UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
Form 10-Q
 
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the quarterly period ended September 30, 2011
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the transition period from ____ to ____
 
Commission file number:  1-16525
 
CVD EQUIPMENT CORPORATION
(Name of Registrant  in Its Charter)
 
New York
11-2621692
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
   
1860 Smithtown Avenue
Ronkonkoma, New York  11779
(Address including zip code of registrant’s Principal Executive Offices)
 
(631) 981-7081
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check whether the registrant: (1) has 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 þ   No o
 
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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes þ   No o
 
Indicate by check mark whether 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).
 
  Large accelerated filer   o                 Accelerated filer    o
 
  Non-accelerated filer     o                 Smaller reporting company    þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No þ 
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date 5,897,725   shares of Common Stock, $0.01 par value at November 8, 2011.
 


 
 

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

Index
 
Part I - Financial Information
 
   
Item 1 - Financial Statements (Unaudited)
 
   
Consolidated Balance Sheets at September 30, 2011 (Unaudited) and December 31, 2010
2
   
Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2011 and 2010
3
   
Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2011 and 2010
4
   
Notes to Unaudited Consolidated Financial Statements
5
   
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
14
   
Item 3 – Quantitative and Qualitative Disclosures About Market Risk
17
   
Item 4 - Controls and Procedures
18
   
Part II - Other Information
19
   
Item 1 - Legal Proceedings
19
   
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
19
   
Item 3 – Defaults Upon Senior Securities
19
   
Item 4 – (Removed and Reserved)
19
   
Item 5 - Other Information
19
   
Item 6 - Exhibits and Reports Filed on Form 8-K
20
   
Signatures
21
   
Exhibit Index
22
 
 
 

 

PART 1 – FINANCIAL INFORMATION
Item 1 – Financial Statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets

   
September 30, 2011
(Unaudited)
   
December 31, 2010*
 
ASSETS
           
Current Assets:
           
Cash & cash equivalents
  $ 18,618,430     $ 6,249,090  
Accounts receivable, net
    2,271,697       2,909,173  
Costs and estimated earnings in excess  of billings on uncompleted contracts
    2,022,008       1,658,689  
Inventories, net
    2,934,783       3,479,862  
Idle inventories
    1,150,000       1,150,000  
Deferred income taxes – current
    252,832       232,481  
Other current assets
    593,199       136,269  
                 
Total Current assets
    27,842,949       15,815,564  
                 
Property, plant and equipment, net
    7,412,814       7,554,317  
                 
Restricted Cash
    1,000,000       --  
                 
Deferred income taxes – non-current
    651,567       780,288  
                 
Other assets
    467,059       157,661  
                 
Intangible assets, net
    18,475       58,310  
                 
Total Assets
  $ 37,392,864     $ 24,366,140  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current Liabilities:
               
Current maturities of long-term debt
  $ 621,089     $ 372,387  
Billings in excess of costs and estimated  earnings on uncompleted contracts
    1,884,151       2,323,691  
Accounts payable and accrued expenses
    3,407,434       1,788,930  
Accrued professional fees – related party
    35,000       125,000  
Deferred revenue
    90,331       100,373  
Total Current Liabilities
    6,038,005       4,710,381  
                 
Long-term debt, net of current portion
    2,704,917       3,396,446  
Total Liabilities
    8,742,922       8,106,827  
                 
Commitments and Contingencies
    ----       ----  
                 
Stockholders’ Equity
               
Common stock - $0.01 par value – 10,000,000 shares authorized; issued and outstanding, 5,852,725 at September 30, 2011 and 4,819,325 at  December 31, 2010
    58,527       48,193  
Additional paid-in-capital
    20,005,407       10,329,526  
Retained earnings
    8,586,008       5,881,594  
Total Stockholders’ Equity
    28,649,942       16,259,313  
                 
Total Liabilities and Stockholders’ Equity
  $ 37,392,864     $ 24,366,140  

* Derived from audited financial statements for the year ended December 31, 2010 (see Form 10-K filed on March 07, 2011 with the Securities and Exchange Commission).

The accompanying notes are an integral part of these consolidated financial statements
 
 
2

 
 
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Revenue
  $ 8,844,094     $ 4,032,389     $ 22,557,511     $ 11,135,026  
                                 
Cost of revenue
    5,669,624       2,612,352       14,226,167       7,385,630  
                                 
Gross profit
    3,174,470       1,420,037       8,331,344       3,749,396  
                                 
Operating expenses
                               
Selling and shipping
    363,197       231,515       885,446       658,482  
General and administrative
    1,423,126       1,008,895       3,944,160       2,778,658  
Related party-professional fees
    ---       30,000       35,000       90,000  
Total operating expenses
    1,786,323       1,270,410       4,864,606       3,527,140  
 
                               
Operating income
    1,388,147       149,627       3,466,738       222,256  
                                 
Other income (expense)
                               
Interest income
    4,854       1,467       10,854       5,845  
Interest expense
    (46,557 )     (55,700 )     (149,212 )     (171,923 )
Other income
    87,842       2,715       180,301       11,440  
Total other income (expense)
    46,139       (51,518 )     41,943       (154,638 )
                                 
Income before income taxes
    1,434,286       98,109       3,508,681       67,618  
                                 
Income tax expense (benefit)
    195,736       (44,890 )     804,267       (88,816 )
                                 
Net income
  $ 1,238,550     $ 142,999     $ 2,704,414     $ 156,434  
                                 
Basic income per common share
  $ 0.21     $ 0.03     $ 0.51     $ 0.03  
                                 
Diluted income per common share
  $ 0.20     $ 0.03     $ 0.49     $ 0.03  
                                 
Weighted average common shares outstanding basic
    5,839,220       4,784,142       5,295,784       4,779,347  
                                 
Effect of potential common share
                               
Stock options
    274,228       15,448       247,893       16,976  
                                 
Weighted average common shares outstanding diluted
    6,113,448       4,799,590       5,543,677       4,796,323  

The accompanying notes are an integral part of these consolidated financial statements
 
 
3

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
 
   
Nine Months Ended
 
   
September 30,
 
   
2011
   
2010
 
Cash flows from operating activities
           
    Net Income
  $ 2,704,414     $ 156,434  
    Adjustments to reconcile net income to net cash  provided by operating activities:
               
    Stock-based compensation expense
    216,506       127,258  
    Depreciation and amortization
    413,241       445,293  
    Deferred tax expense
    108,370       22,830  
    Bad debt provision
    (2,767 )     806  
    Changes in operating assets and liabilities:
               
    Accounts receivable
    640,243       (583,438 )
    Costs and estimated earnings in excess of billings  on uncompleted contracts
    (363,319 )     1,938,134  
    Inventories, net
    545,079       (333,194 )
    Other current assets
    (456,930 )     (43,842 )
    Customer deposits
    ----       ----  
    Increase (decrease) in operating liabilities:
               
    Billings in excess of costs and estimated earnings  on uncompleted contracts
    (439,540 )     ----  
    Accounts payable and accrued expenses
    1,528,505       144,458  
    Deferred revenue
    (10,041 )     (47,505 )
    Net cash provided by operating activities
    4,883,761       1,827,234  
                 
Cash flows from investing activities:
               
    Restricted cash
    (1,000,000 )     ----  
    Capital expenditures
    (181,303 )     (313,522 )
    Deposits
    (360,000 )     ----  
Net cash (used in) investing activities
    (1,541,303 )     (313,522 )
                 
Cash flows from financing activities:
               
    Net proceeds from issuance of common stock  (Note 9)
    9,390,000       ----  
    Net proceeds from stock options exercised
    79,710       46,900  
    Proceeds from long-term debt
    2,100,000       ----  
    Payments of long-term debt
    (2,542,828 )     (273,925 )
Net cash provided by (used in) financing activities
    9,026,882       (227,025 )
                 
Net increase in cash and cash equivalents
    12,369,340       1,286,687  
Cash and cash equivalents at beginning of period
    6,249,090       3,119,731  
                 
Cash and cash equivalents at end of period
  $ 18,618,430     $ 4,406,418  
                 
                 
Supplemental disclosure of cash flow information:
               
Income taxes paid
  $ 505,344     $ 40,048  
Interest paid
  $ 149,212     $ 171,923  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
4

 
 
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

NOTE 1:                      BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the interim financials not misleading have been included and all such adjustments are of a normal recurring nature. The operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that can be expected for the year ending December 31, 2011.

The balance sheet as of December 31, 2010 has been derived from the audited financial statements at such date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, please refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, including the accounting policies followed by the Company as set forth in Note 2 to the consolidated financial statements in the December 31, 2010 Form 10-K.

All material intercompany transactions have been eliminated in consolidation. In addition, certain reclassifications have been made to prior period financial statements to conform to the current year presentation.

Subsequent events have been evaluated through the filing date of this Quarterly Report on Form 10-Q.

NOTE 2:                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue and Income Recognition

The Company recognizes revenues using the percentage-of-completion method for custom production-type contracts while revenues from other products are recorded when such products are accepted and shipped. Profits on custom production-type contracts are recorded on the basis of the Company’s estimates of the percentage-of-completion of individual contracts, commencing when progress reaches a point where experience is sufficient to estimate final results with reasonable accuracy. Under this method, revenues are recognized based on costs incurred to date compared with total estimated costs.

 
5

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

NOTE 2:                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The asset, “Cost and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed.

The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents amounts billed in excess of revenues earned.

Recent Accounting Pronouncements
 
In May 2011, the FASB issued ASU No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 amends FASB ASC Topic 820, Fair Value Measurements and Disclosures, to establish common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. ASU No. 2011-04 is effective for fiscal years beginning after December 15, 2011 and for interim periods within those fiscal years. The Company is currently evaluating the impact of adoption of this accounting guidance on its financial statements.
 
In June 2011, the FASB issued ASU No. 2011-05 “Presentation of Comprehensive Income.”  The updated guidance requires companies to disclose the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated guidance does not affect how earnings per share is calculated or presented. The updated guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  The Company is currently evaluating the impact of adoption of this accounting guidance on its financial statements.

We believe there is no additional new accounting guidance adopted, but not yet effective, that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on our financial reporting.

NOTE 3:                      CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. The Company places its cash equivalents with high credit-quality financial institutions and invests its excess cash primarily in certificates of deposit, treasury bills and money market instruments. The Company has established guidelines relative to credit ratings and maturities that seek to maintain stability and liquidity. From time to time these temporary cash investments may exceed the Federal Deposit

 
6

 
 
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

NOTE 3:                      CONCENTRATION OF CREDIT RISK (continued)

Insurance Corporation (FDIC) limits. At September 30, 2011 and December 31, 2010 cash investments amounted to approximately $3,100,000 and $1,557,000, respectively. The Company sells products and services to various companies across several industries in the ordinary course of business. The Company assesses the financial strength of its customers and maintains allowances for anticipated losses.

NOTE 4:                      UNCOMPLETED CONTRACTS

Costs and estimated earnings in excess of billings on uncompleted contracts and Billings in excess of costs and estimated earnings on uncompleted contracts are summarized as follows:
 
   
September 30, 2011
   
December 31, 2010
 
   
(Unaudited)
       
Costs incurred on uncompleted contracts
  $ 8,291,229     $ 2,089,096  
Estimated earnings
    8,167,749       2,935,315  
      16,458,978       5,024,411  
Billings to date
    (16,321,121 )     (5,689,413 )
    $ 137,857     $ (665,002 )
Included in accompanying balance sheets under the following captions:
         
Cost and estimated earnings in excess of billings on uncompleted contracts
  $ 2,022,008     $ 1,658,689  
Billings in excess of costs and estimated earnings on uncompleted contracts
  $ (1,884,151 )   $ (2,323,691 )
 
 
 
7

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

NOTE 5:                      INVENTORIES

Inventories consist of:
 
   
September 30, 2011
   
December 31, 2010
 
   
(Unaudited)
       
Raw materials
  $ 1,957,704     $ 2,010,820  
Work-in-process
    1,238,014       1,388,516  
Finished goods
    39,065       180,526  
Totals
    3,234,783       3,579,862  
Less: Reserve for obsolescence
    (300,000 )     (100,000 )
                 
    $ 2,934,783     $ 3,479,862  
 
During the nine months ended September 30, 2011, the Company recorded certain inventory write-downs of $660,000. The Company did not record any inventory write-downs during the nine months ended September 30, 2010.

Idle inventory includes $1,150,000 of equipment returned from a terminated contract which was valued at the lower of cost or market. (See Note 12)

NOTE 6:                      FAIR VALUE MEASUREMENTS

On January 1, 2009, we implemented new accounting guidance, ASC 820, Fair Value Measurements and Disclosures, on a prospective basis for our non-financial assets and liabilities that are not recognized or disclosed at fair value on a recurring basis. The new guidance requires that we determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy and describes three levels of inputs that may be used to measure fair value as follows:

Level 1 inputs which include quoted prices in active markets for identical assets or liabilities.

Level 2 inputs which include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities 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 asset or liability.

 
8

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

NOTE 6:                      FAIR VALUE MEASUREMENTS (continued)

Level 3 inputs which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

The following table summarizes, for each major category of assets and liabilities, the respective fair value and the classification by level of input within the fair value hierarchy:

   
September 30, 2011
   
  December 31, 2010
 
Description
 
Level (1)
   
Level (2)
   
Level (3)
   
Total
   
Level (1)
   
Level (2)
   
Level (3)
   
Total
 
Assets:
                                               
Cash equivalents
  $ 4,350,259     $ ---     $ ---     $ 4,350,259     $ 3,371,346     $ ---     $ ---     $ 3,371,346  
                                                                 
Total Liabilities
  $ ---     $ ---     $ ---     $ ---     $ ---     $ ---     $ ---     $ ---  

NOTE 7:                      BAD DEBTS

Accounts receivable are presented net of an allowance for doubtful accounts of $16,672 and $19,439 as of September 30, 2011 and December 31, 2010, respectively. The allowance is based on prior experience and management’s evaluation of the collectability of accounts receivable. Management believes the allowance is adequate. However, future estimates may change based on changes in future economic conditions.

NOTE 8:                      LONG-TERM DEBT

On April 22, 2008, the Company entered into a three year Modified and Restated Revolving Credit Agreement (the “Credit Agreement”) with Capital One, N.A. (“Capital One” as the “Bank”) as successor to North Fork Bank, pursuant to which the Bank agreed to make revolving loans to the Company of up to $5 million until May 1, 2011. Interest on the unpaid principal balance on this facility accrued at either (i) the LIBOR rate plus 2.00% or (ii) the Bank’s prime rate minus .25%. This agreement contained certain financial and other covenants.   Borrowings were collateralized by the Company’s assets.

The amount available under this Credit Agreement was $5,000,000. On May 9, 2011 the Company and the Bank agreed to an extension of the Credit Agreement until August 1, 2011, on the same terms and conditions as previously agreed to, during which time it intended to negotiate a new agreement. On August 1, 2011, the Company let this Credit Agreement which had no borrowings outstanding, expire.

 
9

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

NOTE 8:                      LONG-TERM DEBT (continued)

On August 5, 2011, the Company entered into a $9.1 million credit agreement with HSBC Bank, USA, N.A., (“HSBC”), to replace its $5.0 million Revolving Credit Agreement and $2.1 million of existing mortgages previously held by Capital One Bank, N.A., which was secured by substantially all of the Company’s personal property. This new agreement consists of a $7 million revolving credit facility and a $2.1 million five (5) year term loan.  The revolving credit facility permits the Company to borrow on a revolving basis until August 5, 2014. Interest on the unpaid principal balance on this facility accrues at either (i) the LIBOR Rate plus 1.75% or (ii) the bank’s prime rate minus 0.50%. The term loan is being used to pay off the existing mortgages previously held by Capital One Bank, N.A. Interest on the unpaid principal balance accrues at a fixed rate of 3.045%. Borrowings under this term loan are additionally collateralized by $1 million, provided that, so long as no event of default has occurred and is then continuing, HSBC will release $200,000 of the collateral on each anniversary of the closing date. This restricted cash is a separate line item on the balance sheet. The credit agreement also contains certain financial covenants which the Company was in compliance with at September 30, 2011.

NOTE 9:                      STOCK-BASED COMPENSATION EXPENSE

On May 27, 2011, the Company completed a public offering of 967,950 shares of common stock at $10.50 per share. The net proceeds of $9,390,000 will be used for general corporate purposes, including working capital.

During the three and nine months ended September 30, 2011 and September 30, 2010, as per ASC 718, Stock Compensation, the Company recorded as part of selling and general administrative expense, approximately $73,000 and $217,000 and $39,000 and $127,000 respectively, for the cost of employee and director services received in exchange for equity instruments based on the grant-date fair value of those instruments.

 
10

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

NOTE 10:                    INCOME TAXES

The income tax provision (benefit)  for income taxes includes the following:

   
Nine Months Ended September 30,
 
   
2011
   
2010
 
             
Current:
           
Federal
  $ 615,876     $ ( 85,535 )
State
    80,021       (26,111 )
     Total current provision/(benefit)
    695,907       (111,646 )
                 
Deferred:
               
Federal
  $ 151,239     $ 18,482  
State
    (42,869 )     4,348  
     Total deferred/provision
    108,370       22,830  
                 
Income tax expense/(benefit)
  $ 804,267     $ (88,816 )

We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed. Adjustments for differences between our tax provisions and tax returns are recorded when identified, which is generally in the third or fourth quarter of our subsequent year.

NOTE 11:                    EARNINGS PER SHARE

As per ASC 260, basic earnings per share are computed by dividing net earnings available to common shareholders (the numerator) by the weighted average number of common shares (the denominator) for the period presented. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.
 
Stock options to purchase 380,050 shares of common stock were outstanding and 314,050 were exercisable during the three and nine months ended September 30, 2011. Stock options to purchase 399,050 shares were outstanding and 314,910 were exercisable during the three and nine months ended September 30, 2010. During the nine months ended September 30, 2010, potentially dilutive shares of 42,700 were not included in the computation of diluted earnings per share because their effects would have been antidilutive. These securities may be dilutive to the earnings per share calculation in the future.

 
11

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

NOTE 11:                    EARNINGS PER SHARE (continued)

The dilutive potential common shares on warrants and options is calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all warrants and options are used to repurchase common stock at market value. The amount of shares remaining after the proceeds are exhausted represents the potential dilutive effect of the securities.
 
NOTE 12:                    LEGAL PROCEEDINGS
 
On January 26, 2010, the Company commenced an action against Taiwan Glass Industrial Corp. (“Taiwan Glass”) and Mizuho Corporate Bank (“Mizuho”) in the United States District Court for the Southern District of New York. By that action, the Company seeks monetary damages ($5,816,000) against Taiwan Glass for breach of contract and against Mizuho for failing to pay the second installment on a letter of credit issued by Mizuho. The action as against Mizuho has been subsequently dismissed.
 
The Company believes that Taiwan Glass has no legal basis for unilaterally refusing to accept and pay for equipment specially manufactured for them and shipped to them by the Company. Taiwan Glass has interposed an answer and counterclaims denying these allegations and is seeking unspecified monetary damages . The Company is vigorously pursuing its claims against Taiwan Glass and defending against the counterclaims interposed by Taiwan Glass.
 
As of September 30, 2011, Taiwan Glass has not yet granted permission to allow the Company to use or sell most of the returned equipment ($1,150,000) due to the pending litigation. Management has reclassified the returned equipment as Idle inventories, net as of September 30, 2011. The Idle inventories has been assigned a carrying value using the lower of cost or market .
 
 
12

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

Note 13:                      SEGMENT REPORTING

The Company operates through (3) segments, CVD, SDC and Conceptronic. The CVD division is utilized for silicon, silicon germanium, silicon carbide and gallium arsenide processes. SDC is the Company’s ultra-high purity manufacturing division in Saugerties, New York. Conceptronic is a manufacturer of Surface Mount Technology equipment. The respective accounting policies of CVD, SDC and Conceptronic are the same as those described in the summary of significant accounting policies (see Note 2). The Company evaluates performance based on several factors, of which the primary financial measure is income or (loss) before taxes.

Three Months
Ended September 30,

2011
 
CVD
   
SDC
   
Conceptronic
   
Eliminations *
   
Consolidated
 
Revenue
  $ 7,447,704     $ 1,394,654     $ 221,745     $ (220,009 )   $ 8,844,094  
Pretax income
    1,165,948       162,096       106,242               1,434,286  
2010
                                       
Revenue
  $ 2,925,541     $ 638,879     $ 516,645     $ (48,676 )   $ 4,032,389  
Pretax income (loss)
    137,641       (129,902 )     90,370               98,109  

Nine Months
Ended September 30,
 
2011
 
CVD
   
SDC
   
Conceptronic
   
Eliminations *
   
Consolidated
 
Revenue
  $ 19,156,532     $ 4,080,332     $ 707,158     $ (1,386,511 )   $ 22,557,511  
Pretax income (loss)
    3,113,037       526,053       ( 130,411 )             3,508,681  
2010
                                       
Revenue
  $ 8,041,348     $ 2,496,576     $ 1,184,520     $ (587,418 )   $ 11,135,026  
Pretax income/(loss)
    61,752       (205,564 )     211,430               67,618  

*All elimination entries represent intersegment revenues eliminated in consolidation for external financial reporting.

 
13

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations.

Except for historical information contained herein, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, as amended. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Important assumptions and other factors that could cause actual results to differ materially from those in the forward-looking statements, include but are not limited to: competition in the Company’s existing and potential future product lines of business; the Company’s ability to obtain financing on acceptable terms if and when needed; uncertainty as to the Company’s future profitability, uncertainty as to the future profitability of acquired businesses or product lines, uncertainty as to any future expansion of the Company. Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements and the failure of such assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these forward looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.
 
Results of Operations
 
Three and Nine Months Ended September 30, 2011 vs. Three and Nine Months Ended September 30, 2010

Revenue

Revenue for the three and nine month periods ended September 30, 2011 was approximately $8,844,000 and $22,558,000 respectively, as compared to $4,032,000 and $11,135,000 for the three and nine month periods ended September 30, 2010, an increase 119.3% and 102.6%, respectively. The increase is due to the continued conversion into revenue of the higher order levels we started to receive beginning with the second half of 2010.

Gross Profit

During the three and nine month periods ended September 30, 2011, we generated gross profits of approximately $3,174,000 and $8,331,000, respectively, as compared to the three and nine month periods ended September 30, 2010 where we generated gross profits of approximately $1,420,000 and $3,749,000, respectively. Gross profit margins for the three and nine month periods ended September 30, 2011 were 35.9% and 36.9% respectively, as compared to profit margins of 35.2% and 33.7% respectively, for the three and nine months periods ended September 30, 2010. Since each project worked on during a particular period has a unique gross profit margin, the concentration of efforts and materials purchased for a specific project can influence the overall gross profit margin during that particular period.
 
 
14

 
 
Selling, General and Administrative Expenses

Selling and shipping expenses for the three and nine months ended September 30, 2011 were approximately $363,000 and $885,000 respectively. This represented increases of approximately 56.5% and 34.5% respectively, as compared to $232,000 and 658,000 of selling and shipping expenses for the three and nine months ended September 30, 2010. Certain selling and shipping expenses such as commissions and freight may vary from period to period due to the timing of the shipments of systems. We have also hired additional personnel and attended more trade shows during the current three and nine month periods compared to prior periods.

We incurred approximately $1,423,000 and $3,979,000 of general and administrative expenses, or 16.1% and 17.6% of our revenue, for the three and nine months ended September 30, 2011, compared to approximately $1,039,000 and $2,869,000 or 25.8% of our revenue, during the three and nine months ended September 30, 2010. Although, we incurred greater overall general and administrative costs during the current three and nine month periods as a result of increased costs associated with the hiring of additional personnel, and increased legal fees, the decrease as a percentage of revenue in 2011 versus 2010 is primarily attributable to general and administrative costs being allocated over a larger revenue stream.

Operating Income

As a result of the foregoing factors, operating income was approximately $1,388,000 and $3,467,000 for the three and nine months ended September 30, 2011 compared to operating income of approximately $150,000 and $222,000 for the three and nine months ended September 30, 2010, increases of 825.3% and 1,461.7% respectively. The increase in operating income in 2011 versus the same period in 2010 is directly attributable to the increased revenue during the current three and nine month periods.

Interest Expense, Net

Interest income for the three and nine months ended September 30, 2011 was approximately $5,000 and $11,000, respectively, compared to approximately $1,000 and $6,000 for the three and nine months ended September 30, 2010. Interest expense for the three and nine months ended September 30, 2011 was approximately $47,000 and $149,000 compared to approximately $56,000 and $172,000 for the three and nine months ended September 30, 2010. The primary sources of this interest expense were the three mortgages that were held until August 5, 2011 on two of the buildings that we own and the term loan that subsequently replaced them, in addition to the remaining mortgage on the corporate headquarters.

Other Income

Other income during the three and nine months ended September 30, 2011 was approximately $88,000 and $180,000, respectively, compared to approximately $3,000 and $11,000, respectively, for the three and nine months ended September 30, 2010. During the third quarter of 2011, we reflected net adjustments upon filing our income tax returns of approximately $61,000 comprised primarily of true-up adjustments to depreciation, inventories and domestic activities production deductions.
 
 
15

 
 
Income Taxes

For the nine months ended September 30, 2011, we recorded approximately $696,000 of current income tax expense and $108,000 of deferred tax expense. For the nine months ended September 30, 2010, we recorded a current income tax benefit of approximately $112,000 that was reduced by the deferred tax expense of approximately $23,000, which provided a net tax benefit for that period. Current taxes for the three months ended September 30, 2011 appear lower than normal as a result of the exercise of certain non-qualified stock options during the period which had the effect of reducing the taxable income and therefore the tax expense for the period.

Net Income

For the foregoing reasons, we reported net income of approximately $1,239,000 and $2,704,000 for the three and nine months ended September 30, 2011 compared to net income of approximately $143,000 and $156,000 for the three and nine month periods ended September 30, 2010.

Liquidity and Capital Resources

As of September 30, 2011, we had aggregate working capital of approximately $21,805,000 and cash and cash equivalents of $18,618,000, compared to $11,105,000 and $6,249,000 at December 31, 2010, an increase   of $10,700,000 and $12,369,000, respectively. The increase in working capital and cash and cash equivalents was primarily the result of receiving approximately $9,390,000 net proceeds from the issuance of 967,950 shares of our common stock at $10.50 per share less $773,000 of underwriting and other costs in our public offering.

Accounts receivable, net, as of September 30, 2011 was $2,272,000 compared to $2,909,000 as of December 31, 2010. This decrease is primarily attributable to the timing of shipments and customer payments.

As of September 30, 2011, our backlog was approximately $18,410,000, an increase of $8,466,000, or 85.1%, compared to $9,944,000 at December 31, 2010. During the nine months ended September 30, 2011, we received approximately $31,024,000 in new orders. Timing for completion of the backlog varies depending on the product mix and can be as long as two years. Order backlog is usually a reasonable management tool to indicate expected future revenues and projected profits; however, it does not provide an assurance of future achievement of revenues or profits as order cancellations or delays are possible.

 
16

 

Revolving Credit Facility and Borrowings

On April 22, 2008, we entered into a three year Modified and Restated Revolving Credit Agreement with Capital One, N.A. (“Capital One” as the “Bank”) as successor to North Fork Bank, pursuant to which the Bank agreed to make revolving loans to us of up to $5 million until May 1, 2011 , at which time it became subject to renewal.  Interest on the unpaid principal balance on this facility accrued at either (i) the LIBOR rate plus 2.00% or (ii) the Bank’s prime rate minus 0.25%.  This agreement contained certain financial and other covenants with which we were in compliance as of June 30, 2011.   Borrowings were collateralized by certain assets as defined under the Agreement.

On May 9, 2011 the Company and the Bank agreed to an extension of the Credit Agreement until August 1, 2011, on the same terms and conditions as previously agreed to.

On August 1, 2011, the Company let this Credit Agreement, which had no borrowings outstanding, expire.

On August 5, 2011, the Company entered into a $9.1 million credit agreement with HSBC Bank, USA, N.A., (“HSBC”)   to replace its $5 million revolving credit agreement and $2.1 million of existing mortgages previously held by Capital One Bank, N.A., which was secured by substantially all of the Company’s personal property. This new agreement consists of a $7 million revolving credit facility and a $2.1 million five (5) year term loan.  The revolving credit facility permits the Company to borrow on a revolving basis until August 5, 2014. Interest on the unpaid principal balance on this facility accrues at either (i) the LIBOR   Rate plus 1.75%   or (ii) the bank’s prime rate minus .50%. The term loan was used to pay off the existing   mortgages currently held by Capital One Bank, N.A. Interest on the unpaid principal balance   accrues at a fixed rate of 3.045%. Borrowings under this term loan are additionally collateralized by $1 million, provided that, so long as no event of default has occurred and is then continuing, HSBC will release $200,000 of the collateral on each anniversary of the closing date. This restricted cash is a separate line item on the balance sheet. The credit agreement also contains certain financial covenants which the Company was in compliance with at September 30, 2011.

We believe we have an ample amount of cash, positive operating cash-flow and available credit facilities at September 30, 2011, to meet our working capital and investment requirements for the next twelve months.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements at this time.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

 
17

 

Item 4.  Controls and Procedures .

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act).  As required by Rule 13a-15(b) under the Exchange Act, management of the Company, under the direction of our Chief Executive Officer and Chief Financial Officer, reviewed and performed an evaluation of the effectiveness of design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Report”).

Based on that review and evaluation, the Chief Executive Officer and Chief Financial Officer, along with our management, have determined that as of the end of the period covered by the Report on Form 10-Q, the disclosure controls and procedures were and are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and were effective to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosures.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

Limitations on the Effectiveness of Controls

We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

 
18

 

CVD EQUIPMENT CORPORATION

PART II

OTHER INFORMATION

Item 1.  Legal Proceedings.
 
On January 26, 2010, the Company commenced an action against Taiwan Glass Industrial Corp. (“Taiwan Glass”) and Mizuho Corporate Bank (“Mizuho”) in the United States District Court for the Southern District of New York. By that action, the Company seeks monetary damages ($5,816,000) against Taiwan Glass for breach of contract and against Mizuho for failing to pay the second installment on a letter of credit issued by Mizuho. The action as against Mizuho has been subsequently dismissed.
 
The Company believes that Taiwan Glass has no legal basis for unilaterally refusing to accept and pay for equipment specially manufactured for them and shipped to them by the Company. Taiwan Glass has interposed an answer and counterclaims denying these allegations and is seeking unspecified monetary damages. The Company is vigorously pursuing its claims against Taiwan Glass and defending against the counterclaims interposed by Taiwan Glass.

As of September 30, 2011, Taiwan Glass has not yet granted permission to allow the Company to use or sell most of the returned equipment ($1,150,000) due to the pending litigation. Management has reclassified the returned equipment as Idle Inventories, net as of September 30, 2011. The Idle Inventories has been assigned a carrying value using the lower of cost or market.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  (Removed and Reserved).

None.

Item 5.  Other Information.

None.
 
 
19

 

Item 6.  Exhibits

Exhibit
Number 
Description

10.1*
Credit Agreement, dated August 5, 2011, by and between the Company and HSBC Bank, USA, National Association.

10.2
Contract of Sale, dated September 2, 2011, by and between the Company and SJA Industries, LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed on September 9, 2011) and incorporated by reference).

10.3
First Amendment to Contract of Sale, dated October 12, 2011, by and between the Company and SJA Industries, LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed on October 17, 2011) and incorporated by reference).

31.1*
Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated November 14, 2011.

31.2*
Certification of Glen R. Charles, Chief Financial Officer, dated November 14, 2011.

32.1*
Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated November 14, 2011, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*
Certification of Glen R. Charles, Chief Financial Officer, dated November 14, 2011, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101**
Pursuant to Rule 405 of Regulation S-T, financial information from the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2011, formatted in Extensible Business Reporting Language (XBRL):  (i) Consolidated Balance Sheets at September 30, 2011 and December 31, 2010, (ii) Consolidated Statements of Operations for the three months ended September 30, 2011 and 2010, (iii) Consolidated Statements of Operations for the nine months ended September 30, 2011 and 2010, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, and (v) Notes to Consolidated Financial Statements. 
 
101.INS**
XBRL Instance
 
101.SCH**
XBRL Taxonomy Extension Schema
 
101.CAL**
XBRL Taxonomy Extension Calculation
 
101.DEF**
XBRL Taxonomy Extension Definition
 
101.LAB**
XBRL Taxonomy Extension Labels
 
101.PRE**
XBRL Taxonomy Extension Presentation
 
*  Filed herewith.
** Furnished herewith.
XBRL 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.

 
20

 
 
SIGNATURES

Pursuant to the requirements 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, this 14 th day of November 2011.
 
 
CVD EQUIPMENT CORPORATION
 
       
 
By:
/s/ Leonard A. Rosenbaum  
    Leonard A. Rosenbaum  
    Chief Executive Officer  
    (Principal Executive Officer)  
       
  By: /s/ Glen R. Charles  
    Glen R. Charles  
   
Chief Financial Officer
(Principal Financial and Accounting Officer)
 

 
21

 
 
EXHIBIT INDEX

Exhibit
Number 
Description

10.1*
Credit Agreement, dated August 5, 2011, by and between the Company and HSBC Bank, USA, National Association.

10.2
Contract of Sale, dated September 2, 2011, by and between the Company and SJA Industries, LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed on September 9, 2011) and incorporated by reference).

10.3
First Amendment to Contract of Sale, dated October 12, 2011, by and between the Company and SJA Industries, LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed on October 17, 2011) and incorporated by reference).

31.1*
Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated November 14, 2011.

31.2*
Certification of Glen R. Charles, Chief Financial Officer, dated November 14, 2011.

32.1*
Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated November 14, 2011, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*
Certification of Glen R. Charles, Chief Financial Officer, dated November 14, 2011, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101**
Pursuant to Rule 405 of Regulation S-T, financial information from the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2011, formatted in Extensible Business Reporting Language (XBRL):  (i) Consolidated Balance Sheets at September 30, 2011 and December 31, 2010, (ii) Consolidated Statements of Operations for the three months ended September 30, 2011 and 2010, (iii) Consolidated Statements of Operations for the nine months ended September 30, 2011 and 2010, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, and (v) Notes to Consolidated Financial Statements. 
 
101.INS**
XBRL Instance
 
101.SCH**
XBRL Taxonomy Extension Schema
 
101.CAL**
XBRL Taxonomy Extension Calculation
 
101.DEF**
XBRL Taxonomy Extension Definition
 
101.LAB**
XBRL Taxonomy Extension Labels
 
101.PRE**
XBRL Taxonomy Extension Presentation

*  Filed herewith.
** Furnished herewith.
XBRL 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.

 
22
Exhibit 10.1
 


 
________________________________________________________________


CREDIT AGREEMENT

Dated as of August 5, 2011

By and between

CVD EQUIPMENT CORPORATION

and

HSBC BANK USA, NATIONAL ASSOCIATION

________________________________________________________________

 
 
 
 

 
 
 

 

TABLE OF CONTENTS
 
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1
Section 1.1.
Definitions
1
Section 1.2.
Accounting Terms
12
ARTICLE II
LOANS
13
Section 2.1.
Revolving Credit Loans.
13
Section 2.2.
Revolving Credit Note
14
Section 2.3.
Equipment Loans
14
Section 2.4.
Equipment Loan Notes
15
Section 2.5.
Term Loan
15
Section 2.6.
Term Loan Note
15
Section 2.7.
Letters of Credit.
16
ARTICLE III
INTEREST RATE; FEES AND PAYMENTS; USE OF PROCEEDS
18
Section 3.1.
Interest Rate.
18
Section 3.2.
Use of Proceeds
20
Section 3.3.
Prepayments.
20
Section 3.4.
Fees.
21
Section 3.5.
Inability to Determine Interest Rate
22
Section 3.6.
Illegality
22
Section 3.7.
Other Events.
22
Section 3.8.
Indemnity
23
Section 3.9.
Taxes
24
Section 3.10.
Payments
24
Section 3.11.
Disbursement of Loans
25
Section 3.12.
Manner of Payment
25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
25
Section 4.1.
Organization, Corporate Powers, etc
25
Section 4.2.
Authorization of Borrowing, Enforceable Obligations
25
Section 4.3.
Financial Condition.
26
 
 
i

 
 
Section 4.4.
Taxes
26
Section 4.5.
Title to Properties
26
Section 4.6.
Litigation
27
Section 4.7.
Agreements
27
Section 4.8.
Compliance with ERISA
27
Section 4.9.
Federal Reserve Regulations; Use of Proceeds.
27
Section 4.10.
Approvals
28
Section 4.11.
Subsidiaries
28
Section 4.12.
Hazardous Materials
28
Section 4.13.
Investment Company Act
28
Section 4.14.
Security Document
28
Section 4.15.
No Default or Event of Default
29
Section 4.16.
Material Contracts
29
Section 4.17.
Permits and Licenses
29
Section 4.18.
Compliance with Law
29
Section 4.19.
Disclosure
29
ARTICLE V
CONDITIONS OF LENDING
29
Section 5.1.
Conditions To Initial Loan and Letters of Credit
29
Section 5.2.
Conditions to All Loans and all Letters of Credit
31
Section 5.3.
Conditions to Equipment Loans
32
ARTICLE VI
AFFIRMATIVE COVENANTS
32
Section 6.1.
Corporate or Limited Liability Company Existence, Properties, etc
33
Section 6.2.
Payment of Indebtedness, Taxes, etc.
33
Section 6.3.
Financial Statements, Reports, etc.:  Furnish to the Bank:
34
Section 6.4.
Access to Premises and Records
35
Section 6.5.
Notice of Adverse Change
35
Section 6.6.
Notice of Default
36
Section 6.7.
Notice of Litigation
36
Section 6.8.
ERISA
36
Section 6.9.
Compliance with Applicable Laws
36
Section 6.10.
Subsidiaries
36
Section 6.11.
Default in Other Agreements
37
 
 
ii

 
 
Section 6.12.
Environmental Laws.
37
Section 6.13.
Operating Accounts
37
Section 6.14.
Further Assurances
37
ARTICLE VII
NEGATIVE COVENANTS
38
Section 7.1.
Liens
38
Section 7.2.
Indebtedness
38
Section 7.3.
Guaranties
39
Section 7.4.
Sale of Assets
39
Section 7.5.
Sales of Notes
40
Section 7.6.
Loans and Investments
40
Section 7.7.
Nature of Business
40
Section 7.8.
Sale and Leaseback
40
Section 7.9.
Federal Reserve Regulations
40
Section 7.10.
Accounting Policies and Procedures; Tax Status
41
Section 7.11.
Hazardous Materials
41
Section 7.12.
Limitations on Fundamental Changes
41
Section 7.13.
Financial Covenants.
41
Section 7.14.
Subordinated Debt
41
Section 7.15.
Dividends
41
Section 7.16.
Transactions with Affiliates
42
Section 7.17.
Impairment of Security Interest
42
Section 7.18.
Inactive Subsidiary
42
ARTICLE VIII
EVENTS OF DEFAULT
42
Section 8.1.
Events of Default
42
ARTICLE IX
MISCELLANEOUS
45
Section 9.1.
Notices
45
Section 9.2.
Effectiveness; Survival of Agreement
46
Section 9.3.
Expenses of the Bank
46
Section 9.4.
No Waiver of Rights by the Bank
46
Section 9.5.
Applicable Law
46
Section 9.6.
Submission to Jurisdiction; Jury Waiver
47
Section 9.7.
Extension of Maturity
47
 
 
iii

 
 
Section 9.8.
Modification of Agreement
47
Section 9.9.
Severability
48
Section 9.10.
Sale of Participations; Assignments
48
Section 9.11.
Reinstatement; Certain Payments
48
Section 9.12.
Right of Setoff
48
Section 9.13.
Counterparts
48
Section 9.14.
Headings
48
Section 9.15.
Construction
49
Section 9.16.
USA PATRIOT Act
49


SCHEDULES

Schedule 1.01 
-       Permitted Action
Schedule I 
-       Subsidiaries
Schedule II 
-       Liens
Schedule III 
-       Existing Indebtedness
Schedule IV 
-       Existing Guaranties

EXHIBITS

Exhibit A 
-       Form of Revolving Credit Note
Exhibit B 
-       Form of Equipment Loan Note
Exhibit C 
-       Form of Term Loan Note
Exhibit D 
-       Notice of Borrowing
Exhibit E  
-       Form of Security Agreement
Exhibit F 
-       Form of Guaranty
Exhibit G 
-       Form of Opinion of Counsel
Exhibit H 
-       Form of Account Pledge Agreement

 
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CREDIT AGREEMENT dated as of August 5, 2011, by and between CVD EQUIPMENT CORPORATION , a New York corporation (the “ Company ”) and HSBC BANK USA, NATIONAL ASSOCIATION , a national banking association (the “Bank”).

RECITALS

The Company has requested the Bank to extend credit to the Company.  The Bank is willing to extend credit to the Company, subject to the terms and conditions hereinafter set forth.

Accordingly, the Company and the Bank agree as follows:

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
 
Section 1.1.                        Definitions .   As used herein, the following words and terms shall have the following meanings:

Account Pledge Agreement ” shall mean the Account Pledge Agreement in the form attached hereto as Exhibit H to be executed and delivered on the Closing Date by the Company, as same may hereafter be amended, restated, supplemented or otherwise modified from time to time.

Affiliate ” shall mean with respect to any Person, any corporation, partnership, limited liability company, limited liability partnership, joint venture, trust or unincorporated organization which, directly or indirectly, controls or is controlled by or is under common control with such Person.  For the purpose of this definition, “control” of a Person shall mean the power, direct or indirect, to direct or cause the direction of the management or policies of such Person whether through the ownership of voting securities by contract or otherwise; provided that, in any event, any person who owns directly or indirectly 10% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 10% or more of the partnership, membership or other ownership interest of any Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person.

Aggregate Letters of Credit Outstanding ” shall mean, on the date of determination thereof, the sum of (a) the aggregate maximum stated amount at such time which is available or available in the future to be drawn under all outstanding Letters of Credit and (b) the aggregate amount of all payments made by the Issuing Bank under any Letter of Credit that has not been reimbursed by any Company at such time.

Aggregate Outstandings ” shall mean, on the date of determination thereof, the sum of (a) the Aggregate Letters of Credit Outstandings at such time, (b) the aggregate outstanding principal amount of all Revolving Credit Loans at such time, and (c) the aggregate outstanding principal amount of all Equipment Loans at such time.
 
 
 

 

Agreement ” shall mean this Credit Agreement dated as of August 5, 2011, as it may hereafter be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof.

Banking Services ” means each and any of the following bank services provided to the Company or any of its Subsidiaries by the Bank:  (a) commercial credit, credit cards, purchase or debit cards and (b) cash management, treasury or related services (including, without limitation, controlled deposit accounts, overnight draft, funds transfer, automated clearinghouse, zero accounts, lockbox, account reconciliation, disbursement, ACH transactions, return items and interstate depository network services).

Banking Services Obligations ” of the Company means any and all obligations of the Company and its Subsidiaries, whether absolute or contingent and however and whenever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor) in connection with Banking Services.

Borrowing Date ” shall mean, with respect to any Loan, the date on which such Loan is disbursed to the Company.

Business Day ” shall mean any day that is not a Saturday, Sunday or legal holiday, on which banks in New York City, New York are not required or authorized by law or other governmental action to close; provided that, when used in connection with a Libor Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in dollar deposits in the London inter bank market.

Capital Expenditures ” shall mean additions to property and equipment of the Company and its Subsidiaries, which, in conformity with Generally Accepted Accounting Principles, are included as “additions to property, plant or equipment” or similar items (including, without limitation, Capital Leases) which would be reflected in the statement of cash flow of the Company and its Subsidiaries.

Capital Lease ” shall mean (i) any lease of property, real or personal, if the then present value of the minimum rental commitment thereunder should, in accordance with Generally Accepted Accounting Principles, be capitalized on the balance sheet of the lessee, and (ii) any other such lease the obligations of which are required to be capitalized on the balance sheet of the lessee.

Capital One Credit Facility ” shall mean the revolving credit facility previously made available to the Company by Capital One Bank, N.A.

Capital One Mortgage Facility ” shall mean the mortgage loans previously made available to the Company by Capital One Bank, N.A.

 “ Cash Collateral ” shall mean the pledge and deposit by the Company with the Bank, as collateral for the Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Bank.
 
 
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Change of Control ” shall mean any event which results in (i) any Person, or two or more Persons acting in concert, acquiring beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended), directly or indirectly, by contract or otherwise, or entering into a contract or arrangement which upon consummation will result in its or their acquisition of, or control over, securities of the Company (or other securities convertible into such securities) representing 30% or more of the combined voting power of all securities of the Company entitled to vote in the election of directors; or (ii) during any period of twelve (12) consecutive months, a majority of the seats on the Board of Directors of the Company ceasing for any reason to be occupied by individuals who, on the Closing Date, constituted the Board of Directors of the Company, or who first become directors subsequent to the Closing Date, provided the recommendation, election or nomination for election to the Board of Directors of such subsequent directors was approved by a vote of at two-thirds of the directors then still in office who were either directors as of the Closing Date or whose recommendation, election or nomination for election was previously so approved.   

Chief Financial Officer ” shall mean the Chief Financial Officer of the Company.

Closing Date ” shall mean August 5, 2011.

Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time.

Commercial Letter of Credit ” shall mean any sight and time letter of credit issued for the account of a Person.

Commitments ” shall mean, collectively, the Revolving Credit Commitment, the Equipment Loan Commitment and the Term Loan Commitment.

Current Portion of Long Term Debt ” shall mean the current portion of long term debt (including Capital Leases and Subordinated Debt, but excluding any long term debt which is fully secured by Cash Collateral, as reflected on the balance sheet of the Company, as determined in accordance with Generally Accepted Accounting Principles, applied on a consistent basis.

Customer ” shall mean and include the account debtor or obligor with respect to any Receivable.

Default ” shall mean any event or condition which upon notice, lapse of time, or both, would constitute an Event of Default.

Dollar ” and the symbol “$” shall mean lawful money of the United States of America.

EBITDA ” shall mean for any period, Net Income (or net loss) for such period, plus the sum, without duplication, of (i) Interest Expense, (ii) depreciation and amortization expenses or charges, and (iii) income tax expense minus all extraordinary or unusual gains, all determined on a consolidated basis for the Company and its Subsidiaries and calculated in accordance with Generally Accepted Accounting Principles applied on a consistent basis.  All of the foregoing categories shall be calculated (without duplication) over the four fiscal quarters next preceding the date of calculation thereof.
 
 
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Equipment Loan ” shall have the meaning set forth in Section 2.3.

Equipment Loan Commitment ” shall mean the Bank’s obligation to make Equipment Loans to the Company in an aggregate principal amount in aggregate amount not to exceed $1,000,000, subject to the conditions set forth herein.

Equipment Loan Commitment Period ” shall mean the period from and including the Closing Date to, but not including, the Revolving Credit Commitment Termination Date or such earlier date as the Revolving Credit Commitment shall terminate as provided herein.

Equipment Loan Note ” shall have the meaning set forth in Section 2.4.

Equipment Loan Maturity Date ” shall mean the date set forth in each Equipment Loan Note, and, in any event, not more than sixty (60) months following the Borrowing Date for such Equipment Loan.

ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.  Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor.

ERISA Affiliate ” shall mean each person (as defined in Section 3(9) of ERISA) which together with the Company or any of its Subsidiaries would be deemed to be a member of the same “controlled group” within the meaning of Section 414(b), (c), (m) and (o) of the Code.

Eurocurrency Reserve Requirement ” shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate (without duplication) of the rates (expressed as a decimal) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves, under any regulations of the Board of Governors of the Federal Reserve System or any other governmental authority having jurisdiction with respect thereto) as from time to time in effect, dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as “eurocurrency liabilities” in Regulation D) maintained by the Bank.  For purposes hereof each Libor Rate Loan shall be deemed to constitute a “eurocurrency liability” as defined in Regulation D, and subject to the reserve requirements of “Regulation D,” without benefit of credit or proration, exemptions or offsets which might otherwise be available to the Bank from time to time under Regulation D.

Event of Default ” shall mean any Event of Default set forth in Article VIII.
 
 
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Executive Officer ” shall mean any of the Chairman, Chief Executive Officer, the President, Vice President, the Chief Financial Officer or the Secretary of the Company or Guarantor, as applicable, and their respective successors, if any, designated by the board of directors of the Company or such Guaranty.

Federal Funds Effective Rate ” shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal fund brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Bank from three Federal fund brokers of recognized standing selected by the Bank.

Fixed Charge Coverage Ratio ” shall mean the ratio of (a) EBITDA minus Unfunded Capital Expenditures minus dividends and/or distributions minus cash taxes to (b) the sum of (i) the Current Portion of Long Term Debt plus (ii) Interest Expense, each determined on a consolidated basis for the Company and its Subsidiaries, as determined at the end of each fiscal quarter.  All of the foregoing categories shall be determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis and shall be calculated (without duplication) with respect to the four fiscal quarters ending on or most recently ended prior to the date of determination thereof with the exception of the Current Portion of Long Term Debt, which shall be calculated based upon the next succeeding four fiscal quarters.

Fixed Rate ” shall mean a rate of interest per annum quoted to the Company by the Bank, in its discretion, on the requested Borrowing Date for the requested Fixed Rate Loan.  Such quote rate shall be the fixed rate which would be applicable to a Fixed Rate Loan made by the Bank on the requested date for the proposed Fixed Rate Loan and shall be determined by the Bank on the requested Borrowing Date based upon its cost of funds.

Governmental Authority ” shall mean any nation or government, any state, province, city or municipal entity or other political subdivision thereof, and any governmental, executive, legislative, judicial, administrative or regulatory agency, department, authority, instrumentality, commission, board or similar body, whether federal, state, provincial, territorial, local or foreign.

Guarantors ” shall mean, collectively, each Person who, from time to time, is required to execute a Guaranty in accordance with Section 6.10, provided that CVD Materials Corporation shall not be required to be a Guarantor hereunder at such time that it is an inactive Subsidiary with total assets less than $10,000.

Guaranty ” shall mean, collectively, the Guaranty in the form attached hereto as Exhibit F to be executed and delivered on the Closing Date by each Guarantor and as such Guaranty may be further amended to add any Subsidiary or Affiliate required to become a guarantor thereunder pursuant to Section 6.10 hereof, as same may be amended, restated, supplemented or modified, from time to time.

Hazardous Materials ” includes, without limit, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances, or related materials defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq .), the Hazardous Materials Transportation Act, as amended (49) U.S.C. Sections 1801, et seq .), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 9601, et seq .), and in the regulations adopted and publications promulgated pursuant thereto, or any other federal, state or local environmental law, ordinance, rule or regulation.
 
 
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Hedging Agreement ” means any interest rate swap, collar, cap, floor or forward rate agreement or other agreement regarding the hedging of interest rate risk exposure executed in connection with hedging the interest rate exposure of the Company or any Guarantor, and any confirming letter executed pursuant to such agreement, all as amended, supplemented, restated or otherwise modified from time to time.

Indebtedness ”  shall mean, without duplication, as to any Person or Persons (a) indebtedness for borrowed money; (b) indebtedness for the deferred purchase price of property or services; (c) indebtedness evidenced by bonds, debentures, notes or other similar instruments; (d) obligations and liabilities secured by a Lien upon property owned by such Person, whether or not owing by such Person and even though such Person has not assumed or become liable for the payment thereof; (e) obligations and liabilities directly or indirectly guaranteed by such Person; (f) obligations or liabilities created or arising under any conditional sales contract or other title retention agreement with respect to property used and/or acquired by such Person; (g) obligations of such Person as lessee under Capital Leases; (h) net liabilities of such Person under Hedging Agreements and foreign currency exchange agreements, as calculated on a basis satisfactory to the Bank and in accordance with accepted practice; (i) all obligations of such Person in respect of bankers’ acceptances; (j) all obligations, contingent or otherwise of such Person as an account party in respect of letters of credit; and (k) all liabilities which would be reflected on a balance sheet of such Person, prepared in accordance with Generally Accepted Accounting Principles.

Interest Expense ” shall mean the interest expense of the Company (including with respect to Subordinated Debt), determined in accordance with Generally Accepted Accounting Principles, applied on a consistent basis.

Interest Payment Date ” shall mean (a) as to any Prime Rate Loan or Fixed Rate Loan, the first day of each calendar month, commencing September 1, 2011, (b) as to any Libor Rate Loan with respect to which the Company has selected (i) an Interest Period of three months or less months, at the end of the Interest Period, and (ii) in the case of Interest Periods of six months, the date that falls three months after the beginning of such Interest Period and at the end of the Interest Period; and (c) as to any Loan, on the date such Loan is paid in full or in part.

Interest Period ” shall mean with (I) with respect to any Libor Rate Loan:

(a)           initially, the period commencing on the date such Libor Rate Loan is made and ending one, two, three or six months thereafter, as selected by the Company in its notice of borrowing as provided in Section 2.1(b), or in its notice of conversion as provided in Section 3.1(f); and
 
 
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(b)           thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Libor Rate Loan and ending one, two, three or six months thereafter, as selected by the Company by irrevocable written notice to the Bank not later than 11:00 a.m. three Business Days prior to the last day of the then current Interest Period with respect to such Libor Rate Loan; provided, however, that all of the foregoing provisions relating to Interest Periods are subject to the following:

(i)           if any Interest Period pertaining to a Libor Rate Loan would otherwise end on a day which is not a Business Day, the Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day;

(ii)           if the Company shall fail to give notice as provided in clause (b) above, the Company shall be deemed to have requested conversion of the affected Libor Rate Loan to an Prime Rate Loan on the last day of the then current Interest Period with respect thereto;

(iii)           any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month;

(iv)           no more than ten (10) Interest Periods may exist at any one time; and
 
(v)           the Company shall select Interest Periods so as not to require a payment or prepayment of any Libor Rate Loan during an Interest Period for such Libor Rate Loan.

Joint Venture ” means a joint venture, partnership or other similar arrangement by the Company, whether in corporate, partnership or other legal form; provided , in no event shall any Subsidiary of the Company be considered to be a Joint Venture of the Company.
 
Letter of Credit ” shall mean any Commercial Letter of Credit or Standby Letter of Credit issued by the Bank for the account of the Company pursuant to the terms of this Agreement.

Leverage Ratio ” shall mean the ratio of Total Liabilities to Tangible Net Worth.

Libor Rate Loan ” shall mean Loans at such time as they are made and/or being maintained at a rate of interest based upon Reserve Adjusted Libor.

Lien ” shall mean any lien (statutory or otherwise), security interest, mortgage, deed of trust, pledge, charge, conditional sale, title retention agreement, Capital Lease or other encumbrance or similar right of others, or any agreement to give any of the foregoing.
 
 
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Loans ” shall mean, collectively, the Revolving Credit Loans, the Equipment Loans and the Term Loan, and shall refer to either a Prime Rate Loan, a Libor Rate Loan or a Fixed Rate Loan, as applicable, each of which shall be a “Type” of Loan.

Loan Documents ” shall mean, collectively, this Agreement, the Notes, the Security Documents, the Guaranty, the Subordination Agreement, Hedging Agreements   and each other agreement executed in connection with the transactions contemplated hereby or thereby.

Material Adverse Effect ” shall mean a material adverse effect on the business, operations, properties, prospects or condition (financial or otherwise) of the Company or any Subsidiary of the Company, or (b) the ability of the Company or any Subsidiary of the Company to perform any of their material obligations under any Loan Document to which they are a party.

Material Contract ” shall mean, with respect to any Person, each contract, instrument or agreement to which such Person is a party which is not entered into in the ordinary course of such Person’s business and which is material to the business, operations, properties, prospects or condition (financial or otherwise) of such Person.

Net Income ” shall mean, for any period, the net income (or net loss) of the Company and its Subsidiaries for such period determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis.

Notes ” shall mean, collectively, the Revolving Credit Note, the Equipment Loan Notes and the Term Loan Note.

Notice of Borrowing ” shall mean the Notice of Borrowing substantially in the form attached hereto as Exhibit C .

Obligations ” shall mean all obligations, liabilities and indebtedness of the Company to the Bank, whether now existing or hereafter created, absolute or contingent, direct or indirect, due or not, whether created directly or acquired by assignment or otherwise, including, without limitation, all obligations, liabilities and indebtedness of the Company and the Subsidiaries arising under this Agreement, the Notes or any other Loan Document including, without limitation, all obligations, liabilities and indebtedness of the Company with respect to the principal of and interest on the Loans, reimbursement of Letters of Credit, obligations under any Related Hedging Agreement, any Banking Services Obligations and foreign currency exchange agreements relating to the Indebtedness of the Company arising under this Agreement and all fees, costs, expenses and indemnity obligations of the Company hereunder or under any other Loan Document (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, and interest that, but for the filing of  petition in bankruptcy with respect to the Company or any Subsidiary, would accrue on such obligations, whether or not a claim is allowed against the Company for such interest in the related bankruptcy proceeding under the Notes or with respect to the Loans, including without limitation all fees, costs, expenses and indemnity obligations hereunder.
 
 
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Payment Office ” shall mean the Bank’s office located at 534 Broad Hollow Road, Melville, New York 11747, Attention: Robert Caruana, Vice President or such other office hereinafter designated by the Bank as its Payment Office.

PBGC ” shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto.

Permitted Action ” shall mean the breach of contract action described on Schedule 1.01 hereto.

Person ” shall mean any natural person, corporation, limited liability company, limited liability partnership, business trust, joint venture, association, company, partnership or Governmental Authority.

Plan ” shall mean any multi-employer or single-employer plan defined in Section 4001 of ERISA, which is maintained, or at any time during the five calendar years preceding the date of this Agreement was maintained for employees of the Company, any Subsidiary of the Company or an ERISA Affiliate.

Prime Rate ” shall mean the rate per annum publicly announced by the Bank from time to time as its prime rate in effect at its principal office, each change in the Prime Rate shall be effective on the date such change is announced to become effective.

Prime Rate Loans ” shall mean Loans at such times as they are being made and/or maintained at a rate of interest based on the Prime Rate

Regulation D ” shall mean Regulation D of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time.

Related Hedging Agreements ” means, collectively, all Hedging Agreements which are now or hereafter entered into or maintained with the Bank.

Reportable Event ” shall mean an event described in Section 4043(b) of ERISA with respect to a Plan as to which the 30-day notice requirement has not been waived by the PBGC.

Reserve Adjusted Libor ” shall mean with respect to the Interest Period pertaining to a Libor Rate Loan, a rate per annum equal to the product (rounded upwards to the next higher 1/16 of one percent) of (a) the annual rate of interest at which Dollar deposits of an amount equal to the amount of the portion of the proposed Libor Rate Loan and for a period equal to the Interest Period applicable thereto which appears on Telerate Page 3750 at approximately 11:00 A.M. (London time) on the second Business Day prior to the commencement of such Interest Period, multiplied by (b) the Eurocurrency Reserve Requirement.

If the rate described in clause (a) above does not appear on the Telerate system on any applicable interest determination date, then the rate described in clause (a) shall be determined by reference to the rate for deposits in Dollars of an amount equal to the amount of the proposed Libor Rate Loan for a period substantially equal to the Interest Period on the Reuters Page “LIBO” (or such other page as may replace the LIBO Page on that service for the purpose of displaying such rates), as of 11:00 a.m. (London Time) on the date that is three Business Days prior to the beginning of such Interest Period.
 
 
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If both the Telerate and Reuters system are unavailable, then the rate described in clause (a) for that date will be determined on the basis of the offered rates for deposits in U.S. dollars for a period of time comparable to such applicable Interest Period which are offered by four major banks selected by the Bank in the London interbank market at approximately 11:00 a.m. (London time) on the day that is three Business Days preceding the first day of such Interest Period.  The principal London office of each of the four major banks will be requested to provide a quotation of its U.S. dollar deposit offered rate.  If at least two such quotations are provided, the rate described in clause (a) for that date will be the arithmetic mean of the quotations.  If fewer than two quotations are provided as requested, the rate described in clause (a) for that date will be determined on the basis of the rates quoted for loans in U.S. dollars to leading European banks for a period of time comparable to such Interest Period offered by major banks in New York, New York at approximately 11:00 a.m. (New York, New York time) on the day that is three Business Days preceding the first day of such Interest Period.  In the event that the Bank is unable to obtain any such quotation as provided above, it will be deemed that Reserve Adjusted Libor pursuant to a Libor Rate Loan cannot be determined.

Revolving Credit Commitment ” shall mean the obligation of the Bank to make Revolving Credit Loans, to make Equipment Loans and to issue Letters of Credit in aggregate amount not to exceed $7,000,000, subject to, and as reduced from time to time in accordance with, the terms of this Agreement.

Revolving Credit Commitment Period ” shall mean the period from and including the Closing Date to, but not including, the Revolving Credit Commitment Termination Date or such earlier date as the Revolving Credit Commitment shall terminate as provided herein.

Revolving Credit Commitment Termination Date ” shall mean the third anniversary of the Closing Date.

Revolving Credit Loan ” shall have the meaning specified in Section 2.1.

Revolving Credit Note ” shall mean the Revolving Credit Note, in the form attached hereto as Exhibit A to be executed and delivered on the Closing Date by the Company.

SEC ” shall mean the Securities and Exchange Commission.

Security Agreement ” shall mean the Security Agreement in the form attached hereto as Exhibit  E to be executed and delivered on the Closing Date by the Company, each Guarantor, and by any Person who may be required to execute the same pursuant to Section 6.10, as each of the same may hereafter be amended, restated, supplemented or otherwise modified from time to time.
 
 
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Security Documents ” shall mean, collectively, the Security Agreement, the Account Pledge Agreement and each other collateral security document delivered to the Bank hereunder.

Solvent ” shall mean with respect to the Company or a Subsidiary of the Company, as applicable, as of the date of determination thereof that (i) the amount of the “present fair saleable value” of the assets of such Person will, as of such date, exceed the amount of all “liabilities of such Person, contingent or otherwise,” as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (ii) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required on its debts as such debts become absolute and matured, (iii) such Person will not have as of such date, an unreasonably small amount of capital with which to conduct its business, and (iv) such Person will be able to pay its debts as they mature.

Standby Letter of Credit ” shall mean any letter of credit issued to support an obligation of a Person and which may be drawn on only upon the failure of such Person to perform such obligation or other contingency.

Subordinated Debt ” shall mean all debt which is subordinated in right of payment to the prior indefeasible payment in full of the obligations of the Company and/or any Subsidiary of the Company to the Bank on terms satisfactory to and approved in writing by the Bank.

Subsidiaries ” shall mean with respect to any Person any corporation, association or other business entity more than 50% of the voting stock or other ownership interest of which is at the time owned or controlled, directly or indirectly, by such Person or one or more of its Subsidiaries or a combination thereof.

Tangible Net Worth ” shall mean (a) total assets of the Company and its Subsidiaries on a consolidated basis, except that there shall be excluded therefrom all obligations due to the Company or such Subsidiary   from any Affiliate and all intangible assets, including, without limitation, organizational expenses, patents, trademarks, copyrights, goodwill, covenants not to compete, research and development costs, training expenses and deferred charges, minus (b) the Total Liabilities of the Company and its Subsidiaries on a consolidated basis, all determined in accordance with Generally Accepted Accounting Principles, applied on a consistent basis.

Telerate Page 3750 ” shall mean the display designated as “Page 3750” on the Associated Press-Dow Jones Telerate Service (or such other page as may replace Page 3750 on the Associated Press-Dow Jones Telerate Service or such other service as may be nominated by the British Bankers’ Association as the information vendor for the purpose of displaying British Bankers’ Association interest settlement rates for Dollar deposits).  Each Reserve Adjusted Libor rate based on the rate displayed on Telerate Page 3750 shall be subject to corrections, if any, made in such rate and displayed by the Associated Press-Dow Jones Telerate Service within one hour of the time when such rate is first displayed by such service.

Term Loan ” shall have the meaning set forth in Section 2.5.
 
 
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Term Loan Commitment ” shall mean the Bank’s obligation to make a Term Loan to the Company on the Closing Date in an aggregate principal amount not to exceed $2,100,000.

Term Loan Maturity Date ” shall mean September 1, 2016.

Term Loan Note ” shall have the meaning set forth in Section 2.6.

Total Liabilities ” shall mean, as of the date of determination thereof, the total liabilities and obligations of the Company and its Subsidiaries on a consolidated basis (excluding Subordinated Indebtedness) that would be classified as liabilities on a balance sheet or to which reference should be made in footnotes thereto, all calculated and determined in accordance with Generally Accepted Accounting Principles consistently applied

Type ” shall have the meaning set forth in the definition of “Loans”.

Unfunded Capital Expenditures ” shall mean, with respect to any period, Capital Expenditures incurred by the Company and its Subsidiaries on a consolidated basis during such period which are not financed with the proceeds from any indebtedness for borrowed money or a Capital Lease, excluding, however, (i) that portion of the purchase price of any real property hereinafter purchased by the Company utilizing loans from the Bank, which shall be paid directly by the Company, and (ii) capital improvements to such real property.

Unfunded Current Liability ” of any Plan shall mean the amount, if any, by which the present value of the accrued benefits under the Plan as of the close of its most recent plan year exceeds the fair market value of the assets allocable thereto, determined in accordance with Section 412 of the Code.

Working Capital ” shall mean current assets minus current liabilities, as determined in accordance with Generally Accepted Accounting Principles, of the Company and its Subsidiaries on a consolidated basis.

Section 1.2.                        Accounting Terms .   Except as otherwise herein specifically provided, each accounting term used herein shall have the meaning given to it under Generally Accepted Accounting Principles.  “Generally Accepted Accounting Principles” or “GAAP” shall mean those generally accepted accounting principles and practices which are recognized as such by the American Institute of Certified Public Accountants acting through the Financial Accounting Standards Board (“FASB”) or through other appropriate boards or committees thereof and which are consistently applied for all periods so as to properly reflect the financial condition, and the results of operations and cash flows of the Company and its Subsidiaries except that any accounting principle or practice required to be changed by the FASB (or other appropriate board or committee of the FASB) in order to continue as a generally accepted accounting principle or practice may be so changed.  Any dispute or disagreement between the Company and the Bank relating to the determination of Generally Accepted Accounting Principles shall, in the absence of manifest error, be conclusively resolved for all purposes hereof by the written opinion with respect thereto, delivered to the Bank, of the independent accountants selected by the Company and approved by the Bank for the purpose of auditing the periodic financial statements of the Company and its Subsidiaries.

 
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ARTICLE II
LOANS
 
Section 2.1.                        Revolving Credit Loans .

(a)           Subject to the terms and conditions, and relying upon the representations and warranties, set forth herein, the Bank agrees to make loans (individually a “ Revolving Credit Loan ” and, collectively, the “ Revolving Credit Loans ”) to the Company at any time or from time to time on or after the date hereof and until the Revolving Credit Commitment Termination Date  in an aggregate principal amount at any time outstanding not in excess of the Revolving Credit Commitment, provided , however , that no Revolving Credit Loan shall be made if, after giving effect to such Revolving Credit Loan, the Aggregate Outstandings would exceed the Revolving Credit Commitment in effect at such time.  During the Revolving Credit Commitment Period, the Company may from time to time borrow, repay and reborrow hereunder on or after the date hereof and prior to the Revolving Credit Commitment Termination Date, subject to the terms, provisions and limitations set forth herein.  The Revolving Credit Loans may be (i) Libor Rate Loans, (ii) Prime Rate Loans or (iii) a combination thereof.

(b)           The initial Revolving Credit Loan made by the Bank shall be made against delivery to the Bank of the Revolving Credit Note, payable to the order of the Bank, as referred to in Section 2.2 hereof.  The Bank will make available each requested Revolving Credit Loan to the Company by crediting the proceeds thereof into an account of the Company at the Payment Office on the date and in the amount set forth in the applicable Notice of Borrowing.

(c)           The Company shall give the Bank a duly completed Notice of Borrowing executed by an Executive Officer, not later than 12:00 noon, three Business Days prior to the date of each proposed Libor Rate Loan under this Section 2.1 or on the date of each proposed Prime Rate Loan under this Section 2.1.  Such notice shall be irrevocable and shall specify the amount and Type of the proposed borrowing, the initial Interest Period if a Libor Rate Loan and the proposed Borrowing Date.  Except for borrowings which utilize the full remaining amount of the Revolving Credit Commitment, each borrowing pursuant to the Revolving Credit Commitment shall be in an aggregate principal amount of (i) $100,000 or whole multiples of $50,000 in excess thereof, with respect to Prime Rate Loans, and (ii) $500,000 or whole multiples of $100,000 in excess thereof with respect to Libor Rate Loans; provided, however, no borrowing shall exceed the Revolving Credit Commitment.

(d)           The Company shall have the right, upon not less than three Business Days’ prior written notice to the Bank, to terminate the Revolving Credit Commitment or from time to time to permanently reduce the amount of the Revolving Credit Commitment; provided, however, that no such termination or reduction shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Credit Loans made on the effective date thereof, the Aggregate Outstandings would exceed the Revolving Credit Commitment as then reduced; provided, further, that any such termination or reduction of Libor Rate Loans shall be made only on the last day of the Interest Period with respect thereto or on the date of payment in full of all amounts owing to the Bank pursuant to Section 3.8 as a result of such termination or reduction.  Any such reduction shall be in the amount of $500,000 or whole multiples of $100,000 in excess thereof, and shall reduce permanently the amount of the Revolving Credit Commitment then in effect.
 
 
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(e)           The Revolving Credit Commitment shall automatically terminate on the Revolving Credit Commitment Termination Date.  Upon such termination, the Company shall immediately repay in full the principal amount of the Revolving Credit Loans then outstanding, together with all accrued interest thereon and all other amounts due and payable hereunder.

Section 2.2.                        Revolving Credit Note .  The Revolving Credit Loans made by the Bank shall be evidenced by the Revolving Credit Note, appropriately completed, duly executed and delivered on behalf of the Company and payable to the order of the Bank in a principal amount equal to the Revolving Credit Commitment.  The date, Type and amount of each Revolving Credit Loan and the date and amount of each payment or prepayment of principal of each Revolving Credit Loan shall be recorded on the grid schedule annexed to the Revolving Credit Note, and the Company authorizes the Bank to make such recordation; provided , however , that the failure of the Bank to set forth each such Revolving Credit Loan, payment and other information on such grid shall not in any manner affect the obligation of the Company to repay each Revolving Credit Loan made by the Bank in accordance with the terms of the Revolving Credit Note and this Agreement.  The Revolving Credit Note, the grid schedule and the books and records of the Bank shall constitute conclusive evidence of the information so recorded absent manifest error.  The aggregate unpaid amount of the Revolving Credit Loans of the Bank at any time shall be the principal amount owing on the Revolving Credit Note of the Company at such time.

Section 2.3.                        Equipment Loans .   (a) Subject to the terms and conditions, and relying upon the representations and warranties, set forth herein, the Company may utilize up to $1,000,000 of the Revolving Credit to borrow equipment term loans and the Bank agrees to make loans (individually a “ Equipment Loan ” and, collectively, the “ Equipment Loans ”) to  the Company at any time or from time to time on or after the date hereof and until the Revolving Credit Commitment Termination Date in an aggregate principal amount not in excess of the Equipment Loan Commitment, provided , however , that no Equipment Loan shall be made if, after giving effect to such Equipment Loan, the Aggregate Outstandings would exceed the Revolving Credit Commitment in effect at such time.  The Equipment Loans may be (i) Libor Rate Loans, Prime Rate Loans or a combination thereof or (ii) Fixed Rate Loans for the entire principal thereof.

(b)           The Company shall give the Bank a duly completed Notice of Borrowing executed by an Executive Officer, not later than 12:00 noon, three Business Days prior to the date of each proposed Libor Rate Loan under this Section 2.3 or on the date of each proposed Prime Rate Loan or Fixed Rate Loan   under this Section 2.3.  Such notice shall be irrevocable and shall specify the amount and Type of the proposed borrowing, the initial Interest Period if a Libor Rate Loan and the proposed Borrowing Date.  Except for borrowings which utilize the full remaining amount of the Equipment Loan Commitment, each borrowing pursuant to the Equipment Loan Commitment shall be in an aggregate principal amount of (i) $100,000 or whole multiples of $50,000 in excess thereof, with respect to Prime Rate Loans, (ii) $500,000 or whole multiples of $100,000 in excess thereof with respect to Libor Rate Loans, or (iii) the full amount of such Equipment Loan with respect to Fixed Rate Loans; provided, however, no borrowing shall exceed the Equipment Loan Commitment.
 
 
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Section 2.4.                        Equipment Loan Notes .   Each Equipment Loan made by the Bank to the Company shall be evidenced by a term note (each, as amended, restated, supplemented or modified, from time to time, each, an “ Equipment Loan Note ” and collectively the “ Equipment Loan Notes ”), substantially in the form attached hereto as   Exhibit B , appropriately completed, duly executed and delivered on behalf of the Company and payable to the order of the Bank in a principal amount equal to such Equipment Loan.  Each shall have a term designated by the Company in its Notice of Borrowing but which shall not exceed five (5) years from the Borrowing Date and, in the absence of any such designation shall be five (5) years.  Each Equipment Loan shall be payable in monthly installments of interest and principal in order to fully amortize such Equipment Loan by the applicable Equipment Loan Maturity Date.  Such installments shall commence on the first day of the first month following the Borrowing Date for such Equipment Loan.  The date and amount of each Equipment Loan and the date and amount of each payment or prepayment of principal of such Equipment Loan shall be recorded on a schedule annexed to each such Equipment Loan Note, and the Company authorizes the Bank to make such recordation; provided , however , that the failure of the Bank to set forth payments and other information in such grid shall not in any manner affect the obligation of the Company to repay any Equipment Loan made by the Bank in accordance with the terms of this Agreement.  Each Equipment Loan Note, the grid schedule and the books and records of the Bank shall be prima facie evidence of the information so recorded absent manifest error.

Section 2.5.                        Term Loan.   Subject to the terms and conditions set forth in this Agreement, the Bank agrees to make a loan (the “ Term Loan ”) on the Closing Date in an aggregate principal amount outstanding not to exceed the Term Loan Commitment.  The Term Loan may Prime Rate Loans, Libor Rate Loans or a combination thereof.  The Company shall give the Bank irrevocable written notice (or telephonic notice promptly confirmed in writing) not later than 12:00 noon New York, New York time, three Business Days prior to the Closing Date of each proposed Libor Rate Loan under this Section 2.5 or prior to 12:00 noon New York, New York time on the Closing Date of each proposed Prime Rate Loan under this Section 2.5 specifying (i) the amount to be borrowed, which shall not exceed the Term Loan Commitment, (ii) the Type or Types of such Term Loan and the related amounts for each, and (iii) if all or a portion of the Term Loan will be a Libor Rate Loan, the initial Interest Period.  Each borrowing of a Prime Rate Loan shall be in an amount not less than $100,000, or, if greater, whole multiples of $50,000 in excess thereof.  Each borrowing of a Libor Rate Loan shall be an amount not less than $500,000 or whole multiples of $100,000 in excess thereof.  The Term Loan Commitment shall expire on the Closing Date.

Section 2.6.                        Term Loan Note .   The Term Loan to the Company shall be evidenced by a promissory note of the Company (as amended, restated, supplemented or modified, from time to time, the “ Term Loan Note ”), substantially in the form attached hereto as   Exhibit C , appropriately completed, duly executed and delivered on behalf of the Company and payable to the order of the Bank in a principal amount equal to the Term Loan Commitment.  The Term Loan Note shall (a) be stated to mature on the Term Loan Maturity Date, and (b) bear interest from the date thereof until paid in full on the unpaid principal amount thereof from time to time outstanding as provided in Section 3.1.  The Term Loan shall be payable in 60 monthly installments of principal of $35,000.00 each, commencing on September 1, 2011 and continuing on the first day of each month thereafter; provided , that the then outstanding principal amount of the Term Loan shall be due and payable on the Term Loan Maturity Date.  The Term Loan shall bear interest from the date of funding thereof until paid in full on the unpaid principal amount thereof form time to time outstanding at the applicable interest rate per annum specified in Section 3.1. The date and amount of each payment or prepayment of principal of the Term Loan shall be recorded on a schedule annexed to such Term Loan Note, and the Company authorizes the Bank to make such recordation; provided , however , that the failure of the Bank to set forth payments and other information in such grid shall not in any manner affect the obligation of the Company to repay the Term Loan made by the Bank in accordance with the terms of this Agreement.  The Term Loan Note, the grid schedule and the books and records of the Bank shall constitute conclusive evidence of the information so recorded absent manifest error.
 
 
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Section 2.7.                        Letters of Credit .

(a)            Generally .  Subject to the terms and conditions set forth in this Agreement, upon the written request of the Company in accordance herewith, the Bank shall issue Letters of Credit at any time during the Revolving Credit Commitment Period.  Notwithstanding the foregoing, no Letter of Credit shall be issued if, after giving effect to the same, the Aggregate Outstandings would exceed the Revolving Credit Commitment.  Each request for issuance of a Letter of Credit shall be in writing and shall be received by the Bank by no later than 12:00 noon, New York, New York time, on the day which is at least two Business Days prior to the proposed date of issuance.  Such issuance shall occur by no later than 5:00 p.m. on the proposed date of issuance or creation (assuming proper prior notice as aforesaid).  Subject to the terms and conditions contained herein, the expiry date, the type of Letter of Credit ( i.e. , Commercial Letter of Credit or Standby Letter of Credit) and the amount and beneficiary of the Letters of Credit will be as designated by the Company.  Each Letter of Credit issued by the Bank hereunder shall identify:  (i) the dates of issuance and expiry of such Letter of Credit, (ii) the amount of such Letter of Credit (which shall be a sum certain), (iii) the beneficiary of such Letter of Credit, and (iv) the drafts and other documents necessary to be presented to the Bank upon drawing thereunder.  In no event shall any Letter of Credit expire (or by its terms be required to be paid, extended or renewed), after the Revolving Credit Commitment Termination Date.  The Company agrees to execute and deliver to the Bank such further documents and instruments in connection with any Letter of Credit issued hereunder (including without limitation, applications therefor) as the Bank in accordance with its customary practices may reasonably request.  The Bank will not be required to issue a Commercial Letter of Credit hereunder with a maturity date (1) more than one hundred eighty (180) days from the date of issuance of such Letter of Credit, or (2) on or after the Revolving Credit Commitment Termination Date.

(b)            Drawings Under Letters of Credit .  The Company hereby absolutely and unconditionally promises to pay the Bank not later than 12:00 noon (New York, New York time) the amount of each drawing under a Letter of Credit if the Company receives notice of such drawing or payment prior to 10:00 a.m., New York, New York time, on the date of such drawing, or if such notice has not been received by the Company prior to such time on such date, then not later than 12:00 noon, New York, New York time, on the Business Day immediately following the day that the Company receives such notice; provided, however, if any drawing was in an amount not less than $100,000, the Company may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.1 hereof that such payment be financed with a Revolving Credit Loan that is a Prime Rate Loan in an equivalent amount, and, to the extent so financed, the Company’s obligation to make such payment shall be discharged and replaced by such Prime Rate Loan. Such request shall be made by the Company on the date of receipt of notice from the Bank of a drawing under a Letter of Credit.  Each drawing under a Letter of Credit, as applicable which is not paid on the date such drawing is made shall accrue interest, for each day from and including the date of such drawing to but excluding the date that the Company reimburses the Bank in full for such drawing or payment, at the rate per annum then applicable to Revolving Credit Loans which are Prime Rate Loans; provided, however, that if the Company fails to reimburse such drawing or payment when due pursuant to this paragraph (b), then the Company shall pay to the Bank interest on the amount of such drawing or payment at the rate per annum set forth in Section 3.1(d) hereof.
 
 
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(c)           Letter of Credit Obligations Absolute.

(i)           The obligation of the Company to reimburse the Bank as provided hereunder in respect of drawings under Letters of Credit shall rank pari passu with the obligation of the Company to repay the Loans hereunder, and shall be absolute and unconditional under any and all circumstances subject to (ii) below.  Without limiting the generality of the foregoing, the obligation of the Company to reimburse the Bank in respect of drawings under Letters of Credit for which the Bank has received documents in accordance with the terms hereof shall not be subject to any defense based on the non-application or misapplication by the beneficiary of the proceeds of any such drawing or the legality, validity, regularity or enforceability of the Letters of Credit or any related document, even though such document shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Company, the beneficiary of any Letter of Credit, or any financial institution or other party to which any Letter of Credit may be transferred.  The Bank may accept or pay any draft presented to it under any Letter of Credit regardless of when drawn or made and whether or not negotiated, if such draft, accompanying certificate or documents and any transmittal advice are presented or negotiated on or before the expiry date of such Letter of Credit or any renewal or extension thereof then in effect, and is in substantial compliance with the terms and conditions of such Letter of Credit.  Furthermore, neither the Bank nor any of its correspondents shall be responsible, as to any document presented under a Letter of Credit which appears to be regular on its face, and appears on its face to be in substantial compliance with the terms of the Letter of Credit, for the validity or sufficiency of any signature or endorsement, for delay in giving any notice or failure of any instrument to bear adequate reference to the Letter of Credit, or for failure of any Person to note the amount of any draft on the reverse of the Letter of Credit.  The Bank shall have the right, in its sole discretion, to decline to accept any documents and to decline to making payment under any Letter of Credit if the documents presented are not in strict compliance with the terms of such Letter of Credit.
 
 
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(ii)           Any action, inaction or omission on the part of the Bank or any of its correspondents under or in connection with any Letter of Credit or the related instruments, documents or property, if in good faith and in conformity with such laws, regulations or customs as are applicable, shall be binding upon the Company and shall not place the Bank or any of its correspondents under any liability to the Company in the absence of (x) gross negligence or willful misconduct by the Bank or its correspondents or (y) the failure by the Bank to pay under a Letter of Credit after presentation of a draft and documents strictly complying with such Letter of Credit unless the Bank is prohibited from making such payment pursuant to a court order.  The Bank’s rights, powers, privileges and immunities specified in or arising under this Agreement are in addition to any heretofore or at any time hereafter otherwise created or arising, whether by statute or rule of law or contract.  All Letters of Credit issued hereunder will, except to the extent otherwise expressly provided hereunder, be governed by the UCP.

ARTICLE III
INTEREST RATE; FEES AND PAYMENTS; USE OF PROCEEDS
 
Section 3.1.                        Interest Rate .

(a)           Each Prime Rate Loan shall bear interest for the period from the date thereof on the unpaid principal amount thereof at a fluctuating rate per annum equal to the Prime Rate minus one-half of one percent (0.50%).

(b)           Each Libor Rate Loan shall bear interest for the Interest Period applicable thereto on the unpaid principal amount thereof at a rate per annum equal to the Reserve Adjusted Libor determined for each Interest Period thereof in accordance with the terms hereof plus one and three-quarters percent (1.75%).

(c)           Each Fixed Rate Loan shall bear interest on the unpaid principal amount thereof at a rate per annum equal to the Fixed Rate.

(d)           Upon the occurrence and during the continuance of an Event of Default the outstanding principal amount of the Loans (excluding any defaulted payment of principal accruing interest in accordance with clause (e) below), shall, at the option of the Bank, bear interest payable on demand at a rate of interest 5% per annum in excess of the interest rate otherwise then in effect or, if no rate is in effect, 5% per annum in excess of the Prime Rate.

(e)           If the Company shall default in the payment of the principal of or interest on any portion of any Loan or any other amount becoming due hereunder, including, without limitation, reimbursement of Letters of Credit and fees, the Company shall on demand from time to time pay interest on such defaulted amount accruing from the date of such default (without reference to any period of grace) up to and including the date of actual payment (after as well as before judgment) at a rate of 5% per annum in excess of the rate otherwise in effect or, if no rate is in effect, 5 % per annum in excess of the Prime Rate.

(f)           The Company may elect from time to time to convert all or a portion of an outstanding Loan from a Libor Rate Loan to a Prime Rate Loan, by giving the Bank at least three Business Day’s prior irrevocable written notice of such election, provided that any such conversion of Libor Rate Loans shall only be made on the last day of an Interest Period with respect thereto.  The Company may elect from time to time to convert the outstanding Loans from a Prime Rate Loan to a Libor Rate Loan by giving the Bank irrevocable written notice of such election not later than 12:00 noon (New York, New York time), three Business Days prior to the date of the proposed conversion, with respect to a Libor Rate Loan.  All or any part of outstanding Prime Rate Loans may be converted as provided herein, provided that each conversion shall be in a principal amount of $500,000 or whole multiples of $100,000 in excess thereof and further provided that no Default or Event of Default shall have occurred and be continuing.  Any conversion to or from Libor Rate Loans hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of all Libor Rate Loans having the same Interest Period shall not be less than $500,000. The Company may not at any time to time convert all or any portion of an outstanding Equipment Loan or the Term Loan from a Fixed Rate Loan to a Prime Rate Loan or a Libor Rate Loan.  Each Fixed Rate Loan shall be continued as such throughout the term of this Agreement.
 
 
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(g)           Any Libor Rate Loan in a minimum principal amount of $500,000 may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Company with the notice provisions contained in the definition of Interest Period; provided, that no Libor Rate Loan may be continued as such when any Default or Event of Default has occurred and is continuing, but shall be automatically converted to a Prime Rate Loan on the last day of the Interest Period in effect when the Bank is notified, or otherwise has actual knowledge, of such Default or Event of Default.

(h)           If the Company shall fail to select the duration of any Interest Period for any Libor Rate Loan in accordance with the definition of “Interest Period” set forth in Section 1.1, the Company shall be deemed to have selected an Interest Period of one month.

(i)           No Loan may be funded, converted to or continued as a Libor Rate Loan if the Interest Period would extend beyond the Revolving Credit Commitment Termination Date, with respect to the Revolving Credit Note, the applicable Equipment Loan Maturity Date, with respect to an Equipment Loan, or the Term Loan Maturity Date, with respect to the Term Loan.

(j)           Anything in this Agreement or in any Note to the contrary notwithstanding, the obligation of the Company to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be paid to the Bank to the extent that the charging or receipt thereof would not be permissible under the law or laws applicable to the Bank limiting the rates of interest that may be charged or collected by the Bank.  In each such event payments of interest required to be paid to the Bank shall be calculated at the highest rate permitted by applicable law until such time as the rates of interest required hereunder may lawfully be charged and collected by the Bank.  If the provisions of this Agreement or any Note would at any time otherwise require payment by the Company to the Bank of any amount of interest in excess of the maximum amount then permitted by applicable law, the interest payments to the Bank shall be reduced to the extent necessary so that the Bank shall not receive interest in excess of such maximum amount.  To the extent that, pursuant to the foregoing sentence, the Bank shall receive interest payments hereunder or under any Note in an amount less than the amount otherwise provided herein or in any Note, such deficit (hereinafter called the “Interest Deficit”) will accumulate and will be carried forward (without interest) until the termination of this Agreement.  Interest otherwise payable to the Bank hereunder and under any Note for any subsequent period shall be increased by such maximum amount of the Interest Deficit that may be so added without causing the Bank to receive interest in excess of the maximum amount then permitted by applicable law.
 
 
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(k)           Interest on each Loan shall be payable in arrears on each Interest Payment Date and shall be calculated on the basis year of 360 days and shall be payable for the actual days elapsed.  Any rate of interest on the Loans or other Obligations which is computed on the basis of the Prime Rate shall change when and as the Prime Rate changes in accordance with the definition thereof.  Each determination by the Bank of an interest rate or fee hereunder shall, absent manifest error, be conclusive and binding for all purposes.

Section 3.2.                        Use of Proceeds .   The proceeds of the Revolving Credit Loans shall be used by the Company to (a) refinance a portion of the obligations owing under the Capital One Credit Facility (if any) on the Closing Date and (b) to finance the Company’s general corporate requirements in the ordinary course of business.  The proceeds of each Equipment Loan shall be used to finance up to ninety percent (90%) of the purchase price (hard costs only) of equipment purchases made by the Company.  The full proceeds the Term Loan shall be used to refinance the obligations owing under the Capital One Mortgage Facility on the Closing Date.  Commercial Letters of Credit issued by the Bank hereunder shall be for the account of the Company and shall be issued to provide the primary payment mechanism in connection with the purchase of any materials, goods or services by the Company in the ordinary course of its business.  Standby Letters of Credit shall be issued by the Bank to support the Company’s obligations to third parties in the ordinary course of business.

Section 3.3.                        Prepayments .

(a)           The Company may on the last day of an Interest Period if the Loans to be repaid are in whole or in part Libor Rate Loans, on the applicable Equipment Loan Maturity Date or Term Loan Maturity Date if the Loans to be repaid are Fixed Rate Loans or at any time and from time to time if the Loans to be repaid are Prime Rate Loans, repay the then outstanding Loans, in whole or in part, without premium or penalty except as provided in Section 3.8, upon not less than three Business Days’ irrevocable written notice to the Bank with respect to prepayments of Libor Rate Loans and Fixed Rate Loans and on the same Business Day irrevocable written notice with respect to Prime Rate Loans, specifying the date and amount of repayment and whether such repayment is of the Revolving Credit Loans, an Equipment Loan or the Term Loan and of Libor Rate Loans, Fixed Rate Loans or Prime Rate Loans or a combination thereof, and if a combination thereof, the amount of repayment allocable to each.  If such notice is given, the Company shall make such repayment and the payment amount specified in such notice shall be due and payable, on the date specified therein, together with accrued interest to such date on the amount repaid to the Bank.  Partial prepayments pursuant to this Section 3.3(a) shall be in an aggregate principal amount of (x) $100,000 or whole multiples in excess thereof with respect to Prime Rate Loans and (y) $250,000 or whole multiples of $100,000 in excess thereof with respect to Libor Rate Loans.  Fixed Rate Loans may only be prepaid in full.
 
 
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(b)           To the extent that the Aggregate Outstandings exceeds Revolving Credit Commitment as then in effect, the Company shall immediately prepay the Revolving Credit Loans to the extent necessary to cause compliance therewith.  To the extent that such prepayments are insufficient to cause compliance therewith, the Company shall pledge to the Bank, Cash Collateral in an amount equal to the amount of such short-fall, which Cash Collateral shall secure the reimbursement obligations with respect to Letters of Credit.

(c)           Each prepayment of principal of a Loan pursuant to this Section 3.3 shall be accompanied by accrued interest to the date prepaid on the amount prepaid.  Unless directed by the Company pursuant to Section 3.3(a), all partial prepayments of any Loan shall be applied first to outstanding Prime Rate Loans and then to Libor Rate Loans having the shortest remaining Interest Periods; provided, so long as no Default or Event of Default shall have occurred and be continuing, the Bank shall not apply any mandatory prepayment to any portion of any Loan which constitutes an a Libor Rate Loan until the last day of the Interest Period therefor or the earlier maturity of the Loan by acceleration or otherwise until so applied to a Libor Rate Loan, such remaining portion of such mandatory prepayment shall be deposited with the Bank as Cash Collateral.  Prepayments of Libor Rate Loans and Fixed Rate Loans shall be accompanied by the amounts, if any, due pursuant to Section 3.8.  Prepayments of any Equipment Loan or the Term Loan shall be applied to the remaining installments of principal thereof in inverse order of maturity.  Prepayments of an Equipment Loan or the Term Loan may not be reborrowed.

Section 3.4.                        Fees .

(a)           The Company agrees to pay to the Bank a facility fee (the “Unused Fee”) on the average daily unused portion of the Revolving Credit Commitment from the date of this Agreement until the Revolving Credit Commitment Termination Date at a rate equal to one-quarter of one percent (0.25%) per annum, based on a year of 360 days.  Such fee shall be payable quarterly in arrears on the last day of each calendar quarter, commencing September 31, 2011, on the Revolving Credit Commitment Termination Date and on each date the Revolving Credit Commitment is permanently reduced in whole or in part.

(b)           The Company shall pay to the Bank a commission equal to the Bank’s standard commission, from time to time, on the aggregate undrawn amount of all outstanding Standby Letters of Credit during such period, payable quarterly in arrears, on the first Business Day of March, June, September and December of each year, commencing September 31, 2011, provided that all such fees shall be payable on the date on which the Revolving Credit Commitment terminates.  Such Standby Letter of Credit fee shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed.  The Company shall further pay to the Bank, with respect to each Commercial Letter of Credit 0.25% of the stated amount of such Commercial Letter of Credit upon its issuance and 0.25% of the amount drawn under such Letter of Credit or, in the event of termination or expiration, available to be drawn under such Commercial Letter of Credit.  In addition, the Company shall pay to the Bank, on demand, all customary fees charged by the Bank with respect to the issuance, processing and administration of Letters of Credit (including, without limitation, amendments, renewals or extensions of letters of credit), all subject to such standard minimums now or hereinafter in effect.
 
 
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Section 3.5.                        Inability to Determine Interest Rate .  In the event that the Bank shall have determined (which determination shall be conclusive and binding upon the Company) that, by reason of circumstances affecting the London interbank market, adequate and reasonable means do not exist for ascertaining the Reserve Adjusted Libor applicable pursuant to Section 3.1(b) for any requested Interest Period with respect to (a) the making of a Libor Rate Loan, (b) a Libor Rate Loan that will result from the requested conversion of an Prime Rate Loan to a Libor Rate Loan or a Libor Rate Loan of one type into a Libor Rate Loan of another type, or (c) the continuation of a Libor Rate Loan beyond the expiration of the then current Interest Period with respect thereto, the Bank shall forthwith give notice by telephone of such determination, promptly confirmed in writing, to the Company of such determination.  Until the Bank notifies the Company that the circumstances giving rise to the suspension described herein no longer exist (which notification shall be given promptly by the Bank either verbally or in writing and, if verbally, promptly confirmed in writing,), the Company shall not have the right to request or continue a Libor Rate Loan or to convert an Prime Rate Loan to a Libor Rate Loan.

Section 3.6.                        Illegality .  Notwithstanding any other provisions herein, if any introduction of or change in any law, regulation, treaty or directive or in the interpretation or application thereof shall make it unlawful for the Bank to make or maintain Libor Rate Loans or Fixed Rate Loans as contemplated by this Agreement, the Bank shall forthwith give notice by telephone of such circumstances, promptly confirmed in writing, and (a) the commitment of the Bank to make and to allow conversion to or continuations of Libor Rate Loans or Fixed Rate Loans shall forthwith be cancelled for the duration of such illegality and (b) the Loans then outstanding as Libor Rate Loans or Fixed Rate Loans, if any, shall be converted automatically to Prime Rate Loans on the next succeeding last day of each Interest Period applicable to such Libor Rate Loans or Fixed Rate Loans or within such  earlier period as may be required by law.  The Company shall pay to the Bank, upon demand, any additional amounts required to be paid pursuant to Section 3.8 hereof.

Section 3.7.                        Other Events .

(a)           In the event that any introduction of or change in, on or after the date hereof, any applicable law, regulation, treaty, order, directive or in the interpretation or application thereof (including, without limitation, any request, guideline or policy, whether or not having the force of law, of or from any central bank or other governmental authority, agency or instrumentality and including, without limitation, Regulation D), by any authority charged with the administration or interpretation thereof shall occur, which:
 
(i)           shall subject the Bank to any tax of any kind whatsoever with respect to this Agreement, any Note, any Loan, any Letter of Credit or change the basis of taxation of payments to the Bank of principal, interest, fees or any other amount payable hereunder (other than any tax that is measured with respect to the overall net income of the Bank or lending office of the Bank and that is imposed by the United States of America, or any political subdivision or taxing authority thereof or therein, or by any jurisdiction in which the Bank’s lending office is located, or by any jurisdiction in which the Bank is organized, has its principal office or is managed and controlled); or

 
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(ii)           shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement (whether or not having the force of law) against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of the Bank; or
 
(iii)           shall impose on the Bank any other condition, or change therein directly relating to this Agreement, any Note or any Loan; and the result of any of the foregoing is to increase the cost to the Bank of making, renewing or maintaining or participating in advances or extensions of credit hereunder or to reduce any amount receivable hereunder, in each case by an amount which the Bank deems material, then, in any such case, the Company shall pay the Bank, upon demand, such additional amount or amounts as will reimburse the Bank for such increased costs or reduction.
 
(b)           If the Bank shall have determined in its reasonable discretion that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank (or any lending office of the Bank) or the Bank’s holding company, with any request or directive regarding capital adequacy (whether or not having the force of the law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Bank’s capital or on the capital of the Bank’s holding company as a consequence of its obligations hereunder to a level below that which the Bank could have achieved but for such adoption, change or compliance (taking into consideration the Bank’s policies and the policies of the Bank’s holding company with respect to capital adequacy) by an amount deemed by the Bank to be material, then from time to time, the Company shall pay to the Bank, the additional amount or amounts as will reimburse the Bank or the Bank’s holding company for such reduction directly relating to this Agreement, any Note or any Loan.  The Bank’s determination of such amounts, upon presentation thereof to the Company, shall be conclusive and binding on the Company absent manifest error.
 
(c)           A certificate of the Bank setting forth the basis and calculation of any such determination, and the amount or amounts payable pursuant to Sections 3.7(a) and 3.7(b) above, shall be conclusive absent manifest error.  The Company shall pay the Bank the amount shown as due on any such certificate within 10 days after receipt thereof.

Section 3.8.                        Indemnity .   The Company agrees to indemnify the Bank and to hold the Bank harmless from any loss, cost or expense which the Bank may sustain or incur, including, without limitation, interest or fees payable by the Bank to lenders of funds obtained by it in order to maintain Libor Rate Loans or Fixed Rate Loans hereunder, as a consequence of (a) default by the Company in payment of the principal amount of or interest on any Libor Rate Loan or Fixed Rate Loan, (b) default by the Company to accept or make a borrowing of a Libor Rate Loan or Fixed Rate Loan or a conversion into or continuation of a Libor Rate Loan after the Company has requested such borrowing, conversion or continuation, (c) default by the Company in making any prepayment of any Libor Rate Loan or Fixed Rate Loan after the Company gives a notice in accordance with Section 3.3 of this Agreement and/or (d) the making of any payment or prepayment (whether mandatory or optional) of a Libor Rate Loan or Fixed Rate Loan or the making of any conversion of a Libor Rate Loan to a Prime Rate Loan, on a day which is not the last day of the applicable Interest Period with respect thereto.  Notwithstanding the foregoing, the Company shall not indemnify the Bank for any loss, cost or expense sustained or incurred by the Bank as a result of the Bank’s gross negligence or willful misconduct.  A certificate of the Bank setting forth the basis, the calculation of any such determination and such amounts shall be conclusive absent manifest error.  The Company shall pay the Bank the amount shown as due on any certificate within ten days after receipt thereof.
 
 
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Section 3.9.                        Taxes .   Except as required by law, all payments made by the Company under this Agreement shall be made free and clear of, and without reduction for or on account of, any present or future taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding income and franchise taxes imposed on the Bank by (i) the United States of America or any political subdivision or taxing authority thereof or therein, (ii) the jurisdiction under the laws of which the Bank is organized or in which it has its principal office or is managed and controlled or any political subdivision or taxing authority thereof or therein, or (iii) any jurisdiction in which the Bank’s lending office is located or any political subdivision or taxing authority thereof or therein (such non-excluded taxes being called “ Taxes ”).  If any Taxes are required to be withheld from any amounts payable to the Bank hereunder, or under any Note, the amount so payable to the Bank shall be increased to the extent necessary to yield to the Bank (after payment of all Taxes and free and clear of all liability in respect of such Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Note.  Whenever any Taxes are payable by the Company, as promptly as possible thereafter, the Company shall send to the Bank, as the case may be, a certified copy of an original official receipt showing payment thereof.  If the Company fails to pay Taxes when due to the appropriate taxing authority or fails to remit to the Bank the required receipts or other required documentary evidence, the Company shall indemnify the Bank for any incremental taxes, interest or penalties that may become payable by the Bank as a result of any such failure together with any actual expenses payable by the Bank in connection therewith.

Section 3.10.                        Payments.   All payments (including prepayments) to be made by the Company on account of principal, interest, fees and reimbursement obligations shall be made without set-off or counterclaim and shall be made to the Bank, at the Payment Office of the Bank in Dollars in immediately available funds not later than 12:00 noon, New York, New York time, on the date on which they are payable.  The Bank may, in its sole discretion, directly charge principal and interest payments due in respect of the Loans to the Company’s accounts at the Payment Office or other office of the Bank.  Except as otherwise provided in the definition of “Interest Period”, if any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension.
 
 
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Section 3.11.                        Disbursement of Loans .  The Bank shall make the Loans (including Equipment Loans) available to the Company at the Payment Office by crediting the account of the Company with such amount and in like funds.

Section 3.12.                        Manner of Payment .   The Bank may (but shall not be obligated to debit any deposit account of the Company with the Bank for the amount of any such payment.  The Bank may in its sole discretion directly charge one or more of the Company’s accounts at the Payment Office or other office of the Bank for all interest and principal payments due in respect of the Loans and all fees payable hereunder.  Except as otherwise provided in the definition of “Interest Period”, if any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES
 
In order to induce the Bank to enter into this Agreement and to make the Loans herein provided for, the Company represents and warrants to the Bank that:

Section 4.1.                        Organization, Corporate Powers, etc .   The Company and each Subsidiary (i) is a corporation duly incorporated, or a limited liability company duly formed, validly existing and in good standing under the laws of the state of its incorporation or formation, as applicable, (ii) has the power and authority to own properties and to carry on its business as now being conducted, (iii) is duly qualified to do business in every jurisdiction wherein the conduct of its business or the ownership of its properties are such as to require such qualification, (iv) has the power to execute and perform each of the Loan Documents to which it is a party, (v) with respect to the Company, has the power to borrow hereunder and to execute and deliver the Note, and (vi) is in compliance with all applicable federal, state and local laws, rules and regulations except where the failure to be in compliance could not reasonably be expected to have a Material Adverse Effect.

Section 4.2.                        Authorization of Borrowing, Enforceable Obligations .   The execution, delivery and performance by the Company of this Agreement, and the other Loan Documents to which it is a party, the borrowings by the Company hereunder, and the execution, delivery and performance of each of its Subsidiaries of the Loan Documents to which such Subsidiary is a party, (a) have been duly authorized by all requisite corporate or limited liability company action, as the case may be, (b) will not violate or require any consent under (i) any provision of law applicable to the Company or any of its Subsidiaries, any governmental rule or regulation, or the Certificate of Incorporation, By-laws or other organizational documents, as applicable, of the Company or any of its Subsidiaries, as the case may be, or (ii) any order of any court or other agency of government binding on the Company or any of its Subsidiaries or any indenture, agreement or other instrument to which the Company or any of its Subsidiaries a party, or by which the Company or any of its Subsidiaries or any of its property is bound, and (c) will not be in conflict with, result in a breach of or constitute (with due notice and/or lapse of time) a default under, any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Company or any of its Subsidiaries other than as contemplated by this Agreement or the other Loan Documents.  This Agreement and each other Loan Document to which the Company, and each Guarantor is a party, constitutes a legal, valid and binding obligation of the Company and each Guarantor as the case may be, enforceable against the Company and each Guarantor, as the case may be, in accordance with its terms.
 
 
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Section 4.3.                        Financial Condition .

(a)           The Company has heretofore furnished to the Bank  (i) the audited consolidated and consolidating balance sheet of the Company and its Subsidiaries and the related audited statements of income, retained earnings and cash flow of the Company and its Subsidiaries, audited by MSPC, independent certified accountants for the fiscal year ended December 31, 2010 and (ii) the management-prepared consolidated and consolidating balance sheet of the Company and its Subsidiaries and the related consolidated and consolidated statements of income, retained earnings and cash flow of the Company and its Subsidiaries, for the fiscal quarter ended March 31, 2011.  Such financial statements were prepared in conformity with Generally Accepted Accounting Principles and fairly present the financial position and results of operations of the Company as of the date of such financial statements and for the periods to which they relate and, since the date of such financial statements, no material adverse change in the business, operations, prospects or assets or condition (financial or otherwise) of the Company or any of its Subsidiaries has occurred.  The Company shall deliver to the Bank a certificate by the Chief Financial Officer of the Company to that effect on the Closing Date.  There are no obligations or liabilities contingent or otherwise, of the Company or any of its Subsidiaries which is not reflected on such statements other than obligations incurred in the ordinary course of the Company’s or such Subsidiary’s business since the date of such financial statements.

(b)           The Company and each of its Subsidiaries is Solvent.

Section 4.4.                        Taxes .   All assessed deficiencies resulting from Internal Revenue Service examinations of the federal income tax returns of the Company or any of its Subsidiaries have been discharged or reserved against in accordance with Generally Accepted Accounting Principles.  The Company and each of its Subsidiaries has filed or caused to be filed all federal, state and local tax returns which are required to be filed, and has paid or has caused to be paid all taxes as shown on said returns or on any assessment received by them, to the extent that such taxes have become due, except taxes which are being contested in good faith and which are reserved against in accordance with Generally Accepted Accounting Principles.

Section 4.5.                        Title to Properties .   The Company and each of its Subsidiaries has good and marketable title to their respective properties and assets, except for such properties and assets as have been disposed of since the date of such financial statements as no longer used or useful in the conduct of their respective business or as have been disposed of in the ordinary course of business, and all such properties and assets are free and clear of all Liens, except as permitted by Section 7.1.
 
 
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Section 4.6.                        Litigation .   There are no actions, suits or proceedings (whether or not purportedly on behalf of the Company or any of its Subsidiaries) (other than the Permitted Action) pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries at law or in equity or before or by any Governmental Authority, which involve any of the transactions contemplated herein or which, if adversely determined against the Company or such Subsidiary, could reasonably be expected to result in a Material Adverse Effect; and (b) neither the Company nor any of its Subsidiaries is in default with respect to any judgment, writ, injunction, decree, rule or regulation of any Governmental Authority.  With respect to the Permitted Action only, such action if adversely determined, will not have a material adverse effect on the Company’s ability to operate in the ordinary course of its business or the Company’s ability to perform its obligations hereunder or under any other Loan Document.

Section 4.7.                        Agreements .    Neither the Company nor any of its Subsidiaries is a party to any agreement or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, decree or regulation which could reasonably be expected to have a Material Adverse Effect.  Neither the Company nor any of its Subsidiaries is in default in any manner which could have a Material Adverse Effect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party.

Section 4.8.                        Compliance with ERISA .   Each Plan (if any) is in compliance with ERISA; no Plan is insolvent or in reorganization, no Plan has an Unfunded Current Liability, and no Plan has an accumulated or waived funding deficiency or permitted decreases in its funding standard account within the meaning of Section 412 of the Code; neither the Company nor any ERISA Affiliate nor any of its Subsidiaries has incurred any material liability to or on account of a Plan pursuant to Section 515, 4062, 4063, 4064, 4201 or 4204 of ERISA or expects to incur any liability under any of the foregoing sections on account of the termination of participation in or contributions to any such Plan, no proceedings have been instituted to terminate any Plan, no condition exists which presents a risk to the Company or any of its Subsidiaries of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no lien imposed under the Code or ERISA on the assets of the Company or any of its Subsidiaries exists or is likely to arise on account of any Plan; and the Company, and each of its Subsidiaries may terminate contributions to any other employee benefit plans maintained by them without incurring any material liability to any person interested therein.

Section 4.9.                        Federal Reserve Regulations; Use of Proceeds .

(a)           Neither the Company nor any of its Subsidiaries is engaged principally in, nor has as one of its important activities, the business of extending credit for the purpose of purchasing or carrying any “margin stock” (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System of the United States, as amended to the date hereof).  If requested by the Bank, the Company will, and will cause each of its Subsidiaries to, furnish to the Bank such a statement on Federal Reserve Form U-1.
 
 
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(b)           No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, (i) to purchase or to carry margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock, or to refund indebtedness originally incurred for such purposes, or (ii) for any purpose which violates or is inconsistent with the provisions of the Regulations T, U, or X of the Board of Governors of The Federal Reserve System.

(c)           The proceeds of each Loan shall be used solely for the purposes permitted under Section 3.2.

Section 4.10.                        Approvals .   No registration with or consent or approval of, or other action by, any Governmental Authority or any other Person is required in connection with the execution, delivery and performance of this Agreement by the Company or any of its Subsidiaries, or with the execution and delivery of other Loan Documents to which it is a party or, with respect to the Company, the borrowings hereunder.

Section 4.11.                        Subsidiaries .   Attached hereto as Schedule I is a correct and complete list of all of the Company’s and each Guarantor’s Subsidiaries showing as to each Subsidiary, its name, the jurisdiction of its incorporation, its shareholders or other owners of an interest in each Subsidiary and the number of outstanding shares or other ownership interest owned by each shareholder or other owner of an interest.

Section 4.12.                        Hazardous Materials .   The Company and each of its Subsidiaries are each in compliance with all federal, state or local laws, ordinances, rules, regulations or policies governing Hazardous Materials and (a) neither the Company nor any of its Subsidiaries has used Hazardous Materials on, from, or affecting any property now owned or occupied or hereafter owned or occupied by the Company or any of its Subsidiaries in any manner which violates federal, state or local laws, ordinances, rules, regulations, or policies governing the use, storage, treatment, transportation, manufacture, refinement, handling, production or disposal of Hazardous Materials and (b) to the best knowledge of the Company and each of its Subsidiaries, no prior owner of any such property or any tenant, subtenant, prior tenant or prior subtenant have used Hazardous Materials on, from, or affecting such property in any manner which violates federal, state or local laws, ordinances, rules, regulations, or policies governing the use, storage, treatment, transportation, manufacture, refinement, handling, production or disposal of Hazardous Materials, except where failure to so comply could not reasonably be expected to have a Material Adverse Effect.

Section 4.13.                        Investment Company Act .   Neither the Company nor any of its Subsidiaries is an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.

Section 4.14.                        Security Document .   Each Security Document shall constitute a valid and continuing lien on and security interest in the collateral referred to in such Security Document in favor of the Bank which shall be, upon the filing of the Uniform Commercial Code financing statements delivered on the Closing Date on behalf of the Company and each of its Subsidiaries at the offices in their respective organizational jurisdictions, prior to all other Liens, claims and right of all other Persons, and shall be enforceable as such against all other Persons.
 
 
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Section 4.15.                        No Default or Event of Default .   No event has occurred and is continuing and no condition exists which constitutes a Default or an Event of Default.

Section 4.16.                        Material Contracts .   Each Material Contract of the Company and each of its Subsidiaries (i) is in full force and effect and is binding upon and enforceable against the Company or such Subsidiary, as the case may be, and, to the knowledge of the Company, all other parties thereto in accordance with its terms, and (ii) there exists no default under any Material Contract by the Company or any of its Subsidiaries or, to the knowledge of the Company, by any other party thereto which has not been fully cured or waived.

Section 4.17.                        Permits and Licenses .   Each of the Company and each of its Subsidiaries has all obtained all material licenses, permits, franchises, or other governmental authorizations necessary to the ownership of its property or to the conduct of its activities, and shall obtain all such licenses, permits, franchises, or other governmental authorizations as may be required in the future to the extent that the failure to obtain them would materially and adversely affect the ability of the Company or any of its Subsidiaries to conduct its activities as currently conducted, or in the future may be conducted, or the condition (financial or otherwise) of the Company or any of its Subsidiaries.

Section 4.18.                        Compliance with Law .   The Company and each of its Subsidiaries are each in compliance with all laws, rules, regulations, orders and decrees which are applicable to the Company or any of its Subsidiaries, or to any of their respective properties.

Section 4.19.                        Disclosure .   No representation or warranty of the Company or any of its Subsidiaries contained in this Agreement, any other Loan Document, or any other document, certificate or written statement furnished to the Bank by or on behalf of the Company or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement contains any untrue statement of material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which they were made.

ARTICLE V
CONDITIONS OF LENDING
 
Section 5.1.                        Conditions To Initial Loan and Letters of Credit .   The obligation of the Bank to make the initial Loan and to issue the initial Letter of Credit hereunder is subject to the following conditions precedent:

(a)            Revolving Credit   Note and Term Loan Note .   On or prior to the Closing Date, the Bank shall have received the Revolving Credit Note and the Term Loan Note duly executed by the Company.
 
 
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(b)            Other Loan Documents .   On or prior to the Closing Date, the Bank shall have received the Security Documents duly executed by the Company.

(c)            Supporting Documents .   The Bank shall have received on or prior to the Closing Date (a) a certificate of the Secretary or an Assistant Secretary of the Company dated the Closing Date and certifying (i) that attached thereto is a true and complete copy (including any amendments thereto) of the Certificate of Incorporation and the By-laws or the Articles of Organization and the Operating Agreement, as applicable, of the Company; (ii) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of the Company, authorizing the execution, delivery and performance of this Agreement and of each Loan Document to be delivered on the Closing Date to which it is a party and the borrowings hereunder; and (iii) the incumbency and specimen signature of each officer of the Company executing each Loan Document and any certificates or instruments furnished pursuant hereto or thereto, and a certification by another officer of the Company as to the incumbency and signature of the Secretary or Assistant Secretary of the Company; and (b) such other documents as the Bank may reasonably request.

(d)            Opinion of Counsel .   On the Closing Date, the Bank shall have received a written opinion of counsel for the Company dated the Closing Date and addressed to the Bank substantially in the form of Exhibit G attached hereto.

(e)            No Material Adverse Changes .   There shall not have occurred in the sole opinion of the Bank any material adverse change in the business, operations, performance, properties, prospects or condition, financial or otherwise, of the Company since December 31, 2010.

(f)            Fees .   The Company shall have paid all costs and expenses incurred by the Bank in connection with the negotiation, preparation and execution of the Loan Documents (including, without limitation, the fees and expenses of counsel and fees in connection with the collateral exam referred to in clause (k) below).

(g)            Assets Free from Liens.   Prior to the Closing Date, the Bank shall have received UCC-1 financing statement, tax and judgment lien searches evidencing that the Company’s accounts receivable, inventory, equipment and all other assets of the Company are free and clear of all Liens except Permitted Liens.

(h)            Insurance .  The Bank shall receive, on or prior to the Closing Date, certificates of insurance covering the personal property and the business of the Company (including with respect to general liability and products liability insurance), which certificates shall designate the Bank as a loss payee and additional insured, in form and substance reasonably satisfactory to the Bank together with copies of the related insurance policies with proper endorsements to reflect the Bank’s interests.

(i)            Due Diligence .   The Bank shall have results satisfactory to it of its due diligence checkings with respect the Company, including, without limitation, litigation checkings, customer checkings, bank checkings, judgment, tax and bankruptcy searches, in all jurisdictions deemed necessary by the Bank and its counsel.
 
 
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(j)            Financial Information .   The Bank shall have received and been satisfied with the audited financial statements of the Company and its Subsidiaries for the fiscal year ended December 31, 2010 and the management prepared financial statements for the fiscal quarter ended March 31, 2011.

(k)            Operating Account .   The Company shall have opened and funded an operating account with the Bank.

(l)            Capital One Credit Facility and Capital One Mortgage Facility .   The Bank shall have received concurrently with the extension of the initial Revolving Credit Loan and the Term Loan described herein evidence that the Capital One Credit Facility and the Capital One Mortgage Facility have been paid in full and that Liens granted in connection therewith on all real and personal property have been released.

(m)            Completion of Proceedings .   All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by the Loan Documents shall be satisfactory in form and substance to the Bank and its counsel.

(n)            Other Information, Documentation.   The Bank shall receive such other and further information and documentation as it may require, including, but not limited, to any information or documentation relating to compliance by the Company with the requirements of all federal, state and local laws, ordinances, rules, regulations or policies governing the use, storage, treatment, transportation, refinement, handling, production or disposal of Hazardous Materials.

Section 5.2.                        Conditions to All Loans and all Letters of Credit .   The obligation of the Bank to make each Loan hereunder and to issue, amend, renew or extend any each Letter of Credit hereunder, including, without limitation, the initial Loan and initial Letter of Credit, are further subject to the following conditions precedent:

(a)            Representations and Warranties .   The representations and warranties by the Company and each Guarantor (if any) pursuant to this Agreement and the other Loan Documents to which each is a party shall be true and correct in all material respects on and as of the Borrowing Date or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, with the same effect as though such representations and warranties had been made on and as of such date unless such representation is as of a specific date, in which case, as of such date.

(b)            No Default .   The Company and each Guarantor (if any) shall be in compliance with all the terms and provisions set forth herein or in any other Loan Document on their part to be observed or performed, and no Default or Event of Default shall have occurred and be continuing on the Borrowing Date or on the date of issuance, amendment, renewal or extension of a Letter of Credit or will result after giving effect to the Loan requested or the requested issuance, amendment, renewal or extension of a Letter of Credit.
 
 
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(c)            Notice of Borrowing .   The Bank shall have received, in accordance with Section 2.1 or Section 2.3, as applicable, a Notice of Borrowing duly executed by an Executive Officer of the Company with respect to the requested Loan.

(d)            Letter of Credit Documentation .   With respect to the issuance, amendment, renewal or extension of any Letter of Credit, the Bank shall have received the documents and instruments requested by the Bank in accordance with the last sentence of Section 2.7(a) hereof.

(e)            Notice of Borrowing and Availability.   The Bank shall have received a Notice of Borrowing duly executed by an Executive Officer of the Company with respect to the requested Loan or issuance, amendment, renewal or extension of any Letter of Credit, certifying, among other things, that after giving effect to the requested Revolving Credit Loan or the issuance, amendment, renewal or extension of a Letter of Credit, the Aggregate Outstandings shall not exceed the Revolving Credit Commitment then in effect.

Each borrowing hereunder and each issuance, amendment, renewal or extension of a Letter of Credit shall constitute a representation and warranty of the Companies that the statements contained in clauses (a), (b), (c), (d) and (e) of this Section 5.2 hereof are true and correct on and as of the Borrowing Date or as of the date of issuance, amendment, renewal or extension of a Letter of Credit, as applicable, as though such representation and warranty had been made on and as of such date.

Section 5.3.                        Conditions to Equipment Loans .   The obligation of the Bank to make each Equipment Loan hereunder subject to the conditions precedent set forth in Section 5.1 and 5.2 of this Article V and the following condition precedent:

(a)            Invoices .  The Company shall have delivered to Bank not less than three Business Days prior to the requested Borrowing Date for such Equipment Loan invoices or other applicable documents evidencing the purchase price and full description of the equipment to be purchased with the proceeds of the Equipment Loan.  The Bank may thereafter prepare and file a UCC financing statement describing such equipment, the fees and costs of which shall be paid by the Company.

(b)            Equipment Loan Note .  The Company shall have delivered to Bank a duly executed Equipment Loan Note in the amount of such Equipment Loan to be advanced.

ARTICLE VI
AFFIRMATIVE COVENANTS
 
The Company covenants and agrees with the Bank that so long as any Commitment shall remain in effect or any of the principal of or interest on any Note or any other Obligations hereunder shall be unpaid it will, and will cause each of its Subsidiaries to:
 
 
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Section 6.1.                        Corporate or Limited Liability Company Existence, Properties, etc .   Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate or limited liability company existence, as applicable, rights and franchises and comply with all laws applicable to it; at all times maintain, preserve and protect all franchises and trade names and preserve all of its property used or useful in the conduct of its business and keep the same in good repair, working order and condition, and from time to time make, or cause to be made, all needful and proper repairs, renewals, replacements, betterments and improvements thereto so that the business carried on in connection therewith may be properly and advantageously conducted at all times; at all times keep its insurable properties adequately insured and maintain (i) insurance to such extent and against such risks, including fire, as is customary with companies in the same or similar businesses, (ii) workmen’s compensation insurance in the amount required by applicable law, (iii) public liability insurance, which shall include product liability insurance, in the amount customary with companies in the same or similar business against claims for personal injury or death on properties owned, occupied or controlled by it, (iv) such other insurance as may be required by law or as may be reasonably required by the Bank.  Each such policy of insurance of the Companies shall name the Bank as loss payee and additional insured and shall provide for at least thirty (30) days’ prior written notice to the Bank of any modification or cancellation of such policies.  The Company shall provide to the Bank promptly upon receipt thereof evidence of the annual renewal of each such policy.

Section 6.2.                        Payment of Indebtedness, Taxes, etc .
 
(a)           Pay all indebtedness and obligations, now existing or hereafter arising, as and when due and payable, except where (i) the validity, amount, or timing thereof is being contested in good faith and by appropriate proceedings, which proceedings shall include good faith negotiations, (ii) the Company or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with Generally Accepted Accounting Principles, and (iii) the failure to make such payment pending such contest could not reasonably be expected to have a Material Adverse Effect; provided that the Company and each of its Subsidiaries will pay or cause to be paid all such indebtedness and obligations upon the commencement of proceedings to foreclose any lien which has attached as security therefore or, in the alternative, file a bond or other undertaking sufficient to discharge such lien (with the prior written consent of, and on terms and conditions satisfactory to, the Bank).
 
(b)           Pay and discharge or cause to be paid and discharged promptly all taxes, assessments and government charges or levies imposed upon it or upon its income and profits, or upon any of its property, real, personal or mixed, or upon any part thereof, before the same shall become in default, as well as all lawful claims for labor, materials and supplies or otherwise which, if unpaid, might become a lien or charge upon such properties or any part thereof; provided , however , that neither the Company nor any of its Subsidiaries shall be required to pay and discharge or cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings, and the Company or such Subsidiary, as the case may be, shall have set aside on its books adequate reserves determined in accordance with Generally Accepted Accounting Principles with respect to any such tax, assessment, charge, levy or claim so contested; and further, provided that, subject to the foregoing provisos, the Company and each of its Subsidiaries will pay or cause to be paid all such taxes, assessments, charges, levies or claims upon the commencement of proceedings to foreclose any lien which has attached as security therefore or, in the alternative, file a bond or other undertaking sufficient to discharge such lien (with the prior written consent of, and on terms and conditions satisfactory to, the Bank).
 
 
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Section 6.3.                        Financial Statements, Reports, etc .:  Furnish to the Bank:

(a)           as soon as available and in any event within one hundred twenty (120) days (or such earlier date as may be required by the SEC, from time to time) of the end of the fiscal year of the Company, (i) the audited consolidated and consolidating financial statements of the Company and its Subsidiaries which shall include the consolidated and consolidating balance sheet of the Company and its Subsidiaries as of the end of such fiscal year, together with the consolidated and consolidating statements of income, cash flow and retained earnings for the Company and its Subsidiaries for such fiscal year and as of the end of and for the prior fiscal year, all prepared in accordance with Generally Accepted Accounting Principles consistently applied and setting forth in each case in comparative form the respective figures for the previous fiscal year end, and accompanied by an opinion thereon of independent certified public accountants of recognized standing selected by the Company and satisfactory to the Bank (the “ Auditor ”) which opinion shall not include a going concern explanatory paragraph, or a qualification or exception as to the scope of the audit and (ii) Form 10 K for such fiscal year as filed with the SEC;
 
(b)           as soon as available and in any event within sixty (60) days (or such earlier date as may be required by the SEC, from time to time) after the end of each of the first, second and third quarterly period of each fiscal year of the Company, a copy of (i) the unaudited consolidated and consolidating financial statements of the Company and its Subsidiaries, which shall include the unaudited consolidated and consolidating balance sheet of the Company and its Subsidiaries as of the end of each such quarter, together with the consolidated and consolidating statements of income, cash flow and retained earnings of the Company and its Subsidiaries for each such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all in reasonable detail stating in comparative form the respective figures for the corresponding date and period in the previous fiscal year, all prepared by or under the supervision of the Chief Financial Officer of the Company in accordance with Generally Accepted Accounting Principles applied on a consistent basis and (ii) Form 10 Q for such fiscal quarter as filed with the SEC;
 
(c)           a certificate prepared and signed by the Auditor concurrently with each delivery of the financial statements required by clause (a) above stating that as of the close of the period covered by such financial statements the Company and its Subsidiaries were in compliance with Sections 7.13, and demonstrating in detail the calculations supporting that statement;
 
 
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(d)           a certificate prepared and signed by the Chief Financial Officer with each delivery of financial statements required by clauses (a) and (b) above, as to whether or not, as of the close of such preceding period and at all times during such preceding period, the Company and its Subsidiaries were in compliance with all the provisions in this Agreement, showing computation of financial covenants and quantitative negative covenants, and if the Chief Financial Officer shall have obtained knowledge of any default in such compliance or notice of such default, it shall disclose in such certificate such default or defaults or notice thereof and the nature thereof, whether or not the same shall constitute an Event of Default hereunder;

(e)           at all times indicated in (a) above, a copy of the management letter, if any, prepared by the CPA;

(f)           at all times indicated in (a) and (b) above, a report of the status of the Permitted Action;

(g)           promptly, after filing thereof, copies of all regular and periodic financial information, proxy materials and other information and reports which the Company or any of its Subsidiaries shall file with the SEC;

(h)           promptly after submission to any government or regulatory agency, all documents and information furnished to such government or regulatory agency other than such documents and information prepared in the normal course of business and which would not reasonably be expected to result in any adverse action to be taken by such agency; and

(i)           promptly, from time to time, such other information regarding the operations, business affairs and condition, financial or otherwise, of the Company or any of its Subsidiaries as the Bank may reasonably request.

Section 6.4.                        Access to Premises and Records .   Maintain financial records in accordance with Generally Accepted Accounting Principles and permit representatives of the Bank to have access during normal business hours to the premises of the Company and each of its Subsidiaries upon request, and to examine and make excerpts from the minute books, books of accounts, reports and other records and to discuss the affairs, finances and accounts of the Company and its Subsidiaries with their respective principal officers or with their respective independent accountants and to conduct such field audits (including, without limitation, field audits of the Company’s and each of its Subsidiary’s accounts receivable and their respective books and records and inspection, examination and verification of the collateral for the Loans) at the Company’s expense, as such representatives reasonably deem necessary.

Section 6.5.                        Notice of Adverse Change .   Promptly notify the Bank in writing of (a) any change in the business or the operations which, in the good faith judgment of such officer, could reasonably be expected to have a Material Adverse Effect disclosing the nature thereof, and (b) any information which indicates that any financial statements which are the subject of any representation contained in this Agreement, or which are furnished to the Bank pursuant to this Agreement, fail, in any material respect, to present fairly the financial condition and results of operations purported to be presented therein, disclosing the nature thereof.
 
 
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Section 6.6.                        Notice of Default .   Promptly notify the Bank of any Default or Event of Default which shall have occurred, which notice shall include a written statement as to such occurrence, specifying the nature thereof and the action which is proposed to be taken with respect thereto.

Section 6.7.                        Notice of Litigation .   Give the Bank prompt written notice of any action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency (not previously disclosed to the Bank on or before the Closing Date) which, if adversely determined against the Company or any of its Subsidiaries on the basis of the allegations and information set forth in the complaint or other notice of such action, suit or proceeding, or in the amendments thereof, if any, could reasonably be expected to have a Material Adverse Effect.

Section 6.8.                        ERISA .   Promptly deliver to the Bank a certificate by the Chief Financial Officer of the Company setting forth details as to such occurrence and such action, if any, which the Company, any Subsidiary of the Company or such ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the Company, such Subsidiary, ERISA Affiliate, the PBGC, a Plan participant or the Plan Administrator, with respect thereto:  that a Reportable Event has occurred, that an accumulated funding deficiency has been incurred or an application may be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code with respect to a Plan, that a Plan has been or may be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA, that a Plan has an Unfunded Current Liability giving rise to a lien under ERISA,  that proceedings may be or have been instituted to terminate a Plan, that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan, or that the Company, any Subsidiary of the Company or any ERISA Affiliate will or may incur any liability (including any contingent or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4201 or 4204 of ERISA.  The Company will deliver to the Bank a complete copy of the annual report (Form 5500) of each Plan required to be filed with the Internal Revenue Service.  In addition to any certificates or notices delivered to the Bank pursuant to the first sentence hereof, copies of annual reports and any other notices received by the Company or any Subsidiary of the Company required to be delivered to the Bank hereunder shall be delivered to the Bank no later than 10 days after the later of the date such report or notice has been filed with the Internal Revenue Service or the PBGC, given to Plan participants or received by the Company or any Subsidiary of the Company.

Section 6.9.                        Compliance with Applicable Laws .   Comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority.

Section 6.10.                      Subsidiaries .   Give the Bank prompt written notice of the creation, establishment or acquisition, in any manner, of any Subsidiary not existing as a Subsidiary on the Closing Date.  The Company or any Subsidiary of the Company, as appropriate, (a) shall cause each Subsidiary of such Person to execute a joinder agreement with respect to the Guaranty and the Security Agreement, pursuant to which such Subsidiary becomes a “Guarantor” and “Grantor” under the Guaranty and the Security Agreement, respectively, (b) shall deliver an Opinion of Counsel, substantially in the form of Exhibit G hereto, with respect to such new Subsidiary, within ten (10) Business Days after the creation, establishment or acquisition of such Subsidiary and in connection therewith shall deliver or cause to be delivered such proof of corporate action, incumbency of officers and other documents as are consistent with those delivered as to each Subsidiary pursuant to Section 5.1 hereof on the Closing Date, or as the Bank may request, each in form and substance satisfactory to the Bank.
 
 
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Section 6.11.                        Default in Other Agreements .   Promptly notify the Bank of any default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which the Company or any Subsidiary of the Company is a party which could reasonably be expected to have a Material Adverse Effect.

Section 6.12.                        Environmental Laws .

(a)           Comply with and ensure compliance by all tenants and subtenants of their respective properties with the requirements of all federal, state and local laws, ordinances, rules, regulations or policies governing the use, storage, treatment, transportation, manufacture, refinement, handling, production or disposal of Hazardous Materials, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect, provide to the Bank all documentation in connection with such compliance that the Bank may reasonably request, and defend, indemnify, and hold harmless the Bank, its employees, agents, officers, and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs, or expenses of whatever kind of nature, known or unknown, contingent or otherwise, arising out of, or in any way related to, (i) the presence, disposal, release, or threatened release of any Hazardous Materials on any property at any time owned or occupied by the Company or any Subsidiary of the Company; (ii) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Materials; (iii) any lawsuit brought or threatened, settlement reached, or government order relating to such Hazardous Materials, and/or (iv) any violation of laws, orders, regulations, requirements, or demands of government authorities, or any policies or requirements of the Bank, which are based upon or in any way related to such Hazardous Materials including, without limitation, reasonable attorney fees and consultant fees, investigation and laboratory fees, court costs, and litigation expenses.

(b)           Execute and cause each of its Subsidiaries to execute any and all documentation with respect to environmental matters as the Bank may request and such documentation shall be in form and substance satisfactory to the Bank.

Section 6.13.                        Operating Accounts .   Maintain its primary operating account at, and majority of cash balances with, the Bank, including cash management services.

Section 6.14.                        Further Assurances .   Upon the request of the Bank from time to time, the Company and its Subsidiaries shall, at their expense, duly execute and deliver, or cause to be duly executed and delivered, such further agreements, documents and instruments, and do or cause to be done such further acts as may be reasonably necessary or proper to evidence, perfect, maintain and enforce the security interests and the priority thereof in the Collateral (as defined in the Security Agreement) and to otherwise effectuate the provisions or purposes of this Agreement or any of the other Loan Documents.

 
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ARTICLE VII
NEGATIVE COVENANTS
 
The Company covenants and agrees with the Bank that so long as any Commitment shall remain in effect or any of the principal of or interest on the Note or any other Obligations hereunder shall be unpaid, it will not, and will not cause or permit any of its Subsidiaries, directly or indirectly, to:

Section 7.1.                        Liens .              Incur, create, assume or suffer to exist any Lien on any of their respective assets now or hereafter owned, other than:
 
(a)           Liens existing on the date hereof as set forth on Schedule II attached hereto but not any renewals or extensions thereof;
 
(b)           deposits under workmen’s compensation, unemployment insurance and social security laws;
 
(c)           Liens for taxes, assessments, fees or other governmental charges or the claims of material men, mechanics, carriers, warehousemen, landlords and other similar persons, the payment of which is not overdue or is being contested in good faith by appropriate proceedings (provided that the Company or such Subsidiary of the Company has set aside on its books adequate reserves with respect thereto in accordance with GAAP (if any are so required), consistently applied, and the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect;
 
(d)           purchase money Liens for fixed or capital assets; provided, in each case, (x) no Default or Event of Default shall have occurred and be continuing or shall occur as a result of the grant of the proposed Lien, and (y) such purchase money Lien does not exceed 100% of the purchase price and encumbers only the property being acquired;
 
(e)           Liens granted to the Bank and any of its Affiliates, including renewals and extensions thereof.

Section 7.2.                        Indebtedness .   Incur, create, assume or suffer to exist or otherwise become liable with respect to any Indebtedness, other than:

(a)           Indebtedness incurred prior to the date hereof as described in Schedule III attached hereto but not including any renewals or extensions thereof;
 
 
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(b)           Indebtedness to the Bank and any of its Affiliates, including renewals and extensions thereof;

(c)           Indebtedness for trade payables incurred in the ordinary course of business provided such payables shall be paid or discharged when due;

(d)           taxes, assessments or other governmental charges or levies not yet delinquent or which are being contested in good faith by appropriate proceedings; provided, however, that adequate reserves with respect thereto are maintained on the books of the Company or any Subsidiary of the Company in accordance with Generally Accepted Accounting Principles;
 
(e)           Indebtedness secured by purchase money liens as permitted under Section 7.1(d); and

(f)           Indebtedness of the Company to any Subsidiary of the Company, or any such Subsidiary or to any other Subsidiary of the Company.

Section 7.3.                        Guaranties .    Guarantee, endorse, become surety for, or otherwise in any way become or be responsible for the Indebtedness or obligations of any Person, whether by agreement to maintain working capital or equity capital or otherwise maintain the net worth or solvency of any Person or by agreement to purchase the Indebtedness of any other Person, or agreement for the furnishing of funds, directly or indirectly, through the purchase of goods, supplies or services for the purpose of discharging the Indebtedness of any other Person or otherwise, or enter into or be a party to any contract for the purchase of merchandise, materials, supplies or other property if such contract provides that payment for such merchandise, materials, supplies or other property shall be made regardless of whether delivery of such merchandise, supplies or other property is ever made or tendered except:

(a)           guaranties executed prior to the date hereof as described on Schedule IV attached hereto but not including any renewals or extension thereof;

(b)           endorsements of negotiable instruments for collection or deposit in the ordinary course of business; and

(c)           guaranties of any Indebtedness under this Agreement or any other Indebtedness owing to the Bank or any of its Affiliates, including renewals and extensions thereof.

Section 7.4.                        Sale of Assets .   Sell, assign, lease, transfer or otherwise dispose of any of their now owned or hereafter acquired respective properties and assets, whether or not pursuant to an order of a federal agency or commission, except for (i) the sale of inventory disposed of in the ordinary course of business and (ii) the sale or other disposition of properties or assets no longer used or useful in the conduct of their respective businesses.
 
 
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Section 7.5.                        Sales of Notes .   Sell, transfer, discount or otherwise dispose of notes, accounts receivable or other obligations owing to the Company or any of its Subsidiaries, with or without recourse, except for collection in the ordinary course of business.

Section 7.6.                        Loans and Investments .   Make or commit to make any advance, loan, extension of credit, or capital contribution to or purchase or hold beneficially any stock or other securities, or evidence of Indebtedness of, purchase or acquire all or a substantial part of the assets of, make or permit to exist any interest whatsoever in, any other Person, provided that (x) the Company may, with the prior written consent of the Bank, enter into an acquisition (whether by merger or otherwise) of more than 50% of the outstanding capital stock, membership interests, partnership interests or other similar ownership interests of a Person which is engaged in a line of business similar to the business of the Company (or reasonable extensions thereof) or the purchase of all or substantially all of the assets owned by such Person, (y) the Company may make investments in Joint Ventures engaged in a business conducted by Company and having an aggregate value, when taken together with all other such investments made pursuant to this subclause (y), in an aggregate amount not to exceed at any time $2,500,000 and (z) the Company and each of its Subsidiaries may invest in:

(a)           direct obligations of the United States of America or any governmental agency thereof, provided that such obligations mature within one year from the date of acquisition thereof;

(b)           dollar denominated certificates of time deposit maturing within one year issued by any commercial bank organized and existing under the laws of the United States or any state thereof and having aggregate capital and surplus in excess of $1,000,000,000;

(c)           money market mutual funds having assets in excess of $2,500,000,000; or

(d)           commercial paper rated not less an P-1 or A-1 or their equivalent by Moody’s Investor Services, Inc. or Standard & Poor’s Rating Group, respectively.

Section 7.7.                        Nature of Business .   Change or alter the nature of its business, in any material respect, from the nature of the business engaged in by it on the date hereof.

Section 7.8.                        Sale and Leaseback .   Enter into any arrangement, directly or indirectly, with any Person whereby it shall sell or transfer any property in which the Bank has been granted a security interest, whether real or personal, used or useful in its business, whether now owned or hereafter acquired, if at the time of such sale or disposition it intends to lease or otherwise acquire the right to use or possess (except by purchase) such property or like property for a substantially similar purpose.

Section 7.9.                        Federal Reserve Regulations .   Permit any Loan or the proceeds of any Loan to be used for any purpose which violates or is inconsistent with the provisions of Regulations T, U or X of the Board of Governors of the Federal Reserve System.
 
 
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Section 7.10.                        Accounting Policies and Procedures; Tax Status .   (i) Permit any change in the accounting policies and procedures  the Company or any of its Subsidiaries, including a change in fiscal year, without the prior written consent of the Bank; provided, however, that any policy or procedure required to be changed by the FASB (or other board or committee of the FASB in order to comply with Generally Accepted Accounting Principles) may be so changed, or (ii) permit any change or take any action to change its tax status under the Code of the Company or any of its Subsidiaries.

Section 7.11.                        Hazardous Materials .   Cause or permit any of its properties or assets to be used to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process Hazardous Materials, except in compliance with all applicable federal, state and local laws or regulations, or cause or permit, as a result of any intentional or negligent act or omission on the part of the Company, any of its Subsidiaries or any tenant or subtenant, a release of Hazardous Materials in violation of applicable law or regulation onto such property or asset or onto any other property.

Section 7.12.                        Limitations on Fundamental Changes .   Merge or consolidate with, or sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now or hereafter acquired) to any Person, or, subject to Section 7.6 hereof, acquire all or substantially all of the assets or the business of any Person or liquidate, wind up or dissolve or suffer any liquidation or dissolution.

Section 7.13.                        Financial Covenants .

(a)            Minimum Tangible Net Worth .  Permit Tangible Net Worth to be less than $10,000,000, as determined at the end of each fiscal quarter of the Company.
 
(b)            Fixed Charge Coverage Ratio . Permit the Fixed Charge Coverage Ratio to be less than 1.20:1.00 as determined at the end of each fiscal quarter of the Company.
 
(c)            Leverage Ratio .   Permit the Leverage Ratio to be more than 1.50:1.00, as determined at the end of each fiscal quarter of the Company.
 
(d)            Working Capital .   Permit Working Capital to be less than $7,000,000, as determined at the end of each fiscal quarter of the Company.

Section 7.14.                        Subordinated Debt .   Directly or indirectly prepay, defease, purchase, redeem, or otherwise acquire any Subordinated Debt or amend or modify any of the terms thereof.

Section 7.15.                        Dividends .   If (a) any Default or Event of Default has occurred and is then continuing or would occur as a result thereof, declare any dividend on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of stock of the Company or any of its Subsidiaries, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash, securities or property or in obligations of the Company or any of its Subsidiaries or in any combination thereof, or (b) a Change of Control would occur, permit any Affiliate to make any payment on account of, or purchase or otherwise acquire, any shares of any class of the stock of the Company or any of its Subsidiaries from any Person.
 
 
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Section 7.16.                        Transactions with Affiliates .   Enter into any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of the Company’s or any of its Subsidiaries’ business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary then they would obtain in a comparable arms-length transaction with a Person not an Affiliate.

Section 7.17.                        Impairment of Security Interest .   Take or omit to take any action which might or would have the result of effecting or impairing the security interest in any property subject to a security interest in favor of the Bank and neither the Company nor any of its Subsidiaries shall grant to any person any interest whatsoever in any property subject to a security interest in favor of the Bank.

Section 7.18.                        Inactive Subsidiary.   Permit CVD Materials Corporation, a New York corporation, to conduct any business or to have assets in excess of $10,000 without the prior written consent of the Bank and compliance with the provisions of Section 6.10 hereof.

ARTICLE VIII
EVENTS OF DEFAULT
 
Section 8.1.                        Events of Default .   In the case of the happening of any of the following events (each an “Event of Default”):

(a)           failure by the Company to pay the principal of or any interest on any Loan as and when due and payable, any reimbursement obligations with respect to a drawing under any Letter of Credit, or any fees or other amounts payable under this Agreement or any other Loan Documents;

(b)           default shall be made in the due observance or performance any covenant, condition or agreement of the Company to be performed pursuant to this Agreement or of the Company or any of its Subsidiaries to be performed pursuant to any other Loan Document (other than those specified in clause (a) of this Section 8.1;

(c)           any representation or warranty made or deemed made in this Agreement or any other Loan Document shall prove to be false or misleading in any material respect when made or given or when deemed made or given;

(d)           any report, certificate, financial statement or other instrument furnished in connection with this Agreement or any other Loan Document or the borrowings hereunder, shall prove to be false or misleading in any material respect when made or given or when deemed made or given;
 
 
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(e)           (i) default in the performance or compliance in respect of any agreement or condition relating to (x) any other Indebtedness of the Company or any of its Subsidiaries in excess of $100,000 (other than as described in clause (y) below), individually or in the aggregate, if the effect of such default is to accelerate the maturity of such Indebtedness or to permit the holder or obligee thereof (or a trustee on behalf of such holder or obligee) to cause such Indebtedness to become due prior to the stated maturity thereof or (y) any Indebtedness of the Company or any of its Subsidiaries owing to the Bank or any Bank Affiliate (other than the Note) or (ii) any Indebtedness in excess of $100,000, individually or in the aggregate, shall not be paid when due (beyond any applicable grace period and subject to Section 6.2 hereof);

(f)           the Company or any of its Subsidiaries shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code or any other federal or state bankruptcy, insolvency or similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the employment of a receiver, trustee, custodian, sequestrator or similar official for the Company or any of its Subsidiaries or for a substantial part of its property; (iv) file an answer admitting the material allegations of a petition filed against it in such proceeding, (v) make a general assignment for the benefit of creditors, (vi) take corporate action for the purpose of effecting any of the foregoing, (vii) become unable or admit in writing its inability or fail generally to pay its debts as they become due or (viii) take corporate action for the purpose of effecting any of the foregoing;

(g)           an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Company or any of its Subsidiaries or of a substantial part of their respective property, under Title 11 of the United States Code or any other federal or state bankruptcy insolvency or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official for the Company or any of its Subsidiaries or for a substantial part of their property, or (iii) the winding-up or liquidation of the Company or any of its Subsidiaries and such proceeding or petition shall continue undismissed for 30 days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for 30 days;

(h)           One or more orders, judgments or decrees for the payment of money in excess of $100,000 in the aggregate shall be rendered against the Company or any of its Subsidiaries and the same shall not have been paid in accordance with such judgment, order or decree and either (i) an enforcement proceeding shall have been commenced by any creditor upon such judgment, order or decree, or (ii) there shall have been a period of thirty (30) days during which a stay of enforcement of such judgment order or decree, by reason of pending appeal or otherwise, was not in effect;

(i)           any Plan shall fail to maintain the minimum funding standard required for any Plan year or part thereof or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code, any Plan is, shall have been terminated or the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, a Reportable Event shall have occurred with respect to a Plan or the Company, any of its Subsidiaries, or any ERISA Affiliate shall have incurred a liability to or on account of a Plan under Section 515, 4062, 4063, 4063, 4201 or 4204 of ERISA, and there shall result from any such event or events the imposition of a lien upon the assets of the Company or any of its Subsidiaries, the granting of a security interest, or a liability to the PBGC or a Plan or a trustee appointed under ERISA or a penalty under Section 4971 of the Code;
 
 
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(j)           any Loan Document or any provision thereof shall for any reason cease to be in full force and effect in accordance with its terms (other than, with respect to any Note, the indefeasible payment in full and termination thereof) or the Company or any of its Subsidiaries shall so assert in writing;

(k)           a Change of Control shall have occurred;

(l)           any of the Liens purported to be granted pursuant to any Security Document shall cease for any reason to be legal, valid and enforceable liens on the collateral purported to be covered thereby or shall cease to have the priority purported to be created thereby, unless such Lien has been released by the Bank in accordance with the terms and conditions hereof; or

then, at any time thereafter during the continuance of any such event, the Bank may, in its sole discretion, without notice to the Company or any of its Subsidiaries, take any or all of the following actions, at the same or different times, (x) (a) terminate the Commitments and the Loans and (b) declare (i) the Notes, both as to principal and interest, (ii) an amount equal to the maximum amount that may be drawn under all Letters of Credit then outstanding (whether or not any beneficiary under any Letter of Credit shall have presented or be entitled to present the drafts and other documents required to draw under such Letter of Credit), and (iii) all other Obligations, to be forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the Note to the contrary notwithstanding and (y) exercise any or all of the rights and remedies afforded to the Bank by the Uniform Commercial Code or otherwise possessed by the Bank; provided , however, that if an event specified in Section 8.1(f) or (g) shall have occurred, the Commitments and the Loans shall automatically terminate and interest, principal and amounts referred to in the preceding clauses (i), (ii), and (iii) shall be immediately due and payable without presentment, demand, protest, or other notice of any kind, all of which are expressly waived, anything contained herein or in the Note to the contrary notwithstanding.  With respect to all Letters of Credit that shall not have matured or presentment for honor shall not have occurred, the Company shall provide the Bank with Cash Collateral in an amount equal to the aggregate undrawn amount of the Letters of Credit.  Such Cash Collateral shall be applied by the Bank to reimburse it for drawings under Letters of Credit for which the it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Company at such time or, if the maturity of the Loans has been accelerated, be applied to satisfy other Obligations.

 
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ARTICLE IX
MISCELLANEOUS
 
Section 9.1.                        Notices .   Any notice shall be in writing and shall be conclusively deemed to have been received by a party hereto and to be effective on the day on which delivered to such party at the address set forth below, or, in the case of telecopy notice, when acknowledged as received, or if sent by registered or certified mail, on the third Business Day after the day on which mailed in the United States, addressed to such party at said address:

(a)           if to the Bank, at

HSBC Bank USA, National Association
534 Broad Hollow Road
Melville, New York 11747
Attention:  Robert Caruana, Vice President
Telecopy:   (631) 452-4340

With copies to:

Farrell Fritz, P.C.
1320 RXR Plaza
Uniondale, New York 11556-1320
Attention:   Robert C. Creighton
Telecopy:    (516) 227-0777

(b)           if to the Company, at

CVD Equipment Corporation
1860 Smithtown Avenue
Ronkonkoma, New York 11779
Attention:    Glen Charles, CFO
Telecopy:     (631) 981-7081

With copies to :

CVD Equipment Corporation
1860 Smithtown Avenue
Ronkonkoma, New York 11779
Attention:    Martin J. Teitelbaum, Esq.
Telecopy:     (631) 981-7081

- and -

(c)           as to each such party at such other address as such party shall have designated to the other in a written notice complying as to delivery with the provisions of this Section 9.1.
 
 
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Section 9.2.                        Effectiveness; Survival of Agreement .   This Agreement shall become effective on the date on which all parties hereto shall have signed a counterpart copy hereof and shall have delivered the same to the Bank.  All covenants, agreements, representations and warranties made herein and in the other Loan Documents and in the certificates delivered pursuant hereto or thereto shall survive the making by the Bank of the Loans herein contemplated and the execution and delivery to the Bank of the Notes evidencing the Loans and shall continue in full force and effect so long as any Note is outstanding and unpaid.  Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Company and its Subsidiaries which are contained in this Agreement shall bind and inure to the benefit of the respective successors and assigns of the Bank.  The Company may not assign or transfer any of its interest under this Agreement, the Notes or any other Loan Document without the prior written consent of the Bank.  The obligations of the Company pursuant to Section 3.7, Section 3.8, Section 3.9, Section 9.3 and Section 9.11 shall survive termination of this Agreement and payment of the Obligations.

Section 9.3.                        Expenses of the Bank .   The Company agrees (i) to indemnify, defend and hold harmless the Bank and its officers, directors, employees, agents, advisors and affiliates (each, an “indemnified person”) from and against any and all losses, claims, damages, liabilities or judgments to which any such indemnified person may be subject and arising out of or in connection with the Loan Documents, the financings contemplated hereby, the use of any proceeds of such financings or any related transaction or any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any of such indemnified persons is a party thereto, and to reimburse each of such indemnified persons upon demand for any expenses, including reasonable legal fees, incurred in connection with the investigation or defending any of the foregoing; provided that the foregoing indemnity will not, as to any indemnified person, apply to losses, claims, damages, liabilities, judgments or related expenses to the extent arising from the willful misconduct or gross negligence of such indemnified person; and (ii) to reimburse the Bank from time to time, upon demand, all out-of-pocket expenses (including reasonable expenses of its due diligence investigation, along with disbursements and reasonable fees of counsel and the allocated costs of internal counsel) incurred in connection with the financings contemplated under this Agreement, the preparation, execution and delivery of this  Agreement and the other Loan Documents, any amendments and waivers hereof or thereof, the security arrangements contemplated thereby and the enforcement thereof.  The provisions of this Section 9.3 shall survive termination of this Agreement.

Section 9.4.                        No Waiver of Rights by the Bank .   Neither any failure nor any delay on the part of the Bank in exercising any right, power or privilege hereunder or under the Notes or any other Loan Document shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any other right, power or privilege.

Section 9.5.                        Applicable Law .  THIS AGREEMENT AND THE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
 
 
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Section 9.6.                        Submission to Jurisdiction; Jury Waiver .  THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT IN THE STATE OF NEW YORK, COUNTY OF NEW YORK, COUNTY OF NASSAU AND COUNTY OF SUFFOLK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO HEREIN OR THEREIN WHERE THE SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS.  TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY AGREES NOT TO (i) SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT AND (ii) ASSERT ANY COUNTERCLAIM IN ANY SUCH SUIT, ACTION OR PROCEEDING UNLESS SUCH COUNTERCLAIM CONSTITUTES A COMPULSORY OR MANDATORY COUNTERCLAIM UNDER APPLICABLE RULES OF CIVIL PROCEDURE.  THE COMPANY AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS AGREEMENT OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK.  EACH PARTY HERETO WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT.

Section 9.7.                        Extension of Maturity .   Except as otherwise expressly provided herein, whenever a payment to be made hereunder shall fall due and payable on any day other than a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall be included in computing interest.

Section 9.8.                        Modification of Agreement .   No modification, amendment or waiver of any provision of this Agreement, any Note or any other Loan Document, nor consent to any departure by the Company or any of its Subsidiaries therefrom shall in any event be effective unless the same shall be in writing and signed by the Bank and the Company or such Subsidiary, as the case may be, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in the same, similar or other circumstance unless required by the terms of this Agreement.
 
 
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Section 9.9.                        Severability .   In case any one or more of the provisions contained in this Agreement, any Note or in any other Loan Document should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby.

Section 9.10.                        Sale of Participations; Assignments .   The Bank reserves the right to sell participations in or to sell and assign its rights, duties or obligations with respect to the Loans to such banks, lending institutions or other parties as it may choose and without the consent of the Company, provided that the Bank shall notify the Company promptly following such participation or assignment.  The Bank may furnish any information concerning the Company or any of its Subsidiaries in its possession from time to time to any assignee or participant (or proposed assignee or participant), provided that the Bank shall notify any such assignee or participant (or proposed assignee or participant) in connection with any contemplated participation in, or assignment of, the Loans, that such information may be confidential and that such transferee or participant shall treat such information as such.

Section 9.11.