10-K - ZRCN - Equibles

UNITED

STATES

SECURITIES

AND EXCHANGE COMMISSION

WASHINGTON,

D.C. 20549

FORM

10-K

(Mark One)

☒	ANNUAL<br> REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Forthe fiscal year ended March 31, 2024

☐	TRANSITION<br> REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For

the transition period from _____________to____________________________

Commission

File No. 000-56380

ZRCNInc.

(Exact name of registrant as specified in its charter)

Delaware	83-2756695
(State<br> or other jurisdiction of<br><br> incorporation or organization)	(I.R.S.<br> Employer<br><br> Identification No.)
1580 Dell Ave,<br><br> <br>Campbell, CA	95008
(Address<br> of principal executive offices)	(Zip<br> Code)

Registrant’s telephone number, including area code: (408)

963-4550

Securities registered under Section 12(b) of the Exchange Act: None

Title<br> of each class	Trading<br> Symbol(s)	Name<br> of each exchange on which registered
N/A	N/A	N/A

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, par value $0.0001 per share

(Title of class)

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 5(d) of the Act. Yes ☐ No ☒

Indicate by check mark 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation ST (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company and an “emerging growth company”. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and ‘emerging growth company” in Rule 12b-2 of the Exchange Act.

Large<br> accelerated filer	☐	Accelerated<br> filer	☐
Non-accelerated<br> filer	☐	Smaller<br> reporting company	☒
Emerging<br> growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☒

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

The registrant was not a publicly listed company as of December 31, 2023, the last business day of its most recently completed third fiscal quarter, and therefore, cannot calculate the aggregate market value of its voting and non-voting common equity held by non-affiliates as of such date.

As

of July 15, 2024, the number of shares of the registrant’s common stock outstanding was 10,016,936 .

ZRCN

Inc

Table

of Contents

PART I
Item<br> 1.	Description<br> of Business	5
Item<br> 1A.	Risk<br> Factors	7
Item<br> 1B.	Unresolved<br> Staff Comments	17
Item<br> 1C.	Cybersecurity	18
Item<br> 2.	Description<br> of Property	18
Item<br> 3.	Legal<br> Proceedings	18
Item<br> 4.	Mine<br> Safety Disclosures	19
Part II
Item<br> 5.	Market<br> for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item<br> 6.	Reserved	19
Item<br> 7.	Management’s<br> Discussion and Analysis of Financial Condition and Results of Operation	21
Item<br> 7a.	Quantitative<br> and Qualitative Disclosures About Market Risk	25
Item<br> 8.	Financial<br> Statements and Supplementary Data	26
Item<br> 9a.	Controls<br> and Procedures	27
Item<br> 9b.	Other<br> Information	27
Item<br> 9c.	Disclosure<br> Regarding Foreign Jurisdictions that Prevent Inspections	27
Part III
Item<br> 10.	Directors,<br> Executive Officers and Corporate Governance	28
Item<br> 11.	Executive<br> Compensation	30
Item<br> 12.	Security<br> Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	31
Item<br> 13.	Certain<br> Relationships and Related Transaction, and Director Independence	32
Item<br> 14.	Principal<br> Accountant Fees and Services	32
Part IV
Item<br> 15.	Exhibits,<br> Financial Statement Schedules	33
Item<br> 16.	Form<br> 10-K Summary	33

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PART

Forward-LookingStatements

ThisAnnual Report on Form 10-K (the “Report”) contains forward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), that involve substantial risks and uncertainties. The forward-looking statements are contained in this Report. In some casesyou can identify forward-looking statements by terminology such as “may”, “is expected to”, “anticipates”,“estimates”, “intends”, “plans”, “projection”, “could”, “vision”,“goals”, “objective” and “outlook” and similar expressions. These statements are not historical factsand may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differmaterially from those expressed in the forward-looking statements, many of which are difficult to predict and generally beyond our control.

Youshould refer to “Risk Factors” of this Report for a discussion of important factors that may cause our actual results todiffer materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure youthat the forward-looking statements in this Report will prove to be accurate. Furthermore, if our forward-looking statements prove tobe inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you shouldnot regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans inany specified time frame, or at all. We do not undertake any obligation to update any forward-looking statements. Unless the contextrequires otherwise, references to “we,” “us,” “our,” and “Company,” refer to the registrant,ZRCN Inc. (“ZRCN” - formerly known as Harmony Energy Technologies Corporation (“Harmony”)) and/or ZRCN’swholly owned subsidiary, Zircon Corporation (“Zircon”).

Ourforward-looking statements are subject to a number of known and unknown risks, uncertainties, assumptions, and other factors that maycause our actual future results, performance, or achievements to differ materially from any future results expressed or implied in thisreport. Reported results should not be considered an indication of future performance.

All of our forward-looking statements are as of the date of this Annual Report on Form 10-K only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Annual Report on Form 10-K or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Annual Report on Form 10-K, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Annual Report on Form 10-K that modify or impact any of the forward-looking statements contained in this Annual Report on Form 10-K will be deemed to modify or supersede such statements in this Annual Report on Form 10-K.

This Report may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies, clinical trials and publications are reliable, we have not independently verified market and industry data from third-party sources.

RiskFactor Summary

Our business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what we believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors”, together with the other information in this Report. If any of the following risks actually occurs (or if any of those listed elsewhere in this Report occur), our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously harmed. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.

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Macroeconomicand Industry Risks

Themarket for our products is highly price sensitive and subject to change with market conditions.

BusinessRisks

Toremain competitive and stimulate customer demand, we must successfully manage frequent introductions and transitions of products.

Wedepend on product manufacturing and logistical services provided by outsourcing partners, many of which are located outside of the U.S.

Futureoperating results depend upon our ability to obtain products in sufficient quantities on commercially reasonable terms.

Weare exposed to the risk of write-downs on the value of our inventory and other assets, in addition to purchase commitment cancellationrisk.

Demandfor new products below expectations and our ability or inability to develop and introduce new products at favorable economic levels couldadversely impact our financial results and prospects for growth.

Asignificant portion of our revenue is dependent upon a small number of customers, and in particular, Home Depot and Lowe’s, ourtwo largest customers that collectively accounted for approximately 63% of net revenue in fiscal 2024. The loss of any one of these customerswould negatively impact our revenues and our results of operations.

Ifthe products that we offer do not reflect our customers’ tastes and preferences, our net sales and profit margins could decrease.

Legaland Regulatory Compliance Risks

Weare subject to complex and changing laws and regulations, which expose us to potential liabilities, increased costs and other adverseeffects on our business.

Wemay have inadvertently violated Section 13*(k) of the Exchange Act (implementing Section 402 of the Sarbanes-Oxley Act of2002) as a result of the transition from private to public accounting and may be subject to sanctions as a result.*

FinancialRisks

Wemanufacture and sell our products in numerous countries around the world. As a result, we may be exposed to foreign currency risks aswe engage in transactions and make investments denominated in foreign currencies.

Weare subject to changes in tax rates, the adoption of new U.S. or international tax legislation and exposure to additional tax liabilities.

Ourresults of operations could be negatively impacted by inflationary or deflationary economic conditions.

FinancingRisks

Wemay incur future indebtedness and may in the future issue additional equity or debt securities to finance our business operations andstrategic initiatives.

Tightcapital and credit markets or the failure to maintain credit ratings could adversely affect us by limiting our ability to borrow or otherwiseaccess liquidity.

Weare exposed to credit risk on our accounts receivable.

Legal,Tax, Regulatory and Compliance Risks

Ourbrand names are important assets of our businesses and violation of our intellectual property or trademark rights, or the failure ofour licensees or vendors to comply with our product quality, manufacturing requirements, marketing standards, and other requirementscould negatively impact revenues and brand reputation.

Cybersecurityincidents could disrupt business operations, result in the loss of critical and confidential information, and adversely affect our reputationand results of operations.

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Climatechange and climate change legislation or regulations may adversely affect our business.

Ourfailure to continue to successfully avoid, manage, defend, litigate and accrue for claims and litigation could negatively impact ourresults of operations or cash flows.

Ourproducts could be recalled.

OtherRisks

Ourresults of operations and earnings may not meet guidance or future expectations.

Ifwe are unable to maintain effective internal controls over financial reporting in the future, the accuracy and timeliness of our financialreporting may be adversely affected, which could have a material adverse effect on our financial condition and the trading priceof our common stock.

RisksRelated to our Common Stock

Thereis currently no active listing or trading market that has been established for our stock and none might ever exist.

Wemay conduct offerings of our equity securities in the future, in which case an investor’s proportionate interest may become diluted.

Thesale or availability of substantial amounts of our common stock could adversely affect their market price.

Becausewe do not expect to pay dividends in the foreseeable future, investors must rely on price appreciation of our common stock as the onlymeans of generating a positive return for any investment.

PART

ITEM

BUSINESS

Overview

We are a Silicon Valley-based company operating in Northern California since 1977. Leveraging our proprietary sensor-based technology across a mix of global markets, including commercial and residential buildings, government infrastructure and building information modeling, we are focused on creating new, technical solutions for global applications in the areas of home and workplace safety, project efficiency, and structural data analysis.

We have amassed a multi-generational customer base of professional contractors and do-it-yourselfers who rely on Zircon’s innovative and easy-to-use products to get the job done.

We recently launched the Wood Stud SuperScan® advanced stud finder, our most innovative solution to date. We believe that this is a game-changing hand-held stud finder that will help millions of contractors and do-it-yourselfers better understand what’s behind a wall surface. In addition to locating wood studs, Wood Stud SuperScan® stud finder, also recognizes and filters out metallic and low-density objects, delivering a more accurate picture of wooden objects behind the wall surface.

OurProducts

Building on over four decades of proprietary technology development and an extensive patent portfolio, we are the manufacturer of the original StudSensor™ stud finder, and a growing line of electronic hand tools, including MultiScanner™ wall scanners, MetalliScanner® metal detectors, and other electronic scanning, water detection and leveling tools.

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Marketsand Distribution

Our products are sold primarily to tool retailers for sale to Do-it-Yourselfers and professional tool users throughout the world.

During the years ended March 31, 2024, and 2023, we generated approximately 72% and 66% of our total revenue from three customers, respectively. Accounts receivable from these customers amounted to approximately 77% and 75% of total accounts receivable as of March 31, 2024 and 2023, respectively.

IntellectualProperty

Our policy is to protect and enhance the proprietary technologies, inventions, and improvements that are commercially important to our business by filing patent applications in the U.S. and other jurisdictions related to our proprietary technology, inventions, improvements, and products. We also rely on trademarks, trade secrets, and know-how relating to our proprietary technologies and products, continuing innovation, and in licensing technology and products. This reliance is expected to develop, maintain, and strengthen our proprietary position for our products. We consider our Intellectual Property, including patents, tradenames, trademarks and the like, to be among our most valuable assets (e.g., SuperScan®, StudSensor™, MultiScanner™, MetalliScanner® and other Zircon trademarks).

As of March 31, 2024, we held approximately 130 active and pending patents in the United States and approximately 75 active and pending patents outside of the United States. In addition, we held approximately 20 active and pending trademarks in the United States and approximately 10 active and pending trademarks outside of the United States.

Competition

We face competition from several companies that sell similar scanning products through the same retail channel. Stanley, Black & Decker, Franklin, DeWalt, Ryobi and others compete for space in retail outlets such as Home Depot and Lowe’s. All the competitors use the capacitive technology pioneered by us and have incorporated many other features introduced by us. Competition is characterized by aggressive pricing and generous rebates and marketing contributions resulting in downward pressure on gross margins.

Our ability to compete successfully depends heavily on ensuring the continuing and timely introduction of innovative new products to the marketplace. Principal competitive factors important to Zircon include our reputation, price, product features and performance, product quality and reliability, design innovation, very high fill rates and distribution capability, marketing and customer service.

SupplyChain

Our products are assembled by our affiliate, a single-customer Maquiladora company, Zircon de Mexico, located in Ensenada, Mexico and by various outsourced component manufacturers located in China and elsewhere. Various components used in the production of our products are sourced from suppliers throughout the world.

Our products include proprietary Application Specific Integrated Circuits or ASIC Semiconductors, which are sourced in the US. Due to the potentially long lead time in the production of microprocessors, Zircon typically seeks to maintain six to twelve months of anticipated unit volume in any given period as ‘safety stock’ of its ASIC chips to avoid supply shortages and maintain its industry-leading on-time delivery to its retailers and distributor partners. Zircon has historically maintained a greater than 97% on-time delivery with its retail and distributor sales partners.

Our manufacturing affiliate, Zircon de Mexico, also benefits from a deep-water port in Ensenada, Mexico that facilitates direct delivery of product and parts from international vendors. Access to the port has allowed us to avoid historic supply chain disruptions caused by congestion in US ports or other impediments to shipping and receiving necessary components from offshore suppliers.

In September 2017, an affiliated company, Zircon Corporation Limited, was established in the United Kingdom to facilitate the sale of our products to European customers and operations began during the year ended March 31, 2019. The principal shareholders of ZRCN are the shareholders of the affiliates and the affiliates are operated solely for the benefit of Zircon.

Researchand Development

During fiscal 2024 and fiscal 2023, we incurred research and development (R&D) expenses of $1.9 million and $1.9 million, respectively. Research and development costs that are not capitalizable under ASC 735-10-25 are expensed as incurred. We engage in research & development as a regular, ongoing part of our operations. Our products include proprietary technology, which we believe creates significant product performance advantages relative to products of our competitors and creating key competitive advantages for the Company. We intend to continue to invest materially in R&D to maintain the competitiveness of our existing products, and to develop and commercialize new technologies for future product and product portfolio expansion activities.

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We do not currently maintain any target or standardized rate of R&D expenditure but may establish such targets in the future.

Employees& Contractors

We strive to build a talented, motivated, and dedicated team. As of March 31, 2024, we had 32 full-time equivalent employees.

We utilize contractors and consultants, including financial advisors, SEC reporting consultants, Investor Relations consultants, and other such providers that management deems appropriate for achieving the goals and objectives laid out by the Board of Directors.

AvailableInformation

When filed, the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the U.S. Securities and Exchange Commission (the “SEC”). When filed, such reports and other information filed by the Company with the SEC will be available free of charge at www.zircon.com when such reports are available on the SEC’s website. The Company periodically provides other information for investors on its website, www.zircon.com. Online investor information typically includes press releases and other information about financial performance, information on environmental, social and corporate governance and details related to the Company’s annual meeting of shareholders. The information contained on the websites referenced in this Report is not incorporated by reference into this filing. Further, the Company’s references to website URLs are intended to be inactive textual references for convenience only.

ITEM

1A. RISK FACTORS

Our business, results of operations and financial condition, and reputation as well as the price of our stock, if trading, can be affected by a number of factors, whether currently known or unknown, including those described below. When any one or more of these risks materialize from time to time, ZRCN’s business, results of operations and financial condition, as well as the price of our stock, can be materially and adversely affected.

You should consider carefully the risks described below together with the other information contained in this current report on Form 10-K. This report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks described below.

Because of the following factors, as well as other factors affecting our results of operations and financial condition, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. This discussion of risk factors contains forward-looking statements.

This section should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Report.

RisksRelated to COVID-19

Ourbusiness, results of operations and financial condition generally have been adversely affected and could in the future be materiallyadversely affected by the COVID-19 pandemic.

COVID-19 has had, and continues to have, a significant impact around the world, prompting governments and businesses to take unprecedented measures in response. Such measures have included restrictions on travel and business operations, temporary closures of businesses, and quarantine etc. The COVID-19 pandemic has at times significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets.

The COVID-19 pandemic and the measures taken by many countries in response have adversely affected and could in the future materially adversely impact our business, results of operations and financial condition, as well as the price of our stock. During the course of the pandemic, certain of our suppliers, manufacturing partners and logistical service providers have experienced disruptions, resulting in supply shortages that affected our business, and similar disruptions could occur in the future.

We continue to monitor the situation and take appropriate actions in accordance with the recommendations and requirements of relevant authorities. The extent to which the COVID-19 pandemic may impact our operational and financial performance remains uncertain and will depend on many factors outside our control, including the timing, extent, trajectory and duration of the pandemic, the emergence of new variants, the development, availability, distribution and effectiveness of vaccines and treatments, the imposition of protective public safety measures, and the impact of the pandemic on the global economy and demand for consumer products. Additional future impacts on us may include, but are not limited to, material adverse effects on demand for our products, our supply chain and sales, our ability to execute our strategic plans, and our profitability and cost structure.

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To the extent the COVID-19 pandemic adversely affects our business, results of operations, financial condition and stock price, it may also have the effect of heightening many of the other risks described in Part I, below.

Macroeconomicand Industry Risks

Ouroperations and performance depend significantly on global and regional economic conditions and adverse economic conditions can materiallyadversely affect our business, results of operations and financial condition.

We generate sales revenue primarily in the North American market with additional sales revenues coming from Europe and Asia. In addition, some of our global supply chain and our manufacturing partners, are located in Mexico and China. As a result, our operations and performance depend significantly on global and regional economic conditions. We take steps to mitigate manufacturing risks through redundancies and regular monitoring of business conditions, but there is no guarantee that these efforts will mitigate all associated risks and variables in the global supply chain can have a material impact on our revenue and profitability.

Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs and other barriers to trade, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations can materially adversely affect demand for our products. In addition, consumer confidence and spending can be adversely affected in response to financial market volatility, negative financial news, high inflation and interest rate, declines in income or asset values, changes to fuel and other energy costs, labor and healthcare costs and other economic factors.

In addition to an adverse impact on demand for Zircon’s products, uncertainty about, or a decline in, global or regional economic conditions can have a significant impact on Zircon’s suppliers, manufacturing partners, and logistics providers. Potential effects include financial instability; inability to obtain credit to finance operations and purchases of our products; and insolvency.

A downturn in the economic environment can also lead to increased business operation risks for the Company and limitations on our ability to conduct and finance our operations. These and other economic factors can materially adversely affect our business, results of operations and financial condition.

Ourbusiness can be impacted by political events, trade and other international disputes, Force Majeure events like war, terrorism, naturaldisasters, public health issues, industrial accidents and other unforeseen business disruptions.

Political events, trade and other international disputes, war, terrorism, natural disasters, public health issues, industrial accidents and other business interruptions can harm or disrupt international commerce and the global economy and could have unknown material adverse effects on us and our customers, suppliers, manufacturing partners, and logistics providers.

We believe that we benefit from growth in international trade. Trade and other international disputes can result in tariffs, sanctions, and other measures that restrict international trade and can adversely affect our business. For example, tensions between the U.S. and China have led to a series of tariffs being imposed by the U.S. on imports from mainland China, as well as other business restrictions. Tariffs increase the cost of our products and the components and raw materials that go into making them. These increased costs adversely impact the gross margin that we earn on our products. Tariffs can also make our products more expensive for customers, which could make our products less competitive and reduce consumer demand. Countries may also adopt other measures, such as controls on imports, that could adversely impact on our operations and supply chain and limit our ability to offer our products as designed. These measures can require us to take various actions, including changing suppliers and restructuring business relationships. Changing our operations in accordance with new or changed trade restrictions can be expensive, time-consuming, disruptive to our operations and distracting to management. Such restrictions can be announced with little or no advance notice, and we may not be able to effectively mitigate all adverse impacts from such measures. Political uncertainty surrounding trade and other international disputes could also have a negative effect on consumer confidence and spending, which could adversely affect our business.

Many of our suppliers and manufacturing partners are in locations that are prone to earthquakes and other natural disasters. In addition, such operations and facilities are subject to the risk of interruption by fire, power shortages, nuclear power plant accidents and other industrial accidents, terrorist attacks and other hostile acts, ransomware and other cybersecurity attacks, labor disputes, public health issues, including pandemics such as the COVID-19 pandemic, and other events beyond our control. Global climate change is resulting in certain types of natural disasters occurring more frequently or with more intense effects. Such events can make it difficult or impossible for us to operate and deliver products to our customers. Following an interruption to our business, we may require substantial recovery time, experience significant expenditures to resume operations, and lose significant sales. Because we rely on single or limited sources for our products, a business interruption affecting such sources would exacerbate any negative consequences to us.

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Our operations are also subject to the risks of industrial accidents at our manufacturing partners. While our partners are required to maintain safe working environments and operations, an industrial accident could occur and could result in disruption to our business. Although we maintain insurance coverage for certain types of losses, such insurance coverage may be insufficient to cover all losses that may arise.

Themarket for our products is competitive but not subject to rapid technological change. If that were to change, we may be unable to competeeffectively.

We take measures that we believe are prudent to manage our technology risks, including investing in research & development (R&D) to ensure that our products maintain technological competitiveness, seeking patent and intellectual property protections in key markets and legally asserting our intellectual property rights when we believe that our rights have been violated. These efforts have proven effective for us historically, but there is no guarantee that our technology, R&D or that our efforts to protect our intellectual property will be wholly successful in every instance going forward. Should efforts prove unsuccessful or insufficient, our technology may not be able to maintain our current level of market competitiveness.

Themarket for our products is highly price sensitive and subject to change with market conditions.

The United States represents our primary market. The US consumer retail market is a highly competitive market characterized by aggressive price competition and potential downward pressure on gross margins. The hand tool industry is not typically characterized by frequent introduction of new products with short product life cycles. Although customers, and retailers, often seek new product ideas, the industry is not known for rapid adoption of technological advancements. New product ideas often take a year or two to be phased into the Plan-o-gram and onto the retailers’ walls. The electronic tool category has had more innovation than most tools and consequently, more competition has emerged.

Our ability to compete successfully depends heavily on ensuring the continuing and timely introduction of innovative new products to the marketplace. We design and develop our products. As a result, we must make significant investments in R&D. There can be no assurance these investments will achieve the expected returns, and we may not be able to develop and market new products successfully. If we are unable to continue to develop and sell innovative new products with attractive margins, our ability to maintain a competitive advantage could be adversely affected.

We are responsible for creating the electronic wall scanning product category and have over 40 years of experience developing and marketing such tools. Never-the-less, we face substantial competition from companies that have significant technical, marketing, distribution, and other resources. In addition, some of our competitors have broader product lines, lower-priced products, a larger clients base, and a longer operating history. Certain competitors have the resources, experience, or cost structures to provide products at little or no profit or even at a loss.

Our business, results of operations and financial condition will depend on our ability to continually improve our products to maintain their functional and design advantages. There can be no assurance we will be able to continue to provide products that compete effectively.

BusinessRisks

Toremain competitive and stimulate customer demand, we must successfully manage frequent introductions and transitions of products.

Due to the competitive nature of the industry in which we compete, we must continue to introduce new product features and innovations and enhance existing products. We must continue to develop new technologies to stimulate consumer demand for new and upgraded products. We must successfully manage the transition to these new and upgraded products. The success of new product introductions depends on a number of factors, including timely and successful development, market acceptance, our ability to manage the risks associated with production ramp-up issues, the effective management of inventory levels in line with anticipated product demand, the availability of products in appropriate quantities and at expected costs to meet anticipated demand, and the risk that new products may have quality or other defects or deficiencies. There can be no assurance we will successfully manage future introductions and transitions of products and services.

Wedepend on product manufacturing and logistical services provided by outsourcing partners, many of which are located outside of the U.S.

Much of our manufacturing is performed by outsourcing partners located in China. A significant concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in proximity to one another. We have also outsourced much of our transportation and logistics management to our affiliate, Zircon de Mexico. While these arrangements can lower operating costs, they also reduce our direct control over production. Such diminished control has from time to time and may in the future have an adverse effect on the quality or quantity of products manufactured, or adversely affect our flexibility to respond to changing conditions. Although we have a robust source inspection process and arrangements with partners contain provisions for product defect expense reimbursement, we remain responsible to the consumer for warranties in the event of product defects. Because of this we may experience an unanticipated product defect liability. While we rely on our partners to adhere to our quality standards, deviations may occur from time to time and could materially adversely affect our business, reputation, results of operations and financial condition.

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We rely on outsourcing suppliers in Mexico and China to manufacture our products. Any failure of these partners to perform can have a negative impact on our cost or finished goods. In addition, manufacturing and logistics or transit to final destinations can be disrupted for a variety of reasons, including natural and man-made disasters, information technology system failures, commercial disputes, military actions, economic, business, labor, environmental, public health or political issues, or international trade disputes.

We have invested in certain manufacturing process equipment, much of which is held by certain of our outsourcing partners. While these arrangements help ensure the supply of the products, if these outsourcing suppliers experience severe financial problems or other disruptions in their business, such continued supply can be reduced or terminated, and the recoverability of manufacturing process equipment or prepayments can be negatively impacted or impossible.

Futureoperating results depend upon our ability to obtain products in sufficient quantities on commercially reasonable terms.

Because we currently obtain the products from limited sources, we are subject to significant supply and pricing risks. Many components, including those that are available from multiple sources, are at times subject to industry-wide shortages and significant commodity pricing fluctuations that can materially adversely affect our business, results of operations and financial condition. For example, the global semiconductor industry is experiencing high demand and shortages of supply, which has adversely affected, and could materially adversely affect, our ability to obtain sufficient quantities of products on commercially reasonable terms or at all. While we have entered into agreements for the supply of the products, there can be no assurance we will be able to extend or renew these agreements on similar terms, or at all. The manufacturing partners may suffer from poor financial conditions, which can lead to business failure for the supplier or consolidation within a particular industry, further limiting our ability to obtain products on commercially reasonable terms or at all. The effects of global or regional economic conditions on our suppliers may also affect our ability to obtain products*.* Therefore, we remain subject to risks of supply shortages and price increases that can materially adversely affect our business, results of operations and financial condition.

Ourproducts may be affected from time to time by design and manufacturing defects that could materially adversely affect our business andresult in harm to our reputation.

We offer products that can be affected by design and manufacturing defects. Defects can also exist in components and so products. Component defects could make our products unsafe and create a risk of environmental or property damage and personal injury. These risks may increase as our products are introduced into specialized applications, including healthcare. There can be no assurance that we will be able to detect and fix all issues and defects in the products we offer. Failure to do so can result in widespread technical and performance issues affecting our products. In addition, we can be exposed to product liability claims, recalls, product replacements or modifications, write-offs of inventory, property, plant and equipment, and/or intangible assets, and significant warranty and other expenses, including litigation costs and regulatory fines. Quality problems can also adversely affect the experience for users of our products, and result in harm to our reputation, loss of competitive advantage, poor market acceptance, reduced demand for products, delay in new product introductions and lost sales.

Weare exposed to the risk of write-downs on the value of our inventory and other assets, in addition to purchase commitment cancellationrisk.

We record write-downs for inventories that have become obsolete or exceed anticipated demand, or for which cost exceeds net realizable value. We review long-lived assets, including capital assets and consigned inventory held at our suppliers’ facilities, for impairment whenever events or circumstances indicate the assets may not be recoverable. If we determine that an impairment has occurred, we record a write-down equal to the amount by which the carrying value of the asset exceeds its fair value. Although we believe our inventory, capital assets, prepayments and other assets and purchase commitments are currently recoverable, there can be no assurance we will not incur write-downs, fees, impairments and other charges.

We are exposed to the risk of maintaining inventory levels that could misalign with sales depending upon changing market conditions.

We order our products and build inventory in advance of product announcements and shipments. Manufacturing purchase obligations cover our forecasted component and manufacturing requirements, typically for periods up to 90 days but with some as long as 18 months. Because the markets are volatile, competitive and subject to technology and price changes, there is a risk we will forecast incorrectly and order or produce excess or insufficient amounts of products, or not fully utilize firm purchase commitments.

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Wecompete globally with companies that are often larger and better capitalized and if we cannot compete effectively, our business may benegatively affected.

The Company has several large competitors who have entered the market over the years, notably Stanley, Black and Decker, DeWalt and Ryobi. They, along with Franklin Sensor, have offered products in the wall scanning market. While our competitors have made inroads in the market, the Company believes its products outperform the competitors’ products.

Customerconsolidation could have a material adverse effect on our business.

The emergence of ‘Big Box’ retail home stores in the hardware and tool retail market has forced many small retailers out of business and reduced the overall number of potential retailers able to purchase our tools. The growth of big box stores has not reduced the number of potential end user customers. However, the effect has been to consolidate buying power in fewer retailers. While the pace of the consolidation has slowed, there remains a risk that the top retailers could absorb or acquire the larger regional retailers, further enhancing their buying power which may put pressure on our prices and profitability.

Historically, consumer demand for our products correlates to housing industry trends such as existing home turnover and new home construction. Housing turnover and new home construction are affected by inflation and interest rates. Both increased inflation and higher interest rates can impact demand for homes and new home construction. While the inflation rate has recently been decreasing as a result of US monetary policy, interest rates remain elevated. There can be no guarantee the fed policies will be successful in mitigating all aspects of inflation that affect home turnover and purchasing, nor can we predict future interest rates. If inflation were to continue increasing and interest rate continue to rise, we may not be able to mitigate all adverse impacts on end user demand for our products through traditional methods such as pricing adjustments or internal cost reductions.

Sales to our top five customers accounted for approximately 78% and 82% of our net sales for the years ended March 31, 2024, and 2023, respectively. Sales to our largest customer, Home Depot, accounted for approximately 40% and 40% of our net sales, respectively and Lowe’s accounted for approximately 23% and 23%, respectively, of our net sales for the years ended March 31, 2024, and 2023. Contractual relationships with our major customers do not guarantee sales volumes or longevity. Consequently, our relationship with our major customers could change at any time. Our business, results of operations and financial condition would be materially and adversely affected if:

●	we<br> lose Home Depot or any of our other major customers;
●	or<br> any of our other major customers purchase fewer of our products; or
●	we<br> experience any other adverse change in our relationship with Home Depot or any of our other major customers.

Ifthe products that we offer do not reflect our customers’ tastes and preferences, our net sales and profit margins could decrease.

Our success depends in part on our ability to offer products and services that reflect consumers’ tastes and preferences. Consumers’ tastes are subject to frequent, significant and sometimes unpredictable changes. If the merchandise we offer for sale fails to respond to changes in customer preferences, our sales could suffer and we could be required to mark down unsold inventory, which could depress profit margins, or we could be required to accept returned merchandise in exchange for full credit which could depress net sales and profit margins. In addition, any failure to offer products and services in line with customers’ preferences could allow competitors to gain market share, which could harm our business, results of operations and financial condition.

Oursuccess depends largely on the continued service and availability of highly skilled employees, including key personnel.

Much of our future success depends on the continued availability and service of key personnel, including our Chief Executive Officer, executive team, and other highly skilled employees. Experienced personnel in the technology industry are in high demand and competition for their talents is intense. If we are unable to recruit and retain highly skilled employees, it could materially adversely affect our business, results of operations and financial condition.

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Keypersonnel may voluntarily terminate their relationship with us at any time, and competition for qualified personnel is intense. The processof locating additional personnel with the combination of skills and attributes required to carry out our strategy could be lengthy, costly,and disruptive.

If we lose the services of key personnel or fail to replace the services of key personnel who depart, we could experience a severe negative effect on our financial results and stock price. The loss of the services of any key personnel, marketing or other personnel or our failure to attract, integrate, motivate, and retain additional key employees could have a material adverse effect on our business, operating and financial results and stock price.

Ourofficers and directors have limited experience managing a publicly listed company in the United States.

Our officers and directors have limited experience managing a publicly listed company in the United States. Consequently, we may not be able to raise sufficient funds or operate our company in the public capital markets successfully.

Investmentin acquisitions and new business strategies could disrupt our ongoing business, present risks not originally contemplated and adverselyaffect Zircon’s business, reputation, results of operations and financial condition.

We have invested, and in the future may invest, in new business strategies and acquisitions. Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations, greater-than-expected liabilities and expenses, economic, legal, and regulatory challenges associated with operating in new businesses, regions or countries, inadequate return on capital, potential impairment of tangible and intangible assets, and significant write-offs. Investment and acquisition transactions are exposed to additional risks. We cannot assure that we will be able to fully realize the anticipated benefits of a transaction. These new ventures are inherently risky and may not be successful. The failure of any significant investment could adversely affect our business, reputation, results of operations and financial condition.

Legaland Regulatory Compliance Risks

Weare subject to complex and changing laws and regulations, which expose us to potential liabilities, increased costs and other adverseeffects on our business.

Our operations are subject to complex and changing laws and regulations on subjects, including privacy, data security and data localization; consumer protection; advertising, sales, billing and e-commerce; product liability; intellectual property ownership and infringement; availability of third-party software applications and services; labor and employment; anticorruption; import, export and trade; foreign exchange controls and cash repatriation restrictions; foreign ownership and investment; tax; and environmental, health and safety, including electronic waste, recycling, and climate change.

Compliance with these laws and regulations that affect our business can be onerous and expensive, increasing the cost of conducting our operations. Changes to laws and regulations can adversely affect our business by increasing our costs, limiting our ability to offer a product to customers, requiring changes to our supply chain and business practices or otherwise making our products less attractive to customers. We have implemented policies and procedures designed to ensure compliance with applicable laws and regulations, but there can be no assurance that our employees, contractors or agents will not violate such laws and regulations or our policies and procedures. If we are found to have violated laws and regulations, it could materially adversely affect our business, results of operations and financial condition. Regulatory changes and other actions that materially adversely affect our business may be announced with little or no advance notice and we may not be able to mitigate all adverse impacts from such measures.

Wemay have inadvertently violated Section 13(k) of the Exchange Act (implementing Section 402 of the Sarbanes-Oxley Act of2002) as a result of the transition from private to public accounting and may be subject to sanctions as a result.**

Section 13(k) of the Exchange Act provides that it is unlawful for a company, such as ours, that has a class of securities registered under Section 12 of the Exchange Act to, directly or indirectly, including through any subsidiary, extend or maintain credit in the form of a personal loan to or for any director or executive officer of the company. In March 2022, Zircon Corporation, our wholly-owned subsidiary, loaned our chief executive officer funds to pay certain tax obligations, which was still outstanding when we acquired Zircon in April 2023, which may have violated Section 13(k) of the Exchange Act as a result of the transition from private to public company accounting. The loan was repaid in August 2023 as soon as management became aware of the possible violation. The loan repayment was made by means of an offset to beneficial amounts of our chief executive officer in certain loans to the Company to which offset he did not object. Issuers that are found to have violated Section 13(k) of the Exchange Act may be subject to civil sanctions, including injunctive remedies and monetary penalties, as well as criminal sanctions. The imposition of any of such sanctions on us could have a material adverse effect on our business, financial position, results of operations or cash flows.

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FinancialRisks

Our primary market currently and historically is the US market, but our products are sold and distributed throughout the world. Further, we manufacture our products internationally and maintains supply and other relationships in Europe, Canada, Mexico, and Asia. Fluctuations in exchange rates across certain markets could adversely affect our business, results of operations and financial condition without warning. We are pursuing growth in international markets and if we experience growth in international markets and as they become a larger portion of our overall revenue from product sales, we expect the impact from currency fluctuations to become more pronounced in conjunction with changes in the geographic composition of sales.

Weare subject to changes in tax rates, the adoption of new U.S. or international tax legislation and exposure to additional tax liabilities.

We are subject to taxes in the U.S. and foreign jurisdictions. Due to economic and political conditions, tax laws and tax rates for income taxes and other non-income taxes in various jurisdictions may be subject to significant change. Our effective tax rates are affected by changes in the earnings, changes in the valuation of deferred tax assets and liabilities, the introduction of new taxes, or changes in tax laws or their interpretation, including in the U.S., China and other foreign jurisdictions.

Ourresults of operations could be negatively impacted by inflationary or deflationary economic conditions.

Inflationary or deflationary economic conditions could affect our ability to obtain raw materials, component parts, freight, energy, labor, and sourced finished goods in a timely and cost-effective manner. We may also experience changes in interest rate environments that impact our cost of capital, the overall strength of the economy and possible demand for our products in the markets in which we operate and sell.

FinancingRisks

Wemay incur future indebtedness and may in the future issue additional equity or debt securities to finance our business operations andstrategic initiatives.

Indebtedness or issuances of additional equity or debt securities in connection with mergers or acquisitions, may impact the manner in which we conduct business or our access to external sources of liquidity. The potential issuance of such securities may limit our ability to implement elements of our business strategy and may have a dilutive effect on earnings.

Tightcapital and credit markets or the failure to maintain credit ratings could adversely affect us by limiting our ability to borrow or otherwiseaccess liquidity.

We have historically maintained sufficient capital and liquidity to finance our ongoing operations and develop and manufacture our products. As we seek to access capital for growth, tight debt and equity capital markets could impede our ability to access such additional capitalization and impede or delay our growth plans and strategies.

Weare exposed to credit risk on our accounts receivable.

Our outstanding trade receivables are not generally covered by collateral or credit insurance. While we have procedures to monitor and limit exposure to credit risk on our trade and non-trade receivables, there can be no assurance such procedures will effectively limit our credit risk and avoid losses, which could have an adverse effect on our financial condition and operating results.

We are not aware of any material credit risks with any of our customers, but there can be no guarantee that such risks will not develop in the future. While we have reserves set aside for doubtful accounts, a business failure by one of our major accounts could adversely impact our profits and operating results.

Legal,Tax, Regulatory and Compliance Risks

We seek to protect our intellectual property rights and our tradenames in the normal course of our business operations. Any inability to protect our other intellectual property rights could also reduce the value of our products and services or diminish our competitiveness. Assertion by us of our intellectual property and trademark rights can also be costly and time-consuming and may materially adversely affect our financial condition and operating results. If we are not able to access the additional liquidity internally or through external means to assert our intellectual property rights, we could incur damage to our brand identity and our sales and results of operations.

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Cybersecurityincidents could disrupt business operations, result in the loss of critical and confidential information, and adversely affect our reputationand results of operations.

We regularly move data across national borders, and consequently the Company is subject to a variety of continuously evolving and developing laws and regulations in the United States and abroad regarding privacy, data protection and data security. The scope of the laws that may be applicable to us is often uncertain and may be conflicting, particularly with respect to foreign laws. For example, the European Union’s General Data Protection Regulation (“GDPR”), which became effective in May 2018, greatly increased the jurisdictional reach of European Union law and added a broad array of requirements for handling personal data, including the public disclosure of significant data breaches. Similarly, the California Consumer Privacy Act of 2018 (“CCPA”), which became effective in January 2020, provided, among other things, a new private right of action for data breaches, required companies that process information on California residents to make new disclosures to consumers about their data collection, use and sharing practices, and provided consumers with additional rights. The California Privacy Rights Act of 2020, which became effective on January 1, 2023, amends and expands the CCPA, creating new industry requirements, consumer privacy rights and enforcement mechanisms. Virginia and Colorado have also passed robust privacy laws that came or will come into effect on January 1, 2023, and July 1, 2023, respectively. Our reputation and brand and our ability to attract new customers could also be adversely impacted if we fail, or are perceived to have failed, to properly respond to security breaches of our or third party’s information technology systems. Such failure to properly respond could also result in similar exposure to liability.

Additionally, other countries have enacted or are seeking to enact data localization laws that require data to stay within their borders. In many cases, these laws and regulations apply not only to transfers between unrelated third parties but also to transfers between us and our subsidiaries, vendors or manufacturing partners.

Evolving compliance and operational requirements may impose costs that are likely to increase over time. Privacy laws that may be implemented in the future, and court decisions impacting activities across borders, including the Schrems II decision invalidating the EU - U.S. Privacy Shield, will continue to require changes to certain business practices, thereby increasing costs, or may result in negative publicity, require significant management time and attention, and may subject us to remedies that may harm our business, including fines or demands or orders that we modify or cease existing business practices.

Climatechange and climate change legislation or regulations may adversely affect our business.

Compliance with government regulations, including environmental and climate change regulations, has not had, and based on current information and the applicable laws and regulations currently in effect, is not expected to have a material effect on our capital expenditures, results of operations or competitive position. However, laws and regulations may be changed, accelerated or adopted that impose significant operational restrictions and compliance requirements upon us and which could negatively impact our operating results and financial condition.

Ourfailure to continue to successfully avoid, manage, defend, litigate and accrue for claims and litigation could negatively impact ourresults of operations or cash flows.

We are exposed to and may become involved in various litigation matters arising out of the ordinary routine conduct of our business, including, from time to time, actual or threatened litigation relating to such items as commercial transactions, product liability, workers compensation, arrangements between us and our distributors, franchisees or vendors, intellectual property claims and regulatory actions.

In addition, we are subject to environmental laws in each jurisdiction in which business is conducted. Some of our products incorporate substances that are regulated in some jurisdictions in which we conduct manufacturing operations. We have been, and could be in the future, subject to liability if we do not comply with these regulations. In addition, we may in the future be, held responsible for remedial investigations and clean-up costs resulting from the discharge of hazardous substances into the environment, including sites that have never been owned or operated by us but at which we have been identified as a potentially responsible party under federal and state environmental laws and regulations. Changes in environmental and other laws and regulations in both domestic and foreign jurisdictions could adversely affect our operations due to increased costs of compliance and potential liability for non-compliance.

We manufacture products and perform various services that create exposure to product and professional liability claims and litigation. The failure of our products and services to be properly manufactured, configured, installed, designed or delivered, resulting in personal injuries, property damage or business interruption could subject us to claims for damages. The costs associated with defending ongoing or future product liability claims and payment of damages could be substantial. Our reputation could also be adversely affected by such claims, whether or not successful.

There can be no assurance that we will be able to continue to successfully avoid, manage and defend such matters. In addition, given the inherent uncertainties in evaluating certain exposures, actual costs to be incurred in future periods may vary from our estimates for such contingent liabilities.

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Ourproducts could be recalled.

We maintain an awareness of and responsibility for the potential health and safety impacts on our customers. Our product development processes include product safety reviews and extensive testing. Safety reviews are performed at various product development milestones, including a review of product labeling and marking to ensure safety and operational hazards are identified for the customer.

Despite safety and quality reviews, the Consumer Product Safety Commission or other applicable regulatory bodies may require, or Zircon may voluntarily institute, the recall, repair or replacement of our products if those products are found to not be in compliance with applicable standards or regulations. A recall could increase our costs and adversely impact our reputation.

OtherRisks

Ourresults of operations and earnings may not meet guidance or future expectations.

Our results of operations and earnings may not meet guidance or future expectations. We may provide public guidance on expected results of operations for future periods. This guidance would be comprised of forward-looking statements subject to risks and uncertainties, including the risks and uncertainties described in this Report and in our other public filings and public statements, and would be based necessarily on assumptions we make at the time we provide such guidance. Our guidance may not always be accurate. We may also choose to withdraw guidance, or lower guidance in future periods. If, in the future, our results of operations for a particular period do not meet our guidance or the expectations of investment analysts, we reduce our guidance for future periods, or we withdraw guidance, the market price of our common stock could decline significantly.

Ifwe are unable to maintain effective internal controls over financial reporting in the future, the accuracy and timeliness of our financialreporting may be adversely affected, which could have a material adverse effect on our financial condition and the tradingprice of our common stock.

As a public company, we are required to design and maintain proper and effective internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002 may require that we evaluate and determine the effectiveness of our internal controls over financial reporting and provide a management report on the internal controls over financial reporting, which must be attested to by our independent registered public accounting firm. If we become unable to maintain effective internal controls over financial reporting, our ability to record, process and report financial information timely and accurately could be adversely affected.

RisksRelated to our Common Stock

Thereis currently no active listing or trading market that has been established for our stock and none might ever exist.

We are currently pursuing strategies to develop an active trading market for our common equity shares, either on the Over-the-Counter (OTC) market, or on a listed exchange like the New York Stock Exchange (NYSE) or NASDAQ. Although we believe that these efforts will be successful over time, there is no guarantee that a trading market will develop for our equity shares or that if a trading market does develop, there is no guarantee as to the price per share or any other performance metric relative to the value or tradability of such shares.

Wemay conduct offerings of our equity securities in the future, in which case an investor’s proportionate interest may become diluted.

If we issue additional common stock shares or securities convertible into our common stock, your percentage interest in the Company could become diluted.

During any future financing, when common stock is issued in return for capital investment, the price per share could be lower than that paid by our current shareholders.

Thesale or availability of substantial amounts of our common stock could adversely affect their market price.

Should we become a publicly listed company, sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the market price of our common stock and could materially impair our ability to raise capital through equity offerings in the future. As of the date of this report, we have 10,016,936 shares of common stock issued and outstanding. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our common stock.

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Wehave never declared or paid any cash dividends or distributions on our capital stock. And we do not anticipate paying any cash dividendson our common stock in the foreseeable future.

We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors that the board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.

Becausewe do not expect to pay dividends in the foreseeable future, investors must rely on price appreciation of our common stock as the onlymeans of generating a positive return for any investment.

We currently intend to retain most, if not all, of our available funds and any future earnings to fund the operations and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our common stock as a source for any future dividend income.

Accordingly, a positive return on any investment in our common stock will depend entirely upon any future price appreciation of our common stock. There is no guarantee that the market price of our common stock will appreciate, or even maintain the price at which an investor may have purchased the common stock. Investors may not realize a return on their investment in our common stock and may even lose their entire investment in our common stock.

Wemay become involved in securities class action litigation that could divert management’s attention and harm our business.

The stock market in general, and the shares of small-cap companies in particular, can experience extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to the operating performance of the companies involved. If these fluctuations occur in the future, the market price of our stock could fall regardless of Zircon’s operating performance. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. If the market price or volume of our stock suffers extreme fluctuations, then we may become involved in this type of litigation, which would be expensive and divert management’s attention and resources from managing our business.

In the event we become a publicly listed company, we may also from time to time make forward-looking statements about future operating results and provide some financial guidance to the public markets. Projections may not be made timely or set at expected performance levels and could materially affect the price of our shares. Any failure to meet published forward-looking statements that adversely affect the stock price could result in losses to investors, stockholder lawsuits or other litigation, sanctions or restrictions issued by the SEC.

Uponbecoming a publicly listed company, our common stock may trade below $5.00 per share and be deemed a “penny stock,” whichcould make it more difficult for investors to sell their shares.

The SEC has adopted rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:

●	that<br> a broker or dealer approves a person’s account for transactions in penny stocks, and
●	the<br> broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the<br> penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

●	obtain<br> financial information and investment experience objectives of the person, and
●	make<br> a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge<br> and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

●	sets<br> forth the basis on which the broker or dealer made the suitability determination and
●	that<br> the broker or dealer received a signed, written agreement from the investor prior to the transaction.

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Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Wehave elected to avail ourself of the extended transition period for complying with new or revised accounting standards pursuant to Section102(b)(1) of the JOBS Act, and further the JOBS Act will allow us to postpone the date by which we must comply with some of the lawsand regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC, whichcould undermine investor confidence in the Company.

For so long as we remain an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act, we may take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies.” In particular, as an emerging growth company we:

●	are<br> not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over<br> financial reporting pursuant to the Sarbanes-Oxley Act of 2002;
●	are<br> not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing<br> how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”);
●	are<br> not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements<br> (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes);
●	are<br> exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;
●	may<br> present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis<br> of Financial Condition and Results of Operations (“MD&A”); and
●	are<br> eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the<br> JOBS Act.

Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933, as amended (the “Securities Act”), or such earlier time that we no longer meet the definition of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1,235,000,000 in annual revenues, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion in principal amount of non-convertible debt over a three-year period. We would cease to be an emerging growth company on the last day of the fiscal year following the date of the fifth anniversary of our first sale of common equity securities under an effective registration statement or a fiscal year in which we have $1 billion in gross revenues.

We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. Therefore, our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.

Our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an “emerging growth company,” which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as an “emerging growth company,” we may elect not to provide you with certain information, including certain financial information and certain information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our company. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.

ITEM

1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM

1C. CYBERSECURITY

We believe cybersecurity is critical to advancing our technological developments. As a manufacturing and technology company, we face a multitude of cybersecurity threats that range from attacks common to most industries, such as ransomware and denial-of service. Our customers, suppliers, subcontractors, and business partners face similar cybersecurity threats, and a cybersecurity incident impacting us or any of these entities could materially adversely affect our business strategy, performance, and results of operations. These cybersecurity threats and related risks make it imperative that we expend resources on cybersecurity.

RiskManagement

We engage third-party services to conduct evaluations of our security controls, whether through penetration testing, independent audits, or consulting on best practices to address new challenges. We have established cybersecurity security awareness training and ongoing monitoring.

In the event of an incident, we intend to follow our cybersecurity incident response plan, which outlines the steps to be followed from incident detection to mitigation, and notification. We contract with external firms that have extensive information technology and program management experience. We have implemented a governance structure and processes to assess, identify, manage, and report cybersecurity risks. As a public company, we must comply with extensive regulations, including requirements for reporting cybersecurity incidents to the SEC. We believe we are positioned to meet the requirements of the SEC. In addition to following SEC guidance and implementing pre-existing third party frameworks, we have developed our own practices and frameworks, which we believe enhance our ability to identify and manage cybersecurity risks. Assessing, identifying, and managing cybersecurity related risks are factored into our overall business approach. We rely heavily on our supply chain to deliver our products and services, and a cybersecurity incident at a clinical site, subcontractor, or business partner could materially adversely impact us. We require that our subcontractors report cybersecurity incidents to us so that we can assess the direct impact of the incident.

ITEM

PROPERTIES

We lease facilities under an operating lease in Campbell, CA. through 2027. ZRCN and Zircon are headquartered in a 14,000 square foot building in Campbell, CA.

We believe our facilities are suitable for their present and intended purposes and are operating at a level consistent with the requirements of the industry in which we operate. We also believe that our leases are at competitive or market rates and do not anticipate any difficulty in leasing suitable additional space upon expiration of our current lease terms.

ITEM

LEGAL PROCEEDINGS

From time to time and in the normal course of operations, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Other than as indicated below, we are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.

ZRCN is engaged in procedures to protect its proprietary rights and has filed complaints with the Federal Trade Commission and the Customs and Border Patrol.

ZirconCorporation v. Stanley Black & Decker, Inc et al.

Zircon appealed an adverse ruling by the International Trade Commission (“ITC”) in an investigation before the ITC in which Zircon sought an injunction to prevent Stanley, Black & Decker, Inc. and its wholly owned subsidiary, Black & Decker (U.S.), Inc. (together “SBD”) from importing and selling in the United States certain products alleged by Zircon to infringe its patents. The appeal was initiated by Zircon following the ruling by the ITC overturning the decision by Judge Charles Bullock, Presiding Judge of the ITC issued on October 7, 2021, finding that three patents at issue in the investigation were both valid and practiced by Zircon and that SBD infringed Zircon’s auto recalibration patent. The Commission found that while Zircon’s auto recalibration patent met all objective requirements for validity, it reversed the Presiding Judge on the subjective requirement of non-obviousness. Zircon then timely appealed to the Federal Circuit Court of Appeal (“FCCA”) and the matter was heard de novo before the FCCA on January 9, 2024. On May 8, 2024, the FCCA denied Zircon’s request for an order from the ITC excluding importation of certain SBD products. However, Zircon’s action against SBD for damages filed December 9, 2019 in the Fed District Court in the Northern District of California, under stay pending the disposition of the FCCA matter between Zircon and the ITC, may now move forward and Zircon is reviewing and considering its options. All charges in connection with the litigation versus SBD have been expensed to date and no damage claim against zircon have been filed in this matter. The parties involved in the matter are meeting and conferring as required by the Court.

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Morgenthaler,et al. v. Zircon, et al.

Zircon was one of more than twenty (20) defendants named in a suit filed in Los Angeles County, California Superior Court on behalf of three family members injured in an accident between an automobile and a truck and trailer. The accident occurred in May 2017 and the Complaint was filed on December 1, 2017. Zircon, represented in the case by insurance defense lawyers selected and paid for by the company’s liability insurance carrier, The Travelers Indemnity Company, had no direct or indirect involvement in the accident and had no goods on the truck at the time of the accident. Zircon argued that it was neither the cause in fact nor the proximate cause of the accident or of the damages suffered by the Plaintiffs, and filed a Motion for Summary Judgement. The trial court judge found that there were “…no triable issues of fact, and that the moving party, Defendant Zircon Corporation, is entitled to judgement as a matter of law…”. The Order on the Motion was entered on May 23, 2022 and the Plaintiffs appealed. On January 30, 2024, the California Second District Court of Appeal affirmed the trial court’s Summary Judgement in favor of Zircon. Plaintiffs did not further appeal the January 30, 2024 affirmation by the California Second District Court of Appeal of the trial court’s Summary Judgement in favor of Zircon, and the matter is closed with regard to Zircon.

ClaimAsserted by Mr. Michael Green

In April 2024, Mr. Michael Green, an individual in Great Britain, asserted violation by Zircon in its U.S. website of certain privacy protections under the laws of Great Britain. The Company believes its U.S. website has not violated the laws of Great Britain and that, in any event, has responded stating such laws do not apply outside Great Britain. As of the date of filing this Annual Report on Form 10-K, Mr. Green has not responded to the Company and has not asserted any claim for damages.

ITEM

MINE SAFETY DISCLOSURES

Not applicable.

PART

ITEM

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

MarketInformation

Our common stock is neither traded nor quoted at any market.

Holdersof Our Common Stock

As of March 31, 2024, there were 96 stockholders of record of our common stock.

DividendPolicy

We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business, and we do not anticipate declaring or paying any cash dividends in the foreseeable future. Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects, and other factors our board of directors may deem relevant.

RecentSales of Unregistered Securities

There have been no sales of unregistered securities.

ITEM6. [Reserved.]

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SELECTED

FINANCIAL DATA

The following selected consolidated financial information has been derived from the audited consolidated financial statements of Zircon. The information set forth below is not necessarily indicative of results of future operations and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes to those statements included therein.

	For the Years Ended March 31,
	2024			2023
Net Sales	$	31,519,187		$	30,499,470
Cost of goods sold		17,689,837			18,266,095
Gross Profit		13,829,350			12,233,375
Selling, administrative and other costs		12,993,111			11,980,960
Operating Income		836,239			252,415
Other Expenses
Interest expense		739,576			451,677
Other loss		31,069			29,133
Loss on foreign currency translation		84,878			48,106
Total other expenses		855,523			528,916
Loss before income taxes		(19,284	)		(276,501	)
Income tax benefit (expense)		69,839			(158,202	)
Net income (loss)	$	50,555		$	(434,703	)
Less: Net income attributable to non-controlling interests		270,013			232,869
Net loss attributable to ZRCN Inc. common stockholders	$	(219,458	)	$	(667,572	)
Foreign currency translation adjustment		(203,410	)		11,445
Comprehensive loss attributable to ZRCN Inc. common stockholders	$	(152,855	)	$	(423,258	)
Net loss per share attributable to ZRCN Inc. common shareholders:
Basic and diluted		(0.02	)	$	(1.34	)
Weighted average common shares outstanding:
Basic and diluted		9,573,088			500,000
	For<br> the Years Ended March 31,
---	---	---	---	---
	2024		2023
Consolidated<br> Statements of Operations Data:
Cash<br> and cash equivalents	$	502,162	$	29,015
Working<br> capital		14,086,990		15,092,755
Total<br> assets		27,614,106		24,942,433
Long-term<br> obligations		9,237,680		8,966,703
Total<br> stockholders’ equity		8,926,352		9,826,891

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ITEM

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Thefollowing management discussion and analysis of the financial position and results of operations (“MD&A”) should be readin conjunction with the audited consolidated financial statements and related notes to the financial statements included elsewhere inthis Report. This discussion contains forward-looking statements that relate to future events or our future financial performance. Thesestatements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performanceor achievements to be materially different from any future results, levels of activity, performance or achievements expressed or impliedby these forward-looking statements. These risks and other factors include, among others, those listed under “Forward-Looking Statements”and “Risk Factors” and those included elsewhere in this report.

OVERVIEW

Zircon is a Silicon Valley-based company operating in Northern California since 1977. leveraging its proprietary sensor-based technology across a mix of global markets, including commercial and residential buildings, government infrastructure and building information modeling. Zircon is focused on creating new, technical solutions for global applications in the areas of home and workplace safety, project efficiency, and structural data analysis.

Zircon benefits from a multi-generational customer base of professional contractors and do-it-yourselfers who rely on Zircon’s innovative and easy-to-use products to get the job done.

RESULTS

OF OPERATIONS

The Company’s selected financial information for fiscal 2024 and fiscal 2023 is as follows. All the data are presented in United States dollars.

FinancialPosition Analysis

The information presented as of March 31 of each of the past two (2) years represents the information of Zircon Corporation.


Assets	27,614,106	24,942,433
Liabilities	18,687,754	15,115,542
Equity	8,926,352	9,826,891

Assets

Total assets as of March 31, 2024, were $27.6 million compared to $24.9 million as of March 31, 2023, which was an increase of approximately $2.7 million. This increase was driven primarily by an increase in cash of $0.5 million, an increase in accounts receivable of approximately $1.1 million, an increase in inventory of approximately $0.9 million, and increase in deferred tax assets of $0.5 million and an increase in the federal tax deposit of $0.1 million offset by a decrease in prepaids and other assets of $0.2 million and a decrease in operating right-of-use assets of $0.2 million.

Liabilities

Total liabilities as of March 31, 2024, were $18.7 million compared to $15.1 million as of March 31, 2023, which was an increase of approximately $3.6 million. This increase was driven primarily by an increase in our line of credit of $0.8 million, an increase in accounts payable of approximately $3.2 million, and an increase in accrued expenses of $0.2 million offset by a decrease in notes payable of $0.2 million, a decrease in notes payable to the Stauss Family Administrative Trust of $0.2 million, and a decrease in the operating lease liability of $0.2 million.

Equity

Total equity as of March 31, 2024, was $8.9 million compared to $9.8 million as of March 31, 2023, which was a decrease of approximately $0.9 million. This decrease was driven primarily by costs associated with the Harmony merger of $1.1 million, a net loss of $0.2 million and a foreign currency translation loss of $0.2 million offset by a non-cash gain on our settlement of a note payable with the Status Family Trust of $0.2 million, non-controlling interests of $0.3 million and the issuance of common stock for advisory services of $0.1 million.

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OperatingResults Analysis

Readers are invited to take into consideration the consolidated operating results of Zircon Corporation for the fiscal years ended March 31, 2024, and 2023.

	For the Years Ended March 31,
	2024			2023
Net Sales	$	31,519,187		$	30,499,470
Cost of goods sold		17,689,837			18,266,095
Gross Profit		13,829,350			12,233,375
Operating Expenses
General & administrative		6,701,914			5,369,848
Marketing & selling		4,373,250			4,708,971
Research and development		1,917,947			1,902,141
Total Operating Expenses		12,993,111			11,980,960
Operating Income		836,239			252,415
Other Expenses
Interest expense		739,576			451,677
Other loss		31,069			29,133
Loss on foreign currency translation		84,878			48,106
Total other expenses		855,523			528,916
Loss before income taxes		(19,284	)		(276,501	)
Income tax benefit (expense)		69,839			(158,202	)
Net income (loss)	$	50,555		$	(434,703	)
Less: Net income attributable to non-controlling interests		270,013			232,869
Net loss attributable to ZRCN Inc. common stockholders	$	(219,458	)	$	(667,572	)
Foreign currency translation adjustment		(203,410	)		11,445
Comprehensive loss attributable to ZRCN Inc. common stockholders	$	(152,855	)	$	(423,258	)

Salesrevenue and gross margin

Revenue for fiscal 2024 was $31.5 million compared to $30.5 million in fiscal 2023 which was an increase of $1.0 million, or 3%. This increase was driven primarily by increased sales in the United States and Asia and reduced sales discounts. Gross profit for fiscal 2024 was $13.8 million, or 43.9% compared to 12.2 million, or 40.1%, which was an increase of $1.6 million, or 13%, and 3.8%, respectively. The increase in gross profit was driven by improved pricing and the increase in gross margin was driven by reduced manufacturing expenses.

Researchand development

Research and development expenses for fiscal 2024 were $1.9 million compared to $1.9 million in fiscal 2023. The increase in 2024 was $15,000, or 1%, and was driven by consulting expenses.

Marketingand selling

Marketing and selling expenses for fiscal 2024 were $4.4 million compared to $4.7 million in fiscal 2023 which was a decrease of $0.3 million, or 7%. This decrease was driven primarily by a reduction in the use of consulting services and reduced advertising.

Administrativeexpenses

General and administrative expenses for fiscal 2024 were $6.7 million compared to $5.4 million in fiscal 2023 which was an increase of $1.3 million, or 25%. This increase was driven primarily by consulting and legal expenses associated with the Harmony merger, payroll expenses, and corporate service expenses.

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Stockbased compensation

Warrants with a fair value of $301,572 were issued during the year ended March 31, 2024.

Otherexpenses

Other expenses for fiscal 2024 were $0.9 million compared to $0.5 million in fiscal 2023 which was an increase of $0.4 million, or 62%. This increase was driven primarily by an increase in interest expense of $0.3 million and an increase in foreign exchange losses of $37,000. The increase in interest expense was driven by an increase in our average line of credit balance during fiscal 2024.

Zircon has notes payable to the Stauss Family Administrative Trust to repay loans made to Zircon. The principal balance of $667,230 is due and payable in December 2024. Interest accrued at 5.5% per annum is paid quarterly and included in accrued expenses. The note is subordinated to the line of credit payable to the bank and no payment is to be made on the note without prior approval from the bank. On March 31, 2024 the Stauss Family Administrative Trust and the Company agreed to extend the maturity date of the Notes Payable to the trust to December 31, 2025.

Interest expense for the notes in fiscal 2024 was $30,399 while in fiscal 2023 the expense was $50,601.

Provisionfor income taxes

The benefit from income taxes for fiscal 2024 was $70.000 compared to a provision of $0.2 million in fiscal 2023 which was an decrease of $0.2 million, or 144%. This decrease was driven primarily by a change in our deferred tax asset position.

Othercomprehensive income (loss)

Comprehensive income (loss) for all periods presented is comprised primarily of net income (loss) and foreign currency translation adjustments. The change in foreign currency translation adjustment was a loss of $0.2 million in fiscal 2024 compared to a gain of $11,000 which was a decrease of $0.2 million. This change was primarily driven by unfavorable exchange rate changes in Mexico.

CashFlow Analysis

	For<br> the Years Ended March 31,
****	2024		****	2023
Operating<br> activities	$	1,183,344		$	1,030,586
Investing<br> activities		(1,168,607	)		(794,262	)
Financing<br> activities		590,039			(466,034	)
Effect<br> of exchange rate changes		(131,629	)		(7,551	)
Net<br> increase (decrease) in cash	$	473,147		$	(237,261	)

OperatingActivities

During the year ended March 31, 2024, net cash provided by operating activities was $1.2 million. This increase was due to net income of $51,000, non-cash expenses for depreciation, amortization, and inventory obsolescence impairment of $1.3 million, provision for bad debt and foreign currency losses of $89,000, a decrease in prepaids and other assets of $0.2 million, and common stock issued for advisory services of $0.1 million, an increase in accounts payable and accrued expenses and other current liabilities of $2.8 million, offset by an increase in accounts receivable of $1.1 million, an increase in inventory of $1.4 million, and increase in deferred tax assets of $0.5 million, an increase in the federal tax deposit of $78,000, and a decrease in operating lease liabilities of $0.2 million.

During the year ended March 31, 2023, net cash provided by operating activities was $1.0 million. This increase was due to a net loss of $0.4 million being offset by non-cash expenses for depreciation and amortization of $1.3 million and bad debt expense of $2,000, a decrease in accounts receivable of $94,000, a decrease in inventory of $1.2 million, a decrease in prepaids and other assets of $0.4 million, an increase in accrued expenses of $0.1 million, offset by an increase in the federal tax deposit of $64,000, a decrease in accounts payable of $1.5 million, and a decrease in operating lease liabilities of $54,000.

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InvestingActivities

During the year ended March 31, 2024, net cash used in investing activities was $1.2 million. This decrease was due to purchases of property and equipment of $0.6 million, the net effect of the Harmony merger of $0.5 million, and investments in intangible assets of $68,000.

During the year ended March 31, 2023, net cash used in investing activities was $0.8 million. This decrease was due to purchases of property and equipment of $0.7 million, investments in intangible assets of $95,000, and the issuance to a shareholder of a note receivable of $29,000.

FinancingActivities

During the year ended March 31, 2024, net cash provided by financing activities was $0.6 million. This increase was due to borrowings under the Company’s line of credit of $10.9 million offset by repayment of borrowings of $10.1 million, a bank overdraft of $0.4 million offset by repayment of debt assumed as part of the Harmony merger of $0.3 million and repayments of notes payable of $0.3 million.

During the year ended March 31, 2023, net cash used in financing activities was $0.5 million. This decrease was due to borrowings under the Company’s line of credit of $19.0 million offset by repayment of borrowings of $18.9 million, repayments of notes payable of $0.4 million, and a distribution to stockholders of $0.2 million for S Corp related pass-through tax liabilities.

Liquidity,Capital Resources and Sources of Financing

As of March 31, 2024, the Company had a cash balance of $0.5 million and working capital of $14.1 million. Working capital as of March 31, 2023 was $15.1 million. The decrease of $1.0 million was driven primarily by an increase in accounts payable offset by a smaller, combined increase in accounts receivable and inventory. To date the Company has been financed primarily through retained earnings, loans and credit lines secured by accounts receivable, inventory and fixed assets. The Company believes that it has sufficient liquidity and access to loans and credit lines to fund its operations and working capital requirements for the next 12 months.

On May 31, 2024, the Company entered into a Revolving Credit Agreement (the “Credit Agreement”) with FGI Worldwide LLC, as Agent for the lender (“FGI”). The Credit Agreement provides for a $15 million senior secured revolving credit facility (the “Credit Facility”) available to be used by the Company, Zircon and its Affiliates for replacement and discharge of the Company’s current US Bank loan of $8,750,000 and matures on May 31, 2027. The Company, Zircon and the Affiliates are guarantors of all obligations under the Credit Agreement and the Company’s four principal shareholders are limited guarantors thereof.

The Credit Agreement stipulates a base rate measured by the sum of Term SOFR for a period of one month, as published by the CME Group Benchmark Administration Limited (or any successor administration of Term SOFR) two business days prior to the beginning of the calendar month and a percentage equal to 0.10% (10 basis points) per annum. If at any time the displayed Term SOFR is less than 0.00%, Term SOFR is deemed to be 0.00% for the purposes of the credit facility.

The Credit Agreement bears interest measured by such outstanding amounts on receivable advances and inventory advances that accrue interest at the greater of 5.25% per annum or 3.00% above the base rate. Interest is charged on the last day of each month on a daily net balance of funds advanced or otherwise charged to the Company.

The Credit Agreement requires the Company to comply with maximum total net leverage and minimum fixed charge coverage ratios.

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Informationon Outstanding Securities

The following table sets out the number of common shares and warrants outstanding as of the date hereof:

Information<br> on Outstanding Securities
Common<br> shares issued and outstanding	10,016,936
Potential issuance<br> of common shares
Warrants	217,184
Stock<br> options	-
Fully diluted<br> shares	10,234,120

In accordance with an agreement with S.C.E. Partners (“SCE”) dated May 15, 2023, the Company will issue an additional 25,000 common shares to SCE through June 30, 2024.

RelatedParty Transactions

Zircon is a member of a controlled group of companies and has revenue and cost-sharing activities with other members of the controlled group. Results of operations and financial condition may not represent amounts that would have been reported if Zircon operated as an unaffiliated entity.

Zircon has an exclusive manufacturing and technical assistance agreement with Zircon de Mexico S.A. de C.V. (the “Contractor”), an entity which is owned by certain shareholders of Zircon. Under the terms of the agreement, Zircon provides materials, technical assistance, and expertise to the Contractor, and the Contractor assembles certain of Zircon’s products.

The Company leases a 14,000 square foot facility from a trust owned by the Stauss Family Administrative Trust.

The Company has notes payable to the Stauss Family Administrative Trust to repay loans made to the Company. As of March 31, 2024, principal balance of $667,230 is due and payable in December 2025. Interest accrued at 5.5% per annum is paid quarterly and included in accrued expenses. The note is subordinated to the line of credit note payable to the bank and no payment is to be made on the note without prior approval from the bank. In the second quarter of 2023, a portion of the note payable to Stauss Family Administrative Trust was settled as a non cash transaction against the note receivable from one stockholder for $240,190.

For the years ended March 31, 2024 and 2023 the interest expense on notes payable to the Stauss Family Administrative Trust totaled $30,399 and $50,601 respectively.

On March 31, 2024 the Stauss Family Administrative Trust and the Company agreed to extend the maturity date of the Notes Payable to the trust to December 31, 2025.

Off-BalanceSheet Arrangements

ZRCN has no off-balance sheet arrangements.

ContractualObligations and Commitments

As of March 31, 2024, we did not have any material contractual obligations.

Estimates,Judgments and Assumptions

ZRCN prepares its consolidated financial statements in accordance with US GAAP, which require management to make estimates and assumptions that affect the amounts of its assets and liabilities, the information provided with regard to future assets and liabilities as well as the amounts of revenues and expenses for the relevant periods. Readers are invited to refer the Note 3 of the financial statements for the year ended March 31, 2024, for details.

CriticalAccounting Policies and Estimates

Please refer to Note 3 Summary of Significant Accounting Policies of the Financial Statements for disclosures regarding the critical accounting policies related to our business.

RecentlyIssued Accounting Standards

Our recently issued accounting standards are included in Note 3 Summary of Significant Accounting Policies of the Financial Statements for disclosures regarding the critical accounting policies related to our business.

ITEM7A. Quantitative and Qualitative Disclosures About Market Risk

InterestRate Risk

ZRCN’s exposure to changes in interest rates relates primarily to Zircon’s cash, cash equivalents and outstanding debts.

ForeignCurrency & Exchange Risk

ZRCN sources parts and materials from foreign vendors and sells its products in various foreign markets around the world. Changes in foreign currency exchange for the purchase of components from vendors and the sale of products in foreign markets can have a material impact on the Company’s results of operations and liquidity. The Company could hedge or take other steps to mitigate the impact from foreign currency exchange rates, but there is no guarantee that these efforts will be successful in every instance.

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ITEM

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index

to Financial Statements

Report<br> of Independent Registered Public Accounting Firm (PCAOB ID: 5036)	F-1
Balance<br> Sheets	F-2
Statements<br> of Operations	F-3
Statements<br> of Stockholders’ Equity	F-4
Statements<br> of Cash Flows	F-5
Notes<br> to Financial Statements	F-6

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REPORT

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of ZRCN Inc.

Opinionon the Financial Statements

We have audited the accompanying consolidated balance sheets of ZRCN Inc. (the Company) as of March 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive (loss) income, changes in stockholders’ equity and cash flow for the years ended March 31, 2024 and 2023 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2024 and 2023, and the results of its operations and its cash flows for the years ended March 31, 2024 and 2023, in conformity with accounting principles generally accepted in the United States of America.

Basisfor Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

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

CriticalAudit Matters

The critical audit matters to be communicated below, are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

We did not identify any critical audit matters that need to be communicated.

/s/ Assurance Dimensions
We<br> have served as the Company’s auditor since 2023.
Coral Springs, Florida
July 15, 2024

ASSURANCE

DIMENSIONS CERTIFIED PUBLIC ACCOUNTANTS & ASSOCIATES

also

d/b/a McNAMARA and ASSOCIATES, PLLC

TAMPA

BAY: 4920 W Cypress Street, Suite 102 |Tampa, FL 33607 | Office: 813.443.5048 | Fax: 813.443.5053

JACKSONVILLE: 4720

Salisbury Road, Suite 223 | Jacksonville, FL 32256 | Office: 888.410.2323 | Fax: 813.443.5053

ORLANDO:

1800 Pembrook Drive, Suite 300 | Orlando, FL 32810 | Office: 888.410.2323 | Fax: 813.443.5053

SOUTH

FLORIDA: 3111 N. University Drive, Suite 621 | Coral Springs, FL 33065 | Office: 754.800.3400 | Fax: 813.443.5053

www.assurancedimensions.com

“Assurance Dimensions” is the brand name under which Assurance Dimensions, LLC including its subsidiary McNamara and Associates, LLC (referred together as “AD LLC”) and AD Advisors, LLC (“AD Advisors”), provide professional services. AD LLC and AD Advisors practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable laws, regulations, and professional standards. AD LLC is a licensed independent CPA firm that provides attest services to its clients, and AD Advisors provide tax and business consulting services to their clients. AD Advisors, and its subsidiary entities are not licensed CPA firms.

| F-1 |

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ZRCN

                                        Inc.

CONSOLIDATED

BALANCE SHEETS

			March<br> 31, 2023
ASSETS
Current<br> assets:
Cash	502,162		$	29,015
Accounts<br> receivable, net of provision for credit losses of approximately 14,000<br> and 10,000,<br> respectively	8,644,373			7,524,428
Inventory	14,056,590			13,137,101
Prepaid<br> expenses and other assets	333,939			551,050
Total<br> current assets	23,537,064			21,241,594
Property<br> and equipment, net	1,803,343			1,779,615
Deferred<br> tax asset	498,797			—
Operating<br> lease right-of-use assets	751,214			960,044
Federal<br> tax deposit	213,016			134,600
Intangible<br> assets, net	791,477			807,385
Deposits	19,195			19,195
Total<br> assets	27,614,106		$	24,942,433
LIABILITIES<br> AND STOCKHOLDERS’ EQUITY
Current<br> liabilities:
Accounts<br> payable	7,050,055		$	3,881,323
Accrued<br> expenses	2,129,917			1,876,325
Notes<br> payable, current portion	75,000			205,834
Operating<br> lease liability, current	195,102			185,357
Total<br> current liabilities	9,450,074			6,148,839
Line<br> of credit	8,025,550			7,210,652
Notes<br> payable, net of current portion	—			65,000
Operating<br> lease liability, net of current portion	544,900			783,631
Notes<br> payable to Stauss Family Administrative Trust	667,230			907,420
Notes<br> payable	667,230			907,420
Total<br> liabilities	18,687,754			15,115,542
Commitments<br> and Contingencies (Note 14)
Stockholders’<br> equity:
Common<br> stock; at 0.0001 par<br> value, 20,000,000 shares<br> authorized, 10,016,936 and<br> 500,000 shares<br> issued and outstanding as of March 31, 2024 and 2023, respectively	1,001			50
Accumulated<br> other comprehensive (loss) income	(187,400	)		16,010
Note<br> receivable from stockholder	—			(240,190	)
Retained<br> earnings	7,421,226			8,629,509
Total<br> equity attributable to ZRCN Inc. stockholders	7,234,827			8,405,379
Non-controlling<br> interests in variable interest entities	1,691,525			1,421,512
Total<br> stockholders’ equity	8,926,352			9,826,891
Total<br> liabilities and stockholders’ equity	27,614,106		$	24,942,433

All values are in US Dollars.

The

accompanying notes are an integral part of these consolidated financial statements.

| F-2 |

| --- |

ZRCN

Inc.

CONSOLIDATED

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

	For<br> the Years Ended March 31,
	2024			2023
Net<br> sales	$	31,519,187		$	30,499,470
Cost<br> of sales		17,689,837			18,266,095
Gross<br> profit		13,829,350			12,233,375
Operating<br> expenses:
General<br> and administrative		6,701,914			5,369,848
Marketing<br> and selling		4,373,250			4,708,971
Research<br> and development		1,917,947			1,902,141
Total<br> operating expenses		12,993,111			11,980,960
Income<br> from operations		836,239			252,415
Other<br> expenses:
Interest<br> expense		739,576			451,677
Other<br> expenses		31,069			29,133
Loss<br> on foreign currency transactions		84,878			48,106
Total<br> other expenses		855,523			528,916
Loss<br> before income taxes		(19,284	)		(276,501	)
Income<br> tax benefit (expense)		69,839			(158,202	)
Net<br> income (loss)	$	50,555		$	(434,703	)
Less:<br> Net income attributable to non-controlling interests		270,013			232,869
Net<br> loss attributable to ZRCN Inc. common stockholders	$	(219,458	)	$	(667,572	)
Net<br> income (loss)	$	50,555		$	(434,703	)
Change<br> in foreign currency translation adjustment		(203,410	)		11,445
Comprehensive<br> loss		(152,855	)		(423,258	)
Less:<br> Net income attributable to non-controlling interests		270,013			232,869
Less:<br> Other comprehensive (loss) income attributable to noncontrolling interest		(203,410	)		11,445
Comprehensive<br> loss attributable to ZRCN common stockholders	$	(219,458	)	$	(667,572	)
Net<br> loss per share attributable to ZRCN Inc.:
Basic<br> and diluted	$	(0.02	)	$	(1.34	)
Weighted average common<br> shares outstanding:
Basic<br> and diluted		9,573,088			500,000

The

accompanying notes are an integral part of these consolidated financial statements.

| F-3 |

| --- |

ZRCN

Inc.

CONSOLIDATED

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

	Common<br> Stock				Accumulated<br><br> <br>Other<br><br> <br>Comprehensive			Note<br><br> <br>Receivable<br><br> <br>from			Retained			Total<br> Equity<br><br> <br>Attributable			Non-<br><br> <br>controlling		Total<br><br> <br>Stockholders’
	Shares		Amount		(Loss)<br> Income			Stockholder			Earnings			to<br> ZRCN			Interests		Equity
Balance<br> - March 31, 2022		500,000	$	50	$	4,565		$	(211,390	)	$	9,520,102		$	9,313,327		$	1,188,643	$	10,501,970
Stockholder<br> distributions		—		—		—			—			(223,021	)		(223,021	)		—		(223,021	)
Advance<br> to stockholder		—		—		—			(28,800	)		—			(28,800	)		—		(28,800	)
Change<br> in foreign currency translation adjustment		—		—		11,445			—			—			11,445			—		11,445
Net<br> (loss) income		—		—		—			—			(667,572	)		(667,572	)		232,869		(434,703	)
Balance - March<br> 31, 2023		500,000	$	50	$	16,010		$	(240,190	)	$	8,629,509		$	8,405,379		$	1,421,512	$	9,826,891
Balance		500,000	$	50	$	16,010		$	(240,190	)	$	8,629,509		$	8,405,379		$	1,421,512	$	9,826,891
Merger<br> with Harmony		9,448,272		945		—			—			(1,098,680	)		(1,097,735	)		—		(1,097,735	)
Common<br> stock issued for advisory services		68,664		6		—			—			109,855			109,861			—		109,861
Noncash<br> settlement of Stauss note payable for settlement of note receivable from stockholder		—		—		—			240,190			—			240,190			—		240,190
Change<br> in foreign currency translation adjustment		—		—		(203,410	)		—			—			(203,410	)		—		(203,410	)
Net<br> (loss) income		—		—		—			—			(219,458	)		(219,458	)		270,013		50,555
Balance - March<br> 31, 2024		10,016,936	$	1,001	$	(187,400	)	$	—		$	7,421,226		$	7,234,827		$	1,691,525	$	8,926,352
Balance		10,016,936	$	1,001	$	(187,400	)	$	—		$	7,421,226		$	7,234,827		$	1,691,525	$	8,926,352

The

accompanying notes are an integral part of these consolidated financial statements.

| F-4 |

| --- |

ZRCN

Inc.

CONSOLIDATED

STATEMENTS OF CASH FLOWS

	For<br> the Years Ended March 31,
	2024			2023
CASH<br> FLOWS FROM OPERATING ACTIVITIES:
Net<br> income (loss)	$	50,555		$	(434,703	)
Adjustments<br> to reconcile net loss to net cash provided by operating activities:
Depreciation<br> expense		665,377			1,166,906
Amortization<br> of intangible assets		83,742			113,294
Amortization<br> of right-of-use assets		131,184			63,422
Inventory obsolescence impairment		444,771			—
Provision for credit losses		3,756			1,561
Loss<br> on foreign currency transactions		84,878			—
Deferred<br> income taxes		(498,797	)		—
Common stock issued for advisory services		109,861			—
Changes<br> in operating assets and liabilities:
Accounts<br> receivable		(1,122,610	)		94,028
Inventory		(1,364,260	)		1,161,757
Prepaid<br> expenses and other assets		222,909			423,127
Federal<br> tax deposit		(78,416	)		(64,139	)
Accounts<br> payable		2,525,950			(1,542,055	)
Accrued<br>expenses		153,430			101,866
Operating<br> lease liabilities		(228,986	)		(54,478	)
Net<br> cash provided by operating activities		1,183,344			1,030,586
CASH<br> FLOWS FROM INVESTING ACTIVITIES
Effect<br> of Harmony Merger, net of cash acquired		(518,611	)		—
Investment<br> in intangible assets		(67,834	)		(94,874	)
Purchase<br> of property and equipment		(582,162	)		(670,588	)
Issuance<br> of note receivable to shareholder		—			(28,800	)
Net<br> cash used in investing activities		(1,168,607	)		(794,262	)
CASH<br> FLOWS FROM FINANCING ACTIVITIES
Repayment<br> of notes payable		(257,381	)		(410,000	)
Repayment<br> of debt assumed in Harmony Merger		(317,500	)		—
Distributions<br> to stockholders		—			(223,021	)
Borrowing<br> on line of credit		10,912,717			19,028,442
Repayment<br> on line of credit		(10,097,819	)		(18,861,455	)
Bank overdraft		350,022			—
Net<br> cash provided by (used in) financing activities		590,039			(466,034	)
Effect<br> of exchange rate fluctuations on cash		(131,629	)		(7,551	)
Net<br> increase (decrease) in cash		473,147			(237,261	)
Cash<br> at beginning of period		29,015			266,276
Cash<br> at end of period	$	502,162		$	29,015
Supplemental disclosure of cash flow information:
Cash<br> paid for interest	$	664,633		$	471,717
Cash<br> paid for taxes	$	148,877		$	134,600
Noncash<br> investing and financing activities:
Common<br> stock issued in connection with Harmony merger	$	18,900		$	—
Fair<br> value of Advisor Warrants issued to effectuate Harmony Merger	$	301,572		$	—
Assets<br> acquired in Harmony Merger	$	663		$	—
Liabilities<br> assumed in Harmony Merger	$	(579,176	)	$	—
Noncash<br> settlement of Stauss note payable for settlement of note receivable from stockholder	$	240,190		$	—
ROU<br> assets obtained in exchange for lease obligations in connection with adoption of ASC 842	$	—		$	1,023,466
Noncash investing and financing activities:
---	---	---	---	---	---
Common stock issued in connection with Harmony merger	$	18,900		$	—
Fair value of Advisor Warrants issued to effectuate Harmony Merger	$	301,572		$	—
Assets acquired in Harmony Merger	$	663		$	—
Liabilities assumed in Harmony Merger	$	(579,176	)	$	—
Noncash settlement of Stauss note payable for settlement of note receivable from stockholder	$	240,190		$	—
ROU assets obtained in exchange for lease obligations in connection with adoption of ASC 842	$	—		$	1,023,466

The

accompanying notes are an integral part of these consolidated financial statements.

| F-5 |

| --- |

ZRCN

Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

1.Organization

TheBusiness

On April 14, 2023 (the “Closing Date”), Zircon Corporation (“Zircon”) effectuated a merger and reorganization with Harmony Energy Technologies, Inc. (“Harmony”), a Delaware Corporation, ZRCN Inc., a California corporation and a wholly owned subsidiary of Harmony (the “Merger Sub”). The merger leverages Zircon’s sensor-based, ASIC (“Application-Specific Integrated Circuits”) processor technology and patent portfolio, to accelerate growth in its product lines and global markets as a publicly traded company. The combination of Harmony and Zircon was effectuated through a merger (the “Merger”) of Merger Sub into Zircon. The separate existence of Merger Sub ceased, and Merger Sub was merged with and into Zircon (Zircon, as the surviving corporation following the Merger). Upon completion of the Merger, Harmony changed its name to ZRCN Inc. (“ZRCN” or the “Company”). While Harmony was the legal acquirer of Zircon in the Merger, the Merger is treated as a reverse recapitalization, whereby Zircon is deemed to be the accounting acquirer, and the historical financial statements of Zircon became the historical financial statements of Harmony (renamed ZRCN Inc.) upon the closing of the Merger. Under this method of accounting, Harmony was treated as the “acquired” company and Zircon is treated as the acquirer for financial reporting purposes.

Accordingly, for accounting purposes, the Merger was treated as the equivalent of Zircon issuing stock for the net assets of Harmony, accompanied by a recapitalization. The net assets of Harmony were stated at historical cost, with no goodwill or other intangible assets recorded.

Zircon was incorporated in California in 1977. The Company, through Zircon, is principally engaged in the design and manufacture of electronic-based consumer hardware and sells its products primarily to retail outlets located throughout the United States, Canada, Japan and Europe. The Company and Zircon operate from their headquarters located in Campbell, California and an affiliate entity of Zircon, Zircon de Mexico S.A. de C.V., located in Ensenada, Mexico. The operations of the Company and Zircon are supported also by an affiliated entity of Zircon, Zircon Corporation Limited, located in the United Kingdom.

2.Liquidity

As

of March 31, 2024, the Company had $502,162

in

cash and working capital of $14,086,990 . To date, ZRCN has been financed primarily through retained earnings, secured loans and a line of credit. The Company’s line of credit was scheduled to expire on July 31, 2024 (Note 10) but on May 31, 2024, the Company entered into a revolving credit agreement with a new lender that matures on May 31, 2027 (Note 16). The loans are secured by accounts receivable, inventory and fixed assets. The Company believes that it has sufficient liquidity to fund its operations and operating capital needs for the next 12 months as well as meet its obligations as they become due in 2024 and 2025.

3.Summary of Significant Accounting Policies

Basisof Presentation

The accompanying consolidated financial statements of the Company are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). On this basis, revenue and the related assets are recognized when services are performed and products are sold, and expenses and related liabilities are recorded when the obligation is incurred.

Principlesof Consolidation

The accompanying consolidated financial statements include the accounts of ZRCN as well as its variable interest entities. The Company consolidates all entities over which the Company has the power to govern the financial and operating policies and therefore exercises control, and upon which the Company has a controlling financial interest. The entities are consolidated from the date at which the Company obtains control and are de-consolidated from the date at which control ceases. All intercompany balances and transactions have been eliminated. Accounting policies of the entities have been revised where necessary to ensure consistency with the policies adopted by the Company.

| F-6 |

| --- |

ZRCN

                                        Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

Under Accounting Standards Codification (“ASC”) Topic 810-10-25, Consolidation, Zircon de Mexico S.A. de C.V. (“ZDM”) and Zircon Corporation Limited (“Zircon UK”) have been determined to be variable interest entities with Zircon as the primary beneficiary. Therefore, the financial statements of ZDM and Zircon UK are consolidated with Zircon and the Company, and all significant intercompany transactions and balances have been eliminated.

ReverseStock Split

On May 10, 2023, ZRCN authorized a 1:20 reverse split

of its common shares outstanding,

pursuant to a majority vote of stockholders as provided under Section 228 of the Delaware General Corporation Law (DGCL). As a result, ZRCN made an amendment to the Certificate of Incorporation of the Corporation to affect a reverse split of the Common Stock whereby each twenty (20) issued and outstanding shares of Common Stock was exchanged for one (1) share of Common Stock. Each resulting fractional share of Common Stock was rounded up to the next nearest whole share of Common Stock and with no change to the authorized shares of Common Stock. At the time, the effect of the reverse stock split reduced the number of common shares outstanding from 198,964,500

to 9,948,272

. All references to common stock, stock warrants to purchase common stock, share data, per share data and related information contained in these consolidated financial statements have been retrospectively adjusted to reflect the effect of the reverse stock split for all periods presented.

VariableInterest Entities

In accordance with ASC 810, Consolidation (“ASC 810”), the Company assesses whether it has an explicit or implicit variable interest in legal entities in which it has a financial relationship and, if so, whether or not those entities are variable interest entities (“VIEs”). Variable interests are contractual, ownership, or other pecuniary interests in an entity whose value changes with changes in the fair value of the entity’s net assets, exclusive of variable interests. Explicit variable interests are those which directly absorb the variability of a VIE and can include contractual interests such as loans or guarantees as well as equity investments. An implicit variable interest acts the same as an explicit variable interest except it involves the absorbing of variability indirectly, such as through related party arrangements or implicit guarantees. The analysis includes consideration of the design of the entity, its organizational structure, including decision making ability over the activities that most significantly impact the VIE’s economic performance. For those entities that qualify as VIEs, ASC 810 requires the Company to determine if the Company is the primary beneficiary of the VIE, and if so, to consolidate the VIE.

If an entity is determined to be a VIE, the Company evaluates whether the Company is the primary beneficiary. The primary beneficiary analysis is a qualitative analysis based on power and economics. The Company consolidates a VIE if both power and benefits belong to the Company

that is, the Company (i) has the power to direct the activities of a VIE that most significantly influence the VIE’s economic performance (power), and (ii) has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE (benefits). The Company consolidates VIEs whenever it is determined that the Company is the primary beneficiary.

The Company has determined that ZDM and Zircon UK are variable interest entities with the Company’s wholly owned subsidiary, Zircon, as the primary beneficiary, and thus the Company, with the ability to exercise control, as determined under the guidance of ASC 810. In its determination, management considered the following qualitative and quantitative factors:

a.	the<br> overall purpose and design of the entities, which exist primarily for the benefit of or on<br> behalf of the Company and;
b.	the<br> Company’s contractual and common control arrangements with the VIEs, through which<br> it gains both the power to direct the activities that most significantly impact their economic<br> performance, and the obligation to absorb losses and receive benefits that potentially could<br> be significant to the VIEs;
c.	the<br> equity at risk of the entities is not sufficient to finance the entities’ activities<br> without additional subordinated financial support by the Company (i.e., the entities are<br> thinly capitalized).

| F-7 |

| --- |

ZRCN

                                        Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

The following table summarizes the carrying amount of the assets and liabilities of ZDM included in the Company’s consolidated balance sheets at March 31, 2024 and 2023 (after elimination of intercompany transactions and balances):

Schedule of Carrying Amount of Assets and Liabilities for Variable Interest Entities

	As<br> of March 31,
	2024		2023
ASSETS
Current<br> assets:
Cash	$	29,671	$	38,844
Accounts<br> receivable	$	10,288		8,115
Prepaid<br> expenses and other assets	$	63,146		47,156
Total<br> current assets		103,105		94,115
Property<br> and equipment	$	251,819		272,723
Total<br> assets	$	354,924	$	366,838
LIABILITIES
Current<br> liabilities:
Accounts<br> payable	$	130,994	$	153,916
Accrued<br> expenses	$	73,641		114,719
Total<br> current liabilities	$	204,635	$	268,635

The following table summarizes the carrying amount of the assets and liabilities of Zircon UK included in the Company’s consolidated balance sheets at March 31, 2024 and 2023 (after elimination of intercompany transactions and balances):

Schedule of Carrying Amount of Assets and Liabilities for Variable Interest Entities

	As<br> of March 31,
	2024		2023
ASSETS
Current<br> assets:
Cash	$	—	$	21,103
Accounts<br> receivable		9,173		4,366
Total<br> current assets		9,173		25,469
LIABILITIES
Current<br> liabilities:
Accounts<br> payable	$	32,964	$	31,086
Total<br> current liabilities	$	32,964	$	31,086

Non-controllingInterests

The Company follows ASC 810, which governs the accounting for and reporting of non-controlling interests (“NCIs”) in partially owned consolidated entities and the loss of control of those entities. Non-controlling interest positions, which represent 100% of the activity in the Company’s consolidated entities before intercompany transactions have been eliminated, are reported as a separate component of consolidated stockholders’ equity from the equity attributable to ZRCN’s stockholders for all years presented. The net income attributed to the NCI’s is separately designated in the accompanying comprehensive loss.

| F-8 |

| --- |

ZRCN

                                        Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

Useof Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Significant estimates used in preparing these consolidated financial statements include the provision for credit losses, allowance for inventory obsolescence, allocation of overhead to inventory, estimated future benefit and fair value of intangible assets, accrued rebates and advertising allowances, useful lives and depreciation methods of property and equipment, and uncertain tax positions. It is at least reasonably possible that the significant estimates used will change within the next year.

Cash

The

carrying value of cash approximates fair value due to the short-term nature of the instruments. From time to time, the Company may be in the position of a “book overdraft” in which outstanding checks exceed cash. The Company classifies book overdrafts in accounts payable within its consolidated balance sheets, and classifies the change in accounts payable associated with book overdrafts as an operating activity within the consolidated statement of cash flows. As of March 31, 2024, the book overdraft included within accounts payable was $350,022 . As of March 31, 2023, the Company did not have any book overdrafts included within accounts payable.

AccountsReceivable, Net

Accounts receivables are stated at the amount the Company expects to collect. The Company provides credit without requiring collateral, in the normal course of business, to credit-worthy customers as determined by management’s review of references and credit reports. Bad debts are charged against the provision for credit losses. The provision for credit losses is adjusted to provide a specific and general allowance for estimated uncollectible accounts, which is based on management’s judgment based on a number of factors, including the length of time the receivables are past due, significant one-time events and historical experience. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the provision for credit losses and a credit to accounts receivable. Based on management’s assessment of the credit history with customers having outstanding balances and current relationships with them, management believes that losses on balances outstanding will not exceed the provision for credit losses.

Accounts receivable consisted of the following:

Schedule of Accounts Receivable

	March<br> 31, 2024			March<br> 31, 2023
Accounts<br> receivable	$	8,657,894		$	7,534,193
Less<br> provision for credit losses		(13,521	)		(9,765	)
Accounts<br> receivable, net	$	8,644,373		$	7,524,428

Activity related to the Company’s provision for credit losses was as follows:

Schedule of Provision for Credit losses

	March<br> 31, 2024		March<br> 31, 2023
Balance,<br> beginning of period	$	9,765	$	115,129
Credit<br> loss provision		3,756		1,561
Write-offs		—		(106,925	)
Balance,<br> end of period	$	13,521	$	9,765

Inventory

Inventories, which consist primarily of raw materials and finished goods, are stated at the lower of cost or net realizable value. The Company states inventory cost utilizing the first-in, first-out (FIFO) method. Labor and overhead associated with inventory purchases are estimated and capitalized in inventory. The need for an allowance for inventory obsolescence is based on an evaluation of slow-moving or obsolete inventory.

| F-9 |

| --- |

ZRCN

                                        Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

Propertyand Equipment, Net

Property and equipment are stated at cost. Leasehold improvements are amortized over the shorter of the lease terms or estimated useful lives of the respective assets. Depreciation is computed using the straight-line method over the following estimated useful lives of the respective assets:

Schedule of Useful Life of Asset

Leasehold<br> improvement	7-20<br> years
Computer<br> equipment	3-5<br> years
Manufacturing<br> equipment	3-10<br> years
Furniture<br> and office equipment	7-10<br> years
Vehicles	4-5<br> years

IntangibleAssets, Net

Included in intangible assets are external amounts paid to vendors as well as consulting and legal fees for purchased patents and the cost of the exclusivity rights and licenses secured by the Company for certain technology. The intangible assets are recorded at cost on the balance sheet and adjusted for amortization, abandonments, and impairments (see Note 8). Acquired identifiable intangible assets are valued at the acquisition date primarily by using a discounted cash flow method. Amortization is computed using the straight-line method over their estimated useful lives of 5 to 20 years. Amortization for filed patents not yet issued will begin upon the date of issuance. The Company evaluates intangible assets for impairment and writes off assets that are not used in any products. During the years ended March 31, 2024 and 2023, there were no impairment expenses for intangible assets.

Impairmentof Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or circumstances exist that indicate the carrying amount of an asset or asset group may not be recoverable. The recoverability of long-lived assets is measured by a comparison of the carrying amount of the asset or asset group to the future undiscounted cash flows expected to be generated by that asset group. If the asset or asset group is considered to be impaired, an impairment loss is recorded to adjust the carrying amounts to the estimated fair value. The excess of the carrying value of the reporting unit over the estimated fair value was first allocated to the intangibles and then to goodwill. Fair value was determined using the income approach. As of March 31, 2024 and March 31, 2023, there has been no impairment of long lived assets.

Deposits

The

Company has amounts pledged as security deposits of $19,195

at March 31, 2024 and March 31, 2023, respectively, primarily representing a security deposit required by the Company’s office lease.

RevenueRecognition

The Company’s revenues result from the sale of products and reflect the consideration to which the Company expects to be entitled. The Company records revenue based on a five-step model in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). For its contracts with customers, the Company identifies the performance obligations (goods or services), determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) the performance obligation is transferred to the customer. A good or service is transferred when (or as) the customer obtains control of that good or service. The Company satisfies its performance obligation and recognizes revenue at the time the customer obtains the rights to the product, which is generally when goods are shipped. As a result, the majority of the Company’s revenue is recognized at a point in time.

| F-10 |

| --- |

ZRCN

                                        Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

Provisions

for customer volume rebates, product returns, discounts and allowances are variable consideration and are recorded as a reduction of revenue in the same period the related sales are recorded. Such provisions are calculated using historical averages adjusted for any expected changes due to current business conditions. Consideration given to customers for cooperative advertising is recognized as a reduction of revenue except to the extent that there is a distinct good or service and evidence of the fair value of the advertising, in which case the expense is classified as marketing and selling expense. Advertising expenses included within marketing and selling expenses were $57,353

and $207,696

for the years ended March 31, 2024 and 2023. Sales tax for the sale of products is applied to the invoice and recorded as an accrued liability.

Researchand Development

The Company incurs research and development costs of products for use in scanning behind opaque surfaces. The Company will continue to invest in research and development to develop additional components and products of its scanning product offerings and remains committed to providing its customers and partners with best-in-class scanning products and services. Such research and development costs, software development costs, and any new product development costs, are expensed as incurred, and include personnel-related costs, depreciation related to engineering and test equipment, allocated costs of facilities and information technology, outside services and consultant costs, supplies, software tools and product certification.

Warranty

The

Company provides an assurance warranty that its products and the functionalities work as intended and comply with defined specifications. The Company does not provide an extended service warranty to its customers. The actual cost associated with the assurance warranty is $3,308

as

of March 31, 2024 and $4,992

as of March 31, 2023. Costs are expensed as incurred.

ComprehensiveLoss

Comprehensive loss of all periods presented is comprised primarily of net loss and foreign currency translation adjustments.

SegmentReporting

The Company determines its reporting units in accordance with FASB ASC 280, Segment Reporting (“ASC 280”). The Company evaluates a reporting segment by first identifying its operating segments under ASC 280. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) to allocate resources and assess performance. The Company defines its CODM to be its president and chief operating officer. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The president and chief operating officer reviews the financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating the Company’s financial performance. The Company has one operating segment and therefore one reporting segment. Management reviews its business as a consolidated segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate.

Concentrationof Business and Credit Risk

As of March 31, 2024, the Company maintained deposits in a single bank that exceeded the federal insured deposit limit of the Federal Deposit Insurance Corporation (FDIC).

During the years ended March 31, 2024 and 2023 the Company generated approximately 72% and 66% of its total revenue from three customers. Accounts receivable from these customers amounted to approximately 77% and 75% of total accounts receivable as of March 31, 2024 and 2023, respectively.

| F-11 |

| --- |

ZRCN

                                        Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

As of March 31, 2024 and 2023, 72% and 75% of its total accounts receivable, were from three customers, respectively.

FairValue of Financial Instruments

In accordance with FASB ASC 820 Fair Value Measurements and Disclosures, the Company uses a three-level hierarchy for fair value measurements of certain assets and liabilities for financial reporting purposes that distinguishes between market participant assumptions developed from market data obtained from outside sources (observable inputs) and our own assumptions about market participant assumptions developed from the best information available to us in the circumstances (unobservable inputs). The fair value hierarchy is divided into three levels based on the source of inputs as follows:

a.	Level<br> 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical<br> assets or liabilities in active markets;
b.	Level<br> 2 – inputs to the valuation methodology include quoted prices for similar assets and<br> liabilities in active markets, and inputs that are observable for the asset or liability<br> other than quoted prices, either directly or indirectly including inputs in markets that<br> are not considered to be active; and
c.	Level<br> 3 – inputs to the valuation methodology are unobservable and insignificant to the fair<br> value measurement.

Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company believes the carrying amounts of its cash equivalents, accounts receivable, other current assets, other assets, accounts payable, accrued expenses, and other current liabilities approximated their fair values as of March 31, 2024 and 2023 due to their short-term nature. Management measures intangible assets at fair value on a non-recurring basis using internally developed assumptions about the market as there is no market activity available. All carrying amounts of other applicable assets and liabilities on the Company’s balance sheet approximate fair value. For long-term debt, the estimated fair value approximates its carrying value, as the interest rate is in line with the market interest rates for this type of debt.

ForeignOperations and Foreign Currency

The Company’s reporting currency is the U.S. dollar and the Company’s records are maintained in U.S. dollars. Assets and liabilities, including any amounts due or receivable from foreign entities, are translated into the reporting currency using the exchange rates in effect on the consolidated balance sheet dates. Equity accounts are translated at historical rates, except for the change in retained earnings during the year, which is the result of the consolidated statement of operations translation process. Any revenues or expenses that are billed in foreign currency are converted at the average rates of exchange prevailing during each period. Realized and unrealized foreign currency exchange gains and losses arising from transactions denominated in currencies other than the U.S. dollar are reflected in earnings. The cumulative translation adjustments associated with the net assets of foreign entities are recorded in accumulated other comprehensive income (loss) in the accompanying consolidated statements of changes in stockholders’ equity.

Operations outside the United States include entities in Mexico and the United Kingdom. The Company also transacts business in other foreign countries. Foreign operations are subject to risks inherent in operating under different legal systems and various political and economic environments. Among the risks are changes in existing tax laws, possible limitations on foreign investment and income repatriation, government price or foreign exchange controls, and restrictions on currency exchange.

IncomeTaxes

Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. Management believes estimates related to income tax uncertainties are appropriate based on current facts and circumstances. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analyses of tax laws, regulations and interpretations thereof, as well as, other factors. Any interest and penalties related to income tax matters are classified as a component of income tax expense.

| F-12 |

| --- |

ZRCN

Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

As of April 14, 2023, Zircon’s election to be an S Corporation under the Internal Revenue Code was no longer in effect.

NetLoss Per Share

Basic net loss per share of common stock is computed by dividing net income or loss attributable to ZRCN by the weighted average number of shares of common stock outstanding for the period. Diluted loss per share excludes, when applicable, the potential impact of common stock warrant shares and other dilutive instruments because their effect would be anti-dilutive. Diluted net income per share, when applicable, includes the warrant shares because their effect would be dilutive. The dilutive securities outstanding are as follows:

Schedule of Dilutive Securities Outstanding

	March<br> 31, 2024		March<br> 31, 2023
Common<br> stock warrants		217,184		—

In

accordance with an agreement with SCE dated May 15, 2023, the Company will issue an additional 25,000 common shares to SCE through June 30, 2024.

Leases

In February 2016, the FASB issued a new accounting standard, ASC Topic 842, related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most significant among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

The Company’s lease arrangements relate primarily to office space, a vehicle, and office equipment. The Company’s leases may include renewal options and rent escalation clauses. The Company is typically required to make fixed minimum rent payments relating to its right to use an underlying leased asset.

The Company determines if an arrangement is a lease at inception and classifies its leases at commencement. Operating leases are presented as right-of-use (“ROU”) assets and the corresponding lease liabilities are included in operating lease liabilities, current and operating lease liabilities on the Company’s consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset, and lease liabilities represent the Company’s obligation for lease payments in exchange for the ability to use the asset for the duration of the lease term. The Company does not recognize short term leases that have a term of twelve months or less as ROU assets or lease liabilities.

ROU assets and lease liabilities are recognized at commencement date and determined using the present value of the future minimum lease payments over the lease term. The Company uses an incremental borrowing rate based on estimated rate of interest for collateralized borrowing since the Company’s leases do not include an implicit interest rate. The estimated incremental borrowing rate considers market data, actual lease economic environment, and actual lease term at commencement date. The lease term may include options to extend when it is reasonably certain that the Company will exercise that option. The Company recognizes lease expense on a straight-line basis over the lease term.

The Company has lease agreements which contain both lease and non-lease components, which it has not elected to account for as a single lease component. As such, minimum lease payments exclude fixed payments for non-lease components within a lease agreement, in addition to excluding variable lease payments not dependent on an index or rate, such as common area maintenance, operating expenses, utilities, or other costs that are subject to fluctuation from period to period.

| F-13 |

| --- |

ZRCN

Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of stockholders’ equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be liability classified and recorded at their initial fair value on the date of issuance and remeasured at fair value and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The fair value of the private placement warrants was estimated using a Black Scholes valuation approach with assumptions relevant on the date of issuance and the fair value of the penny warrants issued in connection with the Merger was estimated using the intrinsic value method.

RecentlyIssued Accounting Pronouncements

As an emerging growth company, the Company will have the option of adopting new accounting pronouncements on a delayed basis and has opted to take advantage of this option. As a result, the Company has been adopting new accounting standards based on the timeline for adoption afforded to privately held companies, unless it chooses to early adopt a new accounting standard.

RecentlyIssued Accounting Standards Adopted

In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity ClassifiedWritten Call Options (“ASU 2021-04”), which introduces a new way for companies to account for warrants either as stock compensation or derivatives. Under the new guidance, if the modification does not change the instrument’s classification as equity, the Company accounts for the modification as an exchange of the original instrument for a new instrument. In general, if the fair value of the “new” instrument is greater than the fair value of the “original” instrument, the excess is recognized based on the substance of the transaction, as if the issuer has paid cash. The effective date of the standard is for interim and annual reporting periods beginning after December 15, 2021 for all entities, and early adoption is permitted. The Company adopted ASU 2021-04 effective April 1, 2023. There was no impact to its consolidated financial statements at the date of adoption.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilitiesfrom Contracts with Customers (“ASU 2021-08”), which addresses diversity in practice related to the accounting for revenue contracts with customers acquired in a business combination. Under the new guidance, the acquirer is required to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The effective date of the standard is for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2021-08 effective April 1, 2023. There was no impact to its consolidated financial statements at the date of adoption.

In June 2016, the FASB issued ASU No. 2016-13, Accounting for Credit Losses (Topic 326) (“ASU 2016-13”), which requires the use of an “expected loss” model on certain types of financial instruments. ASU 2016-13 also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recorded as allowances instead of reductions to amortized cost of the securities. ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2016-13 effective April 1, 2023 which did not have a material impact to its consolidated financial statements.

RecentlyIssued Accounting Standards Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. The new standard requires a company to disclose incremental segment information on an annual and interim basis, including significant segment expenses and measures of profit or loss that are regularly provided to the chief operating decision maker. The standard is effective for the Company beginning in fiscal year 2024 and interim periods within fiscal year 2025, with early adoption permitted. The Company does not expect to early adopt the new standard. The Company is currently evaluating the impact of ASU 2023-07 on its consolidated financial statements and related disclosures and will adopt the new standard using a retrospective approach.

| F-14 |

| --- |

ZRCN

Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

In December 2023, the FASB also issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. The new standard requires a company to expand its existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid. The standard is effective for the Company for annual periods beginning after December 15, 2024, with early adoption permitted. The Company does not expect to early adopt the new standard. The new standard is expected to be applied prospectively, but retrospective application is permitted. The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements and related disclosures.

In March 2024, FASB issued ASU No. 2024-01, “Compensation- Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards.” ASU 2024-01 provides an illustrative example that includes four fact patterns to demonstrate how an entity should apply the scope guidance in paragraph 718-10-15-3 to determine whether a profits interest award should be accounted for in accordance with Topic 718. ASU 2024-01 is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of ASU 2024-01 on its consolidated financial statements and related disclosures.

4.Merger with Harmony Energy Technologies Corporation

On April 14, 2023 (the “Closing Date”), Harmony closed the Merger with Zircon, as a result of which Zircon became a wholly-owned subsidiary of Harmony. While Harmony was the legal acquirer of Zircon in the Merger, for accounting purposes, the Merger is treated as a reverse recapitalization, whereby Zircon is deemed to be the accounting acquirer, and the historical financial statements of Zircon became the historical financial statements of Harmony (renamed ZRCN Inc.) upon the closing of the Merger. Under this method of accounting, Harmony was treated as the “acquired” company and Zircon is treated as the acquirer for financial reporting purposes.

As

part of the Merger and reverse recapitalization, the Company assumed certain operating liabilities of Harmony, including certain payables due to vendors and employees, as well as notes payable to noteholders. In addition, Zircon and Harmony effectuated a share exchange whereby the shareholders of Zircon exchanged 500,000

common shares representing 100

%

of the total outstanding shares of Zircon, for 8,865,234 newly issued common shares of Harmony, or approximately 89

%

of the total outstanding shares of Harmony. Harmony shareholders thus retained 1,057,754

common shares according to the terms of the merger.

In connection with the Merger, the Company entered into a warrant exchange agreement, dated April 14, 2023 (the “Warrant Exchange Agreement”), with certain holders of the Company’s warrants under which such holders received 25,284

shares of Common Stock in exchange for their

warrants, bringing the total shares of the combined organization owned by Harmony’s pre-Merger shareholders to 1,083,038 shares.

Zircon

agreed to pay the operating liabilities of Harmony, up to and including an aggregate of $179,762

through December 31, 2022, which amount included

outstanding operating liabilities related to auditing fees, services fees, transfer agent fees, travel reimbursements and accrued and unpaid salaries as of such date; Harmony loans and notes outstanding totaling $579,150

were fully settled for $400,000

,

with $100,000

paid upon closing of the Acquisition and $75,000

being paid in four subsequent quarterly payments commencing on the last day of the first full calendar quarter following closing.

Zircon

paid transaction costs of $518,611

for legal and advisory services and issued warrants

to purchase an aggregate 217,184

shares of common stock to advisors who provided

services to effectuate the Merger which had a fair value determined to be $301,572

and are included in the transaction costs and

advisory fees allocated to ZRCN equity (refer to Note 11 for further detail regarding these warrants). The Company also issued common shares with a fair value of $18,900 in connection with the Harmony merger.

| F-15 |

| --- |

ZRCN

Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

The following table reconciles the elements of the Merger to the consolidated statements of changes in stockholders’ equity for the year ended March 31, 2024:

Schedule of Consolidated Statements of Changes in Stockholders Equity

	Recapitalization
Cash	$	26
Non-cash<br> net working capital assumed from Harmony		(579,150	)
Less:<br> cash transaction costs and advisory fees allocated to ZRCN equity		(518,611	)
Effect<br> of Merger, net of transaction costs	$	(1,097,735	)

The following table details the number of shares of common stock issued immediately following the consummation of the Merger:

Schedule of Number of Shares of Common Stock

	Number<br> of Shares
Common<br> stock of Harmony prior to Merger		1,057,754
Shares<br> issued for Warrant Exchange Agreement		25,284
Common<br> stock owned by Harmony’s pre-Merger shareholders		1,083,038
Common<br> stock issued in exchange for Zircon common stock		8,865,234
Total<br> shares of common stock immediately after Merger		9,948,272

Debt Settlement Agreement

In

connection with the Merger, the Company entered into debt settlement agreements (the “Debt Settlement Agreements”) with certain third-party creditors of the Company under which the Company agreed to make certain payments over the next 12 months to the creditors in satisfaction of an aggregate of $400,000

which was owed to them. As of March 31, 2024,

the Company has repaid $317,500

to the creditors. The remaining balance of $75,000

is recorded as a component of notes payable, current portion on the Company’s balance sheet (refer to Note 10).

5.Revenue

Disaggregationof Revenue from Contracts with Customers

Revenue disaggregated according to the timing of transfer of goods or services (e.g., at a point in time) for the years ended March 31, 2024 and 2023, were as follows:

Schedule of Revenue Disaggregated Transfer of Goods and Services

Revenue<br> generated per major product line	For<br> the Year Ended<br><br> <br>March<br> 31, 2024		For<br> the Year Ended<br><br> <br>March<br> 31, 2023
Stud<br> sensor edge	$	18,651,557	$	17,836,599
Multifunctional<br> scanners		4,787,433		4,533,994
Stud<br> sensor center		5,323,980		4,901,818
Target<br> control products		1,596,219		1,781,137
Other		1,159,998		1,445,922
Total<br> Revenue	$	31,519,187	$	30,499,470

| F-16 |

| --- |

ZRCN

Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

Revenue disaggregated according to the geographical location of customers for the years ended March 31, 2024 and 2023, were as follows:

Schedule of Revenue Disaggregated Geographical Location of Customers

Revenue<br> by geographic location of customers	For<br> the Year Ended<br><br> <br>March<br> 31, 2024		For<br> the Year Ended<br><br> <br>March<br> 31, 2023
United<br> States	$	27,990,376	$	27,133,998
Canada		1,696,909		1,843,508
Europe		304,880		356,530
Japan		938,176		784,681
UK		44,793		7,909
Others		544,053		372,844
Total<br> Revenue	$	31,519,187	$	30,499,470

6.Inventory

Inventory consisted of the following:

Schedule of Inventory

	March<br> 31, 2024		March<br> 31, 2023
Finished<br> goods	$	6,930,052	$	6,327,358
Raw<br> materials		4,909,040		4,862,227
Work<br> in process		2,217,498		1,947,516
Inventory<br> net	$	14,056,590	$	13,137,101

Obsolescence

allowance was estimated at $444,771

and $487,830

as of March 31, 2024 and 2023.

7.Property and Equipment

Property and equipment consisted of the following:

Schedule of Plant and Equipment

	March<br> 31, 2024			March<br> 31, 2023
Manufacturing<br> equipment	$	9,314,621		$	8,694,039
Computer<br> equipment		2,773,846			2,744,199
Leasehold<br> improvements		1,217,750			1,181,382
Furniture<br> and office equipment		955,443			923,381
Vehicles		275,240			273,499
Property<br> and equipment, gross		14,536,900			13,816,500
Construction<br> in progress		423,220			560,712
Property<br> and equipment before accumulated depreciation and amortization		14,960,120			14,377,212
Less<br> accumulated depreciation and amortization		(13,156,777	)		(12,597,597	)
Property<br> and equipment, net	$	1,803,343		$	1,779,615

For

the years ended March 31, 2024 and 2023, depreciation and amortization expense was $665,377

and $1,166,906

, respectively.

Construction in progress consists of assets and technologies under development. The Company starts depreciation once the assets are completed and placed in service.

| F-17 |

| --- |

ZRCN

Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

8.Intangible Assets

The Company’s intangible assets consisted of the following:

Schedule of Intangible Assets

	March<br> 31, 2024							March<br> 31, 2023
Finite-lived<br> intangible assets (1):	Intangibles,<br> Gross		Accumulated<br> Amortization			Intangibles,<br> Net		Intangibles,<br> Gross		Accumulated<br> Amortization			Intangibles,<br> Net
Patents<br> issued and pending	$	2,340,112	$	(1,614,943	)	$	725,169	$	2,272,278	$	(1,541,795	)	$	730,483
Exclusivity<br> rights and licenses		167,542		(101,234	)		66,308		167,542		(90,640	)		76,902
Total<br> finite-lived intangible assets	$	2,507,654	$	(1,716,177	)	$	791,477	$	2,439,820	$	(1,632,435	)	$	807,385
Finite-lived<br> intangible assets (1):	March 31, 2024 Weighted<br> <br>Average Life<br> <br>Remaining
---	---	---
Patents<br> issued and pending		14.0
Exclusivity<br> rights and licenses		5.7
(1)	Finite-lived<br> intangible assets have estimated useful lives of five<br> to<br> twenty<br> years,<br> and are being amortized to operating expenses on a straight-line basis.
---	---

For

the years ended March 31, 2024 and 2023, amortization expense was $83,742

and $113,294

, respectively.

Expected future amortization expense of acquired finite-lived intangible assets as of March 31, 2024 is as follows:

Schedule of Future Amortization Expense

For<br> the Years Ending March 31,	Amount
2025	$	73,590
2026		72,831
2027		72,716
2028		71,544
2029		71,172
Thereafter		429,624
Total	$	791,477

9.Accrued Expenses

Accrued expenses consisted of the following:

Schedule of Accrued Liabilities

	March<br> 31, 2024		March<br> 31, 2023
Rebates	$	538,268	$	447,959
Vacation		388,922		445,602
Accrued<br> taxes		360,493		14,185
Payroll<br> and related		333,674		343,696
Sales<br> expense		205,050		235,779
Advertising<br> allowance		134,168		165,291
Professional<br> services		94,412		193,853
Interest		74,930		29,960
Accrued<br> liabilities	$	2,129,917	$	1,876,325

| F-18 |

| --- |

ZRCN

Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

10.Debt

Lineof Credit

The

Company had a revolving line of credit with a bank, which allowed for borrowings up to $10,000,000 that was scheduled to expire on July 31, 2024

, see below and refer to Note 16. As

further defined in the agreement, borrowings bear interest at either a fixed rate for a fixed term (2.36

%

per annum in excess of the Daily Simple Secured Overnight Financing Rate (“SOFR”) or variable rate (Reference Rate) selected by management which was 9.5

%

for $7,210,652 of outstanding borrowings on the line of credit balance at March 31, 2023. The line of credit was secured by substantially all of the Company’s assets. As of March 31, 2023, the Company demonstrated that it was in compliance with all applicable covenants of the loan agreement.

While

the line of credit had a maximum limit of $10,000,000 , the formula basis allowed the Company to borrow up to 80% of eligible accounts receivable and 50% of eligible inventory.

On

November 8, 2023, Zircon Corporation, a subsidiary of ZRCN Inc., entered into an amendment (the “Amendment”) to the Loan Agreement, dated as of January 23, 2023, and the related Commercial Promissory Note (the “Base Rate”) dated January 27, 2023 in the original principal amount of $12,000,000

(the “2023 Note”) and that certain

Commercial Promissory Note dated September 30, 2019 in the original principal amount of $300,000 (the “2019 Note,” and together with the 2023 Note, the “Notes”) with U.S. Bank National Association (the “Bank”), as successor in interest to Union Bank, N.A. Capitalized terms used and not otherwise defined in this section of this report have the meanings ascribed to such terms in the Loan Agreement and the Notes.

Pursuant to the Amendment, the Bank waived Zircon’s existing defaults under the Loan Agreement for its failure to comply with certain covenants set forth in the Loan Agreement as the result of, without limitation, Zircon’s reverse merger with the Company. In addition, the

Amendment, among other things, (i) amended the aggregate amount available under the 2023 Note after December 31, 2023 from $12,000,000

to $10,000,000, (ii) eliminated the Supply Chain Finance Sublimit, (iii) amended the maturity date of the 2019 Note to February 29, 2024, (iv) inserted an inventory sublimit in the definition of Borrowing Base in the Loan Agreement, (v) included a provision that required Zircon to reduce the amount set forth under the 2023 Note by twenty-five percent (25%) of the amount of net proceeds received by the Company from any sale of its capital stock in excess of the amount of funds disclosed in the offering to be specifically committed and applied to the project described therein (which shall not include any contingency line items), (vi) included a corporate guarantee under the Loan Agreement and the Notes by the Company, (vii) amended the minimum fixed charge coverage ratio to be less than 1.25 to 1.00 (the Company had a fixed charge coverage ratio of 1.36 as of March 31, 2024) and (viii) added a new provision restricting payment and dividends by Zircon.

Pursuant

to the Amendment, while the line of credit has a maximum limit of $10,000,000 , the formula basis allowed the Company to borrow up to 80% of eligible accounts receivable and 50

%

of eligible inventory. Using this formula, the Company could have borrowed up to $10,000,000

against eligible assets

as of March 31, 2024. As of March 31, 2024 the Company had borrowed $8,025,550

,

has an additional borrowing capacity of $1,974,450

as pursuant to the Amendment,

the line of credit provided for maximum borrowings of 10,000,000 .

On February 13, 2024, the Company signed an agreement with U.S. Bank to extend the maturity date on its line of credit from

February 29,

2024 to July 31, 2024. In accordance with ASC 470-10-45-14 and ASC 470-10-45-2, the Company determined that the $8.0 million line of credit can be classified as noncurrent as of March 31, 2024 as the Company fully expected to complete a refinancing prior to the expiration of the extended loan agreement with US Bank . The terms that permit US Bank to accelerate payment because the Company failed to maintain satisfactory operations are subjective, and the Company considered the likelihood of US Bank exercising its rights under these terms to be remote. In fact, US Bank did not accelerate payment and, on May 31, 2024, the Company entered into a new revolving credit agreement with a new lender with higher borrowing limits (see Note 16).

For

the years ended March 31, 2024 and 2023, interest expense on the line of credit totaled $697,746

and $371,539

, respectively.

The components of the revolving line of credit consisted of the following:

Schedule of Revolving Line of Credit

	March<br> 31, 2024		March<br> 31, 2023
SOFR	$	8,025,550	$	6,500,000
Excess<br> of SOFR		—		710,652
Line<br> of credit	$	8,025,550	$	7,210,652

| F-19 |

| --- |

ZRCN

Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

Notespayable

In

July 2018, the Company entered into a term loan with a bank for $1,750,000

.

Under the agreement, the Company paid approximately $29,000 in monthly principal payments plus interest. For the years ended March 31, 2024 and 2023, there was $0

and $1,730

interest paid on the loan, respectively. The note matured in August 2023 and was paid off.

In

September 2019, the Company entered into a term loan with a bank for $300,000

.

Under the agreement, the Company paid interest only from November 2019 through April 2020, and starting in May 2020, the Company made monthly payments of $5,000

plus interest. During the year ended March 31,

2024, interest paid on the loan approximated $7,200 . The note originally matured in April 2025 and was secured by the Company’s assets. As of March 31, 2024, the Company had paid off the note.

For

the years ended March 31, 2024 and 2023, interest expense on notes payable totaled $11,431

and $29,537

, respectively.

The table below details the activity related to the Notes payable:

Schedule of Related to Notes Payable to Bank

	July<br> 2018 Note			September<br> 2019 Note			Harmony<br> Notes			Total
Balance,<br> March 31, 2022	$	495,834		$	185,000		$	—		$	680,834
Repayments		(350,000	)		(60,000	)		-			(410,000	)
Balance, March<br> 31, 2023		145,834			125,000			—			270,834
Beginning balance		145,834			125,000			—			270,834
Issuances<br> and Harmony debt assumed		1,513			1,940			400,000			403,453
Less:<br> accrued interest		(1,513	)		(11,940	)		(7,500	)		(20,953	)
Repayments		(145,834	)		(115,000	)		(317,500	)		(578,334	)
Total<br> principal balance, March 31, 2024	$	—		$	—		$	75,000		$	75,000
Ending<br> balance	$	—		$	—		$	75,000		$	75,000

Future scheduled maturities of notes payable are as follows:

Schedule of Maturities of Notes Payable to Bank

For<br> the Period Ending March 31,	Amount
2025	$	75,000
Maturities<br> of note payable	$	75,000
Notes<br> payable, current portion	$	75,000

Notespayable to Stauss Family Administrative Trust

The

Company has notes payable to the Stauss Family Administrative Trust, a related party. to repay loans made to the Company. As of March 31, 2024, principal balance of $667,230

is due and payable in December 2025. Interest

accrued at 5.5

%

per annum is paid quarterly and included in accrued expenses. The note is subordinated to the line of credit note payable to the bank and no payment is to be made on the note without prior approval from the bank. In the second quarter of 2023, a portion of the note payable to Stauss Family Administrative Trust was settled as a non cash transaction against the note receivable from one stockholder for $240,190 .

For

                                        the years ended March 31, 2024 and 2023 the interest expense on notes payable to the Stauss
                                        Family Administrative Trust totaled $30,399

and

                                        $50,601

respectively.

| F-20 |

| --- |

ZRCN

Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

LoanRepayment

Section 13(k) of the Exchange Act provides that it is unlawful for a company, such as ours, that has a class of securities registered under Section 12 of the Exchange Act to, directly or indirectly, including through any subsidiary, extend or maintain credit in the form of a personal loan to or for any director or executive officer of the Company. In March 2022, Zircon Corporation, the Company’s wholly-owned subsidiary, loaned our chief executive officer funds to pay certain tax obligations, which was still outstanding when we acquired Zircon in April 2023, which may have violated Section 13(k) of the Exchange Act as a result of the transition from private to public company accounting. The loan was repaid in August 2023 as soon as management became aware of the possible violation. The loan repayment was made by means of an offset to beneficial amounts of our chief executive officer in certain loans to the Company to which offset he did not object. Issuers that are found to have violated Section 13(k) of the Exchange Act may be subject to civil sanctions, including injunctive remedies and monetary penalties, as well as criminal sanctions. In accordance with ASC 450, Contingencies, no amounts have been accrued for a loss contingency as it is not estimable as of March 31, 2024. The imposition of any of such sanctions on us could have a material adverse effect on our business, financial position, results of operations or cash flows.

11.Profit Sharing and 401(k) Plan

The Company has a defined contribution profit sharing plan for all eligible employees. Contributions to the profit sharing plan are determined annually by the Board of Directors. There were no profit sharing contributions made during the years ended March 31, 2024 and 2023.

All eligible employees are also allowed to participate in the Company’s 401(k) plan. The Company’s contributions to the plan are based on a specified percentage of each participant’s eligible contribution, decided annually by the Board of Directors, as defined in the plan document.

The Company’s contributions

of $48,978

were

accrued for the year ended March 31, 2024. The Company received the final contribution amount for the period ended March 31, 2024 as calculated by the Plan Administrator and expects to make the $5,000 contribution by July 15, 2024.

The

Company’s contributions of $51,890 were accrued for the year ended March 31, 2023 and paid in May 2023.

12.Share Based Compensation

On

February 28, 2024 the Company adopted a 2024 Equity Incentive Plan (the “Equity Plan”). The Plan provides for granting of stock options (“Options”), restricted stock units (“RSUs”), and other equity-based awards tied to the value of shares of common stock to key personnel, including directors, officers, employees, consultants, and advisors of the Company and its subsidiaries. The Plan provides for the grant of options (which may include “incentive stock options” (“ISOs”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”)), stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), and other stock-based awards. As of March 31, 2024 there were no outstanding or issued Options, RSUs, or any other equity-based awards issued or outstanding pertaining to the Equity Plan and the stockholders have authorized 40,000,000 awards to be granted under the Equity Plan.

13.Warrants

At

the closing of the Merger, the Company issued certain consultants and advisors warrants to purchase an aggregate of 217,184

shares of Company common stock (the “Advisor

Warrants”). The Advisor Warrants are exercisable any time ten years from the date of issuance, have an exercise price of $0.20

per share, and are classified within equity.

The Company determined the fair value of the Advisor Warrants of $301,572

using the intrinsic value method based on a stock

price established in the Merger of $1.60 per share. These warrants were fully vested on issuance.

| F-21 |

| --- |

ZRCN

Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

The following table provides the activity for all warrants for the year ended March 31, 2024:

Schedule of Warrants Activity

			Weighted<br> Average Exercise Price
Outstanding as of March<br> 31, 2023	—	—	$	—
Issued	217,184	10.0	$	0.20
Outstanding<br> as of March 31, 2024	217,184	9.2	$	0.20

14.Commitments and Contingencies

LegalProceedings

ZRCN is engaged in procedures to protect its proprietary rights and has filed complaints with the Federal Trade Commission and the Customs and Border Patrol.

ZirconCorporation v. Stanley Black & Decker, Inc.

Morgenthaler,et al. v. Zircon, et al.

| F-22 |

| --- |

ZRCN

Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

ClaimAsserted by Mr. Michael Green

Leases

The

Company’s corporate headquarters in Campbell, California are leased from the trust of one of the former shareholders of Zircon Corporation for approximately $19,195

per

month under a lease expiring in December 2027. The lease requires the Company to pay utilities, maintenance and real estate taxes. Rent expense was $230,328

and

$189,487 for the years ended March 31, 2024, and 2023, respectively.

The

Company leases office equipment through a lease that expires in June 2026 and requires monthly lease payments of $987 for a period of five years

. The total lease expense for both years

ended March 31, 2024, and 2023 amounted to $11,844 .

The

Company leases a vehicle through a lease that expires in July 2024 and requires monthly lease payments of $448 for a period of three years

. The total lease expense for both of the

years ended March 31, 2024, and 2023 amounted to $5,376 .

As

of March 31, 2024, the Company had a operating lease right-of-use assets of $751,214 .

The components of lease expense, which include short-term and variable lease expense and are included in selling, general and administrative expense, are as follows:

Schedule of Weighted Average Remaining Lease Terms and Discount Rate

	March<br> 31, 2024		March<br> 31, 2023
Weighted-average<br> remaining lease term:
Operating<br> leases (in years)		3.91		4.67
	March<br> 31, 2024			March<br> 31, 2023
---	---	---	---	---	---	---
Weighted-average<br> remaining discount rate:
Operating<br> leases		7.00	%		7.00	%

Future minimum lease payment under non-cancellable lease as of March 31, 2024 are as follows:

Schedule of Future Minimum Lease Payment Under Non-cancellable Lease

Maturities<br> of lease liabilities	Operating<br> Leases
Year ending March 31,
2025	$	196,170
2026		208,459
2027		214,620
2028		149,606
2029<br> and thereafter		—
Total<br> Minimum Lease Payments		768,855
Less<br> effects of discounting		(28,853	)
Present<br> value of future minimum lease liabilities		740,002
Less<br> current portion of operating lease liability		(195,102	)
Operating<br> lease liability, net of current portion	$	544,900

ExecutiveAgreement

On

October 1, 2012, Zircon Corporation (the” Company”) and John R. Stauss (the “Executive”) entered into an Employment Agreement (“Agreement”). The Agreement established an annual Base Salary of not less than $300,000 paid in periodic installments in accordance with the Company’s regular payroll practices. The Agreement also provides for a bonus equal to 20% of net income based on revenue and profitability targets as set forth in the Company’s Business Plan. The performance bonus is calculated and paid on a quarterly basis. Under the terms of the Agreement, Mr. Stauss was paid $43,010 in October 2023 for the performance results through the quarter ended September 30, 2023. The Agreement also entitles the Executive to participate in employee benefit plans of the Company consistent with the benefit plan requirements for all employees. The Executive is also entitled to prompt reimbursement by the Company for all reasonable ordinary and necessary travel, entertainment and other expenses incurred by the Executive during the employment period. The Agreement has been extended through March 31, 2027.

| F-23 |

| --- |

ZRCN

Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

15.Income Taxes

The components of income tax expense (benefit) consists of the following:

Schedule of Components of Income Tax Expense Benefit

	2024			2023
	For<br> the Years Ended March 31,
	2024			2023
Current:
Federal	$	339,655		$	—
State		4,248			(5,766	)
International		85,055			163,968
Total<br> current expense		428,958			158,202
Deferred:
Federal		(442,855	)		—
State		(55,942	)		—
Total<br> deferred benefit		(498,797	)		—
Income<br> tax (benefit) expense	$	(69,839	)	$	158,202

A

reconciliation of total income tax provision and the amount computed by applying the federal statutory income tax rate of 21.0 % to loss before provision from income taxes is as follows:

Schedule of Reconciliation of Income Tax Rate

Tax<br> expense at statutory rates	$	5,418
Effect of:
Conversion<br> of S corporation to C corporation		(162,689	)
State<br> income taxes, net of federal benefit		(40,838	)
ASC 740-10 penalty		21,620
International		85,055
Other<br> items		21,595
Total	$	(69,839	)

The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities are as follows:

Schedule of Deferred Tax Assets and Liabilities

	At<br> March 31, 2024			At<br> March 31, 2023
Deferred<br> tax assets:
Accrued<br> vacation	$	104,603		$	—
Inventory<br> reserve		121,940			—
Capitalized<br> R&D		557,530			—
ROU<br> asset		215,150			—
NOL		—			—
Other		15,389			—
Total<br> deferred tax assets		1,014,612			—
Deferred<br> tax liabilities
Lease<br> liability		(205,939	)
Fixed<br> assets		(309,876	)		—
Total<br> deferred tax liabilities		(515,815	)		—
Net<br> deferred tax asset	$	498,797		$	—

| F-24 |

| --- |

ZRCN

Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

Management considers that it is more likely than not that deferred tax assets will be realizable. Therefore, no valuation allowance has been established against deferred tax assets.

The

Company has federal net operating losses as of March 31, 2024 of $2,000,683 . These losses were acquired via the acquisition of Harmony Energy Technologies Corporation and are subject to Section 382 loss limitations. The federal net operating losses were generated in years later than the 2017 tax year and are thus not subject to expiration under the Tax Cuts and Jobs Act. Federal net operating losses may offset up to 80

%

of federal taxable income in any tax year, subject to Section 382 loss limitations. The Company is subject to a federal Section 382 annual limitation of $533,770, and net operating losses of approximately $514,759 are deducted in the year ended March 31, 2024 . No formal Section 382 analysis has been completed. The Company has not completed a valuation of Harmony as of the date of the acquisition, and thus the federal Section 382 annual limitation is uncertain and therefore these net operating losses are treated as unrecognized tax benefits.

The Company files a US federal tax return, a California state tax return, and a Chinese tax return. The federal tax returns for the March 31, 2020 and later years are open to examination, while the California tax returns for the March 31, 2019 and later years are open to examination. The Chinese tax returns are subject to various statutes of limitations. The Chinese tax provision is de minimis as the Company has limited operations in China.

The Company has no unrecognized tax benefits at March 31, 2024 and 2023. No interest or penalties were accrued at March 31, 2024 and 2023.

Schedule of Unrecognized tax Benefits

Tabular<br> disclosure of unrecognized tax benefits is as follows:
March<br> 31, 2023 unrecognized tax benefits	$	—
Current year increases in unrecognized tax<br> benefits due to tax positions taken in current period		528,243
Recognized interest<br> and penalties		21,620
March<br> 31, 2024 unrecognized<br> tax benefits	$	549,863

The

Company acquired federal net operating losses of approximately $2,515,442 via the acquisition of Harmony Energy Technologies Corporation and used approximately $514,759 of these net operating losses in the year ended March 31, 2024. The deferred tax asset associated with these net operating losses has been fully reserved. The tax benefit of these net operating losses is deemed to be an unrecognized tax benefit. As the net operating losses are utilized on federal tax returns, and the statute of limitations lapses on such tax returns, the benefits of the net operating losses will be recognized in the financial statements as a reduction of tax expense. The asset related to this net operating loss was written to zero as of March 31, 2024.

The Company recognized ASC 740-10

interest and penalties of $21,620 in the year ended March 31, 2024.

| F-25 |

| --- |

ZRCN

Inc.

NOTES

TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE YEARS ENDED MARCH 31, 2024 AND 2023

16.Related Party Transactions

The Company leases a 14,000 square foot facility from a trust owned by the Stauss Family Administrative Trust.

The

Company has notes payable to the Stauss Family Administrative Trust to repay loans made to the Company. As of March 31, 2024, principal balance of $667,230 is due and payable in December 2025. Interest accrued at 5.5% per annum is paid quarterly and included in accrued expenses. The note is subordinated to the line of credit note payable to the bank and no payment is to be made on the note without prior approval from the bank. In the second quarter of 2023, a portion of the note payable to Stauss Family Administrative Trust was settled as a non cash transaction against the note receivable from one stockholder for $240,190.

For

the years ended March 31, 2024 and 2023 the interest expense on notes payable to the Stauss Family Administrative Trust totaled $30,399 and $50,601 respectively.

On March 31, 2024 the Stauss Family Administrative Trust and the Company agreed to extend the maturity date of the Notes Payable to the trust to December 31, 2025.

17.Subsequent Events

million senior secured revolving credit facility

(the “Credit Facility”) available to be used by the Company, Zircon and its Affiliates for replacement and discharge of the Company’s current US Bank loan of $8,750,000 and matures on May 31, 2027. The Company, Zircon and the Affiliates are guarantors of all of the obligations under the Credit Agreement and the Company’s four principal shareholders are limited guarantors thereof. In accordance with ASC 470-10-45-14 and ASC 470-10-45-2, the Company has determined that this new credit line will be classified as noncurrent.

The Credit Agreement requires the Company to comply with maximum total net leverage and minimum fixed charge coverage ratios.

On March 31, 2024 the Stauss Family Administrative Trust and the Company agreed to extend the maturity date of the Notes Payable to the trust to December 31, 2025.

On May 1, 2024 the Company awarded a grant

of 100,000 common stock options to one of its employees.

| F-26 |

| --- |

ITEM

9A. CONTROLS AND PROCEDURES

DisclosureControls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our principal executive officer and principal accounting and financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our principal executive officer and principal accounting and financial officer has concluded that as of March 31, 2024, our disclosure controls and procedures were not effective as of such date as a result of material weaknesses in our internal control over financial reporting due to inadequate segregation of duties within account processes due to limited personnel and insufficient written policies and procedures for accounting, IT and financial reporting and record keeping. Under the direction of our principal executive officer and principal financial and accounting officer, we are developing a plan to remediate the material weaknesses.

Management’sReport on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the U.S.. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

As of March 31, 2024, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that, as of March 31, 2024, our internal control over financial reporting had material weaknesses that lack adequate segregation of duties within account processes due to limited personnel and insufficient written policies and procedures for accounting, IT and financial reporting and record keeping and we are implementing plans to improve such internal control.

Changesin Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM

9B. OTHER INFORMATION

None.

ITEM9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

| 27 |

| --- |

PART

III

ITEM

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ExecutiveOfficers, Directors and Key Employees

The following table sets forth the name, age and position of each of our executive officers, key employees and directors as of July 15, 2024. All directors hold office until the next annual meeting of stockholders and the election and qualification of their successors. Officers serve at the discretion of the board.

Name	Age	Position
John<br> Stauss (1)	66	Chief<br> Executive Officer, Chairman and Director
Ronald<br> Bourque (2)	73	Chief<br> Financial Officer and President
Robert<br> Wyler (3)	80	General<br> Counsel and Director

Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.

Notes:

(1) On April 14, 2023, Mr. Stauss was appointed to serve as our Chief Executive Officer, Chairman, and a Director, effective immediately.

(2) On April 17, 2023, Mr. Bourque was appointed to serve as our Chief Financial Officer and President, effective immediately, and was appointed as a director on May 12, 2023.

(3) On April 17, 2023, Mr. Wyler was appointed to serve as our General Counsel, effective immediately, and was appointed as a director on May 12, 2023.

JohnStauss, age 66, was appointed on April 13, 2023, to serve as our Chief Executive Officer, Chairman and a Director, effective immediately. Mr. Stauss originally joined Zircon in 1984 as Operations Manager. In 1989, he was promoted to President where he served in that capacity until 2000. Mr. Stauss stepped down as President but remained a Director of the company from 2000 – 2006. In 2006, John returned to Zircon as its Chairman and CEO, where he has continually sought to set broad performance objectives for the Zircon to deliver excellence with a high degree of focus on consistent profitability, technical superiority, intellectual property development, industrial design and industry-leading vendor and end-user support. Mr. Stauss graduated from Homestead Highschool in 1975 and Cal Poly, San Luis Obispo with a Bachelors in Biochemistry in 1982 and a Masters in Business Administration (MBA) in 1984.

RonaldBourque, age 73, was appointed on April 13, 2023, to serve as our Chief Financial Officer and President, effective immediately. Mr. Bourque was also appointed to serve as a director of the Company on May 12, 2023. Mr. Bourque joined Zircon in 1985 and is the company’s Chief Operating Officer and President. Ron is responsible for all facets of the company’s operations, including management of all critical finance and production related activities, such as procurement, inventory, HR, facilities management, sales and customer service, as well as all F, P & A functions, audit, A/R, A/P and manufacturing operations. Prior to Zircon, Mr. Bourque held various senior management roles with high volume electronic and electronic hand-tool manufacturers. Mr. Bourque received a Bachelor of Science with a concentration in management and a minor in accounting, from San Jose State University in June 1975. He earned his Masters in Business Administration (MBA) from San Jose State University in 1984. Ron also served in the US Navy from 1968 – 1972, where he received a Letter of Commendation and was honorably discharged. Mr. Bourque is a Vietnam veteran.

RobertWyler, age 80*,* was appointed on April 14, 2023, to serve as our General Counsel and Secretary, effective immediately. Mr. Wyler was also appointed to serve as a director of the Company on May 13, 2023. Mr. Wyler is a co-Founder of Zircon Corporation and is currently Vice President and Secretary, as well as the company’s General Counsel and a Director. Bob has served in various senior leadership and legal roles with domestic and international technology companies, including Varian Associates, a public company based in Palo Alto and Litronix, Inc. of Cupertino, CA., where he was responsible for supervision and management of all of the company’s legal matters both in the US and also across Litronix’s international operations in Europe, Malaysia, Singapore and Mauritus. Mr. Wyler received a Bachelor of Science in Mechanical Engineering from Stanford University in 1965, and a Juris Doctorate (JD) from Hastings College of Law in San Francisco in 1968.

| 28 |

| --- |

Termof Office

Our directors are appointed to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board, subject to their respective employment agreements.

FamilyRelationships

There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.

Involvementin Certain Legal Proceedings

During the past 10 years, none of our current directors, nominees for directors or current executive officers has been involved in any legal proceeding identified in Item 401(f) of Regulation S-K.

DirectorIndependence

The Board of Directors is currently composed of three members, which are John Stauss, Ron Bourque and Robert Wyler. Misters Stauss, Bourque and Wyler do not qualify as independent in accordance with the published listing requirements of the NASDAQ. The NASDAQ independence definition includes a series of objective tests, such as that the Director is not, and has not been for at least three years, one of Zircon’s employees and that neither the Director, nor any of his family members has engaged in various types of business dealings with us.

AuditCommittee

Pursuant to Section 4.2 of the Bylaws, the Board may, by resolution passed by a majority of the entire Board, designate one or more committees. Pursuant to a Directors’ Resolution, John Stauss, Ron Bourque and Robert Wyler have each been appointed as members of the Audit Committee of the Company.

Nominatingand Compensation Committees

We do not have a standing nominating and compensation committee. Rather, our Board of Directors performs the functions of these committees. We do not believe it is necessary for our Board of Directors to appoint such committees because the volume of matters that come before our Board of Directors for consideration permits the directors to give sufficient time and attention to such matters to be involved in all decision making.

Codeof Business Conduct and Ethics

We have not adopted a formal Code of Business Conduct and Ethics applicable to all Board members, officers and employees. We intend to adopt one during the fiscal year ended March 31, 2025.

| 29 |

| --- |

ITEM

EXECUTIVE COMPENSATION

SummaryCompensation Table

The following table presents the compensation awarded to, earned by or paid to each of our named executive officers for the year ended December 31, 2023.

Summary<br> Compensation Table
Name and	Fiscal<br> Year Ending	Salary	Bonus	Stock<br> Awards	Option<br> Awards	Non-Equity<br> Incentive Plan Compensation	Non-Qualified<br> Deferred Compensation Earnings	All<br> Other Compensation	Totals
Principal Position	March 31,	()	()	()	()	()	()	()	()
John<br> Stauss,	2024
Chairman<br> & CEO	2023
Ronald<br> Bourque,	2024
President<br> & CFO	2023
Robert<br> Wyler,	2024
Corporate<br> Counsel and Secretary	2023

All values are in US Dollars.

Narrative

Disclosure to Summary Compensation Table

On October 1, 2012, Zircon Corporation (the” Company”) and John R. Stauss (the “Executive”) entered into an Employment Agreement (“Agreement”). The Agreement established an annual Base Salary of not less than $300,000 paid in periodic installments in accordance with the Company’s regular payroll practices. The Agreement also provides for a bonus equal to 20% of net income based on revenue and profitability targets as set forth in the Company’s Business Plan. The performance bonus is calculated and paid on a quarterly basis. Under the terms of the Agreement, Mr. Stauss was paid $43,010 in October 2023 for the performance results through the quarter ended September 30, 2023. The Agreement also entitles the Executive to participate in employee benefit plans of the Company consistent with the benefit plan requirements for all employees. The Executive is also entitled to prompt reimbursement by the Company for all reasonable ordinary and necessary travel, entertainment and other expenses incurred by the Executive during the employment period. The Agreement has been extended through March 31, 2027.

Outstanding

Equity Awards at March 31, 2024

There were no outstanding equity incentive plan awards for each of the named executive officers outstanding as of March 31, 2024.

Compensation

of Directors

There was no compensation paid or accrued during the fiscal year ended March 31, 2024 to each of Zircon’s current and former non-employee directors. Directors who are employed by us are not compensated for their service on our Board of Directors.

2024

Equity Incentive Plan

On February 28, 2024, the Company’s board of directors adopted the ZRCN Inc. 2024 Equity Incentive Plan (the “Plan”) initially reserving 40,000,000 shares of the Company’s common stock for issuance thereunder, provided, that, the shares of Common Stock issued under the Plan with respect to any exempt awards shall not count against such share limit. Exempt awards include (i) any awards previously granted by a corporation or other entity acquired by the Company or any of its subsidiaries or with which the Company or any of its subsidiaries combines by merger or otherwise; (ii) an “employment inducement” award as described in the applicable stock exchange listing manual or rules; and (iii) any award that is purchased for fair market value (including awards to be received in lieu of fully vested compensation that is otherwise due). The number of shares of Common Stock available for grant under the Plan will be automatically increased on the first day of each calendar year beginning with the first January 1 following the Effective Date and ending with the last January 1 during the initial ten-year term of the Plan, equal to the lesser of (A) five percent (5%) of the shares of Common Stock outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year and (B) such lesser number of shares of Common Stock as determined by the Board.

The Plan became effective on February 28, 2024 upon approval of the Plan by the Company’s shareholders. Pursuant to the Plan, the Company can grant stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock units, annual or long-term performance awards or other stock-based awards. As of March 31, 2024, the Company did not grant any awards under the Plan.

| 30 |

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ITEM

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information with respect to the beneficial ownership of the Company’s Common Stock on July 15, 2024:

●	each<br> person, or group of affiliated persons, who is the beneficial owner of more than 5% of the outstanding common stock of the Company;
●	each<br> executive officer and director of the Company; and
●	all<br> of the Company’s executive officers and directors as a group.

Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, including securities that are exercisable or convertible, as the case may be, within 60 days of July 15, 2024. Shares of common stock issuable pursuant to such securities are deemed outstanding for computing the percentage of the person holding such securities and the percentage of any group of which the person is a member but are not deemed outstanding for computing the percentage of any other person. Except as indicated by the footnotes below, the combined Company believes, based on the information furnished to it, that the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown that they beneficially own, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Section 13(d) and 13(g) of the Securities Act.

The percentage of shares beneficially owned is based on 10,016,936 shares of Company Common Stock outstanding as of July 15, 2024.

Unless otherwise noted below, the address of the persons listed on the table is c/o ZRCN Inc., 1580 Dell Avenue, Campbell, CA 95008.

Beneficial ownership representing less than 1% is denoted with an asterisk (*).

	Beneficial<br> Ownership
Name<br> of Beneficial Owner	Shares		%
Greater<br> than 5% Stockholders:
Stauss<br> 2014 Revocable Trust (1)		3,990,133		39.83	%
Kurt<br> Stauss (2)		1,773,392		17.70	%
Eric<br> Stauss (3)		1,773,392		17.70	%
Current<br> Executive Officers and Directors:
John<br> Stauss (1)		3,990,132		39.83	%
Ronald<br> Bourque		0		*
Robert<br> Wyler		1,330,044		13.28	%
All<br> current executive officers and directors as a group (3 persons)		5,320,176		53.11	%
(1)	John<br> Stauss, as a trustee of the Stauss 2014 Revocable Trust, has the voting power to vote and dispose of the shares held in such trust.
---	---

Section16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

Based on a review of the copies of such forms received, we believe that during 2024, all filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with.

SecuritiesAuthorized for Issuance Under Equity Compensation Plans

The following table summarizes information about our equity compensation plans as of March 31, 2024.

Plan Category		Weighted average exercise price of outstanding options, warrants and rights
Equity compensation plans approved by security holders	0	$	0	0
Equity compensation plans not approved by security holders	-		-	-
Total	0			0

| 31 |

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ITEM

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The following includes a summary of transactions since March 31, 2023 to which we have been a party, including transactions in which the amount involved in the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described elsewhere in this Annual Report on Form 10-K. We are not otherwise a party to a current related party transaction, and no transaction is currently proposed, in which the amount of the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years and in which a related person had or will have a direct or indirect material interest.

Zircon has an exclusive manufacturing and technical assistance agreement with Zircon de Mexico S.A. de C.V. (the “contractor”), an entity which is owned by certain shareholders of Zircon.

Under the terms of the agreement, Zircon provides materials, technical assistance, and expertise to the contractor, and the contractor assembles certain of Zircon’s products. Zircon paid the contractor for costs incurred in manufacturing Zircon’s products, as defined in the contract, plus a profit percentage of approximately 5% of actual cost during the 9-month periods ended December 31, 2022, and 2021. Total payments including the profit percentage amounted to $1,862,179 and $1,987,013 for the 9-month periods ended December 31, 2022, and 2021, respectively. As of December 31, 2022, and 2021, Zircon had a payable to the contractor of approximately $89,331 and $33,046, respectively.

Zircon has a note payable to the contractor. The note was established for the purpose of reducing the payable balance and to satisfy the company’s lender’s requirements. During the period December 31, 2021, Zircon increased the borrowings by $400,000 to reduce the payable balance and to control the timing of the expected cash payments. The outstanding loan balance on December 31, 2022, was at $800,000. The note bears interest at the current Federal funds rate not to exceed 5% and is limited to an increase of no more than 2% annually. The entire principal balance is due and payable in December 2024 and is subordinated to the line of credit agreement the company has with the bank.

In September 2017, an affiliated company, Zircon Corporation Limited, was established in the United Kingdom to facilitate the sale of Zircon’s products to European customers and operations began during the year ended March 31, 2019. The ownership structure of the affiliate is similar to the ownership of Zircon. The company pays certain administrative and selling expenses of the affiliate. During the 9-month periods ended December 31, 2022, and 2021, the company recorded sales to the affiliate of approximately $5,611 and $38,457, respectively. As of December 31, 2022, and 2021, the company had a receivable from the affiliate of approximately $95,400 and $175,751, respectively.

Notes Payable

Zircon has notes payable to the Stauss Family Administrative Trust to repay loans made to Zircon. During the year ended March 31, 2022, Zircon management made a one-time unscheduled payment of $247,755. The remaining principal balance of $907,420 is due and payable in December 2024. Interest accrued at 5.5% per annum is paid quarterly and included in accrued expenses. The note is subordinated to the line of credit payable to the bank and no payment is to be made on the note without prior approval from the bank.

DirectorIndependence

Our board of directors undertook a review of the independence of our directors and considered whether any director has a relationship with us that could compromise that director’s ability to exercise independent judgment in carrying out that director’s responsibilities. Our board of directors has affirmatively determined that none are “independent directors,” as defined under the Nasdaq rules.

ITEM

PRINCIPAL ACCOUNTING FEES AND SERVICES

AuditFees

The aggregate fees billed to us by Assurance Dimensions, our independent registered public accounting firms, for the indicated services for each of the last two fiscal years were as follows:

	2024		2023
Audit<br> fees (1)	$	119,400	$	25,000
Audit-related<br> fees		—		—
Tax<br> fees		—		—
All<br> other fees		—		—
(1)	Audit<br> fees consist of fees for professional services performed by MaloneBailey and RBSM for the audit and review of our financial statements,<br> preparation and filing of our registration statements, including issuance of comfort letters.
---	---

| 32 |

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PART

ITEM

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(1)Financial Statements

See “Index to Consolidated Financial Statements” on page F-1.

(2)Financial Statement Schedules

All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto included in this report.

(3)Exhibits

Exhibits not filed or furnished herewith are incorporated by reference to exhibits previously filed with the SEC, as reflected in the table below. We will furnish a copy of any exhibit to stockholders, without charge upon written request to the Company.

Exhibit<br><br> <br>Number	Description
3.1	Certificate<br> of Incorporation, dated June 19, 2018 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 10 filed by<br> the Company on December 27, 2021)
3.2	Certificate<br> of Amendment to Certificate of Incorporation, dated August 28, 2020 (incorporated by reference to Exhibit 3.2 to the Registration<br> Statement on Form 10 filed by the Company on December 27, 2021)
3.3	Certificate<br> of Amendment to Certificate of Incorporation, dated July 9, 2021 (incorporated by reference to Exhibit 3.3 to the Registration Statement<br> on Form 10 filed by the Company on December 27, 2021)
3.4	Certificate<br> of Amendment to Certificate of Incorporation, dated June 17, 2022 (incorporated by reference to Exhibit 3.5 to the Current Report<br> on 8-K filed by the Company on June 21, 2022)
3.5	Certificate<br> of Amendment to Certificate of Incorporation, dated June 17, 2023 (incorporated by reference to Exhibit 3.1 to the Current Report<br> on 8-K filed by the Company on June 27, 2023)
3.6	Bylaws<br> of the Company (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form 10 filed by the Company on December<br> 27, 2021)
4.1	Description of the Company’s Securities Registered Pursuant to Section 12 of the Securities and Exchange Act
10.1	Union<br> Bank Loan Agreement (incorporated by reference to Exhibit 1 to the Current Report on Form 8-K/A filed by the Company on August 22,<br> 2023)
10.2+	ZRCN<br> Inc. 2024 Omnibus Equity Incentive Plan (Incorporated by reference to Exhibit 4.7 to the Registration Statement filed on Form S-8<br> filed by the Company on March 6, 2024)
10.3+	Form<br> of Stock Option Agreement under the Plan (Incorporated by reference to Exhibit 4.8 to the Registration Statement filed on Form S-8<br> filed by the Company on March 6, 2024)
10.4†	Revolving Credit, Security And Guaranty Agreement, dated as of May 31,<br>2024, by and among Zircon Corporation, Zrcn Inczircon De Mexico, S.A. DE C.V.,, Zircon Corporation Limited, And FGI Worldwide LLC, As<br>Agent For Lenders
21.1	List of Subsidiaries
23.1	Consent of Assurance Dimensions LLP
24	Power<br> of Attorney (included on signature page hereto).
31.1	Certification<br> of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant<br> to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification<br> of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant<br> to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification<br> of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of<br> 2002
32.2	Certification<br> of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of<br> 2002
101.INS	Inline<br> XBRL Instance Document.
101.SCH	Inline<br> XBRL Taxonomy Extension Schema.
101.CAL	Inline<br> XBRL Taxonomy Extension Calculation Linkbase.
101.LAB	Inline<br> XBRL Taxonomy Extension Labels Linkbase.
101.PRE	Inline<br> XBRL Taxonomy Extension Presentation Linkbase.
101.DEF	Inline<br> XBRL Taxonomy Extension Definition Linkbase.
104	Cover<br> Page Interactive Data File (embedded within the Inline XBRL document)
+	Indicates<br> a management contract or compensatory plan or arrangement.
---	---
†	Certain of the exhibits and schedules to this Exhibit have been omitted<br>in accordance with Regulation S-K Item 601(a)(5). The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the<br>SEC upon its request.

ITEM

FORM 10-K SUMMARY

None.

| 33 |

| --- |

SIGNATURES

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

	ZRCN<br> INC.
	/s/ John Stauss
July<br> 15, 2024	Chairman<br> and Chief Executive Officer (Principal Executive Officer)

POWER

OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Robert Wyler as his or her attorney-in-fact, with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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

SIGNATURE	TITLE	DATE
/s/ John Stauss	Chairman<br> and Chief Executive Officer	July<br> 15, 2024
John<br> Stauss	(Principal<br> Executive Officer)
/s/ Ronaold Bourque	Chief<br> Operating Officer, Chief Financial Officer and Director	July<br> 15, 2024
Ronaold<br> Bourque	(Principal<br> Financial and Accounting Officer)
/s/ Robert Wyler	General<br> Counsel, Secretary and Director	July<br> 15, 2024
Robert<br> Wyler

| 34 |

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Exhibit4.1

DESCRIPTIONOF REGISTRANT’S SECURITIES

REGISTEREDPURSUANT TO SECTION 12

OFTHE SECURITIES EXCHANGE ACT OF 1934

ZRCN Inc., a Delaware corporation (the “Company,” “Corporation,” “we,” “us” or “our”), has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): our Common Stock (as defined below).

The following description briefly summarizes information about our capital stock, including our Common Stock. This information does not purport to be complete, and is subject to and qualified in its entirety by reference to: (i) the Company’s certificate of incorporation, as amended (as so amended, our “Certificate of Incorporation”); and (ii) the Company’s bylaws, as amended (as so amended, our “Bylaws”), copies of each of which are filed and incorporated by reference as exhibits to the Annual Report on Form 10-K of which this Exhibit is a part. We encourage you to read our Certificate of Incorporation, our Bylaws and the relevant provisions of the General Corporation Law of the State of Delaware (the “DGCL”) – the general corporation law of the state in which we are incorporated – for additional information.

General

As of July 15, 2024, our authorized capital stock consists of 200,000,000 shares of common stock, par value $0.0001 per share. As of July 15, 2024, there were 10,016,936 shares of our common stock issued and outstanding.

CommonStock

Our common stock is entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Except as otherwise required by law or provided in any resolution adopted by our board of directors with respect to any series of preferred stock, the holders of our common stock will possess all voting power. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of our common stock that are present in person or represented by proxy. Holders of our common stock representing fifty percent (50%) of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation. Our Articles of Incorporation do not provide for cumulative voting in the election of directors.

Subject to any preferential rights of any outstanding series of preferred stock created by our board of directors from time to time, the holders of shares of our common stock will be entitled to such cash dividends as may be declared from time to time by our board of directors from funds available therefore.

Subject to any preferential rights of any outstanding series of preferred stock created from time to time by our board of directors, upon liquidation, dissolution or winding up, the holders of shares of our common stock will be entitled to receive pro rata all assets available for distribution to such holders.

In the event of any merger or consolidation with or into another company in connection with which shares of our common stock are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of our common stock will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash). Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.

Warrants

As of March 31, 2024, there are 217,184 outstanding warrants to purchase our securities.

Options

We have not issued any stock options to purchase our securities.

ConvertibleSecurities

We have not issued and do not have outstanding any securities convertible into shares of our common stock or any rights convertible or exchangeable into shares of our common stock.

Anti-TakeoverEffects of Certain Provisions of our Certificate of Incorporation, Bylaws and Delaware law

Certain provisions of our Certificate of Incorporation, as amended, and Bylaws, which are summarized in the following paragraphs, may have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, our Certificate of Incorporation, as amended, and Bylaws and Delaware law, as applicable, among other things:

●	provide the<br> board of directors with the ability to alter the bylaws without stockholder approval;
●	provide that vacancies<br> on the board of directors may be filled by a majority of directors in office, although less than a quorum.

These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to first negotiate with its board. These provisions may delay or prevent someone from acquiring or merging with us, which may cause the market price of our common stock to decline.

TransferAgent

The Company’s transfer agent is Computershare Trust Company, N.A. located at 250 Royall Street, Canton, MA 02021 with a phone number at 1 (781) 575-2000.

Exhibit10.4

[Execution]

REVOLVINGCREDIT, SECURITY

ANDGUARANTY AGREEMENT

FGIWORLDWIDE LLC

(ASLENDER AND AS AGENT)

WITH

ZIRCONCORPORATION

(ASBORROWER)

ZRCNINC.,

ZIRCONDE MEXICO, S.A. DE C.V.,

AND

ZIRCONCORPORATION LIMITED

(ASGUARANTORS)

May31, 2024

TABLEOF CONTENTS

			Page
I.	DEFINITIONS.		1
	1.1.	Accounting<br> Terms	1
	1.2.	General<br> Terms	2
	1.3.	Uniform<br> Commercial Code Terms	34
	1.4.	Certain<br> Matters of Construction	34
	1.5.	Successor<br> Interest Rate	35
II.	ADVANCES,<br> PAYMENTS.		35
	2.1.	Advances	35
	2.2.	Procedures<br> for Requesting Advances	37
	2.3.	[Reserved].	37
	2.4.	[Reserved]	37
	2.5.	Disbursement<br> of Advance Proceeds	37
	2.6.	Making<br> and Settlement of Advances	38
	2.7.	[Reserved].	39
	2.8.	Manner<br> and Repayment of Advances	39
	2.9.	[Reserved]	40
	2.10.	Statement<br> of Account	40
	2.11.	Mandatory<br> Prepayments	40
	2.12.	Use<br> of Proceeds	41
	2.13.	Defaulting<br> Lender	41
	2.14.	Payment<br> of Obligations	42
III.	INTEREST<br> AND FEES.		42
	3.1.	Interest	42
	3.2.	Early<br> Termination Fee.	43
	3.3.	Fee<br> Letter	43
	3.4.	Collateral<br> Evaluation Fee	43
	3.5.	Computation<br> of Interest and Fees	44
	3.6.	Maximum<br> Charges	44
	3.7.	Increased<br> Cost	44
	3.8.	[Reserved].	44
	3.9.	Capital<br> Adequacy	45
	3.10.	Taxes	45
	3.11.	Replacement<br> of Lender	48
IV.	COLLATERAL:<br> GENERAL TERMS		49
	4.1.	Security<br> Interest in the Collateral	49
	4.2.	Perfection<br> of Security Interest	49
	4.3.	Preservation<br> of Collateral	50
	4.4.	Ownersrity Interest in the Collateral 49 4.2. Perfection of Security Interest 49hip<br> and Location of Collateral	50
	4.5.	Defense<br> of Agent’s and Lender’ Interests	51
	4.6.	Inspection<br> of Premises and Receivables Audits	51
	4.7.	Appraisals	52
	4.8.	Receivables;<br> Deposit Accounts and Securities Accounts	52
	4.9.	Inventory	55
	4.10.	Maintenance<br> of Equipment	55
	4.11.	Exculpation<br> of Liability	55
	4.12.	Financing<br> Statements	55

| i |

| --- | | V. | REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES. | | 56 | | --- | --- | --- | --- | | | 5.1. | Existence and Power | 56 | | | 5.2. | Authority | 56 | | | 5.3. | Binding Effect | 56 | | | 5.4. | Equity Interests. | 56 | | | 5.5. | Business Operations and Other Information; Financial Condition | 57 | | | 5.6. | Litigation; No Violation of Governmental Orders or Laws | 57 | | | 5.7. | No Conflicts with Agreements, Compliance, Etc | 58 | | | 5.8. | Consents, Etc | 58 | | | 5.9. | Outstanding Indebtedness; Existing Investments | 58 | | | 5.10. | Title to Properties; Equipment and Other Property | 59 | | | 5.11. | Taxes | 60 | | | 5.12. | Disclosure | 60 | | | 5.13. | [Reserved]. | 60 | | | 5.14. | Labor Matters | 60 | | | 5.15. | Environmental Matters | 61 | | | 5.16. | Margin Regulations | 61 | | | 5.17. | Pension and Benefit Plans | 62 | | | 5.18. | Security Interest in Collateral | 63 | | | 5.19. | Insurance | 63 | | | 5.20. | Possession of Franchises, Licenses, Etc | 63 | | | 5.21. | Intellectual Property | 64 | | | 5.22. | Use of Proceeds | 65 | | | 5.23. | Foreign Assets Control Regulations | 65 | | | 5.24. | Anti-Corruption Laws | 65 | | | 5.25. | Status under Certain Laws | 65 | | | 5.26. | Ranking of Obligations | 65 | | | 5.27. | Solvency | 65 | | | 5.28. | RICO | 66 | | | 5.29. | No Burdensome Restrictions | 66 | | | 5.30. | Broker’s or Finder’s Commissions; Financial Advisory Fees | 66 | | | 5.31. | Material Contracts and Other Agreements | 66 | | VI. | AFFIRMATIVE COVENANTS WITH RESPECT TO OBLIGATIONS. | | 67 | | | 6.1. | Payment of Principal and Interest | 67 | | | 6.2. | Payment of Obligations and Taxes | 67 | | | 6.3. | Maintenance of Existence; Compliance | 67 | | | 6.4. | Maintenance of Property; Insurance. | 68 | | | 6.5. | Books and Records | 69 | | | 6.6. | Environmental Laws. | 69 | | | 6.7. | Further Assurances | 70 | | | 6.8. | Future Guarantors; Additional Collateral; Further Assurances | 70 | | | 6.9. | Government Receivables | 71 | | | 6.10. | Sanctions and other Anti-Terrorism Laws; Anti-Corruption; Additional Information. | 71 |

| ii |

| --- | | VII. | NEGATIVE AND MAINTENANCE COVENANTS WITH RESPECT TO OBLIGATIONS. | | 72 | | --- | --- | --- | --- | | | 7.1. | Financial Covenants | 72 | | | 7.2. | Indebtedness | 72 | | | 7.3. | Liens | 73 | | | 7.4. | Mergers; Consolidations; Asset Sales | 75 | | | 7.5. | Dividends | 76 | | | 7.6. | Investments, Loans and Advances | 76 | | | 7.7. | Limitation on Modifications of Indebtedness; Modifications of Organizational Documents, etc | 77 | | | 7.8. | Transactions with Affiliates | 78 | | | 7.9. | Sale and Leasebacks | 78 | | | 7.10. | Fiscal Year | 78 | | | 7.11. | Negative Pledge Clauses | 78 | | | 7.12. | Limitation on Certain Restrictions on Subsidiaries | 78 | | | 7.13. | Payments in Respect of Certain Indebtedness | 78 | | | 7.14. | Business | 79 | | | 7.15. | Limitation on Accounting Changes | 79 | | | 7.16. | Limitation on Issuance of Equity Interests | 79 | | | 7.17. | Limitation on Subsidiaries | 79 | | | 7.18. | Inconsistent Agreements | 79 | | | 7.19. | Limitation on Collateral Location. | 79 | | | 7.20. | Sanctions and other Anti-Terrorism Laws; and Anti-Corruption Laws. | 80 | | | 7.21. | Permitted Activities of Parent | 80 | | VIII. | CONDITIONS PRECEDENT. | | 80 | | | 8.1. | Conditions to Initial Advances | 80 | | | 8.2. | Conditions to Each Advance | 83 | | IX. | INFORMATION AS TO LOAN PARTIES. | | 84 | | | 9.1. | Disclosure of Material Matters | 84 | | | 9.2. | Schedules | 84 | | | 9.3. | Environmental Reports | 84 | | | 9.4. | Litigation | 85 | | | 9.5. | Material Occurrences | 85 | | | 9.6. | Government Receivables | 86 | | | 9.7. | Annual Financial Statements | 86 | | | 9.8. | [Reserved] | 86 | | | 9.9. | Monthly Financial Statements | 86 | | | 9.10. | Other Reports | 87 | | | 9.11. | Additional Information | 87 | | | 9.12. | Projected Operating Budget | 87 | | | 9.13. | Variances From Operating Budget | 87 | | | 9.14. | Notice of Suits, Adverse Events | 87 | | | 9.15. | ERISA Notices | 88 | | | 9.16. | Additional Documents | 88 | | | 9.17. | Updates to Certain Schedules | 88 | | | 9.18. | Financial Disclosure | 89 |

| iii |

| --- | | X. | EVENTS OF DEFAULT. | | 89 | | --- | --- | --- | --- | | | 10.1. | Nonpayment | 89 | | | 10.2. | Breach of Representation | 89 | | | 10.3. | Financial Information; Inspections | 89 | | | 10.4. | Judicial Actions | 89 | | | 10.5. | Covenants | 89 | | | 10.6. | Judgments | 90 | | | 10.7. | Bankruptcy | 90 | | | 10.8. | Material Adverse Effect. | 90 | | | 10.9. | Lien Priority | 90 | | | 10.10. | Certain Actions | 90 | | | 10.11. | Cross Default | 90 | | | 10.12. | Change of Control | 91 | | | 10.13. | Invalidity | 91 | | | 10.14. | ERISA | 91 | | XI. | LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT. | | 91 | | | 11.1. | Rights and Remedies | 91 | | | 11.2. | Agent’s Discretion | 92 | | | 11.3. | Setoff | 93 | | | 11.4. | Rights and Remedies not Exclusive | 93 | | | 11.5. | Allocation of Payments After Event of Default | 93 | | XII. | WAIVERS AND JUDICIAL PROCEEDINGS. | | 93 | | | 12.1. | Waiver of Notice | 93 | | | 12.2. | Delay | 94 | | | 12.3. | Jury Waiver | 94 | | XIII. | CLOSING DATE AND TERMINATION. | | 94 | | | 13.1. | Term | 94 | | | 13.2. | Termination | 95 |

| iv |

| --- | | XIV. | REGARDING AGENT. | | 95 | | --- | --- | --- | --- | | | 14.1. | Appointment | 95 | | | 14.2. | Nature of Duties | 96 | | | 14.3. | Lack of Reliance on Agent | 96 | | | 14.4. | Resignation of Agent; Successor Agent | 97 | | | 14.5. | Certain Rights of Agent | 97 | | | 14.6. | Reliance | 97 | | | 14.7. | Notice of Default | 97 | | | 14.8. | Indemnification | 98 | | | 14.9. | Agent in its Individual Capacity | 98 | | | 14.10. | Delivery of Documents | 98 | | | 14.11. | Borrowers’ Undertaking to Agent | 98 | | | 14.12. | No Reliance on Agent’s Customer Identification Program | 98 | | | 14.13. | Other Agreements | 99 | | XV. | CO-LOAN PARTY AGENCY. | | 99 | | | 15.1. | Co-Loan Party Agency Provisions | 99 | | | 15.2. | Waiver of Subrogation | 100 | | XVI. | MISCELLANEOUS. | | 100 | | | 16.1. | Governing Law | 100 | | | 16.2. | Entire Understanding | 101 | | | 16.3. | Successors and Assigns; Participations; New Lenders | 104 | | | 16.4. | Application of Payments | 107 | | | 16.5. | Indemnity | 107 | | | 16.6. | Notice. | 108 | | | 16.7. | Survival | 109 | | | 16.8. | Severability | 109 | | | 16.9. | Expenses | 110 | | | 16.10. | Injunctive Relief | 110 | | | 16.11. | Consequential Damages | 110 | | | 16.12. | Captions | 110 | | | 16.13. | Counterparts; Facsimile Signatures | 110 | | | 16.14. | Construction | 110 | | | 16.15. | Confidentiality; Sharing Information | 111 | | | 16.16. | Currency Indemnity | 112 | | | 16.17. | Certifications From Banks and Participants; USA PATRIOT Act | 112 | | | 16.18. | Anti-Terrorism Laws | 112 | | XVII. | GUARANTY. | | 113 | | | 17.1. | Guaranty | 113 | | | 17.2. | Separate Obligation | 113 | | | 17.3. | Limitation of Guaranty | 114 | | | 17.4. | Liability of Guarantors | 114 | | | 17.5. | Consents of Guarantors | 115 | | | 17.6. | Guarantor’s Waivers. Each Guarantor waives and agrees not to assert | 116 | | | 17.7. | Financial Condition of Borrowers | 116 | | | 17.8. | Subrogation | 117 | | | 17.9. | Subordination | 117 | | | 17.10. | Continuing Guaranty | 117 | | | 17.11. | Reinstatement | 118 | | | 17.12. | Substantial Benefits | 118 |

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LIST OF EXHIBITS AND SCHEDULES

Exhibits
Exhibit<br> 1.2	Borrowing<br> Base Certificate
Exhibit<br> 1.2(c)	Compliance<br> Certificate
Exhibit<br> 2.1(a)	Revolving<br> Credit Note
Exhibit<br> 16.3	Commitment<br> Transfer Supplement
Schedules
Schedule<br> 1	Eligible<br> Inventory Locations
Schedule<br> 4.4	Ownership<br> and Location of Collateral
Schedule<br> 5.4	Equity<br> Interests
Schedule<br> 5.5	Material<br> Disposition
Schedule<br> 5.6(a)	Material<br> Litigation
Schedule<br> 5.6(c)	Commercial<br> Tort Claims
Schedule<br> 5.8	Consents
Schedule<br> 5.9(a)	Existing<br> Indebtedness
Schedule<br> 5.9(b)	Existing<br> Investments
Schedule<br> 5.10	Title<br> to Properties; Equipment and Other Property
Schedule<br> 5.14	Labor<br> Matters
Schedule<br> 5.15	Environmental<br> Matters
Schedule<br> 5.19	Insurance
Schedule<br> 5.21	Intellectual<br> Property
Schedule<br> 5.21(f)	Termination<br>of License Agreements
Schedule<br> 5.22	Use<br> of Proceeds
Schedule<br> 5.30	Fees
Schedule<br> 5.31	Material<br> Contracts
Schedule<br> 6.12	Deposit,<br> Securities and Investment Accounts
Schedule<br> 7.1	Financing<br> Statements
Schedule<br> 7.2	Indebtedness
Schedule<br> 7.3	Liens
Schedule<br> 7.6	Investments
Schedule<br> 7.8	Affiliate<br> Transactions
Schedule<br> 7.9	Sale<br> Leaseback
Schedule<br> 7.14	Description<br> of Business

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REVOLVINGCREDIT, SECURITY

AND

GUARANTYAGREEMENT

This REVOLVING Credit, Security AND GUARANTY Agreement, dated as of May 31, 2024, by and among (1) ZIRCON CORPORATION, a California corporation (“Zircon”; and together with any other Person who joins this agreement from time to time as a borrower, each a “Borrower” and collectively, the “Borrowers”), (2) ZRCN INC., a Delaware corporation (“Parent”), ZIRCON DE MEXICO, S.A. DE C.V., a sociedad anónima de capital variable (“Zircon MX”), and ZIRCON CORPORATION LIMITED, a corporation organized under the laws of the United Kingdom (“Zircon UK”; and together with Parent, Zircon MX and each other Person joined hereto as a guarantor from time to time, collectively, the “Guarantors”, and each a “Guarantor”); (3) the financial institutions which are now or which hereafter become a party hereto (collectively, the “Lenders” and each individually a “Lender”); and (4) FGI WORLDWIDE LLC, a Delaware limited liability company (“FGI”), as agent for Lenders (FGI, in such capacity, the “Agent”).

IN CONSIDERATION of the mutual covenants and undertakings herein contained, the Loan Parties, Lenders and Agent hereby agree as follows:

I. DEFINITIONS.

1.1. Accounting Terms. As used in this Agreement, the Other Documents or any certificate, report or other document made or delivered pursuant to this Agreement, accounting terms not defined in Section 1.2 or elsewhere in this Agreement and accounting terms partly defined in Section 1.2 to the extent not defined shall have the respective meanings given to them under GAAP; provided, however that, whenever such accounting terms are used for the purposes of determining compliance with financial covenants in this Agreement, such accounting terms shall be defined in accordance with GAAP. If there occurs after the Closing Date any change in GAAP that affects in any respect the calculation of any covenant contained in this Agreement or the definition of any term defined under GAAP used in such calculations, Agent, Lenders and Borrowers shall negotiate in good faith to amend the provisions of this Agreement that relate to the calculation of such covenants with the intent of having the respective positions of Agent, Lenders and Borrowers after such change in GAAP conform as nearly as possible to their respective positions as of the Closing Date, provided, that, until any such amendments have been agreed upon, the covenants in this Agreement shall be calculated as if no such change in GAAP had occurred and Borrowers shall provide additional financial statements or supplements thereto, attachments to Compliance Certificates and/or calculations regarding financial covenants as Agent may reasonably require in order to provide the appropriate financial information required hereunder with respect to the Loan Parties both reflecting any applicable changes in GAAP and as necessary to demonstrate compliance with the financial covenants before giving effect to the applicable changes in GAAP. All leases of the Loan Parties that would be treated as operating leases for purposes of GAAP as in effect on December 31, 2018 (whether or not such operating leases were in effect on such date) shall continue to be accounted for as operating leases for purposes of GAAP, notwithstanding any modifications or interpretive changes thereto that may occur thereafter (and, for the avoidance of doubt, GAAP for all purposes hereunder shall not give effect to ASU No. 2016-02 Leases (Topic 842) (or any other applicable financial accounting standard having a similar result or effect)).

1.2. General Terms. For purposes of this Agreement the following terms shall have the following meanings:

“Accountants” shall have the meaning set forth in Section 9.7 hereof.

“Accounting Change” refers to any change in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the SEC.

“Acquisition” has the meaning assigned in Permitted Acquisition.

“Additional Tranche” means an additional amount of Revolving Commitment equal to $5,000,000.

“Advance” or “Advances” shall mean and include the Revolving Advances.

“Advance Rates” means, collectively, the Receivables Advance Rate, the Insured Receivables Advance Rate, the Inventory Advance Rate, and the Inventory NOLV Advance Rate, each as set forth in Section 2.1(a) hereof.

“Affected Lender” shall have the meaning set forth in Section 3.11 hereof.

“Affiliate” of any Person shall mean (a) any Person which, directly or indirectly, is in control of, is controlled by, or is under common control with such Person, or (b) any Person who is a director, manager, member, managing member, general partner or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person described in clause (a) above. For purposes of this definition, control of a Person shall mean the power, direct or indirect, (x) to vote the Equity Interests having ordinary voting power for the election of directors of such Person or other Persons performing similar functions for any such Person, or (y) to direct or cause the direction of the management and policies of such Person whether by ownership of Equity Interests, contract or otherwise.

“Affiliate Debt” means the Indebtedness of the Loan Parties owing to any Affiliate that is not a Loan Party, existing as of the date of this Agreement and listed on Schedule 5.9(a) hereto.

“Agent” shall have the meaning set forth in the preamble to this Agreement and shall include its successors and assigns.

“Agreement” shall mean this Revolving Credit, Security and Guaranty Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time.

“Anti-Corruption Laws” shall mean the United States Foreign Corrupt Practices Act of 1977, as amended, Mexico’s General Law of Administrative Responsibilities (Ley General de Responsabilidades Administrativas), Mexico’s Federal Criminal Code (Código Penal Federal), and any other similar anti-corruption laws or regulations administered or enforced in any jurisdiction in which a Loan Party or any of its Subsidiaries conduct business.

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“Anti-Terrorism Laws” shall mean any Laws relating to terrorism, trade sanctions programs and embargoes, import/export licensing, money laundering or sanctions, including the Bank Secrecy Act, 31 U.S.C. § 5311 et seq, the USA PATRIOT Act, the International Emergency Economic Powers Act, 50 U.S.C. 1701, et. seq., the Trading with the Enemy Act, 50 U.S.C. App. 1, et seq., 18 U.S.C. § 2332d, and 18 U.S.C. § 2339b, and any regulation, order, or directive promulgated, issued or enforced pursuant to such Laws, all as amended, supplemented or replaced from time to time.

“Applicable Law” shall mean all Laws applicable to the Person, conduct, transaction, covenant, Other Document or contract in question, all provisions of all applicable state, province, territorial, federal and foreign constitutions, statutes, rules, regulations, treaties, directives and orders of any Governmental Body, and all orders, judgments and decrees of all courts and arbitrators.

“Application Date” shall have the meaning set forth in Section 2.8(b) hereof.

“Approved Electronic Communication” shall mean each notice, demand, communication, information, document and other material transmitted, posted or otherwise made or communicated by e-mail, E-Fax, or any other equivalent electronic service agreed to by Agent, whether owned, operated or hosted by Agent, any Lender, any of their Affiliates or any other Person, that any party is obligated to, or otherwise chooses to, provide to Agent pursuant to this Agreement or any Other Document, including any financial statement, financial and other report, notice, request, certificate and other information material; provided that Approved Electronic Communications shall not include any notice, demand, communication, information, document or other material that Agent specifically instructs a Person to deliver in physical form.

“Asset Sale” means (a) any conveyance, sale, assignment, transfer, gift or other disposition (including by way of merger, amalgamation or consolidation and including any sale and leaseback transaction) of any Property (including Equity Interests of any Loan Party or any Subsidiary of a Loan Party) of a Loan Party to any Person other than another Domestic Loan Party, and (b) any issuance or sale by any Loan Party of its Equity Interests to any Person other than (1) to another Domestic Loan Party, or (2) to the extent permitted by Section 7.16. For the avoidance of doubt, with respect to the asset transfers described in Section 7.4(b), only clause (b)(ii) thereof shall be considered an “Asset Sale.”

“Bankruptcy Code” means (a) the United States Bankruptcy Code (11 U.S.C. § 101, et seq.), as amended, and any successor statute, (b) Mexico’s Insolvency Law (Ley de Concursos Mercantiles) and (c) such other applicable rules, laws or statutes of any Governmental Body or court of a jurisdiction outside of the United States of America relating to bankruptcy, insolvency, assignments for the benefit of creditors, formal or informal moratoria, compositions, or extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief, as amended and in effect from time to time, and any successor rule, law or statute.

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“Bankruptcy Laws” means, collectively: (a) the Bankruptcy Code; and (b) all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor-relief Laws of the United States, or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally, including any applicable corporations legislation to the extent the relief sought under such corporations legislation relates to or involves the compromise, settlement, adjustment or arrangement of debt.

“Base Rate” shall mean Term SOFR for the Interest Period as of such day.

“Benefited Lender” shall have the meaning set forth in Section 2.6(d) hereof.

“Blocked Account Bank” shall have the meaning set forth in Section 4.8(h) hereof.

“Blocked Accounts” shall have the meaning set forth in Section 4.8(h) hereof.

“Books and Records” means, as to any Person, all of such Person’s books and records including ledgers, Tax Returns, records regarding such Person’s assets or liabilities, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

“Borrower” or “Borrowers” shall have the meaning set forth in the preamble to this Agreement and shall extend to all permitted successors and assigns of such Persons.

“Borrowers’ Account” shall have the meaning set forth in Section 2.10 hereof.

“Borrower Agent” shall mean Zircon.

“Borrowing Base Certificate” shall mean a certificate in substantially the form of Exhibit 1.2 hereto duly executed by a Responsible Officer of the Borrower Agent and delivered to the Agent, appropriately completed, by which such officer shall certify to Agent the Revolver Formula Amount and calculation thereof as of the date of such certificate.

“Business Day” means any day that is not a Saturday, Sunday or other day that is a legal holiday under the laws of the State of New York or is a day on which banking institutions in such state are authorized or required by law to close; provided that, when used in connection with an Advance bearing interest based on Term SOFR or any other calculation or determination involving Term SOFR, the term “Business Day” means any such day that is also a U.S. Government Securities Business Day. When used with respect to any Mexican Loan Party, Business Day shall also mean any day other than a Saturday, Sunday or other day on which banks are authorized or required to close in Mexico City, Mexico and on which day Agent is open for business in New York, New York.

“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal Property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

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“Cash Equivalents” means, as to any Person: (a) securities issued, or directly, unconditionally and fully guaranteed or insured, by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition by such Person; (b) time deposits and certificates of deposit of any commercial bank having, or which is the principal banking subsidiary of a bank holding company organized under the laws of the United States, any state thereof or the District of Columbia having, capital and surplus aggregating in excess of $500,000,000 and a rating of “A” (or such other similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) with maturities of not more than one year from the date of acquisition by such Person; (c) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (a) above entered into with any bank meeting the qualifications specified in clause (b) above, which repurchase obligations are secured by a valid perfected security interest in the underlying securities; (d) commercial paper issued by any Person incorporated in the United States rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody’s and in each case maturing not more than one year after the date of acquisition by such Person; (e) investments in money market funds substantially all of whose assets are comprised of securities of the types described in clauses (a) through (d) above; and (f) demand deposit accounts maintained in the ordinary course of business, in each case (for clauses (a) through (f)) with a financial institution in the United States that has delivered a springing Control Agreement satisfactory to Agent.

“Change in Law” shall mean the occurrence, after the Closing Date, of any of the following: (a) the adoption or taking effect of any Applicable Law; (b) any change in any Applicable Law or in the administration, implementation, interpretation or application thereof by any Governmental Body; or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of Law) by any Governmental Body; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, regulations, guidelines, interpretations or directives thereunder or issued in connection therewith (whether or not having the force of Applicable Law) and (y) all requests, rules, regulations, guidelines, interpretations or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities (whether or not having the force of Law), in each case pursuant to Basel III, shall in each case be deemed to be a Change in Law regardless of the date enacted, adopted, issued, promulgated or implemented.

“Change of Control” shall mean: (a) the occurrence of any event (whether in one or a series of transactions) which results in Permitted Holders ceasing to own and control, directly, at least 51% of the outstanding voting Equity Interests of Parent, (b) the occurrence of any event (whether in one or a series of transactions) which results in Parent failing to own all of the Equity Interests of Zircon (on a fully diluted basis), (c) the occurrence of any event (whether in one or a series of transactions) which results in Permitted Holders failing to own all of the Equity Interests of Zircon MX (on a fully diluted basis), (d) the occurrence of any event (whether in one or a series of transactions) which results in Permitted Holders failing to own all of the Equity Interests of Zircon UK (on a fully diluted basis), (e) all or substantially all of the assets of any Loan Party are sold in any single transaction or in a series of related transactions to a Person other than Zircon.

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“CIP Regulations” shall have the meaning set forth in Section 14.12 hereof.

“Closing Date” shall mean the date of this Agreement.

“Code” shall mean the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

“Collateral” means, collectively, all right, title and interest of each Loan Party, whether now owned or hereafter acquired or arising (or in which such Loan Party has rights or the power to transfer rights to a secured party), in, to or upon all Receivables, chattel paper (including electronic chattel paper and tangible chattel paper, documents (including all warehouse receipts and bills of lading), deposit accounts, securities accounts or investment accounts, commercial tort claims (including, without limitation, the commercial tort claims listed on Schedule 5.6(c)), Documents, Equipment, general intangibles (including, without limitation, Intellectual Property), goods, instruments, Inventory, securities, investment property, financial assets, Permits, Books and Records, Real Property, fixtures, all contract rights, rights of payment which have been earned under a contract rights, letters of credit (whether or not the respective letter of credit is evidenced by a writing) and letter-of-credit rights, cash, certificates of deposit, insurance proceeds (including hazard, flood and credit insurance), security agreements, eminent domain proceeds, condemnation proceeds, tort claim proceeds and all supporting obligations, and all other assets, tangible and intangible, real and personal, of such Loan Party, and all products and proceeds (in whatever form or nature) of the foregoing. It is the intention of the parties that if Agent shall fail to have a perfected Lien in any particular property or assets of any Loan Party for any reason whatsoever, but the provisions of this Agreement and/or of the Other Documents, together with all financing statements and other public filings relating to Liens filed or recorded by Agent against a Loan Party, would be sufficient to create a perfected Lien in any property or assets that such Loan Party may receive upon the sale, lease, license, exchange, transfer or disposition of such particular property or assets, then all such “proceeds” of such particular property or assets shall be included in the Collateral as original collateral that is the subject of a direct and original grant of a security interest or Lien as provided for herein and in the Other Documents (and not merely as proceeds (as defined in Article 9 of the Uniform Commercial Code) in which a security interest is created or arises solely pursuant to Section 9-315 of the Uniform Commercial Code).

“Commitment Transfer Supplement” shall mean a document in the form of Exhibit 16.3 hereto, properly completed and otherwise in form and substance satisfactory to Agent by which the Purchasing Lender purchases and assumes a portion of the obligation of a transferor Lender to make Advances under this Agreement.

“Compliance Certificate” shall mean a compliance certificate substantially in the form of Exhibit 1.2(c) hereto to be signed by a Responsible Officer of Borrower Agent.

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“Consigned Inventory” shall mean Inventory of any Borrower that is in the possession of another Person on a consignment, sale or return, or other basis that does not constitute a final sale and acceptance of such Inventory.

“Consolidated EBITDA” shall have the meaning given to such term in the “EBITDA Worksheet” annexed to the form of Compliance Certificate.

“Consolidated Interest Expense” means, with respect to any period, the total interest expense paid or accrued for such period, including, without limitation, the interest portion of Capital Lease Obligations, all as determined for the Borrower and its Subsidiaries on a consolidated basis and in accordance with GAAP.

“Consolidated Net Income” means, for any period, the net income (or loss) of the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, but excluding therefrom (to the extent otherwise included therein) (a) any equity interest of the Borrowers and its Subsidiaries in the unremitted earnings of any Person that is not a Subsidiary, and (b) any income (or loss) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with a Borrower or the date that such Person’s assets are acquired by a Borrower.

“Contingent Labor Liability” liabilities for compensation and benefits payable to employees of a Mexican Loan Party as specified and required under Section NIF D-3 of GAAP, in connection with the amounts equal to the accrued and unpaid employee salaries, fringe benefits and/or other claims under Mexican laws that would be expected to have priority over Agent’s Liens granted over the Collateral.

“Contingent Labor Liability Reserve” means a Reserve established by Agent, in its reasonable discretion, in respect of Contingent Labor Liability up to 100% of the most recently determined Contingent Labor Liability.

“Contract Rate” shall have the meaning set forth in Section 3.1 hereof.

“Contract Year” means the twelve (12) month period immediately following the Closing Date and each successive twelve (12) month period thereafter.

“Control Agreement” as defined in Section 4.8(h).

“Controlled Group” shall mean, at any time, each Loan Party and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with any Borrower, are treated as a single employer under Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code solely for purposes of provisions relating to Section 412 of the Code or Section 302 of ERISA).

“Covered Entity” shall mean (a) each Loan Party and all pledgors of Collateral and (b) each Person that, directly or indirectly, is in control of a Person described in clause (a) above. For purposes of this definition, control of a Person shall mean the direct or indirect (x) ownership of, or power to vote, 25% or more of the issued and outstanding equity interests having ordinary voting power for the election of directors of such Person or other Persons performing similar functions for such Person, or (y) power to direct or cause the direction of the management and policies of such Person whether by ownership of equity interests, contract or otherwise.

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“Credit Insurance Conditions” shall mean, with respect to any Receivable, (a) such Receivable meets the criteria of an Eligible Receivable and is also credit insured to Agent’s satisfaction, for which the insurance carrier, amount and terms of such insurance shall be acceptable to Agent, (b) the Agent shall be named as beneficiary or loss payee pursuant to a satisfactory lender’s loss payable endorsement for the applicable policy covering such Receivable, (c) no event has occurred that would cause such Receivable to be ineligible for coverage, nor has any event occurred that would allow a beneficiary to assert a claim under the applicable credit insurance policy, and (d) the Loan Parties, and the underlying policy, otherwise comply with Section 6.4(c).

“Customer” shall mean and include the account debtor with respect to any Receivable and/or the prospective purchaser of goods, services or both with respect to any contract or contract right, and/or any party who enters into or proposes to enter into any contract or other arrangement with any Borrower, pursuant to which such Borrower is to deliver any personal property or perform any services.

“Debt Settlement Agreements” shall have the meaning set forth in the Post-Closing Letter.

“Default” shall mean an event, circumstance or condition which, with the giving of notice or passage of time or both, would constitute an Event of Default.

“Default Rate” shall have the meaning set forth in Section 3.1 hereof.

“Defaulting Lender” shall mean any Lender that: (a) has failed, within two (2) Business Days of the date required to be funded or paid, to (i) fund any portion of its Revolving Commitment Percentage of Advances, or (ii) pay over to Agent or any Lender any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies Agent in writing that such failure is the result of such Lender’s good faith determination that a condition precedent to funding (specifically identified and including a particular Default or Event of Default, if any) has not been satisfied; (b) has notified Borrowers or Agent in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically identified and including a particular Default or Event of Default, if any) to funding a loan under this Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit; (c) has failed, within two (2) Business Days after request by Agent, acting in good faith, to provide a certification in writing from a Responsible Officer of such Lender that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Advances, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon Agent’s receipt of such certification in form and substance satisfactory to the Agent; (d) has become the subject of an Insolvency Event; or (e) has failed at any time to comply with the provisions of Section 2.6(d) with respect to purchasing participations from the other Lenders, whereby such Lender’s share of any payment received, whether by setoff or otherwise, is in excess of its pro rata share of such payments due and payable to all of the Lenders.

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“Designated Lender” shall have the meaning set forth in Section 16.2(d) hereof.

“Disqualified Equity Interest” means any Equity Interests which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, (a) matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the first anniversary of the date on which the Obligations have been paid in full in cash and the Agreement has been terminated, (b) is convertible into or exchangeable (unless at the sole option of the issuer thereof) for (i) debt securities or (ii) any Equity Interests referred to in clause (a) above, in each case at any time prior to the first anniversary of the date on which the Obligations have been paid in full in cash and the Agreement has been terminated, (c) contains any repurchase obligation which may come into effect prior to payment in full in cash of all Obligations and the termination of this Agreement, (d) requires the payment of any Dividends by any Loan Party or any of their Subsidiaries (other than the payment of Dividends solely in the form of Equity Interests) prior to the first anniversary of the date on which the Obligations have been paid in full in cash and the Agreement has been terminated, (e) does not provide that any claims any holder of such Equity Interests may have against a Loan Party or any of their respective Subsidiaries (including any claims as a judgment creditor or other creditor in respect of any claims for the breach of any covenants contained therein), shall be fully subordinated (including a full remedy bar) to the Obligations in a manner satisfactory to the Agent, or (f) provides the holders of such Equity Interests thereof with any rights to receive any cash upon the occurrence of a change of control prior to the first anniversary of the date on which the Obligations have been paid in full in cash and the Agreement has terminated, unless the rights to receive such cash are contingent upon the prior payment in full in cash of the Obligations.

“Dividend” means, with respect to any Person that such Person has declared or paid a dividend or returned any equity capital to the holders of its Equity Interests or authorized or made any other distribution, payment or delivery of Property (other than dividends, returns of equity capital, distributions, payments or deliveries consisting solely of Equity Interests of such Person (other than Disqualified Equity Interests)) or cash to the holders of its Equity Interests in their capacities as such, or redeemed, retired, purchased or otherwise acquired, directly or indirectly, for a consideration any of its Equity Interests outstanding (or any options or warrants issued by such Person with respect to its Equity Interests), or set aside any funds for any of the foregoing purposes, or shall have permitted any of its Subsidiaries to purchase or otherwise acquire for a consideration any of the Equity Interests of such Person outstanding (or any options or warrants issued by such Person with respect to its Equity Interests). Without limiting the foregoing, “Dividends” with respect to any Person shall also include all payments made or required to be made by such Person with respect to any stock appreciation rights, plans, equity incentive or achievement plans or any similar plans or setting aside of any funds for the foregoing purposes.

“Document” shall have the meaning given to the term “document” in the Uniform Commercial Code.

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“Dollar” or “U.S. Dollars” and the sign “$” shall mean lawful money of the United States of America.

“Domestic Loan Party” means Parent, Zircon and any other Loan Party that is organized under the laws of, and has its principal place of business in, the United States or any of its constituent states or the District of Columbia.

“Eligible Assignee” means any of the following: (a) a Lender; (b) an Affiliate of a Lender; and (c) with respect to FGI Worldwide LLC, any financing sources of FGI Worldwide LLC; or (d) any fund or account managed or administered solely by Agent or any of its Affiliates; provided that “Eligible Assignee” shall not include any Defaulting Lender.

“Eligible Insured Receivables” means an Eligible Receivable that also satisfies the Credit Insurance Conditions.

“Eligible Inventory” shall mean and include Inventory of any Borrower, but excluding any returned goods, supplies, packaging or work-in-process, which shall be valued at the lower of cost or market value, determined on a first-in-first-out basis, which is not, in Agent’s opinion, damaged, obsolete, slow moving, unmerchantable, of unsuitable quality for sale or not fit for purpose, and which Agent, in its good faith and credit judgement, shall not deem ineligible Inventory, based on such considerations as Agent may from time to time deem appropriate including whether the Inventory is subject to a perfected, first priority security interest in favor of Agent and no other Lien (other than a Permitted Lien). In addition, Inventory shall not be Eligible Inventory if it:

(a) does not conform to all standards imposed by any Governmental Body which has regulatory authority over such goods or the use or sale thereof;

(b) it is in-transit;

(c) is not located at an address listed on Schedule 1 (which must be in an Eligible Inventory Jurisdiction) or at a location that is not otherwise in compliance with this Agreement;

(d) constitutes Consigned Inventory, tooling, or any other tools or other Property which are to be used exclusively for the production of a particular Customer’s Inventory;

(e) consists of goods returned or rejected by a Borrower’s customers;

(f) is the subject of an Intellectual Property Claim;

(g) is subject to a License Agreement that limits, conditions or restricts the applicable Borrower’s or Agent’s right to sell or otherwise dispose of such Inventory, unless Agent is a party to a Licensor/Agent Agreement with the Licensor under such License Agreement;

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(h) is situated at a location not owned by a Borrower or Zircon MX unless the owner or occupier of such location has executed in favor of Agent a Lien Waiver Agreement;

(i) is located outside of an Eligible Inventory Jurisdiction;

(j) exceeds applicable insurance limits or is otherwise not adequately insured;

(k) if the sale of such Inventory would result in an ineligible Receivable;

(l) is subject to any Liens (other than Permitted Liens); or

(m) such Inventory is not otherwise satisfactory to Agent as determined in good faith by Agent in the exercise of its good faith and credit judgement in a reasonable manner.

“Eligible Inventory Jurisdiction” shall mean (1) the United States of America, and (2) Mexico.

“Eligible Receivables” shall mean and include each Receivable of a Borrower arising in the Ordinary Course of Business and which Agent, in its good faith and credit judgement, shall deem to be an Eligible Receivable, based on such considerations as Agent in its good faith and credit judgement may from time to time deem appropriate. A Receivable shall not be deemed eligible unless such Receivable is subject to Agent’s first priority perfected security interest and no other Lien (other than Permitted Liens), and is evidenced by an invoice or other documentary evidence satisfactory to Agent. In addition, no Receivable shall be an Eligible Receivable if:

(a) it arises out of a sale made by any Borrower to an Affiliate of any Borrower or to a Person controlled by an Affiliate of any Borrower;

(b) it is due or unpaid more than sixty (60) days after the original due date;

(c) twenty-five percent (25%) or more of the Receivables from such Customer are not deemed Eligible Receivables hereunder. Such percentage may, in Agent’s reasonable discretion, be increased or decreased from time to time;

(d) any covenant, representation or warranty contained in this Agreement with respect to such Receivable has been breached;

(e) an Insolvency Event shall have occurred with respect to such Customer;

(f) the sale is to a Customer outside the continental United States of America or Canada, unless the Receivable constitutes an Eligible Insured Receivable;

(g) the sale to the Customer represents pre-billing or is on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis or is evidenced by chattel paper;

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(h) Agent believes, in its reasonable discretion, that collection of such Receivable is insecure or that such Receivable may not be paid by reason of the Customer’s financial inability to pay;

(i) the Customer is the United States of America or any other Governmental Body, any state or any department, agency or instrumentality of any of them, unless otherwise agreed to by Agent in its discretion and the applicable Borrower assigns its right to payment of such Receivable to Agent in compliance with Applicable Law;

(j) the goods giving rise to such Receivable have not been delivered to and accepted by the Customer or the services giving rise to such Receivable have not been performed by the applicable Borrower and accepted by the Customer or the Receivable otherwise does not represent a final sale;

(k) the Receivables of the Customer exceed a credit limit determined by Agent, in its reasonable discretion, to the extent such Receivable exceeds such limit;

(l) such Receivables due from a Customer are in excess of thirty percent (30%) of all Eligible Receivables owing by all Customers; provided,that, with respect to Receivables due from (i) Home Depot (and its Affiliates), such receivables are in excess of fifty percent (50%) of all Eligible Receivables owing by all Customers, (ii) Lowes (and its Affiliates), such receivables are in excess of forty percent (40%) of all Eligible Receivables owing by all Customers, and (iii) with respect to the combined total of receivables owing from Home Depot and Lowes (and their respective Affiliates), the aggregate total of such receivables are in excess of (a) eighty percent (80%) of all Eligible Receivables owing by all Customers from the Closing Date through August 31, 2024, and (b) seventy percent (70%) of all Eligible Receivables owing by all Customers after August 31, 2024; provided, further that, the higher concentration limits established for Home Depot and Lowes under the preceding proviso is subject to Home Depot and Lowes qualifying as Investment Grade Account Debtors;

(m) the Receivable is subject to any contract (i) containing warranties deemed by Agent, in its reasonable discretion, to be excessive, or (ii) which permits reciprocal trading or creates any contra, offset, deduction, defense, dispute, credits or counterclaim (but such Receivable shall only be ineligible to the extent of such offset, deduction, defense or counterclaim), or (iii) with a Customer that is also a creditor or supplier of a Borrower or the Receivable is contingent in any respect or for any reason; provided, however, if the related Customer with respect to any such Receivable has entered into a no-offset agreement that Agent has approved in writing, such Receivable may be included as an Eligible Receivable solely to the extent such Customer has no right of setoff after giving effect to such no off-set agreement;

(n) the applicable Borrower has made an agreement with a Customer for any deduction therefrom (including the existence of credit balances, Customer deposits, rebates, commissions, accrued incentives, royalties or discounts), except for discounts or allowances made in the Ordinary Course of Business for prompt payment, all of which discounts or allowances are reflected in the calculation of the face value of each respective invoice related thereto;

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(o) any return, rejection or repossession of the merchandise has occurred or the rendition of services has been disputed;

(p) such Receivable is not payable to a Borrower or constitutes an unbilled account;

(q) such Receivable (i) allows for payment in stages or tooling (unless disclosed and agreed to by Agent, in its sole discretion) or (ii) is for installation invoices that are progress billed (provided, that, installation invoices billed for completed work, including completed work after satisfaction of certain milestones, shall be eligible if all other eligibility criteria herein is satisfied and Agent is otherwise satisfied that such work is completed or milestones achieved);

(r) the Receivable is payable in a currency other than Dollars; or

(s) such Receivable is not otherwise satisfactory to Agent as determined in good faith by Agent in the exercise of its good faith and credit judgement in a reasonable manner.

“Environmental Claim” means any claim, notice, demand, order, action, suit, proceeding or other communication alleging liability for investigation, remediation, removal, cleanup, response, corrective action, damages to natural resources, personal injury, property damage, fines, penalties or other costs resulting from, related to or arising out of (i) the presence, Release or threatened Release of Hazardous Material at any location or (ii) any violation of or liability under Environmental Law, and shall include, without limitation, any claim seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief.

“Environmental Law” means any and all Applicable Laws, statutes, ordinances, regulations, rules, judgments, consent orders, consent decrees or other legally binding requirements of Governmental Bodies, and the common law, relating to the protection of human health, natural resources or the environment, or to the use, manufacture, transportation, storage, disposal, Release or threatened Release of Hazardous Material or the arrangement for any such activities.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of any Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon: (a) violation of any Environmental Law; (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials; (c) exposure to any Hazardous Materials; (d) the release or threatened release of any Hazardous Materials into the environment; or (e) any contract, agreement or other consensual and legally binding arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Environmental Permit” means any permit, license, approval, consent or other authorization required by or from a Governmental Body under any Environmental Law.

“Equipment” shall mean and include as to each Borrower all of such Borrower’s equipment (as defined in Article 9 of the Uniform Commercial Code).

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“Equity Interests” shall mean, with respect to any Person, any and all shares, partes sociales, acciones, rights to purchase, options, warrants, general, limited or limited liability partnership interests, member interests, participation or other equivalents of or interest in (regardless of how designated) equity of such Person, whether voting or nonvoting, including common stock, preferred stock, convertible securities or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act), including in each case all of the following rights relating to such Equity Interests, whether arising under the Organizational Documents of the Person issuing such Equity Interests (the “issuer”) or under the Applicable Laws of such issuer’s jurisdiction of organization relating to the formation, existence and governance of corporations, limited and unlimited liability companies or partnerships or business trusts or other legal entities, as the case may be: (i) all economic rights (including all rights to receive Dividends and distributions) relating to such Equity Interests; (ii) all voting rights and rights to consent to any particular action(s) by the applicable issuer; (iii) all management rights with respect to such issuer; (iv) in the case of any Equity Interests consisting of a general partner interest in a partnership, all powers and rights as a general partner with respect to the management, operations and control of the business and affairs of the applicable issuer; (v) in the case of any Equity Interests consisting of the membership/limited liability company interests of a managing member in a limited liability company, all powers and rights as a managing member with respect to the management, operations and control of the business and affairs of the applicable issuer; (vi) all rights to designate or appoint or vote for or remove any officers, directors, manager(s), general partner(s) or managing member(s) of such issuer and/or any members of any board of members/managers/partners/directors that may at any time have any rights to manage and direct the business and affairs of the applicable issuer under its Organizational Documents as in effect from time to time or under Applicable Law; (vii) all rights to amend the Organizational Documents of such issuer, (viii) in the case of any Equity Interests in a partnership or limited liability company, the status of the holder of such Equity Interests as a “partner”, general or limited, or “member” (as applicable) under the applicable Organizational Documents and/or Applicable Law; and (ix) all certificates evidencing such Equity Interests.

“ERISA” means the Employee Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time and the rules and regulations promulgated, and rulings issued, thereunder.

“ERISA Affiliate” means each person (as defined in Section 3(9) of ERISA) which together with any Loan Party or any of their Subsidiaries would be deemed to be a “single employer” or otherwise aggregated with any Loan Party or any of their Subsidiaries within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.

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“ERISA Event” means (a) any reportable event, as defined in Section 4043 of ERISA, with respect to a Pension Plan, as to which the PBGC has not waived the requirement of Section 4043(a) of ERISA that it be notified of such event; (b) the filing of a notice of intent to terminate any Pension Plan, if such termination would require material additional contributions in order to be considered a standard termination within the meaning of Section 4041(b) of ERISA, the filing under Section 4041(c) of ERISA of a notice of intent to terminate any Pension Plan or the termination of any Pension Plan under Section 4041(c) of ERISA; (c) the institution of proceedings, or the occurrence of an event or condition which would reasonably be expected to constitute grounds for the institution of proceedings by the PBGC under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (d) the failure to make a required contribution to any Pension Plan that would result in the imposition of a lien or other encumbrance or the provision of security under Section 430 of the Code or Section 303 or 4068 of ERISA, or the arising of such a lien or encumbrance; the failure to satisfy the minimum funding standard under Section 412 of the Code or Section 302 of ERISA, whether or not waived; (e) the filing of any request for or receipt of a minimum funding waiver under Section 412 of the Code with respect to any Pension Plan, or that such filing may be made; (f) a determination that any Pension Plan is, or is expected to be, considered an at-risk plan within the meaning of Section 430 of the Code or Section 303 of ERISA; (g) engaging in a non-exempt prohibited transaction within the meaning of Section 4975 of the Code or Section 406 of ERISA with respect to a Pension Plan; (h) the complete or partial withdrawal of any Loan Party or any of their Subsidiaries or any ERISA Affiliate from a Multiemployer Plan, or insolvency under Title IV of ERISA of any Multiemployer Plan; (i) the receipt by any Loan Party or any of their Subsidiaries or any ERISA Affiliate, of any notice, or the receipt by any Multiemployer Plan from any Loan Party or any of their Subsidiaries or any ERISA Affiliate of any notice, that a Multiemployer Plan is in endangered or critical status under Section 305 of ERISA; or (j) a Loan Party or any of their Subsidiaries or an ERISA Affiliate incurring any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA).

“Event of Default” shall have the meaning set forth in Article X hereof.

“Event of Loss” means, with respect to any property of any Loan Party, any of the following: (a) any loss, destruction or damage of such property; or (b) any actual condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, of such property, or confiscation of such property or the requisition of the use of such property.

“Excess Availability” means, as of any date, an amount equal to (a) the lesser of (i) the Revolver Formula Amount or (ii) the Maximum Revolving Advance Amount, minus (b) the outstanding amount of Revolving Advances as of such date.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any similar federal statute then in effect, and a reference to a particular section thereof shall include a reference to the comparable section, if any, of any such similar federal statute.

“Excluded Taxes” means, with respect to any Lender or any other recipient of any payment to be made by or on account of any obligation of any Loan Party hereunder or under any Other Document, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case (i) imposed by the United States, or by the jurisdiction under the laws of which such Lender is organized, doing business, or in which its principal office is located, or in which its applicable lending office is located (or any political subdivision thereof), or (ii) that are Other Connection Taxes, (b) in the case of a Lender, any U.S. federal withholding Tax (whether or not imposed at a reduced rate) that is imposed on amounts payable to or for the account of such Lender at the time such Lender becomes a party to this Agreement (or designates a new lending office) except to the extent that such Lender was entitled, at the time of designation of a new lending office, to receive additional amounts from any Loan Party with respect to such Tax pursuant to Section 3.10, (c) any Taxes attributable to the failure of any such Lender or other recipient to comply with Section 3.10, and (d) any withholding Taxes imposed under FATCA.

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“Fair Market Value” means, with respect to any assets, the amount that a willing buyer would pay to a willing seller in respect of such assets in an arm’s-length transaction.

“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Bodies and implementing such Sections of the Code.

“Fee Letter” shall mean that certain fee letter dated the Closing Date by and among the Loan Parties and Agent.

“Filing Person” has the meaning specified in Section 5.11.

“Financial Statements” has the meaning specified in Section 5.5(a).

“Fiscal Year” means, as of any date of determination with respect to Loan Parties, the Fiscal Year of Loan Parties, which begins on April 1 and ends on March 31 in each following calendar year.

“Fixed Charge Coverage Ratio” shall have the meaning assigned to such term in the “FCCR Worksheet” annexed to the form of Compliance Certificate.

“Floor” means a rate of interest equal to 0.00%.

“Foreign Guaranty” means a guaranty or similar agreement or instrument in favor of the Agent, for the benefit of the Lenders, in each case, in form, content and scope satisfactory to the Agent, pursuant to which a Foreign Loan Party shall guarantee, and become jointly and severally liable for all of the Obligations, in a manner substantially equivalent to the guarantees of Loan Parties pursuant to Article XVII of this Agreement.

“Foreign Security Agreement” means a security agreement or other similar agreement, in each case, in form, content and scope satisfactory to the Agent, pursuant to which a Foreign Loan Party shall create, under the Laws of the appropriate jurisdiction, in favor of the Agent, for the benefit of the Lenders, a perfected first priority Lien on substantially all of the assets of such Foreign Loan Party, including, without limitation, all of the Equity Interests of any Person held by such Foreign Loan Party, in a manner substantially equivalent to the Liens granted by the Loan Parties pursuant to Article IV of this Agreement (as may be applicable), which Liens shall be prior and superior in right to any other Person

“Foreign Loan Party” means collectively, (a) Zircon MX, (b) Zircon UK and (c) any Person that (i) has delivered a Foreign Guaranty and Foreign Security Agreement, and (ii) is organized under the laws of, or has its principal place of business outside of, a jurisdiction other than the United States or any of its constituent states or of the District of Columbia.

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“Foreign Lender” shall mean any Lender that is organized under the Laws of a jurisdiction other than that in which Borrowers are resident for tax purposes. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“Foreign Plan” means any employee benefit plan or arrangement (a) maintained or contributed to by any Loan Party or any of their respective Subsidiaries that is not subject to the laws of the United States or (b) mandated by a government other than the United States for employees of any Loan Party or any of their respective Subsidiaries.

“GAAP” means generally accepted accounting principles in the United States as in effect from time to time; provided, that, in the case of references made exclusively to a Mexican Loan Party, GAAP means the Financial Information Norms (Normas de Informacion Financiera), applied in a manner consistent with the most recent audited financial statements of such entities.

“Governmental Body” shall mean any nation or government, any state, province, territory or other political subdivision thereof or any entity, authority, agency, division or department exercising the executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to a government (including any supra-national bodies such as the European Union or the European Central Bank) and any group or body charged with setting financial accounting or regulatory capital rules or standards (including, without limitation, the Financial Accounting Standards Board, the Bank for International Settlements or the Basel Committee on Banking Supervision or any successor or similar authority to any of the foregoing).

“Guarantor” shall mean (a) Parent, Zircon MX and Zircon UK, and (b) any Person who now, or hereafter, guarantees, as surety, payment or performance of the Obligations (whether in whole or in part) and “Guarantors” means collectively all such Persons.

“Guarantor Security Agreement” shall mean any security agreement executed by any Guarantor in favor of Agent securing the Obligations or the Guaranty of such Guarantor, in form and substance satisfactory to Agent.

“Guarantor Subordinated Debt” shall have the meaning set forth in Section 17.9 hereof.

“Guarantor Subordinated Debt Payments” shall have the meaning set forth in Section 17.9 hereof.

“Guaranty” shall mean any guaranty of the Obligations executed by a Guarantor in favor of Agent for its benefit and for the ratable benefit of Lenders, in form and substance satisfactory to Agent, including the guaranty set forth in this Agreement. The term “Guarantees” as a verb, has a corresponding meaning.

“Hazardous Discharge” shall have the meaning set forth in Section 9.3(b) hereof.

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“Hazardous Material” means any substance, or any constituent or mixture thereof, defined as hazardous or toxic or as a pollutant or contaminant, or which is subject to regulation or can give rise to liability under any Environmental Law, including the following: polychlorinated biphenyls (“PCBs”) or any substance or compound containing PCBs; asbestos or any asbestos-containing materials in any form or condition; radon or any other radioactive materials; and petroleum, crude oil or any fraction thereof; and Toxic Substances.

“Increased Tax Burden” means an amount equal to the product of (a) the amount of aggregate net taxable income attributable to Parent and its Subsidiaries allocated by Parent to its equity holders (without duplication) for such taxable period; provided that such net taxable income shall be reduced by any net losses of Parent and its Subsidiaries in any prior taxable period to the extent such losses (x) have not previously been deducted in determining the Increased Tax Burden for any prior taxable period, and (y) may be used by such equity holders against their net income, multiplied by (b) the highest effective marginal combined federal, state and local tax rate for the relevant taxable period prescribed for any individual or corporation resident in Campbell, California (taking into account the character of the income and the deductibility of state and local taxes for United States federal income tax purposes).

“Indebtedness” shall mean, as to any Person at any time and without duplication, any and all indebtedness, obligations or liabilities (whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, or joint or several) of such Person for or in respect of: (a) borrowed money; (b) amounts received under or liabilities in respect of any note purchase or acceptance credit facility, and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (c) all Capital Lease Obligations; (d) reimbursement obligations (contingent or otherwise) under any letter of credit agreement, banker’s acceptance agreement or similar arrangement; (e) all obligations of such Person in respect of any hedge agreements or swap agreements; (f) any other advances of credit made to or on behalf of such Person or other transaction (including forward sale or purchase agreements, capitalized leases and conditional sales agreements) having the commercial effect of a borrowing of money entered into by such Person to finance its operations or capital requirements including to finance the purchase price of property or services and all obligations of such Person to pay the deferred purchase price of property or services (but not including trade payables and accrued expenses incurred in the Ordinary Course of Business which are not represented by a promissory note or other evidence of indebtedness and which are not more than thirty (30) days past due); (g) all Disqualified Equity Interests; (h) all indebtedness, obligations or liabilities secured by a Lien on any asset of such Person, whether or not such indebtedness, obligations or liabilities are otherwise an obligation of such Person; (i) all obligations of such Person for “earnouts”, purchase price adjustments, profit sharing arrangements, deferred purchase money amounts and similar payment obligations or continuing obligations of any nature of such Person arising out of purchase and sale contracts; (j) off-balance sheet liabilities and/or pension plan liabilities of such Person; (k) obligations arising under bonus, deferred compensation, incentive compensation or similar arrangements, other than those arising in the Ordinary Course of Business; and (l) any guaranty of any indebtedness, obligations or liabilities of a type described in the foregoing clauses (a) through (k).

“Indemnified Taxes” means (a) Taxes other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of a Loan Party hereunder or under any Other Document and (b) to the extent not otherwise described in clause (a), Other Taxes.

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“Indemnitees” means, collectively, Agent, each Lender and each officer, director, Affiliate, attorney, employee and agent of each the foregoing.

“Information Certificates” shall mean, collectively, the information questionnaires and the responses thereto provided by each Loan Party and delivered to Agent.

“Insolvency Event” shall mean, with respect to any Person, including without limitation any Lender, such Person or such Person’s direct or indirect parent company (a) becomes the subject of a bankruptcy or insolvency proceeding (including any proceeding under any Bankruptcy Law), or regulatory restrictions, (b) has had a receiver, receiver and manager, interim receiver, monitor, liquidator, conservator, trustee, administrator, custodian, assignee for the benefit of creditor or similar Person charged with the reorganization, arrangement, or liquidation of its business appointed for it or has called a meeting of its creditors, (c) admits in writing its inability, or be generally unable, to pay its debts as they become due or ceases operations of its present business, (d) with respect to a Lender, such Lender is unable to perform hereunder due to the application of Applicable Law, or (e) in the good faith determination of Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment of a type described in clauses (a) or (b), provided that an Insolvency Event shall not result solely by virtue of any ownership interest, or the Acquisition of any ownership interest, in such Person or such Person’s direct or indirect parent company by a Governmental Body or instrumentality thereof if, and only if, such ownership interest does not result in or provide such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Person (or such Governmental Body or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.

“Insured Receivables Advance Rate” shall have the meaning set forth in Section 2.1(a) hereof.

“Intellectual Property” means all intellectual property recognized by applicable Requirements of Law, including all of the following, whether domestic or foreign: (a) patents and patent applications as well as any reissues, continuations, continuations in part, divisions, revisions, extensions or reexaminations thereof; (b) registered and unregistered trademarks, service marks and other indicia of origin, pending trademark and service mark registration applications, and intent-to-use registrations or similar reservations of marks; (c) registered and unregistered copyrights and mask works, and applications for registration of either; (d) Internet domain names, applications and reservations therefor, uniform resource locators and the corresponding Internet websites (including any content and other materials accessible and/or displayed thereon); (e) trade secrets; and (f) intellectual property and proprietary information not otherwise listed in (a) through (e) above, including unpatented inventions, invention disclosures, industrial designs and applications therefor, works of authorship, rights of publicity, rights of privacy, moral and economic rights of authors and inventors (however denominated), confidential information, technical data, customer lists, corporate and business names, trade names, certification marks, trade dress, brand names, slogans, logos, advertising material, know-how, show-how, formulae, methods (whether or not patentable), designs, processes, procedures, technology, source code, object code, computer software programs, documentation, specifications, databases, database rights, data collections and other proprietary information or material of any type, and all derivatives, improvements and refinements thereof, howsoever recorded, or unrecorded; and (g) any goodwill associated with any of the foregoing.

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“Intellectual Property Claim” shall mean the assertion, by any means, by any Person of a claim that any Borrower’s or other Loan Party’s ownership, use, marketing, sale or distribution of any Intellectual Property or other asset is violative of any ownership of or right to use any Intellectual Property of such Person.

“Interest Period” shall mean a period commencing on the first day of a calendar month and ending on the last day of such calendar month.

“Inventory” shall mean and include as to each Borrower all of such Borrower’s inventory (as defined in Article 9 of the Uniform Commercial Code, as applicable) and all of such Borrower’s goods, merchandise and other personal property, wherever located, to be furnished under any consignment arrangement, contract of service or held for sale or lease, all raw materials, work in process, finished goods and materials and supplies of any kind, nature or description which are or might be used or consumed in such Borrower’s business or used in selling or furnishing such goods, merchandise and other personal property, and all Documents.

“Inventory Advance Rate” shall have the meaning set forth in Section 2.1(a) hereof.

“Inventory NOLV Advance Rate” shall have the meaning set forth in Section 2.1(a) hereof.

“Investment” means collectively any of the following: directly or indirectly, lend money or credit or make advances to any Person, or purchase or acquire any Equity Interest, stock, obligations, securities or other interest in any Person (including, without limitation, any Acquisition (including Permitted Acquisitions) of all or any substantial portion of a Person, a Person’s assets or business), or make any capital contribution to any other Person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract.

“Investment Grade Account Debtor” a Customer with a rating on such Customer’s senior, long-term unsecured debt of: (i) Baa3 or better by Moody’s (or its equivalent under any successor rating categories of Moody’s), (ii) a rating of BBB- or better by S&P (or its equivalent under any successor rating categories of S&P) or (iii) the equivalent investment grade credit rating from any additional rating agency or rating agencies selected by Agent.

“Law(s)” means, collectively, all international, foreign, federal, state, provincial, territorial and local laws, statutes, treaties, rules, authorities, guidelines, regulations, ordinances, codes and administrative or judicial precedents or judgments, Orders, decrees, Permits and other governmental restrictions, including the interpretation or administration thereof by any Governmental Body charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations, concessions, grants, franchises and permits of, and agreements with, any Governmental Body, in each case whether or not having the force of law.

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“Lender” and “Lenders” shall have the meaning ascribed to such term in the preamble to this Agreement and shall include each Person which becomes a transferee, successor or assign of any Lender. For the purpose of provision of this Agreement or any Other Document which provides for the granting of a security interest or other Lien to the Agent for the benefit of Lenders as security for the Obligations, “Lender” shall include any Affiliate of a Lender to which such Obligation is owed.

“License Agreement” means, with respect to any Person, any agreement now or hereafter in effect entered into by such Person, whether as licensor or licensee, providing for the license or use of any Intellectual Property or related or similar rights, and all rights of such Person in connection with any of the foregoing and in connection with any agreement related thereto.

“Licensor” shall mean any Person from whom any Borrower obtains the right to use (whether on an exclusive or non-exclusive basis) any Intellectual Property in connection with such Borrower’s manufacture, marketing, sale or other distribution of any Inventory or otherwise in connection with such Borrower’s business operations.

“Licensor/Agent Agreement” shall mean an agreement between Agent and a Licensor, in form and substance satisfactory to Agent, by which Agent is given the unqualified right, vis-á-vis such Licensor, to enforce Agent’s Liens with respect to and to dispose of any Borrower’s Inventory with the benefit of any Intellectual Property applicable thereto, irrespective of such Borrower’s default under any License Agreement with such Licensor.

“Lien” means, with respect to any Property, (a) any mortgage, deed of trust, lien, pledge, encumbrance, claim, fixed or floating charge, collateral assignment, hypothec or hypothecation, security interest, restriction, prior claim, regulatory right, adverse right or claim, trust, prenda, deemed trust or other encumbrance of any kind whatsoever, any other type of preferential arrangement in respect of such Property or any filing of any financing statement under the Uniform Commercial Code as in effect in any state, province, territory or any similar notice of lien under any similar notice or recording statute of any Governmental Body, including any easement, right-of-way or other encumbrance on title to Real Property, in each of the foregoing cases whether voluntary or imposed by law, and any agreement to give any of the foregoing; (b) the interest of a vendor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect of any of the foregoing) relating to such Property; and (c) in the case of securities, any purchase option, call option or similar right of a third party with respect to such securities or any contractual transfer restriction in respect of such securities.

“Lien Waiver Agreement” shall mean an agreement which is executed in favor of Agent by a Person who owns or occupies premises at which any Collateral may be located from time to time in form and substance satisfactory to Agent.

“Limited Recourse Guarantors” shall mean (a) Stauss 2014 Revocable Trust, (b) Eric Stauss, (c) Kurt Stauss, (d) Robert Wyler, and (e) John Stuass.

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“Liquidity” means, as of any date, (a) the sum of (i) all unrestricted cash and Cash Equivalents of Borrowers held in deposit accounts in the United States that are subject to a Control Agreement in favor of Agent and subject to Agent’s first priority perfected Lien, and (ii) Excess Availability on such date, minus (b) all amounts due and owing to any Borrower’s trade creditors which are outstanding sixty (60) days or more past their original due date.

“LLC Division” shall mean, in the event a Borrower or Guarantor is a limited liability company, (a) the division of any such Borrower or Guarantor into two or more newly formed limited liability companies (whether or not such Borrower or Guarantor is a surviving entity following any such division) pursuant to Section 18-217 of the Delaware Limited Liability Company Act or any similar provision under any similar act governing limited liability companies organized under the laws of any other State or Commonwealth or of the District of Columbia, or (b) the adoption of a plan contemplating, or the filing of any certificate with any applicable Governmental Body that results or may result in, any such division.

“Loan Party” means Parent, each Borrower and each Guarantor (other than a Validity Guarantor and the Limited Recourse Guarantors).

“Material Adverse Effect” shall mean a material adverse effect on (a) the condition (financial or otherwise), results of operations, assets, business, properties or prospects of any Loan Party, (b) any Loan Party’s ability to duly and punctually pay or perform the Obligations in accordance with the terms hereof or the Other Documents, (c) the value of the Collateral, or Agent’s Liens on the Collateral or the priority of any such Lien or (d) the practical realization of the benefits of Agent’s and each Lender’s rights and remedies under this Agreement and the Other Documents.

“Material Contracts” shall mean any (a) contract, agreement, instrument, permit, lease or license, written or oral, of any Loan Party, which (i) requires the payment to or by any Loan Party or any of their respective Subsidiaries of more than $250,000 in any year or (ii) is material to any Loan Party’s business or which the failure to comply with could reasonably be expected to result in a Material Adverse Effect, or (b) any agreement, instrument or arrangement to which any Loan Party is a party that is, or would be (if the Loan Party were a public company), deemed to be a material contract under the Securities Act.

“Material Indebtedness” means any Indebtedness of any Loan Party or any of their Subsidiaries in an aggregate outstanding principal amount exceeding $250,000.

“Maturity Date” means May 31, 2027, or such earlier date on which the Revolving Commitments terminate hereunder and the Revolving Advances are accelerated.

“Maximum Revolving Advance Amount” shall mean $15,000,000.

“Mexican Loan Party” means Zircon MX and any other Loan Party organized under the laws of, or with its principal place of business in, Mexico.

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“Mexican Security Documents” shall mean (i) a non-possessory pledge agreement over assets, by Zircon MX, as pledgor, and Agent, as pledgee, (ii) a non-possessory pledge agreement over assets by Zircon, as pledgor, Agent, as pledgee, and Zircon MX as depositary, (iii) a share pledge agreement by the shareholders of Zircon MX, as pledgors, and Agent, as pledgee, with the appearance of Zircon MX, and (iv) any additional security agreement governed by Mexican law that Agent may require from time to time.

“Mexico” means the United Mexican States.

“Modified Commitment Transfer Supplement” shall have the meaning set forth in Section 16.3(e) hereof.

“Moody’s” means Moody’s Investors Service, Inc.

“Multiemployer Plan” means a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA, which is contributed to by (or to which there is or may be an obligation to contribute of) a Loan Party or any ERISA Affiliate, and each such plan for the five-year period immediately following the latest date on which a Loan Party or an ERISA Affiliate contributed to or had an obligation to contribute to such plan.

“Net Proceeds” means

(a) with respect to any Asset Sale, the cash proceeds received by any Loan Party (including cash proceeds subsequently received (as and when received by any Loan Party) in respect of non-cash consideration initially received) net of (i) selling expenses (including reasonable brokers’ fees or commissions, legal, accounting and other professional and transactional fees, transfer and similar taxes and the Borrower’s good faith estimate of income taxes paid or payable in connection with such sale); (ii) amounts provided as a reserve, in accordance with GAAP, against any liabilities under any indemnification obligations associated with such Asset Sale (provided that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Proceeds); (iii) the Borrower’s good faith estimate of payments required to be made with respect to retained liabilities relating to the assets sold (provided that, to the extent such cash proceeds are not used to make payments in respect of such unassumed liabilities, such cash proceeds shall constitute Net Proceeds); and (iv) the principal amount, premium or penalty, if any, interest and other amounts on any Indebtedness for borrowed money (other than in respect of this Agreement) which is secured by a Lien on the asset sold in such Asset Sale and which is repaid with such proceeds (other than any such Indebtedness assumed by the Lender of such asset); and

(b) with respect to any Event of Loss, the cash insurance proceeds, condemnation awards and other compensation (other than proceeds received in respect of key man life or business interruption insurance) received in respect thereof, net of all reasonable costs and expenses incurred in connection with the collection of such proceeds, awards or other compensation in respect of such Event of Loss.

“Note” shall mean collectively, the Revolving Credit Note and any other promissory note delivered in connection with Advances provided to Borrowers under this Agreement.

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“Obligations” shall mean and include any and all Advances, loans, debts, liabilities, obligations, covenants and duties owing by any Loan Party or any Subsidiary of any Loan Party under this Agreement or any Other Document (and any amendments, extensions, renewals or increases thereto), to a Lender or Agent (or to any other direct or indirect subsidiary or affiliate of any Lender or Agent) of any kind or nature, present or future (including any interest or other amounts accruing thereon, any fees accruing under or in connection therewith, any costs and expenses of any Person payable by any Borrower and any indemnification obligations payable by any Borrower arising or payable after maturity, or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization. Arrangement, liquidation, wind-up, receivership or like proceeding relating to any Borrower, whether or not a claim for post-filing or post-petition interest, fees or other amounts is allowable or allowed in such proceeding), whether direct or indirect (including those acquired by assignment or participation), absolute or contingent, joint or several, due or to become due, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated, regardless of how such indebtedness or liabilities arise including all costs and expenses of Agent and any Lender incurred in the documentation, negotiation, modification, enforcement, collection or otherwise in connection with any of the foregoing, including but not limited to reasonable attorneys’ fees and expenses and all obligations of any Borrower to Agent or Lender to perform acts or refrain from taking any action.

“OFAC” has the meaning specified in Section 6.3(c).

“Order” means any order, writ, injunction, decree, judgment, award, determination or written direction or demand of any court, arbitrator or Governmental Body.

“Ordinary Course of Business” shall mean, with respect to any Loan Party, the ordinary course of such Loan Party’s business as conducted on the Closing Date and reasonable extensions thereof.

“Organizational Documents” shall mean, with respect to any Person, any charter, articles or certificate of incorporation, notes of articles, certificate of organization, registration or formation, certificate of partnership or limited partnership, bylaws, operating agreement, limited liability company agreement, or partnership agreement of such Person and any and all other applicable documents relating to such Person’s formation, organization or entity governance matters (including any shareholders’ or equity holders’ agreement or voting trust agreement) and specifically includes, without limitation, any certificates of designation for preferred stock or other forms of preferred equity.

“Other Connection Taxes” means, with respect to any Recipient, income, branch or franchise Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Other Document, or sold or assigned an interest in the Advances or Other Document).

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“Other Documents” shall mean the Note, the Information Certificates, the Security Documents, each other Pledge Agreement, instruments and documents, the Post-Closing Letter, the Fee Letter, the Validity Guaranty Agreement, any Subordination Agreement, any and all other agreements, instruments and documents, including, subordination agreements, guaranties, pledges, powers of attorney, certificates, acknowledgements, promissory notes, consents, interest or currency swap agreements in writing or other similar agreements and all other writings heretofore, now or hereafter executed by any Loan Party and/or delivered to Agent or any Lender in respect of the transactions contemplated by this Agreement, in each case together with all extensions, renewals, amendments, supplements, modifications, substitutions and replacements thereto and thereof.

“Other Taxes” shall mean all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any Other Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any Other Document.

“Out-of-Formula Advances” shall have the meaning set forth in Section 16.2(e) hereof.

“Overadvance” has the meaning ascribed in Section 2.1(c).

“Participant” has the meaning ascribed in Section 16.3(b).

“Party” means each Person who becomes a party to this Agreement and “Parties” means collectively all such Persons.

“Payment Account” shall mean:

Beneficiary: FGI Worldwide LLC

Credit Account #: 4001212330

SWIFT: CTZIUS33

ABA: 021313103

Bank: Citizens Bank

Bank Address: 1 Citizens Drive

Riverside RI, 02915

or, such other account as Agent may designate from time to time by notice to Borrower Agent.

“Payment Conditions” means, with respect to any payment that is subject to Payment Conditions: (a) immediately before and after giving pro forma effect to such payment, no Event of Default has occurred and is continuing or would arise as a result of such payment; (b) immediately before and after giving pro forma effect to such payment, recomputed for the most recently ended twelve-month period for which financial statements have been delivered pursuant to Section 9.9, the Fixed Charge Coverage Ratio is not less than 1.20 to 1.00 (which shall be calculated as if such payment occurred during such twelve-month period); (c) immediately before and after giving pro forma effect to such payment, Liquidity is not less than $1,000,000; and (d) Agent has received a certificate from a Responsible Officer of the Borrower Agent certifying compliance with the foregoing requirements and providing supporting calculations to Agent’s reasonable satisfaction not less than five (5) Business Days prior to the proposed date of such payment.

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“Payment Office” shall mean initially 410 Park Avenue, Suite 920, New York, NY 10022; thereafter, such other office of Agent, if any, which it may designate by notice to Borrower Agent and to each Lender to be the Payment Office.

“PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor.

“Pension Plan” means an “employee benefit plan” as defined in Section 3 of ERISA (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA maintained or contributed to by any Loan Party or any ERISA Affiliate or to which any Loan Party or any of their Subsidiaries or an ERISA Affiliate has or may have an obligation to contribute to in the last five (5) years.

“Permit” means any permit, approval, authorization, license, or permission required from a Governmental Body under an Applicable Law.

“Permitted Acquisition” means any acquisition by the Parent or Borrowers of: (i) all or substantially all Property of a Person or line of business of such Person, or (ii) all of the outstanding Equity Interests of a Person (such selling or acquired Person is herein referred to as the “Target”) (any such transaction, an “Acquisition”), in each case to the extent that:

(a) on a pro forma basis after giving effect to such Acquisition, the Payment Conditions are satisfied;

(b) (i) the Target must be organized under, and have its principal place of business in, the United States of America, (ii) the assets or business line of the Target shall be similar to the Loan Parties and shall comprise a business of the type generally engaged in by the Loan Parties as of the Closing Date (or reasonably related, ancillary or complementary thereto), and (iii) for the most recent twelve (12) month period prior to the anticipated closing date of the Acquisition for which financial statements are available, the Target shall have Consolidated EBITDA greater than zero;

(c) if such Acquisition is structured as a merger or amalgamation, the Parent and/or Borrower (as applicable) shall be the surviving entity, and if such Acquisition involves the purchase and/or acquisition of Equity Interest of the Target, the Parent and/or Borrower shall acquire 100% of the Equity Interest of Target;

(d) the Borrower shall have furnished the Agent with at least twenty (20) Business Days’ prior written notice of such intended Acquisition, which notice shall include, (i) a reasonably detailed description of the proposed terms of such Acquisition along with an anticipated closing date thereof, (ii) a draft purchase and/or Acquisition agreement and evidence that such Acquisition received the approval (to the extent required) of the governing body of the Target, (iii) and a business and legal due diligence package as the Agent may reasonably request, which package shall include, without limitation, existing appraisals, historical financial statements of the Target, lien searches, sources and uses of financing, locations of the Target’s property and jurisdiction of organization, projections and quality of earnings reports (it being understood that all items delivered under this clause (d) shall be in form and substance reasonably satisfactory to Agent);

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(e) after giving pro forma effect to the Acquisition, all Property of the Target and all other Loan Parties shall be free and clear of any Liens (other than Permitted Liens) and the Loan Parties shall not have assumed any Indebtedness other than Indebtedness expressly permitted under Section 7.2;

(f) the aggregate amount of all consideration (which shall be in the form of cash or Cash Equivalents and no other Property) paid or payable (including all earnouts and deferred purchase obligations) in respect of such Acquisition (such amounts, collectively, the “Acquisition Consideration”), together with the aggregate Acquisition Consideration in respect of all other Permitted Acquisitions consummated after the Closing Date, shall not exceed $5,000,000;

(g) Agent has received a certificate from a Responsible Officer of the Borrower Agent certifying compliance with the foregoing requirements and providing supporting calculations to Agent’s reasonable satisfaction not less than five (5) Business Days prior to the proposed closing date of such Acquisition;

(h) following the consummation of the Acquisition, the Loan Parties shall comply and, as applicable, shall cause the Target to comply with all provisions of this Agreement and the Other Documents, including, without limitation, the provisions of Sections 6.7, 6.8, and 7.17; and

(i) as soon as practicable after the closing of such Acquisition, and in any event within two (2) days after such closing, the Loan Parties shall deliver copies of all documents executed and delivered in connection with such Acquisition to Agent.

Agent’s prior consent must be obtained if the Target will become a Borrower hereunder. The Loan Parties acknowledge and agree that, to the extent the Target will become a Borrower hereunder with Agent’s consent, no Receivables or Inventory of the Target shall be included in the Revolver Formula Amount until Agent has completed a satisfactory Examination and appraisal of the Target’s Property.

“Permitted Holders” means collectively, (a) Stauss 2014 Revocable Trust (but so long as John Stauss remains the trustee), (b) Kurt Stauss, (c) Eric Stauss, (d) Robert Wyler, and (e) John Stauss.

“Permitted Liens” has the meaning ascribed thereto in Section 7.3.

“Permitted Tax Distribution” means a Dividend by a Borrower to holders of its Equity Interests solely to the extent necessary to permit such holders to discharge their actual current federal, state and local tax liabilities arising directly as holders of such Equity Interests, so long as (a) at the time of such Dividend, and after giving pro forma effect thereto, no Default or Event of Default exists, and (b) such Dividend does not exceed the then applicable Increased Tax Burden.

“Person” shall mean any individual, sole proprietorship, partnership, corporation, business trust, joint stock company, trust, unincorporated organization, association, limited liability company, unlimited liability company, limited liability partnership, institution, public benefit corporation, joint venture, entity or Governmental Body (whether federal, state, province, territory, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof).

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“Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by Loan Parties or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

“Pledge Agreement” shall mean (a) the Collateral Pledge Agreement executed by Parent in favor of the Agent, dated as of the Closing Date, (ii) the Limited Recourse Collateral Pledge Agreement by the Limited Recourse Guarantors in favor of Agent, dated as of the Closing Date, and (c) any other pledge agreements executed subsequent to the Closing Date by any other Person to secure the Obligations.

“Post-Closing Letter” means the post-closing letter agreement, dated as of the Closing Date, among the Loan Parties and Agent.

“Proceeding” means any suit, action, case, arbitration, mediation, audit, investigation, or other proceeding before or by any Governmental Body, recognized industry trade or professional association or organization, or other Person by whose Order the parties thereto have agreed or consented to be bound.

“Projections” has the meaning set forth in Section 5.5(b).

“Property” means, with respect to any Person, any right, title or interest in or to property or assets of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible and including Equity Interests or other ownership interests of any Person and whether now in existence or owned or hereafter entered into or acquired, including, without limitation, all Real Property.

“Protective Advances” shall have the meaning set forth in Section 16.2(f) hereof.

“Purchase Money Obligation” means, for any Person, the obligations of such Person in respect of indebtedness or other obligations incurred for the purpose of financing all or any part of the purchase price of any Equipment (but not Inventory) or the cost of installation, construction or improvement of any Equipment (but not Inventory) and any refinancing thereof; provided, that such Indebtedness is incurred within 30 days after such acquisition of such Property by such Person.

“Purchasing CLO” shall have the meaning set forth in Section 16.3(e) hereof.

“Purchasing Lender” shall have the meaning set forth in Section 16.3(c) hereof.

“Real Property” means, collectively, all right, title and interest (including any leasehold estate) in and to any and all parcels of or interests in real property owned, leased or operated by any Person, whether by lease, license or other means, together with, in each case, all easements, hereditaments and appurtenances relating thereto, all improvements and appurtenant fixtures and equipment, all general intangibles and contract rights and other property rights and rights incidental to the ownership, lease or operation thereof.

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“Real Property Leases” means all leases, subleases, licenses, concessions and other agreements, whether written or oral, pursuant to which any Loan Party holds a leasehold or subleasehold estate in, or is granted the right to use or occupy as lessee, any land, buildings, improvements, fixtures or other interest in Real Property.

“Receivables” shall mean and include, as to each Borrower, all of such Borrower’s accounts (as defined in Article 9 of the Uniform Commercial Code) and all of such Borrower’s contract rights, instruments (including those evidencing indebtedness owed to such Borrower by its Affiliates), documents, chattel paper (including electronic chattel paper), general intangibles relating to accounts, contract rights, instruments, documents and chattel paper, and drafts and acceptances, credit card receivables and all other forms of obligations owing to such Borrower arising out of or in connection with the sale or lease of Inventory or the rendition of services, and all supporting obligations, guarantees and other security therefor, whether secured or unsecured, now existing or hereafter created, and whether or not specifically sold or assigned to Agent hereunder.

“Receivables Advance Rate” shall have the meaning set forth in Section 2.1(a) hereof.

“Recipient” means (a) the Agent, (b) any Lender or (c) any other Person entitled to payments under this Agreement or under any Other Document.

“RUG” means the Sole Registry of Movable Assets (Registro Unico de Garantías Mobiliarias) maintained by the Mexican Ministry of Economy of Mexico.

“Register” shall have the meaning set forth in Section 16.3(e) hereof.

“Release” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment.

“Reportable Compliance Event” shall mean that (1) any Covered Entity becomes a Sanctioned Person, or is charged by indictment, criminal complaint or similar charging instrument, arraigned, custodially detained, penalized or the subject of an assessment for a penalty or enters into a settlement with an Governmental Body in connection with any economic sanctions or other Anti-Terrorism Law or Anti-Corruption Law, or any predicate crime to any Anti-Terrorism Law or Anti-Corruption Law, or has knowledge of facts or circumstances to the effect that it is reasonably likely that any aspect of its operations represents a violation of any Anti-Terrorism Law or Anti-Corruption Law; (2) any Covered Entity engages in a transaction that has caused or may cause the Lenders or Agent to be in violation of any Anti-Terrorism Law, including a Covered Entity’s use of any proceeds of the credit facility to fund any operations in, finance any investments or activities in, or, make any payments to, directly or indirectly, a Sanctioned Country or Sanctioned Person; (3) any Collateral becomes embargoed Property; or (4) any Covered Entity otherwise violates, or reasonably believes that it will violate, any of the representations in Section 5.23, or any covenant in Section 6.10 or Section 7.20.

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“Required Lender” shall mean Lenders holding at least fifty-one percent (51%) of either (a) the aggregate of the Revolving Commitment Amounts of all Lenders (excluding any Defaulting Lender) or (b) after the termination of all commitments of Lenders hereunder, the outstanding Advances.

“Requirement of Law” means, as to any Person, the Organizational Documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Body, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject.

“Reserves” shall mean reserves against the Maximum Revolving Advance Amount or the Revolver Formula Amount as Agent may reasonably deem proper and necessary from time to time in its good faith and credit judgement, including without limitations, the Contingent Labor Liability Reserve, rent reserves, freight forwarder reserves, and reserves for accounts payable that are outstanding sixty (60) days or more past their original due date.

“Responsible Officer” means: (a) (i) with respect to any Loan Party in connection with any request for any Advance, any Compliance Certificate or any other certificate or notice pertaining to any financial information required to be delivered by any Loan Party hereunder or under any Other Document, the chief financial officer, treasurer or controller of such Person or of the managing member or manager of such Person; and (ii) otherwise, with respect to any Loan Party that is not a natural person, the chief executive officer, president, chief financial officer, treasurer or controller of such Person or of the managing member or manager of such Person; and (b) with respect to any Loan Party who is a natural person, such natural person.

“Revolver Formula Amount” shall have the meaning set forth in Section 2.1(a) hereof.

“Revolving Advance” or “Revolving Advances” shall mean any monies advanced and/or credit extended to Borrowers by a Lender pursuant to Section 2.1(a) of this Agreement.

“Revolving Advance Limit” means, at any time, the lesser of (a) Maximum Revolving Advance Amount, less Reserves established hereunder and (b) the Revolver Formula Amount.

“Revolving Commitment” shall mean, as to any Lender, the obligation of such Lender (if applicable), to make Revolving Advances, in an aggregate principal and/or face amount not to exceed the Revolving Commitment Amount (if any) of such Lender.

“Revolving Commitment Amount” shall mean, as to any Lender, the Revolving Commitment amount (if any) set forth below such Lender’s name on the signature page hereto (or, in the case of any Lender that became party to this Agreement after the Closing Date pursuant to Section 16.3(c) or (d) hereof, the Revolving Commitment amount (if any) of such Lender as set forth in the applicable Commitment Transfer Supplement) in each case, as the same may be adjusted upon (x) any assignment by or to such Lender pursuant to Section 16.3(c) or (d) hereof and (b) any Additional Tranches activated by Borrowers. For the avoidance of doubt, the aggregate Revolving Commitment Amount of all Lenders on the Closing Date shall be $15,000,000 and if the Additional Tranche is fully activated by Borrowers pursuant to the terms of the Agreement such amount shall increase to $20,000,000.

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“Revolving Commitment Percentage” shall mean, as to any Lender, the Revolving Commitment Percentage (if any) set forth below such Lender’s name on the signature page hereof (or, in the case of any Lender that became party to this Agreement after the Closing Date, the Revolving Commitment Percentage (if any) of such Lender set forth in the applicable Commitment Transfer Supplement), in each case, as the same may be adjusted upon any assignment by or to such Lender pursuant to Section 16.3(c) or (d) hereof.

“Revolving Credit Note” shall mean the promissory note referred to in Section 2.1(a) hereof.

“Revolving Interest Rate” shall mean an interest rate per annum equal to, the greater of (a) the Base Rate plus three percent (3.00%), and (b) five and one quarter percent (5.25%).

“S&P” means Standard & Poor’s Ratings Services, a division of McGraw-Hill, Inc.

“Sanctioned Country” shall mean a country subject to a sanctions program maintained under any Anti-Terrorism Law.

“Sanctioned Person” shall mean any individual person, group, regime, entity or thing listed or otherwise recognized as a specially designated, prohibited, sanctioned or debarred person, group, regime, entity or thing, or subject to any limitations or prohibitions (including but not limited to the blocking of property or rejection of transactions), under any Anti-Terrorism Law.

“SEC” means the United States Securities and Exchange Commission and any successor agency, authority, commission or Governmental Body.

“Secured Parties” shall mean, collectively, Agent, each Lender, and each other holder of any of the Obligations, and the respective successors and assigns of each of them.

“Securities Act” means as of any date the Securities Act of 1933, as amended, or any similar federal statute then in effect, and a reference to a particular section thereof shall include a reference to the comparable section, if any, of any such similar federal statute.

“Security Documents” means, collectively, any Guaranty, Guarantor Security Agreement, Foreign Guaranty, any Foreign Security Agreement, the Pledge Agreements, and any collateral access agreement, landlord waiver, Control Agreements or other agreement or instrument pursuant to or in connection with which any Loan Party or any other Person grants or perfects a security interest to the Agent for the benefit of the Lender.

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“Solvent” means, with respect to any of the Loan Parties on a particular date, that on such date (a) the sum of the present debt and liabilities (including subordinated and contingent liabilities) of any of the Loan Parties does not exceed the fair value of the present assets of any of the Loan Parties, (b) the present fair saleable value of the assets of any of the Loan Parties is greater than the total amount that will be required to pay the debt and liabilities (including subordinated and contingent liabilities) of any of the Loan Parties as they become absolute and matured, (c) the capital of any of the Loan Parties is not unreasonably small in relation to their business as contemplated on the Closing Date and as proposed to be conducted following the Closing Date, (d) any of the Loan Parties have not incurred and do not intend to incur, or believe that they will incur debts or other liabilities, including current obligations beyond their ability to pay such debts or other liabilities as they become due (whether at maturity or otherwise), and (e) with respect to any of the Mexican Loan Parties on a particular date, that on such date such Mexican Loan Party is not in the case provided in article 2166 of Mexico’s Federal Civil Code (Codigo Civil Federal) or in the causes to be declared insolvent set forth in articles 9, 10 and 11 of Mexico’s Insolvency Law (Ley de Concursos Mercantiles). For purposes of this definition, the amount of any contingent liability is computed as the amount that, in light of all of the facts and circumstances existing as of the date of determination, represents the amount that would reasonably be expected to become an actual or matured liability.

“Subordination Agreement” means (a) that certain Subordination Agreement, dated the date hereof, by and between the Stauss Family Revocable Trust, as the junior creditor, and Agent, on behalf of the Lenders, as the senior creditor (as amended or modified from time to time), and (b) each other subordination agreement, which shall, in each case, be in form and substance satisfactory to the Agent.

“Subordinated Debt” means any Indebtedness of any Person that (i) is unsecured, (ii) is fully and completely subordinated to the prior payment in full of all Obligations in respect of this Agreement and the Other Documents for the benefit of, and to, the Agent and the Lenders pursuant to a Subordination Agreement, (iii) has a final maturity date that is not earlier than, and provides for no scheduled payments of principal or mandatory redemption obligations prior to, the date that is 181 days after the Maturity Date, (iv) provides for payments of interest solely in-kind (and not in cash) until not earlier than the date that is 181 days after the Maturity Date, (v) does not contain any financial covenants, (vi) is not cross-defaulted (but may be cross-accelerated) to this Agreement any Other Document, (vii) is subject to permanent standstill provisions, and (viii) is otherwise on terms (including maturity, interest, fees, repayment, covenants and subordination) satisfactory to the Agent in its sole discretion.

“Subsidiary” shall mean, with respect to any Person, an entity whose Equity Interests is owned, directly or indirectly, by such Person, so long as such Equity Interest gives such Person the Voting Power to elect, directly or indirectly, a majority of the directors (or similar governing body) of such entity or of any other Person controlling such entity. As used herein, “Voting Power” means Equity Interest with ordinary voting power and does not include Equity Interests having such power only by reason of the happening of a contingency.

“Supporting Materials” shall have the meaning set forth in Section 2.2(a) hereof.

“Tax Returns” means all returns, statements, filings, attachments and other documents or certifications required to be filed in respect of Taxes or any amendments thereof or thereto.

“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Body, including any interest, additions to tax or penalties applicable thereto.

“Term” shall have the meaning set forth in Section 13.1 hereof.

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“Term SOFR” shall mean a rate per annum equal to the greater of (a) the sum of (i) Term SOFR Reference Rate for a tenor comparable to the applicable Interest Period on the day that is two Business Days prior to the first day of such Interest Period, plus (ii) the Term SOFR Adjustment, and (b) the Floor.

“Term SOFR Adjustment” shall mean 0.10% (10 basis points).

“Term SOFR Administrator” shall mean CME Group Benchmark Administration Limited (CBA) (or a successor administrator of the Term SOFR Reference Rate selected by the Agent in its reasonable discretion).

“Term SOFR Reference Rate” shall mean the forward-looking term rate based on the secured overnight financing rate published by the Term SOFR Administrator and displayed on CME’s Market Data Platform (or other commercially available source providing such quotations as may be selected by FGI from time to time).

“Test Period” means, as of any date, the trailing twelve (12) month period ending on or prior to such date.

“Toxic Substance” shall mean and include any material present on the Real Property which has been shown to have significant adverse effect on human health or which is subject to regulation under the Toxic Substances Control Act (TSCA), 15 U.S.C. §§ 2601 et seq., the General Law for the Prevention and Integral Management of Wastes of Mexico (Ley General para la Prevención y Gestión Integral de los Residuos), or any other Applicable Laws now in force or hereafter enacted relating to toxic substances. “Toxic Substance” includes but is not limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based paints.

“Transactions” means, collectively, the requesting and receipt of the Advances pursuant to this Agreement, and the other transactions contemplated by this Agreement and Other Documents.

“Uniform Commercial Code” shall have the meaning set forth in Section 1.3 hereof.

“USA PATRIOT Act” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

“U.S. Government Securities Business Day” shall mean any day except for (a) a Saturday, (b) a Sunday or (c) a day on which the Securities Industry and Financial Markets Association, (or any successor thereto) recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.

“Validity Guarantor” means John Stauss.

“Validity Guaranty Agreement” means that certain Validity Guaranty, dated as of the Closing Date, between the Validity Guarantor and the Agent (on behalf of the Lenders).

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“Value” means, with respect to Inventory, its value determined on the basis of the lower of cost or market value, calculated on a first-in, first-out basis and after factoring in all rebates, discounts and other incentives or rewards associated with the purchase of such Inventory, as determined by Agent in its good faith and credit judgement.

1.3. Uniform Commercial Code Terms. Unless otherwise defined in the Foreign Security Agreement, all terms used herein and defined in the Uniform Commercial Code as adopted in the State of New York from time to time (the “Uniform Commercial Code”) shall have the meaning given therein unless otherwise defined herein. Without limiting the foregoing, the terms “accounts”, “chattel paper” (and “electronic chattel paper” and “tangible chattel paper”), “commercial tort claims”, “deposit accounts”, “documents”, “equipment”, “financial asset”, “fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “payment intangibles”, “proceeds”, “promissory note” “securities”, “software” and “supporting obligations” as and when used in the description of Collateral shall have the meanings given to such terms in Articles 8 or 9 of the Uniform Commercial Code or in the Foreign Security Agreement. To the extent the definition of any category or type of collateral is expanded by any amendment, modification or revision to the Uniform Commercial Code, such expanded definition will apply automatically as of the date of such amendment, modification or revision.

1.4. Certain Matters of Construction. The terms “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision. All references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement. Any pronoun used shall be deemed to cover all genders. Wherever appropriate in the context, terms used herein in the singular also include the plural and vice versa. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. Unless otherwise provided, all references to any instruments or agreements to which Agent or any Lender is a party, including references to any of the Other Documents, shall include any and all modifications, supplements or amendments thereto, any and all restatements or replacements thereof and any and all extensions or renewals thereof. All references herein to the time of day shall mean the time in New York, New York. Unless otherwise provided, all financial calculations shall be performed with Inventory valued on the basis of the lower of cost or market, and on a first in, first out basis. Whenever the words “including” or “include” shall be used, such words shall be understood to mean “including, without limitation” or “include, without limitation”. A Default or an Event of Default shall be deemed to exist at all times during the period commencing on the date that such Default or Event of Default occurs to the date on which such Default or Event of Default is waived in writing pursuant to this Agreement or, in the case of a Default, is cured within any period of cure expressly provided for in this Agreement; and an Event of Default shall “continue” or be “continuing” until such Event of Default has been waived in writing by Required Lender. Any Lien referred to in this Agreement or any of the Other Documents as having been created in favor of Agent, any agreement entered into by Agent pursuant to this Agreement or any of the Other Documents, any payment made by or to or funds received by Agent pursuant to or as contemplated by this Agreement or any of the Other Documents, or any act taken or omitted to be taken by Agent, shall, unless otherwise expressly provided, be created, entered into, made or received, or taken or omitted, for the benefit or account of Agent and Lenders. Wherever the phrase “to the best of Borrower’s knowledge” or words of similar import relating to the knowledge or the awareness of any Borrower are used in this Agreement or Other Documents, such phrase shall mean and refer to (i) the actual knowledge of a senior officer of any Borrower or (ii) the knowledge that a senior officer would have obtained if he/she had engaged in a good faith and diligent performance of his/her duties, including the making of such reasonably specific inquiries as may be necessary of the employees or agents of such Borrower and a good faith attempt to ascertain the existence or accuracy of the matter to which such phrase relates. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or otherwise within the limitations of, another covenant shall not avoid the occurrence of a default if such action is taken or condition exists. In addition, all representations and warranties hereunder shall be given independent effect so that if a particular representation or warranty proves to be incorrect or is breached, the fact that another representation or warranty concerning the same or similar subject matter is correct or is not breached will not affect the incorrectness of a breach of a representation or warranty hereunder.

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1.5. Successor Interest Rate. If Agent determines that a Change in Law has made it unlawful or a Governmental Body has asserted it is unlawful for a Lender to make or maintain loans or to determine or charge interest rates based on any interest rate convention hereunder, that adequate and fair means do not exist for ascertaining any interest rate or an interest rate cannot otherwise be determined at such time, or that a Governmental Body has imposed material restrictions on a Lender’s authority to use, purchase, sell, hedge, take deposits of or otherwise match fund any interest rate, then, on notice by Agent to Borrower Agent, any obligation of the Lenders to make or continue Advances based on such interest rate shall be suspended until Agent notifies Borrower Agent that such circumstances no longer exist, and the Agent may replace such interest rate with an alternate successor interest rate, in its good faith credit judgment and discretion, giving due consideration to any evolving or then existing industry conventions for such successor rate.

II. ADVANCES, PAYMENTS.

2.1. Advances.

(a) Amount of Revolving Advances. Subject to the terms and conditions set forth in this Agreement, each Lender with a Revolving Commitment, severally and not jointly, will make Revolving Advances to Borrowers in aggregate amounts outstanding at any time equal to such Lender’s Revolving Commitment Percentage of the lesser of, as of any date of determination, (x) the Maximum Revolving Advance Amount, less Reserves established hereunder or (y) an amount equal to the sum of:

(i) up to (A) eighty-five percent (85%) (the “Receivables Advance Rate”) of outstanding Eligible Receivables, and (B) ninety percent (90%) (the “Insured Receivables Advance Rate”) of outstanding Eligible Insured Receivables (the sum of clause (A) and clause (B) shall be the “Eligible Receivables Amount”), plus

(ii) the lesser of: (A) up to sixty-five percent (65%) of the Value of Eligible Inventory (the “Inventory Advance Rate”); (B) 100% of the aggregate outstanding Eligible Receivables Amount net of Reserves; and (C) up to eighty-five percent (85%) of the appraised net orderly liquidation value of Eligible Inventory (the “Inventory NOLV Advance Rate”), as evidenced by the most recent Inventory appraisal satisfactory to Agent; minus

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(iii) Reserves established hereunder.

The amount derived from the sum of Sections 2.1(a)(y)(i) and 2.1(a)(y)(ii) minus Section 2.1(a)(y)(iii), at any time and from time to time, shall be referred to as the “Revolver Formula Amount”. The Revolving Advances shall be evidenced by one or more secured promissory notes (collectively, the “Revolving Credit Note”) substantially in the form attached hereto as Exhibit 2.1(a). Upon activation of an Additional Tranche in accordance with Section 2.1(d) hereof, Borrowers shall deliver to each Lender to whom Borrowers previously delivered a Revolving Credit Note, a restated Revolving Credit Note evidencing such Lender’s modified Revolving Commitment Amount.

(b) Discretionary Rights. The Advance Rates and Reserves may be increased or decreased by Agent at any time and from time to time in the exercise of its good faith and credit judgement. Each Borrower consents to any such increases or decreases and acknowledges that decreasing the Advance Rates or increasing or imposing Reserves may limit or restrict Advances requested by Borrower Agent. The rights of Agent under this subsection are subject to the provisions of Section 16.2(b).

(c) Overadvances. Notwithstanding anything to the contrary contained in the foregoing or otherwise in this Agreement, the aggregate balance of outstanding Advances at any one time shall not exceed an amount equal to the lesser of (A) the Maximum Revolving Advance Amount, less Reserves established hereunder, or (B) the Revolver Formula Amount. If at any time the aggregate balance of outstanding Advances exceeds the maximum amount of Advances permitted hereunder (such excess being an “Overadvance”), such Overadvance shall be considered a Default and be immediately due and payable without the necessity of any demand, and regardless of whether any other Default or an Event of Default has occurred. Such Overadvance shall constitute an Obligation secured by the Collateral and the Secured Parties shall be entitled to all benefits provided under this Agreement and the Other Documents with respect to such Overadvance and such Overadvance shall be subject to any Reserves established by Agent from time to time in its discretion.

(d) Additional Tranches. After the Closing Date, so long as no Default or Event of Default exists and subject to the terms of this Agreement, with the prior written consent of Agent and all Lenders with Revolving Commitments in their sole discretion, the Revolving Commitment may be increased upon the written request of Borrower Agent (which such request shall state the aggregate amount of the Additional Tranche requested and shall be made at least thirty (30) days prior to the proposed effective date of such Additional Tranche) to Agent to activate an Additional Tranche; provided, however, that (i) Borrower shall not be entitled to request the Additional Tranche if any Default or Event of Default as occurred and is continuing, (ii) any Additional Tranche shall be subject to documentation, including amendments to this Agreement, in form and substance satisfactory to Agent and Required Lenders in their sole discretion, (iii) any Additional Tranche shall be subject to the fees required to be paid in the Fee Letter with respect to such Additional Tranche, (iv) the representations and warranties contained in this Agreement and the other Documents shall be true and correct in all material respects on the date any such Additional Tranche is activated, and (v) notwithstanding the foregoing, Agent and Lenders with Revolving Commitments shall have no obligation whatsoever to consent to any requested activation of an Additional Tranche and the written consent of Agent and all Lenders with Revolving Commitments shall be required in order to activate an Additional Tranche. Upon activating an Additional Tranche, each Lender’s Revolving Commitment shall increase by a proportionate amount so as to maintain the same Revolving Commitment Percentage as such Lender held immediately prior to such activation.

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2.2. Procedures for Requesting Advances.

(a) With respect to a Revolving Advance, Borrower Agent on behalf of any Borrower (as applicable) may notify Agent prior to 10:00 a.m. Pacific Standard Time on a Business Day of a Borrower’s request to incur, on the next Business Day, a Revolving Advance hereunder. Borrower Agent may request Revolving Advances one (1) time per week (or more frequently if approved by Agent in its discretion). Such notice shall include a Borrowing Base Certificate in form and substance satisfactory to Agent. Without limiting the foregoing, each Borrower shall also deliver to Agent one copy of the sales contract, purchase order, or invoice (the “Supporting Materials”) as requested in writing by Agent for each Eligible Receivable listed in the Revolver Formula Amount together with evidence of shipment, furnishing and/or delivery of the applicable goods or the applicable rendition of service(s). The Revolver Formula Amount and Supporting Materials shall be updated and delivered by Borrower Agent to Agent on a mutually agreed upon schedule.

(b) Should any amount required to be paid as interest hereunder, or as fees or other charges under this Agreement or any Other Document or with respect to any other Obligation under this Agreement, become due, the same shall be deemed a request for an Advance as of the date such payment is due, in the amount required to pay in full such interest, fee, charge or Obligation, and such request shall be irrevocable.

2.3. [Reserved].

2.4. [Reserved].

2.5. Disbursement of Advance Proceeds. All Advances to Borrowers shall be disbursed by Agent from time to time and, together with any and all other Obligations of Borrowers owing to Agent or Lenders, shall be charged to Borrower’s Account on Agent’s books. The proceeds of each Advance requested by Borrower Agent on behalf of any Borrower under 2.2(a) shall be disbursed to the applicable Borrower in accordance with the next sentence by way of credit to such Borrower’s operating account designated by Borrower Agent (but solely to the extent the Lenders make such Advance in accordance with Section 2.6(b)). With respect to Advances made in respect of any Borrower’s Inventory and Receivables, Agent will remit the proceeds of such Advances to such Borrower. All operating accounts of Borrowers shall be subject to a springing Control Agreement reasonably satisfactory to Agent that provide Agent with the ability to obtain “control” (for purposes of Article 8 and 9 of the Uniform Commercial Code or an equivalent concept under any other Applicable Law) over such operating account upon the issuance of a notice from Agent; provided, that, prior to the issuance of any such notice by Agent, the Loan Parties shall retain the right to direct the disposition of funds in such operating accounts. The proceeds of Revolving Advances deemed to have been requested by any Borrower under 2.2(b) shall be disbursed by the Lenders to Agent to be applied to the outstanding Obligations giving rise to such deemed request. During the Term, Borrowers may use the Revolving Advances by borrowing such funds, prepaying and re-borrowing, all in accordance with the terms and conditions hereof.

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2.6. Making and Settlement of Advances.

(a) Each Revolving Advance shall be advanced by a Lender according to its Revolving Commitment Percentage (subject to any contrary terms of Section 2.13).

(b) Promptly after receipt by Agent of a request for an Advance under Section 2.2(a) or a deemed request under 2.2(b), Agent shall notify Lenders holding the Revolving Commitments of its receipt of such request specifying the information provided by Borrower Agent and the apportionment among Lenders of the requested or deemed Advance, as determined by Agent in accordance with the terms hereof. Each Lender shall remit, in U.S. Dollars and immediately available funds, the principal amount of each Advance to Agent at the Payment Office, such that Agent is able to, and Agent shall, to the extent Lenders have made such funds available to it for such purpose and subject to Section 8.2, fund such Advance to the applicable Borrower in accordance with Section 2.5 prior to the close of business on the applicable funding date or, in the case of a deemed Advance, apply such proceeds to the Obligations in accordance with Section 2.5; provided, that, if any Lender fails to remit such funds to Agent in a timely manner, Agent may elect in its sole discretion to fund the Advance with its own funds on such funding date or deemed request, and such Lender shall be subject to the repayment obligation in Section 2.6(c) hereof.

(c) Unless Agent shall have been notified by telephone, confirmed in writing, by any Lender holding a Revolving Commitment that such Lender will not make the amount which would constitute its applicable Revolving Commitment Percentage of the Advance available to Agent, Agent may (but shall not be obligated to) assume that such Lender has made such amount available to Agent on such date in accordance with Section 2.6(b) and may, in reliance upon such assumption, make available to Borrowers (as applicable) a corresponding amount. In such event, if a Lender has not in fact made its applicable Revolving Commitment Percentage of the Advance available to Agent, then the applicable Lender and Borrowers severally agree to pay to Agent on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to Borrowers through but excluding the date of payment to Agent, at the Revolving Interest Rate. If such Lender pays its share of the applicable Advance to Agent, then the amount so paid shall constitute such Lender’s Advance. Any payment by Borrowers shall be without prejudice to any claim Borrowers may have against a Lender holding a Revolving Commitment that shall have failed to make such payment to Agent. A certificate of Agent submitted to any Lender or Borrower Agent with respect to any amounts owing under this paragraph (c) shall be conclusive, in the absence of manifest error.

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(d) If any Lender or Participant (a “Benefited Lender”) shall at any time receive any payment of all or part of its Advances, or interest thereon, or receive any Collateral in respect thereof (whether voluntarily or involuntarily or by set-off) in a greater proportion than any such payment to and Collateral received by any other Lender, if any, in respect of such other Lender’s Advances, or interest thereon, and such greater proportionate payment or receipt of Collateral is not expressly permitted hereunder, such Benefited Lender shall purchase for cash from the other Lender a participation in such portion of each such other Lender’s Advances, or shall provide such other Lender with the benefits of any such Collateral, or the proceeds thereof, as shall be necessary to cause such Benefited Lender to share the excess payment or benefits of such Collateral or proceeds ratably with each of the other Lender; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefited Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. Each Borrower consents to the foregoing and agrees, to the extent it may effectively do so under Applicable Law, that each Lender so purchasing a portion of another Lender’s Advances may exercise all rights of payment (including rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion, and the obligations owing to each such purchasing Lender in respect of such participation and such purchased portion of any other Lender’s Advances shall be part of the Obligations secured by the Collateral, and the obligations owing to each such purchasing Lender in respect of such participation and such purchased portion of any other Lender’s Advances shall be part of the Obligations secured by the Collateral.

2.7. [Reserved].

2.8. Manner and Repayment of Advances.

(a) The Revolving Advances shall be due and payable in full on the last day of the Term subject to earlier prepayment as herein provided. Notwithstanding the foregoing, all Revolving Advances shall be subject to earlier repayment upon (x) acceleration upon the occurrence of an Event of Default under this Agreement or (y) termination of this Agreement. Each payment (including each prepayment) by any Borrower on account of the principal of and interest on the Revolving Advances shall be applied, pro rata according to the applicable Revolving Commitment Percentages of the Lenders, to the outstanding Revolving Advances (subject to any contrary provisions of Section 2.13).

(b) Each Borrower recognizes that the amounts evidenced by checks, notes, drafts or any other items of payment relating to and/or proceeds of Collateral may not be collectible by Agent on the date received by Agent. Agent shall conditionally credit the applicable Borrower’s Account for each item of payment received on the next Business Day after the Business Day on which such item of payment is received by Agent in the Payment Account (or, in the case of payment items made to a Blocked Account of a Borrower, on the next Business Day after the Business Day on which such proceeds are swept to Agent’s Payment Account in accordance with Section 4.8(h)) (the Business Day on which each such item of payment is so credited shall be referred to, with respect to such item, as the “Application Date”). Agent is not, however, required to credit a Borrower’s Account for the amount of any item of payment which is unsatisfactory to Agent and Agent may charge a Borrower’s Account for the amount of any item of payment which is returned, for any reason whatsoever, to Agent as unpaid. Subject to the foregoing, Borrowers agree that for purposes of computing the interest charges under this Agreement, each item of payment received by Agent shall be deemed applied by Agent on account of the Obligations on its respective Application Date. Borrowers further agree that there is a monthly float charge payable to Agent for Agent’s sole benefit, in an amount equal to (y) the face amount of all items of payment received during the prior month (including items of payment received by Agent as a wire transfer or electronic depository check) multiplied by (z) the Revolving Interest Rate for three (3) Business Days. All proceeds of Collateral received by Agent shall be applied to the Obligations in accordance with Section 4.8(h).

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(c) All payments of principal, interest and other amounts payable hereunder, or under any of the Other Documents shall be made to Agent at the Payment Office not later than 1:00 p.m. Eastern Standard Time on the due date therefor in U.S. Dollars and in immediately available funds. Agent shall have the right to effectuate payment of any and all Obligations due and owing hereunder by charging Borrowers’ Account or by making Advances as provided in Section 2.2 hereof.

(d) Except as expressly provided herein, all payments (including prepayments) to be made by any Borrower on account of principal, interest, fees and other amounts payable hereunder shall be made without deduction, setoff or counterclaim and shall be made to Agent on behalf of Lenders to the Payment Office, in each case on or prior to 1:00 p.m. Eastern Standard Time, in U.S. Dollars and in immediately available funds.

2.9. [Reserved].

2.10. Statement of Account. Agent shall maintain, in accordance with its customary procedures, a loan account in the name of Borrowers (the “Borrowers’ Account”), in which shall be recorded the date and amount of each Advance made by Agent or Lenders to Borrowers and the date and amount of each payment in respect thereof; provided, however, the failure by Agent to record the date and amount of any such Advance shall not adversely affect Agent or any Lender. Each month, Agent shall send to Borrower Agent a statement showing the accounting for the Advances made, payments made or credited in respect thereof, and other transactions between Agent, Lenders, and Borrowers during such month. The monthly statements shall be deemed correct and binding upon Borrowers in the absence of manifest error and shall constitute an account stated between Lenders, and Borrowers unless Agent receives a written statement of Borrowers’ specific exceptions thereto within thirty (30) days after such statement is received by Borrower Agent. The records of Agent with respect to Borrowers’ Account shall be conclusive evidence absent manifest error of the amounts of Advances and other charges thereto and of payments applicable thereto.

2.11. Mandatory Prepayments.

(a) Subject to Section 7.4 of this Agreement, Borrowers shall repay the Advances in an amount equal to the Net Proceeds of any Asset Sale of any Collateral other than Inventory in the Ordinary Course of Business, such repayments to be made promptly but in no event more than one (1) Business Day following receipt of such Net Proceeds, and until the date of payment, such proceeds shall be held in trust for Agent. The foregoing shall not be deemed to be implied consent to any such Asset Sale otherwise prohibited by the terms and conditions hereof. Such repayments shall be applied to the remaining Advances in such order as Agent may determine, subject to Borrowers’ ability to re-request Advances in accordance with the terms hereof. Notwithstanding the foregoing, repayments made by Borrowers pursuant to this Section 2.11(a) shall not trigger a corresponding reduction in the Revolving Commitment Amount.

(b) All proceeds received by a Loan Party or Agent under any insurance policy on account of an Event of Loss of any Collateral of any Loan Party, shall be applied in accordance with Section 7.4(c) hereof.

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(c) If at any time an Overadvance exists, Borrowers shall immediately repay the Revolving Advances in accordance with the provisions of Section 2.1(c).

2.12. Use of Proceeds.

(a) Borrowers shall apply the proceeds of Advances to (i) refinance certain existing Indebtedness of the Loan Parties, (ii) pay fees and expenses relating to this Transaction, and (iii) provide for its working capital needs and other general corporate purposes.

(b) Without limiting the generality of Section 2.12(a) above, the Loan Parties and any other Person which may in the future become a Loan Party, do not intend, nor shall they use, any portion of the proceeds of Advances, directly or indirectly, for any purpose in violation of Applicable Law.

2.13. Defaulting Lender.

(a) Notwithstanding anything to the contrary contained herein, in the event any Lender is a Defaulting Lender, all rights and obligations hereunder of such Defaulting Lender and of the other parties hereto shall be modified to the extent of the express provisions of this Section 2.13 so long as such Lender is a Defaulting Lender.

(b) (i) except as otherwise expressly provided for in this Section 2.13, Advances shall be made pro rata from Lenders holding Revolving Commitments which are not Defaulting Lenders based on their respective Revolving Commitment Percentages, and no Revolving Commitment Percentage of any Lender or any pro rata share of any Advances required to be advanced by any Lender shall be increased as a result of any Lender being a Defaulting Lender. Amounts received in respect of principal of any type of Advances shall be applied to reduce such type of Advances of each Lender (other than any Defaulting Lender) holding a Revolving Commitment in accordance with their Revolving Commitment Percentages; provided, that, Agent shall not be obligated to transfer to a Defaulting Lender any payments received by Agent for Defaulting Lender’s benefit, nor shall a Defaulting Lender be entitled to the sharing of any payments hereunder (including any principal, interest or fees). Amounts payable to a Defaulting Lender shall instead be paid to or retained by Agent. Agent may hold and, in its discretion, re-lend to a Borrower the amount of such payments received or retained by it for the account of such Defaulting Lender.

(ii) fees pursuant to Section 3.3 hereof shall cease to accrue in favor of such Defaulting Lender.

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(c) A Defaulting Lender shall not be entitled to give instructions to Agent or to approve, disapprove, consent to or vote on any matters relating to this Agreement and the Other Documents, and all amendments, waivers and other modifications of this Agreement and the Other Documents may be made without regard to a Defaulting Lender and, for purposes of the definition of “Required Lender”, a Defaulting Lender shall not be deemed to be a Lender, to have any outstanding Advances or a Revolving Commitment Percentage.

(d) Other than as expressly set forth in this Section 2.13, the rights and obligations of a Defaulting Lender (including the obligation to indemnify Agent) and the other parties hereto shall remain unchanged. Nothing in this Section 2.13 shall be deemed to release any Defaulting Lender from its obligations under this Agreement and the Other Documents, shall alter such obligations, shall operate as a waiver of any default by such Defaulting Lender hereunder, or shall prejudice any rights which any Borrower, Agent or any Lenders may have against any Defaulting Lender as a result of any default by such Defaulting Lender hereunder.

2.14. Payment of Obligations. Agent may charge to a Borrower’s Account as an Advance, (i) all payments with respect to any of the Obligations required hereunder (including without limitation principal payments, payments of interest, payments of all other fees provided for hereunder and payments under Sections 16.5 and 16.9) as and when each such payment shall become due and payable (whether as regularly scheduled, upon or after acceleration, upon maturity or otherwise), (ii) without limiting the generality of the foregoing clause (i), (a) all amounts expended by Agent or any Lender pursuant to Sections 4.2 or 4.3 hereof and (b) all expenses which Agent incurs in connection with the forwarding of Advance proceeds and the establishment and maintenance of any Blocked Accounts or depository accounts as provided for in Section 4.8(h), and (iii) any sums expended by Agent or any Lender due to any Borrower’s failure to perform or comply with its obligations under this Agreement or any Other Document including any Borrower’s obligations under Sections 3.3, 3.4, 4.4, 4.7, 6.1 and 6.4 hereof, and all amounts so charged shall be added to the Obligations and shall be secured by the Collateral. To the extent Advances are not actually funded by the other Lenders in respect of any such amounts so charged, all such amounts so charged shall be deemed to be Advances made by and owing to Agent and Agent shall be entitled to all rights (including accrual of interest) and remedies of a Lender under this Agreement and the Other Documents with respect to such Advances.

III. INTEREST AND FEES.

3.1. Interest. Interest on Advances shall be payable in arrears on the last day of each month provided that all accrued and unpaid interest shall be due and payable at the end of the Term. Interest charges shall be computed on the actual principal amount of Advances outstanding during the month at a rate per annum equal to with respect to Revolving Advances, the Revolving Interest Rate (the “Contract Rate”). Except as expressly provided otherwise in this Agreement, any Obligations other than the Advances that are not paid when due shall accrue interest at the Revolving Interest Rate, subject to the provision of the final sentence of this Section 3.1 regarding the Default Rate. Whenever, subsequent to the date of this Agreement, the Base Rate is increased or decreased, the applicable Contract Rate shall be similarly changed without notice or demand of any kind by an amount equal to the amount of such change in the Base Rate during the time such change or changes remain in effect. Upon and after the occurrence of an Event of Default, and during the continuation thereof, at the option of Agent or at the direction of Required Lenders (or, in the case of any Event of Default under Section 10.7, immediately and automatically upon the occurrence of any such Event of Default without the requirement of any affirmative action by any party), the Obligations shall bear interest at the applicable Contract Rate, plus three percent (3%) per annum (the “Default Rate”).

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3.2. Early Termination Fee. If Lenders’ funding obligations in respect of the Revolving Commitments terminate prior to the Maturity Date for any reason (whether by voluntary termination by Borrowers, termination (automatically or by Agent and Lenders) following the occurrence of an Event of Default or otherwise), Borrowers shall pay to Agent, for the benefit of all Lenders, a fee as compensation for the costs of such Lenders, equal to an amount determined by multiplying the Maximum Revolving Advance Amount by the following applicable percentage: (i) 2.50% if such termination occurs during the first Contract Year, (ii) 1.50% if such termination occurs during the second Contract Year, or (iii) 0.50% if such termination occurs during the first six (6) months of the third Contract Year. The foregoing fee shall be the “Early Termination Fee.” No Early Termination Fee shall be payable if each of the following conditions is satisfied: (a) no Default or Event of Default exists and is continuing, (b) Agent has requested in writing that the Revolving Commitment be terminated prior to the Maturity Date, and (c) Borrower Agent has agreed (in writing) to accommodate such request and terminate the Revolving Commitment prior to the Maturity Date.

3.3. Fee Letter. Borrowers shall pay the amounts required to be paid in the Fee Letter in the manner and at the times required by the Fee Letter.

3.4. Collateral Evaluation Fee .

(a) Borrowers agree Agent, through its employees and agents including any third party retained by Agent for such purpose, may visit any of its locations and/or conduct certain audits, inspections, valuations and/or receivables audit at all reasonable times and from time to time during normal business hours and, so long as no Event of Default shall have occurred and be continuing, upon reasonable prior notice. Borrowers shall pay to Agent promptly at the conclusion of any collateral evaluation, field analysis, appraisal or other business analysis performed by or for the benefit of Agent, in each case as provided in Sections 4.6 and 4.7 of this Agreement (whether such examination is performed by Agent’s employees or by a third party retained by Agent), a collateral evaluation fee, a per examination receivables audit management fee for new facilities and for recurring examinations, plus all costs and disbursements incurred by Agent in the performance of such examination or analysis, and further provided that if third parties are retained to perform such collateral evaluations then, without duplication, such fees charged by such third parties plus all costs and disbursements incurred by such third party, shall be the responsibility of Borrowers and shall not be subject to the foregoing limits.

(b) All of the fees and out-of-pocket costs and expenses of any appraisals conducted pursuant to Section 4.7 hereof shall be paid for when due, in full and without deduction, off-set or counterclaim by Borrowers.

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3.5. Computation of Interest and Fees. Interest and fees hereunder shall be computed on the basis of a year of 360 days and for the actual number of days elapsed. If any payment to be made hereunder becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and interest thereon shall be payable at the applicable Contract Rate during such extension.

3.6. Maximum Charges. In no event whatsoever shall interest and other charges charged hereunder exceed the highest rate permissible under Applicable Law. In the event interest and other charges as computed hereunder would otherwise exceed the highest rate permitted under Applicable Law: (i) the interest rates hereunder will be reduced to the maximum rate permitted under Applicable Law; (ii) such excess amount shall be first applied to any unpaid principal balance owed by Borrowers; and (iii) if the then remaining excess amount is greater than the previously unpaid principal balance, Lenders shall promptly refund such excess amount to Borrowers and the provisions hereof shall be deemed amended to provide for such permissible rate.

3.7. Increased Cost. In the event that any Applicable Law or any Change in Law or compliance by any Lender (for purposes of this Section 3.7, the term “Lender” shall include Agent or any Lender and any corporation or bank controlling Agent or any Lender) with any request or directive (whether or not having the force of law) from any central bank or other financial, monetary or other authority, shall:

(a) subject Agent or any Lender to any Tax with respect to this Agreement, or change the basis of taxation of payments to Agent or such Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 3.10 and the imposition of, or any change in the rate of, any Excluded Tax payable by Agent or such Lender);

(b) impose, modify or deem applicable any reserve, special deposit, assessment, compulsory loan, insurance charge or similar requirement against assets held by, or deposits in or for the account of, advances or loans by, or other credit extended by, any office of Agent or any Lender, including pursuant to Regulation D of the Board of Governors of the Federal Reserve System; or

(c) impose on Agent or any Lender any other condition, loss or expense (other than Taxes) affecting this Agreement or any Other Document or any Advance made by any Lender or participation therein; and the result of any of the foregoing is to increase the cost to Agent or any Lender of making or maintaining its Advances hereunder by an amount that Agent or a Lender deems to be material or to reduce the amount of any payment (whether of principal, interest or otherwise) in respect of any of the Advances by an amount that Agent or a Lender deems to be material, then, in any case Borrowers shall promptly pay Agent or such Lender, upon its demand, such additional amount as will compensate Agent or such Lender for such additional cost or such reduction, as the case may be. Agent or such Lender shall certify the amount of such additional cost or reduced amount to Borrower Agent, and such certification shall be conclusive absent manifest error.

3.8. [Reserved].

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3.9. Capital Adequacy.

(a) In the event that Agent or any Lender shall have determined that any Applicable Law or guideline regarding capital adequacy, or any Change in Law or any change in the interpretation or administration thereof by any Governmental Body, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Agent or any Lender (for purposes of this Section 3.9, the term “Lender” shall include Agent or any Lender and any corporation or bank controlling Agent or any Lender) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on Agent or any Lender’s capital as a consequence of its obligations hereunder to a level below that which Agent or such Lender could have achieved but for such adoption, change or compliance (taking into consideration Agent’s and each Lender’s policies with respect to capital adequacy) by an amount deemed by Agent or any Lender to be material, then, from time to time, Borrowers shall pay upon demand to Agent or such Lender such additional amount or amounts as will compensate Agent or such Lender for such reduction. In determining such amount or amounts, Agent or such Lender may use any reasonable averaging or attribution methods. The protection of this Section 3.9 shall be available to Agent and each Lender regardless of any possible contention of invalidity or inapplicability with respect to the Applicable Law, rule, regulation, guideline or condition.

(b) A certificate of Agent or such Lender setting forth such amount or amounts as shall be necessary to compensate Agent or such Lender with respect to Section 3.9(a) hereof when delivered to Borrower Agent shall be conclusive absent manifest error. Notwithstanding the foregoing, the Borrowers shall not be required to compensate any Agent or Lender, as the case may be, pursuant to this Section 3.9 for any increased costs incurred or reductions suffered more than nine months prior to the date that such Agent or Lender, as the case may be, notifies the Borrower Agent of the Change in Law giving rise to such increased costs or reductions, and of such Lender’s or Agent’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).

3.10. Taxes.

(a) Any and all payments by or on account of any Obligations hereunder or under any Other Document shall be made free and clear of and without deduction or withholding for any Taxes; provided that if Loan Parties shall be required by Applicable Law to deduct any Taxes from such payments, then (i) in the case of Indemnified Taxes, the sum payable by Loan Parties shall be increased as necessary so that after making all required deductions for Indemnified Taxes (including deductions applicable to additional sums payable under this Section) Agent, Lender or Participant, as the case may be, receives an amount equal to the sum it would have received had no such deductions for Indemnified Taxes been made, (ii) Borrowers shall make such deductions or withholdings for Taxes, and (iii) Borrowers shall timely pay the full amount deducted or withheld to the relevant Governmental Body in accordance with Applicable Law.

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(b) Without limiting the provisions of Section 3.10(a) above, Borrowers shall timely pay any Other Taxes to the relevant Governmental Body in accordance with Applicable Law.

(c) Each Borrower shall indemnify Agent, each Lender, and any Participant, within ten (10) days after written demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by Agent, such Lender, or such Participant, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Body. A certificate as to the amount of such payment or liability delivered to Borrowers by any Lender or Participant (with a copy to Agent), or by Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

(d) As soon as practicable after any payment of Indemnified Taxes by any Borrower to a Governmental Body, Borrowers shall deliver to Agent reasonably satisfactory evidence of such payment or a copy of the return reporting such payment.

(e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which any Borrower is resident for tax purposes, or under any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any Other Document shall deliver to Borrowers (as applicable) (with a copy to Agent), at the time or times prescribed by Applicable Law or reasonably requested by Borrowers (as applicable) or Agent, such properly completed and executed documentation prescribed by Applicable Law as will permit such payments to be made without withholding or at a reduced rate of withholding. Notwithstanding the submission of such documentation claiming a reduced rate of or exemption from U.S. withholding tax, Agent shall be entitled to withhold United States federal income taxes at the full 30% withholding rate if in its reasonable judgment it is required to do so under the due diligence requirements imposed upon a withholding agent under § 1.1441-7(b) of the United States Income Tax Regulations or other Applicable Law. Further, Agent is indemnified under § 1.1461-1(e) of the United States Income Tax Regulations against any claims and demands of any Lender or assignee or participant of a Lender for the amount of any Tax it deducts and withholds in accordance with regulations under § 1441 of the Code. In addition, any Lender, if requested by Borrowers, or Agent, shall deliver such other documentation prescribed by Applicable Law or reasonably requested by the Borrowers, or Agent as will enable Borrowers, or Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Without limiting the generality of the foregoing, in the event that any Borrower is resident for tax purposes in the United States of America, any Foreign Lender (or other Lender) shall deliver to Borrowers and Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender (or other Lender) becomes a Lender under this Agreement (and from time to time thereafter upon the request of Borrowers or Agent, but only if such Foreign Lender (or other Lender) is legally entitled to do so), whichever of the following is applicable: two (2) duly completed valid originals of IRS Form W-8BEN-E claiming eligibility for benefits of an income tax treaty to which the United States of America is a party,

(i) two (2) duly completed valid originals of IRS Form W-8ECI,

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(ii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of Borrowers within the meaning of Section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code and (y) two duly completed valid originals of IRS Form W-8BEN,

(iii) any other form prescribed by Applicable Law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by Applicable Law to permit the Borrowers to determine the withholding or deduction required to be made, or

(iv) to the extent that any Lender is not a Foreign Lender, such Lender shall submit to Agent two (2) originals of an IRS Form W-9 or any other form prescribed by Applicable Law demonstrating that such Lender is not a Foreign Lender.

(v) With respect to any payment made by any Mexican Loan Party, any documentation required under Mexican laws to reduce any withholding taxes, as the case may be, including, if applicable, (x) a valid certificate of tax residence duly issued by the competent tax authorities of its jurisdiction of residence evidencing such Lender or Agent is a resident for tax purposes for the relevant fiscal year where the payment is being made; and/or (y) the information described in rules 3.18.18. and/or 3.18.19. of the Mexican Administrative Tax Regulations for 2024 (Resolución Miscelánea Fiscal para 2024) (or any successor provisions thereof).

(f) If a payment made to a Lender, Participant, or Agent under this Agreement or any Other Document would be subject to U.S. Federal withholding Tax imposed by FATCA if such Person fails to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender, Participant, or Agent shall deliver to the Agent (in the case of a Lender or Participant) and Borrowers (A) a certification signed by the chief financial officer, principal accounting officer, treasurer or controller of such Person, and (B) other documentation reasonably requested by Agent or any Borrower sufficient for Agent and Borrowers to comply with their obligations under FATCA and to determine that such Lender, Participant, or Agent has complied with such applicable reporting requirements.

(g) If Agent, a Lender or a Participant determines, in its sole discretion, that it has received a refund of any Indemnified Taxes as to which it has been indemnified by Borrowers or with respect to which Borrowers have paid additional amounts pursuant to this Section, it shall pay to Borrowers an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by Borrowers under this Section with respect to the Indemnified Taxes giving rise to such refund); net of all out-of-pocket expenses of the Agent, such Lender or Participant, as the case may be, and without interest (other than any interest paid by the relevant Governmental Body with respect to such refund), provided that Borrowers, upon the request of Agent, such Lender or Participant, agrees to repay the amount paid over to Borrowers (plus any penalties, interest or other charges imposed by the relevant Governmental Body) to Agent, such Lender, or Participant in the event Agent, such Lender or Participant is required to repay such refund to such Governmental Body. This Section shall not be construed to require Agent, any Lender or Participant to make available its tax returns (or any other information relating to its taxes that it deems confidential) to Borrowers or any other Person.

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(h) Each party’s obligations under this Section shall survive the resignation or replacement of the Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Revolving Commitments and the repayment, satisfaction or discharge of all obligations under this Agreement or any Other Document, in accordance with Applicable Law.

(i) With respect to any payment made by a Mexican Loan Party, the relevant Lender or Agent, as the case may be, shall issue to such Mexican Loan Party and deliver to the Borrower and the Agent, an invoice or other document that is applicable or required pursuant to Applicable Laws.

3.11. Replacement of Lender. If any Lender (an “Affected Lender”) (a) makes demand upon Borrowers for (or if Borrowers are otherwise required to pay) amounts pursuant to Section 3.7 or 3.9 hereof, (b) is a Defaulting Lender, or (c) denies any consent requested by the Agent pursuant to Section 16.2(b) hereof, Borrowers may, at its sole expense and effort, by notice in writing to the Agent and such Affected Lender, require such Affected Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 16.3 hereof), all of its interests, rights (other than its existing rights to payments pursuant to Section 3.7 or 3.9) and obligations under this Agreement and the related Other Documents to a replacement Lender that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that:

(i) such Lender shall have received payment of an amount equal to the outstanding principal of its Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the Other Documents from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers (in the case of all other amounts);

(ii) in the case of any such assignment resulting from a claim for compensation under Section 3.7 or 3.9, such assignment will result in a reduction in such compensation or payments thereafter;

(iii) such assignment does not conflict with Applicable Law; and

(iv) in the case of any assignment resulting from a Lender becoming a non-consenting Lender, the applicable assignee shall have consented to the applicable amendment, waiver or consent.

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IV. COLLATERAL: GENERAL TERMS

4.1. Security Interest in the Collateral. Each Loan Party that is a party hereto hereby grants, pledges and assigns a security interest in the Collateral to Agent, on behalf of itself and each other Lender, to secure the prompt payment in full and performance when due of all Obligations. Each Loan Party that is a party hereto represents, warrants and covenants to the Lender that: (a) the security interest granted by it herein is and shall at all times continue to be a perfected, first priority Lien on and security interest in the Collateral (subject only to Permitted Liens); (b) it has rights in and the power to transfer each item of the Collateral upon which it purports to grant a Lien pursuant to the Other Documents, free and clear of any and all Liens or claims of others, other than Permitted Liens; and (c) no effective security agreement, mortgage, deed of trust, financing statement (as that term is defined in the Uniform Commercial Code), or other security or Lien instrument covering all or any part of the Collateral is or will be on file or of record in any public office, except those relating to Permitted Liens. If any Loan Party that is a party hereto shall acquire a commercial tort claim (as that term is defined in the Uniform Commercial Code), such Loan Party shall promptly notify Agent in a writing signed by such Loan Party of the details thereof by providing an updated Schedule 5.6(c) and shall grant to Agent, on behalf of itself and Lenders, a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Agent. Notwithstanding any termination of this Agreement, Agent’s Lien on the Collateral shall continue until all Obligations are repaid in full. At such time as the Obligations have been paid in full and the Lender shall have received a release of all claims from the Loan Parties, Agent shall, at Borrowers’ sole cost and expense, release its Liens on the Collateral. Without limiting the foregoing, the Mexican Loan Parties and Zircon shall also grant a security interest in the Collateral to Agent pursuant to the Mexican Security Documents.

4.2. Perfection of Security Interest.

(a) Each Loan Party shall take all action that may be necessary or desirable, or that Agent may request, so as at all times to maintain the validity, perfection, enforceability and priority of Agent’s security interest in and Lien on the Collateral or to enable Agent to protect, exercise or enforce its rights hereunder and in the Collateral, including, but not limited to, (i) immediately discharging all Liens other than Permitted Liens, (ii) obtaining Lien Waiver Agreements, lockbox, customs and freight agreements, and other custodial arrangements satisfactory to Agent, (iii) delivering to Agent, endorsed or accompanied by such instruments of assignment as Agent may specify, and stamping or marking, in such manner as Agent may specify, any and all chattel paper, instruments, letters of credit and advices thereof and documents evidencing or forming a part of the Collateral as expressly provided under the corresponding Foreign Security Agreement, and (iv) executing and delivering financing statements, Control Agreements, instruments of pledge, mortgages, notices and assignments, in each case in form and substance satisfactory to Agent, relating to the creation, validity, perfection, maintenance or continuation of Agent’s security interest and Lien under the Uniform Commercial Code or other Applicable Law. By its signature hereto, each Loan Party hereby authorizes Agent to file against such Loan Party, one or more financing, continuation or amendment statements pursuant to the Uniform Commercial Code or other Applicable Law in form and substance satisfactory to Agent (which statements may have a description of collateral which is broader than that set forth herein, including without limitation a description of Collateral as “all assets” and/or “all personal property” of any Loan Party). All charges, expenses and fees Agent may incur in doing any of the foregoing, and any local taxes relating thereto, shall be charged to the applicable Borrower’s Account as an Advance and added to the Obligations, or, at Agent’s option, shall be paid by Loan Parties to Agent for its benefit and for the ratable benefit of Lender immediately upon demand.

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(b) Notwithstanding the foregoing or anything to the contrary in this Agreement or any Other Document, until otherwise required by Agent (which requirement shall be in Agent’s sole discretion), Zircon UK shall not have an obligation to perfect Agent’s security interest in the Property of Zircon UK under the laws of the United Kingdom. The Loan Parties expressly acknowledge that Agent’s decision not to perfect its security interest in Zircon UK’s Property under the laws of the United Kingdom is, and shall remain, subject to Agent’s sole discretion and Agent may, at any time, take such action or require the Loan Parties to take such action, as may be necessary or desirable to create or maintain the validity, perfection, enforceability and first priority status of Agent’s security interest in and Lien on the Property of Zircon UK under the laws of the United Kingdom or any other Applicable Law. Notwithstanding anything to the contrary contained in this Agreement or any Other Document, in no event shall the Loan Parties transfer any Property (including, without limitation, accounts, inventory and Intellectual Property) to Zircon UK other than cash payments and cash Investments expressly permitted under Section 7.8(iii).

4.3. Preservation of Collateral. Following the occurrence of a Default or an Event of Default, in addition to the rights and remedies set forth in Section 11.1 hereof, Agent: (a) may at any time take such steps as Agent deems necessary to protect Agent’s interest in and to preserve the Collateral, including the hiring of security guards or the placing of other security protection measures as Agent may deem appropriate; (b) may employ and maintain at any of any Loan Party’s premises a custodian who shall have full authority to do all acts necessary to protect Agent’s interests in the Collateral; (c) may lease warehouse facilities to which Agent may move all or part of the Collateral; (d) may use any Loan Party’s owned or leased lifts, hoists, trucks and other facilities or equipment for handling or removing the Collateral; and (e) shall have, and is hereby granted, a right of ingress and egress to the places where the Collateral is located, and may proceed over and through any of Loan Parties’ owned or leased property. Each Loan Party shall cooperate fully with all of Agent’s efforts to preserve the Collateral and will take such actions to preserve the Collateral as Agent may direct. All of Agent’s expenses of preserving the Collateral, including any expenses relating to the bonding of a custodian, shall be charged to a Borrower’s Account as an Advance and added to the Obligations.

4.4. Ownership and Location of Collateral.

(a) With respect to the Collateral, at the time the Collateral becomes subject to Agent’s security interest: (i) each Loan Party shall be the sole owner of and fully authorized and able to sell, transfer, pledge and/or grant a security interest in each and every item of its respective Collateral to Agent; and, except for Permitted Liens, the Collateral shall be free and clear of all Liens whatsoever; (ii) each document and agreement executed by each Loan Party or delivered to Agent or any Lender in connection with this Agreement shall be true and correct in all respects; (iii) all signatures and endorsements of each Loan Party that appear on such documents and agreements shall be genuine and each Loan Party shall have full capacity to execute same; and (iv) each Borrower’s equipment and Inventory shall be located as set forth on Schedule 4.4 and shall not be removed from such location(s) without the prior written consent of Agent except with respect to the sale of Inventory in the Ordinary Course of Business and equipment to the extent permitted in Section 7.4 hereof.

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(b) (i) There is no location at which any Loan Party has any Inventory (except for Inventory in transit) or other Collateral (except for Equipment in transit or out for repair) other than those locations listed on Schedule 4.4(b); (ii) Schedule 4.4(b) hereto contains a correct and complete list, as of the Closing Date, of the legal names and addresses of each warehouse at which Inventory of any Loan Party is stored; none of the receipts received by any Loan Party from any warehouse states that the goods covered thereby are to be delivered to bearer or to the order of a named Person or to a named Person and such named Person’s assigns; (iii) Schedule 4.4(b) hereto sets forth a correct and complete list as of the Closing Date of (A) each place of business of each Loan Party, and (B) the chief executive office and Collateral locations of each Loan Party; and (iv) Schedule 4.4(b) hereto sets forth a correct and complete list as of the Closing Date of the location, by state and street address, of all Real Property owned or leased by each Loan Party, identifying which properties are owned and which are leased, together with the names and addresses of any landlords.

4.5. Defense of Agent’s and Lender’ Interests. Until (a) payment and performance in full of all of the Obligations and (b) termination of this Agreement, Agent’s interests in the Collateral shall continue in full force and effect. During such period no Loan Party shall, without Agent’s prior written consent, pledge, sell (except for sales or other dispositions otherwise permitted in Section 7.4 hereof), assign, transfer, create or suffer to exist a Lien upon or encumber or allow or suffer to be encumbered in any way except for Permitted Liens, any part of the Collateral. Each Loan Party shall defend Agent’s interests in the Collateral against any and all Persons whatsoever. At any time following demand by Agent for payment of all Obligations, Agent shall have the right to take possession of the indicia of the Collateral and the Collateral in whatever physical form contained, including: labels, stationery, documents, instruments and advertising materials. If Agent exercises this right to take possession of the Collateral, Loan Parties shall, upon demand, assemble it in the best manner possible and make it available to Agent at a place reasonably convenient to Agent. In addition, with respect to all Collateral, Agent and Lender shall be entitled to all of the rights and remedies set forth herein and further provided by the Uniform Commercial Code or other Applicable Law. Loan Party shall, and Agent may, at its option, instruct all suppliers, carriers, forwarders, warehousers or others receiving or holding cash, checks, Inventory, documents or instruments in which Agent holds a security interest to deliver same to Agent and/or subject to Agent’s order and if they shall come into any Loan Party’s possession, they, and each of them, shall be held by such Loan Party in trust as Agent’s trustee, and such Loan Party will immediately deliver them to Agent in their original form together with any necessary endorsement.

4.6. Inspection of Premises and Receivables Audits. From time to time and upon reasonable notice to Borrowers, the Agent and each Lender shall have full access to and the right to conduct receivables audits and audit, check, inspect and make abstracts and copies from each Loan Party’s books, records, audits, correspondence and all other papers relating to the Collateral and the operation of each Loan Party’s business; provided, that, Agent agrees to make a good faith effort to limit such examinations, collateral analysis or business analysis (“Examinations”) to no more than two (2) times per Fiscal Year (it being understood that Agent reserves the right to conduct additional Examinations during a Fiscal Year if Agent determines, in its good faith credit judgment and discretion, such Examination is necessary or desirable to protect its or the Lenders’ interest). There shall be no limits on the number of Examinations conducted while an Event of Default exists and such Examinations may be conducted in Agent’s sole and absolute discretion during the continuance of an Event of Default. The Loan Parties shall be responsible for reimbursing Agent for the costs and expenses of any such Examinations conducted hereunder.

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4.7. Appraisals. Following the Closing Date, Agent may engage the services of an independent appraisal firm satisfactory to Agent, for the purpose of appraising the then current values of the Borrowers’ assets. Agent agrees to make a good faith effort to limit such appraisals to no more than two (2) times per Fiscal Year with respect to Inventory (it being understood that Agent reserves the right to conduct additional appraisals during a fiscal year if Agent determines, in its good faith credit judgment and discretion, such appraisal is necessary or desirable to protect its or the Lenders’ interest). There shall be no limits on the number of appraisals conducted while an Event of Default exists and such appraisals may be conducted in Agent’s sole and absolute discretion during the continuance of an Event of Default. The Loan Parties shall be responsible for reimbursing Agent for the costs and expenses of any such appraisal conducted hereunder. In the event the value of the Borrowers’ Inventory, as so determined pursuant to such appraisal, is less than anticipated by Agent or Lenders and subject to Section 16.2(e) hereof, such that an Overadvance has occurred, then, promptly upon Agent’s demand for same, Borrowers shall repay the then outstanding Advances so as to eliminate the Overadvance.

4.8. Receivables; Deposit Accounts and Securities Accounts.

(a) Each of the Receivables shall be a bona fide and valid account representing a bona fide indebtedness incurred by the Customer therein named, for a fixed sum as set forth in the invoice relating thereto (provided immaterial or unintentional invoice errors shall not be deemed to be a breach hereof) with respect to an absolute sale or lease and delivery of goods upon stated terms of a Borrower, or work, labor or services theretofore rendered by a Borrower as of the date each Receivable is created. Same shall be due and owing in accordance with the applicable Borrower’s standard terms of sale without dispute, setoff or counterclaim.

(b) In respect of Eligible Receivables in the Revolver Formula Amount only, each Customer, to the best of each Loan Party’s knowledge, as of the date each Receivable is created, is Solvent and able to pay all Receivables on which the Customer is obligated in full when due. With respect to such Customers of any Loan Party who are not Solvent, such Loan Party has set up on its books and in its financial records bad debt reserves adequate to cover such Receivables.

(c) Each Loan Party’s chief executive office and collateral locations are located as set forth on Schedule 4.4(b). Until written notice is given to Agent by Borrower Agent of any other office at which any Loan Party keeps its records pertaining to Receivables, all such records shall be kept at such executive office.

(d) Borrowers shall instruct their Customers to deliver all remittances upon Receivables (whether paid by check or by wire transfer of funds) to such Blocked Account(s) (and any associated lockboxes) contemplated by Section 4.8(h). Notwithstanding the foregoing, to the extent any Loan Party directly receives any remittances upon Receivables in violation of the foregoing, such Loan Party shall, at such Loan Party’s sole cost and expense, but on Agent’s behalf and for Agent’s account, collect as Agent’s property and in trust for Agent all amounts received on Receivables, and shall not commingle such collections with any Loan Party’s funds or use the same except to pay Obligations, and shall as soon as possible and in any event no later than one (1) Business Day after the receipt thereof (i) in the case of remittances paid by check, deposit all such remittances in their original form (after supplying any necessary endorsements) and (ii) in the case of remittances paid by wire transfer of funds, transfer all such remittances, in each case, to the deposit account designated by Agent. Each Loan Party shall deposit in the deposit accounts designated by Agent or, upon request by Agent, deliver to Agent, in original form and on the date of receipt thereof, all checks, drafts, notes, money orders, acceptances, cash and other evidences of Indebtedness.

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(e) Agent shall have the right to send notice of the assignment of, and Agent’s security interest in and Lien on, Collateral to any third party holding or otherwise concerned with such Collateral. Agent shall have the right to take possession of any other Collateral following the occurrence of an Event of Default. Agent’s actual collection expenses, including, but not limited to, stationery and postage, telephone, facsimile, telegraph, secretarial and clerical expenses and the salaries of any collection personnel used for collection, may be charged to a Borrower’s Account and added to the Obligations.

(f) Agent shall have the right to receive, endorse, assign and/or deliver in the name of Agent or any Loan Party any and all checks, drafts and other instruments for the payment of money relating to Receivables, and each Loan Party hereby waives notice of presentment, protest and non-payment of any instrument so endorsed. Each Loan Party hereby constitutes Agent or Agent’s designee as such Loan Party’s attorney with power at any time: (A) to endorse such Loan Party’s name upon any notes, acceptances, checks, drafts, money orders or other evidences of payment or Collateral; (B) to sign such Loan Party’s name on any invoice or bill of lading relating to any of the Receivables, drafts against Customers, assignments and verifications of Receivables; (C) to send verifications of Receivables to any Customer; (D) to sign such Loan Party’s name on all financing statements or any other documents or instruments deemed necessary or appropriate by Agent to preserve, protect, or perfect Agent’s interest in the Collateral and to file same; (E) to receive, open and dispose of all mail addressed to any Loan Party at any post office box/lockbox maintained by Agent for Loan Parties or at any other business premises of Agent; (F) to demand payment of the Receivables; (G) to enforce payment of the Receivables by legal proceedings or otherwise; (H) to exercise all of such Loan Party’s rights and remedies with respect to the collection of the Receivables and any other Collateral; (I) to sue upon or otherwise collect, extend the time of payment of, settle, adjust, compromise, extend or renew the Receivables; (J) to settle, adjust or compromise any legal proceedings brought to collect Receivables; (K) to prepare, file and sign such Loan Party’s name on a proof of claim in bankruptcy or similar document against any Customer; (L) to prepare, file and sign such Loan Party’s name on any notice of Lien, assignment or satisfaction of Lien or similar document in connection with the Receivables; (M) to accept the return of goods represented by any of the Receivables; (N) to change the address for delivery of mail addressed to any Loan Party to such address as Agent may designate; (O) intentionally omitted; and (P) to do all other acts and things necessary to carry out this Agreement. All acts of said attorney or designee are hereby ratified and approved, and said attorney or designee shall not be liable for any acts of omission or commission nor for any error of judgment or mistake of fact or of law, unless done maliciously or with gross (not mere) negligence (as determined by a court of competent jurisdiction in a final non-appealable judgment); this power being coupled with an interest is irrevocable while any of the Obligations remain unpaid.

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(g) Neither Agent nor any Lender shall, under any circumstances or in any event whatsoever, have any liability for any error or omission or delay of any kind occurring in the settlement, collection or payment of any of the Receivables or any instrument received in payment thereof, or for any damage resulting therefrom.

(h) All proceeds of Collateral shall be deposited by Loan Parties into (i) the Payment Account designated by Agent from time to time or (ii) a lockbox account, dominion account or such other “blocked” deposit account (“Blocked Accounts”) at banks designated by Agent (each such bank, a “Blocked Account Bank”) that are subject to Control Agreements (defined below). On the Closing Date, each applicable Loan Party, Agent and each Blocked Account Bank shall enter into deposit account control agreements (or the equivalent thereof) for each Blocked Account and such agreement shall be sufficient to give Agent “control” (for purposes of Article 8 and 9 of the Uniform Commercial Code or an equivalent concept under any other Applicable Law) and shall direct such Blocked Account Bank to transfer all deposits on a daily basis to Agent, either to an account maintained by Agent at said Blocked Account Bank or by wire transfer to the Payment Account (such agreement, which shall be in form and substance satisfactory to Agent, along with any other deposit, securities or investment account control agreements (or the equivalent thereof), including, without limitation, any “springing” control agreement, each a “Control Agreement”). All funds deposited in such Blocked Accounts shall immediately become subject to the security interest of Agent for its own benefit and the ratable benefit of Lenders and all other holders of the Obligations, and such Control Agreement shall cause each Blocked Account Bank to waive any offset rights against the funds so deposited therein (other than customary indemnity obligations in favor of the Blocked Account Bank). Neither Agent nor any Lender assumes any responsibility for such blocked account arrangement, including any claim of accord and satisfaction or release with respect to deposits accepted by any Blocked Account Bank thereunder. Agent shall apply all funds received by it from the Blocked Accounts to the satisfaction of the Obligations in such order as Agent shall determine in its discretion (provided, that, Receivable collections will be applied and administered in accordance with Section 2.8(b)). Without limiting the foregoing, Borrower shall notify all Customers and take other necessary or appropriate means to ensure that all of its Receivables are paid in U.S. Dollars to a Blocked Account in accordance with this Section 4.8(h) (or such other account as otherwise directed by Agent), which shall then be swept daily to an account designated by Agent to be applied to the Obligations in accordance with Section 2.8(b). Following the occurrence and during the continuation of an Event of Default, Agent shall have the right without notice to any Borrower, to notify any or all Customers of the assignment to Agent and to direct such Customers to make payment of all amounts due or to become due to a Borrower directly to Agent.

(i) At any time following the occurrence and during the continuance of an Event of Default, no Loan Party will, without Agent’s consent, compromise or adjust any Receivables (or extend the time for payment thereof) or accept any returns of merchandise or grant any additional discounts, allowances or credits thereon except for those compromises, adjustments, returns, discounts, credits and allowances as have been heretofore customary in the Ordinary Course of Business of such Loan Party.

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(j) All deposit accounts (including all Blocked Accounts), securities accounts and investment accounts of each Loan Party and their respective Subsidiaries as of the Closing Date are set forth on Schedule 6.12. No Loan Party shall open any new deposit account, securities account or investment account unless (i) Loan Parties shall have given at least thirty (30) days prior written notice to Agent and Agent has consented in writing, and (ii) if such Loan Party’s account is to be maintained with a bank, depository institution or securities intermediary that is not the Agent, such bank, depository institution or securities intermediary, each applicable Loan Party and Agent shall first have entered into a Control Agreement, as applicable, in form and substance satisfactory to Agent sufficient to give Agent “control” (for purposes of Articles 8 and 9 of the Uniform Commercial Code), if applicable, over such account.

(k) The Loan Parties hereto hereby acknowledge, confirm and agree that the implementation of the cash management arrangements contemplated herein is a contractual right provided to the Agent and the Lenders hereunder in order for the Agent to manage and monitor their collateral position and not a proceeding for enforcement or recovery of a claim, or pursuant to, or an enforcement of, any of the Security Documents or remedies whatsoever, the cash management arrangements contemplated herein are critical to the structure of the lending arrangements contemplated herein, the Agent and the Lenders are relying on the Loan Parties’ acknowledgement, confirmation and agreement with respect to such cash management arrangements in making accommodations of credit available to them and in particular that any accommodations of credit are being provided by the Lenders are strictly on the basis of a formula amount calculation to fully support and collateralize any such accommodations of credit hereunder.

4.9. Inventory. To the extent Inventory held for sale or lease has been produced by any Loan Party, it has been and will be produced by such Loan Party in accordance with the Federal Fair Labor Standards Act of 1938, as amended, and all rules, regulations and orders thereunder, and, in the case of a Mexican Loan Party, in accordance with Applicable Laws in Mexico.

4.10. Maintenance of Equipment. The equipment shall be maintained in good operating condition and repair (reasonable wear and tear excepted) and all necessary replacements of and repairs thereto shall be made so that the value and operating efficiency of the equipment shall be maintained and preserved. No Loan Party shall use or operate the equipment in violation of any law, statute, ordinance, code, rule or regulation.

4.11. Exculpation of Liability. Nothing herein contained shall be construed to constitute Agent or any Lender as any Loan Party’s agent for any purpose whatsoever, nor shall Agent or any Lender be responsible or liable for any shortage, discrepancy, damage, loss or destruction of any part of the Collateral wherever the same may be located and regardless of the cause thereof. Neither Agent nor any Lender, whether by anything herein or in any assignment or otherwise, assume any of any Loan Party’s obligations under any contract or agreement assigned to Agent or such Lender, and neither Agent nor any Lender shall be responsible in any way for the performance by any Loan Party of any of the terms and conditions thereof.

4.12. Financing Statements. Except with respect to the financing statements filed by Agent, financing statements described on Schedule 7.1, and financing statements filed in connection with Permitted Liens, no financing statement covering any of the Collateral or any proceeds thereof is or will be on file in any public office.

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V. REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES.

The Loan Parties, jointly and severally, represent and warrant to each of the Lenders as of the Closing Date, after giving effect to the Transactions, that:

5.1. Existence and Power. Each of the Loan Parties and each of their respective Subsidiaries is a corporation or limited liability company duly organized, validly existing and in good standing (to the extent such concept is applicable in the applicable jurisdiction) under the laws of its jurisdiction of organization and is duly qualified to do business in each additional jurisdiction necessary or advisable for the conduct of its business, except for such failures to so qualify in such additional jurisdictions as could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. Each of the Loan Parties and each of their Subsidiaries have all requisite organizational power to own its Properties and to carry on its business as now being conducted and as proposed to be conducted.

5.2. Authority. The execution, delivery and performance by each Loan Party of this Agreement, and the Other Documents to which it is a party, and, the borrowing and receipt of Advances in accordance with the terms hereof and thereof, are within its organizational powers and have been duly authorized by all necessary organizational action on the part of its board of directors, board of managers or similar governing body, if required, and its stockholders, members or partners, if required, as the case may be.

5.3. Binding Effect. Each of this Agreement and the Other Documents has been duly executed and delivered by each Loan Party which is a party thereto, and the Note has been validly issued to the Agent in accordance with the terms hereof and thereof. Each of this Agreement and the Other Documents is the legal, valid and binding obligations of each Loan Party which is a party thereto, enforceable against it in accordance with its respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws relative to or affecting the enforcement of Lenders’ rights generally in effect from time to time and by general principles of equity (regardless of whether considered in a proceeding at law or equity).

5.4. Equity Interests.

(a) As of the Closing Date, the authorized and issued amount of each class of Equity Interests of each Loan Party will be as set forth on Schedule 5.4. Except as set forth on Schedule 5.4, as of the Closing Date, all of the issued and outstanding Equity Interests of each Loan Party will be validly issued, fully paid and non assessable and not subject to any pre-emptive rights (other than pre-emptive rights pursuant to Applicable Law, as the case may be) and owned of record and beneficially by the Persons listed on Schedule 5.4 free and clear of all Liens other than Liens arising under this Agreement or the Other Documents. Except as set forth on Schedule 5.4, as of the Closing Date, none of the Loan Parties has outstanding any securities convertible into or exchangeable for its Equity Interests or outstanding any right to subscribe for or to purchase, or any options or warrants for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of or any calls, commitments or claims of any character relating to, its Equity Interests or any stock appreciation or similar rights.

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(b) As of the Closing Date, except as set forth on Schedule 5.4, none of the Loan Parties owns any Equity Interests of, or have any direct or indirect equity interest in, any other Person.

(c) Except as set forth on Schedule 5.4, on the Closing Date, none of the Loan Parties nor any of their Subsidiaries will be subject to any obligation (contingent or otherwise) to repurchase, acquire or retire (i) any of its Equity Interests, (ii) any securities convertible into or exchangeable for any of its Equity Interests, or (iii) any options, warrants or other rights to subscribe for, purchase or acquire any of its Equity Interests.

5.5. Business Operations and Other Information; Financial Condition.

(a) The pro forma balance sheet of Loan Parties on a consolidated basis (the “Pro Forma Balance Sheet”) furnished to Agent on the Closing Date reflects the consummation of the Transactions contemplated under this Agreement and is accurate, complete and correct and fairly reflects the financial condition of Loan Parties on a consolidated basis as of the Closing Date after giving effect to the Transactions, and has been prepared in accordance with GAAP, consistently applied. The Pro Forma Balance Sheet has been certified as accurate, complete and correct in all material respects by the President and Chief Financial Officer of Borrower Agent. All financial statements referred to in this subsection 5.5(a), including the related schedules and notes thereto, have been prepared in accordance with GAAP, except as may be disclosed in such financial statements.

(b) The twelve-month cash flow and balance sheet projections of Loan Parties on a consolidated basis (the “Projections”), receipt of which is acknowledged by Agent, were prepared by a Responsible Officer of Borrower Agent, are based on underlying assumptions which provide a reasonable basis for the projections contained therein and reflect Borrowers’ judgment based on present circumstances of the most likely set of conditions and course of action for the projected period. The cash flow Projections together with the Pro Forma Balance Sheet are referred to as the “Pro Forma Financial Statements.”

(c) Other than as disclosed in Schedule 5.5, during the period from December 31, 2022, to and including the date hereof, none of the Loan Parties has, in one or more transactions (whether or not related), disposed of any material part of their business or Property and since December 31, 2022, no event has had, or would reasonably be expected to have, a Material Adverse Effect, and no event which would have constituted a Default or Event of Default has occurred and is continuing.

5.6. Litigation; No Violation of Governmental Orders or Laws.

(a) Except as disclosed on Schedule 5.6(a), there are no actions, suits or proceedings pending, or, to the knowledge of the Loan Parties, threatened in writing against or affecting the Loan Parties or any of their respective Properties or rights (i) which seeks to enjoin or restrain any of the Transactions contemplated herein, (ii) that purport to affect or pertain to this Agreement or any Other Document or any of the transactions contemplated hereby or thereby, or (iii) which, if adversely determined, could reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.

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(b) None of Loan Parties is, nor will be as a result of the execution, delivery and performance of this Agreement and the Other Documents and the consummation of the Transactions, in default under or in violation of any statute or Order, which default or violation, individually or in the aggregate together with all other such defaults and violations, has had or reasonably would be expected to have a Material Adverse Effect.

5.7. No Conflicts with Agreements, Compliance, Etc. Neither the execution and delivery by any Loan Party of this Agreement or the Other Documents, nor the requesting and receipt of the Advances nor the fulfillment of or compliance by any Loan Party with the respective terms, conditions and provisions hereof or thereof, nor the consummation of the Transactions, will conflict with, or result in a breach or violation of the terms, conditions or provisions of, or constitute a default under, or result in the creation of any Lien (except pursuant to the Other Documents) on any Properties or assets of Loan Parties pursuant to, (i) its Organizational Documents, (ii) any contract, agreement, mortgage, indenture, lease or instrument to which any of them is a party or by which any of them is bound or to which any of them or any of their respective assets are subject, or (iii) any statute or Order to which any of them or any of their respective assets are subject.

5.8. Consents, Etc. No consent, approval or authorization of or declaration, registration or filing with any Governmental Body or any nongovernmental Person, including, without limitation, any consent, approval, authorization, declaration or filing or the expiration of any waiting period under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, is required in connection with the execution, delivery or performance by any Loan Party of this Agreement or any of the Other Documents, or the performance by any Loan Party of its obligations hereunder or thereunder, or as a condition to the legality, validity, enforceability or performance of this Agreement or any Other Documents, or the consummation of the Transactions, except for such consents, approvals, authorizations, declarations, registrations or filings as are listed on Schedule 5.8, all of which have been or will on or prior to the Closing Date (or in the case of (i) registrations and filings with the SEC or the securities regulators of any state of the United States, such later date as the same are required to be obtained and (ii) registrations before the RUG of the Mexican Security Documents, as may be applicable, which will be obtained or made as provided therein).

5.9. Outstanding Indebtedness; Existing Investments.

(a) Schedule 5.9(a) sets forth a correct and complete list of (i) all Material Indebtedness of Loan Parties on the Closing Date, (ii) the Affiliate Debt, and (iii) all intercompany Indebtedness among the Loan Parties, in each case showing the aggregate principal amount thereof (and the aggregate amount of any undrawn commitments with respect thereto), the name of the respective Loan Party and any other entity which directly or indirectly guarantees such debt and all Liens securing such Indebtedness. As of the Closing Date, after giving effect to the Transactions, there exists or will exist no breach or default under the terms and provisions of any instrument, agreement or contract pertaining to any such Indebtedness of Loan Parties or their respective Subsidiaries and no event or condition which, with due notice or lapse of time or both, would constitute such a breach or default.

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(b) Schedule 5.9(b) sets forth a correct and complete list of all Investments held by the Loan Parties and their respective Subsidiaries as of the Closing Date after giving effect to the Transactions.

5.10. Title to Properties; Equipment and Other Property.

(a) Schedule 5.10 sets forth as of the Closing Date a true and complete list of all Real Property owned, leased, operated or possessed by Loan Parties or any of their respective Subsidiaries (which list (i) specifies whether such Real Property is owned or leased, (ii) accurately identifies the relevant Loan Party or Subsidiary that is the owner or lessee thereof, and (iii) constitutes all of the Real Property used by Loan Parties or any of their respective Subsidiaries in the conduct of their business as of the Closing Date), together with a true and complete list of all Real Property Leases to which Loan Parties or any of their respective Subsidiaries is a party, identifying the parties to each such lease and the Real Property to which it relates. Except as could not reasonably be expected to have a Material Adverse Effect, each of the Loan Parties or any of their respective Subsidiaries has good title and a valid possessory interest in and to all of its Real Property and assets located thereon and good and valid leasehold title and a valid possessory interest in and to all Real Property and assets located thereon leased or licensed from others, free and clear of any Liens except Permitted Liens.

(b) All Real Property Leases set forth on (or required to be set forth on) Section 5.10 are legal, valid and binding obligations of the applicable Loan Party or Subsidiary thereto, enforceable against such Loan Party or Subsidiary in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or all other laws relative to or affecting the enforcement of creditor’s rights generally in effect from time to time and by general principles of equity (regardless of whether considered in a proceeding at law or in equity). To the knowledge of each Loan Party, each Real Property Lease set forth on (or required to be set forth on) Section 5.10 is the legal, valid and binding obligation of each other Person which is a party thereto. Each Real Property Lease set forth on (or required to be set forth on) Section 5.10 is validly subsisting and in full force and effect. No Loan Party nor any of their respective Subsidiaries is in material breach or violation of the terms of any such Real Property Lease, and no Loan Party knows of any material breach or violation of any of such Real Property Leases by any other party thereto.

(c) The material fixtures, material equipment and other material tangible personal Property of each Loan Party and each of its Subsidiaries are in good operating condition and repair, ordinary wear and tear excepted, and are free and clear of any known defects except such defects as do not materially interfere with the continued use thereof in the conduct of normal operations of the Loan Parties and their respective Subsidiaries; and such fixtures, equipment and other tangible personal Property of each Loan Party and each of its Subsidiaries is free and clear of any Liens except Permitted Liens.

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5.11. Taxes. Each Loan Party, each of its Subsidiaries and each Person which was responsible for filing returns on behalf of any consolidated group of which such Loan Party or Subsidiary is a member for federal income tax purposes immediately before giving effect to the Transactions (“Filing Person”), has filed all federal Tax Returns, all state, provincial, territorial, local and foreign income Tax Returns and all other material state, provincial, territorial, local and foreign Tax Returns required to have been filed by or on behalf of any such Persons, all such Tax Returns are true, correct and complete in all material respects and all material taxes (whether or not shown on any Tax Return) have been duly and timely paid or caused to be duly and timely paid except for Taxes the liability for which is being diligently contested in good faith and the Loan Party or Subsidiary, as applicable, has adequately reserved against such tax liability on its books and financial statements in accordance with GAAP. No tax liens have been filed against a Loan Party or any of its Subsidiaries, other than Permitted Liens, and no material claims are being asserted in writing with respect to any such Taxes as of the date hereof. All of the tax liabilities of each Loan Party and each of its Subsidiaries are adequately provided for on its books and financial statements in accordance with GAAP. No Loan Party nor any of their respective Subsidiaries is a party to any tax sharing or similar agreement or obligation.

5.12. Disclosure. All factual information (taken as a whole) furnished by or on behalf of a Loan Party or any of its Subsidiaries in writing to the Agent or any Lender (including, without limitation, all information contained in the Other Documents) for purposes of or in connection with this Agreement, the Other Documents or any transaction contemplated herein or therein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of a Loan Party or any of its Subsidiaries in writing to the Agent or any Lender will be, true and accurate in all material respects on the date as of which such information is dated or certified and does not fail to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. Except as set forth in the Financial Statements, there are no liabilities of the Loan Parties or any of their respective Subsidiaries of any kind, whether accrued, contingent, absolute, determined, determinable or otherwise, which would reasonably be expected to result in a Material Adverse Effect, and there is no existing condition, situation or set of circumstances which would reasonably be expected to result in such a liability.

5.13. [Reserved].

5.14. Labor Matters. Except as set forth on Schedule 5.14, during the five years prior to the Closing Date, there has been no material strikes, work stoppages, slowdowns or other labor disputes or grievances involving a Loan Party or any of its Subsidiaries or any of their respective employees, nor is any such action, dispute or grievance currently pending or, to the knowledge of any Loan Party, threatened against a Loan Party or any of its Subsidiaries. Except as set forth on Schedule 5.14, no Loan Party nor any of their respective Subsidiaries is a party (or negotiating) to any collective bargaining agreement and no Loan Party has any knowledge of any pending or threatened effort to organize any of their employees. There are currently no material pending retaliatory or wrongful discharge claims or federal, state, provincial, territorial or local employment discrimination charges or complaints or administrative or judicial complaints arising therefrom pending against a Loan Party or any of its Subsidiaries or any of their respective employees, nor to the knowledge of any Loan Party are any such charges or complaints threatened against a Loan Party or any of its Subsidiaries or any of their respective employees. Each Loan Party and each of its Subsidiaries is in material compliance with all applicable federal, state, provincial, territorial, local and foreign statutes and Orders relating to labor or employment, including, without limitation, any provisions thereof relating to wages, hours worked, workers compensation, bonuses, collective bargaining agreements, equal pay, occupational safety and health, equal employment opportunity, unemployment insurance, and wrongful or retaliatory termination of employment.

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5.15. Environmental Matters. Except as set forth on Schedule 5.15:

(a) each Loan Party and each of its Subsidiaries and their respective businesses, operations and Real Property are and in the last five years have been in material compliance with, and no Loan Party nor any of their respective Subsidiaries has received written notice of any material liability under, Environmental Law;

(b) each Loan Party and each of its Subsidiaries have obtained all material Environmental Permits required for the conduct of their businesses and operations as currently conducted, and the ownership, operation and use of their assets, under Environmental Law and all such Environmental Permits are valid and in full force and effect;

(c) there has been no Release or threatened Release of Hazardous Material on, at, under or from any Real Property presently or formerly owned, leased or operated by a Loan Party or any of its Subsidiaries or any predecessors in interest that is reasonably expected to result in a Material Adverse Effect;

(d) there is no Environmental Claim pending or, to the knowledge of the Loan Parties, threatened against a Loan Party or any of its Subsidiaries, which, if adversely determined, is reasonably expected to result in a Material Adverse Effect; and

(e) no Lien has been recorded or, to the knowledge of the Loan Parties, threatened under any Environmental Law with respect to any Real Property or assets of a Loan Party or any of its Subsidiaries.

5.16. Margin Regulations. No Loan Party owns or intends to acquire any “margin stock” as defined in Regulation U of the Board of Governors of the Federal Reserve System of the United States (12 CFR 207). No part of the proceeds from Advances will be used, directly or indirectly, for the purpose of buying 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 (12 CFR 207), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve any Loan Party in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). No Loan Party or any agent acting on its behalf has taken or will take any action which would reasonably be expected to cause this Agreement or the Other Documents to violate Regulation U, Regulation X, Regulation T or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act, in each case as in effect now. As used in this Section 5.16, the term “purpose of buying or carrying” has the meaning assigned thereto in the aforesaid Regulation U.

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5.17. Pension and Benefit Plans.

(a) Each Pension Plan has been established, maintained, operated, administered and funded in material compliance with, and otherwise complies in all material respects with, its terms and with ERISA and the Code (including without limitation the Code provisions compliance with which is necessary for any intended favorable tax treatment) and all other Applicable Laws and regulations, except where any failure to comply would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

(b) No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events, would reasonably be expected to result in a Material Adverse Effect.

(c) There are no actions, suits or claims pending against or involving a Pension Plan or Foreign Plan (other than routine claims for benefits) or, to the knowledge of any Loan Party, threatened, which would reasonably be expected to be asserted successfully against any Pension Plan and, if so asserted successfully, would reasonably be expected either singly or in the aggregate to result in a Material Adverse Effect.

(d) Except as would not reasonably be expected to have a Material Adverse Effect, (i) no Loan Party nor any of their respective Subsidiaries nor any of their respective ERISA Affiliates has ceased operations at a facility so as to become subject to the provisions of Section 4062(e) of ERISA, withdrawn as a substantial employer so as to become subject to the provisions of Section 4063 of ERISA or ceased making contributions to any Pension Plan subject to Section 4064(a) of ERISA to which it made contributions or (ii) no Loan Party nor any of their respective Subsidiaries nor any of their respective ERISA Affiliates has any liability under Section 4069 of ERISA.

(e) Except as would not reasonably be expected to have a Material Adverse Effect, with respect to any Foreign Plan, (i) all employer and employee contributions required by law or by the terms of the Foreign Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices, (ii) the Fair Market Value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance, or the book reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles, and (iii) it has been registered as required and has been maintained in good standing with applicable regulatory authorities.

Notwithstanding the foregoing, the representations and warranties in this Section 5.17 do not apply to, and are not made by, a Mexican Loan Party.

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5.18. Security Interest in Collateral.

(a) The provisions of this Agreement and the Other Documents create legal, valid and enforceable Liens on, and security interests in, all of the Loan Parties’ right, title and interest in and to all the Collateral in favor of the Agent, for the benefit of the Agent and the Lenders, and upon the making of the filings, recordings and other similar actions specified in the Other Documents, such Liens shall constitute perfected and continuing Liens on, and security interests in, the Collateral, securing the Obligations, enforceable against the applicable Loan Party, and having priority over all other Liens on the Collateral except for (i) Permitted Liens to the extent any such Liens would have priority over the Liens in favor of the Agent pursuant to any Applicable Law or agreement, and (ii) Liens perfected only by possession (including but not limited to possession of any certificate of title) to the extent the Agent has not obtained or does not maintain possession of such Collateral.

(b) Each Other Document delivered pursuant to Sections 6.7, 6.8 and 8.1, will, upon execution and delivery thereof, be effective to create in favor of the Agent, for the benefit of the Agent and the Lenders, legal, valid and enforceable Liens on, and security interests in, all of the Loan Parties’ right, title and interest in and to the Collateral thereunder, and (i) when all appropriate filings or recordings are made in the appropriate offices as may be required under Applicable Law and (ii) upon the taking of possession or control by the Agent of such Collateral with respect to which a security interest may be perfected only by possession or control (which possession or control shall be given to the Agent to the extent required by any Other Document), such Liens will constitute fully perfected Liens on, and security interests in, all right, title and interest of the Loan Parties in such Collateral, in each case subject to no Liens other than Permitted Liens.

5.19. Insurance. Schedule 5.19 sets forth a true and complete list and brief description of all policies of workers compensation, general liability, product liability, fire, property, casualty, marine, business interruption, errors and omissions, flood, earthquake and other insurance carried by the Loan Parties or any of their respective Subsidiaries on the Closing Date after giving effect to the Transactions, true and complete copies of which policies have been previously delivered or made available to the Lenders. The Loan Parties and their respective Subsidiaries maintain insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies engaged in the same or similar businesses, operating in the same or similar locations, including cyber insurance and public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any Properties owned, occupied or controlled by them. Such policies are in full force and effect on the Closing Date, and no Loan Party nor any of their respective Subsidiaries has received notice of cancellation with respect to any such policy. All premiums payable with respect to such policies have been paid through the Closing Date.

5.20. Possession of Franchises, Licenses, Etc. Each Loan Party and each of its Subsidiaries possess all franchises, certificates, licenses, permits, registrations, security clearances, designations, approvals and other authorizations from Governmental Bodies, free from burdensome restrictions, that are necessary for the ownership, maintenance and operation of its Properties and assets, and for the conduct of its business as now conducted and none of Loan Parties or any of their respective Subsidiaries is in material violation of any thereof.

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5.21. Intellectual Property.

(a) Each Loan Party and each of its Subsidiaries owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently conducted and presently contemplated to be conducted in the future. All Intellectual Property owned by a Loan Party is described on Schedule 5.21. No Loan Party nor any of their respective Subsidiaries uses any Intellectual Property owned by any of their respective Affiliates (other than a Loan Party) except pursuant to a written agreement as set forth on Schedule 5.21.

(b) The use by a Loan Party or any of its Subsidiaries of Intellectual Property, including the operation, marketing, licensing, sale or distribution of products and services, and the general conduct and operations of the business of the Loan Parties and their Subsidiaries, does not violate, infringe, misappropriate or misuse any Intellectual Property rights of any Person, including any right of privacy or publicity, and is not libelous, slanderous or defamatory.

(c) There are no interferences, cancellation proceedings, oppositions, or other contested proceedings pending or threatened in writing, in the United States Patent and Trademark Office, the United States Copyright Office, or any Governmental Body relating to any Intellectual Property owned by a Loan Party or any of its Subsidiaries. No Loan Party nor any of their respective Subsidiaries has received any written notice of any claim, or a written threat of any claim, or offer to license, from any third party, and no third party claims are pending, (i) challenging the right of a Loan Party or any of its Subsidiaries to use any Intellectual Property or indicating that the failure to take a license would result in such a claim, (ii) alleging any violation, infringement, misuse or misappropriation by a Loan Party or any Subsidiary of Intellectual Property owned by any third party, or (iii) asserting any opposition, interference, invalidity, termination, abandonment, unenforceability, cancellation or other infirmity of any Intellectual Property owned by a Loan Party or any Subsidiary. To the knowledge of the Loan Parties, there are no facts or circumstances that, either alone or taken together with other facts and circumstances, would reasonably be expected to provide valid basis for any such claims.

(d) Except as disclosed on Schedule 5.6(c), no Loan Party nor any their respective Subsidiaries have made or intend to make any claim of a violation, infringement, misuse or misappropriation by any third party (including any employee or former employee of a Loan Party or any of their respective Subsidiaries) of their rights to, or in connection with, any Intellectual Property which they own. To the knowledge of the Loan Parties, there are no facts or circumstances that, either alone or taken together with other facts and circumstances, would reasonably be expected to provide valid basis for any such claims and no Person is currently violating, infringing, misusing or misappropriating any Intellectual Property of a Loan Party or any of its Subsidiaries.

(e) No Loan Party nor any of their respective Subsidiaries nor, to the knowledge of the Loan Parties, any other Person is in material breach or has otherwise materially violated the provisions of any material License Agreement or other agreements concerning Intellectual Property to which a Loan Party or any of its Subsidiaries is a party or a beneficiary under.

(f) The consummation of the Transactions will not alter, encumber, impair or extinguish any Intellectual Property right of a Loan Party or any of its Subsidiaries or impair the right of a Loan Party or any of its Subsidiaries to develop, use, sell, license or dispose of, or to bring any action for the infringement or misappropriation of, any Intellectual Property right of any Loan Party or any of its Subsidiaries. Other than as set forth on Schedule 5.21(f), the consummation of the Transactions will not result in the termination of, or otherwise require the consent, approval or other authorization of any party to, any License Agreement or other agreement under which a Loan Party or any of its Subsidiaries has received or granted a license to use Intellectual Property.

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5.22. Use of Proceeds. The proceeds from the Advances on the Closing Date will be used by the Borrowers solely for the purposes set forth on Schedule 5.22.

5.23. Foreign Assets Control Regulations.

(a) No Loan Party nor any of their respective Subsidiaries nor, to the knowledge of the Loan Parties, any of their respective Affiliates is, or will be after consummation of the Transactions and application of the proceeds of the Advances, by reason of being a “national” of a “designated foreign country” or a “specially designated national” within the meaning of the Regulations of the Office of Foreign Assets Control, United States Treasury Department (31 C.F.R., Subtitle B, Chapter V), or for any other reason, in violation of, any United States Federal Statute or Presidential Executive Order concerning trade or other relations with any foreign country or any citizen or national thereof.

(b) No (i) Covered Entity, nor any employees, officers, directors, affiliates, consultants, brokers or agents acting on a Covered Entity’s behalf in connection with this Agreement: (A) is a Sanctioned Person; or (B) directly, or indirectly through any third party, is engaged in any transactions or other dealings with or for the benefit of any Sanctioned Person or Sanctioned Country, or any transactions or other dealings that otherwise are prohibited by any Anti-Terrorism Laws; and (ii) Collateral is embargoed Property.

5.24. Anti-Corruption Laws. Each Covered Entity has (a) conducted its business in compliance with all Anti-Corruption Laws and (b) has instituted and maintains policies and procedures designed to ensure compliance with such Laws.

5.25. Status under Certain Laws. No Loan Party nor any of their respective Subsidiaries is an “investment company” or a “person directly or indirectly controlled by or acting on behalf of an investment company” within the meaning of the Investment Company Act of 1940, as amended.

5.26. Ranking of Obligations. The Indebtedness represented by this Agreement and the Other Documents and the other Obligations under the applicable Other Documents of each Loan Party is intended to constitute senior secured Indebtedness, and accordingly is, and shall be, at all times while the Obligations remain outstanding, (i) senior in right of payment to, or pari passu with, all Indebtedness of such Loan Party, and (ii) senior in right of payment to all other Indebtedness of such Loan Party, which, under the terms of the documents pursuant to or in connection with which such Indebtedness was created or incurred, is subordinated in right of payment to some or all of the other Indebtedness of such Loan Party, as the case may be.

5.27. Solvency. Immediately after giving effect to the Transactions to occur on the Closing Date and immediately following the borrowing of the Advances and after giving effect to the application of the proceeds thereof, the Loan Parties, taken as a whole, are Solvent.

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5.28. RICO. No Loan Party nor any of their respective Subsidiaries is engaged in or has engaged in any course of conduct that would reasonably be expected to subject any of their respective Properties to any Lien, seizure or other forfeiture under any criminal law, racketeer influenced and corrupt organizations law, civil or criminal, or other similar laws.

5.29. No Burdensome Restrictions.

(a) No Loan Party nor any of its Subsidiaries is party to any contract or agreement the performance of which could reasonably be expected to have a Material Adverse Effect. No Loan Party nor any of its Subsidiaries has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien which is not a Permitted Lien.

(b) Except for such restrictions existing by reason of this Agreement and the Other Documents, there does not exist any encumbrance or restriction on the ability of any Subsidiary of a Loan Party to (i) pay Dividends or other distributions to such Loan Party or pay any Indebtedness owed to such Loan Party, (ii) transfer or assign any of its Properties or grant a Lien on any of its Properties, or (iii) make loans or advances to a Loan Party or any Subsidiary of a Loan Party.

5.30. Broker’s or Finder’s Commissions; Financial Advisory Fees. Except for the fees identified on Schedule 5.30, no broker’s or finder’s fee or commission or financial advisory, investment banking or similar fee or commission will be payable by a Loan Party or any of their respective Subsidiaries with respect to its receipt of the Advances or the consummation of any of the other Transactions. Each Loan Party agrees to indemnify the Lenders and hold each of them harmless against any loss, cost, claim or liability actually incurred by the Lenders (including, without limitation, reasonable attorneys’ fees and disbursements for the investigation and defense of claims) arising out of or relating to any such actual or alleged fee or commission.

5.31. Material Contracts and Other Agreements.

(a) Schedule 5.31(a) sets forth all Material Contracts of the Loan Parties and their respective Subsidiaries (including, without limitation, all Material Contracts arising from (i) customer agreements and (ii) distribution, marketing and supply agreements). All Material Contracts are in full force and effect and no material defaults currently exist thereunder.

(b) As of the Closing Date, except as set forth in Schedule 5.31(b), the Loan Parties and their respective Subsidiaries are not a party to, or bound by, any agreement that (x) requires the payment of $300,000 or more in any year, and (y) which falls into one of the following categories: (i) employment agreements covering any officers or employees of a Loan Party or its respective Subsidiaries (provided, that, collective bargaining agreements and labor agreements shall be set forth on Schedule 5.14), (ii) agreements for managerial, consulting or similar services, (iii) agreements with any of its equity holders, and (iv) License Agreements or other lease or license agreements to which any Loan Party or any of its Subsidiaries is a party, either as lessor or lessee, or as licensor or licensee (including, without limitation, leases for Real Property).

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(c) Other than the Organizational Documents of each Loan Party and each of its respective Subsidiaries, as of the Closing Date, except as set forth in Schedule 5.31(c), no Loan Party nor any of its Subsidiaries is a party to any partnership agreement, joint venture agreement, or limited liability company agreement for which the Loan Party is a member or manager.

VI. AFFIRMATIVE COVENANTS WITH RESPECT TO OBLIGATIONS.

Each Loan Party shall, until payment in full of the Obligations and termination of this Agreement:

6.1. Payment of Principal and Interest. The Loan Parties will duly and punctually pay the principal of and interest on the Obligations and will timely pay all other Obligations in accordance with the terms hereunder and the applicable Other Documents.

6.2. Payment of Obligations and Taxes. Each Loan Party shall, and shall cause each of its Subsidiaries to, pay and discharge promptly when due all material Taxes, assessments and other governmental charges or levies imposed upon it or upon its income or profits or in respect of its Property, before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise that, if unpaid, might give rise to a Lien other than a Permitted Lien upon such Properties or any part thereof; provided that such payment and discharge shall not be required with respect to any such Tax, assessment, charge, levy or claim that is being contested in good faith by appropriate proceedings and the applicable Loan Party or applicable Subsidiary shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP and such contest operates to suspend collection of the contested obligation, Tax, assessment or charge and enforcement of a Lien other than a Permitted Lien.

6.3. Maintenance of Existence; Compliance.

(a) Each Loan Party shall, and shall cause each of its Subsidiaries to, do or shall cause to be done all things (i) necessary to preserve, renew and keep in full force and effect its legal existence except as otherwise expressly permitted under Section 7.4(a) and (ii) necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, License Agreements and other licenses, permits, franchises, authorizations, and Intellectual Property material to the conduct of its business. Each Loan Party shall, and shall cause each of its Subsidiaries to, (A) maintain and operate such business in substantially the manner in which it is presently conducted, (B) comply in all material respects with all applicable Requirements of Law (including any and all zoning, building, Environmental Law, ordinance, code or approval or any building permits or any restrictions of record or agreements affecting the Real Property) and legally enforceable decrees and orders of any Governmental Body, whether now in effect or hereafter enacted, (C) pay and perform its obligations under all Other Documents, and (D) pay and perform its obligations under all agreements, contracts or instruments to which it is a party except, in the case of this clause (D), where the failure to pay or perform, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect; provided that nothing in this Section 6.3(a) shall prevent (x) sales of assets, consolidations, amalgamations or mergers by or involving any Loan Party or any of its Subsidiaries in accordance with this Agreement; or (y) the withdrawal by any Loan Party or any of its Subsidiaries of its qualification as a foreign corporation in any jurisdiction where such withdrawal, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; or (z) the abandonment by any Loan Party or any of its Subsidiaries of any rights (including Intellectual Property rights), franchises, licenses (including the License Agreements), or immaterial leases that such Person reasonably determines are no longer economically practicable to maintain or are not useful to its business.

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(b) Each Loan Party shall maintain its current corporate form and shall not convert to any other form of organization (or may make any tax election) without the prior written consent of the Agent.

(c) Without limiting clause (a) above, each Loan Party shall ensure, and cause each of its Subsidiaries to ensure, that no person who owns a controlling interest in or otherwise controls a Loan Party or any of its Subsidiaries is or shall be (i) listed on the Specially Designated Nationals and Blocked Person List maintained by the Office of Foreign Assets Control (“OFAC”), Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation or (ii) a person designated under Section 1(b), (c) or (d) or Executive Order No. 13224 (September 23, 2001), any related enabling legislation or any other similar Executive Orders. Without limiting clause (a) above, each Loan Party shall comply, and cause each of its Subsidiaries to comply, with all applicable Bank Secrecy Act and anti-money laundering laws and regulations.

6.4. Maintenance of Property; Insurance.

(a) Each Loan Party shall do or cause to be done, and shall cause each of its Subsidiaries to do or cause to be done, all things necessary to at all times maintain and preserve all Property material to the conduct of its business and keep all such Property in good repair, working order and condition (ordinary wear and tear excepted) and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times; provided that nothing in this Section 6.4(a) shall prevent (i) sales of assets, consolidations, amalgamations or mergers by or involving any Loan Party or any of their Subsidiaries in accordance with this Agreement; (ii) the withdrawal by any Loan Party or any of their respective Subsidiaries of its qualification as a foreign corporation in any jurisdiction where such withdrawal, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; or (iii) the abandonment by any Loan Party or any of their Subsidiaries of any rights (including Intellectual Property rights), franchises, licenses (including License Agreements), or immaterial leases that such Person reasonably determines are no longer economically practicable to maintain or are not useful to its business.

(b) Each Loan Party shall, and shall cause each of its Subsidiaries to, (i) keep its insurable Property adequately insured at all times by financially sound and reputable insurers, (ii) maintain such other insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses operating in the same or similar locations, including cyber insurance and public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any property owned, occupied or controlled by it, and (iii) maintain such other insurance as may be required by law, in each case of clauses (i) through (iii), such policies to be in such form and amounts and having such coverage as may be reasonably satisfactory to the Agent. Agent shall have received in form and substance satisfactory to Agent, (a) evidence that adequate insurance, including without limitation, casualty and liability insurance, required to be maintained under this Agreement is in full force and effect and (b) insurance certificates issued by Borrowers’ insurance broker containing such information regarding Borrowers’ casualty and liability insurance policies as Agent shall request and naming Agent as an additional insured, lender loss payee and/or mortgagee, as applicable.

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(c) Any credit insurance obtained or maintained by the Loan Parties shall be with insurance companies satisfactory to Agent, contain coverage in such amounts satisfactory to Agent, and otherwise be on terms and conditions as Agent may reasonably require. Payments on such credit insurance received by Agent with respect to an Eligible Receivable shall be applied to the Obligations in order and manner as determined by Agent. In the event that an Eligible Receivable would be subject to a claim under such credit insurance, Borrowers agree to fully cooperate with Agent in connection with each such claim (including, without limitation, providing to Agent and the insurance company documentation and supporting information with respect to the applicable Eligible Receivable). Borrowers agree and acknowledge that (w) Agent has the sole discretion in determining whether to file claims under such credit insurance, (x) Agent is entitled to file claims under such credit insurance without notice to or the consent of Borrowers, (y) Borrowers remain fully liable to Agent pursuant to the terms of this Agreement with respect to any Eligible Receivable notwithstanding the existence of such credit insurance or any claim filed with respect thereto, and (z) Agent shall have no liability to Borrowers under any circumstances in the event that an insurance company rejects any claim filed under such credit insurance. Without limiting the foregoing, with respect to filing claims with respect to credit insurance, Agent shall be entitled to (i) sell or assign Receivables of any Borrower upon such terms, for such amounts and at such times as Agent deems advisable, (ii) make and adjust any and all claims on behalf of any Borrower under the credit insurance policies, and (iii) sell, assign or otherwise convey all right, title and interest in and to any such Receivable to Agent or the insurance company as may be required by such insurance company in connection with the filing of a credit insurance claim therefor.

6.5. Books and Records. Each Loan Party shall, and shall cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law are made of all dealings and transactions in relation to its business and activities.

6.6. Environmental Laws.

(a) Promptly after any officer of any Loan Party or any of its Subsidiaries obtains actual knowledge of any of the following, the Loan Party or its Subsidiaries will furnish, or will cause to be furnished, to the Lender written notice of (i) any pending or threatened in writing material Environmental Claim against any Loan Party or any of its Subsidiaries or any Real Property owned, leased or operated by any Loan Party or any of its Subsidiaries; (ii) any condition or occurrence on any Real Property owned, leased or operated by any Loan Party or any of its Subsidiaries that (x) results in material noncompliance by any Loan Party or any of its Subsidiaries with any applicable Environmental Law and (y) is reasonably anticipated to form the basis of a material Environmental Claim against any Loan Party or any of its Subsidiaries or any such Real Property; or (iii) the requirement under Environmental Law to undertake any material remedial action in response to the actual or alleged presence of any Hazardous Material on any Real Property owned, leased or operated by a Loan Party or any of its Subsidiaries except as would not reasonably be expected to result in a Material Adverse Effect.

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(b) Each Loan Party shall, shall cause each of its Subsidiaries to, and shall use commercially reasonable efforts to cause all lessees and other Persons occupying Real Property owned, leased or operated by any Loan Party or any of its Subsidiaries to, (i) comply in all material respects with all Environmental Laws and Environmental Permits applicable to its operations and Real Property, (ii) obtain and renew all material Environmental Permits applicable to its operations and Real Property, and (iii) conduct any removal, remedial or corrective actions required under Environmental Laws; provided that no Loan Party shall be required to undertake any such removal, remedial or corrective actions to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances in accordance with GAAP.

6.7. Further Assurances. From time to time, each Loan Party shall execute and deliver, or cause to be executed and delivered, such additional instruments, certificates or documents, and take all such actions, as the Agent and Lenders may reasonably request for the purposes of implementing or effectuating the provisions of this Agreement and the Other Documents.

6.8. Future Guarantors; Additional Collateral; Further Assurances.

(a) Subject to Applicable Law, each Loan Party shall cause each of its Subsidiaries formed or acquired after the date of this Agreement (and in accordance with the terms of this Agreement), within ten (10) Business Days following such formation or Acquisition, to become a Guarantor hereunder by executing a joinder to this Agreement and each of the Other Documents (and, if such Subsidiary is a Foreign Subsidiary, a Foreign Guaranty and Foreign Security Agreement) in form and substance reasonably satisfactory to the Agent. Upon execution and delivery thereof, each such Person (i) shall automatically become a Guarantor hereunder and thereupon shall have all of the rights, benefits, duties, and obligations in such capacity under the Other Documents, and (ii) will grant first priority, perfected Liens to the Agent, for the benefit of the Agent and the Lenders, in the Collateral of such Loan Party pursuant to the Other Documents by executing a joinder thereto in accordance with the terms thereof.

(b) Each Loan Party will cause 100% of the issued and outstanding Equity Interests of the Borrowers and each other direct and indirect Subsidiary of a Borrower to be subject at all times to a first priority, perfected Lien in favor of the Agent pursuant to the terms and conditions of the Other Documents to the extent provided therein.

(c) Each Loan Party will, and will cause each Subsidiary to, execute and deliver, or cause to be executed and delivered, to Agent and the Lenders such documents, agreements, legal opinions and instruments, and will take or cause to be taken such further actions (including the filing and recording of financing statements, and other documents and such other actions or deliveries of the type required by Article VIII), which may be required by Applicable Law or which the Agent or the Lenders may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the Other Documents and to ensure perfection and priority of the Liens created or intended to be created by the Other Documents, all at the expense of the Borrowers. Notwithstanding anything to the contrary herein, the Agent may, in its reasonable discretion, determine that the provisions of this Section 6.8 shall not be applicable to the extent that with respect to any particular asset, the costs of obtaining a security interest therein is excessive in relation to the value afforded thereby.

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(d) Notwithstanding anything to the contrary set forth herein, no assets of any Person joined hereto as a Borrower shall be included in the Revolver Formula Amount until Agent has conducted a receivables audit or appraisal, as applicable, of such assets and the results of such receivables audit or appraisal are satisfactory to Agent.

6.9. Government Receivables. Take all steps necessary to protect Agent’s interest in the Collateral under the Federal Assignment of Claims Act, the Uniform Commercial Code and all other applicable state or local statutes or ordinances and deliver to Agent appropriately endorsed, any instrument or chattel paper connected with any Receivable arising out of any contract between any Loan Party and the United States, any state or any department, agency or instrumentality of any of them.

6.10. Sanctions and other Anti-Terrorism Laws; Anti-Corruption; Additional Information.

(a) The Loan Parties covenant and agree that: (A) they shall immediately notify the Agent and each of the Lender in writing upon the occurrence of a Reportable Compliance Event; and (B) if, at any time, any Collateral becomes embargoed Property, then, in addition to all other rights and remedies available to the Agent and each of the Lenders, upon request by the Agent or any of the Lenders, the Loan Parties shall provide substitute Collateral acceptable to the Agent that is not embargoed Property

(b) Each Covered Entity shall conduct their business in compliance with all Anti-Corruption Laws and maintain policies and procedures designed to ensure compliance with such Laws.

(c) The Loan Parties agree to provide to Agent and the Lenders information and documentation as may reasonably be requested by Agent or any Lender from time to time for purposes of compliance by Agent or such Lender with Applicable Laws (including without limitation the USA PATRIOT Act and other “know your customer” and anti-money laundering rules and regulations), and any policy or procedure implemented by Agent or such Lender to comply therewith.

6.11. Post-Closing Letter. The Loan Parties shall fulfill all obligations set forth in the Post-Closing Letter by the time periods set forth therein.

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VII. NEGATIVE AND MAINTENANCE COVENANTS WITH RESPECT TO OBLIGATIONS.

No Loan Party shall, until satisfaction in full of the Obligations and termination of this Agreement and shall not permit any of their respective Subsidiaries to, directly or indirectly:

7.1. Financial Covenants.

(a) Fixed Charge Coverage Ratio. At all times, permit the Fixed Charge Coverage Ratio for any Test Period to be less than 1.10 to 1.00, which shall be measured as of the last day of each month on a trailing twelve (12) month basis. Compliance with the foregoing shall be demonstrated in the monthly Compliance Certificate delivered to Agent and shall be supported by calculation details satisfactory to Agent.

7.2. Indebtedness. Incur, create, assume or permit to exist, directly or indirectly, any Indebtedness, except:

(a) The Obligations;

(b) any guaranty of Indebtedness of a type described in this Section 7.2; provided, that, in no event shall a Domestic Loan Party guaranty the Indebtedness of a Foreign Loan Party without Agent’s prior consent;

(c) Indebtedness outstanding on the Closing Date and listed on Schedule 7.2 (provided, that, the amount of any such Indebtedness shall not be permitted to be increased on or following the Closing Date other than as a result of any interest thereon accruing in kind);

(d) Accounts payable and accrued liabilities of the Loan Parties incurred in the Ordinary Course of Business, including, without limitation, operating leases;

(e) intercompany Indebtedness among the Loan Parties to the extent permitted by Section 7.6(d);

(f) Indebtedness in respect of (i) workers’ compensation claims or obligations in respect of health, disability or other employee benefits, (ii) property, casualty or liability insurance or self-insurance obligations, (iii) completion, bid, performance bonds, surety appeal or similar bonds and completion guarantees provided by a Loan Party, (iv) taxes, assessments or other government charges not yet delinquent or which are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (v) bankers’ acceptances and other similar obligations not constituting Indebtedness for borrowed money, or (vi) customary cash management services or in connection with any automated clearinghouse transfer of funds, in each of the foregoing cases to the extent incurred in the Ordinary Course of Business;

(g) Indebtedness of the Loan Parties in respect of Purchase Money Obligations and Capital Lease Obligations in an aggregate principal amount not to exceed $500,000 at any one time outstanding;

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(h) Intentionally Omitted;

(i) Subordinated Debt to the extent expressly consented to in writing by Agent and the Required Lenders;

(j) Indebtedness consisting of letters of credit in an aggregate principal amount outstanding at any time not in excess of $100,000, which Indebtedness may be secured by cash collateral of the Loan Parties delivered to the issuer of such letters of credit (and by no other assets of a Loan Party); and

(k) other unsecured Indebtedness of the Borrowers in an aggregate principal amount outstanding at any time not in excess of $100,000; provided, that, in no event shall any Indebtedness of the Loan Parties to any vendor or accounts payable (due to vendors) financing exist at any time.

7.3. Liens. Create, incur, assume or permit to exist, directly or indirectly, any Lien on any Property now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, except (the “Permitted Liens”):

(a) Liens arising under this Agreement and the Other Documents;

(b) [Reserved];

(c) inchoate Liens for Taxes, assessments or other governmental charges or levies not yet due and payable or delinquent and Liens for Taxes, assessments or governmental charges or levies, which are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, which proceedings (or orders entered in connection with such proceedings) have the effect of preventing the forfeiture or sale of the Property or assets subject to any such Lien;

(d) Liens in respect of Property of any Loan Party imposed by law, which were incurred in the Ordinary Course of Business and do not secure Indebtedness for borrowed money, such as carriers’, warehousemen’s, materialmen’s, landlords’, workmen’s, suppliers’, repairmen’s and mechanics’ Liens and other similar Liens arising in the Ordinary Course of Business, provided that should any of the foregoing Liens not otherwise constitute inchoate Liens incurred in the Ordinary Course of Business, such Liens shall be permitted only to the extent that such Liens (i) secure obligations which are not yet due or delinquent, (ii) do not in the aggregate materially detract from the value of the Property of the Loan Parties and its Subsidiaries, taken as a whole, and do not materially impair the use thereof in the operation of the business of the Loan Parties and their Subsidiaries, taken as a whole, and (iii) if applicable, are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, which proceedings (or orders entered in connection with such proceedings) have the effect of preventing the forfeiture or sale of the Property or assets subject to any such Lien;

(e) Liens in existence on the Closing Date and set forth on Schedule 7.3; provided that (x) the aggregate principal amount of the Indebtedness or other obligations, if any, secured by such Liens shall not increase other than as a result of any interest thereon accruing in kind; and (y) such Liens do not encumber any Property other than the Property subject thereto on the Closing Date;

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(f) easements, rights-of-way, restrictions (including zoning restrictions), covenants, encroachments, protrusions and other similar charges or encumbrances, and minor title deficiencies on or with respect to any Real Property, in each case whether now or hereafter in existence, not (i) securing Indebtedness, (ii) individually or in the aggregate materially impairing the value or marketability of such Real Property and (iii) individually or in the aggregate materially interfering with the conduct of the business of the Loan Parties and their Subsidiaries at such Real Property;

(g) Liens arising out of judgments or awards not resulting in an Event of Default, or in respect of which such Loan Party shall in good faith be prosecuting an appeal or proceedings for review in respect of which there shall be secured a subsisting stay of execution pending such appeal or proceedings, or other surety bond related to any such judgment;

(h) Liens (other than any Lien imposed by ERISA) (i) imposed by law or deposits made in connection therewith in the Ordinary Course of Business in connection with workers’ compensation, unemployment insurance and other types of social security, (ii) incurred in the Ordinary Course of Business to secure the performance of tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, leases, government contracts, trade contracts, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) or (iii) arising by virtue of deposits made in the Ordinary Course of Business to secure liability for premiums to insurance carriers; provided that (x) with respect to clauses (i), (ii) and (iii) hereof, such Liens are for amounts not yet due and payable or delinquent or, to the extent such amounts are so due and payable, such amounts are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, which proceedings for orders entered in connection with such proceedings have the effect of preventing the forfeiture or sale of the Property or assets subject to any such Lien, (y) to the extent such Liens are not imposed by law, such Liens shall not encumber any Property other than cash and Cash Equivalents, and (z) the aggregate principal amount of all performance or similar bonds outstanding at any time pursuant to clause (ii) shall not exceed $100,000 in the aggregate;

(i) Intentionally Omitted;

(j) Liens on assets of the Loan Parties or their Subsidiaries arising pursuant to Purchase Money Obligations or Capital Lease Obligations permitted under Section 7.2(g); provided that (i) the Indebtedness secured by any such Lien (including refinancings thereof) does not exceed 100% of the cost of the Property being acquired or leased at the time of the incurrence of such Indebtedness, (ii) any such Liens attach only to the Property being financed pursuant to such Purchase Money Obligations or Capital Lease Obligations and do not encumber any other Property of any Loan Party or any of their Subsidiaries, and (iii) such Liens secure amounts not greater than the amount of Indebtedness permitted under Section 7.2(g);

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(k) bankers’ Liens, rights of setoff and other similar Liens existing solely with respect to cash and Cash Equivalents on deposit in one or more accounts maintained by any Loan Party or any of their Subsidiaries, in each case granted in the ordinary course of business in favor of the bank or banks with which such accounts are maintained, securing amounts owing to such bank with respect to cash management and operating account arrangements, including those involving pooled accounts and netting arrangements; provided that in no case shall any such Liens secure (either directly or indirectly) the repayment of any Indebtedness;

(l) the filing of financing statements solely as a precautionary measure in connection with operating leases or consignment of goods;

(m) Liens against cash collateral of the Loan Parties securing Indebtedness arising under letters of credit to the extent permitted pursuant to Section 7.2(j), provided, such Lien shall only attach to the cash collateral posted in respect of such letters of credit; and

(n) other Liens incurred (other than on Receivables or Inventory) in the Ordinary Course of Business by the Loan Parties with respect to obligations (other than Indebtedness) that do not in the aggregate exceed $100,000 at any time outstanding.

7.4. Mergers; Consolidations; Asset Sales.

(a) Wind up, liquidate or dissolve its affairs, be a party to any merger, amalgamation or consolidation, or sell or otherwise transfer all or substantially all of its Property or assets in any single or series of transactions (or agree to do any of the foregoing at any future time), except for, (i) a merger, amalgamation or consolidation of (w) any Subsidiary of a Borrower into a Borrower; provided that such Borrower is the surviving entity, and (x) any Guarantor (other than Parent) and a Borrower so long as the Borrower is the surviving entity, and (ii) any winding up, liquidation or dissolution of a Subsidiary of a Borrower so long as, all assets and Property of such Subsidiary are distributed to such Borrower; provided, that, Borrower Agent shall provide Agent with not less than thirty (30) days’ prior written notice of any events contemplated under (i) and (ii);

(b) Sell, transfer, dispose of, convey or lease any of its Property, assets or equity interests, or sell or assign with or without recourse any Receivables, except for (i) sales of Inventory in the Ordinary Course of Business and not pursuant to any bulk sales; (ii) sales, transfers and dispositions of Property (excluding any Receivables, Inventory, Intellectual Property, or Equity Interests of a Loan Party) in the Ordinary Course of Business to third parties (A) for a purchase price of at least Fair Market Value so long as (x) at least 75% of such purchase price is paid in cash, and (y) the Fair Market Value of all assets sold or otherwise disposed of in any Fiscal Year of the Borrowers does not exceed $250,000 or (B) that have become damaged, obsolete or no longer useful in the Loan Parties’ business; (iii) the use of cash or Cash Equivalents in a manner not prohibited by this Agreement and Other Documents; (iv) the making of Investments permitted pursuant to Section 7.6; (v) the collection or compromise of past due Receivables or the settlement of delinquent Receivables or in connection with the bankruptcy or reorganization of Customers, not to exceed $100,000 in aggregate per calendar year; (vi) non-exclusive licenses, sublicenees, operating leases or subleases granted by a Loan Party to any third party so long as such arrangement is on an arm’s length basis and in the Ordinary Course of Business; (vii) dispositions resulting directly from any Event of Loss; (viii) the lapse or abandonment of Intellectual Property that is, in the reasonable good faith judgment of a Loan Party, no longer economically practicable or commercially desirable to maintain or useful in the conduct of the business of the Loan Parties or any of their Subsidiaries, and (ix) a merger, amalgamation or consolidation permitted by Section 7.4(a). Without limiting the foregoing and for the avoidance doubt, the Loan Parties are not permitted to (X) sell, transfer, dispose of, convey or lease any Inventory except pursuant to 7.4(b)(i), (Y) sell or assign with or without recourse any Receivables except pursuant to 7.4(b)(x), or (Z) compromise any Receivable except pursuant to 7.4(b)(v), in each case, without Agent’s prior written consent.

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(c) In the event any Loan Party or any of their respective Subsidiaries shall receive Net Proceeds from any Event of Loss of any Collateral, the Loan Parties shall apply an amount equal to 100% of such Net Proceeds to prepay the Obligations; provided, that, (i) the Loan Parties shall only be required to apply Net Proceeds from Events of Loss towards repayment of the Obligations to the extent Net Proceeds for all Events of Loss during a given Fiscal Year exceed $100,000, and (ii) repayments made by Borrowers pursuant to this Section 7.4(c) shall not trigger a corresponding reduction in the Revolving Commitment Amount.

7.5. Dividends. Declare, pay or make any Dividend or distribution on any Equity Interests of any Loan Party (other than Dividends or distributions payable in its stock, or split-ups or reclassifications of its stock so long as no Change of Control results therefrom) or apply any of its funds, Property or assets to the purchase, redemption or other retirement of any Equity Interest, or of any options to purchase or acquire any Equity Interest of any Loan Party, except, that:

(a) Borrowers may declare and pay to Parent, and Parent may declare and pay to its shareholders, Dividends, so long as (i) the Payment Conditions are satisfied, and (ii) such Dividends do not exceed $500,000 in the aggregate during any trailing twelve (12) month period;

(b) a Loan Party may declare and pay Dividends or make distributions to Zircon; and

7.6. Investments, Loans and Advances. Make any Investments other than the following:

(a) the Loan Parties may consummate the Transactions in accordance with the provisions of this Agreement and the Other Documents;

(b) Investments outstanding on the Closing Date and identified on Schedule 7.6 (provided, that, the amount of any such Investments shall not be permitted to be increased on or following the Closing Date other than as a result of any interest thereon accruing in kind);

(c) the Borrowers and the other Loan Parties may (i) acquire and hold accounts receivables owing to any of them if created or acquired in the Ordinary Course of Business and payable or dischargeable in accordance with customary terms, (ii) acquire and hold cash and Cash Equivalents with financial institutions in the United States that have delivered springing Control Agreements satisfactory to Agent (including, without limitation, for the purpose of investing raised capital in Cash Equivalents in connection with an anticipated Permitted Acquisition), (iii) endorse negotiable instruments for collection in the Ordinary Course of Business (to the extent permitted under this Agreement), or (iv) make lease, utility and other similar deposits in the Ordinary Course of Business;

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(d) the Borrowers may make intercompany loans to one another, in the Ordinary Course of Business and consistent with past practices. Any such intercompany loans shall include terms that subordinate payment of the indebtedness to the prior payment in full of all Obligations and, if requested by Agent, be evidenced by a promissory note on terms and conditions acceptable to Agent in its sole discretion, and which has been delivered to Agent either endorsed in blank or together with an undated instrument of transfer executed in blank by the applicable Borrower that is the obligee on such note.

(e) the Loan Parties may make loans and advances (including payroll, travel and entertainment related advances) in the Ordinary Course of Business to their respective employees so long as the aggregate principal amount thereof at any time outstanding (determined without regard to any write-downs or write-offs of such loans and advances) shall not exceed $100,000;

(f) Investments by the Loan Parties in securities of trade creditors or customers in the Ordinary Course of Business and consistent with such Loan Party’s past practices that are received in settlement of bona fide disputes or pursuant to any plan of reorganization or liquidation or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers;

(g) The Borrowers may establish Subsidiaries subject to compliance with Sections 6.7, 6.8 and 7.17; and

(h) so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom, (A) Permitted Acquisitions and (B) any other Investments (but excluded Acquisitions) made with cash or Cash Equivalents by the Borrowers not to exceed $250,000 in the aggregate after the Closing Date.

7.7. Limitation on Modifications of Indebtedness; Modifications of Organizational Documents, etc. Unless otherwise consented to by Agent in its good faith discretion, the Loan Party’s shall not:

(a) amend or modify, or permit the amendment or modification of, any provision of Material Indebtedness or Subordinated Debt or of any agreement (including any purchase agreement, indenture, loan agreement or security agreement) relating thereto;

(b) amend, modify or change its Organizational Documents; and

(c) amend or modify, or permit the amendment or modification of, any provision of any documents evidencing, governing or otherwise related to Subordinated Debt except to the extent expressly permitted pursuant to the applicable Subordination Agreement.

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7.8. Transactions with Affiliates. Directly or indirectly, purchase, acquire or lease any property from, or sell, transfer or lease any property to, or otherwise enter into any transaction or deal with, any Affiliate, except for (i) transactions among Loan Parties permitted by Section 7.4(b), (ii) transactions between Zircon and Zircon MX concerning the production and distribution of Zircon’s Inventory, so long as (A) such transaction is in the Ordinary Course of Business, consistent with past practice, on an arm’s-length basis, and on terms and conditions satisfactory to Agent and no less favorable to Zircon than terms and conditions which would have been obtainable from a Person other than Zircon MX or any other Affiliate, (B) Zircon shall not transfer any Property (including, without limitation, accounts, inventory or Intellectual Property) as part of such transaction other than the payment of cash or the making of cash Investments, and (C) the amount of cash paid to, and retained by, Zircon MX shall not exceed an amount necessary for Zircon MX to satisfy its working capital needs in the Ordinary Course of Business and consistent with past practices, and (iii) any other transactions with Affiliates disclosed to Agent on Schedule 7.8, which are in the Ordinary Course of Business, on an arm’s-length basis, and on terms and conditions satisfactory to Agent and no less favorable than terms and conditions which would have been obtainable from a Person other than an Affiliate, so long as such transaction does not (A) exceed $100,000 per Fiscal Year, and (B) involve the transfer of any Property of Zircon (including, without limitation, accounts, inventory and Intellectual Property) other than cash payments and/or Investments made in cash.

7.9. Sale and Leasebacks. Except as listed on Schedule 7.9 as of the Closing Date, enter, into any arrangement, directly or indirectly, with any Person whereby it shall sell or transfer any Property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such Property or other Property which it intends to use for substantially the same purpose or purposes as the Property being sold or transferred without the written consent of Agent.

7.10. Fiscal Year. Change its fiscal year-end to a date other than the last day of March.

7.11. Negative Pledge Clauses. Enter into or suffer to exist or become effective any agreement that prohibits or limits the ability of any Loan Party to create, incur, assume or suffer to exist any Lien upon any of its Property or revenues, whether now owned or hereafter acquired, other than (a) this Agreement and the Other Documents, and (b) any agreements governing any Purchase Money Obligations or Capital Lease Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby).

7.12. Limitation on Certain Restrictions on Subsidiaries. Except for such restrictions existing by reason of this Agreement and the Other Documents, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary of any Loan Party to (a) pay Dividends or other distributions to such Loan Party or pay any Indebtedness owed to such Loan Party, (b) transfer or assign any of its Properties or grant a Lien on any of its Properties, or (c) make loans or advances to a Loan Party or any Subsidiary of a Loan Party.

7.13. Payments in Respect of Certain Indebtedness. Make any payments (whether voluntary or mandatory, or a prepayment, redemption, retirement, defeasance, purchase or acquisition, and whether of interest, principal or any other amounts) with respect to any Indebtedness (other than to Agent), except that the Loan Parties may make payments in respect of (i) Subordinated Debt so long as such payments are expressly permitted pursuant to the terms of the applicable Subordination Agreement and (ii) the Debt Settlement Agreements in accordance with the Post-Closing Letter.

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7.14. Business. Engage in any line of business other than the same type conducted by the Loan Parties as of the Closing Date and described on Schedule 7.14.

7.15. Limitation on Accounting Changes. Make or permit, any change in accounting policies or reporting practices, without the consent of the Agent.

7.16. Limitation on Issuance of Equity Interests. With respect to the Loan Parties, issue any Equity Interests that (a) would cause a Change of Control or (b) that constitutes Disqualified Equity Interests. For the avoidance of doubt, the Loan Parties may raise capital by issuing Equity Interests so long as such issuance does not cause a Change of Control or constitute the issuance of Disqualified Equity Interests.

7.17. Limitation on Subsidiaries. The Loan Parties shall not:

(a) have any Subsidiaries as of the Closing Date unless such Subsidiary has become a Loan Party under this Agreement or the Other Documents;

(b) create or acquire any additional Subsidiaries after the Closing Date without the prior written consent of the Agent, which consent will not be unreasonably withheld or delayed; provided, that, clause (b) shall not apply to a Subsidiary of a Borrower established or created after the Closing Date, in each case, so long as such Subsidiary immediately becomes a Loan Party and grants Agent a first priority, perfected Lien on all of such Loan Party’s Property pursuant to this Agreement or Other Documents);

(c) directly or indirectly, permit create or otherwise cause or suffer to exist or become effective any Lien on the Property of a Subsidiary (other than Permitted Liens); and

(d) unless otherwise consented to by Agent, designate or permit any of their Subsidiaries to (a) treat their limited liability company membership interests or partnership interests, as the case may be, as securities as contemplated by the definition of “security” in Section 8-102(15) and by Section 8-103 of Article 8 of the Uniform Commercial Code or (b) certificate their limited liability membership interests or partnership interests, as applicable.

7.18. Inconsistent Agreements. Enter into any agreement, contract or instrument containing any provision which would be violated or breached by the receipt of the Advances, the granting of Liens hereunder, or by the performance by the Borrowers or any other Loan Party of any of its Obligations hereunder or under any Other Document.

7.19. Limitation on Collateral Location. Store Collateral in excess of $100,000 in the aggregate at any location not owned by Loan Party unless the owner or occupier of such location has executed in favor of Agent a Lien Waiver Agreement.

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7.20. Sanctions and other Anti-Terrorism Laws; and Anti-Corruption Laws.

(a) Each Loan Party hereby covenants and agrees that until the last day of the Term, the Loan Parties and their Subsidiaries will not: (a) become a Sanctioned Person or allow any employees, officers, directors, affiliates, consultants, brokers, or agents acting on its behalf in connection with this Agreement to become a Sanctioned Person; (b) directly, or indirectly through a third party, engage in any transactions or other dealings with or for the benefit of any Sanction Person or Sanctioned Country, including any use of the proceeds of the Advances to fund any operations in, finance any investments or activities in, or, make any payments to, a Sanctions Person or Sanctioned Country; (c) repay the Advances with embargoed Property or funds derived from any unlawful activity; (d) permit any Collateral to become embargoed Property; or (e) cause any Lender or Agent to violate any Anti-Terrorism Law.

(b) Each Loan Party hereby covenants and agrees that until the last day of the Term, the Loan Party will not, and will not permit any of its Subsidiaries to, directly or indirectly, use the Advances or any proceeds thereof for any purpose which would breach any Anti-Corruption Laws in any jurisdiction in which any Covered Entity conducts business.

7.21. Intentionally Omitted.

7.22. Payments to Permitted Holders. Make any payment to the Permitted Holders except for (a) the payment of Dividends and Permitted Tax Distributions in accordance with Section 7.5 and (b) the payment of reasonable salary and compensation in the Ordinary Course of Business and consistent with past practices pursuant to a Permitted Holder’s employment contract as in effect on the Closing Date (or as amended with Agent’s prior consent).

VIII. CONDITIONS PRECEDENT.

8.1. Conditions to Initial Advances. The agreement of Lenders to make the initial Advances requested to be made on the Closing Date is subject to the satisfaction, or waiver by Agent, immediately prior to or concurrently with the making of such Advances, of the following conditions precedent:

(a) Notes. Agent shall have received the Notes duly executed and delivered by a Responsible Officer of each Borrower;

(b) Other Documents. Agent shall have received each of the executed Other Documents, as applicable, including, without limitation, (i) the Validity Guaranty Agreement, (ii) the Pledge Agreements, and (iii) Lien Waiver Agreements for locations required under Section 7.19 and for any locations containing books and records;

(c) Capital Structure and Projections. Agent shall be satisfied with the management and capital structure of Borrowers and shall have received its financial statements and management projections, in form and substance satisfactory to Agent;

(d) Outstanding Indebtedness. On the Closing Date and after giving effect to the consummation of the Transactions, the Loan Parties shall not have any outstanding Indebtedness other than Indebtedness permitted under Section 7.2;

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(e) Closing and Solvency Certificate. Agent shall have received a certificate signed by a Responsible Officer of Borrowers dated as of the Closing Date, stating that (i) all representations and warranties set forth in this Agreement and the Other Documents are true and correct on and as of such date, (ii) on such date no Default or Event of Default has occurred or is continuing or would result from the consummation of the Transactions; and (iii) after giving effect to the Transactions contemplated hereunder, Borrowers and the other Loan Parties, on a consolidated basis, are Solvent;

(f) Borrowing Base Certificate. Agent shall have received evidence from Borrowers a duly executed and delivered Borrowing Base Certificate, in form and substance reasonably satisfactory to Agent;

(g) Liquidity. After giving effect to the initial Advances and the payment of all fees and expenses owing in connection with the Transactions hereunder, Borrowers shall have Liquidity of at least $1,000,000;

(h) AR Audit and Inventory Appraisal. Agent shall have received an audit of Receivables and an inventory appraisal, in each case, conducted by third parties and with results acceptable to Agent;

(i) Control Agreements and Blocked Accounts. Loan Parties shall have established Blocked Accounts and Agent shall have received duly executed Control Agreements for such Blocked Accounts with financial institutions acceptable to Agent. Agent shall have received springing Control Agreements reasonably satisfactory to Agent in respect of all of the Loan Parties’ deposit accounts that are not Blocked Accounts (i.e., operating and disbursement accounts), as well as Control Agreements in respect of any investment and/or securities accounts;

(j) No Litigation. (i) No litigation, investigation or proceeding before or by any arbitrator or Governmental Body shall be continuing or threatened against any Borrower or against the officers or directors of any Borrower (A) in connection with this Agreement, the Other Documents or any of the transactions contemplated thereby and which, in the reasonable opinion of Agent, is deemed material or (B) which could, in the reasonable opinion of Agent, have a Material Adverse Effect; and (ii) no injunction, writ, restraining order or other order of any nature materially adverse to any Borrower or the conduct of its business or inconsistent with the due consummation of the Transactions shall have been issued by any Governmental Body

(k) Filings, Registrations and Recordings. Each document (including any Uniform Commercial Code financing statement) required by this Agreement or Other Document, or any related agreement or under Applicable Law or reasonably requested by Agent to be filed, registered or recorded in order to create, in favor of Agent, a first priority perfected security interest in or Lien upon the Collateral shall have been properly filed, registered or recorded in each jurisdiction in which the filing, registration or recordation thereof is so required or requested.

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(l) Authorizing Documents of Loan Parties. Agent shall have received a certificate of the secretary (or other equivalent officer, partner or manager) of each Loan Party in form and substance satisfactory to Agent dated as of the Closing Date which shall certify (i) copies of resolutions in form and substance reasonably satisfactory to Agent, of the members (or other equivalent governing body, director or partner) of such Loan Party authorizing (x) the execution, delivery and performance of this Agreement or each Other Document to which such Loan Party is a party (including authorization of the incurrence of Indebtedness hereunder on a joint and several basis), and (y) the granting by such Loan Party of the security interests in and Liens upon the Collateral to secure all of the joint and several Obligations of Loan Parities (and such certificate shall state that such resolutions have not been amended, modified, revoked or rescinded as of the date of such certificate), (ii) the incumbency and signature of the officers of such Loan Party authorized to execute this Agreement and the Other Documents, (iii) copies of the Organizational Documents of such Loan Party as in effect on such date, complete with all amendments thereto, and (iv) the good standing certificate, certificate of status, certificate of compliance or other analogous certificate (to the extent such concept is applicable in the applicable jurisdiction) of such Loan Party in its jurisdiction of organization and each applicable jurisdiction where the conduct of such Loan Party’s business activities or the ownership of its properties necessitates qualification, as evidenced by such certificate(s) (to the extent such concept is applicable in the applicable jurisdiction) and which is dated not more than 30 days prior to the Closing Date and issued by the appropriate official of each such jurisdiction;

(m) Intentionally Omitted.

(n) Fees. Agent shall have received all fees payable to Agent and Lenders on or prior to the Closing Date hereunder, including pursuant to the Fee Letter;

(o) Consents. Agent shall have received any and all consents, approvals or authorizations of or declarations, registrations or filings with any Governmental Body or any nongovernmental Person necessary to permit the effectuation of the Transactions; and, Agent shall have received such consents, approvals or authorizations of or declarations, registrations or filings with any Governmental Body or any nongovernmental Person and waivers from third parties as might assert claims with respect to the Collateral, as Agent, deems necessary. Agent shall have received satisfactory confirmation from all account debtors with respect to the collateral assignment of Receivables.

(p) Insurance. Agent shall have received in form and substance satisfactory to Agent, (i) evidence that adequate insurance, including without limitation, casualty and liability insurance, required to be maintained under this Agreement is in full force and effect and (ii) insurance certificates issued by Loan Parties’ insurance broker containing such information regarding Loan Parties’ casualty and liability insurance policies as Agent shall request and naming Agent as an additional insured, lender loss payee and/or mortgagee, as applicable;

(q) Credit Insurance for Receivables. Agent shall have received and reviewed Borrowers’ credit insurance policies, which shall be on terms and conditions satisfactory to Agent, and Agent shall have received satisfactory lender loss payee endorsements in respect of such policies, in each case, in form and substance satisfactory to Agent.

(r) Payment Instructions. Agent shall have received written instructions from Borrower Agent directing the application of proceeds of the initial Advances made pursuant to this Agreement;

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(s) No Material Adverse Effect. Since December 31, 2022, there shall not have occurred any Material Adverse Effect;

(t) Material Contracts. To the extent deemed necessary by Agent, Agent shall have received and reviewed all Material Contracts which shall be satisfactory to Agent in its discretion.

(u) Compliance with Laws. Agent shall be reasonably satisfied that each Loan Party is in compliance with all Applicable Laws, including, without, limitation, those with respect to the Federal Occupational Safety and Health Act, the Environmental Protection Act, ERISA (to the extent applicable), and the Anti-Terrorism Laws.

(v) Contingent Labor Liability. Agent’s counsel shall have completed a review of the Loan Parties’ Contingent Labor Liability in Mexico with satisfactory results.

(w) Other. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the Transactions shall be satisfactory in form and substance to Agent in its discretion.

8.2. Conditions to Each Advance. The agreement of Lenders to make any Advance requested to be made on any date (including the initial Advance), is subject to the satisfaction of the following conditions precedent as of the date such Advance is made:

(a) Representations and Warranties. Each of the representations and warranties made by the Loan Parties in or pursuant to this Agreement, the Other Documents and any related agreements to which it is a party, and each of the representations and warranties contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement, the Other Documents or any related agreement shall be true and correct in all respects on and as of such date as if made on and as of such date (except to the extent any such representation or warranty expressly relates only to any earlier and/or specified date);

(b) No Default. No Event of Default or Default shall have occurred and be continuing on such date, or would exist after giving effect to the Advances requested to be made, on such date; provided, however that Agent, in its sole discretion, may continue to make Advances notwithstanding the existence of an Event of Default or Default and that any Advances so made shall not be deemed a waiver of any such Event of Default or Default;

(c) Maximum Advances. In the case of any type of Advance requested to be made, after giving effect thereto, the aggregate amount of such type of Advance shall not exceed the maximum amount of such type of Advance permitted under this Agreement; and

Each request for an Advance hereunder shall constitute a representation and warranty by each Borrower as of the date of such Advance that the conditions contained in this subsection shall have been satisfied.

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IX. INFORMATION AS TO LOAN PARTIES.

Each Loan Party shall, or (except with respect to Section 9.11) shall cause Borrower Agent on its behalf to, until satisfaction in full of the Obligations and the termination of this Agreement:

9.1. Disclosure of Material Matters. Immediately upon learning thereof, report to Agent all matters materially affecting the value, enforceability or collectability of any portion of the Collateral, including any Borrower’s reclamation or repossession of, or the return to any Borrower of, a material amount of goods or claims or disputes asserted by any Customer or other obligor.

9.2. Schedules. Deliver to Agent (i) on or before the twentieth (20^th^) day of each month as and for the prior month (a) accounts receivable agings inclusive of reconciliations to the general ledger, (b) accounts payable Schedules inclusive of reconciliations to the general ledger, (c) Inventory reports, and (d) a Borrowing Base Certificate in form and substance satisfactory to Agent, which shall be calculated as of the last day of the prior month and which shall not be binding upon Agent or restrictive of Agent’s rights under this Agreement, (ii) on or before Wednesday of each week, credit balance and collections reporting with respect to each Borrower’s Receivable, which shall be calculated as of the last day of the prior week and which shall not be binding upon Agent or restrictive of Agent’s rights under this Agreement; and (iii) on or before Wednesday of each week, each Borrower’s sales report/roll forward for the immediately prior week. In addition, each Borrower will deliver to Agent at such intervals as Agent may require: (i) confirmatory assignment Schedules; (ii) copies of Customer’s invoices; (iii) evidence of shipment or delivery; and (iv) such further schedules, documents and/or information regarding the Collateral as Agent may require including trial balances and test verifications. Agent shall have the right to confirm and verify all Receivables by any manner and through any medium it considers advisable and do whatever it may deem reasonably necessary to protect its interests hereunder. The items to be provided under this Section are to be in form satisfactory to Agent and executed by each Borrower and delivered to Agent from time to time solely for Agent’s convenience in maintaining records of the Collateral, and any Borrower’s failure to deliver any of such items to Agent shall not affect, terminate, modify or otherwise limit Agent’s Lien with respect to the Collateral. Unless otherwise agreed to by Agent, the items to be provided under this Section 9.2 shall be delivered to Agent by the specific method of Approved Electronic Communication designated by Agent.

9.3. Environmental Reports.

(a) Furnish Agent, concurrently with the delivery of the financial statements referred to in Sections 9.7 and 9.9, with a certificate signed by a Responsible Officer of the Borrower Agent stating, to the best of his or her knowledge, that each Loan Party is in compliance in all material respects with all applicable Environmental Laws. To the extent any Loan Party is not in compliance with the foregoing laws, the certificate shall set forth with specificity all areas of non-compliance and the proposed action such Loan Party will implement in order to achieve full compliance.

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(b) In the event any Loan Party obtains, gives or receives notice of any Release or threat of Release of a reportable quantity of any Hazardous Materials at the Real Property (any such event being hereinafter referred to as a “Hazardous Discharge”) or obtains, gives or receives notice of any Environmental Claim affecting the Real Property or any Borrowers’ interest therein or the operations or the business from any Person, including any Governmental Body, then Borrower Agent shall, within five (5) Business Days, give written notice of same to Agent detailing facts and circumstances of which any Loan Party is aware giving rise to the Hazardous Discharge or Environmental Claim. Such information is to be provided to allow Agent to protect its security interest in and Lien on the Collateral and is not intended to create nor shall it create any obligation upon Agent or any Lender with respect thereto.

(c) Borrower Agent shall promptly forward to Agent copies of any notification of potential liability, demand letter relating to potential responsibility with respect to the investigation or cleanup of Hazardous Materials at any other site owned, operated or used by any Loan Party to manage of Hazardous Materials and shall continue to forward copies of correspondence between any Loan Party and the Governmental Body regarding such claims to Agent until the claim is settled. Borrower Agent shall promptly forward to Agent copies of all documents and reports concerning a Hazardous Discharge or Environmental Claim at the Real Property, operations or business that any Loan Party is required to file under any Environmental Laws. Such information is to be provided solely to allow Agent to protect Agent’s security interest in and Lien on the Collateral.

9.4. Litigation. Promptly notify Agent in writing of any claim, litigation, suit or administrative proceeding affecting any Loan Party, whether or not the claim is covered by insurance, and of any litigation, suit or administrative proceeding, which in any such case affects a material portion of the Collateral or which could reasonably be expected to have a Material Adverse Effect.

9.5. Material Occurrences. Immediately notify Agent in writing upon the occurrence of: (a) any Event of Default or Default; (b) [Reserved]; (c) any event which with the giving of notice or lapse of time, or both, would constitute an event of default under a Material Contract; (d) any event, development or circumstance whereby any financial statements or other reports furnished to Agent fail in any material respect to present fairly, in accordance with GAAP consistently applied, the financial condition or operating results of any Loan Party as of the date of such statements; (e) any event that would allow Borrowers (or Agent as lender’s loss payee) to assert a claim under any credit insurance policy; (f) each and every default by any Loan Party which might result in the acceleration of the maturity of any Material Indebtedness, including the names and addresses of the holders of such Material Indebtedness with respect to which there is a default existing or with respect to which the maturity has been or could be accelerated, and the amount of such Material Indebtedness; and (g) any other development in the business or affairs of any Loan Party or their Subsidiaries, which could reasonably be expected to have a Material Adverse Effect; in each case describing the nature thereof and the action Borrowers propose to take with respect thereto.

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9.6. Government Receivables. Notify Agent immediately if any of its Receivables arise out of contracts between any Borrower and a Governmental Body or the United States, any state, or any department, agency or instrumentality of any of them.

9.7. Annual Financial Statements. Furnish Agent within ninety (90) days after the end of each Fiscal Year, audited financial statements of the Parent and its Subsidiaries on a consolidated and consolidating basis including, but not limited to, statements of income and stockholders’ equity and cash flow from the beginning of the current Fiscal Year to the end of such Fiscal Year and the balance sheet as at the end of such Fiscal Year, all prepared in accordance with GAAP applied on a basis consistent with prior practices, and reported upon without qualification by an independent certified public accounting firm selected by Parent and satisfactory to Agent (the “Accountants”). The report of the Accountants shall be accompanied by a statement of the Accountants certifying that (i) they have caused this Agreement to be reviewed, (ii) in making the examination upon which such report was based either no information came to their attention which to their knowledge constituted an Event of Default or a Default under this Agreement or any related agreement or, if such information came to their attention, specifying any such Default or Event of Default, its nature, when it occurred and whether it is continuing, and such report shall contain or have appended thereto calculations which set forth Borrowers’ compliance with the requirements or restrictions imposed by Sections 7.1, 7.2, 7.5 and 7.6. The foregoing report shall be accompanied by a Compliance Certificate.

9.8. Quarterly Financial Statements. Furnish Agent as soon as available and in any event within forty-five (45) days after the end of each fiscal quarter, an unaudited balance sheet of Parent, Zircon UK and their respective Subsidiaries on a consolidated and consolidating basis and unaudited statements of income and stockholders’ equity and cash flow of Parent, Zircon UK and their respective Subsidiaries on a consolidated basis reflecting results of operations from the beginning of the Fiscal Year to the end of such fiscal quarter and for such fiscal quarter, prepared on a basis consistent with prior practices and complete and correct in all material respects, subject to normal and recurring year-end adjustments that individually and in the aggregate are not material to the Parent’s or Zircon UK’s business operations and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous Fiscal Year. The reports shall be accompanied by a Compliance Certificate.

9.9. Monthly Financial Statements. Furnish Agent as soon as available and in any event within thirty (30) days after the end of each month, an unaudited balance sheet of Borrower, Zircon MX and their respective Subsidiaries on a consolidated and consolidating basis and unaudited statements of income and stockholders’ equity and cash flow of Borrower, Zircon MX and their respective Subsidiaries on a consolidated basis reflecting results of operations from the beginning of the Fiscal Year to the end of such month and for such month, prepared on a basis consistent with prior practices and complete and correct in all material respects, subject to normal and recurring year-end adjustments that individually and in the aggregate are not material to the Borrower’s or Zircon MX’s business operations and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous Fiscal Year. The reports shall be accompanied by a Compliance Certificate.

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9.10. Other Reports. Furnish Agent as soon as available, but in any event within ten (10) days after the issuance thereof, with copies of such financial statements, reports and returns that each Borrower sends to its stockholders.

9.11. Additional Information. Furnish Agent with such additional information as Agent shall reasonably request in order to enable Agent to determine whether the terms, covenants, provisions and conditions of this Agreement and the Other Documents have been complied with by Borrowers including, without the necessity of any request by Agent, (a) copies of all environmental audits and reviews, (b) at least thirty (30) days prior thereto, notice of any Borrower’s opening of any new office or place of business or any Borrower’s closing of any existing office or place of business, and (c) promptly upon any Borrower’s learning thereof, notice of any labor dispute to which any Borrower may become a party, any strikes or walkouts relating to any of its plants or other facilities, and the expiration of any labor contract to which any Borrower is a party or by which any Borrower is bound.

9.12. Projected Operating Budget. Furnish Agent no sooner than sixty (60) days prior to and no later than thirty (30) days after the end of each Fiscal Year of Borrower Agent, a month by month projected operating budget and cash flow of the Borrower and its Subsidiaries on a consolidated basis for such Fiscal Year (including an income statement and a balance sheet for each month), such projections to be accompanied by a certificate signed by a Responsible Officer of Borrower Agent to the effect that such projections have been prepared in good faith consistent with past budgets and financial statements and that such officer has no reason to question the reasonableness of any material assumptions on which such projections were prepared.

9.13. Variances From Operating Budget. Furnish Agent on a quarterly basis, within 30 days of the end of each fiscal quarter, a written report summarizing all material variances from budgets submitted by Borrowers pursuant to Section 9.12 and a discussion and analysis by management with respect to such variances.

9.14. Notice of Suits, Adverse Events. Furnish Agent with immediate written notice of (i) any lapse or other termination of any consent issued to any Loan Party by any Governmental Body or any other Person that is material to the operation of a Loan Party’s business, (ii) any refusal by any Governmental Body or any other Person to renew or extend any such consent; and (iii) copies of any periodic or special reports filed by any Loan Party with any Governmental Body or Person, if such reports indicate any material change in the business, operations, affairs or condition of any Loan Party, or if copies thereof are requested by Lenders, and (iv) copies of any material notices and other communications from any Governmental Body or Person which specifically relate to any Loan Party.

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9.15. ERISA Notices. Furnish Agent with prompt written notice in the event that (i) any Loan Party or any member of the Controlled Group knows or has reason to know that an ERISA Event has occurred, together with a written statement describing such ERISA Event and the action, if any, which such Loan Party or any member of the Controlled Group has taken, is taking, or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, Department of Labor or PBGC with respect thereto, (ii) any Loan Party or any member of the Controlled Group knows or has reason to know that a prohibited transaction (as defined in Section 406 of ERISA or 4975 of the Code) has occurred together with a written statement describing such transaction and the action which such Loan Party or any member of the Controlled Group has taken, is taking or proposes to take with respect thereto, (iii) a funding waiver request has been filed with respect to any Pension Plan together with all communications received by any Loan Party or any member of the Controlled Group with respect to such request, (iv) any increase in the benefits of any existing Pension Plan or Multiemployer Plan or the establishment of any new Pension Plan or Multiemployer Plan or the commencement of contributions to any Pension Plan or Multiemployer Plan to which any Loan Party or any member of the Controlled Group was not previously contributing shall occur, (v) any Loan Party or any member of the Controlled Group shall receive from the PBGC a notice of intention to terminate a Pension Plan or Multiemployer Plan or to have a trustee appointed to administer a Pension Plan or Multiemployer Plan, together with copies of each such notice, (vi) any Loan Party or any member of the Controlled Group shall receive any unfavorable determination letter from the Internal Revenue Service regarding the qualification of a Pension Plan under Section 401(a) of the Code, together with copies of each such letter; (vii) any Loan Party or any member of the Controlled Group shall receive a notice regarding the imposition of withdrawal liability, together with copies of each such notice; (viii) any Loan Party or any member of the Controlled Group shall fail to make a required installment or any other required payment under the Code or ERISA on or before the due date for such installment or payment; or (ix) any Loan Party or any member of the Controlled Group knows that (a) a Multiemployer Plan has been terminated, (b) the administrator or plan sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan, (c) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate a Multiemployer Plan or (d) a Multiemployer Plan is subject to Section 432 of the Code or Section 305 of ERISA.

9.16. Additional Documents. Execute and deliver to Agent, upon Agent’s reasonable request, such documents and agreements as Agent may, from time to time, reasonably request to carry out the purposes, terms or conditions of this Agreement.

9.17. Updates to Certain Schedules. Deliver to Agent promptly as shall be required to maintain the related representations and warranties as true and correct, updates to Schedule 4.4 (Ownership and Location of Collateral), Schedule 5.4 (Equity Interests), Schedule 5.21 (Intellectual Property), Schedule 5.31 (Material Contracts), Schedule 6.12 (Deposit, Securities and InvestmentAccounts) and; provided, that, absent the occurrence and continuance of any Event of Default, Loan Parties shall only be required to provide such updated schedules on a quarterly basis in connection with delivery of a Compliance Certificate with respect to the applicable quarter; provided, further that, the foregoing proviso shall not diminish or affect a Borrower’s notice obligations arising under this Agreement or the Other Documents with respect to any event that may have given rise to such schedule update and, at all times, Borrower’s shall deliver notice to Agent of any event requiring such notice in the manner and time frame prescribed by this Agreement. Any such updated Schedules delivered by Loan Parties to Agent in accordance with this Section 9.17 shall automatically and immediately be deemed to amend and restate the prior version of such Schedule previously delivered to Agent and attached to and made part of this Agreement.

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9.18. Financial Disclosure. Each Loan Party hereby irrevocably authorizes and directs all accountants and auditors employed by such Loan Party at any time during the Term to exhibit and deliver to Agent and each Lender copies of any of such Loan Party’s financial statements, trial balances or other accounting records of any sort in the accountant’s or auditor’s possession, and to disclose to Agent and each Lender any information such accountants may have concerning such Loan Party’s financial status and business operations; provided, that, prior to an Event of Default, Agent and the Lenders agree to request such information in consultation with the applicable Loan Party. Each Loan Party hereby authorizes all Governmental Bodies to furnish to Agent and each Lender copies of reports or examinations relating to such Loan Party, whether made by such Loan Party or otherwise. Agent and each Lender will attempt to obtain such information or materials directly from such Loan Party prior to obtaining such information or materials from such accountants or Governmental Bodies.

X. EVENTS OF DEFAULT.

The occurrence of any one or more of the following events shall constitute an “Event of Default”:

10.1. Nonpayment. Borrowers or any other Loan Party fails to pay any Obligation within three (3) Business Days after the same becomes due; provided, that, on the Maturity Date, all Obligations shall become immediately due and payable without giving effect to such three (3) day cure period.

10.2. Breach of Representation. Any representation or warranty made or deemed made by any Loan Party in this Agreement or any Other Document or any related agreement or in any certificate, document or financial or other statement furnished at any time in connection herewith or therewith shall prove to have been incorrect or misleading in any material respect on the date when made or deemed to have been made.

10.3. Financial Information; Inspections. Failure by any Loan Party to (a) furnish financial information required pursuant to this Agreement when no deadline for delivery thereof is specified within fifteen (15) days of the date requested, or (b) permit the inspection of its books or records or provide access to its premises for audits and appraisals in accordance with the terms hereof.

10.4. Judicial Actions. The (a) issuance of a notice of Lien, levy, assessment, injunction or attachment (i) against Inventory or Receivables of Borrowers; or (ii) against any other Property of any Loan Party having a Fair Market Value in excess of $250,000; or (b) the seizure, garnishment or taking by a Governmental Body of any Loan Party or any Property with a Fair Market Value in excess of $250,000, or (c) the title and rights of any Loan Party which is the owner of any material portion of the Collateral shall have become the subject matter of claim, litigation, suit, garnishment or other proceeding which might, in the reasonable opinion of Agent, upon final determination, result in impairment or loss of Agent’s and Lenders’ security provided by this Agreement or the Other Document.

10.5. Covenants. Except as otherwise provided for in Sections 10.1, 10.3 and 10.5(ii), (i) failure or neglect of any Loan Party to perform, keep or observe any term, provision, condition, or covenant contained in Section 4.2, 4.4, 4.8, 6.3, 6.4, 6.8, 6.10, 6.11, and Article VII, or (ii) failure or neglect of any Loan Party to perform, keep or observe any term, provision, condition, covenant herein contained, or contained in any Other Document or any other agreement or arrangement, now or hereafter entered into between any Loan Party, and Agent or any Lender and the same shall remain unremedied for ten (10) days.

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10.6. Judgments. There is entered against any Loan Party or any Subsidiary thereof: (i) a final judgment or Order for the payment of money in an aggregate amount exceeding $250,000 (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage); or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

10.7. Bankruptcy. Any Loan Party or any Subsidiary thereof shall (i) apply for, consent to or suffer the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar fiduciary of itself or of all or a substantial part of its Property, (ii) admit in writing its inability, or be generally unable, to pay its debts as they become due or cease operations of its present business, (iii) make a general assignment for the benefit of Lenders, (iv) commence a voluntary case under any state or federal Bankruptcy Laws (as now or hereafter in effect), (v) be adjudicated a bankrupt or insolvent (including by entry of any order for relief in any involuntary bankruptcy or insolvency proceeding commenced against it), (vi) file a petition seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesce to, or fail to have dismissed, within thirty (30) days, any petition filed against it in any involuntary case under such Bankruptcy Laws, or (viii) take any action for the purpose of effecting any of the foregoing.

10.8. Material Adverse Effect. The occurrence of any event or development which could reasonably be expected to have a Material Adverse Effect.

10.9. Lien Priority. Any Lien created hereunder or provided for hereby or under any Other Document for any reason ceases to be or is not a valid and perfected Lien having a first priority interest (except as otherwise expressly provided in this Agreement and subject to Permitted Liens), other than in respect of assets that, individually or in the aggregate, do not exceed $100,000; or

10.10. Certain Actions. Any Loan Party or any of its senior officers is criminally indicted or convicted for (A) a felony, or (B) violating any state, provincial, territorial or federal Law (including the Controlled Substances Act, Money Laundering Control Act of 1986 and Illegal Exportation of War Materials Act) that has resulted in, or could reasonably be expected to lead to, a forfeiture of any material property or any assets (including the Collateral) upon which such Loan Party has granted a Lien to Agent or the right to conduct a material part of its business; or

10.11. Cross Default. The occurrence of any (a) event of default under any Material Indebtedness (other than the Obligations) of any Loan Party, or any other event or circumstance which would permit the holder of any such Material Indebtedness to accelerate such Material Indebtedness prior to the scheduled maturity or termination thereof (it being understood that an Event of Default under this Section 10.11 shall occur regardless of whether the holder of such Material Indebtedness actually accelerates, terminates or otherwise exercises any remedies with respect to such Material Indebtedness), or (b) a default of the obligations of any Loan Party under any other agreement to which it is a party which has or is reasonably likely to have a Material Adverse Effect.

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10.12. Change of Control. Any Change of Control shall occur.

10.13. Invalidity. Any material provision of this Agreement or any Other Document shall, for any reason, cease to be valid and binding on any Loan Party, or any Loan Party shall claim such unenforceability or invalidity in writing to Agent or any Lender, or any Loan Party otherwise challenges the validity of or its liability under this Agreement or any Other Document.

10.14. ERISA. (x) one or more ERISA Events shall have occurred, and (y) any such event or events described in clause (x) could, in the opinion of the Agent, reasonably be expected to result in a liability to a Loan Party or any of their respective ERISA Affiliates in an aggregate amount exceeding $250,000 or the imposition of a Lien on any assets or property of Loan Party or any of their respective ERISA Affiliates.

10.15. Validity Guarantor. (x) the failure or neglect of by the Validity Guarantor to perform, keep or observe any term, provision, condition, or covenant contained in the Validity Guaranty Agreement or any other agreement or arrangement, now or hereafter entered into between the Validity Guarantor and Agent or any Lender; or (y) any representation or warranty made or deemed made by the Validity Guarantor in the Validity Guaranty Agreement or any related agreement or in any certificate, document or financial or other statement furnished at any time in connection herewith or therewith shall prove to have been incorrect or misleading in any material respect on the date when made or deemed to have been made.

XI. LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT.

11.1. Rights and Remedies.

(a) Upon the occurrence of: (i) an Event of Default pursuant to Section 10.7 (other than Section 10.7(vii)), all Obligations shall be immediately due and payable and this Agreement and the obligation of Lenders to make Advances shall be deemed terminated, (ii) any of the other Events of Default and at any time thereafter, at the option of Agent or at the direction of Required Lenders all Obligations shall be immediately due and payable and Agent or Required Lenders shall have the right to terminate this Agreement and to terminate the obligation of Lenders to make Advances; and (iii) without limiting Section 8.2 hereof, any Default under Section 10.7(vii) hereof, the obligation of Lenders to make Advances hereunder shall be suspended until such time as such involuntary petition shall be dismissed. Upon the occurrence and during the continuance of any Event of Default, Agent shall have the right to exercise any and all rights and remedies provided for herein, under the Other Documents, under the Uniform Commercial Code and at Applicable Law or equity generally, including the right to foreclose the security interests granted herein and to realize upon any Collateral by any available judicial procedure and/or to take possession of and sell any or all of the Collateral with or without judicial process, as permitted by Applicable Law. Upon the occurrence and during the continuance of any Event of Default and as permitted by Applicable Law, Agent may enter any of Loan Party’s premises or other premises without legal process and without incurring liability to any Loan Party therefor, and Agent may thereupon, or at any time thereafter, in its discretion without notice or demand, take the Collateral and remove the same to such place as Agent may deem advisable and Agent may require Loan Parties to make the Collateral available to Agent at a convenient place. Upon the occurrence and during the continuance of any Event of Default and as permitted by Applicable Law, with or without having the Collateral at the time or place of sale, Agent may sell the Collateral, or any part thereof, at public or private sale, at any time or place, in one or more sales, at such price or prices, and upon such terms, either for cash, credit or future delivery, as Agent may elect. Except as to that part of the Collateral which is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, and as permitted by Applicable Law, Agent shall give Borrowers reasonable notification of such sale or sales, it being agreed that in all events written notice mailed to Borrower Agent at least ten (10) days prior to such sale or sales is reasonable notification. At any public sale Agent or any Lender may bid (including credit bid) for and become the purchaser, and Agent, any Lender or any other purchaser at any such sale thereafter shall hold the Collateral sold absolutely free from any claim or right of whatsoever kind, including any equity of redemption and all such claims, rights and equities are hereby expressly waived and released by each Loan Party, as permitted by Applicable Law. In connection with the exercise of the foregoing remedies, including the sale of Inventory, Agent is granted a perpetual nonrevocable, royalty free, nonexclusive license and Agent is granted permission to use all of each Loan Party’s (a) Intellectual Property which is used or useful in connection with Inventory for the purpose of marketing, advertising for sale and selling or otherwise disposing of such Inventory in any channel of distribution deemed reasonable by Agent, and (b) equipment for the purpose of completing the manufacture of unfinished goods. The cash proceeds realized from the sale of any Collateral shall be applied to the Obligations as determined by Agent under Section 11.5 hereof. Noncash proceeds will only be applied to the Obligations as they are converted into cash. If any deficiency shall arise, Borrowers shall remain liable to Agent and Lenders therefor.

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(b) To the extent that Applicable Law imposes duties on Agent to exercise remedies in a commercially reasonable manner (but subject to applicable Mexican Law), each Borrower acknowledges and agrees that it is not commercially unreasonable for Agent: (i) to fail to incur expenses reasonably deemed significant by Agent to prepare Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition; (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of; (iii) to fail to exercise collection remedies against Customers or other Persons obligated on Collateral or to remove Liens on or any adverse claims against Collateral; (iv) to exercise collection remedies against Customers and other Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists; (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature; (vi) to contact other Persons, whether or not in the same business as any Borrower, for expressions of interest in acquiring all or any portion of such Collateral; (vii) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a specialized nature; (viii) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capacity of doing so, or that match buyers and Borrowers of assets; (ix) to dispose of assets in wholesale rather than retail markets; (x) to disclaim disposition warranties, such as title, possession or quiet enjoyment, (xi) to purchase insurance or credit enhancements to insure Agent against risks of loss, collection or disposition of Collateral or to provide to Agent a guaranteed return from the collection or disposition of Collateral; or (xii) to the extent deemed appropriate by the Agent, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist Agent in the collection or disposition of any of the Collateral. Each Borrower acknowledges that the purpose of this Section 11.1(b) is to provide non-exhaustive indications of what actions or omissions by Agent would not be commercially unreasonable in Agent’s exercise of remedies against the Collateral and that other actions or omissions by Agent shall not be deemed commercially unreasonable solely on account of not being indicated in this Section 11.1(b). Without limitation upon the foregoing, nothing contained in this Section 11.1(b) shall be construed to grant any rights to any Borrower or to impose any duties on Agent that would not have been granted or imposed by this Agreement or by Applicable Law in the absence of this Section 11.1(b).

11.2. Agent’s Discretion. Agent shall have the right in its sole discretion to determine which rights, Liens, security interests or remedies Agent may at any time pursue, relinquish, subordinate, or modify, which procedures, timing and methodologies to employ, and what any other action to take with respect to any or all of the Collateral and in what order, thereto and such determination will not in any way modify or affect any of Agent’s or Lenders’ rights hereunder as against any Loan Party, or each other.

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11.3. Setoff. Subject to Section 14.13, in addition to any other rights which Agent or any Lender may have under Applicable Law, upon the occurrence and during the continuance of an Event of Default hereunder, Agent and such Lender shall have a right, immediately and without notice of any kind, to apply any Borrower’s property held by Agent and such Lender or any of their Affiliates to reduce the Obligations and to exercise any and all rights of setoff which may be available to Agent and such Lender with respect to any deposits held by Agent or such Lender.

11.4. Rights and Remedies not Exclusive. The enumeration of the foregoing rights and remedies is not intended to be exhaustive and the exercise of any rights or remedy shall not preclude the exercise of any other right or remedies provided for herein or otherwise provided by law, all of which shall be cumulative and not alternative.

11.5. Allocation of Payments After Event of Default. Notwithstanding any other provisions of this Agreement to the contrary, after the occurrence and during the continuance of an Event of Default, all amounts collected or received by Agent on account of the Obligations, or in respect of the Collateral may, at Agent’s discretion, be applied to the Obligations in such order and manner as determined by Agent in its sole discretion:

XII. WAIVERS AND JUDICIAL PROCEEDINGS.

12.1. Waiver of Notice. Each Loan Party hereby waives notice of non-payment of any of the Receivables, demand, presentment, protest and notice thereof with respect to any and all instruments, notice of acceptance hereof, notice of loans or advances made, credit extended, Collateral received or delivered, notice of intent to accelerate, notice of acceleration, or any other action taken in reliance hereon, and all other demands and notices of any description, except such as are expressly provided for herein.

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12.2. Delay. No delay or omission on Agent’s or any Lender’s part in exercising any right, remedy or option shall operate as a waiver of such or any other right, remedy or option or of any Default or Event of Default.

12.3. Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, COUNTERCLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT, ANY OTHER DOCUMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT, ANY OTHER DOCUMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, COUNTERCLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

12.4. Judicial Reference. If any action or proceeding relating to the Obligations, Other Documents or related transaction is filed in a court sitting in or applying the laws of California, the court shall, and is hereby directed to, make a general reference pursuant to Cal. Civ. Proc. Code §638 to a referee (who shall be a single active or retired judge) to hear and determine all issues in the case (whether fact or law) and to report a statement of decision; provided, that, (a) at the option of any party to such action or proceeding, any issues pertaining to a “provisional remedy” as defined in Cal. Civ. Proc. Code §1281.8 shall be heard and determined by the court, and (b) the Loan Parties shall be solely responsible to pay all fees and expenses of the referee. Nothing in this Section shall limit any right of Agent or any other Secured Party to exercise self-help remedies, such as setoff, foreclosure or sale of Collateral, or to obtain provisional or ancillary remedies from a court of competent jurisdiction before, during or after any judicial reference. The exercise of a remedy does not waive the right of any party to require judicial reference. In Agent’s discretion, foreclosure under a mortgage or deed of trust may be accomplished either by exercise of power of sale thereunder or by judicial foreclosure.

XIII. CLOSING DATE AND TERMINATION.

13.1. Term. This Agreement, which shall inure to the benefit of and shall be binding upon the respective successors and permitted assigns of each Loan Party, Agent and each Lender, shall become effective on the Closing Date and shall continue in full force and effect until the Maturity Date (the “Term”) unless sooner terminated as herein provided. Borrowers may terminate this Agreement at any time upon ninety (90) days prior written notice to Agent upon payment in full of the Obligations. In the event the Obligations are prepaid in full (whether voluntary or involuntary, including after acceleration thereof) and this Agreement is terminated prior to the last day of the Term, the Borrowers shall pay to Agent, for the benefit of the Lenders, the applicable Early Termination Fee.

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13.2. Termination. The termination of this Agreement shall not affect Agent’s or any Lender’s rights, or any of the Obligations having their inception prior to the effective date of such termination or any Obligations which pursuant to the terms hereof continue to accrue after such date, and the provisions hereof shall continue to be fully operative until all transactions entered into, rights or interests created and Obligations have been paid in full (other than inchoate indemnity obligations), disposed of, concluded or liquidated. The security interests, Liens and rights granted to Agent and Lenders hereunder and the financing statements filed hereunder shall continue in full force and effect, notwithstanding the termination of this Agreement or the fact that Borrower’s Account may from time to time be temporarily in a zero or credit position, until all of the Obligations of each Loan Party have been indefeasibly paid and performed in full (other than inchoate indemnity obligations) after the termination of this Agreement or each Loan Party has furnished Agent and Lenders with an indemnification satisfactory to Agent and Lenders with respect thereto. Accordingly, each Loan Party waives any rights which it may have under the Uniform Commercial Code to demand the filing of termination statements with respect to the Collateral, and Agent shall not be required to send such termination statements to a Loan Party, or to file them with any filing office, unless and until this Agreement shall have been terminated in accordance with its terms and all Obligations have been indefeasibly paid in full (other than inchoate indemnity obligations) in immediately available funds. All representations, warranties, covenants, waivers and agreements contained herein shall survive termination hereof until all Obligations are indefeasibly paid and performed in full (other than inchoate indemnity obligations).

XIV. REGARDING AGENT.

14.1. Appointment. Each Lender hereby designates FGI WORLDWIDE LLC to act as Agent for such Lender under this Agreement and the Other Documents. Each Lender hereby irrevocably authorizes Agent to take such action on its behalf under the provisions of this Agreement and the Other Documents and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto and Agent shall hold all Collateral, payments of principal and interest, fees (except the fees, charges and collections received pursuant to this Agreement, for the ratable benefit of Lenders). Agent may perform any of its duties hereunder by or through its agents or employees. As to any matters not expressly provided for by this Agreement (including collection of the Note) Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of Required Lenders, and such instructions shall be binding; provided, however, that Agent shall not be required to take any action which, in Agent’s discretion, exposes Agent to liability or which is contrary to this Agreement or the Other Documents or Applicable Law unless Agent is furnished with an indemnification reasonably satisfactory to Agent with respect thereto.

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14.2. Nature of Duties. Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and the Other Documents. Neither Agent nor any of its officers, directors, employees or agents shall be (i) liable for any action taken or omitted by them as such hereunder or in connection herewith, unless caused by their gross (not mere) negligence or willful misconduct (as determined by a court of competent jurisdiction in a final non-appealable judgment), or (ii) responsible in any manner for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement, or in any of the Other Documents or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any of the Other Documents or for the value, validity, effectiveness, genuineness, due execution, enforceability or sufficiency of this Agreement, or any of the Other Documents or for any failure of any Loan Party to perform its obligations hereunder. Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any of the Other Documents, or to inspect the properties, books or records of any Loan Party. The duties of Agent as respects the Advances to Borrowers shall be mechanical and administrative in nature; Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender; and nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to impose upon Agent any obligations in respect of this Agreement or the transactions described herein except as expressly set forth herein.

14.3. Lack of Reliance on Agent. Independently and without reliance upon Agent or any other Lender, each Lender has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of each Loan Party in connection with the making and the continuance of the Advances hereunder and the taking or not taking of any action in connection herewith, and (ii) its own appraisal of the creditworthiness of each Loan Party. Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before making of the Advances or at any time or times thereafter except as shall be provided by any Borrower pursuant to the terms hereof. Agent shall not be responsible to any Lender for any recitals, statements, information, representations or warranties herein or in any agreement, document, certificate or a statement delivered in connection with or for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency of this Agreement or any Other Document, or of the financial condition of any Loan Party, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement, the Note, the Other Documents or the financial condition or prospects of any Loan Party, or the existence of any Event of Default or any Default.

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14.4. Resignation of Agent; Successor Agent. Agent may resign on sixty (60) days written notice to each Lender and Borrower Agent and upon such resignation, Required Lenders will promptly designate a successor Agent reasonably satisfactory to Borrowers (provided that no such approval by Borrowers shall be required (i) in any case where the successor Agent is one of the Lenders or (ii) after the occurrence and during the continuance of any Event of Default). Any such successor Agent shall succeed to the rights, powers and duties of Agent, and shall in particular succeed to all of Agent’s right, title and interest in and to all of the Liens in the Collateral securing the Obligations created hereunder or any Other Document (including Pledge Agreement and all Control Agreements), and the term “Agent” shall mean such successor agent effective upon its appointment, and the former Agent’s rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent. However, notwithstanding the foregoing, if at the time of the effectiveness of the new Agent’s appointment, any further actions need to be taken in order to provide for the legally binding and valid transfer of any Liens in the Collateral from former Agent to new Agent and/or for the perfection of any Liens in the Collateral as held by new Agent or it is otherwise not then possible for new Agent to become the holder of a fully valid, enforceable and perfected Lien as to any of the Collateral, former Agent shall continue to hold such Liens solely as agent for perfection of such Liens on behalf of new Agent until such time as new Agent can obtain a fully valid, enforceable and perfected Lien on all Collateral, provided that Agent shall not be required to or have any liability or responsibility to take any further actions after such date as such agent for perfection to continue the perfection of any such Liens (other than to forego from taking any affirmative action to release any such Liens). After any Agent’s resignation as Agent, the provisions of this Article XIV, and any indemnification rights under this Agreement, including without limitation, rights arising under Section 16.5 hereof, shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement (and in the event resigning Agent continues to hold any Liens pursuant to the provisions of the immediately preceding sentence, the provisions of this Article XIV and any indemnification rights under this Agreement, including without limitation, rights arising under Section 16.5 hereof, shall inure to its benefit as to any actions taken or omitted to be taken by it in connection with such Liens).

14.5. Certain Rights of Agent. If Agent shall request instructions from Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any Other Document, Agent shall be entitled to refrain from such act or taking such action unless and until Agent shall have received instructions from Required Lenders; and Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, Lenders shall not have any right of action whatsoever against Agent as a result of its acting or refraining from acting hereunder in accordance with the instructions of Required Lenders.

14.6. Reliance. Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, email, facsimile, telex, teletype or telecopier message, cablegram, order or other document or telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to this Agreement and the Other Documents and its duties hereunder, upon advice of counsel selected by it. Agent may employ agents and attorneys-in-fact and shall not be liable for the default or misconduct of any such agents or attorneys-in-fact selected by Agent with reasonable care.

14.7. Notice of Default. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder or under the Other Documents, unless Agent has received written notice of such Default or Event of Default from a Lender or Borrower Agent. In the event that Agent receives such a notice, Agent shall give notice thereof to Lenders. Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by Required Lenders; provided, that, unless and until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of Lenders.

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14.8. Indemnification. To the extent Agent is not reimbursed and indemnified by Loan Parties, each Lender will reimburse and indemnify Agent in proportion to its respective portion of the outstanding Advances (or, if no Advances are outstanding, pro rata according to the percentage that its Revolving Commitment Amount constitutes of the total aggregate Revolving Commitment Amounts), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Agent in performing its duties hereunder, or in any way relating to or arising out of this Agreement or any Other Document; provided that Lenders shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Agent’s gross (not mere) negligence or willful misconduct (as determined by a court of competent jurisdiction in a final non-appealable judgment).

14.9. Agent in its Individual Capacity. With respect to the obligation of Agent to lend under this Agreement, the Advances made by it shall have the same rights and powers hereunder as any other Lender and as if it were not performing the duties as Agent specified herein; and the term “Lender” or any similar term shall, unless the context clearly otherwise indicates, include Agent in its individual capacity as a Lender. Agent may engage in business with any Borrower as if it were not performing the duties specified herein, and may accept fees and other consideration from any Borrower for services in connection with this Agreement or otherwise without having to account for the same to Lenders.

14.10. Delivery of Documents. To the extent Agent receives financial statements required under Sections 9.7, 9.9, 9.12 and 9.13 or a Borrowing Base Certificate from any Borrower pursuant to the terms of this Agreement which any Borrower is not obligated to deliver to each Lender, Agent will promptly furnish such documents and information to Lenders upon request.

14.11. Borrowers’ Undertaking to Agent. Without prejudice to their respective obligations to Lenders under the other provisions of this Agreement, each Borrower hereby undertakes with Agent to pay to Agent from time to time on demand all amounts from time to time due and payable by it for the account of Agent or Lenders or any of them pursuant to this Agreement to the extent not already paid. Any payment made pursuant to any such demand shall pro tanto satisfy the relevant Borrower’s obligations to make payments for the account of Lenders or the relevant one or more of them pursuant to this Agreement.

14.12. No Reliance on Agent’s Customer Identification Program. To the extent the Advances or this Agreement is, or becomes, syndicated in cooperation with other Lenders, each Lender acknowledges and agrees that neither such Lender, nor any of its Affiliates, participants or assignees, may rely on Agent to carry out such Lender’s, Affiliate’s, participant’s or assignee’s customer identification program, or other obligations required or imposed under or pursuant to the USA PATRIOT Act or the regulations thereunder, including the regulations contained in 31 CFR 103.121 (as hereafter amended or replaced, the “CIP Regulations”), or any other Anti-Terrorism Law, including any programs involving any of the following items relating to or in connection with any of Loan Party, their Affiliates or their agents, the Other Documents or the transactions hereunder or contemplated hereby: (i) any identity verification procedures, (ii) any recordkeeping, (iii) comparisons with government lists, (iv) customer notices or (v) other procedures required under the CIP Regulations or such Anti-Terrorism Laws.

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14.13. Other Agreements. Each of the Lenders agrees that it shall not, without the express consent of Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the request of Agent, set off against the Obligations, any amounts owing by such Lenders to any Loan Party or any deposit accounts of any Loan Party now or hereafter maintained with such Lender. Anything in this Agreement to the contrary notwithstanding, each of the Lenders further agrees that it shall not, unless specifically requested to do so by Agent, take any action to protect or enforce its rights arising out of this Agreement or the Other Documents, it being the intent of Lenders that any such action to protect or enforce rights under this Agreement and the Other Documents shall be taken in concert and at the direction or with the consent of Agent or Required Lenders.

XV. CO-LOAN PARTY AGENCY.

15.1. Co-Loan Party Agency Provisions.

(a) Each Borrower hereby irrevocably designates Borrower Agent to be its attorney and agent and in such capacity, whether verbally, in writing or through electronic methods (including, without limitation, an Approved Electronic Communication) to (i) draw on Advances, (ii) request Advances, (iii) [reserved], (iv) sign and endorse notes, (v) execute and deliver all instruments, documents, applications, security agreements, reimbursement agreements and all other certificates, notice, writings and further assurances now or hereafter required hereunder, (vi) make elections regarding interest rates, (vii) [reserved], and (viii) otherwise take action under and in connection with this Agreement and the Other Documents, all on behalf of and in the name such Borrower or other Loan Party, and hereby authorizes Agent to pay over or credit all loan proceeds hereunder in accordance with the request of Borrower Agent.

(b) The handling of this credit facility as a co-Loan Party facility with a Borrower Agent in the manner set forth in this Agreement is solely as an accommodation to Borrowers and other Loan Parties and at their request. Neither Agent nor any Lender shall incur liability to Borrowers or any other Loan Party as a result thereof. To induce Agent and Lenders to do so and in consideration thereof, each Borrower and each other Loan Party hereby indemnifies Agent and each Lender and holds Agent and each Lender harmless from and against any and all liabilities, expenses, losses, damages and claims of damage or injury asserted against Agent or any Lender by any Person arising from or incurred by reason of the handling of the financing arrangements of Borrowers as provided herein, reliance by Agent or any Lender on any request or instruction from Borrower Agent or any other action taken by Agent or any Lender with respect to this Section 15.1 except due to willful misconduct or gross (not mere) negligence by the indemnified party (as determined by a court of competent jurisdiction in a final and non-appealable judgment).

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(c) All Obligations shall be joint and several, and each Borrower shall make payment upon the maturity of the Obligations by acceleration or otherwise, and such obligation and liability on the part of a Borrower shall in no way be affected by any extensions, renewals and forbearance granted by Agent or any Lender to any Borrower, failure of Agent or any Lender to give any Borrower any notice hereunder, any failure of Agent or any Lender to pursue or preserve its rights against any Borrower, the release by Agent or any Lender of any Collateral now or thereafter acquired from any Borrower, and such agreement by each Borrower to pay upon any notice issued pursuant thereto is unconditional and unaffected by prior recourse by Agent or any Lender to the other Borrower or any Collateral for such Borrower’s Obligations or the lack thereof. Each Borrower waives all suretyship defenses.

(d) Each Borrower expects to derive benefit (and the boards of directors or other governing body of each such Borrower have determined that it may reasonably be expected to derive benefit), directly and indirectly, from the credit extended by the Lenders to Borrowers hereunder, both in their separate capacities and as members of a company group. Each Borrower has determined that execution, delivery, and performance of this Agreement and any Other Documents to be executed by such Borrowers is within its corporate purpose, will be of direct and indirect benefit to such Borrowers, and is in its best interest.

15.2. Waiver of Subrogation. Each Borrower expressly waives any and all rights of subrogation, reimbursement, indemnity, exoneration, contribution of any other claim which such Borrower may now or hereafter have against the any other Loan Party or any other Person directly or contingently liable for the Obligations hereunder, or against or with respect to any other Loan Party’s property (including, without limitation, any property which is Collateral for the Obligations), arising from the existence or performance of this Agreement, until termination of this Agreement and repayment in full of the Obligations.

XVI. MISCELLANEOUS.

16.1. Governing Law. This Agreement and each Other Document (unless and except to the extent expressly provided otherwise in any such Other Document), and all matters relating hereto or thereto or arising herefrom or therefrom (whether arising under contract law, tort law or otherwise) shall, in accordance with Section 5-1401 of the General Obligations Law of the State of New York, be governed by and construed in accordance with the laws of the State of New York. Any judicial proceeding brought by or against any party with respect to any of the Obligations, this Agreement, the Other Documents (unless and except to the extent expressly provided otherwise in any such Other Document) or any related agreement may be brought in any court of competent jurisdiction in the State of New York, United States of America, and, by execution and delivery of this Agreement, each party irrevocably accepts for itself and in connection with its properties, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement (unless and except to the extent expressly provided otherwise in any of the Other Documents). Each Loan Party hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified or registered mail (return receipt requested) directed to Borrower Agent at its address set forth in Section 16.6 and service so made shall be deemed completed five (5) days after the same shall have been so deposited in the mails of the United States of America, or, at Agent’s option, by service upon Borrower Agent which each Borrower irrevocably appoints as such Borrower’s Agent for the purpose of accepting service within the State of New York.

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Nothing herein shall affect the right to serve process in any manner permitted by law or shall limit the right of Agent or any Lender to bring proceedings against any Borrower in the courts of any other jurisdiction. Each Borrower waives any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. Each Borrower waives the right to remove any judicial proceeding brought against such Borrower in any state court to any federal court. Any judicial proceeding by any Borrower against Agent or any Lender involving, directly or indirectly, any matter or claim in any way arising out of, related to or connected with this Agreement or any related agreement, shall be brought only in a federal or state court located in the County of New York, State of New York.

Each Mexican Loan Party hereby irrevocably designates, appoints, authorizes and empowers the Borrower Agent as its agent for service of process at its address specified in Section 16.6 hereunder, to receive and forward on its behalf any and all service of process, notices or other documents that may be served in any suit, action or proceeding relating hereto. Each Mexican Loan Party consents to process served in any suit, action or proceeding of the nature referred to in this Section by serving a copy thereof upon the Borrower Agent. Each Mexican Loan Party agrees that such service (1) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (2) shall, to the fullest extent permitted by Applicable Law, be taken and held to be valid personal service upon and personal delivery to it. Each Mexican Loan Party hereby agrees to grant the Borrower Agent within 5 (five) Business Days as from execution hereof an irrevocable power of attorney for lawsuits and collections (poder para pleitos y cobranzas) in terms of the first and fourth paragraphs of Article 2554 and Article 2596 of the Federal Civil Code and their correlative articles in the Civil Codes of the Federal entities of Mexico, in each case before a Mexican notary public, appointing the Borrower Agent, as its agent for service of process in relation to any action or proceeding arising out of or relating to this Agreement and any other related agreement (or the transactions contemplated hereby or thereby) and designating the Borrower Agent’s domicile as Mexican Loan Party’s contractual domicile (domicilio convencional) for writs, processes and summonses (avisos, notificaciones, emplazamientos, resoluciones y comunicaciones).

16.2. Entire Understanding.

(a) This Agreement and the documents executed concurrently herewith contain the entire understanding between each Loan Party, Agent and each Lender and supersedes all prior agreements and understandings, if any, relating to the subject matter hereof. Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect unless in writing, signed by each Borrower’s, Agent’s and each Lender’s respective officers. Neither this Agreement nor any portion or provisions hereof may be changed, modified, amended, waived, supplemented, discharged, cancelled or terminated orally or by any course of dealing, or in any manner other than by an agreement in writing, signed by the party to be charged. Notwithstanding the foregoing, Agent may modify this Agreement or any of the Other Documents for the purposes of completing missing content or correcting erroneous content of an administrative nature, without the need for a written amendment, provided that the Agent shall send a copy of any such modification to the Borrower Agent and each Lender (which copy may be provided by electronic mail). Each Borrower acknowledges that it has been advised by counsel in connection with the execution of this Agreement and Other Documents and is not relying upon oral representations or statements inconsistent with the terms and provisions of this Agreement.

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(b) Required Lenders, Agent with the consent in writing of Required Lenders, Borrowers may, subject to the provisions of this Section 16.2(b), from time to time enter into written supplemental agreements to this Agreement or the Other Documents executed by Borrowers, for the purpose of adding or deleting any provisions or otherwise changing, varying or waiving in any manner the rights of Lender, Agent or Borrowers thereunder or the conditions, provisions or terms thereof or waiving any Event of Default thereunder, but only to the extent specified in such written agreements; provided, however, that no such supplemental agreement shall:

(i) increase the Revolving Commitment Percentage or the maximum commitment of any Lender without the consent of such Lender directly affected thereby;

(ii) whether or not any Advances are outstanding, extend the Term or the time for payment of principal or interest of any Advance (excluding the due date of any mandatory prepayment of an Advance), or any fee payable to any Lender, or reduce the principal amount of or the rate of interest borne by any Advances or reduce any fee payable to any Lender, without the consent of each Lender directly affected thereby (except that Required Lender may elect to waive or rescind any imposition of the Default Rate under Section 3.1 (unless imposed by Agent));

(iii) increase the Maximum Revolving Advance Amount without the consent of all Lenders;

(iv) alter the definition of the term Required Lenders or alter, amend or modify this Section 16.2(b) without the consent of all Lenders;

(v) alter, amend or modify the provisions of Section 11.5 without the consent of all Lenders;

(vi) release all or substantially all of the Collateral (other than in accordance with the provisions of this Agreement) without the consent of all Lenders;

(vii) change the rights and duties of Agent without the consent of all Lenders;

(viii) [Reserved];

(ix) increase the Advance Rates above the Advance Rates in effect on the Closing Date without the consent of Required Lenders; or

(x) release any Loan Party without the consent of all Lenders.

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(c) Any such supplemental agreement shall apply equally to each Lender and shall be binding upon Loan Parties, Lenders and Agent and all future holders of the Obligations. In the case of any waiver, the Loan Parties, Agent and Lenders shall be restored to their former positions and rights, and any Event of Default waived shall be deemed to be cured and not continuing, but no waiver of a specific Event of Default shall extend to any subsequent Event of Default (whether or not the subsequent Event of Default is the same as the Event of Default which was waived), or impair any right consequent thereon. Notwithstanding anything to the contrary set forth in this Section 16.2, (i) the Borrowers may amend the Schedules to this Agreement pursuant to Section 9.17 hereof, (ii) Agent and Loan Parties may amend or modify this Agreement and any Other Document (A) to cure any error or ambiguity, omission, defect or inconsistency therein, and (B) to grant a new Lien to Agent, for the benefit of the Secured Parties, to extend an existing Lien over additional assets or property of a Loan Party to Agent, for the benefit of the Secured Parties, or to join additional Persons as Loan Parties, and (iii) any mortgage, Control Agreement, letter of credit reimbursement or similar agreement or any Lien Waiver Agreement may be amended as provided therein, and if not provided therein, by each of the parties thereto.

(d) In the event Agent requests the consent of a Lender pursuant to this Section 16.2 and such consent is denied, then Agent may, at its option, require such Lender to assign its interest in the Advances to Agent or to another Lender or to any other Person designated by Agent (the “Designated Lender”), for a price equal to (i) the then outstanding principal amount thereof plus (ii) accrued and unpaid interest and fees due such Lender, which interest and fees shall be paid when collected from Borrowers. In the event Agent elects to require any Lender to assign its interest to Agent or to the Designated Lender, Agent will so notify such Lender in writing within forty five (45) days following such Lender’s denial, and such Lender will assign its interest to Agent or the Designated Lender no later than five (5) days following receipt of such notice pursuant to a Commitment Transfer Supplement executed by such Lender, Agent or the Designated Lender, as appropriate, and Agent.

(e) Notwithstanding (i) the existence of a Default or an Event of Default, (ii) that any of the other applicable conditions precedent set forth in Section 8.2 hereof have not been satisfied or the commitments of Lender to make Advances hereunder have been terminated for any reason, or (iii) any other contrary provision of this Agreement, Agent may at its discretion and without the consent of any Lender, voluntarily permit the outstanding Revolving Advances at any time to exceed the Revolver Formula Amount by up to ten percent (10%) of the Revolver Formula Amount for up to sixty (60) consecutive Business Days (the “Out-of-Formula Advances”). If Agent is willing in its sole and absolute discretion to permit such Out-of-Formula Advances, Lenders holding the Revolving Commitments shall be obligated to fund such Out-of-Formula Advances in accordance with their respective Revolving Commitment Percentages, and such Out-of-Formula Advances shall be payable on demand and shall bear interest at the Default Rate for Revolving Advances; provided that, if Agent does permit Out-of-Formula Advances, neither Agent nor Lenders shall be deemed thereby to have changed the limits of Section 2.1(a) nor shall any Lender be obligated to fund Revolving Advances in excess of its Revolving Commitment Amount. For purposes of this paragraph, the discretion granted to Agent hereunder shall not preclude involuntary Overadvances that may result from time to time due to the fact that the Revolver Formula Amount was unintentionally exceeded for any reason, including, but not limited to, Collateral previously deemed to be either “Eligible Receivables”, or “Eligible Inventory”, as applicable, becomes ineligible or uncollectible, collections of Receivables applied to reduce outstanding Revolving Advances are thereafter returned for insufficient funds or Overadvances are made to protect or preserve the Collateral. In the event Agent involuntarily permits the outstanding Revolving Advances to exceed the Revolver Formula Amount by more than ten percent (10%), Agent shall use its commercially reasonable efforts to have Borrowers decrease such excess in as expeditious a manner as is practicable under the circumstances and not inconsistent with the reason for such excess. Revolving Advances made after Agent has determined the existence of involuntary Overadvances shall be deemed to be involuntary Overadvances and shall be decreased in accordance with the preceding sentence. To the extent any Out-of-Formula Advances are not actually funded by the other Lenders as provided for in this Section 16.2(e), Agent may elect in its discretion to fund such Out-of-Formula Advances and any such Out-of-Formula Advances so funded by Agent shall be deemed to be Revolving Advances made by and owing to Agent, and Agent shall be entitled to all rights (including accrual of interest) and remedies of a Lender holding a Revolving Commitment under this Agreement and the Other Documents with respect to such Revolving Advances.

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(f) In addition to (and not in substitution of) the discretionary Advances permitted above in this Section 16.2, Agent is hereby authorized by Borrowers and Lenders, at any time in Agent’s sole discretion, regardless of (i) the existence of a Default or an Event of Default, (ii) whether any of the other applicable conditions precedent set forth in Section 8.2 hereof have not been satisfied or the commitments of Lenders to make Advances hereunder have been terminated for any reason, or (iii) any other contrary provision of this Agreement, to make Advances to Borrowers on behalf of Lenders which Agent, in its reasonable business judgment, deems necessary or desirable (a) to preserve or protect the Collateral, or any portion thereof, (b) to enhance the likelihood of, or maximize the amount of, repayment of the Advances and other Obligations, or (c) to pay any other amount chargeable to Borrowers pursuant to the terms of this Agreement (the “Protective Advances”). Lenders holding the Revolving Commitments shall be obligated to fund such Protective Advances and effect a settlement with Agent therefor upon demand of Agent in accordance with their respective Revolving Commitment Percentages. To the extent any Protective Advances are not actually funded by the other Lenders as provided for in this Section 16.2(f), any such Protective Advances funded by Agent shall be deemed to be Advances made by and owing to Agent, and Agent shall be entitled to all rights (including accrual of interest) and remedies of a Lender holding a Revolving Commitment under this Agreement and the Other Documents with respect to such Advances.

16.3. Successors and Assigns; Participations; New Lenders.

(a) This Agreement shall be binding upon and inure to the benefit of each Loan Party who is, or becomes, a party to this Agreement, Agent, each Lender, all future holders of the Obligations and their respective successors and assigns, except that no Loan Party may assign or transfer any of its rights or obligations under this Agreement (including, in each case, by way of an LLC Division) without the prior written consent of Agent and each Lender.

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(b) Any Lender may at any time, without the consent of the Borrowers, or the Agent, sell participations to any Person (other than a natural Person, or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural Person) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Revolving Commitment and/or the Advances owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and (iii) the Borrowers, the Agent, and each Lender shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 16.5 with respect to any payments made by such Lender to its Participant(s). Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrowers, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Advances or other obligations under this Agreement or the Other Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, or its other obligations under this Agreement or any Other Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Agent (in its capacity as Agent) shall have no responsibility for maintaining a Participant Register.

(c) Any Lender, with the consent of Agent, may sell, assign or transfer all or any part of its rights and obligations under or relating to Advances under this Agreement and the Other Documents to one or more additional Persons and one or more additional Persons may commit to make Advances hereunder (each a “Purchasing Lender”), provided that any such assignment shall be subject to the following conditions:

(i) in minimum amounts of not less than $500,000 (provided that in the case of an assignment of the entire remaining amount of the assigning Lender’s Revolving Commitments (if any) and Advances at the time owing to it, no minimum amount need be assigned);

(ii) each partial assignment shall be made as an assignment of a proportionate part of all of the assigning Lender’s rights and obligations under this Agreement with respect to the Advances or Revolving Commitments assigned;

(iii) the consent of the Borrower Agent (which consent shall not be unreasonably withheld or delayed); provided that the Borrower Agent shall be deemed to have consented to any such assignment unless it shall have objected thereto by written notice to Agent within five (5) Business Days following the date it received notice of such assignment; provided further that no consent of the Borrower Agent shall be required under this Section 16.3(c)(iii) if (A) a Default has occurred and is continuing or (B) such assignment is to an Eligible Assignee;

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(iv) the consent of Agent (which consent shall not be unreasonably withheld or delayed) if such assignment is: (A) an assignment of a Revolving Commitment to a Person (irrespective of whether such Person is an Eligible Assignee) who does then have a Revolving Commitment or (B) an assignment of Advances to a Person that is not an Eligible Assignee; and

(v) the Purchasing Lender and the transferor Lender shall execute and deliver to Agent for acceptance and recording a Commitment Transfer Supplement.

(d) From and after the transfer effective date determined pursuant to such Commitment Transfer Supplement, (i) Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Lender thereunder with a Revolving Commitment Percentage as set forth therein, and (ii) the transferor Lender thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Agreement, the Commitment Transfer Supplement creating a novation for that purpose. Such Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of the Revolving Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement and the Other Documents. Each Loan Party hereby consents to the addition of such Purchasing Lender and the resulting adjustment of the Revolving Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement and the Other Documents. Borrowers shall execute and deliver such further documents and do such further acts and things in order to effectuate the foregoing.

(e) Any Lender, with the consent of Agent which shall not be unreasonably withheld or delayed, may directly or indirectly sell, assign or transfer all or any portion of its rights and obligations under or relating to Advances under this Agreement and the Other Documents to an entity, whether a corporation, partnership, trust, limited liability company or other entity that (i) is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and (ii) is administered, serviced or managed by the assigning Lender or an Affiliate of such Lender (a “Purchasing CLO” and together with each Participant and Purchasing Lender, each a “Transferee” and collectively the “Transferees”), pursuant to a Commitment Transfer Supplement modified as appropriate to reflect the interest being assigned (“Modified Commitment Transfer Supplement”), executed by any intermediate purchaser, the Purchasing CLO, the transferor Lender, and Agent as appropriate and delivered to Agent for recording. Upon such execution and delivery, from and after the transfer effective date determined pursuant to such Modified Commitment Transfer Supplement, (i) Purchasing CLO thereunder shall be a party hereto and, to the extent provided in such Modified Commitment Transfer Supplement, have the rights and obligations of a Lender thereunder and (ii) the transferor Lender thereunder shall, to the extent provided in such Modified Commitment Transfer Supplement, be released from its obligations under this Agreement, the Modified Commitment Transfer Supplement creating a novation for that purpose. Such Modified Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing CLO.

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(f) Each Loan Party authorizes each Lender to disclose to any Transferee and any prospective Transferee any and all financial information in such Lender’s possession concerning such Loan Party which has been delivered to such Lender by or on behalf of such Loan Party pursuant to this Agreement or in connection with such Lender’s credit evaluation of such Loan Party.

(g) Agent shall maintain at its address a copy of each Commitment Transfer Supplement and Modified Commitment Transfer Supplement delivered to it and a register (the “Register”) for the recordation of the names and addresses of each Lender and the outstanding principal, accrued and unpaid interest and other fees due hereunder. The entries in the Register shall be conclusive, in the absence of manifest error, and each Borrower, Agent and Lender may treat each Person whose name is recorded in the Register as the owner of the Advance recorded therein for the purposes of this Agreement. The Register shall be available for inspection by Borrower Agent or any Lender at any reasonable time and from time to time upon reasonable prior notice. Agent shall receive a fee in the amount of $3,500 payable by the applicable Purchasing Lender and/or Purchasing CLO upon the effective date of each transfer or assignment (other than to an intermediate purchaser) to such Purchasing Lender and/or Purchasing CLO.

(h) Notwithstanding anything to the contrary contained in this Agreement, any Lender may at any time and from time to time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

16.4. Application of Payments. Agent shall have the continuing and exclusive right to apply or reverse and re-apply any payment and any and all proceeds of Collateral to any portion of the Obligations. To the extent that any Loan Party makes a payment or Agent or any Lender receives any payment or proceeds of the Collateral for any Loan Party’s benefit, which are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other party under any Bankruptcy Law, common law or equitable cause, then, to such extent, the Obligations or part thereof intended to be satisfied shall be revived and continue as if such payment or proceeds had not been received by Agent or such Lender.

16.5. Indemnity. Loan Parties shall indemnify each Indemnitee against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys, who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by Loan Parties arising out of, in connection with, or as a result of: (i) the execution or delivery of this Agreement, any Other Document or any document contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby; (ii) any Advance or the use or proposed use of the proceeds thereof; (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by Loan Parties or any Subsidiary thereof or any Environmental Claim or Environmental Liability related in any way to Loan Parties or any Subsidiary thereof; or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by Loan Parties or any Subsidiary thereof, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by a final and non-appealable judgment to have resulted result from the gross negligence or willful misconduct of such Indemnitee. This Section 16.5 shall not apply to Taxes other than any Taxes that constitute losses, claims, damages, liabilities or expenses arising from any non-Tax action, claim, litigation, investigation or proceeding.

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16.6. Notice. Any notice or request hereunder may be given to Borrower Agent, Borrowers or to Agent or any Lender at their respective addresses set forth below or at such other address as may hereafter be specified in a notice designated as a notice of change of address under this Section. Any notice, request, demand, direction or other communication (for purposes of this Section 16.6 only, a “Notice”) to be given to or made upon any party hereto under any provision of this Agreement shall be given or made by telephone or in writing (which includes by means of electronic transmission (i.e., “e-mail”) or facsimile transmission or by setting forth such Notice on a website to which Borrowers are directed (an “Internet Posting”) if Notice of such Internet Posting (including the information necessary to access such site) has previously been delivered to the applicable parties hereto by another means set forth in this Section 16.6) in accordance with this Section 16.6. Any such Notice must be delivered to the applicable parties hereto at the addresses and numbers set forth under their respective names on Section 16.6 hereof or in accordance with any subsequent unrevoked Notice from any such party that is given in accordance with this Section 16.6. Any Notice shall be effective:

(a) In the case of hand-delivery, when delivered;

(b) If given by mail, four (4) days after such Notice is deposited with the United States Postal Service, with first-class postage prepaid, return receipt requested;

(c) In the case of a telephonic Notice, when a party is contacted by telephone, if delivery of such telephonic Notice is confirmed no later than the next Business Day by hand delivery, a facsimile or electronic transmission, an Internet Posting or an overnight courier delivery of a confirmatory Notice (received at or before noon on such next Business Day);

(d) In the case of a facsimile transmission, when sent to the applicable party’s facsimile machine’s telephone number, if the party sending such Notice receives confirmation of the delivery thereof from its own facsimile machine;

(e) In the case of electronic transmission, when actually received;

(f) In the case of an Internet Posting, upon delivery of a Notice of such posting (including the information necessary to access such site) by another means set forth in this Section 16.6; and

(g) If given by any other means (including by overnight courier), when actually received.

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Any Lender giving a Notice to Borrower Agent or a Loan Party shall concurrently send a copy thereof to Agent, and Agent shall promptly notify the other Lenders of its receipt of such Notice.

(A)	If<br> to Agent or FGI Worldwide LLC:
	FGI<br> Worldwide LLC
	410<br> Park Avenue, Suite 920
	New<br> York, New York 10022
	Attention:<br> Chris Fulman
	Telephone:<br> 212-248-6232
	Email:<br> cfulman@fgiww.com
	Facsimile:<br> 212-248-3404
	with<br> an additional copy to:
	Otterbourg<br> P.C.
	230<br> Park Avenue
	New<br> York, New York 10169
	Attention:<br> Richard Stehl
	Telephone:<br> 212-905-3651
	Email:<br> rstehl@otterbourg.com
(B)	If<br> to a Lender other than Agent, as specified by such Lender
(C)	If<br> to Borrower Agent or any Loan Party:
	Zircon<br> Corporation
	1580<br> Dell Avenue
	Campbell,<br> CA 95008
	Attn:<br> Robert Wyler
	Email:<br> legal@zircon.com
	Phone:<br> 408-963-4508

16.7. Survival. The obligations of the Loan Parties under Sections 3.7, 3.9, 3.10, 16.5 and 16.9 and the obligations of Lenders under Sections 14.8 and 16.5, shall survive termination of this Agreement and the Other Documents and payment in full of the Obligations.

16.8. Severability. If any part of this Agreement is contrary to, prohibited by, or deemed invalid under Applicable Laws, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder hereof shall not be invalidated thereby and shall be given effect so far as possible.

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16.9. Expenses. Loan Parties shall pay (i) all out-of-pocket expenses incurred by Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for Agent), and shall pay all fees and time charges and disbursements for attorneys who may be employees of Agent, in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the Other Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) [Reserved], (iii) all out-of-pocket expenses incurred by Agent or any Lender (including the fees, charges and disbursements of any counsel for Agent or any Lender), and shall pay all fees and time charges for attorneys who may be employees of Agent or any Lender, in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the Other Documents, including its rights under this Section, or (B) in connection with the Advances made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Advances, and (iv) all reasonable out-of-pocket expenses of Agent’s regular employees and agents, subject to the limitations, if any, set forth in Sections 4.6, and 4.7, engaged periodically to perform audits of any Borrower’s or any Borrower’s Affiliate’s or Subsidiary’s books, records and business properties.

16.10. Injunctive Relief. Each Loan Party recognizes that, in the event any Loan Party fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, or threatens to fail to perform, observe or discharge such obligations or liabilities, any remedy at law may prove to be inadequate relief to Lenders; therefor, Agent shall be entitled to seek temporary and permanent injunctive relief in any such case without the necessity of proving that actual damages are not an adequate remedy.

16.11. Consequential Damages. Neither Agent nor any Lender, nor any agent or attorney for any of them, shall be liable to any Loan Party (or any Affiliate of any such Person) for indirect, punitive, exemplary or consequential damages arising from any breach of contract, tort or other wrong relating to the establishment, administration or collection of the Obligations or as a result of any transaction contemplated under this Agreement or any Other Document.

16.12. Captions. The captions at various places in this Agreement are intended for convenience only and do not constitute and shall not be interpreted as part of this Agreement.

16.13. Counterparts; Facsimile Signatures. This Agreement may be executed in any number of and by different parties hereto on separate counterparts, all of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile or electronic transmission (including email transmission of a PDF image) shall be deemed to be an original signature hereto.

16.14. Construction. The parties acknowledge that each party and its counsel have reviewed this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments, Schedules or exhibits thereto.

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16.15. Confidentiality; Sharing Information. Agent and each Lender each agrees to maintain the confidentiality of the Information, except that Information may be disclosed (including by means of the Approved Electronic Communications): (a) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, advisors, representatives and funding and financing sources (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and agree to keep such Information confidential on the same terms as provided herein); (b) to the extent requested by any Governmental Body, purporting to have jurisdiction over it, provided, that to the extent permitted by Applicable Law(s), Agent will use reasonably commercial efforts to provide Borrower Agent with notice of any such request so received prior to the release thereof, however, Agent’s failure to so provide such notice (or any notice) will not be deemed a violation of any obligation of Agent to Loan Parties hereunder or otherwise expose Agent to any claim or liability to any Person as a result of such failure; (c) to the extent required by Applicable Law(s) or by any subpoena or similar legal process, provided, that to the extent permitted by Applicable Law(s), Agent will use reasonably commercial efforts to provide Borrower Agent with notice of any such required disclosure prior to the release thereof, however, Agent’s failure to so provide such notice (or any notice) will not be deemed a violation of any obligation of Agent to Loan Parties hereunder or otherwise expose Agent to any claim or liability to any Person as a result of such failure; (d) to any other party hereto; (e) in connection with the exercise of any remedies under this Agreement or under any Other Document or any action or Proceeding relating to this Agreement or any Other Document or the enforcement of rights hereunder or thereunder; (f) to “Gold Sheets” or other similar bank trade publications; provided that such information consist solely of deal terms and other information customarily found in such publications; (g) unless an Event of Default has occurred and is continuing, subject to an agreement containing provisions substantially the same as those of this Section 16.15 to: (i) any Purchasing Lender, Purchasing CLO or Participant in, or any prospective Purchasing Lender, Purchasing CLO or Participant in, any of its rights or obligations under this Agreement; or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to any Loan Party; (h) with the consent of a Loan Party; or (i) to the extent such Information: (i) becomes publicly available other than as a result of a breach of this Section 16.15; or (ii) becomes available to Agent, any Lender or any of their respective Affiliates on a non-confidential basis from a source other any Loan Party and not in contravention of this Section 16.15. For purposes of this Section 16.15, “Information” means all information (including financial information) received from any Loan Party relating to such Loan Party or its business, other than any such information that is available to Agent or any Lender on a non-confidential basis, and not in contravention of this Section 16.15, prior to disclosure by such Loan Party. Any Person required to maintain the confidentiality of Information as provided in this Section 16.15: (A) shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information; and (B) shall not disclose any financial information concerning any Loan Party or its business (including any information based on any such financial information) or use any such financial information for commercial purposes without the prior written consent of the applicable Loan Party. Notwithstanding the foregoing, each Loan Party authorizes each Lender to make appropriate announcements of the financial arrangements entered into among the Loan Parties, Agent, and Lenders, including announcements which are commonly known as “tombstones,” in such publications and to such selected parties as each Lender may in its sole and absolute discretion deem appropriate; provided such “tombstones” are approved in writing by the Borrower Agent prior to such disclosure (such approval not to be unreasonably withheld or delayed).

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16.16. Currency Indemnity. If, for the purposes of obtaining judgment in any court in any jurisdiction with respect to this Agreement or any Other Document, it becomes necessary to convert into a particular currency (the “Judgment Currency”) any amount due under this Agreement or under any Other Document in any currency other than the Judgment Currency (the “Currency Due”), then conversion shall be made at the rate of exchange prevailing on the Business Day before the day on which judgment is given. For this purpose “rate of exchange” means the rate at which the Agent is able, on the relevant date, to purchase the Currency Due with the Judgment Currency in accordance with its normal practice. In the event that there is a change in the rate of exchange prevailing between the Business Day immediately preceding the day on which the judgment is given and the date of receipt by the Agent of the amount due, the applicable Loan Party shall, on the date of receipt by the Agent, pay such additional amounts, if any, or be entitled to receive reimbursement of such amount, if any, as may be necessary to ensure that the amount received by the Agent on such date is the amount in the Judgment Currency which when converted at the rate of exchange prevailing on the date of receipt by the Agent is the amount then due under this Agreement or such Other Document in the Currency Due. If the amount of the Currency Due which the Agent is so able to purchase is less than the amount of the Currency Due originally due to it, the Loan Parties shall, jointly and severally, indemnify and save the Agent harmless from and against all loss or damage arising as a result of such deficiency. This indemnity shall constitute an obligation separate and independent from the other obligations contained in this Agreement and the Other Documents, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Agent from time to time and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount due under this Agreement or any Other Document or under any judgment or order.

16.17. Certifications From Banks and Participants; USA PATRIOT Act.

(a) Each Lender or assignee or participant of a Lender that is not incorporated under the Laws of the United States of America or a state thereof (and is not excepted from the certification requirement contained in Section 313 of the USA PATRIOT Act and the applicable regulations because it is both (i) an affiliate of a depository institution or foreign bank that maintains a physical presence in the United States or foreign country, and (ii) subject to supervision by a banking authority regulating such affiliated depository institution or foreign bank) shall deliver to the Agent the certification, or, if applicable, recertification, certifying that such Lender is not a “shell” and certifying to other matters as required by Section 313 of the USA PATRIOT Act and the applicable regulations: (1) within ten (10) days after the Closing Date, and (2) as such other times as are required under the USA PATRIOT Act.

(b) The USA PATRIOT Act requires all financial institutions to obtain, verify and record certain information that identifies individuals or business entities which open an “account” with such financial institution. Consequently, any Lender may from time to time request, and each Loan Party shall provide to such Lender, such Loan Party’s name, address, tax identification number and/or such other identifying information as shall be necessary for such Lender to comply with the USA PATRIOT Act and any other Anti-Terrorism Law.

16.18. Anti-Terrorism Laws.

(a) Each Loan Party represents and warrants that (i) no Covered Entity is a Sanctioned Person and (ii) no Covered Entity, either in its own right or through any third party, (A) has any of its assets in a Sanctioned Country or in the possession, custody or control of a Sanctioned Person in violation of any Anti-Terrorism Law; (B) does business in or with, or derives any of its income from investments in or transactions with, any Sanctioned Country or Sanctioned Person in violation of any Anti-Terrorism Law; or (C) engages in any dealings or transactions prohibited by any Anti-Terrorism Law.

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(b) Each Loan Party covenants and agrees that (i) no Covered Entity will become a Sanctioned Person, (ii) no Covered Entity, either in its own right or through any third party, will (A) have any of its assets in a Sanctioned Country or in the possession, custody or control of a Sanctioned Person in violation of any Anti-Terrorism Law; (B) do business in or with, or derive any of its income from investments in or transactions with, any Sanctioned Country or Sanctioned Person in violation of any Anti-Terrorism Law; (C) engage in any dealings or transactions prohibited by any Anti-Terrorism Law or (D) use the Advances to fund any operations in, finance any investments or activities in, or, make any payments to, a Sanctioned Country or Sanctioned Person in violation of any Anti-Terrorism Law, (iii) the funds used to repay the Obligations will not be derived from any unlawful activity, (iv) each Covered Entity shall comply with all Anti-Terrorism Laws and (v) the Borrower Agent shall promptly notify the Agent in writing upon the occurrence of a Reportable Compliance Event.

XVII. GUARANTY.

17.1. Guaranty. As used in this Article XVII, “Guarantor” shall not include the Limited Recourse Guarantors. Each Guarantor unconditionally and irrevocably guarantees to Agent and the other Lenders the full and prompt payment when due (whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise) and performance of the Obligations (the “Guaranteed Obligations”). The Guaranteed Obligations include interest that, but for a Proceeding under any Bankruptcy Law, would have accrued on such Guaranteed Obligations, whether or not a claim is allowed against Borrowers for such interest in any such Proceeding.

17.2. Separate Obligation. Each Guarantor acknowledges and agrees that: (i) the Guaranteed Obligations are separate and distinct from any Indebtedness arising under or in connection with any other document, including under any provision of this Agreement other than this Article XVII, executed at any time by such Guarantor in favor of Agent or any other Lenders; and (ii) such Guarantor shall pay and perform all of the Guaranteed Obligations as required under this Article XVII, and Agent and the other Lenders may enforce any and all of their respective rights and remedies hereunder, without regard to any other document, including any provision of this Agreement other than this Article XVII, at any time executed by such Guarantor in favor of Agent or any other Lenders, irrespective of whether any such other document, or any provision thereof or hereof, shall for any reason become unenforceable or any of the Indebtedness thereunder shall have been discharged, whether by performance, avoidance or otherwise. Each Guarantor acknowledges that, in providing benefits to Borrowers, Lenders are relying upon the enforceability of this Article XVII and the Guaranteed Obligations as separate and distinct Indebtedness of such Guarantor, and each Guarantor agrees that Lenders would be denied the full benefit of their bargain if at any time this Article XVII or the Guaranteed Obligations were treated any differently. The fact that the guaranty is set forth in this Agreement rather than in a separate guaranty document is for the convenience of Borrowers and, if applicable, any Guarantors and shall in no way impair or adversely affect the rights or benefits of Lenders under this Article XVII. Each Guarantor agrees to execute and deliver a separate document, immediately upon request at any time of Agent or any other Lenders, evidencing such Guarantor’s obligations under this Article XVII. Upon the occurrence of any Event of Default, a separate action or actions may be brought against such Guarantor, whether or not Borrowers, any other Guarantor or any other Person is joined therein or a separate action or actions are brought against Borrowers, any such other Guarantor or any such other Person.

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17.3. Limitation of Guaranty. To the extent that any court of competent jurisdiction shall impose by final judgment under Applicable Laws (including Sections 544 and 548 of the Bankruptcy Code) any limitations on the amount of any Guarantor’s liability with respect to the Guaranteed Obligations that Agent or any other Lenders can enforce under this Article XVII, Agent and the other Lender by their acceptance hereof accept such limitation on the amount of such Guarantor’s liability hereunder to the extent needed to make this Article XVII fully enforceable and non-avoidable.

17.4. Liability of Guarantors. The liability of any Guarantor under this Article XVII shall be irrevocable, absolute, independent and unconditional, and shall not be affected by any circumstance that might constitute a discharge of a surety or Guarantor other than the indefeasible payment and performance in full of all Guaranteed Obligations. In furtherance of the foregoing and without limiting the generality thereof, each Guarantor agrees as follows:

(a) such Guarantor’s liability hereunder shall be the immediate, direct, and primary obligation of such Guarantor and shall not be contingent upon Agent’s or any Lender’s exercise or enforcement of any remedy it may have against Borrowers or any other Person, or against any collateral or other security for any Guaranteed Obligations;

(b) this Guaranty is a guaranty of payment when due and not merely of collectability;

(c) Agent and the other Lenders may enforce this Article XVII upon the occurrence of an Event of Default notwithstanding the existence of any dispute among Agent and the other Lenders, on the one hand, and Borrowers or any other Person, on the other hand, with respect to the existence of such Event of Default;

(d) such Guarantor’s payment of a portion, but not all, of the Guaranteed Obligations shall in no way limit, affect, modify or abridge such Guarantor’s liability for any portion of the Guaranteed Obligations remaining unsatisfied; and

(e) such Guarantor’s liability with respect to the Guaranteed Obligations shall remain in full force and effect without regard to, and shall not be impaired or affected by, nor shall such Guarantor be exonerated or discharged by, any of the following events:

(A) any Proceeding under any Bankruptcy Law;

(B) any limitation, discharge, or cessation of the liability of Borrowers or any other Person for any Guaranteed Obligations due to any statute, regulation or rule of law, or any invalidity or unenforceability in whole or in part of any of the Guaranteed Obligations or the Other Documents;

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(C) any merger, amalgamation, Acquisition, consolidation or change in structure of Borrowers, any Subsidiary thereof or any other Guarantor or Person, or any sale, lease, transfer or other disposition of any or all of the assets or shares of Borrowers or any other Person;

(D) any assignment or other transfer, in whole or in part, of Agent’s or any Lender’s interests in and rights under this Agreement (including this Article XVII) or the Other Documents;

(E) any claim, defense, counterclaim or setoff, other than that of prior performance, that Borrowers, such Guarantor, any other Guarantor or any other Person may have or assert, including any defense of incapacity or lack of corporate or other authority to execute any of the Other Documents;

(F) Agent’s or any other Lender’s amendment, modification, renewal, extension, cancellation or surrender of any Other Document or any Guaranteed Obligations;

(G) Agent’s or any Lender’s exercise or non-exercise of any power, right or remedy with respect to any Guaranteed Obligations or any collateral;

(H) Agent’s or any Lender’s vote, claim, distribution, election, acceptance, action or inaction in any Proceeding under any Bankruptcy Law; or

(I) any other guaranty, whether by such Guarantor or any other Person, of all or any part of the Guaranteed Obligations or any other indebtedness, obligations or liabilities of Borrowers to Agent or any other Lender.

17.5. Consents of Guarantors. Each Guarantor hereby unconditionally consents and agrees that, without notice to or further assent from such Guarantor:

(a) the principal amount of the Guaranteed Obligations may be increased or decreased and additional indebtedness or Obligations of Borrowers and any other Loan Party under the Other Documents may be incurred and the time, manner, place or terms of any payment under any Other Document may be extended or changed, by one or more amendments, modifications, renewals or extensions of any Other Document or otherwise;

(b) the time for Borrowers (or any other Person’s) performance of or compliance with any term, covenant or agreement on its part to be performed or observed under any Other Document may be extended, or such performance or compliance waived, or failure in or departure from such performance or compliance consented to, all in such manner and upon such terms as Agent and the other Lenders (as applicable under the relevant Other Documents) may deem proper;

(c) Agent and the other Lenders may request and accept other guaranties and may take and hold security as collateral for the Guaranteed Obligations, and may, from time to time, in whole or in part, exchange, sell, surrender, release, subordinate, modify, waive, rescind, compromise or extend such other guaranties or security and may permit or consent to any such action or the result of any such action, and may apply such security and direct the order or manner of sale thereof; and

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(d) Agent or the other Lenders may exercise, or waive or otherwise refrain from exercising, any other right, remedy, power or privilege even if the exercise thereof affects or eliminates any right of subrogation or any other right of such Guarantor against Borrowers or any other Loan Party.

17.6. Guarantor’s Waivers. Each Guarantor waives and agrees not to assert:

(a) any right to require Agent or any other Lenders to proceed against Borrowers, any other Guarantor or any other Person, or to pursue any other right, remedy, power or privilege of Agent or any other Lenders whatsoever;

(b) the defense of the statute of limitations in any action hereunder or for the collection or performance of the Guaranteed Obligations;

(c) any defense arising by reason of any lack of corporate or other authority or any other defense of Borrowers, such Guarantor or any other Person;

(d) any defense based upon Agent’s or any Lender’s errors or omissions in the administration of the Guaranteed Obligations (unless Agent’s or Lender’s error or omission was the result of gross negligence or constituted willful misconduct);

(e) any rights to set-offs and counterclaims; and

(f) any and all notice of the acceptance of this guaranty, and any and all notice of the creation, renewal, modification, extension or accrual of the Guaranteed Obligations, or the reliance by Agent and the other Lenders upon this Guaranty, or the exercise of any right, power or privilege hereunder. The Guaranteed Obligations shall conclusively be deemed to have been created, contracted, incurred and permitted to exist in reliance upon this Guaranty. Each Guarantor waives promptness, diligence, presentment, protest, demand for payment or performance, notice of default, dishonor or nonpayment and all other notices to or upon Borrowers, each Guarantor or any other Person with respect to the Guaranteed Obligations, including notice of non-performance, default and acceleration.

17.7. Financial Condition of Borrowers. No Guarantor shall have any right to require Agent or any other Lenders to obtain or disclose any information with respect to: the financial condition or character of Borrowers or the ability of Borrowers to pay and perform the Guaranteed Obligations; the Guaranteed Obligations; any collateral or other security for any or all of the Guaranteed Obligations; the existence or nonexistence of any other guarantees of all or any part of the Guaranteed Obligations; any action or inaction on the part of Agent or any other Lender or any other Person; or any other matter, fact or occurrence whatsoever. Each Guarantor hereby acknowledges that it has undertaken its own independent investigation of the financial condition of Borrowers and all other matters pertaining to this Guaranty and further acknowledges that it is not relying in any manner upon any representation or statement of Agent or any other Lender with respect thereto.

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17.8. Subrogation. Until the Guaranteed Obligations shall be paid in full and the Revolving Commitment shall be terminated, each Guarantor shall not have, and shall not directly or indirectly exercise: (i) any rights that it may acquire by way of subrogation under this Article XVII, by any payment hereunder or otherwise; (ii) any rights of contribution, indemnification, reimbursement or similar suretyship claims arising out of this Article XVII; or (iii) any other right that it might otherwise have or acquire (in any way whatsoever) that could entitle it at any time to share or participate in any right, remedy or security of Agent or any other Lender as against any Borrowers or other Guarantors or any other Person, whether in connection with this Article XVII, any of the Other Documents or otherwise. If any amount shall be paid to any Guarantor on account of the foregoing rights at any time when all the Guaranteed Obligations shall not have been paid in full, such amount shall be held in trust for the benefit of Agent and the other Lenders and shall forthwith be paid to Agent to be credited and applied to the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms of the Other Documents.

17.9. Subordination. All payments on account of all indebtedness, liabilities and other obligations of the Borrowers to any Guarantor, whether now existing or hereafter arising, and whether due or to become due, absolute or contingent, liquidated or unliquidated, determined or undetermined (the “Guarantor Subordinated Debt”) shall be subject, subordinate and junior in right of payment and exercise of remedies, to the extent and in the manner set forth herein, to the prior payment in full in cash or Cash Equivalents of the Guaranteed Obligations. As long as any of the Guaranteed Obligations shall remain outstanding and unpaid, each Guarantor shall not accept or receive any payment or distribution by or on behalf of Borrowers or any other Guarantor, directly or indirectly, or assets of Borrowers or any other Guarantor, of any kind or character, whether in cash, property or securities, including on account of the purchase, redemption or other Acquisition of Guarantor Subordinated Debt, as a result of any collection, sale or other disposition of collateral, or by setoff, exchange or in any other manner, for or on account of the Guarantor Subordinated Debt (“Guarantor Subordinated Debt Payments”).

If any Guarantor Subordinated Debt Payments shall be received in contravention of this Article XVII, such Guarantor Subordinated Debt Payments shall be held in trust for the benefit of Agent and the other Lenders and shall be paid over or delivered to Agent for application to the payment in full in cash or Cash Equivalents of all Guaranteed Obligations remaining unpaid to the extent necessary to give effect to this Article XVII after giving effect to any concurrent payments or distributions to Agent and the other Lenders in respect of the Guaranteed Obligations.

17.10. Continuing Guaranty. This Guaranty is a continuing guaranty and agreement and shall continue in effect and be binding upon each Guarantor until termination of the Revolving Commitment and payment and performance in full of the Guaranteed Obligations, including Guaranteed Obligations which may exist continuously or which may arise from time to time under successive transactions, and each Guarantor expressly acknowledges that this guaranty shall remain in full force and effect notwithstanding that there may be periods in which no Guaranteed Obligations exist. This Guaranty shall be reinstated and revived if, for any reason, any payment of the Obligations or Guaranteed Obligations is rescinded, invalidated, declared to be fraudulent or preferential, set aside, voided or otherwise required to be repaid to any Person (other than Agent and the Lenders).

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17.11. Reinstatement. This Guaranty shall continue to be effective or shall be reinstated and revived, as the case may be, if, for any reason, any payment of the Guaranteed Obligations by or on behalf of Borrowers (or receipt of any proceeds of collateral) shall be rescinded, invalidated, declared to be fraudulent or preferential, set aside, voided or otherwise required to be repaid to Borrowers, its estate, trustee, receiver or any other Person (including under any Bankruptcy Law), or must otherwise be restored by Agent or any other Lender, whether as a result of Proceedings under any Bankruptcy Law or otherwise. All losses, damages, costs and expenses that Agent, or any Lender may suffer or incur as a result of any voided or otherwise set aside payments shall be specifically covered by the indemnity in favor of Agent and the other Lenders contained in Section 16.5.

17.12. Substantial Benefits. The Advances provided to or for the benefit of Borrowers hereunder by Lenders have been and are to be contemporaneously used for the benefit of Borrowers and each Guarantor. It is the position, intent and expectation of the parties that Borrowers and each Guarantor have derived and will derive significant and substantial benefits from the Advances to be made available by Lenders under the Other Documents. Each Guarantor has received at least “reasonably equivalent value” (as such phrase is used in Section 548 of the Bankruptcy Code and in comparable provisions of other Applicable Laws) and more than sufficient consideration to support its obligations hereunder in respect of the Guaranteed Obligations. Immediately prior to and after and giving effect to the incurrence of each Guarantor’s obligations under this Guaranty, such Guarantor will be Solvent.

17.13. Mexican Loan Parties Waiver. Each Mexican Loan Party hereby waives any rights now or hereafter conferred, that limit or modify any of the Agent’s rights or remedies under this Agreement, including, if applicable, the benefits of orden, excusión and división, quita, novación, espera, modificación and any other right which may be available to the Mexican Loan Parties under Articles 2813, 2814, 2815, 2817, 2818, 2822, 2823, 2827, 2828, 2836, 2840, 2842, 2844, 2845, 2846, 2847, 2848, 2849 and other related Articles of the Civil Code of Mexico City as well as the correlative provisions of the Federal Civil Code of Mexico and the Civil Codes of other states of Mexico.

XVIII. FGI as Sole Lender.

18.1. Sole Lender. Notwithstanding anything to the contrary contained in this Agreement or any Other Document, it is the intention of all parties that FGI will be the sole Lender hereunder and FGI agrees not to syndicate and/or assign any portion of the Revolving Commitment without Borrower Agent’s prior consent; provided, that:

(a) this Section 18.1 shall not limit or impair, and is hereby made expressly subject to, FGI’s right to sell participations to a Participant in accordance with Section 16.3(b), all of which can be performed by FGI without Borrower Agent’s prior consent; and

(b) no consent of the Borrower Agent shall be required under this Section 18.1 if (1) a Default has occurred and is continuing or (2) such assignment is to an Eligible Assignee (including, without limitation, the assignment or delivery of instruments and any Notes delivered in connection herewith to any financing sources of FGI).

[Signature Pages Follow]

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Each of the parties has signed this Agreement as of the day and year first above written.

ATTEST:	BORROWERS
	ZIRCON CORPORATION,
	as<br> a Borrower
	By
	Name:
	Title:
	GUARANTORS
	ZRCN INC.
	as<br> a Guarantor
	By
	Name:
	Title:
	ZIRCON DE MEXICO, S.A. DE C.V.
	as<br> a Guarantor
	By
	Name:
	Title:
	ZIRCON CORPORATION LIMITED
	as<br> a Guarantor
	By
	Name:
	Title:

[Revolving Credit, Security and Guaranty Agreement]

AGENT AND LENDER
FGI WORLDWIDE LLC,
as<br> a Lender and as Agent
By:
Name:
Title

Revolving Commitment Percentage: 100%

Revolving Commitment Amount: $15,000,000

[Revolving Credit, Security and Guaranty Agreement]

Exhibit21.1

LISTOF SUBSIDIARIES OF ZRCN INC.

	State of	Percentage Owned
	Incorporation/Organization	by Registrant
Zircon Corporation.	California	100% (directly)

Exhibit23.1

July 15, 2024

To:	Whom<br> it may concern:

Re: ZRCN, Inc.

In connection with the filing of Form 10-K dated July 15, 2024, to be filed under the Securities Act of 1934 (U.S.) of ZRCN, Inc. (the “Company”), we consent to being named and to the use of our report dated July 15, 2024 to the shareholders of the Company on the following consolidated financial statements:

a)	Consolidated<br> statements of financial position as at March 31, 2024.
b)	Consolidated<br> statements of operations and comprehensive loss, changes in equity and cash flows for the year then ended, and a summary of significant<br> accounting policies and other explanatory information.

We report that we have read the Form 10-K and all information therein and have no reason to believe that there are any misrepresentations in the information contained therein that are derived from the financial statements upon which we have reported or that are within our knowledge as a result of our audit of such consolidated financial statements.

This letter is provided solely for the purpose of assisting the filing of Form 10-K to which it is addressed in discharging its responsibilities and should not be used for any other purpose.

Sincerely,

/s/ Assurance Dimensions
We have served as the Company’s auditor since 2023.
Coral Springs, Florida
July 15, 2024

ASSURANCEDIMENSIONS CERTIFIED PUBLIC ACCOUNTANTS & ASSOCIATES

alsod/b/a McNAMARA and ASSOCIATES, PLLC

TAMPABAY: 4920 W Cypress Street, Suite 102 | Tampa, FL 33607 | Office: 813.443.5048 | Fax: 813.443.5053

JACKSONVILLE: 4720 Salisbury Road, Suite 223 | Jacksonville, FL 32256 | Office: 888.410.2323 | Fax: 813.443.5053

**ORLANDO:**1800 Pembrook Drive, Suite 300 | Orlando, FL 32810 | Office: 888.410.2323 | Fax: 813.443.5053

SOUTHFLORIDA: 3111 N. University Drive, Suite 621 | Coral Springs, FL 33065 | Office: 754.800.3400 | Fax: 813.443.5053

www.assurancedimensions.com

Exhibit31.1

Certificationof Chief Executive Officer of ZRCN Inc.

Pursuantto Section 302 of the Sarbanes-Oxley Act of 2002

I, John Stauss, certify that:

1.	I<br> have reviewed this Annual Report on Form 10-K of ZRCN Inc.;
2.	Based<br> on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary<br> to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to<br> the period covered by this report;
3.	Based<br> on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material<br> respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in<br> this report;
4.	The<br> registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures<br> (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange<br> Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
a.	Designed<br> such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,<br> to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others<br> within those entities, particularly during the period in which this report is being prepared;
---	---
b.	Designed<br> such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our<br> supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements<br> for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated<br> the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about<br> the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;<br> and
d.	Disclosed<br> in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s<br> most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,<br> or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The<br> registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial<br> reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing<br> the equivalent functions):
---	---
a.	All<br> significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are<br> reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;<br> and
---	---
b.	Any<br> fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s<br> internal control over financial reporting.
Date:<br> July 15, 2024	/s/ John Stauss
---	---
	John<br> Stauss
	Chief<br> Executive Officer (Principal Executive Officer)

Exhibit31.2

Certificationof Chief Financial Officer of ZRCN Inc.

Pursuantto Section 302 of the Sarbanes-Oxley Act of 2002

I, Ron Bourque, certify that:

1.	I<br> have reviewed this Annual Report on Form 10-K of ZRCN Inc.;
2.	Based<br> on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary<br> to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to<br> the period covered by this report;
3.	Based<br> on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material<br> respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in<br> this report;
4.	The<br> registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures<br> (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange<br> Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
a.	Designed<br> such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,<br> to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others<br> within those entities, particularly during the period in which this report is being prepared;
---	---
b.	Designed<br> such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our<br> supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements<br> for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated<br> the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about<br> the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;<br> and
d.	Disclosed<br> in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s<br> most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,<br> or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The<br> registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial<br> reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing<br> the equivalent functions):
---	---
a.	All<br> significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are<br> reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;<br> and
---	---
b.	Any<br> fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s<br> internal control over financial reporting.
Date:<br> July 15, 2024	/s/ Ron Bourque
---	---
	Ron<br> Bourque
	Chief<br> Financial Officer
	(Principal<br> Financial and Accounting Officer)

Exhibit32.1

Certificationof Pursuant to 18 U.S.C. Section 1350

asAdopted Pursuant to

Section906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, John Stauss, Chief Executive Officer of ZRCN Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge and belief:

1.	The<br> Company’s Annual Report on Form 10-K for the year ended March 31, 2024 (the “Report”) fully complies with the requirements<br> of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The<br> information contained in the Report fairly presents, in all material respects, the financial condition and results of operations<br> of the Company.
Date:<br> July 15, 2024	/s/ John Stauss
---	---
	John<br> Stauss
	Chief<br> Executive Officer
	(Principal<br> Executive Officer)

Exhibit32.2

Certificationof Pursuant to 18 U.S.C. Section 1350

asAdopted Pursuant to

Section906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Ron Bourque, Chief Financial Officer of ZRCN Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge and belief:

1.	The<br> Company’s Annual Report on Form 10-K for the year ended March 31, 2024 (the “Report”) fully complies with the requirements<br> of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The<br> information contained in the Report fairly presents, in all material respects, the financial condition and results of operations<br> of the Company.
Date:<br> July 15, 2024	/s/ Ron Bourque
---	---
	Ron<br> Bourque
	Chief<br> Financial Officer
	(Principal<br> Financial and Accounting Officer)