Loan Agreement Documents

EXHIBIT 10.1


SECURED REVOLVING LOAN NOTE


$8,000,000.00

__________________, 2008

Iselin, New Jersey


Upon the earlier of (a) three (3) years from the date hereof, or (b) in accordance with a certain Revolving Loan and Security Agreement of even date herewith, or as it may be subsequently amended, signed by the undersigned as "Borrower" ("Loan Agreement") FOR VALUE RECEIVED , the undersigned "Borrower" jointly and severally promises to pay to the order of SOVEREIGN BANK (the "Lender"), at 101 Wood Avenue South, 6th Floor, Iselin, New Jersey 08830, the principal sum of Eight Million 00/100 ($8,000,000.00) Dollars or the amount actually advanced pursuant to the Loan Agreement.


This Secured Revolving Loan Note (" Note" ) bears interest during each calendar month from the date hereof until paid, at an interest rate per annum as set forth in the Loan Agreement Interest is to be paid at time intervals as set forth in the Loan Agreement. In no event is the interest rate to be higher than the maximum lawful rate. Interest is calculated on a daily basis upon the unpaid balance based upon the actual number of days elapsed, with each date representing 1/360th of a year.


All payments on this Note shall be made in immediately available lawful money of the United States by direct charge to Borrower's deposit accounts with Lender. In addition to the provision above for direct charge of payments due, Lender is hereby authorized, at its sole and absolute discretion, to debit any other of the Borrower's accounts for payments due. This authorization does not affect the Borrower's 's obligations to pay when due all amounts payable under this Note, whether or not there are sufficient funds therefor in such accounts. The foregoing authorization is in addition to, and not in limitation of, any rights of setoff.


Upon the earlier of Default (as defined in the Loan Agreement) or maturity of this Note, the Borrower's right to select pricing options ceases (if applicable) and the unpaid principal of all unpaid advances and amounts due pursuant to this Note bears interest at a rate which is two (2) percentage points per annum greater than that which would otherwise be applicable ("Default Rate"). Borrower acknowledges that: (i) such additional rate is a material inducement to Lender to make the loans; (ii) Lender would not have made the loans in the absence of the agreement of the Borrower to pay such default rate; (iii) such additional rate represents compensation for increased risk to Lender that the loans will not be repaid; and (iv) such rate is not a penalty and represents a reasonable estimate of (a) the cost to Lender in allocating its resources (both personnel and financial) to the ongoing review, monitoring, administration and collection of the loans and (b) compensation to Lender for losses that are difficult to ascertain.


If a regularly scheduled payment is fifteen (15) days or more late, the Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment or $10.00, whichever is greater. Upon Default, the Borrower will be charged either 5.000% of the unpaid principal plus accrued unpaid interest or $10.00, whichever is greater. Any such late charge assessed is immediately due and payable. Any payment received after 3:00 P.M. on a banking day is deemed received on the next succeeding banking day.


This Note is secured by such Collateral defined in the Loan Agreement. Capitalized terms in this Note have the meaning set forth in the Loan Agreement. All terms of the Loan Agreement are incorporated herein by reference. In the event of ambiguity or inconsistency between the terms of the Loan Agreement and the terms hereof, the terms of the Loan Agreement prevail.


Except as otherwise specified herein, each payment made under this Note is to be applied first to the payment of accrued interest, then to any expenses or charges payable hereunder, and the balance applied to principal amounts due under this Note.


The undersigned hereby waives demand, notice of non-payment, protest, and all other notices or demands whatsoever, and hereby consents that without notice to and without releasing the liability of any party, the obligations evidenced by this Note or the Loan Agreement may from time to time, in whole or part, be renewed, extended, modified, accelerated, compromised, settled or released by Lender.


Lender's books and records are prima facie evidence of the amount of the obligations and are binding upon Borrower.


Lender is hereby authorized to fill in any blank spaces in this Note and to date this Note as of the applicable date and to correct patent errors herein.


This Note has been executed and delivered in New Jersey and is deemed a contract made under New Jersey law.


BORROWER HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY LITIGATION RELATING TO THIS NOTE OR RELATED DOCUMENTS AS AN INDUCEMENT TO THE ACCEPTANCE BY LENDER OF THIS NOTE.


Attest/Witness:

MEDIA SCIENCES

INTERNATIONAL, INC.


By:

Print Name:

Print Name:

Title:


Attest/Witness:

MEDIA SCIENCES, INC.


By:

Print Name:

Print Name:

Title:


Attest/Witness:

CADAPULT GRAPHIC SYSTEMS, INC.


By:

Print Name:

Print Name:

Title:


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REVOLVING LOAN AND SECURITY AGREEMENT


This Revolving Loan and Security Agreement ("Agreement") among SOVEREIGN BANK, a federal savings bank, having an address of 101 Wood Avenue South, Iselin NJ 08830 ( "Lender" ), MEDIA SCIENCES INTERNATIONAL, INC., a Delaware corporation and MEDIA SCIENCES, INC. a New Jersey corporation, and CADAPULT GRAPHIC SYSTEMS, INC ., a New Jersey corporation, having their chief executive office at 8 Allerman Road, Oakland NJ 07436 (either separately, jointly, or jointly and severally, "Borrower ") is effective on ________________ , 2008 .


STATEMENTS


A.

The Borrower has requested financial accommodation(s) from Lender.


B. Lender is willing to render the requested financial accommodation(s) to the Borrower in connection with the Borrower's business and on certain terms and conditions.


C. To secure the financial accommodation(s), the Borrower is willing, among other things, to grant a first priority security interest to Lender in certain assets of the Borrower.


NOW, THEREFORE , in consideration of the promises, covenants and understandings set forth in this Agreement and the benefits to be received from the performance of such promises, covenants and understandings, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:


DEFINITIONS


"Accounts" - as defined in Exhibit A


"Advance Limit " - as defined in Section 1.1(b)


"Affiliate" - as defined in Section 7.12


"Chattel Paper" - as defined in Exhibit A


"Collateral"

- as defined in Article 4


"Commercial Tort Claims" - as defined in Exhibit A


"Compliance Certificate" - as defined in Section 6.7(a)


"Debt" - as defined in Article 3


"Default" - as defined in Section 9.1


"Default Period" as defined in Section 1.3(d)


"Delivered Financials" - as defined in Section 5.4(a)


"Deposit Accounts" - as defined in Exhibit A


"EBITDA" - as defined in Section 7.16


"Environmental Laws" - as defined in Section 5.15(c)


"Equipment" - as defined in Exhibit A


"ERISA" - as defined in Section 5.10


"Fixed Charge" as defined in Section 7.16


"GAAP" - as defined in Section 5.4(a)


"General Intangibles" - as defined in Exhibit A


"Goods" - as defined in Exhibit A


"Instruments" - as defined in Exhibit A


"Inventory" - as defined in Exhibit A


"Investment Property" - as defined in Exhibit A


"Letter of Credit Rights" - as defined in Exhibit A


"Libor Rate" - as defined in Section 1.4(a)


"Net Value of Qualified In-Transit Inventory" - as defined in Section 1.1(g)


"Net Value of Qualified Inventory" - as defined in Section 1.1(e)


"Note" - as defined in Section 1.3(c)


"Operating Documents" - as defined in Section 5.1(c)


"OSHA" - as defined in Section 5.11


"Participant" - as defined in Section 2.4(b)


"Plan" - as defined in Section 5.10


"Prime Rate" - as defined in Section 1.3(e)


"Qualified Accounts " - as defined in Section 1.1(c)


"Qualified Inventory" - as defined in Section 1.1(d)


"Revolving Loan" - as defined in Section 1.1(a)


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"Roll Over Date" as defined in Section 1.4(f)


"Re-Set Date" - as defined in Section 1.4(e)


"Tangible Net Worth" - as defined in Section 7.15


AGREEMENTS


ARTICLE 1. THE REVOLVING LOAN


Section 1.1 The Revolving Loan


1.1(a) Lender agrees to provide, subject to the terms and conditions of this Agreement, at one time or from time to time, at the request of the Borrower, revolving loans to the Borrower in an aggregate amount up to but not in excess of the Borrower's Advance Limit on a revolving loan basis which may be repaid and re-borrowed (the " Revolving Loan") during the term of this Agreement. The unpaid balance of principal and interest of the Revolving Loan is to be payable in full on the earlier of (i) three years from the date of execution of this Agreement, (ii) as provided in Article 14 of this Agreement or (iii) upon a Default as provided in this Agreement. Borrower has the option to designate either the initial advance of One Million Five Hundred Thousand ($1,500,000.00) Dollars, or any other advances in multiples of Five Hundred Thousand ($500,000.00) Dollars, (provided that the total of the aggregate of the advances designated as a term loan does not exceed Three Million ($3,000,000.00) Dollars) of the amounts otherwise available to be advanced to the Borrower on account of the Revolving Loan as non-amortizing term loans (but subject to the prepayment provisions of the preceding sentence and such further terms and conditions that Lender may prescribe in its discretion) and provided that Borrower executes such further documents as Lender may require in connection therewith. Notwithstanding such option, any such amounts designated as a term loan are to be treated as subject to the Advance Limit and part of the Debt.


1.1(b) The term "Advance Limit" means the loans or advances which Lender may make to the Borrower pursuant to this Agreement which are not in the aggregate at any time outstanding to exceed the lesser of Eight Million ($8,000,000.00) Dollars or the sum of (A), (B) and (C) below:


(A) Eighty-five (85%) percent of the face amount of the Borrower's "Qualified Accounts" as that term is defined in this Agreement; plus


(B) up to the lesser of (i) $3,000,000.00, or (ii) fifty (50%) percent of the "Net Value of Qualified Inventory" as that term is defined in this Agreement, with a sub-limit not to exceed the lesser of $1,000,000.00 or the sum of (x) the full unpaid and outstanding balance of any standby letters of credit or bankers acceptances which Lender in its sole and absolute discretion may issue on account of the Borrower plus (y) fifty (50%) percent of the unpaid and outstanding balance of any documentary letters of credit issued on account of the Borrower for the purchase of Inventory in the ordinary course of business which Lender in its sole and absolute discretion may issue on account of the Borrower, with a further sub-limit not to exceed $250,000.00 of the " Net Value of Qualified In-Transit Inventory" as that term is defined in this Agreement, or (iii) the maximum amount available to be loaned or advanced pursuant to Section 1.1(b)(A); less


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(C) any reserves established by Lender pursuant to Section 1.1(b) hereof.


1.1(c) The term "Qualified Accounts" means the "Accounts" (as that term is defined on Exhibit A annexed hereto) as to which the Borrower has furnished to Lender adequate written information at such times and in such form as has been or, from time to time, may be requested by Lender, which, taken selectively or as a whole, meet all of the herein criteria until collected, are not unpaid for more than ninety (90) days from the original date of invoice, which are in all other respects acceptable to Lender in its reasonable discretion, and specifically exclude the following:


(A) Accounts with respect to which the account debtor is an officer, director, employee, subsidiary or agent of the Borrower or an Affiliate thereof;


(B) Accounts with respect to which goods are placed on consignment, guaranteed sale, bill-and-hold, repurchase or return, or other terms by reason of which the payment by the account debtor may be conditional;


(C) Accounts arising from progress billings, invoices for deposits and rebills of amounts previously credited to the extent of credits issued more than fifteen (15) days prior to such rebill (unless such rebill is dated as of original invoice date), or retainage;


(D) Accounts with respect to which the account debtor is not domiciled in the United States of America or Canada unless such Account is (1) fully guaranteed and secured by an irrevocable letter of credit in form and substance satisfactory to Lender and drawn on a United States bank acceptable to Lender, or (2) is fully covered by foreign credit insurance pursuant to a policy naming Lender as loss payee satisfactory in form and substance to Lender and issued by an insurer acceptable to Lender;


(E) Accounts which arise from a lease or other extended payment basis;


(F) Accounts with respect to which the account debtor is the government of the United States or any subdivision or authority thereof unless assigned to Lender and otherwise in full compliance with the federal Assignment of Claims Act or any similar act or regulation and such compliance is satisfactory to Lender;


(G) All Accounts owing by any account debtor if fifty (50%) percent or more of the Accounts due from such account debtor are deemed not to be Qualified Accounts hereunder;


(H) Accounts with respect to which the Lender does not for any reason have a perfected first priority security interest, or with respect to which the Accounts are subject to any claim, lien, security interest or financing statement of any persons or entities, including without limitation, the United States, or any agencies or instrumentalities thereof, except the security interest and financing statements in favor of Lender or except as otherwise approved in writing by Lender;


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(I) Accounts with respect to which the Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to the Borrower, to the extent of the lesser of Borrower's existing or potential liability to such account debtor;


(J) that portion of the Accounts with respect to which the account debtor has disputed any liability or the account debtor has made any claim with respect to any other Account due to the Borrower, or the Account is otherwise subject to any right of setoff, deduction, breach of warranty or other defense, dispute or counterclaim by the account debtor, or subject to contra Accounts, but only to the extent of such portion;


(K) that portion of the Accounts owed by any single account debtor which exceeds twenty (20%) percent of all of the Accounts, except, subject to the sole and absolute discretion of Lender, that for account debtors PrinterEssentials.com Inc. d/b/a Printer Essentials and Bergen County Ribbon Xchange LLC d/b/a " Supplies Guys," that portion of the Accounts owed by each such debtor which exceeds twenty-five (25%) percent of all of the Accounts, but only to the extent of such portion;


(L) that portion of any Accounts representing late fees, service charges or interest, but only to the extent of such portion;


(M) Accounts of an account debtor where the account debtor is located in a state which requires a Notice of Business Activities Report or similar report to be filed and the Borrower has not filed same for the current year, or where the Borrower is not otherwise authorized to transact business in said state, or where the Borrower is not in good standing in such state;


(N) Accounts owed by any account debtor which is insolvent or is the subject of an insolvency proceeding;


(O) that portion of any Accounts represented by contract rights, documents, instruments, chattel paper or general intangibles but only to the extent of such portion;


(P) any and all Accounts of an account debtor whose credit-worthiness is not satisfactory to Lender in its reasonable credit judgment based on information available to Lender; and


(Q) Accounts deemed by Lender to constitute customer deposits, advanced payments or prepayments.


References to percentages of all Accounts are based on dollar amounts of Accounts and not number of Accounts.


1.1(d) The term "Qualified Inventory" means the Inventory (as that term is defined on Exhibit A annexed hereto) as to which Borrower has furnished to Lender adequate written information at such times and in such form as has been, or from time to time, may be requested by Lender, which meet


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all of the following criteria on the date of any advances under the Revolving Loan and during the term of this Agreement, and which are in all other respects reasonably acceptable to Lender:


(A) The Inventory consists of raw materials and finished marketable goods stored at the address(es) of the Borrower in the United States of America set forth on Schedule 2; if stored at any other location, the Inventory is not Qualified Inventory unless it is approved by Lender, made subject to an acceptable landlord waiver or bailee waiver and is otherwise Qualified Inventory in the sole and absolute discretion of Lender. The Inventory is not (i) work in process, (ii) packaging, shipping or supply materials, (iii) goods that have been returned for resale, or (iv) held for sale or consisting of a product line held for sale for longer than its useful life;


(B) Borrower is the sole owner of the Inventory, none of the Inventory is being held by the Borrower or a third party on a consignment basis, and the Borrower has not sold, assigned, transferred, mortgaged or hypothecated, nor released all or any part of the Inventory from Lender's security interest created by this Agreement. The Inventory is otherwise not subject to any claim, lien, security interest, financing statement or trademark/license of any persons or entities, including without limitation the United States, or any agencies or instrumentalities thereof except the security interest and financing statements in favor of Lender;


(C) If any of the Inventory is represented or covered by documents of title, instruments or chattel paper, the Borrower is the owner of all such documents, instruments and paper, and (except as provided in this Agreement) none of it has been sold or transferred nor has any security interest been granted in all or any portion thereof, except in favor of Lender;


(D) The Inventory is not obsolete, has not been rejected, returned or damaged;


(E) The Inventory, if purchased by Borrower, was purchased in the ordinary course of business; and


(F) Lender has not notified the Borrower that the Inventory is unsatisfactory.


1.1(e) The term "Net Value of Qualified Inventory" means the lower of the net cost to the Borrower or the market value, as reasonably determined by Lender, of the Qualified Inventory in the actual or constructive possession of the Borrower at any time, exclusive of any transportation other than in-bound freight for products imported from a foreign country, processing or handling charges, and exclusive of such other value (including without limitation the value of partially finished goods, slow moving or not current goods) as Lender in its reasonable discretion desires to exclude.


1.1(f) Without limiting any other rights, terms, conditions or remedies of Lender, all loans, advances or financial accommodations made or otherwise available to Borrower is subject to Lender' s continuing right, in its reasonable discretion, to withhold from Borrower a reserve, and to increase and decrease such reserve from time to time, if and to the extent that, in Lender' s sole judgment, such reserve is necessary to protect the interests of Lender against possible non-payment of Accounts for any reason by account debtors, for decreases in value of Collateral, for goods held on consignment, possible non-payment by Borrower of any indebtedness owed to, or liens held by, third parties, or to protect the interests of Lender against the possible adverse effect of any state of facts which does or would, with or without notice or passage of time, or both, constitute a Default hereunder.


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1.1(g) The term " Net Value of Qualified In-Transit Inventory" means the Inventory (as that term is defined on Exhibit A annexed hereto) as to which Borrower has furnished to Lender adequate written information at such times and in such form as has been, or from time to time, may be requested by Lender, which meet all of the following criteria on the date of any advances under the Revolving Loan and during the term of this Agreement, and which are in all other respects reasonably acceptable to Lender:


(A) The Inventory is otherwise " Qualified Inventory;"


(B) title to such Inventory has passed to Media Sciences International, Inc. and the Inventory has been loaded on a common carrier for shipment to Media Sciences International, Inc.;


(C) the Inventory does not remain in-transit for more than 60 days;


(D) the Inventory is fully insured consistent with Section 6.13 of this Agreement; and


(E) Borrower has taken all such actions necessary for documents of title to be transferred to Lender upon request by Lender.


Section 1.2

[Intentionally Omitted]


Section 1.3 Interest Rate and Other Provisions Relating to The Revolving Loan


1.3(a) Interest accrues on the Revolving Loan based upon Borrower' s compliance with the provisions of Section 7.16 (Fixed Charge Coverage Ratio) at Borrower's option, as set forth in the grid below identifying such options based upon Borrower' s range of Fixed Charge Coverage compliance, with each such determination to be made by Lender monthly based upon the then most recent covenant compliance submissions made pursuant to this Agreement for the nine (9) month period ending 3/31/08, for fiscal year ending 6/30/08 and rolling 12 month period thereafter:


Fixed Charge Coverage

LIBOR Option

Prime Option

1.05:1 < 1.10:1

LIBOR Rate plus 275 basis points*

Prime Rate plus one-half ( bd%) percent floating*

1.10:1 1.25:1

LIBOR Rate plus 225 basis points

Prime Rate floating

* for the 9 month period ending 3/31/08, for fiscal year ending 6/30/08, and rolling 12 month period ending 9/30/08, this option is applicable if the Fixed Charge Coverage is under 1.05:1, but there then otherwise

exists no event of Default.


1.3(b) Each change in the Prime Rate is to take effect simultaneously with a corresponding change in the Prime Rate without notice to Borrower. Interest is to be calculated on a daily basis upon the unpaid balance based upon the actual number of days elapsed, with each date representing 1/360th of a year.


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1.3(c) The Revolving Loan (including, but not limited to, that part repayable on a term basis hereunder) is to be evidenced by promissory note(s) (the "Note") in the form required by Lender.


1.3(d) On the earlier of (A) the occurrence of any event of Default through and including the date (if any) identified by Lender as the date that the Default has either been waived or cured as determined by Lender, (" Default Period" ) or (B) maturity of this Agreement, Borrower' s right to select pricing options ceases (if applicable) and the unpaid principal of all advances and the Revolving Loan bears interest at a rate which is two (2) percentage points per annum greater than that which would otherwise be applicable (" Default Rate" ). Borrower acknowledges that: (i) such additional rate is a material inducement to Lender to make the Revolving Loan; (ii) Lender would not have made the Revolving Loan or any other advances in the absence of the agreement of Borrower to pay such Default Rate; (iii) such additional rate represents compensation for increased risk to Lender that the Debt will not be repaid; and (iv) such rate is not a penalty and represents a reasonable estimate of (a) the cost to Lender in allocating its resources (both personnel and financial) to the ongoing review, monitoring, administration and collection of the Revolving Loans and (b) compensation to Lender for losses that are difficult to ascertain.


1.3(e) The " Prime Rate" means the rate per annum from time to time established by the Lender as the Prime Rate and made available by Lender at its main office or, in the discretion of Lender, the base, reference or other rate then designated by Lender for general commercial loan reference purposes, it being understood that such rate is a reference rate, not necessarily the lowest, established from time to time, which serves as the basis upon which effective interest rates are calculated for loans making reference thereto. In the event that there should be a change in the Prime Rate, such change is effective on the date of such change without notice to Borrower. Any such change will not affect or alter any other term or condition.


1.3(f) Interest on the Revolving Loan is payable by the Borrower each month beginning on the first banking day of Lender in the month following the effective date of this Agreement, unless otherwise provided herein or in the Note. Lender may, at its sole and absolute discretion, charge unpaid interest or principal to any loan, checking or other account of the Borrower, deduct unpaid interest or principal from any future advance to the Borrower, or apply any proceeds received by Lender to the payment of due but unpaid interest or principal (although Lender will first charge such sums(s) from the Borrower' s Revolving Loan account). Borrower hereby so authorizes Lender to automatically deduct from any deposit account of Borrower the amount of any applicable Revolving Loan or other payment including all payments of interest, principal and other sums due (" Automatic Payment" ), from time to time, under this Agreement and/or any Note; Lender will thereafter notify Borrower of the amount so charged. If the funds in the account are insufficient to cover any payment due, Lender is not obligated to advance funds to cover the payment; however, Lender has the sole and absolute discretion to make such an advance to cover the payment and may charge the Borrower's loan account for such advance. The failure of Lender to charge any account or to give any such notice does not affect the obligation of Borrower to pay interest, principal or other sums as provided herein or in any Note. At any time and for any reason, the Lender may terminate the Automatic Payment upon no less than thirty (30) days' notice to the Borrower. Any failure or delay by Lender in submitting an invoice(s) for interest payments does not discharge or relieve the Borrower of the obligation to render timely payments. Borrower is to maintain its primary domestic operating accounts, cash management accounts and primary depository accounts (which Lender will establish with " sweep" options) with Lender and is to maintain sufficient balances therein at all times to enable Lender to directly charge all sums due to Lender.


1.3(g) In no event is the interest rate or other charges of this Agreement to exceed the highest rate permissible under law. If any provision of this Agreement or any other instrument executed in connection thereto be construed or held to permit the collection of or to require the payment of any


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amount of interest in excess of that permitted by applicable law, the provisions of this paragraph control and override any contrary or inc ...