fees and legal expenses), such cash collateral to be in such amount as Lender reasonably determines is appropriate to secure such contingent Obligations; and (iv) the payment or repayment in full in immediately available funds of all other outstanding Obligations (including the payment of any termination amount then applicable (or which would or could become applicable as a result of the repayment of the other Obligations) under Hedge Agreements) other than (x) unasserted contingent indemnification Obligations, (y) any obligations in respect of Bank Products (other than Hedge Agreements) that, at such time, are allowed by Lender to remain outstanding without being required to be repaid and (z) any obligations under Hedge Agreements that, at such time, are allowed by the applicable provider of such Hedge Agreements to remain outstanding without being required to be repaid.



(b)    The terms “herein,” “hereof,” “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. In the computation of periods of time from a specified date to a later specified date, “from” means “from and including,” and “to” and “until” each mean “to but excluding.” The terms “including” and “include” shall mean “including, without limitation.” Section titles appear as a matter of convenience only and shall not affect the interpretation of any Loan Document. All references to (a) laws include all related regulations, interpretations, supplements, amendments and successor provisions; (b) any document, instrument or agreement include any amendments, waivers and other modifications, extensions or renewals (to the extent not prohibited by the Loan Documents); (c) any section mean, unless the context otherwise requires, a section of this Agreement; (d) any exhibits or schedules mean, unless the context otherwise requires, exhibits and schedules attached hereto, which are hereby incorporated by reference; and (e) any Person include successors and assigns.



[Signature page follows]









 

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The parties have caused this Agreement to be executed effective as of the Closing Date.





 

 

 

 

BORROWER

 

ADDRESS FOR BORROWER



 

 

 

 

MICRON PRODUCTS INC.

 

Micron Products Inc.



 

 

 

25 Sawyer Passway

By

/s/ SALVATORE EMMA, JR.

 

Fitchburg, Massachusetts 01420



Name:

SALVATORE EMMA, JR.

 

Attention: Salvatore Emma, Chief Executive Officer



Title:

PRESIDENT & CEO

 

Fax No.: 978-342-0168



 

 

 

Email: SEMMA@MICRONPRODUCTS.COM



 

 

 

 



 

 

 

 



 

 

 

 

LENDER

 

ADDRESS FOR LENDER



 

 

 

 

ROCKLAND TRUST COMPANY

 

Rockland Trust Company



 

 

 

120 Liberty Street

By

/s/ Thomas Meehan

 

Brockton, MA 02301



Name:

Thomas Meehan

 

Attention: Thomas Meehan, Relationship Manager



Title:

Relationship Manager

 

Phone: 781.982.6389



 

 

 

Facsimile: 508.732.7627



 

 

 

Email: Thomas.Meehan@RocklandTrust.com







 

Signature Page to Credit Agreement


 

Schedule A

to

Credit and Security Agreement



DEFINITIONS



" Advances " means advances made or deemed made by Lender to Borrower pursuant to Section 1.1(a) or otherwise in accordance with this Agreement.  

" Affiliate " means, as applied to any Person, any other Person who controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" means the possession, directly or indirectly through one or more intermediaries, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise; provided ,   however , that, for purposes of the definition of Eligible Accounts and Section 5.6 , (a) any Person which owns directly or indirectly 10% or more of the Stock having ordinary voting power for the election of the board of directors or equivalent governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed an Affiliate of such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person, and (c) each partnership in which a Person is a general partner shall be deemed an Affiliate of such Person.

" Applicable State " means the Commonwealth of Massachusetts.

" Assignment of Claims Act " means the Assignment of Claims Act, 31 USC §3727, as amended from time to

time.

" Availability " means, as of any date of determination, the amount by which the lesser of the Borrowing Base and the Maximum Revolver Amount exceeds the then outstanding Advances.  

" Bank Products " means any one or more of the following financial products or accommodations extended to any Obligor by a Lender: (a) commercial credit cards, (b) commercial credit card processing services, (c) debit cards, (d) stored value cards, (e) purchase cards (including so-called "procurement cards" or "P-cards"), or (f) cash management and related services (including treasury, depository, return items, overdraft, controlled disbursement, merchant stored value cards, e-payables services, electronic funds transfer, interstate depository network, automatic clearing house transfer and other cash management arrangements).

" Bankruptcy Code " means Title 11 of the United States Code as in effect from time to time.

" Borrower " has the meaning set forth in the preamble to this Agreement.

" Borrowing Base " has the meaning set forth in Schedule B-1 .  

" Business Day " means any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to close under the rules and regulations of the Federal Reserve System.

" Capital Expenditures " means, with respect to any Person, all liabilities incurred or expenditures made by such Person for the acquisition of fixed assets, or any improvements, replacements, substitutions or additions thereto with a useful life of more than one year.

" Capitalized Lease " means any lease which is or should be capitalized on the balance sheet of the lessee thereunder in accordance with GAAP.

" Cash Taxes " means, for the applicable period, for Borrower and its Subsidiaries on a consolidated basis, the aggregate of all income taxes of such Persons as determined in accordance with GAAP, to the extent the same are paid in cash.

" CERCLA " means the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq.

" CERCLIS " means the Comprehensive Environmental Response, Compensation, and Liability Information System maintained by the United States Environmental Protection Agency.

" CFC " means a controlled foreign corporation (as that term is defined in the Internal Revenue Code of 1986,

as in effect from time to time).

" Change in Law " means the occurrence, after the date of this Agreement, of the adoption or taking effect of any new or changed law, rule, regulation or treaty, or the issuance of any request, rule, guideline or directive (whether or

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not having the force of law) by any Governmental Authority; provided that (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives issued in connection with that Act, and (y) all requests, rules, guidelines or directives promulgated by Lender for International Settlements, the Basel Committee on Banking Supervision (or any successor authority) or the United States regulatory authorities, in each case pursuant to Basel III, will in each case be deemed to be a "Change in Law," regardless of the date enacted, adopted or issued.

" Change of Control " means (a) Micron Solutions, Inc., a Delaware corporation, ceases to own beneficially and of record 100% of the Stock of Borrower, (b) Borrower ceases to own beneficially and of record 100% of the Stock of any of its Subsidiaries, or (c) a change in the majority of directors of Micron Solutions, Inc., a Delaware corporation, during any 12 month period, unless approved by the majority of directors serving at the beginning of such period.

" Closing Date " means the date on which Lender executes this Agreement as set forth below Lender's signature block on the signature page of this Agreement.

" Code " means the Uniform Commercial Code, as in effect from time to time in the Applicable State. To the extent that defined terms set forth in this Agreement have different meanings under different Articles under the Uniform Commercial Code, the meaning assigned to each such defined term under Article 9 of the Uniform Commercial Code will control.

" Collateral " means, collectively, (a) all properties, assets and rights of Borrower, wherever located, whether now owned or hereafter acquired or arising, and all Proceeds and products thereof, including: all Accounts, Chattel Paper (including Electronic Chattel Paper), Commercial Tort Claims, Deposit Accounts, Documents, General Intangibles, Goods, Inventory (including all merchandise and other Goods, and all additions, substitutions and replacements thereof, together with all Goods and materials used or usable in manufacturing, processing, packaging or shipping such Inventory), Equipment, Instruments, Investment Property, Letter-of-Credit Rights, returned Goods, and Supporting Obligations; all reserves, matured funds, credit balances and other property of Borrower in Lender's possession; all rights of stoppage in transit, replevin, repossession, reclamation and all other rights and remedies of an unpaid vendor; all of Borrower's Records; and all insurance policies and Proceeds and rights relating thereto, and (b) all other assets and properties of any Obligor in or upon which Lender is granted or holds a Lien pursuant to the Loan Documents.  Notwithstanding the foregoing, or anything to the contrary herein, the Collateral shall not include the Excluded Collateral.

" Collateral Access Agreement " means an agreement reasonably satisfactory in form and substance to Lender executed by (a) a bailee or other Person in possession of Collateral, and (b) any landlord of real estate leased by Borrower, pursuant to which such Person (i) acknowledges Lender's Lien on the Collateral, (ii) releases or subordinates such Person's Liens in the Collateral held by such Person or located on such real estate, (iii) provides Lender with access to the Collateral held by such bailee or other Person or located in or on such real estate, (iv) as to any landlord, provides Lender with a reasonable time to sell and dispose of the Collateral from such real estate, and (v) makes such other agreements with Lender as Lender may reasonably require.

" Collection Account " has the meaning set forth in Section 1.4(a) .  

" Collections " means cash, checks, notes, instruments, and other items of payment (including insurance proceeds, cash proceeds of asset sales, rental proceeds, and tax refunds) received by Lender in respect of Collateral.  

" Commercial Dispute " means any written dispute or claim in any respect regardless of merit (including, without limitation, any alleged dispute as to price, invoice terms, quantity, quality or late delivery and claims of release from liability, counterclaim or any alleged claim of deduction, offset, or counterclaim or otherwise) arising out of or in connection with an Account or any other transaction related thereto.

" Commodity Exchange Act " means the Commodity Exchange Act (7 U.S.C. §1 et seq.), as amended from time

to time.

" Compliance Certificate " means a certificate in the form of Schedule F delivered by the chief financial officer of Borrower to Lender.

" Consignee Customers " means AMBU Sdn. Bhd., Cardinal Health Germany Covidien Deutschland GmbH) and 3M Canada.

" Contract LIBOR Rate " has the meaning set forth in Schedule B-1 .  

" Contract Prime Rate " has the meaning set forth in Schedule B-1 .  

" Corporate Obligor " means an Obligor that is not a natural Person.

" Cost " means Borrower's standard cost of Inventory. 

" Daily Balance " means, as of any date of determination and with respect to any Obligation, the amount of such Obligation owed at the end of such day.

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" Daily One Month LIBOR " means, for any date of determination, the rate per annum for United States dollar deposits with a maturity of one (1) month as reported on Reuters LIBOR01 Screen (or any successor page) at approximately 11:00 am London time on such date of determination or, if such day is not a London business day, then on the immediately preceding London business day.  If such rate is not so reported, such rate shall be as determined by Lender from another recognized source or interbank quotation.  When interest or any fee hereunder is determined in relation to Daily One Month LIBOR, each change in such interest rate or fee shall become effective each Business Day that Lender determines that Daily One Month LIBOR has changed.

" Default " means an event, condition or default that, with the giving of notice, the passage of time, or both, would be an Event of Default.

" Default Period " means each period commencing upon the occurrence and during the continuation of an Event of Default.

" Default Rate " means the Default Rate set forth in Schedule B-1 annexed hereto.

" Deposit Account Control Agreements " has the meaning set forth in Section 1.4(a) .  

" Dilution " means, with respect to any Person for any period of determination selected by Lender, a percentage that is the result of dividing the dollar amount of the aggregate of all bad debt write-downs, discounts, allowances, credits, deductions and other dilutive items for such period as determined by Lender with respect to such Person's Accounts for such period, by such Person's billings with respect to Accounts for such period.

" Eligible Accounts " mean Accounts created by Borrower, in the ordinary course of Borrower's business, that arise out of the sale of goods or the rendition of services, that comply with each of the representations and warranties in all material respects respecting Eligible Accounts made in the Loan Documents and that are not excluded as ineligible by virtue of one or more of the excluding criteria set forth below; provided that such criteria may be revised from time to time by Lender in the exercise of its Permitted Discretion.  Eligible Accounts shall not include the following:



(i) any Account that (x) is unpaid more than 90 days from the original invoice date;

(ii) any Account that is unpaid for more than 60 days after the original due date;

(iii) 25% or more of the Accounts owing by the Account Debtor are not Eligible Accounts under the foregoing clause (ii);  

(iv)  any Account for which there exists any right of setoff, defense, dispute or discount (except regular discounts allowed in the ordinary course of business to promote prompt payment) or for which any defense or counterclaim has been asserted, to the extent of such setoff, defense, dispute or discount;  

(v)  Accounts with respect to which the Account Debtor is subject to an Insolvency Proceeding, is not solvent, has gone out of business, or as to which any Obligor has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition of such Account Debtor;  

(vi)  any Account with respect to which the Account Debtor is a Governmental Authority unless such Governmental Authority has approved funding for goods or services relating to such Account and (A) if such Governmental Authority is the United States of America or any department, agency or instrumentality of the United States of America, Borrower shall have complied in all respects, to the satisfaction of Lender, with the Assignment of Claims Act, (B) if such Governmental Authority is any state of the United States of America, or any municipality, political subdivision or other governmental entity of any such state, Borrower shall have complied in all respects, to the satisfaction of Lender, with any statute in effect in such state that is substantially similar to the Assignment of Claims Act, as determined by Lender and (C) if such Governmental Authority is a Person not described in the foregoing clauses (A) or (B), Borrower shall deliver or cause to be delivered to such Person, in form and content acceptable to Lender, a written Notice of Assignment of Accounts in favor of Lender with respect to all Accounts owing by such Governmental Authority to Borrower;  

(vii)  any Account which represents an obligation of an Account Debtor located in a foreign country;  

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(viii)  any Account which arises from the sale or lease to or performance of services for, or represents an obligation of, an employee, Affiliate, partner, member, parent or Subsidiary of an Obligor;  

(ix)  that portion of any Account which represents interim or progress billings or title retention rights on the part of the Account Debtor;  

(x)  Accounts representing "C.O.D." sales;  

(xi)  Accounts arising in a transaction where Goods are placed on consignment (other than consignments with Consignee Customers) or are sold pursuant to a guaranteed sale, a sale or return, a sale on approval, or any other terms by reason of which the payment by the Account Debtor may be conditional or contingent;  

(xii)  that portion of Accounts which has been restructured, extended, amended or otherwise modified;  

(xiii)  Accounts that are not payable in U.S. dollars;  

(xiv)  bill and hold invoices, except those with respect to which Lender shall have received an acceptable agreement in writing from the Account Debtor confirming the unconditional obligation of the Account Debtor to take the goods related to the Account and pay such invoice, so long as such Accounts satisfy all other criteria for Eligible Accounts;  

(xv)  Accounts, the collection of which, Lender, in its Permitted Discretion, believes to be doubtful by reason of the Account Debtor's financial condition;  

(xvi)  Accounts that are subject to any Lien other than Liens in favor of Lender or Liens subordinate in priority to the Liens of Lender pursuant to a subordination, intercreditor or other similar agreement, in form and substance satisfactory to Lender, duly executed by the holder of such other Lien;

(xvii)  that portion of any Account which represents finance charges, service charges, sales taxes, or excise taxes;  

(xviii)  unless Lender otherwise agrees in its discretion, Accounts, (A) the payment of which is not remitted directly to the Collection Accounts or (B) due from Account Debtors who do not remit all payments thereof directly to the Collection Accounts; provided ,   that , subsection (xviii) shall not apply during the ninety (90) days after the Closing Date;   or  

(xix)  Accounts or that portion of Accounts otherwise deemed ineligible by Lender in its Permitted Discretion.  

Eligible Credit Insured Accounts ” means Accounts of Borrower which, but for the subsection (vii) of the definition of “Eligible Accounts,” would constitute Eligible Accounts, provided such Accounts are insured pursuant to credit insurance satisfactory to Lender in all respects.

" Eligible Inventory " means items of Inventory of Borrower that are finished goods, merchantable and readily saleable to the public in the ordinary course of Borrower's business, raw materials or work-in-process, that comply with each of the representations and warranties respecting Inventory made by Borrower in the Loan Documents, and are not excluded as ineligible by virtue of one or more of the criteria set forth below.  The following items of Inventory shall not be included in Eligible Inventory:

(i) Inventory that is subject to any Lien other than in favor of Lender (other than third party carriers' Liens or customs brokers' Liens arising in the ordinary course of business);

(ii) Inventory that is leased by or is on consignment to Borrower; 

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(iii) Inventory that is not located in the United States of America (excluding territories or possessions of the United States) or at a location that is owned or leased by Borrower, except (A) Inventory in transit between such owned or leased locations, or (B) to the extent that Borrower has furnished Lender with (i) any UCC financing statements or other documents that Lender may determine to be necessary to perfect its security interest in such Inventory at such location, and (ii) a Collateral Access Agreement executed by the Person owning any such location;

(iv) Inventory that is comprised of goods which (A) are damaged, defective, "seconds," or otherwise unmerchantable, (B) are to be returned to the vendor, (C) are obsolete or slow moving, or that constitute samples, spare parts, promotional, marketing, labels, bags and other packaging and shipping materials or supplies used or consumed in Borrower's business, (D) are not in compliance with all standards imposed by any Governmental Authority having regulatory authority over such Inventory, its use or sale, or (E) are bill and hold goods;

(v) Inventory that is not subject to a perfected first-priority security interest in favor of Lender, excluding third party carriers' liens or customs brokers' liens arising in the ordinary course of business;

(vi) Inventory that is not insured in compliance with the provisions of Section 4.11 ;  

(vii) Inventory that has been sold but not yet delivered or as to which Borrower has accepted a deposit; 

(viii) Inventory that is subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third party from which Borrower or any of its Subsidiaries has received notice of a dispute in respect of any such agreement; or 

(ix) Inventory otherwise deemed ineligible by Lender in its Permitted Discretion.

Eligible Consigned Inventory ” means Inventory of Borrower which, but for subsections (ii) and (iii) (with respect to subsection (iii), on account of such Inventory being located outside of the United States (including territories or possessions of the United States)) of the definition of “Eligible Inventory,” would constitute Eligible Inventory, provided such Inventory is located at or in transit to the premises of a Consignee Customer and is subject to a consignment or similar arrangement in all respects satisfactory to Lender.

Environmental Claim ” means, with respect to any Person, any action, suit, proceeding, investigation, notice, claim, complaint or demand (written or oral) by any Governmental Authority, alleging, asserting or claiming any actual or potential (a) violation of any Environmental Law, (b) liability under any Environmental Law or (c) liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, fines or penalties arising out of, based on or resulting from the presence, or release into the environment, of any Hazardous Materials at any location, whether or not owned by such Person.

" Environmental Laws " means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

" Environmental Liability " means any liability, obligation, damage, loss, claim, action, suit, judgment, order, fine, penalty, fee, expense, or cost, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of Borrower directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal or presence of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

" ERISA " means the Employee Retirement Income Security Act of 1974.

" ERISA Affiliate " means any trade or business (whether or not incorporated) under common control with Borrower within the meaning of Section 414(b) or (c) of the Internal Revenue Code (and Sections 414(m) and (o) of the Internal Revenue Code for purposes of provisions relating to Section 412 of the Internal Revenue Code).

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" ERISA Event " means (a) a Reportable Event with respect to a Pension Plan, (b) the withdrawal of Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA, (c) a complete or partial withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization, (d) the filing of a notice of intent to terminate, or the treatment of a Pension Plan amendment as a termination, under Section 4041 or 4041A of ERISA. (e) the institution by the PBGC of proceedings to terminate a Pension Plan, (f) any event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan,(g) the determination that any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 and 305 of ERISA, or (h) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate.

" Event of Default " has the meaning set forth in Section 6.1 .  

" Excluded Collateral " means (a) voting Stock of any CFC, solely to the extent that such Stock represents more than 65% of the outstanding voting Stock of such CFC, (b) any rights or interest in any contract, lease, permit, license, or license agreement covering real or personal property of Borrower if under the terms of such contract, lease, permit, license, or license agreement, or applicable law with respect thereto, the grant of a security interest or lien therein is prohibited as a matter of law or under the terms of such contract, lease, permit, license, or license agreement and such prohibition or restriction has not been waived or the consent of the other party to such contract, lease, permit, license, or license agreement has not been obtained ( provided ,   that , (A) the foregoing exclusions of this clause (b) shall in no way be construed (1) to apply to the extent that any described prohibition or restriction is unenforceable under Section 9-406, 9-407, 9-408, or 9-409 of the Code or other applicable law, or (2) to apply to the extent that any consent or waiver has been obtained that would permit Lender's security interest or lien notwithstanding the prohibition or restriction on the pledge of such contract, lease, permit, license, or license agreement and (B) the foregoing exclusions of clauses (i) and (ii) shall in no way be construed to limit, impair, or otherwise affect any of Lender's continuing security interests in and liens upon any rights or interests of Borrower in or to (1) monies due or to become due under or in connection with any described contract, lease, permit, license, license agreement, or Stock (including any Accounts or Stock), or (2) any proceeds from the sale, license, lease, or other dispositions of any such contract, lease, permit, license, license agreement, or Stock), (c) any United States intent-to-use trademark applications to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark applications under applicable federal law, provided ,   that , upon submission and acceptance by the United States Patent and Trademark Office of an amendment to allege use pursuant to 15 U.S.C. Section 1060(a) (or any successor provision), such intent-to-use trademark application shall be considered Collateral, and (d) any vehicle subject to a certificate of title statute having an initial acquisition price of less than $20,000.

" Excluded Obligations " means with respect to any Obligor, each Swap Obligation as to which, and only to the extent that, such Obligor's guaranty of or grant of a Lien as security for such Swap Obligation is or becomes illegal under the Commodity Exchange Act because such Obligor does not constitute an "eligible contract participant" as defined in the act (determined after giving effect to any keepwell, support or other agreement for the benefit of such Obligor and all guarantees of Swap Obligations by other Obligors) when such guaranty or grant of Lien becomes effective with respect to the Swap Obligation.  If a Hedge Agreement governs more than one Swap Obligation, only the Swap Obligation(s) or portions thereof described in the foregoing sentence shall be Excluded Swap Obligation(s) for the applicable Obligor.

" Financial Covenants " mean the financial covenants set forth in Schedule B-3 hereto.

" GAAP " means generally accepted accounting principles as in effect from time to time in the United States of America, consistently applied.

" Governmental Authority " means any federal, state, local, or other governmental or administrative body, instrumentality, board, department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body.

" Guarantors " means (a) the Person or Persons set forth on the Schedule B-1 annexed hereto, (b) each Subsidiary of a Corporate Obligor, and (c) each Person that now or hereafter executes a Guaranty in favor of Lender.  The Guarantors are each from time to time individually referred to as a " Guarantor ".  

" Guaranty " means each guaranty of payment of the Obligations executed by a Guarantor for the benefit of Lender, as amended, restated, renewed, replaced, substituted, supplemented or otherwise modified.

" Hazardous Materials " means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

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" Hedge Agreement " means any "swap agreement" as that term is defined in Section 101(53B)(A) of the United States Bankruptcy Code.

" Indebtedness " means, with respect to any Person, the following, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several: (a) all obligations for borrowed money (including recourse and other obligations to repurchase accounts or chattel paper under factoring, receivables purchase or similar financing arrangement or for the deferred purchase price of property or services), (b) all obligations in respect of surety bonds and letters of credit, (c) all obligations evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations under Capitalized Leases, (e) all obligations or liabilities of others secured by a Lien on any asset of any of such Person, whether or not such obligation or liability is assumed, (f) all obligations to pay the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business and repayable in accordance with customary trade practices), (g) all guaranties of the obligations of another Person, and (h) all Swap Obligations (which amounts will be calculated based on the amount that would be payable by such Person if the underlying Hedge Agreement were terminated on the date of determination).

" Internal Revenue Code " means the Internal Revenue Code of 1986, as amended.

" Insolvency Proceeding " means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, receiverships, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

" Interest Expense " means, for the applicable period, for Borrower and Subsidiaries on a consolidated basis, total interest expense (including interest attributable to capital leases in accordance with GAAP) and fees with respect to outstanding Indebtedness.

" Lender " has the meaning set forth in the preamble to this Agreement.

" Lender Expenses " means, collectively, all payments, advances, charges, costs and expenses, including, without limitation, reasonable attorneys' fees (to include outside counsel fees but excluding costs of Lender's in-house counsel), appraisal fees, consultant fees, audit fees, and exam fees expended or incurred by Lender in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, perfection of Lender's Liens in the Collateral, Lender's continued administration of this Agreement and the other Loan Documents, and the preparation of any amendments, waivers or other agreements, instruments or documents relating to this Agreement or the other Loan Documents, or in connection with any "workout" or restructuring, (b) the enforcement of Lender's rights and/or the collection of any amounts which become due to Lender under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Obligors or any of the Loan Documents, including, without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the above incurred in connection with any Insolvency Proceeding (including, without limitation, any adversary proceeding, contested matter or motion brought by Lender or any other Person) relating to any of the Obligors or any other Person, and (d) any of the Collateral and other examinations, appraisals, evaluations, audits and inspections.

" Lender's Account " means such bank account owned and maintained by Lender, in its name and for its benefit, and designated from time to time by Lender as Lender's Account hereunder.  The Lender's Account shall be as follows:

 

For Rockland Trust Company:

Rockland Trust Company

ABA# 011304478

Acct # 2483300

Reference:  Micron Products

 

" LIBOR Deadline " has the meaning set forth in Section 1.5(b) .  

" LIBOR Notice " means the notice in the form of Schedule G .  

" LIBOR Option " has the meaning set forth in Section 1.5(b) .  

" Lien " means, with respect to any property, any security interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such property or its income, including, without limitation, the interest of a vendor or lessor under a conditional sale agreement, capital lease or other title retention agreement.  

" Lien Release Conditions " means Lender's receipt of each of the following, in form and content satisfactory to Lender: (a) cash payment in full of all Obligations; (b) evidence that the Line of Credit has been terminated; and (c) a general release by Obligors of all claims against Lender and its Affiliates relating to the Line of Credit and Lender's performance and obligations under the Loan Documents (other than with respect to obligations pertaining to any continuing cash management arrangements).

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" Line of Credit " means the line of credit provided under this Agreement.

" Loan Account " means one or more accounts maintained by Lender on its books and records in the name of Borrower.

" Loan Documents " means (a) this Agreement, and (b) each contract, instrument, agreement and other document with or in favor of Lender to which Borrower or any other Obligor is a party or maker required by this Agreement or at any time entered into or delivered to Lender in connection with this Agreement and the Line of Credit, Real Estate Term Loan, or M&E Term Loan.

Loans ” has the meaning set forth in Section 1.5(a) .  

M&E Term Loan ” has the meaning set forth in Section 1.3 .  

M&E Term Loan Amount ” means $2,500,000.

M&E Term Loan Note ” means the M&E Term Loan Note dated the date hereof, made by Borrower to Lender, in form and substance satisfactory to Lender.

" Material Adverse Change " means the existence or occurrence of any of the following: (a) any event or condition that Lender in good faith and reasonably believes impairs, or is reasonably likely to impair, the prospect of payment or performance by Corporate Obligors, taken as a whole, of any of the Obligations, (b) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of the Obligors, taken as a whole, (c) a material impairment of the ability of the Obligors, taken as a whole, to perform their obligations under the Loan Documents or of Lender's ability to enforce the Obligations or realize upon any material portion of the Collateral, or (d) a material impairment of the enforceability or priority of Lender's Liens with respect to any material portion of the Collateral.

" Material Contracts " means, with respect to any Person, each contract to which such Person is a party material to the business, condition (financial or otherwise), operations, performance, properties or prospects of such Person.

" Maturity Date " has the meaning set forth in Schedule B-1 .  

" Maximum Revolver Amount " has the meaning set forth in Schedule B-1 .  

Mortgage ” means that Mortgage, Security Agreement and Financing Statement dated as of the date hereof executed by Borrower in favor of Lender.

" Mortgage Property " means the real estate and improvements thereon comprising any part of the Real Estate Collateral.

" Multiemployer Plan " means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

" Multiple Employer Plan " means a Plan which has two or more contributing sponsors (including Borrower or any ERISA Affiliate), at least two of whom are not under common control, as such a plan is described in Section 4064 of ERISA.

" NPL " means the National Priorities List under CERCLA.

" NOLV Percentage " means 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 expenses, as determined from the most recent appraisal of Borrower's Inventory performed by an appraiser and on terms satisfactory to Lender.

" Notice of Assignment of Accounts " means a Notice of Assignment of Accounts executed and delivered by Borrower to Lender in form and substance satisfactory to Lender in its sole discretion.

" Obligations " means (a) all loans (including the Advances, the Real Estate Term Loan, and the M&E Term Loan), debts, principal, interest (including any interest that accrues after the beginning of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), premiums, liabilities (including all amounts charged to the Loan Account), obligations (including indemnification obligations), fees, Lender Expenses (including any fees or expenses that accrue after the commencement of an Insolvency Proceeding,

- 8 -


 

regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), guaranties, and all covenants and duties of any other kind and description owing by Borrower under or evidenced by this Agreement, any of the other Loan Documents, or under any other present or future document, instrument or agreement, and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, liquidated or unliquidated, determined or undetermined, voluntary or involuntary, due, not due or to become due, sole, joint, several or joint and several, incurred in the past or now existing or hereafter arising, however arising, and including all interest not paid when due, and all other expenses or other amounts that Borrower is required to pay or reimburse by the Loan Documents or by law or otherwise in connection with the Loan Documents, and (b) all obligations, indebtedness, liabilities, reimbursement obligations, fees, or expenses owing by any Obligor to Lender with respect to any Bank Product, whether direct or indirect, absolute or contingent, liquidated or unliquidated, determined or undetermined, voluntary or involuntary, due, not due or to become due,  incurred in the past or now existing or hereafter arising, however arising. Any reference in this Agreement or in the Loan Documents to the Obligations will include all or any portion of the Obligations and any extensions, modifications, renewals, or alterations of the Obligations, both prior and subsequent to any Insolvency Proceeding, but will not include, as to any Obligor, Excluded Obligations of such Obligor. 

" Obligor " means, individually and collectively, Borrower, Guarantors and all other Persons obligated in respect of the Obligations or whose assets are security for the Obligations.

" OFAC " means The Office of Foreign Assets Control of the U.S. Department of the Treasury.

" Overadvance Amount " means, as of any date of determination, the amount, if any, by which the sum of the outstanding Advances exceeds the lesser of (a) the Maximum Revolver Amount and (b) the Borrowing Base.

Parent ” means Micron Solutions, Inc., a Delaware corporation.

Parent Subordinated Debt ” means the Indebtedness of the Parent in the aggregate principal amount of $450,000 subordinated to the Indebtedness of Parent to UniBank for Savings.

"Patriot Act " means Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001).

" PBGC " means the Pension Benefit Guaranty Corporation.

" Pension Act " means the Pension Protection Act of 2006.

" Pension Funding Rules " means the rules of the Internal Revenue Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section 412 of the Internal Revenue Code and Section 302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Section 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA.

" Pension Plan " means any employee pension benefit plan (including a Multiple Employer Plan or a Multiemployer Plan) that is maintained or is contributed to by Borrower and any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Internal Revenue Code.

" Permitted Discretion " means a determination made in the exercise of the reasonable, from the perspective of a secured asset-based lender, business or credit judgment.  

" Permitted Dispositions " means (a) sales or other dispositions of equipment that is substantially worn, damaged, or obsolete in the ordinary course of business, (b) so long as no Event of Default shall have occurred and be continuing, other sales or dispositions of equipment in the ordinary course of business, which are on an arms' length basis for at least the fair market value thereof, and (c) sales of inventory to buyers in the ordinary course of business, (d) the use or transfer of money or cash equivalents in a manner that is not prohibited by the terms of the Agreement or the other Loan Documents.

" Permitted Indebtedness " means (a) the Obligations, (b) the Indebtedness existing on the date hereof disclosed in each case along with extensions, refinancings, modifications, amendments and restatements thereof, provided that (i) the principal amount thereof is not increased, (ii) if such Indebtedness is subordinated to any or all of the Obligations, the applicable subordination terms shall not be modified without the prior written consent of Lender, and (iii) the terms thereof are not modified to impose more burdensome terms upon any Loan Party, (c) obligations under Capitalized Leases and purchase money Indebtedness secured by Permitted Liens in an amount not to exceed $150,000 in the aggregate at any one time, (d) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business, (e) guaranty obligations permitted hereunder, (f) obligations in respect of performance bonds or sureties incurred in the ordinary course of business; and (g) Indebtedness between and among Corporate Obligors.

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" Permitted Investments " means (a) investments in cash, (b) investments in negotiable instruments for collection, (c) advances made in connection with purchases of goods or services in the ordinary course of business, (d) investments received in settlement of amounts due to Borrower in the ordinary course of business or owing to Borrower as a result of any insolvency proceedings involving an Account Debtor or upon the foreclosure or enforcement of any Lien in favor of Borrower, (e) debt and equity investments made by any Corporate Obligor in any other Corporate Obligor, (f) advances to employees for travel and entertainment expenses, (g) guarantees herein and in the other Loan Documents, and (h) loans (other than as set forth in clause (f) above) to shareholders, directors, officers or employees in an aggregate amount not to exceed the greater of $280,000 less any payments of principal made after the Closing Date in respect of any such loans outstanding as of such date and $50,000. 

" Permitted Lien " means (a) Liens in favor of Lender, (b) Liens for unpaid taxes, assessments, or other governmental charges or levies that are not yet delinquent or do not have priority over Lender's Liens and the underlying taxes, assessments, charges or levies are subjected to Permitted Protests, (c) the interests of lessors under operating leases and non-exclusive licensors under license agreements, (d) Liens subject to an intercreditor agreement, (other than the Intercreditor Agreement), in form and substance satisfactory to Lender, duly executed by the holder(s) of such Liens, (e) Purchase Money Liens to the extent that the Indebtedness in respect thereof constitutes Permitted Indebtedness, (f) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted Protests, (g) Liens on amounts deposited in connection with obtaining worker's compensation or other unemployment insurance, (h) Liens on amounts deposited in connection with public and statutory obligations in the ordinary course of business or the making or entering into of bids, tenders, or leases in the ordinary course of business, in each case not in connection with the borrowing of money (but specifically permitting Liens on amounts deposited to secure performance or payment bonds obtained in the ordinary course of business); (i) Liens on amounts deposited as security for surety or appeal bonds in connection with obtaining such bonds in the ordinary course of business, and (j) with respect to any real property, easements, rights of way, and zoning restrictions that do not materially interfere with or impair the use or operation thereof. 

" Permitted Protest " means the right of Borrower to protest any Lien (other than any Lien that secures the Obligations), taxes, assessment or other governmental charges (other than payroll taxes or taxes that are the subject of a United States federal tax lien), provided that (a) a reserve with respect to such obligation is established on Borrower's books and records in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by Borrower in good faith and (c) such protest effectively suspends collection of the contested obligation and, as applicable, the contested Lien.

" Person " means natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and their political subdivisions.

" Plan " means any employee benefit plan within the meaning of Section 3(3) of ERISA (including a Pension Plan), maintained for employees of Borrower or any ERISA Affiliate or any such Plan to which Borrower or any ERISA Affiliate is required to contribute on behalf of any of its employees.

" Prime Rate " means a fluctuating interest rate per annum equal at all times to the prime rate of interest as quoted daily (or such other interval of one week or less) in The Wall Street Journal (or any successor publication if The Wall Street Journal is no longer published); provided , that (a) should The Wall Street Journal cease to quote the prime rate of interest at least weekly, Prime Rate shall mean such other indication of the prevailing prime rate of interest as may be chosen by Lender in its discretion and (b) each change in the fluctuating interest rate shall take effect simultaneously with the corresponding change in the Prime Rate.

" Purchase Money Lien " means a Lien upon fixed assets which secures purchase money Indebtedness or obligations under a Capitalized Lease but only if such Lien shall at all times be confined solely to the fixed assets the purchase price of which was financed through the insurance of such purchase money Indebtedness or obligations under such Capitalized Lease secured by such Lien.

" Reportable Event " means any of the events set forth in Section 4043(c) of ERISA.

" Real Estate Collateral " means the real property and improvements subject to mortgages in favor of the Lender, including the real property and improvements, located at 25 and 41 Sawyer Passway, Fitchburg, Massachusetts 01420.

Real Estate Term Loan ” has the meaning set forth in Section 1.2 .  

Real Estate Term Loan Amount ” means $2,000,000.

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Real Estate Term Loan Note ” means the Real Estate Term Loan Note dated the date hereof, made by Borrower to Lender, in form and substance satisfactory to Lender.

" Reserves " means, as of any date of determination, an amount or percentage of a specific category or item that Lender establishes in its Permitted Discretion from time to time to reduce availability under the Line of Credit to reflect events, conditions, contingencies, or risks which reasonably could affect the assets, business or prospects of any of the Obligors or any of the Collateral or its value or the enforceability, perfection or priority of Lender's security interest in the Collateral.  Reserves may include, without limitation, reserves for Dilution, Bank Products, trade payables and other obligations of any Obligor aged in excess of 60 days beyond their terms as of the end of the immediately preceding month, and all book overdrafts and fees of Obligors, in each case as determined by Lender in its Permitted Discretion.

" Revolver Note " means the Revolver Note dated the date hereof, made by Borrower to Lender, in form and substance satisfactory to Lender. 

" Settlement Days " means the number of settlement days set forth in Schedule B-1 hereto.

" Stock " means all shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other equity security.

" Subordinated Debt " means Indebtedness of Borrower, the repayment of which is subordinate to the Obligations on terms and conditions reasonably acceptable to Lender pursuant to an agreement, in form and substance reasonably satisfactory to Lender, executed in favor of Lender by the holder(s) of such Indebtedness.  

" Subordinated Debt Documents " means, collectively, all agreements, documents and/or instruments evidencing Subordinated Debt or executed by any Corporate Obligor to or for the benefit of the holder(s) of such Subordinated Debt in relation to such Subordinated Debt.  

" Subsidiary " of a Person means a corporation, partnership, limited liability company or other entity in which that Person directly or indirectly owns or controls the shares of Stock having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company or other entity.

" Swap Obligations " means with respect to any Person, any obligation to pay or perform under any agreement, contract or transaction that constitutes a "swap" within the meaning of section 1a(47) of the Commodity Exchange Act.

" Taxes " means  taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or subsequently imposed by any jurisdiction or by any political subdivision or taxing authority, including without limitation payroll taxes, and all related interest, penalties or similar liabilities.

" Termination Date " means the earliest of the following: (a) the Maturity Date, (b) the date the Line of Credit is terminated by Borrower in accordance with the terms hereof, or (c) the date this Agreement is terminated by Lender in accordance with the terms hereof.



 

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SCHEDULE B-1

to

CREDIT AND SECURITY AGREEMENT



SELECTED ECONOMIC AND OTHER TERMS





 

Borrowing Base:

(i)   Up to 85% multiplied by the face amount of Eligible Accounts, plus

(ii)   up to 90% multiplied by the face amount of Eligible Credit Insured Accounts, plus

(iii)   the least of (A) up to 60% of the Cost of Eligible Inventory, (B) up to 80% of the NOLV Percentage of the Cost of such Eligible Inventory or (C) $1,500,000 minus the amount of Eligible Consigned Inventory included in the Borrowing Base pursuant to clause (iv) below, plus

(iv)   the lesser of (A) up to 60% of the Cost of Eligible Consigned Inventory or (B) $400,000, minus

(v)   Reserves.

Contract LIBOR Rate:

An interest rate per annum equal to the greater of the Daily One Month LIBOR in effect from time to time or 0.0% plus (i) with respect to Advances, 3.25%, and (ii) with respect to each of the Real Estate Term Loan and M&E Term Loan, 3.50%.

Contract Prime Rate:

An interest rate per annum equal to the Prime Rate in effect from time to time plus (i) with respect to Advances, .50%, and (ii) with respect to each of the Real Estate Term Loan and M&E Term Loan, .75%.

Default Rate:

An interest rate per annum equal to the then applicable Contract LIBOR Rate or Contract Prime Rate, as applicable, plus 2.00%.

Maturity Date:

36 months after the Closing Date.

Maximum Revolver Amount:

$5,000,000.

Settlement Days:

1 day.

Guarantor:

Micron Solutions, Inc., a Delaware corporation.





 


 

SCHEDULE B-2

to

CREDIT AND SECURITY AGREEMENT



FEES





On the Closing Date:

(a)   Closing Fee . A non-refundable closing fee of $30,000, which will be fully earned and payable on such date.

Monthly:

(a)   Cash Management and Other Service Fees . Fees for cash management services and other Bank Products and services provided to Borrower by Lender, in accordance with the agreements entered into between any Borrower and Lender from time to time, including Lender's customary fees and charges with respect to the disbursement of funds or the receipt of funds to or for the account of Borrower (whether by wire transfer or otherwise).

(b)   Unused Line Fee . An unused line fee equal to 0.25% per annum of the amount by which the Maximum Revolving Facility Amount exceeds the average daily outstanding principal balance of the Advances during the immediately preceding month (or part thereof), which each such fee shall be deemed to be fully earned and payable, in arrears, on the first day of each month until the Termination Date.

Upon demand by Lender or as otherwise specified in this Agreement:

(a)   Collateral Exam Fees, Costs and Expenses . Subject to Section 4.4 of this Agreement, Lender's fees, costs and expenses in connection with any collateral exams or inspections conducted by or on behalf of Lender at the current rates established from time to time by Lender as its fee for collateral exams or inspections, plus all actual out-of-pocket reasonable costs and expenses incurred in conducting any collateral exam or inspection. Borrower will reimburse Lender for all fees and expenses related to collateral examinations or inspections obtained prior to the Closing Date. Applicable fees related to electronic collateral reporting will also be charged.

(b)   Appraisal Fees, Costs and Expenses . Subject to Section 4.4, Lender's out-of-pocket reasonable fees, costs and expenses (including any fees, costs and expenses incurred by any appraiser) in connection with any appraisal of all or any part of the Collateral conducted at the request of Lender. In addition, Borrower will be obligated to reimburse Lender for all out-of-pocket reasonable fees, costs and expenses related to appraisals obtained prior to the Closing Date.





 


 

SCHEDULE B-3

to

CREDIT AND SECURITY AGREEMENT



FINANCIAL COVENANTS





1.   DEBT SERVICE COVERAGE RATIO. Borrower shall cause to be maintained a Debt Service Coverage Ratio of not less than 1.20 to 1.0, tested as of for March 31, 2018 and as of the last day of each fiscal quarter thereafter, in each instance (other than with respect to the fiscal quarter ended March 31, 2018), for the trailing 12 month period then ended (and with respect to the fiscal quarter ended March 31, 2018, for the trailing 9 month period then ended).

2.   CLOSING AVAILABILITY. As of the Closing Date and after giving effect to the initial Advance hereunder, Borrower shall have Availability of at least $1,000,000.

3.   AVAILABILITY GENERALLY.  After the Closing Date and after giving effect to all Advances hereunder, Borrower shall have Availability of at least $250,000, tested as of the first day of each month.

For purposes of this Schedule, and as used in the Agreement, the following terms shall have the meanings given to them below:

EBITDA ” means, for any applicable period, for Parent and its Subsidiaries on a consolidated basis, 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, and any extraordinary gains (in each case, to the extent included in determining net income).

Debt Service Coverage Ratio ” means, for any applicable period, for Parent and its Subsidiaries on a consolidated basis, the ratio of (a) EBITDA minus Cash Taxes minus distributions paid minus Unfunded Capital Expenditures, to (b) scheduled payments of principal required to be paid in respect of Indebtedness plus Interest Expense paid.

Unfunded Capital Expenditures ” means all Capital Expenditures of Parent and its Subsidiaries other than those made utilizing financing provided by the applicable seller or third party lenders. For the avoidance of doubt, Capital Expenditures made by Borrower utilizing the Line of Credit shall be deemed Unfunded Capital Expenditures.

 





 


 

SCHEDULE C

to

CREDIT AND SECURITY AGREEMENT



DISCLOSURE SCHEDULE





3.3  LITIGATION



None



3.5  TAXES



None



3.12  ELIGIBLE INVENTORY



Locations of Eligible Inventory:



1.  Micron Products, Inc., 25 Sawyer Passway, Fitchburg, Massachusetts 01420



2.  Micron Products, Inc., 41 Sawyer Passway, Fitchburg, Massachusetts 01420



3.  Cardinal Health Manufacturing GmbH (f/k/a Covidien Deutschland GmbH), Quedlinburger Strasse 39a, 38820 Halberstadt, Germany



4.  AMBU Sdn. Bhd., Lot 69B, Lintang Bayan Lepas 6, Phase IV, 11900, Penang Malaysia



5.  3M Canada, Gardewine Warehouse, 60 Eagle Drive, Winnipeg, MB R2R 1V5





3.13(c) ERISA



None



3.15  ENVIRONMENTAL COMPLIANCE



3.15  (a)  1. Phase I Environmental Site Assessment of 25 and 41 Sawyer Passway, Fitchburg, MA, dated 12/13/2017



2.  MassDEP and Micron entered into a Consent Order for violating Hazardous Waste Management and Toxics Use Reduction Regulations related to a single container located in short term storage, which based upon the date, should have been moved to long term storage. The Company paid a penalty to the DEP in which the DEP agreed to direct 60% of such penalty as a donation to the Fitchburg Fire Department.



3.15  (b)  1. 10 Main Street, Fitchburg, Massachusetts 01420



2.  1 Summer Street, Fitchburg, Massachusetts 01420



3.  15 Summer Street, Fitchburg, Massachusetts 01420

 


 

3.15  (c)  Phase I Environmental Site Assessment of 25 and 41 Sawyer Passway, Fitchburg, MA, dated 12/13/2017





3.16  LABOR MATTERS



1.  Employment Agreement with Salvatore Emma, Jr., President & Chief Executive Officer



2.  Employment Agreement with Derek T. Welch, Chief Financial Officer



3.  Executive Incentive Agreement



4.  2010 Equity Incentive Plan



5.  Board of Directors Stock Ownership Guidelines



6.  Directors Compensation Plan



7.  Schedule of Outstanding Stock Options





3.17  MATERIAL CONTRACTS



1.  Employment Agreement between the Company and Derek T. Welch dated as of January 20, 2015.



2.  Employment Agreement between the Borrower and Salvatore Emma, Jr. dated as of January 1, 2017.



3.  Employment Agreement between the Borrower and Derek T. Welch dated as of January 1, 2017.



4.  Master Supply Agreement between the Borrower and 3M Company dated July 15, 2015.



5.  Sub-Agreement Under Master Supply Agreement between the Borrower and 3M Canada dated July 15, 2015.



6.  VMI Agreement between the Borrower and AMBU Sdn. Bhd. dated August 8, 2016.



7.  Agreement for Consignment Stock between Borrower and Cardinal Health Germany Manufacturing (f/k/a Covidien Deutschland GmbH).





3.18  TITLED VEHICLES



1.  2004 Chevrolet Silverado, Vehicle Identification Number 1GCHK29U64E249300;



2.  1995 GMC Sierra, Vehicle Identification Number 1GDHK34F9SE537240; and



3.  2004 Freightliner M2, Vehicle Identification Number 1FVACWAK84HM61599.



 


 

3.19  CAPITALIZATION



1.  Number of Authorized Shares of Common Stock: 1,000



2.  Number of Issued and Outstanding Shares of Common Stock: 1,000



3.  Par value per share: $1.00



3.  Legal and Beneficial Ownership of Common Stock:



  Micron Solutions, Inc. – 1,000 Shares of Common Stock with Par Value





 


 



SCHEDULE D

to

CREDIT AND SECURITY AGREEMENT



FINANCIAL STATEMENTS





 

As soon as available, but within 45 days after the end of each fiscal quarter:  

(a)    consolidated internally prepared financial statements of Parent and its Subsidiaries for such quarter (such internally prepared financial statements to include a balance sheet, income statement, statement of cash flow and statement of owner's equity), prepared in accordance with GAAP (except for year-end adjustments and the lack of footnotes); and

(b)    a Compliance Certificate along with the underlying calculations, including the calculations to establish compliance with the financial and certain other covenants set forth in this Agreement.  

As soon as available, but within 30 days after the end of each month (unless the end of such month is also the end of the fiscal quarter):  

(a)   a Compliance Certificate along with the underlying calculations, including the calculations to establish compliance with the minimum net Availability financial covenant set forth in this Agreement.

As soon as available, but within 120 days after the end of each fiscal year:  

(a)    consolidated financial statements of Parent and its Subsidiaries for such fiscal year, audited by independent certified public accountants reasonably acceptable to Lender, prepared in accordance with GAAP (such financial statements to include a balance sheet, income statement, statement of cash flow, and statement of owner's equity and, if prepared, such accountants' letter to management); and

(b)    a Compliance Certificate with the underlying calculations, including the calculations to establish compliance with the financial and certain other covenants set forth in this Agreement.  

As soon as available, but at least 30 days before the start of each of Borrower's fiscal years:  

forecasted (i) balance sheets, (ii) profit and loss statements, (iii) availability projections, and (iv) cash flow statements, all prepared for Parent and its Subsidiaries on a consolidating and consolidated basis consistent with Borrower's historical financial statements, together with appropriate supporting details and a statement of underlying assumptions, in form and substance satisfactory to Lender, in its sole discretion, for the next fiscal year, on a monthly basis, certified by the chief financial officer of Borrower as being Borrower's good faith estimate of the financial performance of Parent and its Subsidiaries during the period covered.  

On request of Lender:  

such other information as Lender may reasonably request from time to time.  





 


 



SCHEDULE E

to

CREDIT AND SECURITY AGREEMENT



COLLATERAL REPORTING*





 

With each request for an Advance:  

(a)   a borrowing base certificate and collateral report, with respect to Borrower;

On Wednesday of each week (as of the immediately preceding Friday), or more frequently if Lender requests:  

(a)    an accounts receivable roll-forward, tied to the beginning and ending accounts receivable balances of Borrower's general ledger as of the end of the immediately preceding roll-forward (or as of such other date as Lender may request), with supporting details supplied from sales journals, collection journals, credit registers and any other records;

(b)    a detailed aging by total of Borrower's Accounts, together with a reconciliation to the accounts receivable roll-forward and supporting documentation for any reconciling items noted; and

(c)    a detailed aging by vendor of Borrower's accounts payable, together with supporting documentation for any reconciling items noted.  

On or before the 15th day after the commencement of each month (as of the immediately preceding month end):  

(a)    Inventory reports specifying in-transit, slow moving ( i.e., more than 12 months in inventory from the date of purchase or creation, as applicable) and obsolete Inventory and the Cost thereof, by category.

(b)   accounts receivable aging and reconciliation to Borrower’s general ledger; and

(c)   accounts payable aging and reconciliation to Borrower’s general ledger. 

On a semi-annual basis, each at the request of Lender:  

(a)   a detailed list of each Borrower's customers, with address and contact information.

Upon request by Lender:  

(a)    if requested by Lender, copies of invoices and credit memos sent to Account Debtors; and

(b)    such other reports and information as to the Collateral and as to the Obligors, as Lender may reasonably request.  







______________________

* All of the below deliverables shall be in form and in a format reasonably acceptable to Lender.

 


 

SCHEDULE F

to

CREDIT AND SECURITY AGREEMENT



FORM OF COMPLIANCE CERTIFICATE



[on Micron Products Inc.'s Letterhead]







 

To:

[ ]



__________________



__________________



Attn: ______________



 

Re:

Compliance Certificate dated [ ___________________ ]



 



Ladies and Gentlemen:



Reference is made to that certain Credit and Security Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”) dated as of December 29, 2017 by and between Rockland Trust Company (“ Lender ”) and Micron Products Inc. (the “ Borrower ”). Capitalized terms used in this Compliance Certificate have the meanings set forth in the Credit Agreement unless specifically defined herein.



Pursuant to the Credit Agreement, the undersigned [Chief Financial Officer] [President] of Borrower hereby certifies that:



1.    Attached to Exhibit A is the financial information of Parent and its Subsidiaries which is required to be furnished to Lender pursuant to Section 4.1 of the Credit Agreement for the period ended ________________ (the “ Reporting Date ”). Such financial information has been prepared in accordance with GAAP (except, in the case of internally prepared financial statements, for year-end adjustments and the lack of footnotes) and fairly presents in all material respects the financial condition of Borrower and its Subsidiaries.



2.    Such officer has reviewed the terms of the Credit Agreement.



3.    Such review has not disclosed the existence on and as of the date of this Certificate, and the undersigned does not have any knowledge of the existence as of the date of this Certificate, of any existing Default or Event of Default.



4.    The representations and warranties of each of the Obligors set forth in the Credit Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of this Certificate (except to the extent they relate to a specified date).



5.    As of the Reporting Date, (a) the Debt Service Coverage Ratio is ____ to 1.0, which [is] [is not] less than 1.20 to 1.0, and (b) Borrower’s Availability is $___________, which is [less] [greater] than $250,000. The calculations with respect to the above Financial Covenants is as demonstrated on the schedule attached hereto.



6.    Except as set forth on Exhibit B , since the Closing Date neither Borrower nor Parent has registered any Patents, Trademarks or Copyrights with the United States Patent and Trademark Office or the United States Copyright Office, as applicable.



IN WITNESS WHEREOF, this Compliance Certificate is executed by the undersigned this [____] day of [_____________].







 

 

 



 

 

 



Name:

 

 



Title:

[Chief Financial Officer] [President]

 



 


 



EXHIBIT A













 


 



EXHIBIT B











 


 

SCHEDULE G

to

CREDIT AND SECURITY AGREEMENT



FORM OF LIBOR NOTICE



Rockland Trust Company

120 Liberty Street

Brockton, MA 02301

Attention: Thomas Meehan, Relationship Manager



Ladies and Gentlemen:



Please refer to the Credit and Security Agreement dated as of December 29, 2017 (as amended, restated or otherwise modified from time to time, the “ Credit Agreement ”) between Rockland Trust Company (“ Lender ”) and Micron Products Inc. (“ Borrower ”). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Credit Agreement. This notice is given pursuant to Section 1.5 of the Credit Agreement and constitutes a representation by the undersigned that (a) each of the representations and warranties set forth in the Credit Agreement and in the other Loan Documents is true and correct in all respects as of the date hereof (or to the extent any representations or warranties are expressly made solely as of an earlier date, such representations and warranties shall be true and correct as of such earlier date), both before and after giving effect to the Loans requested hereby, and (b) no Default or Event of Default is in existence, both before and after giving effect to the Loans requested hereby.



This LIBOR Notice represents Borrower’s request to elect the LIBOR Option with respect to the outstanding balance of all Loans.







 

 

 



MICRON PRODUCTS INC.

 



 

 

 



 

 

 



By:

 

 



Name:

 

 



Title:

 

 



 


Exhibit 10.71

 

GENERAL SECURITY AGREEMENT



THIS GENERAL SECURITY AGREEMENT (this “ Agreem e nt ”) is dated as of December 29, 2017 between Micron Solutions, Inc., a Delaware corporation (the “ Debtor ”) and Rockland Trust Company, a Massachusetts trust company (together with its successors and assigns, the “ Secured P arty ”).



W I T N E S S E T H :



WHEREAS, Micron Products Inc., a Massachusetts corporation (“ Borrower ”), and Secured Party have entered into financing arrangements as more fully set forth in the Credit Agreement (as defined below) and the other Loan Documents (as defined below);



WHEREAS, Debtor has guaranteed, on a joint and several basis, the prompt payment and performance of certain indebtedness and certain other obligations of Borrower to Secured Party as set forth in that General Continuing Guaranty, dated on or about the date hereof, by Debtor in favor of Secured Party (as amended, modified, supplemented or restated, the “ Guaranty ”); and



WHEREAS, as collateral security for the obligations of Debtor under the Guaranty, Debtor has agreed to grant Secured Party a security interest in and lien upon substantially all assets and properties of Debtor in accordance with the terms hereof.



NOW, THEREFORE, in consideration of the terms and conditions contained herein, and of any extension of credit heretofore, now or hereafter made by Secured Party to or for the benefit of Debtor, the parties hereto hereby agree as follows:



1.     DEFINITIONS; CONSTRUCTION .



(a)     Defin itions. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement. All terms defined in the Code (as defined below) and not otherwise defined herein, including by reference to the Credit Agreement, shall have the meanings assigned to them in the Code, provided   that , to the extent the Code is used to define any term herein and such term is defined differently in different Articles of the Code, the definition of such term contained in Article 9 shall govern. The following terms, as used in this Agreement, shall have the following meanings:



Applicab le S tate ” means the Commonwealth of Massachusetts.



Code ” means the Uniform Commercial Code as in effect from time to time in the Applicable State.



Colla teral ” means, collectively, (i) all properties, assets and rights of Debtor, wherever located, whether now owned or hereafter acquired or arising, and all Proceeds and products thereof, including: all Accounts, Chattel Paper (including Electronic Chattel Paper), Commercial Tort Claims, Deposit Accounts, Documents, General Intangibles, Goods, Inventory (including all merchandise and other Goods, and all additions, substitutions and replacements thereof, together with all Goods and materials used or usable in manufacturing, processing, packaging or shipping such Inventory), Equipment, Instruments, Investment Property, Letter-of-Credit Rights, returned


 

Goods, and Supporting Obligations, (ii) all reserves, matured funds, credit balances and other property of Debtor in Secured Party’s possession, (iii) all rights of stoppage in transit, replevin, repossession, reclamation and all other rights and remedies of an unpaid vendor, (iv) all of Debtor’s Records, (v) all insurance policies and Proceeds and rights relating thereto, and (vi) all other assets and properties of Debtor in or upon which Secured Party is granted or holds a Lien pursuant to the Loan Documents. Notwithstanding the foregoing, or anything to the contrary herein, the Collateral shall not include the Excluded Collateral.



Credit Agreeme nt ” means the Credit and Security Agreement, dated on or about the date hereof, between Secured Party and Borrower.



Event of D efault ” shall means an “Event of Default” as defined in the Credit Agreement.



Excluded C ollateral ” means (i) voting Stock of any CFC, solely to the extent that such Stock represents more than 65% of the outstanding voting Stock of such CFC, (ii) any rights or interest in any contract, lease, permit, license, or license agreement covering real or personal property of Debtor if under the terms of such contract, lease, permit, license, or license agreement, or applicable law with respect thereto, the grant of a security interest or lien therein is prohibited as a matter of law or under the terms of such contract, lease, permit, license, or license agreement and such prohibition or restriction has not been waived or the consent of the other party to such contract, lease, permit, license, or license agreement has not been obtained (provided, that, (A) the foregoing exclusions of this clause (ii) shall in no way be construed (1) to apply to the extent that any described prohibition or restriction is unenforceable under Section 9- 406, 9-407, 9-408, or 9-409 of the Code or other applicable law, or (2) to apply to the extent that any consent or waiver has been obtained that would permit Secured Party’s security interest or lien notwithstanding the prohibition or restriction on the pledge of such contract, lease, permit, license, or license agreement and (B) the foregoing exclusions of clauses (i) and (ii) shall in no way be construed to limit, impair, or otherwise affect any of Secured Party’s continuing security interests in and liens upon any rights or interests of Debtor in or to (1) monies due or to become due under or in connection with any described contract, lease, permit, license, license agreement, or Stock (including any Accounts or Stock), or (2) any proceeds from the sale, license, lease, or other dispositions of any such contract, lease, permit, license, license agreement, or Stock), (iii) any United States intent-to-use trademark applications to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark applications under applicable federal law, provided that upon submission and acceptance by the United States Patent and Trademark Office of an amendment to allege use pursuant to 15 U.S.C. Section 1060(a) (or any successor provision), such intent-to- use trademark application shall be considered Collateral, and (iv) vehicles subject to a certificate of title statute to the extent that the initial acquisition price was or is, as applicable, less than $20,000.



Loan Documen ts ” means “Loan Documents” as defined in the Credit Agreement.



Obligations ” means “Guarantied Obligations” as defined in the Guaranty.



(b)     Construction. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the

2


 

plural, the part includes the whole, the terms “includes” and “including” are not limiting, and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.” The words “hereof,” “herein,” “hereby,” “hereunder,” and other similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Secured Party or Debtor, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of Debtor and Secured Party. Any reference herein to the satisfaction or payment in full of the Obligations shall mean the payment in full in cash (or cash collateralization in accordance with the terms of the Credit Agreement or any other Loan Documents) of all Obligations other than unasserted contingent indemnification Obligations and other than any Bank Product Obligations that, at such time, are allowed by the Lender to remain outstanding and are not required to be repaid or cash collateralized pursuant to the provisions of the Credit Agreement or any other Loan Documents and the full and final termination of any commitment to extend any financial accommodations under the Credit Agreement and any other Loan Documents. Any reference herein to any Person shall be construed to include such Person’s successors and assigns. Any requirement of a writing contained herein  shall  be satisfied by the transmission of a Record and any Record transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein. The captions and headings are for convenience of reference only and shall not affect the construction of this Agreement.



2.     GRANT OF SECURITY INTEREST .



To secure the prompt payment, performance and observance in full of all Obligations, Debtor hereby grants to Secured Party a continuing security interest in, a lien upon and a right of setoff against all Collateral.



3.     RIGHTS AND REMEDIES ON DEFAULT .



Without limiting any rights or remedies Secured Party may have pursuant to this Agreement, the other Loan Documents, under applicable law or otherwise, upon the occurrence and during the continuation of an Event of Default:



(a)    Secured Party may take any and all actions and avail itself of any and all rights and remedies available to Secured Party under this Agreement, any other Loan Document, under law or in equity (including all rights of a secured creditor under the Code), and the rights and remedies herein and therein provided shall be cumulative and not exclusive of any rights or remedies provided by applicable law or otherwise.

3


 

(b)    Secured Party may, but shall be under no obligation to, (i) notify all appropriate parties that the Collateral, or any part thereof, has been assigned to Secured Party, (ii) demand, sue for, collect and give receipts for and take all necessary or desirable steps to collect any Collateral or Proceeds in its or Debtor’s name, and apply any such collections against the Obligations as Secured Party may elect, (iii) take control of any Collateral and any cash and non-cash Proceeds of any Collateral, (iv) enforce, compromise, extend, renew, settle or discharge any rights or benefits of Debtor with respect to or in and to any Collateral, or deal with the Collateral as Secured Party may deem advisable, and (v) make any compromises, exchanges, substitutions or surrenders of Collateral as Secured Party deems necessary or proper in its reasonable discretion, including extending the time of payment, permitting payment in installments, or otherwise modifying the terms or rights relating to any of the Collateral, all of which may be effected without notice to, consent of, or any other action of Debtor and without otherwise discharging or affecting the Obligations, the Collateral or the security interests granted to Secured Party under this Agreement or any other Loan Document.



(c)    Secured Party may file proofs of loss and claim with respect to any of the Collateral with the appropriate insurer, and may endorse in its own and Debtor's name any checks or drafts constituting Proceeds of insurance. Any Proceeds of insurance received by Secured Party may be applied by Secured Party against payment of all or any portion of the Obligations as Secured Party may elect in its reasonable discretion.



(d)    Secured Party may take possession of the Collateral and, without removal, render Debtor's Equipment unusable. Upon Secured Party's request, Debtor shall assemble the Collateral and make it available to Secured Party at a place or places to be designated by Secured Party.



(e)    Secured Party may and without any notice to, consent of or any other action by Debtor (such notice, consent or other action being expressly waived), set-off or apply (i) any and all deposits (general or special, time or demand, provisional or final) at any time held by or for the account of Secured Party or any Affiliate of Secured Party, and (ii) any Indebtedness at any time owing by Secured Party or any Affiliate of Secured Party to or for the credit or the account of Debtor, to the repayment of the Obligations irrespective of whether any demand for payment of the Obligations has been made.



(f)    (i)    Secured Party may, without demand, advertising or notice, all of which Debtor hereby waives (except as the same may be required by the Code or other applicable law and is not waivable under the Code or such other applicable law), at any time or times in one or more public or private sales or other dispositions, for cash, on credit or otherwise, at such prices and upon such terms as determined by Code (provided such price and terms are commercially reasonable within the meaning of the Code to the extent such sale or other disposition is subject to the Code requirements that such sale or other disposition must be commercially reasonable), (A) sell, lease, license or otherwise dispose of any and all Collateral, or (B) deliver and grant options to a third party to purchase, lease, license or otherwise dispose of any and all Collateral. Secured Party may sell, lease, license or otherwise dispose of any Collateral in its then-present condition or following any preparation or processing deemed necessary by Secured Party in its reasonable discretion. To the extent permitted by applicable law, Secured Party may be the purchaser at any such public or private sale or other disposition of

4


 

Collateral, and in such case Secured Party may make payment of all or any portion of the purchase price therefor by the application of all or any portion of the Obligations due to Secured Party to the purchase price payable in connection with such sale or disposition. Secured Party may, if it deems it reasonable, postpone or adjourn any public sale of any Collateral from time to time by an announcement at the time and place of the sale to be so postponed or adjourned without being required to give a new notice of sale or disposition; p rovided ,   h owever , that Secured Party shall provide Debtor with written notice of the time and place of such postponed or adjourned sale. Debtor hereby acknowledge and agree that Secured Party's compliance with any requirements of applicable law in connection with a sale, lease, license or other disposition of Collateral will not be considered to adversely affect the commercial reasonableness of any sale, lease, license or other disposition of such Collateral.



(ii)    Debtor shall remain liable for all amounts of the Obligations remaining unpaid as a result of any deficiency of the Proceeds of the sale, lease, license or other disposition of Collateral after such Proceeds are applied to the Obligations as provided in this Agreement.



(iii)    Secured Party may sell, lease, license or otherwise dispose of the Collateral without giving any warranties and may specifically disclaim any and all warranties, including warranties of title, possession, merchantability and fitness for a particular purpose. Debtor hereby acknowledges and agrees that Secured Party's disclaimer of any and all warranties in connection with a sale, lease, license or other disposition of Collateral will not be considered to adversely affect the commercial reasonableness of any such disposition of the Collateral. If Secured Party sells, leases, licenses or otherwise disposes of any of the Collateral on credit, Debtor will be credited only with payments actually made in cash by the recipient of such Collateral and received by Secured Party and applied to the Obligations. If any Person fails to pay for Collateral acquired pursuant this Section 3.3(f)   on credit, Secured Party may re-offer the Collateral for sale, lease, license or other disposition.



(g)    (i)    All rights of Debtor to exercise any of the voting and  other consensual rights which it would otherwise be entitled to exercise in accordance with the terms hereof with respect to any Investment Property, and to receive any dividends, payments, and other distributions which it would otherwise be authorized to receive and retain in accordance with the terms hereof with respect to any Investment Property, shall immediately, at the election of Secured Party (without requiring any notice) cease, and all such rights shall thereupon become vested solely in Secured Party, and Secured Party (personally or through an agent) shall thereupon be solely authorized and empowered, without notice, to (a) transfer and register in its name, or in the name of its nominee, the whole or any part of the Investment Property, it being acknowledged by Debtor that any such transfer and registration may be effected by Secured Party through its irrevocable appointment as attorney-in-fact pursuant to Section 3 .3(g)(ii) , (b) exchange certificates and/or instruments representing or evidencing Investment Property for certificates and/or instruments of smaller or larger denominations, (c) exercise the voting and all other rights as a holder with respect to all or any portion of the Investment Property (including all economic rights, all control rights, authority and powers, and all status rights of Debtor as a member or as a shareholder (as applicable) of the issuer of such Investment Property), (d) collect and receive all dividends and other payments and distributions made thereon, (e) notify the parties obligated on any Investment Property to make payment to Secured Party of any amounts

5


 

due or to become due thereunder, (f) endorse instruments in the name of Debtor to allow collection of any Investment Property, (g) enforce collection of any of the Investment Property by suit or otherwise, and surrender, release, or exchange all or any part thereof, or compromise or renew for any period (whether or not longer than the original period) any liabilities of any nature of any Person with respect thereto, (h) consummate any sales of Investment Property or exercise any other rights as set forth in Section 3.3(f) , (i) otherwise act with respect to the Investment Property as though Secured Party were the outright owner thereof, and (j) exercise any other rights or remedies Secured Party may have under the other Loan Documents, the Code, other applicable law, or otherwise.



(ii)    DEBTOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS SECURED PARTY AS ITS PROXY AND ATTORNEY-IN-FACT FOR DEBTOR WITH RESPECT TO ALL OF DEBTOR'S INVESTMENT PROPERTY WITH THE RIGHT, DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, WITHOUT NOTICE, TO TAKE ANY OF THE FOLLOWING ACTIONS: (A) TRANSFER AND REGISTER IN SECURED PARTY'S NAME, OR IN THE NAME OF ITS NOMINEE, THE WHOLE OR ANY PART OF THE INVESTMENT PROPERTY, (B) VOTE THE INVESTMENT PROPERTY, WITH FULL POWER OF SUBSTITUTION TO DO SO, (C) RECEIVE AND COLLECT ANY DIVIDEND OR ANY OTHER PAYMENT OR DISTRIBUTION IN RESPECT OF, OR IN EXCHANGE FOR, THE INVESTMENT PROPERTY OR ANY PORTION THEREOF, TO GIVE FULL DISCHARGE FOR THE SAME AND TO INDORSE ANY INSTRUMENT MADE PAYABLE TO DEBTOR FOR THE SAME, (D) EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES, AND REMEDIES (INCLUDING ALL ECONOMIC RIGHTS, ALL CONTROL RIGHTS, AUTHORITY AND POWERS, AND ALL STATUS RIGHTS OF DEBTOR AS A MEMBER OR AS A SHAREHOLDER (AS APPLICABLE) OF THE ISSUER OF SUCH INVESTMENT PROPERTY) TO WHICH A HOLDER OF THE INVESTMENT PROPERTY WOULD BE ENTITLED (INCLUDING, WITH RESPECT TO THE INVESTMENT PROPERTY, GIVING OR WITHHOLDING WRITTEN CONSENTS OF MEMBERS OR SHAREHOLDERS, CALLING SPECIAL MEETINGS OF MEMBERS OR SHAREHOLDERS, AND VOTING AT SUCH MEETINGS), AND (E) TAKE ANY ACTION AND EXECUTE ANY INSTRUMENT WHICH LENDER MAY DEEM NECESSARY OR ADVISABLE TO ACCOMPLISH THE PURPOSES OF THIS AGREEMENT.



(iii)    In order to further effect the foregoing transfer of rights in favor of Secured Party, during the continuance of an Event of Default, Debtor hereby authorizes and instructs each issuer of Investment Property pledged by Debtor to comply with any instruction received by such issuer from Secured Party without any other or further instruction from Debtor, and Debtor acknowledges and agrees that each such issuer shall be fully protected in so complying, and to pay any dividends, distributions, or other payments with respect to any of the Investment Property directly to Secured Party.



(iv)    Upon exercise of any proxy set forth herein, all prior proxies given by Debtor with respect to any Investment Property, as applicable (other than to Secured Party), are hereby revoked, and no subsequent proxies (other than to Secured Party) will be given with respect to any Investment Property by Debtor, unless Secured Party otherwise subsequently agrees in writing. Secured Party, as proxy, will be empowered and may exercise the irrevocable

6


 

proxy to vote the other Investment Property at any and all times during the existence of an Event of Default, including at any meeting of shareholders or members, as the case may be, however called, and at any adjournment thereof, or in any action by written consent, and may waive any notice otherwise required in connection therewith. To the fullest extent permitted by applicable law, Secured Party shall have no agency, fiduciary, or other implied duties to Debtor, any issuer of Investment Property, or any other Person when acting in its capacity as such proxy or attorney-in-fact. Debtor hereby waives and releases any claims that it may  otherwise  have against Secured Party with respect to any breach, or alleged breach, of any such agency, fiduciary, or other duty.



(v)    Any transfer to Secured Party or its nominee, or registration in the name of Secured Party or its nominee, of the whole or any part of the Investment Property shall be made solely for purposes of effectuating voting or other consensual rights with respect to the Investment Property in accordance with the terms of this Agreement and is not intended to effectuate any transfer of ownership of any of the Investment Property. Notwithstanding the delivery by Secured Party of any instruction to any issuer of Investment Property or any exercise by Secured Party of an irrevocable proxy or otherwise, Secured Party shall not be deemed the owner of, or assume any obligations or any liabilities whatsoever of the owner or holder of, any Investment Property unless and until Secured Party expressly accepts such obligations in a duly authorized and executed writing and agrees in writing to become bound by the applicable organizational documents or otherwise becomes the owner thereof under applicable law (including through a sale as described in Section 3.3(f) ). The execution and delivery of this Agreement shall not subject Secured Party to, or transfer or pass to Secured Party, or in any way affect or modify, the liability of Debtor under the organizational documents of any issuer or any related agreements, documents, or instruments or otherwise. In no event shall the execution and delivery of this Agreement by Secured Party, or the exercise by Secured Party of any rights hereunder or assigned hereby, constitute an assumption of any liability or obligation whatsoever of Debtor to, under, or in connection with any of the issuer or any related agreements, documents, or instruments or otherwise.



(h)    Secured Party shall have the right in Secured Party's sole discretion to determine which rights, security, Liens or remedies Secured Party may at any time pursue, foreclose upon, relinquish, subordinate, modify or take any other action with respect to, without in any way impairing, modifying or affecting any of Secured Party's other rights, security, Liens or remedies with respect to such Property, or any of Secured Party's rights or remedies under this Agreement or any other Loan Document.



(i)    Debtor agrees that Secured Party shall not have any obligation to preserve rights to any Collateral against prior parties or to marshal any Collateral of any kind for the benefit of any other creditor of Debtor or any other Person. Secured Party shall not be responsible to Debtor or any other Person for loss or damage resulting from Secured Party's failure to enforce its Liens or collect any Collateral or Proceeds or any monies due or to become due under the Obligations or any other liability or obligation of Debtor to Secured Party.



(j)    Except as otherwise expressly provided for in this Agreement or by non- waivable applicable law, Debtor waives: (a) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default,

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nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Secured Party on which Debtor may in any way be liable, and hereby ratifies and confirms whatever Secured Party may do in this regard, (b) to the extent permitted by applicable law, all rights to notice and a hearing prior to Secured Party's taking possession or control of, or to Secured Party's replevy, attachment or levy upon, the Collateral or any bond or security which might be required by any court prior to allowing Secured Party to exercise any of its remedies and (c) the benefit of all valuation, appraisal, marshalling and exemption laws.



4.     REPRESENTATIONS, WARRANTIES AND COVENANTS.



(a)     T itle. Debtor has good title to the Collateral that is pledged by it pursuant to this Agreement or the other Loan Documents and has exclusive right to grant a security interest in such Collateral. The Collateral is not subject to any Liens except in favor of Secured Party and except for Permitted Liens.



(b)     Changes in Name, Constituent Documents, L ocation. Without giving Secured Party at least 30 days’ prior written notice, Debtor will not change its name, chief executive office, principal residence, organizational documents, organizational identification number, state of organization, organizational identity, or “location” as defined in Section 9-307 of the Code. Debtor will not change its chief executive officer, chief financial officer or chief operating officer, or any officer of similar title or authority, without giving Secured Party prompt notice of (but in any event within 10 days after) such change.



(c)     Commercial Tort C laims. Debtor shall promptly notify Secured Party in writing if it has a Commercial Tort Claim (other than, as long as no Default or Event of Default exists, a Commercial Tort Claim for less than $50,000) and shall take such actions as Secured Party deems appropriate to subject such claim to a duly perfected, first priority Lien in favor of Secured Party.



(d)     Certain After-Acquired Collater al. Debtor shall promptly notify Secured Party in writing if, after the Closing Date, it obtains any interest in any Collateral consisting of Deposit Accounts, Chattel Paper (with a face amount greater than $25,000), Documents, Instruments (with a face amount greater than $25,000), Intellectual Property, Investment Property or Letter-of-Credit Rights (with a face amount greater than $25,000) and, upon Secured Party's request, shall promptly take such actions as Secured Party deems appropriate to effect Secured Party's duly perfected, first priority Lien upon such Collateral, including obtaining any appropriate possession or control agreement. If any Collateral is in the possession of a third party, at Secured Party's request, Debtor shall obtain a Collateral Access Agreement in respect thereof.



5.     MISCELLANEOUS .



(a)     Modification of Agreement; Sale of Interest . This Agreement may not be modified, altered or amended, except by an agreement in writing signed by Debtor and Secured Party.  This Agreement shall be binding upon and inure to the benefit of the successors and

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assigns of Debtor and Secured Party; provided that Debtor shall not assign or transfer any of its interests, right or obligations under this Agreement without Secured Party's prior written consent.



(b)     Costs and E xpenses. Debtor shall pay to Secured Party, on demand, all out-of-pocket reasonable costs, expenses, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Secured Party’s rights in the Collateral, this Agreement and the other Loan Documents, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect of this Agreement and/or the other Loan Documents, including (i) all out-of-pocket reasonable costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable) relating hereto, (ii) insurance premiums, appraisal fees, field examination charges and search fees, subject to the limitations set forth in the Credit Agreement, (iii) out-of-pocket reasonable costs and expenses of preserving, protecting, inspecting or examining the Collateral, (iv) costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the security interests and liens of Secured Party, selling or otherwise realizing upon the Collateral, enforcing the provisions of this Agreement and the other Loan Documents to which Debtor is a party, and/or defending any claims made or threatened against Secured Party arising out of the transactions contemplated by this Agreement and the Loan Documents to which Debtor is a party (including preparations for and consultations concerning any such matters), and (v) the reasonable fees and disbursements of outside counsel (including legal assistants) to Secured Party in connection with any of the foregoing. All fees, costs, expenses and other amounts payable by Debtor under this Section 5(b) shall constitute Obligations secured by the Collateral.



(c)     Waivers by Debtor. Except as otherwise provided for in this Agreement, to the extent permitted by applicable law, Debtor waives (i) presentment, demand and protest and notice of presentment, protest, default, non-payment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Secured Party on which Debtor may in any way be liable and hereby ratifies and confirms whatever Secured Party may do in this regard, and (ii) to the extent permitted by applicable law, the benefit of all valuation, appraisement and exemption laws. Debtor acknowledges that it has been advised by counsel with respect to this Agreement and the transactions evidenced by this Agreement.



(d)     Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions to this Agreement.



6.     GOVERNING L AW . This Agreement shall be governed by and construed in accordance with the laws of the Applicable State, without giving effect to the principles of conflicts of laws.

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7.     JURY TRIAL WAIVER; VENUE .



(a)     DEBTOR AND SECURED PARTY HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH DEBTOR AND SECURED PARTY MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT OR (B) THE CREDIT AGREEMENT OR THE OTHER LOAN DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY DEBTOR AND SECURED PARTY, AND DEBTOR AND SECURED PARTY HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. DEBTOR FURTHER REPRESENTS THAT EACH HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT DEBTOR AND SECURED PARTY HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.



(b)     DEBTOR AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT MAY BE TRIED AND LITIGATED IN THE COMMONWEALTH OF MASSACHUSETTS AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE DISTRICT OF MASSACHUSETTS; PROVIDED ,   H OWEVER , THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT SECURED PARTY’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SECURED PARTY ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. DEBTOR WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT DEBTOR MAY HAVE TO ASSERT THE DOCTRINE OF FORUM   NON   CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 7.



8.     NOTICES .



All notices and other communications hereunder to Secured Party shall be in writing and shall be mailed, sent, or delivered in accordance the notice provision set forth in the Credit Agreement. All notices and other communications hereunder to Debtor shall be in writing and shall be mailed, sent, or delivered in care of Borrower in accordance with the notice provisions set forth in the Credit Agreement.



9.     COUNTERPARTS .



This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same  agreement. Delivery of an executed counterpart of this Agreement by telefacsimile or other method of

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electronic transmission shall have the same force and effect as the delivery of an original executed counterpart of this Agreement.



[Signature page follows]





 

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IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year specified at the beginning hereof.





 

 

 



DEBTOR:

 

 

 

 



MICRON SOLUTIONS, INC.

 

 

 

 



By:

/s/ SALVATORE EMMA, JR.



 

Name:

SALVATORE EMMA, JR.



 

Title:

PRESIDENT & CEO







 

 

 

AGREED:

 



 

 

 

SECURED PARTY:

 



 

 

 

ROCKLAND TRUST COMPANY

 



 

 

 

By:

/s/ Thomas Meehan

 



Name:

Thomas Meehan

 



Title:

Relationship Manager

 





Signature Page to General Security Agreement


Exhibit 10.72

 

Property   Address:   25   and   41   Sawyer   Passway,

Fitchburg,   MA   01420







AFTER   RECORDING,   RETURN TO:



Kerry S. Kehoe, Esquire

Holland   &   Knight   LLP

10 St. James   Avenue  

Boston, MA 02116





MORTGAGE,   SECURITY   AGREEMENT   AND   FINANCING   STATEMENT



Article  I



Definitions and Security Interests



1.1     Definitions



The terms used below shall have the meanings there indicated.





 

 

Advances:

As defined in the Credit Agreement.



 

 

Affiliate:

As defined in the Credit Agreement.



 

 

Borrower:

Micron Products Inc., a Massachusetts corporation.



 

 

Borrower’s Certificate:

As defined in Section 3.4(f).



 

 

Code:

Massachusetts Uniform Commercial Code, as in effect from time to time.



 

 

Collateral:

As defined in the Credit Agreement and including, without limitation,



          

 



(a)

All Borrower's accounts, accounts receivable, contract rights, documents, instruments, general intangibles, and rents and profits, in each case arising from or related to the Mortgaged Property;




 



(b)

All Borrower's goods and equipment now or hereafter attached to, located on or used in connection with the Improvements, including without limitation, furniture, furnishings, appliances, partitions, screens, window treatments, floor coverings, hall and lobby equipment and cleaning and maintenance equipment and supplies;



 

 



(c)

All Borrower's rights as lessee of all property now or hereafter located on or used in connection with the operation or maintenance of the Premises;



 

 



(d)

All contracts, agreements, licenses, permits and approvals for the construction, ownership, maintenance and operation of the Mortgaged Property;



 

 



(e)

All warranties and guarantees of construction contractors and subcontractors and of suppliers and manufacturers of equipment and material or other property incorporated into the Improvements or otherwise constituting part of the Premises;



 

 



(f)

The good will and trade names of Borrower and any business conducted on the Mortgaged Property by Borrower, and all service marks and logotypes used in connection therewith;



 

 



(g)

All books, records, plans and specifications and operating manuals of Borrower relating to the construction, use, operation, occupancy, and maintenance of the Mortgaged Property;



 

 



(h)

The proceeds of any insurance for damage to the property described above as “Collateral”;



 

 



(i)

The proceeds of all judgments, awards of damages, and settlements for, or in lieu of, the taking by eminent domain of all or any part of the property described above as “Collateral”;



 

 



(j)

All Borrower's rights in all security deposits paid by any tenants of the Mortgaged Property; and



 

 



(k)

All letters of credit issued on behalf of any tenants of the Mortgaged Property and naming Borrower as the original beneficiary, and the proceeds thereof.

 

          

 

Credit Agreement:

The Credit and Security Agreement of even date between Borrower and Lender, as amended, modified, supplemented or



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Environmental
Indemnity Agreement:

 
The Environmental Indemnity Agreement of even date between Borrower and Lender, as amended, modified, supplemented or restated from time to time.

 

 

 

Environmental Laws:

As defined in the Environmental Indemnity Agreement. 

 

 

 

Event of Default:

As defined in Section 6.1.



 

 

Excluded Obligations:

As defined in the Credit Agreement. 



 

 

EXHIBIT A:

Description of Premises.

 

 

 

Governmental
Authority:

 
As defined in the Credit Agreement.

  

          

 

Hazardous
Materials:

 
As defined in the Environmental Indemnity Agreement. 

 

 

 

Hedge Agreement:

As defined in the Credit Agreement.



 

 

Impositions:

As defined in Section 3.6(a).

  

 

 

Lender:

Rockland Trust Company, a Massachusetts trust company. 

 

 

 

Lender Expenses:

As defined in the Credit Agreement.

 

 

 

Loans:

The (i) Advances, (ii) Real Estate Term Loan, and (iii) M&E Term Loan.

  

 

 

Loan Documents:

As defined in the Credit Agreement, including, without limitation, the Credit Agreement, the Notes and this Mortgage.

  

 

 

M&E Term Loan:

As defined in the Credit Agreement. 

 

 

 

Mortgaged Property:

The Premises and the Collateral.

 

 

 

Notes: 

Collectively, each of the (i) Real Estate Term Loan Note from Borrower to Lender in the original principal amount of $2,000,000.00, (ii) M&E Term Loan Note from Borrower to Lender in the original principal amount of $2,500,000.00, and (iii) Revolver Note from Borrower to Lender in the principal amount of $5,000,000.00, as each may be amended, modified, supplemented or restated from time to time.

 

 

 

Obligations:

As defined in the Credit Agreement, including, without limitation, all debts, principal, interest (including any interest that, but for the commencement of a bankruptcy proceeding, would have accrued), premiums, liabilities, obligations (including indemnification



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obligations), fees, charges, costs, Lender Expenses (including any fees or expenses that, but for the commencement of a bankruptcy proceeding, would have accrued), covenants, and duties of any kind and description owing by Borrower to Lender pursuant to or evidenced by the Notes, this Mortgage, any Hedge Agreement, the Credit Agreement and all other Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all Lender Expenses that Borrowers are required to pay or reimburse by the Loan Documents, provided, however, that “Obligations” shall not include Excluded Obligations of Borrower.



 

 

Person:

As defined in the Credit Agreement.

 

 

 

Premises:

(a)

The fee simple estates in the land (the “Land”) known as and numbered 25 Sawyer Passway, Fitchburg, Massachusetts 01420 and 41 Sawyer Passway, Fitchburg, Massachusetts 01420, and more particularly described in Exhibit A, together with a fee simple interest in all buildings, structures and improvements (“Improvements”) now or hereafter thereon, together with all appurtenances thereto and interests therein now or hereafter owned by Borrower, including Borrower's rights in all fixtures now or hereafter attached to, located on or used in connection with the Improvements, and all leases, occupancy agreements, and rents and profits thereof;

 

          

 

 

(b)

All replacements of and additions to all of the property described above as “Premises”;

 

 

 



(c)

The proceeds of any insurance for damage to the property described above as “Premises”; and

 

 

 



(d)

The proceeds of all judgments, awards of damages and settlements for, or in lieu of, the taking by eminent domain of any part of the property described above as comprising “Premises”.

 

 

 

Real Estate Term Loan:

As defined in the Credit Agreement.

 

 

 

Required Approvals:

Any easement, restriction, license, permit, approval, authorization, agreement, consent, or waiver required by law, ordinance, rule or regulation or otherwise necessary or desirable for the acquisition, construction, use, occupancy, maintenance, and operation of the Premises or Improvements whether obtained from any Governmental Authority or other party.

 

 

 

Restoration Deposits:

As defined in Section 4.6.



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Stock:

As defined in the Credit Agreement.

 

 

 

Taking:

As defined in Section 5.1.

 

 

 

Title Insurance
Commitment:

 
As defined in Section 3.2(a).

 

          

 

UCC Terms:

Any terms used in this Mortgage that is defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein.





Article   II



Grant   of   Mortgage   and   Security   Interest



2.1     Grant of Mortgage



For good and valuable consideration paid, the receipt and sufficiency of which is hereby acknowledged, Borrower GRANTS to Lender, with MORTGAGE COVENANTS the Mortgaged Property as security for the Obligations.



2.2     Grant   of   Security Interest



For good and valuable consideration paid, the receipt and sufficiency of which are hereby acknowledged, Borrower grants Lender a first priority security interest in the Collateral under the Code to secure the Obligations. The recording of this Mortgage and Security Agreement with said Worcester North District Registry of Deeds shall constitute a fixture filing and financing statement under the Code. Neither this grant of a security interest nor the filing of a financing statement shall, however, be deemed to impair the intention that to the extent possible all property included in the Mortgaged Property is a part of the real estate.



Article   III



Representations, Warranties,   and Agreements



3.1     General



Borrower hereby represents, warrants and agrees with Lender that:



(a)    Borrower shall, at its expense, cause this Mortgage and each amendment thereof and appropriate financing and continuation statements to be recorded and filed in order to establish and preserve the liens and security interests of Lender;



(b)    Borrower will strictly comply with, and supply satisfactory evidence of compliance with, all laws, ordinances, by-laws, rules and regulations including zoning, subdivision control, environmental and other land use control laws, all applicable building, health and sanitation laws, and all easements, restrictions, agreements and encumbrances affecting the Mortgaged Property. Borrower will

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obtain all Required Approvals and fulfill in every way the requirements of all Governmental Authorities. Borrower will comply with the requirements of the Environmental Laws and will promptly notify Lender of any Hazardous Materials located in or on the Mortgaged Property; and



(c)    To the best of Borrower's knowledge, neither it nor any guarantor of Borrower's obligations is in default with respect to any order, writ, injunction, decree or demand of any court or any Governmental Authority.



3.2     Title   to Mortgaged Property; Other   Liens



Borrower represents, warrants and agrees with Lender that:



(a)    Borrower owns good clear record and marketable fee simple absolute title to the Mortgaged Property, free of all encumbrances except those specifically described in the title insurance policy delivered by Borrower and accepted by Lender (the “ Title Insurance Commitment ”) and insuring Lender's interest as the holder of the first mortgage lien on the Mortgaged Property, and good and marketable title to the Collateral, free of all encumbrances. Borrower shall not create, permit or suffer to be created, and shall promptly discharge, any mortgage, lien, attachment, lis pendens, or other encumbrance on the Mortgaged Property or any part thereof or interest therein, other than this Mortgage and those matters enumerated in the Title Insurance Commitment. Borrower shall promptly give Lender notice of, and, unless Lender requests otherwise, Borrower shall appear in and diligently contest at Borrower's expense, any action or proceeding which purports to affect Borrower's title to the Mortgaged Property, the priority or validity of the lien of this Mortgage, or any rights created or secured by the Loan Documents. Lender shall have the right to intervene or otherwise participate in any such action or proceeding, whether or not a continuing Event of Default exists;



(b)    Borrower will take all reasonable steps to prevent the recording of any notice of contract, notice of subcontract, or materialmen's or mechanic's lien relating to the Mortgaged Property. Borrower will take all steps necessary, including bonding, to discharge or remove the same promptly from the record. Notwithstanding the foregoing provisions of this clause (b), the Borrower may allow a notice of contract to be filed pursuant to Massachusetts General Laws Chapter 254, provided that the Borrower's general contractor provides Lender with a fully executed statutory partial waiver and subordination with each progress payment;



(c)    Lender may allow Borrower to contest any notice, lien, attachment, lis pendens or other encumbrances relating to the Mortgaged Property, or any tax, assessment or other governmental levy, provided that Borrower notifies Lender of its intention to do so, contests the same diligently and in good faith, and prior to commencing such contest, provides Lender with adequate security, in Lender's sole judgment, against the enforcement thereof or loss therefrom during such contest. Borrower acknowledges that certain encumbrances may present such a threat to Lender's security that Lender need not allow Borrower to contest the same or may require

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Borrower to deliver to Lender cash, or its equivalent (including without limitation an irrevocable letter of credit from an issuer and in form reasonably acceptable to Lender), equal in value to the Mortgaged Property, provided that if a bond in form reasonably acceptable to Lender or other security has been presented to court or a lien bond in form reasonably acceptable to Lender recorded to dissolve any such attachment, Borrower shall not be required to provide to Lender duplicate security beyond said bond or other security; and



(d)    On request of Lender, Borrower promptly shall execute and deliver such instruments and take or cause to be taken such action as may be required to establish, preserve and protect the lien and security interests of Lender in the Mortgaged Property.



3.3     Restrictions on   Transfers



Borrower will not, without the prior written approval of Lender in each instance, either voluntarily or involuntarily:



(a)    Convey, assign, or permit the conveyance or assignment of all or any part of any legal or beneficial interest in the Mortgaged Property, except as otherwise permitted under the Credit Agreement; or



(b)    Collect funds for the occupancy or use of the Mortgaged Property or any part thereof from any tenant or other occupant or user in excess of one month’s rent, unless said funds are to be held as a deposit in a deposit account with Lender.



3.4     Leases



Borrower will:



(a)    Not enter into any new lease, amendment or modification of any existing or future lease in any building on the Mortgaged Property, or any agreement of any kind permitting present or future occupancy or use of the Mortgaged Property or any part thereof or give any consent or exercise any option required or permitted under any lease without the prior written consent of Lender (which consent, in the case of any new lease or any amendment or modification of any existing or future lease with a non-Affiliate, will not be unreasonably withheld), and will deliver to Lender promptly after execution thereof copies of all leases of space in the Mortgaged Property, regardless of the amount of space covered by such leases;



(b)    Not amend, terminate or take any action with respect to any lease which would adversely affect Borrower's rights under, or cause or permit a termination of, any existing or future leases or agreements without the prior written consent of Lender;



(c)    Punctually perform all the terms and conditions to be performed by Borrower under each lease and agreement to which the Mortgaged Property is at any time subject;

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(d)    Assign to Lender all leases and agreements and the rents and profits therefrom. Such assignments shall (i) be in form satisfactory to Lender, (ii) be legally sufficient to empower Lender to assign any such leases and agreements to any person or entity acquiring title to all or any part of the Mortgaged Property by foreclosure proceedings or otherwise; (iii) shall provide that after foreclosure or delivery of a deed in lieu of foreclosure, no assignee of any lease or agreement so assigned shall be liable to account to Borrower for rents or profits thereafter accruing; and (iv) permit Lender after any Event of Default has occurred and is continuing to collect rents and profits and to apply the same to the Obligations in the order set forth in the Credit Agreement;



(e)    Promptly notify Lender of any material default of which Borrower has knowledge under any lease or occupancy agreement; and



(f)    Upon request by Lender from time to time, and in any event annually on the anniversary date hereof, promptly furnish Lender with a certified rent roll stating the same categories of information for each tenant as are set forth on the rent roll attached to the Borrower's Certificate Respecting Leases of even date delivered by Borrower to Lender in connection with the closing of the Real Estate Term Loan (the “ Borrower's Certificate ”).



Borrower has heretofore furnished to Lender a true, accurate and complete rent roll of all tenants and occupants of the Improvements as of the date hereof.



Borrower has not received notice of a landlord default from any of the tenants, and there are no disputes with respect to any of the leases other than as expressly set forth in the Borrower's Certificate.



No tenant has any right to a credit or offset against the rent payable pursuant to any of the leases other than as expressly set forth in the leases, no tenant is currently withholding payment of any rent, no tenant has paid any rent or other sum due under any of the leases more than thirty days in advance of the due date thereof, and no tenant is entitled to any free rent, payment or other credit except as expressly set forth in the Borrower's Certificate.



3.5    Operation of the Mortgaged Property



Borrower will:



(a)    Not, except as expressly approved in writing by Lender (such approval not to be unreasonably withheld with respect to such alteration of addition), make or permit any material alteration (other than tenant improvements) or addition to, any removal or demolition (other than removal of tenant improvements in order to accommodate new tenants) of, or any strip or waste of, the Mortgaged Property;



(b)    Not permit the use of the Mortgaged Property for any purpose except the lawful uses being made thereof as of the date hereof;

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(c)    Not operate the Mortgaged Property or any building or improvement now or hereafter located thereon, or permit the same to be operated, as a cooperative or condominium building or buildings in which the tenants or occupants participate in the ownership, control or management of the Mortgaged Property or any portion thereof, whether as tenants, stockholders or otherwise, or otherwise submit the Mortgaged Property to the provisions of Massachusetts General Laws Chapter 183A;



(d)    Maintain all Required Approvals in full force and effect; and



(e)    Perform all of Borrower's obligations under all contracts relating to the ownership, use, operation, maintenance or occupancy of the Mortgaged Property.



3.6     Tax Escrow



Borrower will:



(a)    Upon the occurrence and during the continuance of an Event of Default and after written notice from Lender to Borrower, deposit with Lender monthly, on each date on which a payment is due under the Notes, or on such other date as Lender may specify, one-twelfth of such amount as Lender estimates will be required to pay all real estate taxes, municipal charges and assessments, including without limitation all betterments, water and sewer and other assessments and other governmental liens assessed against the Mortgaged Property (“Impositions”) at least thirty (30) days before the same become due, Lender may estimate the amount of such funds on the basis of current data and reasonable estimates of expenditures of future escrow payments or otherwise in accordance with applicable law. Lender shall not be deemed a trustee with respect to such deposits and shall not be required to keep said deposits separate from its general accounts or to pay interest thereon to Borrower unless required by law. If at any time Lender determines such deposits are or will be insufficient to discharge the amounts actually required to pay such Impositions as may be due, any deficiency shall be promptly deposited by Borrower with Lender. Upon the occurrence and during the continuance of an Event of Default, or if Borrower shall fail at any time to pay when due any water or sewer charges assessed against the Mortgaged Property, then upon written notice from Lender to Borrower, Borrower shall thereafter pay to Lender with each monthly payment of principal and interest, one-twelfth of such amount as Lender estimates will be required to pay such sewer and water charges. During such time, Borrower shall transmit to Lender all bills for such Impositions as soon as received. Should the amount deposited with Lender by Borrower in any year exceed the amount required, such excess shall be applied to escrow payments for the succeeding year. Payments from said account for such purposes may be made by Lender at its discretion even though subsequent owners of the Mortgaged Property may benefit thereby, but in any event shall be used to pay Impositions;

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(b)    If at any time Lender does not require the escrow of tax payments, Borrower shall furnish Lender with the receipted real estate tax and assessments bills for the Mortgaged Property five (5) days prior to the date from which interest or penalty would accrue for nonpayment thereof; and



(c)    Upon the occurrence and during the continuance of an Event of Default, Lender may, in addition to any other remedies available to it, apply to the reduction of the sums secured hereby, in the order set forth in the Credit Agreement.



3.7     Notices



Borrower will deliver to Lender, in the manner prescribed in the Credit Agreement and upon receipt of the same, copies of all notices, certificates and documents received by Borrower which materially affect the Mortgaged Property or its use or which make a claim or assertion which if true would cause Borrower to be in default under the Loan Documents.



3.8     Financial   and   Operating Information



Borrower will promptly furnish Lender such financial information as is requested under the Credit Agreement.



To the extent any lease requires the tenant to provide any financial information to Borrower as landlord, then upon the request of Lender, Borrower shall use commercially reasonable efforts to obtain and promptly deliver to Lender financial statements of such tenant under any lease.



3.9     Borrower's Obligation to Restore and Rebuild



If the Mortgaged Property is damaged or destroyed by any cause whatsoever, Borrower shall, at its expense, as soon as practicable, repair or rebuild the same, whether insurance proceeds or taking awards are available or not.



Article IV



Insurance

4.1     Coverage



Borrower shall obtain and keep in force, and shall provide Lender with the original policies of insurance as required by the Credit Agreement.



4.2     Application   of   Proceeds



Notwithstanding anything to the contrary contained in the Credit Agreement, the insurance proceeds with respect to the Mortgaged Property shall be adjusted by and paid to Lender. After deducting all costs and expenses, including reasonable attorneys' fees incurred by Lender in connection therewith, Lender may, in its sole discretion and notwithstanding anything to the contrary contained in the Credit Agreement, either apply such proceeds to the Obligations

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in such order as it elects or release such portion of the proceeds to Borrower as is necessary to restore the Mortgaged Property to its prior condition insofar as is practicable, upon such terms and conditions as Lender deems appropriate. Lender shall apply the balance thereof, if any, as set forth in the Credit Agreement. If any insurer of the Mortgaged Property denies liability, Borrower shall not be relieved of its obligation to restore the Mortgaged Property. If, having elected to release all or a portion of the proceeds to Borrower for restoration of the Mortgaged Property, at any time thereafter Lender determines that the amount of proceeds is insufficient to complete restoration, Borrower shall deposit the amount of such deficiency with Lender within thirty (30) days after notice from Lender. All plans and specifications for the restoration shall be approved by Lender prior to commencement of the restoration, such approval not to be unreasonably withheld. Except to the extent insurance proceeds are actually retained by Lender and applied to the Obligations, nothing herein shall be deemed to relieve Borrower from the obligation to restore all damage and destruction to the Mortgaged Property, regardless of whether or not sufficient proceeds are available. No such retention and application shall be deemed a cure or waiver of any Event of Default under this Mortgage.



Notwithstanding the foregoing and anything to the contrary contained in the Credit Agreement, Lender agrees to authorize the use of the insurance proceeds with respect to the Mortgaged Property (less all costs and expenses, if any, incurred by Lender in obtaining such insurance proceeds) for restoration provided that:



(i)    no Event of Default exists, nor any event which, with the passage of time or giving of notice or both, would constitute an Event of Default ;



(ii)    in Lender's reasonable judgment, the sum of (A) all insurance proceeds paid to Lender, plus (B) all Restoration Deposits (as defined below ) are sufficient to complete the restoration;



(iii)    Borrower demonstrates to Lender's satisfaction that Borrower has the financial ability (including without limitation availability of rent insurance and any deposits made by Borrower for principal and interest payments) to make all scheduled payments when due under the Loan Documents during the restoration;



(iv)    in the opinion of the engineer or construction consultant engaged by Lender, (A) the restoration will return the Mortgaged Property to substantially the same size, design and utility as existed immediately before the casualty, and (B) the restoration can be fully completed on or before the date that is the earlier of (1) three (3) months prior to the maturity date of the Notes, and (2) one (1) year after such casualty; and



(v)     the restoration is authorized by and   will be performed in accordance with   all applicable laws, codes and regulations;



then, Lender, upon the satisfaction of the foregoing conditions (as well as the other conditions set forth in this Mortgage) and upon the written request of Borrower, shall apply such insurance proceeds and Restoration Deposits toward the restoration. As used herein, the term “Restoration

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Deposits” means any and all sums or amounts of money which, upon request of Lender upon its determination that insurance proceeds are insufficient to accomplish the restoration, Borrower shall deposit with Lender, into a separate deposit account, in the name of Borrower, and which shall be used for the sole purpose of financing the restoration. Restoration Deposits specifically do not include any and all other sums that Borrower has deposited or may hereafter deposit, from time to time, with Lender, in accordance with any other provisions of the Credit Agreement, this Mortgage or any of the other Loan Documents.



If, at any time, Lender determines in its reasonable judgment that the requirements set forth above are no longer true or that the restoration is not being constructed in compliance with the requirements of this Mortgage, and, if such non-compliance is not corrected within a reasonable time (not to exceed sixty (60) days) after receipt of notice from Lender, Lender may refuse to make any further insurance proceeds or Restoration Deposits available to fund restoration and Lender shall continue to have the rights to apply the insurance proceeds and Restoration Deposits towards repayment of the Obligations, at the sole and absolute discretion of Lender.



Article  V



Eminent   Domain

5.1     Taking



In case of any condemnation for public use of, or any damage by reason of the action of any governmental entity or authority to, all or any part of the Mortgaged Property (a “Taking”), or the commencement of any proceedings or negotiations which might result in a Taking or a settlement in lieu thereof, Borrower shall promptly give written notice thereof to Lender, describing the nature and extent of the Taking or the nature of such proceedings or negotiations. Lender may, at its option, appear in any such proceedings or negotiations, and Borrower shall promptly give Lender copies of all notices, pleadings, determinations and other papers. Borrower shall in good faith and with due diligence file and prosecute Borrower's claim for any award or payment on account of any Taking. Borrower shall not settle any such claim without Lender's prior written consent.



5.2     Application   of   Award



Borrower hereby assigns to Lender all of Borrower's rights in any award received in connection with a Taking or any settlement received in lieu thereof and authorizes such awards and settlements to be paid directly to Lender. If Borrower collects any such award, Borrower shall promptly pay the same to Lender. Any such award, after deducting therefrom all costs and expenses, including reasonable attorneys' fees incurred by Lender in connection therewith, shall be applied as follows:



(a)    Notwithstanding anything to the contrary contained in the Credit Agreement, in the case of a partial Taking, if no Event of Default exists and Lender reasonably determines that the Mortgaged Property can be economically restored and operated in accordance with the Loan Documents, Lender shall release to

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Borrower on terms and conditions satisfactory to Lender so much of such award, reduced as provided above, as may be necessary to restore the Mortgaged Property, and the balance, if any, shall be applied to the Obligations in such order as elected by Lender; and



(b)    Notwithstanding anything to the contrary contained in the Credit Agreement, in the case of a complete Taking, or in the case of a partial taking, if an Event of Default exists or if Lender reasonably determines that the Mortgaged Property cannot be economically restored and operated in accordance with the Loan Documents, Lender may, at its option, apply such award, reduced as provided above, to the Obligations in such order as elected by Lender, with any balance to be paid to Borrower.



Article VI  



Defaults   and   Remedies

6.1     Events   of   Default



The occurrence of any “Event of Default” under the Credit Agreement shall constitute an “Event of Default” hereunder.



6.2     Remedies



Upon the occurrence and during the occurrence of an Event of Default which is continuing, Lender may, at its option and without notice:



(a)    Exercise any of Lender's remedies provided in this Mortgage and in any of the other Loan Documents;



(b)    Apply to the Obligations in the order set forth in the Credit Agreement any deposits or other sums credited by or due from Lender to Borrower;



(c)    Take possession of the Mortgaged Property without liability for trespass, damages or otherwise, and operate the Mortgaged Property as a mortgagee in possession with all the same powers as could be exercised by a receiver; demand and receive payment of all rents, benefits and profits of the Mortgaged Property, including those past due and unpaid (whether or not the Lender has taken possession of the Mortgaged Property); or have a receiver immediately appointed for the Mortgaged Property and the earnings, revenues, rents, issues, profits and other income thereof and therefrom, with all such powers as the court making such appointment shall confer;



(d)    Make any payments required to be made by Borrower under the Loan Documents or otherwise in respect of the Mortgaged Property. The amount of all such payments shall be immediately due and payable by Borrower, and until paid, shall bear interest at the default rate set forth in the Credit Agreement, and shall be secured by the Loan Documents. Such payments may include, but are not limited

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to, payments for taxes and other governmental levies, water rates, insurance premiums, maintenance, repairs or improvements of the Mortgaged Property;



(e)    Perform any and all obligations of Borrower under the Loan Documents without waiving any rights or releasing Borrower from any obligations thereunder ;



(f)    Exercise any of the rights and remedies of a Secured Party under the Code with respect to the Collateral, including but not limited to:



(i)    Either personally or by means of a receiver, take possession of all or any of the Collateral and exclude therefrom Borrower and all others claiming under Borrower, and thereafter store, use, operate, manage, make repairs, replacements, alterations and additions to and exercise all rights powers of Borrower in respect to the Collateral or any part thereof;



(ii)    Without notice to or demand upon Borrower, make such payments and do such acts as Lender may deem necessary to protect its security interest in the Collateral, including without limitation, paying, contesting or compromising any encumbrance or lien which is prior to the security interest granted hereunder, and in exercising any such powers to pay all expenses incurred in connection therewith;



(iii)    Require Borrower to assemble the Collateral or any portion thereof at the Premises, and promptly to deliver possession of such Collateral to Lender or an agent designated by it. Lender and its agents shall have the right to enter upon any of Borrower's property to exercise Lender's rights hereunder;



(iv)    Sell, lease or otherwise dispose of the Collateral at private or public sale, with or without having the Collateral at the place of sale, and upon such terms and in such manner as Lender may determine. Lender may be a purchaser at such sale; and



(v)    Lender shall give Borrower at least ten (10) days' prior written notice of the time and place of any private or public sale of the Collateral or other intended disposition thereof;



(g)    Exercise the STATUTORY POWER OF SALE and all other rights and remedies granted to Lender hereunder; and



(h)    Take such other actions or proceedings as Lender deems necessary or advisable to protect its interest in the Mortgaged Property.



Except as expressly otherwise provided in this Section 6.2, Lender may exercise any or all of its remedies hereunder without the necessity of taking possession of the Premises (whether itself or through an agent). Such rights, remedies and options may be exercised individually, sequentially or in concert, and with respect to all or any portion of the Mortgaged Property. All

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such rights, remedies and options are cumulative and the exercise of one shall not be deemed a waiver of any of the others or a cure of any default.



6.3     Appraisals and Inspections



Upon the occurrence and during the continuance of an Event of Default and the request by Lender, Borrower shall, at Borrower's sole cost and expense, provide to Lender an updated appraisal of the Mortgaged Property prepared by an appraiser acceptable to Lender and an updated structural inspection of the Mortgaged Property prepared by an engineer acceptable to Lender, in each case containing the such detail as Lender may require in its reasonable discretion.



6.4     Statutory Power of Sale



This Mortgage is on the STATUTORY CONDITION and upon the further condition that all agreements of the Borrower contained in the Loan Documents be fully performed for any breach of which Lender shall have the STATUTORY POWER OF SALE and all other rights and remedies granted to Lender hereunder. In the event of the exercise of the STATUTORY POWER OF SALE, Lender may foreclose on and sell all or any part of the Mortgaged Property, and thereafter Lender shall continue to have the STATUTORY POWER OF SALE so long as any portion of the Mortgaged Property remains subject to this Mortgage.



6.5     Receiver



Upon the occurrence and during the continuance of any Event of Default under this Mortgage, Lender shall be entitled at its option to the appointment of a receiver of the Mortgaged Property. Such appointment may be made without regard to the solvency or insolvency of Borrower at the time of application for such receiver and without regard to the then value of the Mortgaged Property and Lender may be appointed as such receiver. Such receiver shall have power: (a) to collect the rents, issues and profits of the Mortgaged Property; (b) to extend or modify any then existing leases and to make new leases, which extensions, modifications and new leases may provide for terms to expire, or for options to lease or to extend or renew to expire, beyond the maturity date of the Notes and beyond the date of the issuance of a deed or deeds to a purchaser or purchasers at a foreclosure sale, it being understood and agreed that any such leases, and the options or other such provisions to be contained therein, shall be binding upon Borrower and all persons whose interest in the Mortgaged Property are subject to the lien hereof and upon the purchaser or purchasers at any foreclosure sale, notwithstanding any redemption from sale, discharge of the Obligations, satisfaction of any foreclosure decree, or issuance of any certificate of sale or deed to any purchaser; and (c) all other powers which may be necessary or appropriate for the protection, possession, control, management and operation of the Mortgaged Property.



6.6     No Waiver or Release



No delay or omission on the part of Lender in exercising any right hereunder or under the Loan Documents shall operate as a waiver of such right or of any other right, and a waiver of any such right on any one occasion shall not be construed as a bar to or a waiver of any such right on any other occasion. No sale of any of the Mortgaged Property, no forbearance on the part of

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Lender, no release or partial release of any of the Mortgaged Property, and no extension, whether oral or in writing, of the time for the payment of the whole or any part of the Obligations or any other indulgence given by Lender to Borrower or any other person or entity, shall operate to release or in any manner affect the lien of the Mortgage or the liability of Borrower, notice of any such extensions or indulgences being hereby waived by Borrower. Acceptance by the Lender of any payment in an amount less than the amount then due on the Obligations secured hereby shall be deemed an acceptance on account only and the failure to pay the entire amount then due shall be and continue to be an Event of Default; at any time thereafter and until the entire amount then due on the Obligations secured hereby has been paid, the Lender shall be entitled to exercise all rights conferred upon it in this Mortgage upon the occurrence and during the continuance of an Event of Default. The exercise of any option in this Mortgage by the Lender shall not be deemed a waiver of its rights to exercise any other option; and the filing of a suit for collection of the Notes and foreclosure of this Mortgage or for any other default hereunder shall not preclude sale pursuant to the power of sale contained in this Mortgage after a dismissal of the suit. No provision hereof shall be deemed to release Borrower's obligation to pay the Obligations secured hereby until such time as all thereof have been paid to the Lender in full. If foreclosure should be commenced by the Lender, at any time before the sale of the Mortgaged Property, the Lender may abandon such sale and may at any time or times thereafter again commence such sale, or the Lender may sue for collection of the Notes and foreclosure of this Mortgage; if the Lender should sue for such collection and/or foreclosure, it may at any time before entry of final judgment dismiss the suit and sell the Mortgaged Property pursuant to the power of sale contained herein.



6.7     Borrower's Waiver of Certain Rights



Borrower waives any rights it may have to receive notice of any action or proceeding to enforce Lender's rights under any Loan Document other than the notices herein provided for. In the event of foreclosure, Borrower will not claim the benefit of any law now or hereafter in force providing for any appraisal, stay, extension or redemption. Borrower waives all rights of redemption, appraisal, stay of execution, notice of acceleration and marshalling.



6.8     Effect   of   Exercise   of   Rights



Any action taken or sums paid, and any costs or expenses incurred by Lender, including reasonable attorneys' fees, pursuant to Lender's exercise of its rights, shall as between the parties be deemed valid, so that in no event shall the necessity or validity of any such action or payments, costs or expenses be disputed.



6.9     Change   in   Law



If any law is hereafter enacted by the Commonwealth of Massachusetts changing in any way the laws applicable to mortgages or the taxation thereof or the manner of collection of any such taxes, so as to affect adversely and materially any rights of Lender or any provisions hereof, the Obligations shall, at the election of the Lender, become due and payable on demand; provided, however, that if the Borrower can lawfully pay any amount or promptly perform any obligation, and forthwith pays or performs the same, so that any such change in law does not

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adversely and materially affect the rights of the Lender, the Obligations shall not be so due and payable on demand.



6.10     Mortgagee in Possession



If Lender enters upon and takes possession of the Mortgaged Property as provided in Section 6.2, Lender may operate and manage the Mortgaged Property and perform any acts which the Lender, in its sole discretion, deems necessary or desirable to protect and preserve the marketability, rentability, increase the income, or conserve the value of the Mortgaged Property. The Lender shall have no liability for any action or inaction while in possession of the Mortgaged Property so long as such action or inaction is taken or omitted in good faith.



Article VII



General

7.1     Construction



The rules of construction set forth in the Credit Agreement shall apply to this Mortgage.



7.2     Successors



This Mortgage shall bind and inure to the benefit of the respective successors and assigns of each of the parties.



7.3     Changes   in Writing



This Mortgage may not be changed, waived, or terminated except in a writing signed by the party against whom enforcement of the change, waiver, or termination is sought.



7.4     Legal Proceedings



Lender shall have the right, but not the duty, to intervene or otherwise participate in any legal or equitable proceeding which, in Lender's sole judgment, affects the Mortgaged Property or any of the rights created or secured by any of the Loan Documents. Lender shall have such right whether or not there is a continuing Event of Default hereunder.



7.5     Dealing with Successors



In the event that Borrower conveys its interest in the Mortgaged Property or any portion thereof (without hereby implying any right of Borrower to do so without Lender's prior written consent), Lender may, without notice to Borrower, deal with such successor or successors in interest with reference to this Mortgage and the Notes secured hereby, either by way of forbearance on the part of Lender or extension of the time of payment of the debt or any sum hereby secured or otherwise, without in any way modifying or affecting the original liability of Borrower or any other party on the Notes secured hereby.

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7.6     Further   Instruments



At any time and from time to time upon request of Lender, Borrower shall promptly execute and deliver to Lender such additional instruments as may be reasonably required to further evidence the lien of this Mortgage and further to protect the security interest of Lender with respect to the Collateral.



7.7     Other Representations and Warranties



All statements contained in any loan application, certificate or other instrument delivered by Borrower to Lender or Lender's representatives in connection with the Real Estate Term Loan secured by this Mortgage shall constitute representations and warranties made by Borrower hereunder.



7.8     Commercial Loan



Borrower represents to Lender that the proceeds of the Real Estate Term Loan Note secured by this Mortgage will not be used for personal, family or household purposes.



7.9     Section   Headings



Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement.



7.10     Severability of Provisions



Each provision of this Mortgage shall be severable from every other provision of this Mortgage for the purpose of determining the legal enforceability of any specific provision.



7.11     Integration



This Mortgage, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof.







[Signature page follows]



 

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EXECUTED under seal as of Dec 29 , 20 17 .









 

 

 



MICRON PRODUCTS INC.



 

 

 



By:

/s/ Salvatore Emma, Jr.



 

Name:

Salvatore Emma, Jr.



 

Title:

President & CEO









 

COMMONWEALTH OF MASSACHUSETTS

)

 

)

County of Worcester

)







On this 29   day of December , 20 17 before me, the undersigned notary public, personally appeared Salvatore Emma as CEO/PRES for Micron Products, Inc., a Massachusetts corporation, proved to me through satisfactory evidence of identification, which evidence was personally known to me , to be the person whose name is signed on the preceding or attached document, and acknowledged to me that he signed it voluntarily for its stated purpose.









 



/s/ Judith A. Lucier



NOTARY PUBLIC



My commission expires:



Affix notary seal



 



JUDITH A. LUCIER



Notary Public



COMMONWEALTH OF MASSACHUSETTS



My Commission Expires



July 20, 2023





 

Signature   Page   to   Mortgage,   Security   Agreement   and   Financing   Statement .


 

EXHIBIT A

to

MORTGAGE   AND   SECURITY   AGREEMENT





See attached.

 


 

PARCEL   I :



The land with the buildings and improvements thereon situated in said Fitchburg, on the southerly side of Summer Street extending to the easterly side of Sawyer Passway, and more particularly bounded and described as follows:



Beginning at a drill hole located on the southerly side of Summer Street and in the northeasterly corner of the premises herein described, said point being the extreme southeasterly corner of land now or formerly of Alvah M. Levy, thence turning and running southeasterly along said southerly side of Summer Street a distance of 81.94 feet, more or less, to a stone bound, thence continuing southeasterly along said southerly side of Summer Street a distance of 85.68 feet, more or less, to a point; thence turning and running S. 58º 46’ W. a distance of 66.99 feet, more or less, to a point; thence turning and running S. 75º 57’ W. a distance of 66.58 feet, more or less, the face of a brick wall; thence turning and running southeasterly and at right angles to the last mentioned course a distance of 16.5 feet, more or less, to a point; thence turning and running southwesterly and at right angles to the last mentioned course a distance of 33 feet, more or less, to a point; thence turning and running northwesterly and at right angles to the last mentioned course a distance of 1.5 feet, more or less, to the center of a brick wall; thence turning and running southwesterly along the center of said wall a distance of 39.47 feet, more or less, to the center of another brick wall; thence turning and running southeasterly along the center of said brick wall for distance of 25.75 feet, more or less, to center of another brick wall; thence turning and running southwesterly along the center of said brick wall a distance of 30.72 feet, more or less, to a point, thence turning and running northwesterly and at right angles to the last mentioned course a distance of 12.95 feet, more or less, to a point; thence turning and running southwesterly and at right angles to the last mentioned course a distance of 39.95 feet, more or less, to a point; thence turning and running northwesterly and at right angles to the last mentioned course a distance of 25.65 feet, more or less, to a point; thence turning and running southwesterly and at right angles to the last mentioned course a distance of 2.5 feet, more or less, to a point; thence turning and running northwesterly and at right angles to the last mentioned course a distance of 1.5 feet, more or less, to the center of a brick wall; thence turning and running southwesterly along the center of said brick wall a distance of 26.52 feet, more or less, to the center of another brick wall, thence turning and running southeasterly along the center of said brick wall a distance of 12.25 feet, more or less, to a point; thence turning and running southwesterly and at right angles to the last mentioned course, a distance of 14.5 feet, more or less, to a point, thence turning and running northwesterly and at right angles to the last mentioned course a distance of 1.5 feet, more or less to the center of a brick wall, thence turning and running southwesterly, partly along the center of said brick wall and along other land now or formerly of Henry E. Cowdry, et al a distance of 44.0 feet, more or less, to a point located on the easterly boundary line of Sawyer Passway, so called, thence turning and running northwesterly along the easterly boundary line of said passway a distance of 148.28 feet, more or less, to an iron pipe set in the ground; thence turning and running N. 75º 57’ E. a distance of 186 feet, more or less to a point; thence turning and running N. 35º 10’ W. a distance of 42.22 feet, more or less, to a stone bound; thence turning and running N. 73º 17’ E. a distance of 7.66 feet, more or less to a point; thence turning and running N. 19º 15’ W. a distance of 7.87 feet, more or less, to a point; thence turning and running S. 35º 10’ E. a distance of 51.13 feet, more or less, to a point; thence

 


 

turning and running N. 55º 36’ E. a distance of 114.09 feet, more or less, to the point or place of the beginning. Containing 1.22 acres, more or less.



PARCEL II:



The land with the buildings thereon situated in said Fitchburg, on Sawyer Passway off Main Street, and more particularly bounded and described as follows:



Beginning at a point on the Easterly side of said Passway 100 feet from Main Street;



Thence running Southerly 40.6 feet to a stone bound; Southeasterly 130.74 feet;



Southwesterly 11.5 feet; and Southeasterly again 37 feet all by said Passway;



Thence running Northeasterly 185 feet by other land nor or formerly of the grantor;



Thence Northwesterly 41.4 feet by a ten foot passway;



Thence running Southwesterly 22.34 feet and Northwesterly 42.83 feet by another passway;



Thence running Northeasterly 24.76 feet to a bound in said last mentioned passway;



Thence Northwesterly 75.6 feet and Northwesterly but more Westerly 95.58 feet in said passway to the point of beginning.



Being the premises marked as Parcel No. 2 on a plan entitled “Land in Fitchburg owned (formerly) by The Brown Bag Filling Machine Co., dated Mar. 1947 – Leslie M. Willard, C.E.”, recorded with Worcester Northern District Deeds, Plan Book 77, Page 22; and containing about 24,500 square feet of land according to said plan.



PARCEL III :



The land with the buildings thereon situated in said Fitchburg, southwesterly of Summer Street and southeasterly of Sawyer Passway, and being more particularly bounded and described as follows:



Beginning at the most easterly corner thereof at other land now or formerly of Florence Snegg and land now or recently of Bert Kaplan, and at the center of three spikes driven together into a plank platform, which point bears S. 51° 47’ W. fifteen and 65/100 (15.65) feet from a drill hole at Summer Street, and at the most northerly corner of said Kaplan land; thence running S. 51° 47’ W. by said Kaplan land, ninety-nine and 23/100 (99.23) feet to a drill hole in a concrete ramp; thence N. 40° 45’ W., still by said Kaplan land, fifty-one and 13/100 (51.13) feet to a spike set in the black top drive at a thirty foot passway or right of way leading to Sawyer Passway; thence N. 19° 15’ W. by last named passway, twelve and 94/100 (12.94) feet to a spike set in the black top drive at land of the City of Fitchburg; thence N. 51° 34’ E. by last named

 


 

land, which is now or formerly occupied by a fire station, ninety-seven and 26/100 (97.26) feet to a drill hole which measures .073 feet southeasterly from the most easterly corner of the fire station building; thence S. 38° 10’ E. by land owned now or formerly by said Snegg, and running in the line of the rear face of the stuccoed wall of the building which stands upon land owned now or formerly by said Snegg, a distance of sixty-three and 65/10 (63.65) feet to the point of beginning. Containing 6,358 square feet of land.



It is hereby intended to convey the rear portion of a lot of land described in a deed from Thorton K. Ware and Henry G. Bowen, Administrators of the Estate of Alvah M. Levy, to the said Florence Snegg, dated July 17, 1947, recorded with Worcester Northern District Deeds, Book 632, Page 237, however otherwise therein described, and is shown upon a plan of the premises dated November 20, 1952, by Wm. P. Ray & Co., Registered Engineers and Surveyors, which plan is hereby made a part of this description.



Excepting a reservation by Florence Snegg in Book 711, Page 348 for an easement for access and traveling to and from the rear of her building, for building maintenance and eave projections, over a strip of land 3.00 feet in width extending along the southwesterly side of the full length of the fifth and last course above described.



PARCEL   IV :



The land located on the easterly side of Sawyer Passway in said Fitchburg which is bounded and described as follows:



Beginning at the southwesterly corner thereof at a stone bound (2 ½” below grade) at the easterly side of Sawyer Passway and at land of the Fitchburg Gas and Electric Light Company;



SOUTHERLY BOUNDARY :



Thence North 76° 40’ East, by said Fitchburg Gas and Electric Light Company land, 308.07 feet to a stone bound;



Thence North 64° 44’ East, by land now or formerly of Joseph F. Durkin, et al, 19.16 feet, to a drill hole in the westerly side of a stone wall at land of Ray F. Hewes, et al.



EASTERLY BOUNDARY :



Thence North 31° 23’ West, along the westerly side of said stone wall and said Hewes land, 33 feet;



Thence Northerly, in a counter-clockwise curve, by the westerly side of granite stairway and said Hewes land, 20 feet, more or less;



Thence North 30°04’ West, by the westerly side of a stone wall and said Hewes land, 55 feet, to land of the Independent Lock Company.

 


 



NORTHERLY   BOUNDARY :



Thence South 58° 46’ West, 13.99 feet, more or less;



Thence South 75° 57’ West, 66.58 feet, more or less, to the face of a brick wall;



Thence southeasterly and at right angles to the last mentioned course, 16.5 feet, more or less, to a point;



Thence southwesterly and at right angles to the last mentioned course, 33 feet, more or less, to a point;



Thence northwesterly and at right angles to the last mentioned course, 1.5 feet, more or less, to the center of a brick wall;



Thence southwesterly along the center of said wall, 39.47 feet, more or less, to the center of another brick wall;



Thence southeasterly along the center of said brick wall, 25.75 feet, more or less, to the center of another brick wall;



Thence southwesterly along the center of said brick wall, 30.72 feet, more or less, to a point;



Thence northwesterly and at right angles to the last mentioned course 12.95 feet, more or less, to a point;



Thence southwesterly and at right angles to the last mentioned course 39.95 feet, more or less, to a point;



Thence northwesterly and at right angles to the last mentioned course 25.65 feet, more or less, to a point;



Thence southwesterly and at right angles to the last mentioned course, 2.5 feet, more or less, to a point;



Thence northwesterly and at right angles to the last mentioned course 1.5 feet, more or less, to the center of a brick wall;



Thence southwesterly along the center of said brick wall, 26.52 feet, more or less, to the center of another brick wall;



Thence southeasterly along the center of said brick wall, 12.25 feet, more or less, to a point;

 


 

Thence southwesterly and at right angles to the last mentioned course, 14.5 feet, more or less, to a point;



Thence northwesterly and at right angles to the last mentioned course, 1.5 feet, more or less, to the center of a brick wall;



Thence southwesterly, partly along the center of said brick wall, 44.00 feet, more or less, to a point located on the easterly line of Sawyer Passway, so-called.



The entire Northerly Boundary is by land of the Independent Lock Company. WESTERLY BOUNDARY:



Thence southerly along the easterly line of Sawyer Passway, 88.5 feet, more or less, to the place of beginning.



Containing 28,169 square feet, more or less. Together with and including:



Article VIII(a)   All buildings and building fixtures, including but not limited to the plumbing facilities, heating facilities, facilities for transporting electric power, and lighting fixtures now attached in any way to said building; and



(b)   The right to maintain the brick wall which is now located on and supported by a stone wall which forms the Westerly Boundary of the premises of Ray F. Hewes, et al, adjoining the Easterly Boundary of the premises herein conveyed.



Subject, however, to a right in the owners of the premises adjoining the Easterly boundary of the land herein conveyed to enter on the land herein conveyed to such extent as may be necessary to permit them to repair and maintain the said stone wall which forms the Westerly Boundary of their premises and any buildings located on their said premises located between the Easterly boundary of the land herein conveyed and the Westerly side of Summer Street in said Fitchburg.



The Mortgaged Property is together with the right to pass and re-pass over the 30’ wide passway shown on Plan Book 77, Plan 22, and passing over the Mortgaged Property and other land of the Borrower.



For Borrower’s title, see the deeds recorded with the Worcester North District Registry of Deeds in Book 2557, Page 318 and Book 2917, Page 293.



Property   Address:   25   and   41   Sawyer Passway, Fitchburg.

 


Exhibit 10.73

 

M&E TERM LOAN NOTE









 

$2,500,000

December 29, 2017





Micron Products Inc., a Massachusetts corporation, hereby promises to pay Rockland Trust Company, a Massachusetts trust company (“ Lender ”), or order, at said Lender, the principal amount of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000), payable at the times set forth in the Credit Agreement (as defined below). This Note shall bear interest from the date hereof on the unpaid balance from time to time outstanding at the rate or rates and payable at the times specified in the Credit Agreement.



This Note is being executed and delivered pursuant to that certain Credit and Security Agreement of even date between Lender and the undersigned (as amended, modified, supplemented or restated from time to time, the “ Credit Agreement ”).



The undersigned agrees to pay upon demand reasonable costs of collection incurred by the holder of this Note, including reasonable fees of attorneys.













[Signature page follows]



 

 


 

 

No delay or omission on the part of the holder in exercising any right hereunder shall operate as a waiver of such right or of any other right of such holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. The undersigned regardless of the time, order or place of signing waives presentment, demand, protest and notices of every kind and assent to any one or more indulgences, to any substitutions, exchanges or releases of collateral if at any time there be available to the holder collateral for this Note, and to the additions or releases of any other parties or persons primarily or secondarily liable.





 

 

MICRON PRODUCTS INC.



 

 

 

 



 

 

 

 

Witness:

/s/ Derek T Welch

 

By:

/s/ SALVATORE EMMA, JR.



 

 

 

Name: SALVATORE EMMA, JR.



 

 

 

Title: PRESIDENT & CEO



Signature Page to M&E Term Loan Note


Exhibit 10.74

 

REAL ESTATE TERM LOAN NOTE







$2,000,000

December 29, 2017







Micron Products Inc., a Massachusetts corporation, hereby promises to pay Rockland Trust Company, a Massachusetts trust company (“ L ender ”), or order, at said Lender, the principal amount of TWO MILLION DOLLARS ($2,000,000), payable at the times set forth in the Credit Agreement (as defined below). This Note shall bear interest from the date hereof on the unpaid balance from time to time outstanding at the rate or rates and payable at the times specified in the Credit Agreement.



This Note is being executed and delivered pursuant to that certain Credit and Security Agreement of even date between Lender and the undersigned (as amended, modified, supplemented or restated from time to time, the “ Credit Agreeme nt ”).



The undersigned agrees to pay upon demand reasonable costs of collection incurred by the holder of this Note, including reasonable fees of attorneys.













[Signature page follows]



 

 


 

 

No delay or omission on the part of the holder in exercising any right hereunder shall operate as a waiver of such right or of any other right of such holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. The undersigned regardless of the time, order or place of signing waives presentment, demand, protest and notices of every kind and assent to any one or more indulgences, to any substitutions, exchanges or releases of collateral if at any time there be available to the holder collateral for this Note, and to the additions or releases of any other parties or persons primarily or secondarily liable.





 

 

MICRON PRODUCTS INC.



 

 

 

 



 

 

 

 

Witness:

/s/ Derek T Welch

 

By:

/s/ SALVATORE EMMA, JR.



 

 

 

Name: SALVATORE EMMA, JR.



 

 

 

Title: PRESIDENT & CEO



Signature Page to Real Estate Term Loan Note


Exhibit 10.75

 

REVOLVER NOTE









 

$5,000,000

December 29, 2017





Micron Products Inc., a Massachusetts corporation, hereby promises to pay Rockland Trust Company, a Massachusetts trust company (“ Lender ”), or order, at said Lender, the principal amount of Five Million Dollars ($5,000,000) or, if less, the aggregate unpaid principal amount of all Advances made to the undersigned pursuant to the Credit Agreement (as defined below), payable at the times set forth in the Credit Agreement.



This Note shall bear interest from the date hereof on the unpaid balance from time to time outstanding at the rate or rates and payable at the times specified in the Credit Agreement. This Note is being executed and delivered pursuant to that certain Credit and Security Agreement of even date between Lender and the undersigned (as amended, modified, supplemented or restated from time to time, the “ Credit Agreement ”). Defined terms used but not defined herein shall have the meanings ascribed to them in the Credit Agreement.



The undersigned agrees to pay upon demand reasonable costs of collection incurred by the holder of this Note, including reasonable fees of attorneys.















[Signature page follows]



 

 


 

 

No delay or omission on the part of the holder in exercising any right hereunder shall operate as a waiver of such right or of any other right of such holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. The undersigned regardless of the time, order or place of signing waives presentment, demand, protest and notices of every kind and assent to any one or more indulgences, to any substitutions, exchanges or releases of collateral if at any time there be available to the holder collateral for this Note, and to the additions or releases of any other parties or persons primarily or secondarily liable.





 

 

MICRON PRODUCTS INC.



 

 

 

 



 

 

 

 

Witness:

/s/ Derek T Welch

 

By:

/s/ SALVATORE EMMA, JR.



 

 

 

Name: SALVATORE EMMA, JR.



 

 

 

Title: PRESIDENT & CEO



Signature Page to Revolver Note


Exhibit 10.76

 

GENERAL CONTINUING GUARANTY



This GENERAL CONTINUING GUARANTY (this " Guaranty "), dated as of December 29, 2017, is executed and delivered by Micron Solutions, Inc., a Delaware corporation (the " Guarantor "), in favor of Rockland Trust Company, a Massachusetts trust company (together with its successors and assigns, " Lender "), in light of the following: 



WHEREAS, Micron Products Inc., a Massachusetts corporation (" Borrower ") and Lender, contemporaneously herewith, have entered into that certain Credit and Security Agreement of even date herewith (as amended, modified, supplemented or restated, the " Credit Agreement "); 



WHEREAS, Borrower is a Subsidiary of Guarantor and, as such, Guarantor will benefit by virtue of the financial accommodations extended to Borrower by Lender; and 



WHEREAS, in order to induce Lender to enter into the Credit Agreement and the other Loan Documents and to extend loans and other financial accommodations to Borrower pursuant to the Credit Agreement, and in consideration thereof, and in consideration of any loans or other financial accommodations heretofore or hereafter extended by Lender to Borrower pursuant to the Credit Agreement or the other Loan Documents, Guarantor has agreed to guaranty the Guarantied Obligations. 



NOW, THEREFORE, in consideration of the foregoing, Guarantor hereby agrees as follows: 



1.      Definitions and Construction .  



(a)      Definitions .  Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.  The following terms, as used in this Guaranty, shall have the following meanings:



" Borrower " has the meaning set forth in the recitals to this Guaranty.



" Credit Agreement " has the meaning set forth in the recitals to this Guaranty.



" Guarantied Obligations " means all now or hereafter existing or arising Obligations owing by Borrower to Lender under the Credit Agreement or any of the other Loan Documents, whether for principal, interest (including all interest that accrues after the commencement of any Insolvency Proceeding irrespective of whether a claim therefor is allowed in such case or proceeding), discount, charges, fees, expenses or otherwise, and also includes any and all expenses (including reasonable counsel fees and expenses) incurred by Lender in enforcing any rights under this Guaranty.  Without limiting the generality of the foregoing, Guarantied Obligations shall include all amounts that constitute part of the Guarantied Obligations and would be owed by Borrower to Lender under the Credit Agreement or any of the other Loan Documents but for the fact that they are unenforceable or not allowable, including due to the existence of a bankruptcy, reorganization or similar proceeding involving Borrower or any other guarantor.



" Guarantor " has the meaning set forth in the preamble to this Guaranty.



" Guaranty " has the meaning set forth in the preamble to this Guaranty.



" Lender " has the meaning set forth in the preamble to this Guaranty.

 


 

" Record " means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.



" Voidable Transfer " has the meaning set forth in Section 9 of this Guaranty.



(b)     Construction .  Unless the context of this Guaranty clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the part includes the whole, the terms "includes" and "including" are not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and other similar terms in this Guaranty refer to this Guaranty as a whole and not to any particular provision of this Guaranty.  Section, subsection, clause, schedule, and exhibit references herein are to this Guaranty unless otherwise specified.  Any reference in this Guaranty to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein).  Neither this Guaranty nor any uncertainty or ambiguity herein shall be construed or resolved against Lender or Guarantor, whether under any rule of construction or otherwise.  On the contrary, this Guaranty has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of Guarantor and Lender.  Any reference herein to the satisfaction or payment in full of the Guarantied Obligations shall mean the payment in full in cash (or cash collateralization in accordance with the terms of the Credit Agreement or any other Loan Documents) of all Guarantied Obligations other than contingent indemnification Guarantied Obligations and other than any Bank Product Obligations that, at such time, are allowed by the Lender to remain outstanding and are not required to be repaid or cash collateralized pursuant to the provisions of the Credit Agreement or any other Loan Documents and the full and final termination of any commitment to extend any financial accommodations under the Credit Agreement and any other Loan Documents.  Any reference herein to any Person shall be construed to include such Person’s successors and assigns.  Any requirement of a writing contained herein shall be satisfied by the transmission of a Record and any Record transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein.  The captions and headings are for convenience of reference only and shall not affect the construction of this Guaranty.



2.     Guarantied Obligations .  Guarantor hereby irrevocably and unconditionally guaranties to Lender (a) the due and punctual payment of the Guarantied Obligations, when and as the same shall become due and payable, whether at maturity, pursuant to a mandatory prepayment requirement, by acceleration, or otherwise (it being the intent of Guarantor that the guaranty set forth herein shall be a guaranty of payment and not a guaranty of collection), and (b) the punctual and faithful performance, keeping, observance, and fulfillment by Borrower of all of the agreements, conditions, covenants, and obligations of Borrower contained in the Credit Agreement and in each of the other Loan Documents.



3.     Continuing Guaranty .  This Guaranty includes Guarantied Obligations arising under successive transactions continuing, compromising, extending, increasing, modifying, releasing, or renewing the Guarantied Obligations, changing the interest rate, discount rate, any charge or fee, payment terms, or other terms and conditions thereof, or creating new or additional Guarantied Obligations after prior Guarantied Obligations have been satisfied in whole or in part. 

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To the maximum extent permitted by law, Guarantor hereby waives any right to revoke this Guaranty as to future Guarantied Obligations.  If such a revocation is effective notwithstanding the foregoing waiver, Guarantor acknowledges and agrees that, to the fullest extent permitted by applicable law, (a) no such revocation shall be effective until written notice thereof has been received by Lender, (b) no such revocation shall apply to any Guarantied Obligations in existence on the date of receipt by Lender of such written notice (including any subsequent continuation, extension, or renewal thereof, or change in the interest rate, payment terms, or other terms and conditions thereof), (c) no such revocation shall apply to any Guarantied Obligations made or created after such date to the extent made or created pursuant to a legally binding commitment of Lender in existence on the date of such revocation, (d) no payment by Guarantor, Borrower, or from any other source, prior to the date of Lender’s receipt of written notice of such revocation shall reduce the maximum obligation of Guarantor hereunder, and (e) any payment by Borrower or from any source other than Guarantor subsequent to the date of such revocation shall first be applied to that portion of the Guarantied Obligations as to which the revocation is effective and which are not, therefore, guarantied hereunder, and to the extent so applied shall not reduce the maximum obligation of Guarantor hereunder.



4.     Performance Under this Guaranty .  In the event that Borrower fails to make any payment of any Guarantied Obligations, on or prior to the due date thereof, or if Borrower shall fail to perform, keep, observe, or fulfill any other obligation referred to in clause (b) of Section 2 of this Guaranty in the manner provided in the Credit Agreement or any of the other Loan Documents, Guarantor immediately shall cause, as applicable, such payment in respect of the Guarantied Obligations to be made or such obligation to be performed, kept, observed, or fulfilled.



5.     Primary Obligations .  This Guaranty is a primary and original obligation of Guarantor, is not merely the creation of a surety relationship, and is an absolute, unconditional, and continuing guaranty of payment and performance which shall remain in full force and effect without respect to future changes in conditions.  Guarantor hereby agrees that it is directly, jointly and severally with any other guarantor of the Guarantied Obligations, liable to Lender, that the obligations of Guarantor hereunder are independent of the obligations of Borrower or any other guarantor, and that a separate action may be brought against Guarantor, whether such action is brought against Borrower or any other guarantor or whether Borrower or any other guarantor is joined in such action. Guarantor hereby agrees that its liability hereunder shall be immediate and shall not be contingent upon the exercise or enforcement by Lender of whatever remedies they may have against Borrower or any other guarantor, or the enforcement of any lien or realization upon any security by Lender.  Guarantor hereby agrees that any release which may be given by Lender to Borrower or any other guarantor, or with respect to any property or asset subject to a Lien, shall not release Guarantor.  Guarantor consents and agrees that Lender shall not be under any obligation to marshal any property or assets of Borrower or any other guarantor in favor of Guarantor, or against or in payment of any or all of the Guarantied Obligations.



6.     Waivers .  



(a)    To the fullest extent permitted by applicable law, Guarantor hereby waives (i) notice of acceptance hereof, (ii) notice of financial accommodations made or extended under the Credit Agreement, or the creation or existence of any Guarantied Obligations, (iii) notice of the amount of the Guarantied Obligations, subject, however, to Guarantor’s right to make inquiry of Lender to ascertain the amount of the Guarantied Obligations at any reasonable time, (iv) notice of any adverse change in the financial condition of Borrower, (v) notice of presentment for

3


 

payment, demand, protest, and notice thereof as to any instrument among the Credit Agreement and any of the other Loan Documents, (vi) notice of any Default or Event of Default under the Credit Agreement and any of the other Loan Documents, (vii) notice of intent to accelerate and notice of acceleration, (viii) notice of any of the events or circumstances enumerated in Section 7 , and (ix) all other notices (except if such notice is specifically required to be given to Guarantor under this Guaranty, any of the Loan Documents to which Guarantor is a party or applicable law) and demands to which Guarantor might otherwise be entitled.



(b)    To the fullest extent permitted by applicable law, Guarantor hereby waives the right by statute or otherwise to require Lender to institute suit against Borrower or any other guarantor or to exhaust any rights and remedies which Lender has or may have against Borrower or any other guarantor.  In this regard, Guarantor agrees that it is bound to the payment of each and all Guarantied Obligations, whether now existing or hereafter arising, as fully as if the Guarantied Obligations were directly owing to Lender by Guarantor.  To the fullest extent permitted by applicable law, Guarantor further waives any defense arising by reason of any disability or other defense (other than the defense that the Guarantied Obligations shall have been paid in full, to the extent of any such payment) of Borrower or by reason of the cessation from any cause whatsoever of the liability of Borrower in respect thereof.



(c)    To the fullest extent permitted by applicable law, Guarantor hereby waives (i) any right to assert against Lender, any defense (legal or equitable), set-off, counterclaim, or claim which Guarantor may now or at any time hereafter have against Borrower or any other party liable to Lender, (ii) any defense, set-off, counterclaim, or claim, of any kind or nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity, or enforceability of the Guarantied Obligations or any security therefor, (iii) any right or defense arising by reason of any claim or defense based upon an election of remedies by Lender, including any defense based upon an impairment or elimination of Guarantor’s rights of subrogation, reimbursement, contribution, or indemnity of Guarantor against Borrower or other guarantors or sureties, and (iv) the benefit of any statute of limitations affecting Guarantor’s liability hereunder or the enforcement thereof, and any act which shall defer or delay the operation of any statute of limitations applicable to the Guarantied Obligations shall similarly operate to defer or delay the operation of such statute of limitations applicable to Guarantor’s liability hereunder.



(d)    Until the Guarantied Obligations have been paid in full, (i) Guarantor hereby postpones and agrees not to exercise any right of subrogation Guarantor has or may have as against Borrower with respect to the Guarantied Obligations, (ii) Guarantor hereby postpones and agrees not to exercise any right to proceed against Borrower or any other Person now or hereafter liable on account of the Obligations for contribution, indemnity, reimbursement, or any other similar rights (irrespective of whether direct or indirect, liquidated or contingent) arising from this Guaranty, and (iii) Guarantor hereby postpones and agrees not to exercise any right it may have to proceed or to seek recourse against any property or asset of Borrower or any other Person now or hereafter liable on account of the Obligations.



(e)    WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS GUARANTY, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, GUARANTOR WAIVES ALL RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY LENDER, EVEN THOUGH SUCH ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT TO SECURITY FOR THE GUARANTIED OBLIGATIONS, HAS

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DESTROYED GUARANTOR’S RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST BORROWER BY THE OPERATION OF APPLICABLE LAW.



(f)    Without limiting the generality of any other waiver or other provision set forth in this Guaranty, Guarantor hereby also agrees, to the extent permitted by applicable law, to the following waivers:



(i)    Lender’s right to enforce this Guaranty is absolute and is not contingent upon the genuineness, validity or enforceability of the Guarantied Obligations, the Credit Agreement or any of the other Loan Documents. Guarantor agrees that Lender’s rights under this Guaranty shall be enforceable even if Borrower had no liability at the time of execution of the Loan Documents or the Guarantied Obligations are unenforceable in whole or in part, or Borrower ceases to be liable with respect to all or any portion of the Guarantied Obligations;



(ii)    Guarantor agrees that Lender’s rights under the Credit Agreement and the Loan Documents will remain enforceable even if the amount guaranteed hereunder is larger in amount and more burdensome than that for which Borrower is responsible. The enforceability of this Guaranty against Guarantor shall continue until all Guarantied Obligations have been paid in full and shall not be limited or affected in any way by any impairment or any diminution or loss of value of any security or collateral for Borrower’s obligations under the Credit Agreement or the Loan Documents, from whatever cause, the failure of any security interest in any such security or collateral or any disability or other defense of Borrower, any other guarantor of Borrower's obligations under any of the Loan Documents, any pledgor of collateral for any Person’s obligations to Lender or any other Person in connection with the Credit Agreement or the Loan Documents;



(iii)    Guarantor waives the right to require Lender to (A) proceed against Borrower, any guarantor of Borrower's obligations under the Credit Agreement or any of the other Loan Documents, any other pledgor of collateral for any Person’s obligations to Lender or any other Person in connection with the Guarantied Obligations, (B) proceed against or exhaust any other security or collateral Lender may hold, or (C) pursue any other right or remedy for Guarantor’s benefit, and agrees that Lender may exercise its right under this Guaranty without taking any action against Borrower, any other guarantor of Borrower's obligations under the Credit Agreement or the other Loan Documents, any pledgor of collateral for any Person’s obligations to Lender or any other Person in connection with the Guarantied Obligations, and without proceeding against or exhausting any security or collateral Lender holds; and



(iv)    Guarantor waives, and agrees that its liability hereunder shall not be affected by, any neglect, delay, omission, failure, or refusal of Lender to (A) exercise or properly or diligently exercise any right or remedy with respect to any or all of the Guarantied Obligations or the collection thereof or any security interests or liens or other security for or guaranty of the Guarantied Obligations, or any portion thereof, (B) take or prosecute, or properly or diligently take or prosecute, any action for the collection of any or all of the Guarantied Obligations against Borrower, Guarantor or any other Person in respect of any or all of the Guarantied Obligations, (C) foreclose or prosecute, or properly or diligently foreclose or prosecute, any action in connection with any agreement, document or instrument or arrangement evidencing, securing, or otherwise affecting all or any part of the Guarantied Obligations, or (D) mitigate damages or take any other action to reduce, collect, or enforce the Guarantied Obligations.

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7.     Releases .  Guarantor consents and agrees that, without notice to or by Guarantor and without affecting or impairing the obligations of Guarantor hereunder, Lender may, by action or inaction, compromise or settle, shorten or extend any period of duration or the time for the payment of the Obligations, or discharge the performance of the Obligations, or may refuse to enforce the Obligations, or otherwise elect not to enforce the Obligations, or may, by action or inaction, release all or any one or more parties to, any one or more of the terms and provisions of the Credit Agreement or any of the other Loan Documents or may grant other indulgences to Borrower or any other guarantor in respect thereof, or may amend or modify in any manner and at any time (or from time to time) any one or more of the Obligations, the Credit Agreement or any of the other Loan Documents (including any increase or decrease in the principal amount of any Obligations or the interest, fees or other amounts that may accrue from time to time in respect thereof), or may, by action or inaction, release or substitute Borrower or any guarantor, if any, of the Guarantied Obligations, or may enforce, exchange, release, or waive, by action or inaction, any security for the Guarantied Obligations or any other guaranty of the Guarantied Obligations, or any portion thereof.  Guarantor agrees that, to the fullest extent permitted as applicable law, its obligations under this Guaranty shall not be released, diminished, impaired, reduced, or affected by the occurrence of any one or more of the following events: (a) lack of organizational authority of Borrower, (b) any receivership, insolvency, bankruptcy, or other proceedings affecting Borrower or its property, (c) partial or total release or discharge of Borrower or any other Person from the performance of any obligation contained in any instrument or agreement evidencing, governing, or securing all or any part of the Guarantied Obligations, whether occurring pursuant to any applicable law or otherwise, (d) any change in the time, manner, or place of payment of, or in any other term of, or any increase or decrease in the amount of, all the Guarantied Obligations, or any portion thereof, or any other amendment or waiver of any term of, or any consent to departure from any requirement of, the Credit Agreement or any of the other Loan Documents, (e) the taking or accepting of any collateral security for all or any part of the Guarantied Obligations, this Guaranty, or any other guaranty, (f) the taking or accepting of any other guaranty for all or any part of the Guarantied Obligations, (g) any failure to acquire, perfect, or continue any security interest or lien on Collateral securing all or any part of the Guarantied Obligations or on any property securing this Guaranty, (h) any exchange, release, or subordination of any security interest or lien on any Collateral, or any release, amendment, waiver, or subordination of any term of any guaranty of the Guarantied Obligations or any other impairment of any collateral security or guaranty now or hereafter securing all or any part of the Guarantied Obligations, (i) any failure to dispose of any collateral security at any time securing all or any part of the Guarantied Obligations or this Guaranty in a commercially reasonable manner or as otherwise may be required by any applicable law, (j) any merger, reorganization, consolidation, or dissolution of Borrower or any other Person at any time liable for any of the Obligations, any sale, lease, or transfer of any or all of the assets of Borrower or any other Person at any time liable for any of the Obligations, or any change in name, business, organization, location, composition, structure, or organization of Borrower or any other Person at any time liable for any of the Obligations, (k) any Change of Control or any other change in the capitalization or equity interest ownership of Borrower or any other Person at any time liable for any of the Obligations, (l) any invalidity or unenforceability of or defect or deficiency in the Credit Agreement or any of the other Loan Documents, (m) avoidance or subordination of the Guarantied Obligations, or any portion thereof, (n) the unenforceability of all or any part of the Guarantied Obligations against Borrower because any interest contracted for, charged, or received in respect of the Guarantied Obligations exceeds the amount permitted by any applicable law, (o) any waiver, consent, extension, forbearance, or granting of any indulgence by Lender with respect to the Guarantied Obligations or any provision of the Credit Agreement or

6


 

any of the other Loan Documents, (p) any delay in or lack of enforcement of any remedies under the Credit Agreement or any of the other Loan Documents, (q) the act of creating all or any part of the Guarantied Obligations is ultra vires , or the officers or other representatives creating all or any part of the Guarantied Obligations acted in excess of their authority, (r) any election of remedies by Lender, (s) the Credit Agreement or any of the other Loan Documents were forged, (t) the election by Lender in any proceeding under the Bankruptcy Code of the application of Section 1111(b)(2) thereof, (u) any borrowing or grant of a security interest by Borrower as debtorin-possession, under Section 364 of the Bankruptcy Code, (v) any use by Borrower (whether with the consent of Lender or otherwise) of cash collateral during the pendency of any bankruptcy proceeding, (w) the making of post-petition loans or any other provision for the extension of postpetition credit to Borrower as debtor-in-possession in any bankruptcy proceedings, (x) the disallowance in bankruptcy of all or any portion of the claims of Lender for payment of any of the Guarantied Obligations, or (y) any other circumstance which might otherwise constitute a legal or equitable discharge or defense available to Borrower or any guarantor (other than that the Guarantied Obligations shall have been paid in full).



8.     No Election .  Lender shall have the right to seek recourse against Guarantor to the fullest extent provided for herein and no election by Lender to proceed in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of Lender’s right to proceed in any other form of action or proceeding or against other parties unless Lender has expressly waived such right in writing.  Specifically, but without limiting the generality of the foregoing, no action or proceeding by Lender under any document or instrument evidencing the Guarantied Obligations shall serve to diminish the liability of Guarantor under this Guaranty except to the extent that the Guarantied Obligations have been paid in full by such action or proceeding.



9.     Revival and Reinstatement .  If the incurrence or payment of the Guarantied Obligations or the obligations of Guarantor under this Guaranty by Guarantor or the transfer by Guarantor to Lender of any property of Guarantor should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors’ rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a " Voidable   Transfer "), and if Lender is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Lender is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys’ fees of Lender related thereto, the liability of Guarantor automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made.



10.     Financial Condition of Borrower .  Guarantor represents and warrants to Lender that Guarantor is currently informed of the financial condition of Borrower and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Guarantied Obligations.  Guarantor further represents and warrants to Lender that Guarantor has read and understands the terms and conditions of the Credit Agreement and each of the other Loan Documents.  Guarantor hereby covenants that it will continue to keep itself informed of Borrower’s financial condition, the financial condition of other guarantors, if any, and of all other circumstances which bear upon the risk of nonpayment or nonperformance of the Guarantied Obligations.

7


 

11.     Payments; Application .  All payments to be made hereunder by Guarantor shall be made in U.S. dollars, in immediately available funds, and without deduction (whether for taxes or otherwise) or offset and shall be applied to the Guarantied Obligations in accordance with the terms of the Credit Agreement.



12.     Attorneys’ Fees and Costs .  Guarantor agrees to pay, on demand, all reasonable attorneys’ fees and all other out-of-pocket reasonable costs and expenses which may be incurred by Lender in connection with the enforcement of this Guaranty or in any way arising out of, or consequential to, the protection, assertion, or enforcement of the Guarantied Obligations (or any security therefor) against Guarantor, irrespective of whether suit is brought.



13.     Notices .  All notices and other communications hereunder to Lender shall be in writing and shall be mailed, sent, or delivered in accordance with provisions of the Credit Agreement applicable to notices and other communications thereunder.  All notices and other communications hereunder to Guarantor shall be in writing and shall be mailed, sent, or delivered in care of Borrower in accordance with the provisions of the Credit Agreement applicable to notices and other communications thereunder.



14.     Cumulative Rights .  The rights, powers and remedies provided in this Guaranty, the Credit Agreement and the other Loan Documents are cumulative, may be exercised concurrently or separately, may be exercised from time to time and in such order as Lender shall determine, subject to the provisions of this Guaranty, and are in addition to, and not exclusive of, the rights, powers, and remedies provided by existing or future applicable laws.  Lender’s failure or delay to exercise or enforce, in whole or in part, any right, power or remedy under this Guaranty, the Credit Agreement or any other Loan Documents shall not constitute a waiver thereof, nor preclude any other or further exercise thereof.



15.     Severability of Provisions .  In the event any provision of this Guaranty (or any part of any provision) is held by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision (or remaining part of the affected provision) of this Guaranty, but this Guaranty shall be construed as if such invalid, illegal or unenforceable provision (or part thereof) had not been contained in this Guaranty, but only to the extent it is invalid, illegal or unenforceable.



16.     Entire Agreement; Amendments .  This Guaranty is intended by Lender and Guarantor to be a complete, exclusive and final expression of the agreements contained herein.  Neither Lender nor Guarantor shall hereafter have any rights under any prior agreements pertaining to the matters addressed by this Guaranty but shall look solely to this Guaranty for definition and determination of all of their respective rights, liabilities and responsibilities under this Guaranty.  Except as otherwise provided herein, this Guaranty may not be supplemented, changed, waived, discharged, terminated, modified or amended, except by written instrument executed by the parties.  THIS GUARANTY AND THE LOAN DOCUMENTS TO WHICH GUARANTOR IS A PARTY REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.



17.     Successors and Assigns .  This Guaranty binds and is for the benefit of the successors and assigns of the parties hereto; provided that Guarantor shall not assign or transfer

8


 

any of its interests, rights or obligations under this Agreement without Lender’s prior written consent.



18.     No Third Party Beneficiary .  This Guaranty is solely for the benefit of Lender and its successors and assigns and may not be relied on by any other Person.



19.     Governing Law .  This Guaranty shall be governed by, and construed and interpreted in accordance with, the laws of the Commonwealth of Massachusetts, without giving effect to the principles of conflicts of laws.



20.     JURY TRIAL WAIVER; VENUE .  



(a)     GUARANTOR AND LENDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH GUARANTOR AND LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS GUARANTY OR (B) THE CREDIT AGREEMENT OR THE OTHER LOAN DOCUMENTS.  IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS GUARANTY.  THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY GUARANTOR AND LENDER, AND GUARANTOR AND LENDER HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.  GUARANTOR FURTHER REPRESENTS THAT GUARANTOR HAS BEEN REPRESENTED IN THE SIGNING OF THIS GUARANTY AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT GUARANTOR AND LENDER HAVE HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.



(b)     GUARANTOR AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS GUARANTY MAY BE TRIED AND LITIGATED IN THE COMMONWEALTH OF MASSACHUSETTS AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE DISTRICT OF MASSACHUSETTS; PROVIDED ,   HOWEVER , THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. GUARANTOR WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT GUARANTOR MAY HAVE TO ASSERT THE DOCTRINE OF FORUM   NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 20.  



21.     Counterparts; Facsimile Execution .  This Guaranty may be executed in any number of duplicate originals or counterparts, each of which shall be deemed to be an original and all taken together shall constitute but one and the same instrument.  Guarantor agrees that a facsimile or electronic transmission of any signature of Guarantor shall be effective as an original signature thereof.  Lender agrees that a facsimile or electronic transmission of this Guaranty executed by

9


 

Lender shall be effective as an original signature thereof.  Any party delivering an executed counterpart of this Guaranty by facsimile or electronic transmission also shall deliver an original executed counterpart of this Guaranty but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Guaranty.



22.     Agreement to be Bound .  Guarantor hereby (a) makes to Lender each of the representations and warranties set forth in the Credit Agreement applicable to Guarantor fully as though Guarantor were a party thereto, and such representations and warranties are incorporated herein by this reference, mutatis mutandis , and (b) agrees and covenants (i) to do each of the things set forth in the Credit Agreement that Borrower agrees and covenants to cause Guarantor to do, and (ii) not to do any of the things set forth in the Credit Agreement that Borrower agrees and covenants to cause Guarantor not to do, in each case, fully as though Guarantor was a party thereto, and such agreements and covenants are incorporated herein by this reference, mutatis mutandis .  





[Signature page follows]



 

10


 



IN WITNESS WHEREOF, the undersigned has executed and delivered this Guaranty as of the date first written above.









 

 

 



GUARANTOR :



 

 

 



MICRON SOLUTIONS, INC.



 

 

 



 

 

 



By:

/s/ SALVATORE EMMA, JR.



 

Name:

SALVATORE EMMA, JR.



 

Title:

PRESIDENT & CEO









 

 

 

AGREED :

 



 

 

 

LENDER :

 



 

 

 

ROCKLAND TRUST COMPANY

 



 

 

 



 

 

 

By:

/s/ Thomas Meehan

 



Name:

Thomas Meehan

 



Title:

Relationship Manager

 









Signature Page to General Continuing Guaranty


Exhibit 23.1





Consent of Independent Registered Public Accounting Firm



We consent to the incorporation by reference in Registration Statements (Nos. 333-166600 and 333-150044) on Form S-8 of Micron Solutions , Inc. and Subsidiary of our report dated March  2 6 , 201 8 , relating to our audit of the consolidated financial statements, which appear in this Annual Report on Form 10-K of Micron Solutions , Inc. and Subsidiary for the year ended December 31, 201 7 .







/s/ Wolf & Company, P.C.





Boston, Massachusetts

March  2 6 , 201 8  



   


Exhibit 31.1

OFFICER'S CERTIFICATION

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002



I, Salvatore Emma, Jr., certify that:

1.

I have reviewed this annual report on Form 10-K of Micron Solutions , Inc. for the fiscal year ended December 31, 201 7 ;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registra nt's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d -15(f)) for the registrant and have:

a.

designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d.

disclosed in this report any change in the registrant's internal controls over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal controls over financial reporting; and

5.

The registra nt's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in th e registrant's internal control over financial reporting.







 

 

 

DATE: March   2 6 , 201 8

 

/s/ Salvatore Emma, Jr.

 



 

Salvatore   Emma,   Jr.

 



 

President   and   Chief   Executive   Officer

 




Exhibit 31.2



OFFICER'S CERTIFICATION

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002



I, Derek T. Welch , certify that:

1.

I have reviewed this annual report on Form 10-K of Micron Solutions , Inc. for the fis cal year ended December 31, 201 7 ;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registra nt's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d -15(f)) for the registrant and have:

a.

designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on our evaluation;

d.

disclosed in this report any change in the registrant's internal controls over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal controls over financial reporting; and

5.

The registra nt's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and,

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in th e registrant's internal control over financial reporting.







 

 

 

DATE: March  2 6 , 201 8

 

/s/ Derek T. Welch

 



 

Derek T. Welch

 



 

Chief Financial Officer

 




Exhibit 32.1



CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the a nnual r eport on Form 10-K of Micron Solutions , Inc. ("the Company”) for the year ended December 31, 201 7 , as filed with the Securities and Exchange Commission on the date hereof ("the Report”), the undersigned President and Chief Executive Officer certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:





 



 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and







 



 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 



 

 

 

Date: March  2 6 , 201 8

 

/s/  Salvatore   Emma,   Jr.

 



 

Salvatore   Emma,   Jr.

 



 

President   and

 



 

Chief   Executive   Officer

 




Exhibit 32.2



CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the a nnual r eport on Form 10-K of Micron Solutions , Inc. ("the Company”) for the year ended December 31, 201 7 , as filed with the Securities and Exchange Commission on the date hereof ("the Report”), the undersigned Chief Financial Officer certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 



 



 

(1)

 The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and







 



 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 



 

 

 

Date: March  2 6 , 201 8

 

/s/    Derek   T.   Welch

 



 

Derek   T.   Welch

 



 

Chief   Financial   Officer