Exhibit 10.1
AMENDED AND RESTATED REVOLVING CREDIT
AND
SECURITY AGREEMENT
NATIONAL CITY BUSINESS CREDIT, INC.
(AS LENDER AND AS AGENT)
WITH
SPARTON CORPORATION, SPARTON ELECTRONICS FLORIDA, INC.,
SPARTRONICS, INC., SPARTON MEDICAL SYSTEMS, INC., SPARTRONICS
VIETNAM CO., LTD., SPARTON TECHNOLOGY, INC. and SPARTON OF CANADA,
LIMITED
(BORROWERS)
AUGUST 14, 2009

 

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TABLE OF CONTENTS

           
I. DEFINITIONS
    2    
1.1. Accounting Terms
    2  
1.2. General Terms
    2  
1.3. Uniform Commercial Code Terms
    23  
1.4. Certain Matters of Construction
    23    
II. ADVANCES, PAYMENTS
    24    
2.1. Revolving Advances
    24  
2.2. Procedure for Revolving Advances Borrowing
    25  
2.3. Disbursement of Advance Proceeds
    27  
2.4. Intentionally Omitted
    27  
2.5. Maximum Advances
    28  
2.6. Repayment of Advances
    28  
2.7. Repayment of Excess Advances
    28  
2.8. Statement of Account
    28  
2.9. Letters of Credit
    29  
2.10. Issuance of Letters of Credit
    29  
2.11. Requirements For Issuance of Letters of Credit
    30  
2.12. Disbursements, Reimbursement
    30  
2.13. Repayment of Participation Advances
    31  
2.14. Documentation
    32  
2.15. Determination to Honor Drawing Request
    32  
2.16. Nature of Participation and Reimbursement Obligations
    32  
2.17. Indemnity
    34  
2.18. Liability for Acts and Omissions
    34  

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2.19. Additional Payments
    35  
2.20. Manner of Borrowing and Payment
    35  
2.21. Mandatory Prepayments
    37  
2.22. Use of Proceeds
    37  
2.23. Defaulting Lender
    37    
III. INTEREST AND FEES
    38    
3.1. Interest
    38  
3.2. Letter of Credit Fees
    39  
3.3. Closing Fee and Facility Fee
    39  
3.4. Collateral Evaluation Fee and Collateral Monitoring Fee
    40  
3.5. Computation of Interest and Fees
    40  
3.6. Maximum Charges
    40  
3.7. Increased Costs
    41  
3.8. Basis For Determining Interest Rate Inadequate or Unfair
    41  
3.9. Capital Adequacy
    42  
3.10. Gross Up for Taxes
    43  
3.11. Withholding Tax Exemption
    43    
IV. COLLATERAL: GENERAL TERMS
    44    
4.1. Security Interest in the Collateral
    44  
4.2. Perfection of Security Interest
    44  
4.3. Disposition of Collateral
    45  
4.4. Preservation of Collateral
    45  
4.5. Ownership of Collateral
    45  
4.6. Defense of Agent’s and Lenders’ Interests
    46  
4.7. Books and Records
    46  

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4.8. Financial Disclosure
    47  
4.9. Compliance with Laws
    47  
4.10. Inspection of Premises
    47  
4.11. Insurance
    47  
4.12. Failure to Pay Insurance
    48  
4.13. Payment of Taxes
    48  
4.14. Payment of Leasehold Obligations
    49  
4.15. Receivables
    49  
4.16. Inventory
    51  
4.17. Maintenance of Equipment
    51  
4.18. Exculpation of Liability
    51  
4.19. Environmental Matters
    51  
4.20. Financing Statements
    54    
V. REPRESENTATIONS AND WARRANTIES
    54    
5.1. Authority
    54  
5.2. Formation and Qualification
    54  
5.3. Survival of Representations and Warranties
    55  
5.4. Tax Returns
    55  
5.5. Financial Statements
    55  
5.6. Entity Names
    56  
5.7. O.S.H.A. and Environmental Compliance
    56  
5.8. Solvency; No Litigation, Violation, Indebtedness or Default
    56  
5.9. Patents, Trademarks, Copyrights and Licenses
    58  
5.10. Licenses and Permits
    58  
5.11. Default of Indebtedness
    58  

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5.12. No Default
    58  
5.13. No Burdensome Restrictions
    58  
5.14. No Labor Disputes
    59  
5.15. Margin Regulations
    59  
5.16. Investment Company Act
    59  
5.17. Disclosure
    59  
5.18. [Intentionally Omitted]
    59  
5.19. Swaps
    59  
5.20. Conflicting Agreements
    59  
5.21. Application of Certain Laws and Regulations
    59  
5.22. Business and Property of Borrowers
    60  
5.23. Section 20 Subsidiaries
    60  
5.24. Anti-Terrorism Laws
    60  
5.25. Trading with the Enemy
    61  
5.26. Federal Securities Laws
    61    
VI. AFFIRMATIVE COVENANTS
    61    
6.1. Payment of Fees
    61  
6.2. Conduct of Business and Maintenance of Existence and Assets
    61  
6.3. Violations
    61  
6.4. Government Receivables
    61  
6.5. Financial Covenants
    61  
6.6. Execution of Supplemental Instruments
    62  
6.7. Payment of Indebtedness
    62  
6.8. Standards of Financial Statements
    62    
VII. NEGATIVE COVENANTS
    63  

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7.1. Merger, Consolidation, Acquisition and Sale of Assets
    63  
7.2. Creation of Liens
    63  
7.3. Guarantees
    63  
7.4. Investments
    63  
7.5. Loans
    63  
7.6. Capital Expenditures
    64  
7.7. Dividends
    64  
7.8. Indebtedness
    64  
7.9. Nature of Business
    64  
7.10. Transactions with Affiliates
    64  
7.11. Leases
    64  
7.12. Subsidiaries
    64  
7.13. Fiscal Year and Accounting Changes
    64  
7.14. Pledge of Credit
    65  
7.15. Amendment of Articles of Incorporation, By-Laws
    65  
7.16. Compliance with ERISA
    65  
7.17. Prepayment of Indebtedness
    65  
7.18. Anti-Terrorism Laws
    65  
7.19. Membership/Partnership Interests
    66  
7.20. Trading with the Enemy Act
    66    
VIII. CONDITIONS PRECEDENT
    66    
8.1. Conditions to Initial Advances
    66  
8.2. Conditions to Each Advance
    69    
IX. INFORMATION AS TO BORROWERS
    70    
9.1. Disclosure of Material Matters
    70  

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9.2. Schedules
    70  
9.3. Environmental Reports
    70  
9.4. Litigation
    71  
9.5. Material Occurrences
    71  
9.6. Government Receivables
    71  
9.7. Annual Financial Statements
    71  
9.8. Quarterly Financial Statements
    72  
9.9. Monthly Financial Statements
    72  
9.10. Other Reports
    72  
9.11. Additional Information
    72  
9.12. Projected Operating Budget
    72  
9.13. Variances From Operating Budget
    73  
9.14. Notice of Suits, Adverse Events
    73  
9.15. ERISA Notices and Requests
    73  
9.16. Additional Documents
    74    
X. EVENTS OF DEFAULT
    74    
10.1. Nonpayment
    74  
10.2. Breach of Representation
    74  
10.3. Financial Information
    74  
10.4. Judicial Actions
    74  
10.5. Noncompliance
    74  
10.6. Judgments
    74  
10.7. Bankruptcy
    74  
10.8. Inability to Pay
    75  
10.9. Affiliate Bankruptcy
    75  

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10.10. Material Adverse Effect
    75  
10.11. Lien Priority
    75  
10.12. [Intentionally Omitted]
    75  
10.13. Cross Default
    75  
10.14. [Intentionally Omitted];
    75  
10.15. Change of Control
    75  
10.16. Invalidity
    75  
10.17. Licenses
    75  
10.18. Seizures
    76  
10.19. Operations
    76  
10.20. Pension Plans
    76    
XI. LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT
    76    
11.1. Rights and Remedies
    76  
11.2. Agent’s Discretion
    78  
11.3. Setoff
    78  
11.4. Rights and Remedies not Exclusive
    78  
11.5. Allocation of Payments After Event of Default
    78    
XII. WAIVERS AND JUDICIAL PROCEEDINGS
    79    
12.1. Waiver of Notice
    79  
12.2. Delay
    80  
12.3. Jury Waiver
    80    
XIII. EFFECTIVE DATE AND TERMINATION
    80    
13.1. Term
    80  
13.2. Termination
    80    
XIV. REGARDING AGENT
    81  

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14.1. Appointment
    81  
14.2. Nature of Duties
    81  
14.3. Lack of Reliance on Agent and Resignation
    82  
14.4. Certain Rights of Agent
    82  
14.5. Reliance
    82  
14.6. Notice of Default
    83  
14.7. Indemnification
    83  
14.8. Agent in its Individual Capacity
    83  
14.9. Delivery of Documents
    83  
14.10. Borrowers’ Undertaking to Agent
    83  
14.11. No Reliance on Agent’s Customer Identification Program
    84  
14.12. Other Agreements
    84    
XV. BORROWING AGENCY
    84    
15.1. Borrowing Agency Provisions
    84  
15.2. Waiver of Subrogation
    85    
XVI. MISCELLANEOUS
    85    
16.1. Governing Law
    85  
16.2. Entire Understanding
    86  
16.3. Successors and Assigns; Participations; New Lenders
    88  
16.4. Application of Payments
    90  
16.5. Indemnity
    90  
16.6. Notice
    91  
16.7. Survival
    93  
16.8. Severability
    93  
16.9. Expenses
    93  

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16.10. Injunctive Relief
    93  
16.11. Consequential Damages
    93  
16.12. Captions
    93  
16.13. Counterparts; Facsimile Signatures
    93  
16.14. Construction
    94  
16.15. Confidentiality; Sharing Information
    94  
16.16. Publicity
    94  
16.17. Certifications From Banks and Participants; US PATRIOT Act
    94  

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LIST OF EXHIBITS AND SCHEDULES

      Exhibits    
Exhibit 1.2
  Borrowing Base Certificate
Exhibit 2.1(a)
  Revolving Credit Note
Exhibit 5.5(b)
  Financial Projections
Exhibit 8.1(k)
  Financial Condition Certificate
Exhibit 16.3
  Commitment Transfer Supplement

      Schedules    
Schedule 1.2
  Permitted Encumbrances
Schedule 4.5
  Equipment and Inventory Locations
Schedule 4.15(c)
  Chief Executive Offices
Schedule 4.15(h)
  Deposit and Investment Accounts
Schedule 4.19
  Real Property
Schedule 5.1
  Consents
Schedule 5.2(a)
  States of Qualification and Good Standing
Schedule 5.2(b)
  Subsidiaries
Schedule 5.4
  Federal Tax Identification Number
Schedule 5.6
  Prior Names
Schedule 5.8(b)
  Litigation
Schedule 5.7
  OSHA and Environmental Compliance
Schedule 5.8(d)
  Plans
Schedule 5.9
  Intellectual Property, Source Code Escrow Agreements
Schedule 5.10
  Licenses and Permits
Schedule 5.14
  Labor Disputes
Schedule 7.8
  Existing Indebtedness

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AMENDED AND RESTATED REVOLVING CREDIT
AND
SECURITY AGREEMENT
     Amended and Restated Revolving Credit and Security Agreement dated as of
August 14, 2009 among SPARTON CORPORATION, an Ohio corporation (“Sparton”),
SPARTON ELECTRONICS FLORIDA, INC., a Florida corporation (“Sparton Florida”),
SPARTRONICS, INC., a Michigan corporation (“Spartronics”), SPARTON MEDICAL
SYSTEMS, INC., a Michigan corporation (“Sparton Medical”), SPARTRONICS VIETNAM
CO., LTD., a corporation organized under the laws of Vietnam (“Sparton
Vietnam”), SPARTON TECHNOLOGY, INC., a New Mexico corporation (“Sparton
Technology”), and SPARTON OF CANADA, LIMITED, an Ontario corporation (“Sparton
Canada”) (Sparton, Sparton Florida, Spartronics, Sparton Medical, Sparton
Vietnam, Sparton Technology, and Sparton Canada, each a “Borrower”, and
collectively “Borrowers”), the financial institutions which are now or which
hereafter become a party hereto (collectively, the “Lenders” and individually a
“Lender”) and NATIONAL CITY BUSINESS CREDIT, INC. (“NCBC”), as agent for Lenders
(NCBC, in such capacity, the “Agent”).
     The Promissory Note and Promissory Note Covenant Exhibit, as amended, each
dated as of January 22, 2008, as amended by Master Amendment to Loan Documents
(Sparton Corporation — Line of Credit) dated as of April 21, 2008 and effective
as of March 31, 2008 (the “First Sparton Master Amendment”), by Second Master
Amendment to Loan Documents (Sparton Corporation — Line of Credit) dated as of
July 31, 2008 and effective as of June 30, 2008, by Third Master Amendment to
Loan Documents (Sparton Corporation — Line of Credit) dated as of November 12,
2008, and by Fourth Master Amendment to Loan Documents (Sparton Corporation —
Line of Credit) dated as of January 20, 2009, and by Modification Agreement
dated as of June 15, 2009, by and between Sparton and National City Bank, which
evidence a line of credit loan made available to Sparton in the original
principal amount of $20,000,000 (collectively, the “Sparton Note”), together
with all related loan and security documents, including without limitation, the
Amended and Restated Security Agreement dated as of April 21, 2008 and effective
as of March 31, 2008 (the “Original Security Agreement”), and those Commercial
Security Guaranty agreements each dated as of January 22, 2008, as amended by
the First Master Amendment, executed by Sparton Medical, Sparton Technology,
Spartronics, Sparton Florida and Sparton Canada (the “Sparton Guaranties”), have
been assigned, effective as of the Closing Date, to Agent in its capacity as
either a Lender hereunder or as Agent hereunder. The Promissory Note dated
May 30, 2006 and Promissory Note Covenant Exhibit dated August 1, 2007, as
amended by Master Amendment to Loan Documents (Sparton Medical Systems — Term
Loan) dated as of April 21, 2008 and effective as of March 31, 2008 (the “First
Sparton Medical Master Amendment”), by Second Master Amendment to Loan Documents
(Sparton Medical Systems — Term Loan) dated as of July 31, 2008 and effective as
of June 30, 2008, and by Third Master Amendment to Loan Documents (Sparton
Medical Systems — Term Loan)_dated as of November 12, 2008, which evidences a
term loan made available to Sparton Medical in the original principal amount of
$10,000,000 (collectively, the “Sparton Medical Note”), together with all
related loan and security documents, including without limitation those
Commercial Security Guaranty agreements each dated May 30, 2006, as amended by
the First Sparton Medical Master Amendment, executed by Sparton, Sparton
Technology, Sparton Florida

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and Sparton Canada and the Guaranty of Spartronics dated April 21, 2008
(collectively, the “Sparton Medical Guaranties”), have been assigned, effective
as of the Closing Date, to Agent in its capacity as either a Lender hereunder or
as Agent hereunder. This Amended and Restated Revolving Credit and Security
Agreement amends and restates the Sparton Note, the Sparton Medical Note, and
the Original Security Agreement in their entirety. The other loan documents
assigned together with the Sparton Note and the Sparton Medical Note have been
amended or restated as of the Closing Date, but all grants of security therein
remain in full force and effect and survive the amendment and restatement and
the Sparton Guaranties and the Sparton Medical Guaranties remain in full force
and effect and guaranty all of the Obligations.
     IN CONSIDERATION of the mutual covenants and undertakings herein contained,
Borrowers, 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, 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 as applied in preparation of the
audited financial statements of Borrowers for the fiscal year ended June 30,
2008.
     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.
     “Advance Rates” shall mean, collectively, the Receivables Advance Rate and
the Inventory Advance Rate.
     “Advances” shall mean and include the Revolving Advances and Letters of
Credit.
     “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, 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 5% or more of 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.
     “Agent” shall have the meaning set forth in the preamble to this Agreement
and shall include its successors and assigns.
     “Agent Advances” shall have the meaning set forth in Section 16.2(b)
hereof.

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     “Agreement” shall mean this Amended and Restated Revolving Credit and
Security Agreement, as the same may be amended, restated, supplemented or
otherwise modified from time to time.
     “Alternate Base Rate” shall mean, for any day, a rate per annum equal to
the higher of (i) the Base Rate in effect on such day, (ii) the Federal Funds
Open Rate in effect on such day plus 1/2 of 1% and (iii) the Daily LIBOR Rate
plus 1%. For purposes of this definition, “Daily LIBOR Rate” shall mean, for any
day, the rate per annum determined by Agent by dividing (x) the Published Rate
by (y) a number equal to 1.00 minus the percentage prescribed by the Federal
Reserve for determining the maximum reserve requirements with respect to any
eurocurrency funding by banks on such day. For the purposes of this definition,
“Published Rate” shall mean the rate of interest published each Business Day in
The Wall Street Journal “Money Rates” listing under the caption “London
Interbank Offered Rates” for a one month period (or, if no such rate is
published therein for any reason, then the Published Rate shall be the
eurodollar rate for a one month period as published in another publication
determined by Agent). In no event, however, shall the Alternate Base Rate be
less than 3.00% for purposes of this Agreement.
     “Anti-Terrorism Laws” shall mean any Applicable Laws relating to terrorism
or money laundering, including Executive Order No. 13224, the USA PATRIOT Act,
the Applicable Laws comprising or implementing the Bank Secrecy Act, and the
Applicable Laws administered by the United States Treasury Department’s Office
of Foreign Asset Control (as any of the foregoing Applicable Laws may from time
to time be amended, renewed, extended, or replaced).
     “Applicable Law” shall mean all laws, rules and regulations applicable to
the Person, conduct, transaction, covenant, Other Document or contract in
question, including all applicable common law and equitable principles; all
provisions of all applicable state, 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.
     “Applicable Margin” for Revolving Advances shall mean, as of the Closing
Date, the applicable percentage specified below:

          APPLICABLE MARGINS FOR   APPLICABLE MARGINS FOR DOMESTIC RATE LOANS  
EURODOLLAR RATE LOANS
4.00%
    5.00%

     Thereafter, effective as of the first Business Day following receipt by
Agent of the annual financial statements of Borrowers on a Consolidated Basis
for the fiscal year ending June 30, 2010 required under Section 9.7, and
thereafter upon receipt of the quarterly financial statements of Borrowers on a
Consolidated Basis required under Section 9.8 for the previous fiscal quarter
(each day of such delivery, an “Adjustment Date”), the Applicable Margin for
each type of Advance shall be adjusted, if necessary, to the applicable percent
per annum set forth in the pricing table set forth below corresponding to the
Fixed Charge Coverage Ratio for the trailing twelve month period ending on the
last day of the most recently completed fiscal quarter prior to

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the applicable Adjustment Date and maintained for two consecutive quarters (each
such period, a “Calculation Period”):

                      APPLICABLE MARGINS   APPLICABLE MARGINS FIXED CHARGE   FOR
DOMESTIC RATE   FOR EURODOLLAR RATE COVERAGE RATIO   LOANS   LOANS
Less than or equal to 1.15 to 1.00
    4.0 %     5.0 %
Greater than to 1.15 to 1.00 but less than or equal to 1.50:1.00
    3.75 %     4.75 %
Greater than 1.50 to 1.00
    3.5 %     4.5 %

     If the Borrowers shall fail to deliver the financial statements,
certificates and/or other information required under Sections 9.7 or 9.8 by the
dates required pursuant to such sections, each Applicable Margin shall be
conclusively presumed to equal the highest Applicable Margin specified in the
pricing table set forth above until the date of delivery of such financial
statements, certificates and/or other information, at which time the rate will
be adjusted based upon the Fixed Charge Coverage Ratio for two consecutive
quarters reflected in such statements.
     If, as a result of any restatement of, or other adjustment to, the
financial statements of Borrowers on a Consolidated Basis or for any other
reason, the Agent determines that (a) the Fixed Charge Coverage Ratio as
previously calculated as of any applicable date was inaccurate, and (b) a proper
calculation of the Fixed Charge Coverage Ratio would have resulted in different
pricing for any period, then (i) if the proper calculation of the Fixed Charge
Coverage Ratio would have resulted in higher pricing for such period, the
Borrowers shall automatically and retroactively be delegated to pay to the
Agent, promptly upon demand by the Agent, an amount equal to the excess of the
amount of interest that should have been paid for such period over the amount of
interest actually paid for such period; and (ii) if the proper calculation of
the Fixed Charge Coverage Ratio would have resulted in lower pricing for such
period, Lenders shall repay excess interest to the Borrowers.
     “Authority” shall have the meaning set forth in Section 4.19(d).
     “Base Rate” shall mean the base commercial lending rate of NCB as publicly
announced to be in effect from time to time, such rate to be adjusted
automatically, without notice, on the effective date of any change in such rate.
This rate of interest is determined from time to time by NCB as a means of
pricing some loans to its customers and is neither tied to any external rate of
interest or index nor does it necessarily reflect the lowest rate of interest
actually charged by NCB to any particular class or category of customers of NCB.
     “Blocked Accounts” shall have the meaning set forth in Section 4.15(h).
     “Blocked Account Bank” shall have the meaning set forth in Section 4.15(h).

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     “Blocked Person” shall have the meaning set forth in Section 5.24(b)
hereof.
     “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 on a Consolidated Basis” shall mean the consolidation in
accordance with GAAP of the accounts or other items of the Borrowers and their
respective Subsidiaries.
     “Borrowers’ Account” shall have the meaning set forth in Section 2.8.
     “Borrowing Agent” shall mean Sparton Corporation.
     “Borrowing Base Availability Block” shall means $2,000,000, provided, that
the Borrowing Base Availability Block will be reduced to zero at such time
(i) the Borrowers have delivered to the Agent the consolidated audited financial
statements for the fiscal year ending June 30, 2010, which audited financial
statements comply with Section 9.7 hereof and are otherwise satisfactory to the
Agent in its sole discretion, (ii) the Borrowers have delivered to the Agent
evidence satisfactory to Agent that the Fixed Charge Coverage Ratio has been
equal to or greater than 1.15:1.00 on a trailing twelve month basis as of the
end of the immediately preceding four fiscal quarters, and (iii) at the time of
such reduction of the Borrowing Base Availability Block there is Undrawn
Availability of not less than $4,000,000.
     “Borrowing Base Certificate” shall mean a certificate in substantially the
form of Exhibit 1.2 duly executed by the President, Chief Financial Officer,
Director of Treasury, or Corporate Controller of the Borrowing Agent (each an
“Authorized Agent") and delivered to the Agent, appropriately completed, by
which such officer shall certify to Agent the Formula Amount and calculation
thereof as of the date of such certificate.
     “Business Day” shall mean any day other than Saturday or Sunday or a legal
holiday on which commercial banks are authorized or required by law to be closed
for business in Brunswick, New Jersey and, if the applicable Business Day
relates to any Eurodollar Rate Loans, such day must also be a day on which
dealings are carried on in the London interbank market.
     “Capital Expenditures” shall mean expenditures made or liabilities incurred
for the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than one
year, including the total principal portion of Capitalized Lease Obligations,
which, in accordance with GAAP, would be classified as capital expenditures.
     “Capitalized Lease Obligation” shall mean any Indebtedness of any Borrower
represented by obligations under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
     “CERCLA” shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. §§9601 et seq.
     “Change of Control” shall mean (a) the acquisition of direct or indirect
control of any Borrower by any Person or group; (b) occupation of a majority of
the seats (other than vacant

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seats) on the board of directors of Sparton by Persons who were neither
(i) nominated by the board of directors of Sparton nor (ii) appointed by
directors so nominated; or (c) any merger or consolidation of or with any
Borrower or sale of all or substantially all of the property or assets or Equity
Interests of any Borrower except with or to another Borrower that is an entity
organized under the laws of any state in the United States. For purposes of this
definition, “control of Borrower” shall mean the power, direct or indirect
(x) to vote 50% or more of the Equity Interests having ordinary voting power for
the election of directors (or the individuals performing similar functions) of
any Borrower or (y) to direct or cause the direction of the management and
policies of any Borrower by contract or otherwise.
     “Charges” shall mean all taxes, charges, fees, imposts, levies or other
assessments, including all net income, gross income, gross receipts, sales, use,
ad valorem, value added, transfer, franchise, profits, inventory, capital stock,
license, withholding, payroll, employment, social security, unemployment,
excise, severance, stamp, occupation and property taxes, custom duties, fees,
assessments, liens, claims and charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts, imposed by
any taxing or other authority, domestic or foreign (including the Pension
Benefit Guaranty Corporation or any environmental agency or superfund), upon the
Collateral, any Borrower or any of its Affiliates.
     “Closing Date” shall mean the date of this Agreement or such other date as
may be agreed to by the parties hereto.
     “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” shall mean and include:
          (a) all Receivables;
          (b) all Equipment;
          (c) all General Intangibles;
          (d) all Inventory;
          (e) all Investment Property;
          (f) all Real Property;
          (g) all Subsidiary Stock;
          (h) the Leasehold Interests;
          (i) all of each Borrower’s right, title and interest in and to,
whether now owned or hereafter acquired and wherever located, (i) its respective
goods and other property including, but not limited to, all merchandise returned
or rejected by Customers, relating to or securing any of the Receivables;
(ii) all of each Borrower’s rights as a consignor, a consignee, an

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unpaid vendor, mechanic, artisan, or other lienor, including stoppage in
transit, setoff, detinue, replevin, reclamation and repurchase; (iii) all
additional amounts due to any Borrower from any Customer relating to the
Receivables; (iv) other property, including warranty claims, relating to any
goods securing the Obligations; (v) all of each Borrower’s contract rights,
rights of payment which have been earned under a contract right, instruments
(including promissory notes), documents, chattel paper (including electronic
chattel paper), warehouse receipts, deposit accounts, letters of credit and
money; (vi) all commercial tort claims (whether now existing or hereafter
arising); (vii) if and when obtained by any Borrower, all real and personal
property of third parties in which such Borrower has been granted a lien or
security interest as security for the payment or enforcement of Receivables;
(viii) all letter of credit rights (whether or not the respective letter of
credit is evidenced by a writing); (ix) all supporting obligations; and (x) any
other goods, personal property or real property now owned or hereafter acquired
in which any Borrower has expressly granted a security interest or may in the
future grant a security interest to Agent hereunder, or in any amendment or
supplement hereto or thereto, or under any other agreement between Agent and any
Borrower;
          (j) all of each Borrower’s ledger sheets, ledger cards, files,
correspondence, records, books of account, business papers, computers, computer
software (owned by any Borrower or in which it has an interest), computer
programs, tapes, disks and documents relating to (a), (b), (c), (d), (e), (f),
(g), (h) or (i) of this Paragraph; and
          (k) all proceeds and products of (a), (b), (c), (d), (e), (f), (g),
(h), (i) and (j) in whatever form, including, but not limited to: cash, deposit
accounts (whether or not comprised solely of proceeds), certificates of deposit,
insurance proceeds (including hazard, flood and credit insurance), negotiable
instruments and other instruments for the payment of money, chattel paper,
security agreements, documents, eminent domain proceeds, condemnation proceeds
and tort claim proceeds.
     “Commitment Percentage” of any Lender shall mean the percentage set forth
below such Lender’s name on the signature page hereof as same may be adjusted
upon any assignment by a Lender pursuant to Section 16.3(c) or (d) hereof.
     “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 Lenders to make Advances under this Agreement.
     “Compliance Certificate” shall mean a compliance certificate to be signed
by the Chief Executive Officer, President or Chief Financial Officer of
Borrowing Agent, which shall state that, based on an examination sufficient to
permit such officer to make an informed statement, no Default or Event of
Default exists, or if such is not the case, specifying such Default or Event of
Default, its nature, when it occurred, whether it is continuing and the steps
being taken by Borrowers with respect to such default and, such certificate
shall have appended thereto calculations which set forth Borrowers’ compliance
with the requirements or restrictions imposed by Sections 6.5, 7.4, 7.5, 7.6,
7.7, 7.8, 7.10 and 7.11.

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     “Consents” shall mean all filings and all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Bodies and
other third parties, domestic or foreign, necessary to carry on any Borrower’s
business or necessary (including to avoid a conflict or breach under any
agreement, instrument, other document, license, permit or other authorization)
for the execution, delivery or performance of this Agreement or the Other
Documents, including any Consents required under all applicable federal, state
or other Applicable Law.
     “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.
     “Controlled Group” shall mean, at any time, each Borrower 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 of the
Code.
     “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.
     “Customs” shall have the meaning set forth in Section 2.11(b) hereof.
     “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 have the meaning set forth in Section 2.24(a)
hereof.
     “Depository Accounts” shall have the meaning set forth in Section 4.15(h).
     “Designated Lender” shall have the meaning set forth in Section 16.2(b)
hereof.
     “Documents” shall have the meaning set forth in Section 8.1(c) hereof.
     “Dollar” and the sign “$” shall mean lawful money of the United States of
America.
     “Domestic Rate Loan” shall mean any Advance that bears interest based upon
the Alternate Base Rate.
     “Drawing Date” shall have the meaning set forth in Section 2.12(b) hereof.
     “Early Termination Date” shall have the meaning set forth in Section 13.1
hereof.

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     “Earnings Before Interest and Taxes” shall mean for any period the sum of
(i) net income (or loss) of Borrowers on a Consolidated Basis for such period
(excluding extraordinary gains, plus (ii) all interest expense of Borrowers on a
Consolidated Basis for such period, plus (iii) all charges against income of
Borrowers on a Consolidated Basis for such period for federal, state and local
taxes.
     “EBITDA” shall mean for any period the sum of (i) Earnings Before Interest
and Taxes for such period plus (ii) depreciation expenses for such period, plus
(iii) amortization expenses for such period, plus (iv) cash and non-cash
restructuring charges of up to $1,850,000 in fiscal year 2010 and $0 thereafter,
plus (v) cash and non-cash idled plant costs of up to $2,000,000 in fiscal year
2010 and in an amount approved in writing by Agent in its sole discretion
thereafter, plus (vi) non-cash pension expense as required under FAS 87-88, plus
(vii) any other non-cash items identified and mutually agreed to by the
Borrowing Agent and Agent.
     “Eligible Inventory” shall mean and include Inventory, excluding work in
process, with respect to each Borrower, valued at the lower of cost or market
value, determined on a first-in-first-out basis, which is not, in Agent’s
opinion, obsolete, slow moving or unmerchantable and which Agent, in its sole
discretion, 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 Encumbrance). In addition, Inventory shall
not be Eligible Inventory if it (i) does not conform to all standards imposed by
any Governmental Body which has regulatory authority over such goods or the use
or sale thereof, (ii) is in transit, (iii) is located outside the continental
United States (including Canada and Vietnam) or at a location that is not
otherwise in compliance with this Agreement, (iv) constitutes Consigned
Inventory, (v) is the subject of an Intellectual Property Claim; (vi) is subject
to a License Agreement or other agreement that limits, conditions or restricts
any 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; (vii) or is situated at a location not owned by a
Borrower unless the owner or occupier of such location has executed in favor of
Agent a Lien Waiver Agreement; or (viii) is related to production for the United
States of America (unless otherwise agreed in writing by Agent in its sole
discretion).
     “Eligible Receivables” shall mean and include with respect to each
Borrower, each Receivable of such Borrower arising in the Ordinary Course of
Business and which Agent, in its sole credit judgment, shall deem to be an
Eligible Receivable, based on such considerations as Agent 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 Encumbrances), 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 (i) ninety (90) days after the
original invoice date or (ii) sixty (60) days after the original due date;

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          (c) fifty percent (50%) or more of the Receivables from such Customer
are not deemed Eligible Receivables hereunder. Such percentage may, in Agent’s
sole 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) the Customer shall (i) apply for, suffer, or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property or call
a meeting of its creditors, (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 creditors,
(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,
(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, any
petition which is 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;
          (f) the sale is to a Customer outside the continental United States of
America, or Canada (for clarity, if the underlying contract and related invoices
are with a continental United States domiciled entity then that sale will not be
treated as a sale outside the continental United States) unless (i) the sale is
on letter of credit, guaranty or acceptance terms, in each case acceptable to
Agent in its sole discretion or (ii) otherwise agreed in writing by Agent in its
sole discretion;
          (g) the sale to the Customer 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;
          (h) Agent believes, in its Permitted 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, any state or any
department, agency or instrumentality of any of them, unless the applicable
Borrower assigns its right to payment of such Receivable to Agent pursuant to
the Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et
seq. and 41 U.S.C. Sub-Section 15 et seq.) or has otherwise complied with other
applicable statutes or ordinances;
          (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 Permitted Discretion, to the extent such Receivable exceeds
such limit;

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          (l) the Receivable is subject to any offset, deduction, defense,
dispute, or counterclaim, the Customer is also a creditor or supplier of a
Borrower or the Receivable is contingent in any respect or for any reason;
          (m) the applicable Borrower has made any agreement with any Customer
for any deduction therefrom, 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;
          (n) any return, rejection or repossession of the merchandise has
occurred or the rendition of services has been disputed;
          (o) such Receivable is not payable to a Borrower; or
          (p) such Receivable is not otherwise satisfactory to Agent as
determined in good faith by Agent in the exercise of its discretion in a
reasonable manner.
     “Environmental Complaint” shall have the meaning set forth in
Section 4.19(d) hereof.
     “Environmental Laws” shall mean all federal, state and local environmental,
land use, zoning, health, chemical use, safety and sanitation laws, statutes,
ordinances and codes relating to the protection of the environment and/or
governing the use, storage, treatment, generation, transportation, processing,
handling, production or disposal of Hazardous Substances and the rules,
regulations, policies, guidelines, interpretations, decisions, orders and
directives of federal, state and local governmental agencies and authorities
with respect thereto.
     “Equipment” shall mean and include as to each Borrower all of such
Borrower’s goods (other than Inventory) whether now owned or hereafter acquired
and wherever located including all equipment, machinery, apparatus, motor
vehicles, fittings, furniture, furnishings, fixtures, parts, accessories and all
replacements and substitutions therefor or accessions thereto.
     “Equity Interests” of any Person shall mean any and all shares, 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).
     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time and the rules and regulations promulgated thereunder.
     “Eurodollar Rate” shall mean for any Eurodollar Rate Loan for the then
current Interest Period relating thereto the greater of (a) the interest rate
per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined
by Agent by dividing (i) the rate which appears on the Bloomberg Page BBAM1 (or
on such other substitute Bloomberg page that displays rates at which US dollar
deposits are offered by leading banks in the London interbank deposit market),
or the rate which is quoted by another source selected by Agent which has been
approved by the British Bankers’ Association as an authorized information vendor
for the

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purpose of displaying rates at which US dollar deposits are offered by leading
banks in the London interbank deposit market (an “Alternative Source”), at
approximately 11:00 a.m., London time two (2) Business Days prior to the first
day of such Interest Period (or if there shall at any time, for any reason, no
longer exist a Bloomberg Page BBAM1 (or any substitute page) or any Alternate
Source, a comparable replacement rate determined by the Agent at such time
(which determination shall be conclusive absent manifest error)) for an amount
comparable to such Eurodollar Rate Loan and having a borrowing date and a
maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus
the Reserve Percentage, and (b) two percent (2%).
     The Eurodollar Rate shall be adjusted with respect to any Eurodollar Rate
Loan that is outstanding on the effective date of any change in the Reserve
Percentage as of such effective date. The Agent shall give prompt notice to the
Borrowing Agent of the Eurodollar Rate as determined or adjusted in accordance
herewith, which determination shall be conclusive absent manifest error. For
avoidance of doubt, in no event, however, shall the Eurodollar Rate be less than
2.00% for purposes of this Agreement.
     “Eurodollar Rate Loan” shall mean an Advance at any time that bears
interest based on the Eurodollar Rate.
     “Event of Default” shall have the meaning set forth in Article X hereof.
     “Exchange Act” shall have the mean the Securities Exchange Act of 1934, as
amended.
     “Executive Order No. 13224” shall mean the Executive Order No. 13224 on
Terrorist Financing, effective September 24, 2001, as the same has been, or
shall hereafter be, renewed, extended, amended or replaced.
     “Federal Funds Effective Rate” for any day shall mean the rate per annum
(based on a year of 360 days and actual days elapsed and rounded upward to the
nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any
successor) on such day as being the weighted average of the rates on overnight
federal funds transactions arranged by federal funds brokers on the previous
trading day, as computed and announced by such Federal Reserve Bank (or any
successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the “Federal Funds
Effective Rate” as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
“Federal Funds Effective Rate” for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.
     “Federal Funds Open Rate” for any day shall mean the rate per annum (based
on a year of 360 days and actual days elapsed) which is the daily federal funds
open rate as quoted by ICAP North America, Inc. (or any successor) as set forth
on the Bloomberg Screen BTMM for that day opposite the caption “OPEN” (or on
such other substitute Bloomberg Screen that displays such rate), or as set forth
on such other recognized electronic source used for the purpose of displaying
such rate as selected by PNC (an “Alternate Source”) (or if such rate for such
day does not appear on the Bloomberg Screen BTMM (or any substitute screen) or
on any Alternate Source, or if there shall at any time, for any reason, no
longer exist a Bloomberg

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Screen BTMM (or any substitute screen) or any Alternate Source, a comparable
replacement rate determined by the NCB at such time (which determination shall
be conclusive absent manifest error); provided however, that if such day is not
a Business Day, the Federal Funds Open Rate for such day shall be the “open”
rate on the immediately preceding Business Day. If and when the Federal Funds
Open Rate changes, the rate of interest with respect to any advance to which the
Federal Funds Open Rate applies will change automatically without notice to the
Borrowers, effective on the date of any such change.
     “Fixed Charge Coverage Ratio” shall mean and include, with respect to any
fiscal period, the ratio of (a) EBITDA, minus Unfinanced Capital Expenditures
made during such period, minus cash taxes paid during such period, minus all
stock repurchases during such period, minus all cash contributions and payments
with respect to pension obligations during such period to (b) all Senior Debt
Payments during such period.
     “Foreign Subsidiary” of any Person, shall mean any Subsidiary of such
Person that is not organized or incorporated in the United States or any State
or territory thereof.
     “Formula Amount” shall have the meaning set forth in Section 2.1(a).
     “GAAP” shall mean generally accepted accounting principles in the United
States of America in effect from time to time.
     “General Intangibles” shall mean and include as to each Borrower all of
such Borrower’s general intangibles, whether now owned or hereafter acquired,
including all payment intangibles, all choses in action, causes of action,
corporate or other business records, inventions, designs, patents, patent
applications, equipment formulations, manufacturing procedures, quality control
procedures, trademarks, trademark applications, service marks, trade secrets,
goodwill, copyrights, design rights, software, computer information, source
codes, codes, records and updates, registrations, licenses, franchises, customer
lists, tax refunds, tax refund claims, computer programs, all claims under
guaranties, security interests or other security held by or granted to such
Borrower to secure payment of any of the Receivables by a Customer (other than
to the extent covered by Receivables) all rights of indemnification and all
other intangible property of every kind and nature (other than Receivables).
     “Governmental Acts” shall have the meaning set forth in Section 2.17.
     “Governmental Body” shall mean any nation or government, any state or other
political subdivision thereof or any entity, authority, agency, division or
department exercising the legislative, judicial, regulatory or administrative
functions of or pertaining to a government.
     “Hazardous Discharge” shall have the meaning set forth in Section 4.19(d)
hereof.
     “Hazardous Substance” shall mean, without limitation, any flammable
explosives, radon, radioactive materials, asbestos, urea formaldehyde foam
insulation, polychlorinated biphenyls, petroleum and petroleum products,
methane, hazardous materials, Hazardous Wastes, hazardous or Toxic Substances or
related materials as defined in CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA, Articles 15

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and 27 of the New York State Environmental Conservation Law or any other
applicable Environmental Law and in the regulations adopted pursuant thereto.
     “Hazardous Wastes” shall mean all waste materials subject to regulation
under CERCLA, RCRA or applicable state law, and any other applicable Federal and
state laws now in force or hereafter enacted relating to hazardous waste
disposal.
     “Hedge Liabilities” shall have the meaning provided in the definition of
“Lender-Provided Interest Rate Hedge”.
     “Indebtedness” of a Person at a particular date shall mean all obligations
of such Person which in accordance with GAAP would be classified upon a balance
sheet as liabilities (except capital stock and surplus earned or otherwise) and
in any event, without limitation by reason of enumeration, shall include all
indebtedness, debt and other similar monetary obligations of such Person whether
direct or guaranteed, and all premiums, if any, due at the required prepayment
dates of such indebtedness, and all indebtedness secured by a Lien on assets
owned by such Person, whether or not such indebtedness actually shall have been
created, assumed or incurred by such Person. Any indebtedness of such Person
resulting from the acquisition by such Person of any assets subject to any Lien
shall be deemed, for the purposes hereof, to be the equivalent of the creation,
assumption and incurring of the indebtedness secured thereby, whether or not
actually so created, assumed or incurred.
     “Ineligible Security” shall mean any security which may not be underwritten
or dealt in by member banks of the Federal Reserve System under Section 16 of
the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended.
     “Intellectual Property” shall mean property constituting under any
Applicable Law a patent, patent application, copyright, trademark, service mark,
trade name, mask work, trade secret or license or other right to use any of the
foregoing.
     “Intellectual Property Claim” shall mean the assertion by any Person of a
claim (whether asserted in writing, by action, suit or proceeding or otherwise)
that any Borrower’s ownership, use, marketing, sale or distribution of any
Inventory, Equipment, Intellectual Property or other property or asset is
violative of any ownership of or right to use any Intellectual Property of such
Person.
     “Interest Period” shall mean the period provided for any Eurodollar Rate
Loan pursuant to Section 2.2(b).
     “Interest Rate Hedge” shall mean an interest rate exchange, collar, cap,
swap, adjustable strike cap, adjustable strike corridor or similar agreements
entered into by any Borrower or its Subsidiaries in order to provide protection
to, or minimize the impact upon, such Borrower and/or its Subsidiaries of
increasing floating rates of interest applicable to Indebtedness.
     “Inventory” shall mean and include as to each Borrower all of such
Borrower’s now owned or hereafter acquired 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

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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 of title or other documents representing
them.
     “Inventory Advance Rate” shall have the meaning set forth in
Section 2.1(a)(y)(ii) hereof.
     “Investment Property” shall mean and include as to each Borrower, all of
such Borrower’s now owned or hereafter acquired securities (whether certificated
or uncertificated), securities entitlements, securities accounts, commodities
contracts and commodities accounts.
     “Issuer” shall mean NCB or any Person who issues a Letter of Credit and/or
accepts a draft pursuant to the terms hereof.
     “Leasehold Interests” shall mean all of each Borrower’s right, title and
interest in and to the premises located at 425 N. Martingale Road, Suite 2050,
Schaumburg, Illinois 60173.
     “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.
     “Lender-Provided Interest Rate Hedge” shall mean an Interest Rate Hedge
which is provided by any Lender and with respect to which the Agent confirms
meets the following requirements: such Interest Rate Hedge (i) is documented in
a standard International Swap Dealer Association Agreement, (ii) provides for
the method of calculating the reimbursable amount of the provider’s credit
exposure in a reasonable and customary manner, and (iii) is entered into for
hedging (rather than speculative) purposes. The liabilities of any Borrower to
the provider of any Lender-Provided Interest Rate Hedge (the “Hedge
Liabilities”) shall be “Obligations” hereunder and otherwise treated as
Obligations for purposes of each of the Other Documents. The Liens securing the
Hedge Liabilities shall be pari passu with the Liens securing all other
Obligations under this Agreement and the Other Documents.
     “Letter of Credit Fees” shall have the meaning set forth in Section 3.2.
     “Letter of Credit Borrowing” shall have the meaning set forth in
Section 2.12(d).
     “Letter of Credit Sublimit” shall mean $2,000,000.
     “Letters of Credit” shall have the meaning set forth in Section 2.9.
     “License Agreement” shall mean any agreement between any Borrower and a
Licensor pursuant to which such Borrower is authorized to use any Intellectual
Property in connection with the manufacturing, marketing, sale or other
distribution of any Inventory of such Borrower or otherwise in connection with
such Borrower’s business operations.
     “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

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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 content satisfactory to Agent, by which Agent is given the
unqualified right, vis-a-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” shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, security interest, lien (whether statutory or otherwise), Charge,
claim or encumbrance, or preference, priority or other security agreement or
preferential arrangement held or asserted in respect of any asset of any kind or
nature whatsoever including any conditional sale or other title retention
agreement, any lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
under the Uniform Commercial Code or comparable law of any jurisdiction.
     “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 and by which such Person shall waive any Lien that
such Person may ever have with respect to any of the Collateral and shall
authorize Agent from time to time to enter upon the premises to inspect or
remove the Collateral from such premises or to use such premises to store or
dispose of such Inventory.
     “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 the Borrowers on a Consolidated Basis, (b) the
Borrowers’ ability on a Consolidated Basis to duly and punctually pay or perform
the Obligations in accordance with the terms thereof, (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.
     “Maximum Face Amount” shall mean, with respect to any outstanding Letter of
Credit, the face amount of such Letter of Credit including all automatic
increases provided for in such Letter of Credit, whether or not any such
automatic increase has become effective.
     “Maximum Revolving Advance Amount” shall mean $20,000,000.
     “Maximum Undrawn Amount” shall mean with respect to any outstanding Letter
of Credit, the amount of such Letter of Credit that is or may become available
to be drawn, including all automatic increases provided for in such Letter of
Credit, whether or not any such automatic increase has become effective.
     “Modified Commitment Transfer Supplement” shall have the meaning set forth
in Section 16.3(d).
     “Mortgage” shall mean, collectively, the mortgages on the Real Property
granted by certain of the Borrowers to NCB to secure the Obligations, and
further together with all

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extensions, renewals, amendments, supplements, modifications, substitutions and
replacements thereto and thereof.
     “Multiemployer Plan” shall mean a “multiemployer plan” as defined in
Sections 3(37) and 4001(a)(3) of ERISA.
     “Multiple Employer Plan” shall mean a Plan which has two or more
contributing sponsors (including any Borrower or any member of the Controlled
Group) at least two of whom are not under common control, as such a plan is
described in Section 4064 of ERISA.
     “NCB” shall mean National City Bank, a national banking association, and
shall extend to its successors and assigns.
     “Note” shall mean the Revolving Credit Note.
     “Obligations” shall mean and include any and all loans, advances, debts,
liabilities, obligations, covenants and duties owing by any Borrower to Lenders
or Agent or to any other direct or indirect subsidiary or affiliate of Agent or
any Lender (including NCB, National City Commercial Capital Company, LLC, and
each other member of the PNC group of companies [for whom Agent is also acting
as agent) of any kind or nature, present or future (including any interest or
other amounts accruing thereon after maturity, or after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding relating to any Borrower, whether or not a claim for post-filing
or post-petition interest or other amounts is allowed in such proceeding),
whether or not evidenced by any note, guaranty or other instrument, whether
arising under any agreement, instrument or document, (including this Agreement
and the Other Documents) whether or not for the payment of money, whether
arising by reason of an extension of credit, opening of a letter of credit,
loan, equipment lease or guarantee, under any interest or currency swap, future,
option or other similar agreement, or in any other manner, whether arising out
of overdrafts or deposit or other accounts or electronic funds transfers
(whether through automated clearing houses or otherwise) or out of the Agent’s
or any Lenders non-receipt of or inability to collect funds or otherwise not
being made whole in connection with depository transfer check or other similar
arrangements, 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 or by
what agreement or instrument they may be evidenced or whether evidenced by any
agreement or instrument, including, but not limited to, any and all of any
Borrower’s Indebtedness and/or liabilities under this Agreement, the Other
Documents or under any other agreement between Agent or Lenders and any Borrower
and any amendments, extensions, renewals or increases and 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 Lenders to perform acts or
refrain from taking any action. Without limitation, Obligations include
Borrowers’ obligations with respect to the following three letters of credit,
which are Letters of Credit under this Agreement: (1) letter credit
No. SCL012618, as amended; (2) letter of credit No. SCL008349, as amended; and
(3) letter of credit No. SCL015651.

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     “Ordinary Course of Business” shall mean with respect to any Borrower, the
ordinary course of such Borrower’s business as conducted on the Closing Date.
     “Other Documents” shall mean the Mortgage, the Note, the Questionnaire, any
Lender-Provided Interest Rate Hedge and any and all other agreements,
instruments and documents, including guaranties, pledges, powers of attorney,
consents, interest or currency swap agreements or other similar agreements and
all other writings heretofore, now or hereafter executed by any Borrower and/or
delivered to Agent or any Lender in respect of the transactions contemplated by
this Agreement.
     “Out-of-Formula Loans” shall have the meaning set forth in Section 16.2(b).
     “Overadvance Threshold Amount” shall have the meaning set forth in
Section 16.2(b) hereof.
     “Parent” of any Person shall mean a corporation or other entity owning,
directly or indirectly at least 50% of the shares of stock or other ownership
interests having ordinary voting power to elect a majority of the directors of
the Person, or other Persons performing similar functions for any such Person.
     “Participant” shall mean each Person who shall be granted the right by any
Lender to participate in any of the Advances and who shall have entered into a
participation agreement in form and substance satisfactory to such Lender.
     “Participation Advance” shall have the meaning set forth in
Section 2.12(d).
     “Participation Commitment” shall mean each Lender’s obligation to buy a
participation of the Letters of Credit issued hereunder.
     “Payee” shall have the meaning set forth in Section 3.10.
     “Payment Office” shall mean 1965 East 6th Street, Cleveland, Ohio 44114;
thereafter, such other office of Agent, if any, which it may designate by notice
to Borrowing 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 Benefit Plan” shall mean at any time any employee pension benefit
plan (including a Multiple Employer Plan, but not a Multiemployer Plan) which is
covered by Title IV of ERISA or is subject to the minimum funding standards
under Section 412 of the Code and either (i) is maintained by any member of the
Controlled Group for employees of any member of the Controlled Group; or (ii)
has at any time within the preceding five years been maintained by any entity
which was at such time a member of the Controlled Group for employees of any
entity which was at such time a member of the Controlled Group.
     “Permitted Discretion” means a determination made in the exercise of
Agent’s business judgment from the perspective of a prudent, secured,
asset-based lender.

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     “Permitted Encumbrances” shall mean:
          (a) Liens in favor of Agent for the benefit of Agent and Lenders;
          (b) Liens for taxes, assessments or other governmental charges not
delinquent or being Properly Contested;
          (c) Liens disclosed in the financial statements referred to in
Section 5.5, the existence of which Agent has consented to in writing;
          (d) deposits or pledges to secure obligations under worker’s
compensation, social security or similar laws, or under unemployment insurance;
          (e) deposits or pledges to secure bids, tenders, contracts (other than
contracts for the payment of money), leases, statutory obligations, surety and
appeal bonds and other obligations of like nature arising in the Ordinary Course
of Business;
          (f) Liens arising by virtue of the rendition, entry or issuance
against any Borrower or any Subsidiary, or any property of any Borrower or any
Subsidiary, of any judgment, writ, order, or decree for so long as each such
Lien (x) is in existence for less than 20 consecutive days after it first arises
or is being Properly Contested and (y) is at all times junior in priority to any
Liens in favor of Agent;
          (g) mechanics’, workers’, materialmen’s or other like Liens arising in
the Ordinary Course of Business with respect to obligations which are not due or
which are being Properly Contested;
          (h) Liens placed upon fixed assets hereafter acquired to secure a
portion of the purchase price thereof, provided that (x) any such lien shall not
encumber any other property of any Borrower and (y) the aggregate amount of
Indebtedness secured by such Liens incurred as a result of such purchases during
any fiscal year shall not exceed the amount provided for in Section 7.6;
          (i) other Liens incidental to the conduct of any Borrower’s business
or the ownership of its property and assets which were not incurred in
connection with the borrowing of money or the obtaining of advances or credit,
and which do not in the aggregate materially detract from Agent’s or Lenders’
rights in and to the Collateral or the value of any Borrower’s property or
assets or which do not materially impair the use thereof in the operation of any
Borrower’s business; and
          (j) Liens disclosed on Schedule 1.2; provided that such Liens shall
secure only those obligations which they secure on the Closing Date and shall
not subsequently apply to any other property or assets of any Borrower.
     “Person” shall mean any individual, sole proprietorship, partnership,
corporation, business trust, joint stock company, trust, unincorporated
organization, association, limited liability company, limited liability
partnership, institution, public benefit corporation, joint

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venture, entity or Governmental Body (whether federal, state, county, city,
municipal or otherwise, including any instrumentality, division, agency, body or
department thereof).
     “Plan” shall mean any employee benefit plan within the meaning of
Section 3(3) of ERISA (including a Pension Benefit Plan), maintained for
employees of any Borrower or any member of the Controlled Group or any such Plan
to which any Borrower or any member of the Controlled Group is required to
contribute on behalf of any of its employees.
     “Pro Forma Financial Statements” shall have the meaning set forth in
Section 5.5(b) hereof.
     “Properly Contested” shall mean, in the case of any Indebtedness or Lien,
as applicable, of any Person (including any taxes) that is not paid as and when
due or payable by reason of such Person’s bona fide dispute concerning its
liability to pay same or concerning the amount thereof, (i) such Indebtedness or
Lien, as applicable, is being properly contested in good faith by appropriate
proceedings promptly instituted and diligently conducted; (ii) such Person has
established appropriate reserves as shall be required in conformity with GAAP;
(iii) the non-payment of such Indebtedness will not have a Material Adverse
Effect and will not result in the forfeiture of any assets of such Person;
(iv) no Lien is imposed upon any of such Person’s assets with respect to such
Indebtedness unless such Lien is at all times junior and subordinate in priority
to the Liens in favor of the Agent (except only with respect to property taxes
that have priority as a matter of applicable state law) and enforcement of such
Lien is stayed during the period prior to the final resolution or disposition of
such dispute; (v) if such Indebtedness or Lien, as applicable, results from, or
is determined by the entry, rendition or issuance against a Person or any of its
assets of a judgment, writ, order or decree, enforcement of such judgment, writ,
order or decree is stayed pending a timely appeal or other judicial review; and
(vi) if such contest is abandoned, settled or determined adversely (in whole or
in part) to such Person, such Person forthwith pays such Indebtedness and all
penalties, interest and other amounts due in connection therewith.
     “Projections” shall have the meaning set forth in Section 5.5(b) hereof.
     “Purchasing CLO” shall have the meaning set forth in Section 16.3(d)
hereof.
     “Purchasing Lender” shall have the meaning set forth in Section 16.3(c)
hereof.
     “Questionnaire” shall mean the Documentation Information Questionnaire and
the responses thereto provided by Borrowers and delivered to Agent.
     “RCRA” shall mean the Resource Conservation and Recovery Act, 42 U.S.C. §§
6901 et seq., as same may be amended from time to time.
     “Real Property” shall mean all of each Borrower’s right, title and interest
in and to the owned and leased premises identified on Schedule 4.19 hereto or
which is hereafter owned or leased by any Borrower.
     “Receivables” shall mean and include, as to each Borrower, all of such
Borrower’s accounts, contract rights, instruments (including those evidencing
indebtedness owed to such

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Borrower by its Affiliates), documents, chattel paper (including electronic
chattel paper), general intangibles relating to accounts, 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, 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)(y)(i) hereof.
     “Register” shall have the meaning set forth in Section 16.3(e).
     “Reimbursement Obligation” shall have the meaning set forth in
Section 2.12(b)hereof.
     “Release” shall have the meaning set forth in Section 5.7(c)(i) hereof.
     “Reportable Event” shall mean a reportable event described in Section
4043(c) of ERISA or the regulations promulgated thereunder.
     “Required Lenders” shall mean Lenders holding at least 51% of the Advances
and, if no Advances are outstanding, shall mean Lenders holding 51% of the
Commitment Percentages; provided, however, if there are fewer than three
(3) Lenders, Required Lenders shall mean all Lenders.
     “Reserve Percentage” shall mean as of any day the maximum percentage in
effect on such day as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the reserve requirements
(including supplemental, marginal and emergency reserve requirements) with
respect to eurocurrency funding (currently referred to as “Eurocurrency
Liabilities”).
     “Revolving Advances” shall mean Advances made other than Letters of Credit.
     “Revolving Credit Note” shall mean the amended and restated promissory note
referred to in Section 2.1(a) hereof.
     “Revolving Interest Rate” shall mean an interest rate per annum equal to
(a) the sum of the Alternate Base Rate plus the Applicable Margin with respect
to Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus the
Applicable Margin with respect to Eurodollar Rate Loans.
     “SEC” shall mean the Securities and Exchange Commission or any successor
thereto.
     “Section 20 Subsidiary” shall mean the Subsidiary of the bank holding
company controlling PNC, which Subsidiary has been granted authority by the
Federal Reserve Board to underwrite and deal in certain Ineligible Securities.
     “Securities Act” shall mean the Securities Act of 1933, as amended.

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     “Senior Debt Payments” shall mean and include all cash actually expended by
any Borrower to make (a) interest payments on any Advances hereunder, plus
(b) payments for all fees, commissions and charges set forth herein and with
respect to any Advances, plus (c) capitalized lease payments, plus (d) payments
with respect to any other Indebtedness for borrowed money, including all
payments with respect to the two following promissory notes: (1) $3,750,000
Secured Promissory Note, dated May 31, 2006, payable to D. Wood Holdings, LLC
and (2) $3,750,000 Secured Promissory Note, dated May 31, 2006, payable to H.
Waldman Holdings, LLC.
     “Settlement Date” shall mean the Closing Date and thereafter Wednesday or
Thursday of each week or more frequently if Agent deems appropriate unless such
day is not a Business Day in which case it shall be the next succeeding Business
Day.
     “Subsidiary” of any Person shall mean a corporation or other entity of
whose Equity Interests having ordinary voting power (other than Equity Interests
having such power only by reason of the happening of a contingency) to elect a
majority of the directors of such corporation, or other Persons performing
similar functions for such entity, are owned, directly or indirectly, by such
Person.
     “Subsidiary Stock” shall mean all of the issued and outstanding Equity
Interests of any Subsidiary owned by any Borrower (not to exceed 65% of the
Equity Interests of any Foreign Subsidiary).
     “Term” shall have the meaning set forth in Section 13.1 hereof.
     “Termination Event” shall mean (i) a Reportable Event with respect to any
Plan or Multiemployer Plan; (ii) the withdrawal of any Borrower or any member of
the Controlled Group from a Plan or Multiemployer Plan during a plan year in
which such entity was a “substantial employer” as defined in Section 4001(a)(2)
of ERISA; (iii) the providing of notice of intent to terminate a Plan in a
distress termination described in Section 4041(c) of ERISA; (iv) the institution
by the PBGC of proceedings to terminate a Plan or Multiemployer Plan; (v) any
event or condition (a) which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan or Multiemployer Plan, or (b) that may result in termination of a
Multiemployer Plan pursuant to Section 4041A of ERISA; or (vi) the partial or
complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of
any Borrower or any member of the Controlled Group from a Multiemployer Plan.
     “Toxic Substance” shall mean and include any material present on the Real
Property or the Leasehold Interests 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., applicable state law,
or any other applicable Federal or state 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.
     “Trading with the Enemy Act” shall mean the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) and any enabling legislation or executive order relating
thereto.

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     “Transferee” shall have the meaning set forth in Section 16.3(d) hereof.
     “Undrawn Availability” at a particular date shall mean an amount equal to
(a) the lesser of (i) the Formula Amount or (ii) the Maximum Revolving Advance
Amount, minus (b) the sum of (i) the outstanding amount of Advances plus
(ii) all amounts due and owing to any Borrower’s trade creditors which are
outstanding 60 days beyond normal trade terms, plus (iii) fees and expenses for
which Borrowers are liable but which have not been paid or charged to Borrowers’
Account.
     “Unfinanced Capital Expenditures” shall mean all Capital Expenditures of
Borrower other than those made utilizing financing provided by Lenders, the
applicable seller or third party lenders, provided, that Capital Expenditures
made by a Borrower utilizing Revolving Advances shall be deemed Unfinanced
Capital Expenditures.
     “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.
     “Week” shall mean the time period commencing with the opening of business
on a Wednesday and ending on the end of business the following Tuesday.
     1.3. Uniform Commercial Code Terms. 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”, “commercial tort claims”, “instruments”, “general intangibles”,
“goods”, “payment intangibles”, “proceeds”, “supporting obligations”,
“securities”, “investment property”, “documents”, “deposit accounts”,
“software”, “letter of credit rights”, “inventory”, “equipment” and “fixtures”,
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. 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 is a
party, including references to any of the Other Documents, shall include any and
all modifications or amendments thereto and any and all extensions or renewals
thereof. All references herein to the time of day shall mean the time in New
York, New

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York. Unless otherwise provided, all financial calculations shall be performed
with Inventory valued 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
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 the Required Lenders. 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 Borrowers’
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 had
engaged in good faith and diligent performance of his 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.
     II. ADVANCES, PAYMENTS.
     2.1. Revolving Advances.
          (a) Amount of Revolving Advances. Subject to the terms and conditions
set forth in this Agreement including Section 2.1(b), each Lender, severally and
not jointly, will make Revolving Advances to Borrowers in aggregate amounts
outstanding at any time equal to such Lender’s Commitment Percentage of the
lesser of (x) the Maximum Revolving Advance Amount less the aggregate Maximum
Undrawn Amount of all outstanding Letters of Credit or (y) an amount equal to
the sum of:
               (i) up to 85%, subject to the provisions of Section 2.1(b) hereof
(“Receivables Advance Rate”), of Eligible Receivables (other than those owed to
Sparton of Canada, Limited), plus
               (ii) up to the lesser of (A) 60%, subject to the provisions of
Section 2.1(b) hereof, of the value of the Eligible Inventory (other than
Inventory owned by Sparton of

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Canada, Limited) (“Inventory Advance Rate” and together with the Receivables
Advance Rate, collectively, the “Advance Rates”), (B) 85% of the appraised net
orderly liquidation value of Eligible Inventory (as evidenced by an Inventory
appraisal satisfactory to Agent in its sole discretion exercised in good faith)
or (C) $12,000,000 in the aggregate at any one time, minus
               (iii) the Borrowing Base Availability Block, minus
               (iv) the aggregate Maximum Undrawn Amount of all outstanding
Letters of Credit, minus
               (v) such reserves as Agent may reasonably deem proper and
necessary from time to time. For clarity, if a Reserve arises in connection with
a monetary obligation owed by Borrowers, then that Reserve will be reduced as
the monetary obligation is paid by Borrowers.
     The amount derived from (A) the sum of Sections 2.1(a)(y)(i) and (ii),
minus (B) the sum of Sections 2.1 (a)(y)(iii), (iv) and (v) at any time and from
time to time shall be referred to as the “Formula Amount”. The Revolving
Advances shall be evidenced by one or more secured amended and restated
promissory notes (collectively, the “Revolving Credit Note”) substantially in
the form attached hereto as Exhibit 2.1(a).
          (b) Discretionary Rights. The Advance Rates may be increased or
decreased by Agent at any time and from time to time in the exercise of its
Permitted Discretion. 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 Borrowing Agent. The rights
of Agent under this subsection are subject to the provisions of Section 16.2(b).
     2.2. Procedure for Revolving Advances Borrowing.
          (a) Borrowing Agent on behalf of any Borrower may notify Agent prior
to 11:00 a.m. on a Business Day of a Borrower’s request to incur, on that day, a
Revolving Advance hereunder. Should any amount required to be paid as interest
hereunder, or as fees or other charges under this Agreement or any other
agreement with Agent or Lenders, or with respect to any other Obligation, become
due, same shall be deemed a request for a Revolving Advance maintained as a
Domestic Rate Loan as of the date such payment is due, in the amount required to
pay in full such interest, fee, charge or Obligation under this Agreement or any
other agreement with Agent or Lenders, and such request shall be irrevocable.
          (b) Notwithstanding the provisions of subsection (a) above, in the
event any Borrower desires to obtain a Eurodollar Rate Loan, Borrowing Agent
shall give Agent written notice by no later than 10:00 a.m. on the day which is
three (3) Business Days prior to the date such Eurodollar Rate Loan is to be
borrowed, specifying (i) the date of the proposed borrowing (which shall be a
Business Day), (ii) the type of borrowing and the amount on the date of such
Advance to be borrowed, which amount shall be in an aggregate principal amount
that is not less than $1,000,000 and integral multiples of $500,000 in excess
thereof, and (iii) the duration of the first Interest Period therefor. Interest
Periods for Eurodollar Rate Loans shall be for one, two or three months;
provided, if an Interest Period would end on a day that is not a Business Day,
it

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shall end on the next succeeding Business Day unless such day falls in the next
succeeding calendar month in which case the Interest Period shall end on the
next preceding Business Day. No Eurodollar Rate Loan shall be made available to
any Borrower during the continuance of a Default or an Event of Default. After
giving effect to each requested Eurodollar Rate Loan, including those which are
converted from a Domestic Rate Loan under Section 2.2(d), there shall not be
outstanding more than three Eurodollar Rate Loans, in the aggregate.
          (c) Each Interest Period of a Eurodollar Rate Loan shall commence on
the date such Eurodollar Rate Loan is made and shall end on such date as
Borrowing Agent may elect as set forth in subsection (b)(iii) above provided
that the exact length of each Interest Period shall be determined in accordance
with the practice of the interbank market for offshore Dollar deposits and no
Interest Period shall end after the last day of the Term.
     Borrowing Agent shall elect the initial Interest Period applicable to a
Eurodollar Rate Loan by its notice of borrowing given to Agent pursuant to
Section 2.2(b) or by its notice of conversion given to Agent pursuant to
Section 2.2(d), as the case may be. Borrowing Agent shall elect the duration of
each succeeding Interest Period by giving irrevocable written notice to Agent of
such duration not later than 10:00 a.m. on the day which is three (3) Business
Days prior to the last day of the then current Interest Period applicable to
such Eurodollar Rate Loan. If Agent does not receive timely notice of the
Interest Period elected by Borrowing Agent, Borrowing Agent shall be deemed to
have elected to convert to a Domestic Rate Loan subject to Section 2.2(d)
hereinbelow.
          (d) Provided that no Event of Default shall have occurred and be
continuing, Borrowing Agent may, on the last Business Day of the then current
Interest Period applicable to any outstanding Eurodollar Rate Loan, or on any
Business Day with respect to Domestic Rate Loans, convert any such loan into a
loan of another type in the same aggregate principal amount provided that any
conversion of a Eurodollar Rate Loan shall be made only on the last Business Day
of the then current Interest Period applicable to such Eurodollar Rate Loan. If
Borrowing Agent desires to convert a loan, Borrowing Agent shall give Agent
written notice by no later than 10:00 a.m. (i) on the day which is three
(3) Business Days’ prior to the date on which such conversion is to occur with
respect to a conversion from a Domestic Rate Loan to a Eurodollar Rate Loan, or
(ii) on the day which is one (1) Business Day prior to the date on which such
conversion is to occur with respect to a conversion from a Eurodollar Rate Loan
to a Domestic Rate Loan, specifying, in each case, the date of such conversion,
the loans to be converted and if the conversion is from a Domestic Rate Loan to
any other type of loan, the duration of the first Interest Period therefor.
          (e) At its option and upon written notice given prior to 10:00 a.m.
(New York time) at least three (3) Business Days’ prior to the date of such
prepayment, any Borrower may prepay the Eurodollar Rate Loans in whole at any
time or in part from time to time with accrued interest on the principal being
prepaid to the date of such repayment. Such Borrower shall specify the date of
prepayment of Advances which are Eurodollar Rate Loans and the amount of such
prepayment. In the event that any prepayment of a Eurodollar Rate Loan is
required or permitted on a date other than the last Business Day of the then
current Interest Period with respect thereto, such Borrower shall indemnify
Agent and Lenders therefor in accordance with Section 2.2(f) hereof.

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          (f) Each Borrower shall indemnify Agent and Lenders and hold Agent and
Lenders harmless from and against any and all losses or expenses that Agent and
Lenders may sustain or incur as a consequence of any prepayment, conversion of
or any default by any Borrower in the payment of the principal of or interest on
any Eurodollar Rate Loan or failure by any Borrower to complete a borrowing of,
a prepayment of or conversion of or to a Eurodollar Rate Loan after notice
thereof has been given, including, but not limited to, any interest payable by
Agent or Lenders to lenders of funds obtained by it in order to make or maintain
its Eurodollar Rate Loans hereunder. A certificate as to any additional amounts
payable pursuant to the foregoing sentence submitted by Agent or any Lender to
Borrowing Agent shall be conclusive absent manifest error.
          (g) Notwithstanding any other provision hereof, if any Applicable Law,
or any change therein or in the interpretation or application thereof, shall
make it unlawful for any Lender (for purposes of this subsection (g), the term
“Lender” shall include any Lender and the office or branch where any Lender or
any corporation or bank controlling such Lender makes or maintains any
Eurodollar Rate Loans) to make or maintain its Eurodollar Rate Loans, the
obligation of Lenders to make Eurodollar Rate Loans hereunder shall forthwith be
cancelled and Borrowers shall, if any affected Eurodollar Rate Loans are then
outstanding, promptly upon request from Agent, either pay all such affected
Eurodollar Rate Loans or convert such affected Eurodollar Rate Loans into loans
of another type. If any such payment or conversion of any Eurodollar Rate Loan
is made on a day that is not the last day of the Interest Period applicable to
such Eurodollar Rate Loan, Borrowers shall pay Agent, upon Agent’s request, such
amount or amounts as may be necessary to compensate Lenders for any loss or
expense sustained or incurred by Lenders in respect of such Eurodollar Rate Loan
as a result of such payment or conversion, including (but not limited to) any
interest or other amounts payable by Lenders to lenders of funds obtained by
Lenders in order to make or maintain such Eurodollar Rate Loan. A certificate as
to any additional amounts payable pursuant to the foregoing sentence submitted
by Lenders to Borrowing Agent shall be conclusive absent manifest error.
     2.3. Disbursement of Advance Proceeds. All Advances shall be disbursed from
whichever office or other place Agent may designate from time to time and,
together with any and all other Obligations of Borrowers to Agent or Lenders,
shall be charged to Borrowers’ Account on Agent’s books. During the Term,
Borrowers may use the Revolving Advances by borrowing, prepaying and
reborrowing, all in accordance with the terms and conditions hereof. The
proceeds of each Revolving Advance requested by Borrowing Agent on behalf of any
Borrower or deemed to have been requested by any Borrower under Section 2.2(a)
hereof shall, with respect to requested Revolving Advances to the extent Lenders
make such Revolving Advances, be made available to the applicable Borrower on
the day so requested by way of credit to such Borrower’s operating account at
NCB, or such other bank as Borrowing Agent may designate following notification
to Agent, in immediately available federal funds or other immediately available
funds or, with respect to Revolving Advances deemed to have been requested by
any Borrower, be disbursed to Agent to be applied to the outstanding Obligations
giving rise to such deemed request.
     2.4. Intentionally Omitted.

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     2.5. Maximum Advances. The aggregate balance of Revolving Advances
outstanding at any time shall not exceed the lesser of (a) the Maximum Revolving
Advance Amount less the aggregate Maximum Undrawn Amount of all issued and
outstanding Letters of Credit or (b) the Formula Amount.
     2.6. 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.
          (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. In
consideration of Agent’s agreement to conditionally credit Borrowers’ Account as
of the Business Day on which Agent receives those items of payment, each
Borrower agrees that, in computing the charges under this Agreement, all items
of payment shall be deemed applied by Agent on account of the Obligations one
(1) Business Day after (i) the Business Day Agent receives such payments via
wire transfer or electronic depository check or (ii) in the case of payments
received by Agent in any other form, the Business Day such payment constitutes
good funds in Agent’s account. Agent is not, however, required to credit
Borrowers’ Account for the amount of any item of payment which is unsatisfactory
to Agent and Agent may charge Borrowers’ Account for the amount of any item of
payment which is returned to Agent unpaid.
          (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. (New York time) on the due date therefor
in lawful money of the United States of America in federal funds or other funds
immediately available to Agent. Agent shall have the right to effectuate payment
on any and all Obligations due and owing hereunder by charging Borrowers’
Account or by making Advances as provided in Section 2.2 hereof.
          (d) Borrowers shall pay principal, interest, and all other amounts
payable hereunder, or under any related agreement, without any deduction
whatsoever, including, but not limited to, any deduction for any setoff or
counterclaim.
     2.7. Repayment of Excess Advances. The aggregate balance of Advances
outstanding at any time in excess of the maximum amount of Advances permitted
hereunder shall be immediately due and payable without the necessity of any
demand, at the Payment Office, whether or not a Default or Event of Default has
occurred.
     2.8. Statement of Account. Agent shall maintain, in accordance with its
customary procedures, a loan account (“Borrowers’ Account”) in the name of
Borrowers in which shall be recorded the date and amount of each Advance made by
Agent 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 Advance shall
not adversely affect Agent or any Lender. Each month, Agent shall send to
Borrowing Agent a statement showing the accounting for the Advances made,
payments made or credited in respect thereof, and other transactions between
Agent and Borrowers during such month. The monthly statements shall be deemed
correct and binding

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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 Borrowing Agent. The records of Agent with respect to
the loan account shall be conclusive evidence absent manifest error of the
amounts of Advances and other charges thereto and of payments applicable
thereto.
     2.9. Letters of Credit. Subject to the terms and conditions hereof, Agent
shall cause NCB to issue standby letters of credit (“Letters of Credit”) for the
account of any Borrower; provided, however, that Agent will not be required to
cause to be issued any Letters of Credit to the extent that the issuance thereof
would then cause the sum of (i) the outstanding Revolving Advances plus (ii) the
Maximum Undrawn Amount of all outstanding Letters of Credit to exceed the lesser
of (x) the Maximum Revolving Advance Amount or (y) the Formula Amount. The
Maximum Undrawn Amount of outstanding Letters of Credit shall not exceed in the
aggregate at any time the Letter of Credit Sublimit. All disbursements or
payments related to Letters of Credit shall be deemed to be Domestic Rate Loans
consisting of Revolving Advances and shall bear interest at the Revolving
Interest Rate for Domestic Rate Loans; Letters of Credit that have not been
drawn upon shall not bear interest.
     2.10. Issuance of Letters of Credit.
          (a) Borrowing Agent, on behalf of Borrowers, may request Agent to
cause the issuance of a Letter of Credit by delivering to Agent at the Payment
Office, prior to 10:00 a.m. (New York time), at least five (5) Business Days’
prior to the proposed date of issuance, Agent’s form of Letter of Credit
Application (the “Letter of Credit Application”) completed to the satisfaction
of Agent; and, such other certificates, documents and other papers and
information as Agent may reasonably request. Borrowing Agent, on behalf of
Borrowers, also has the right to give instructions and make agreements with
respect to any application, any applicable letter of credit and security
agreement, any applicable letter of credit reimbursement agreement and/or any
other applicable agreement, any letter of credit and the disposition of
documents, disposition of any unutilized funds, and to agree with Agent upon any
amendment, extension or renewal of any Letter of Credit.
          (b) Each Letter of Credit shall, among other things, (i) provide for
the payment of sight drafts, other written demands for payment, or acceptances
of usance drafts when presented for honor thereunder in accordance with the
terms thereof and when accompanied by the documents described therein and
(ii) have an expiry date not later than twenty-four (24) months after such
Letter of Credit’s date of issuance and in no event later than the last day of
the Term. Each standby Letter of Credit shall be subject either to the Uniform
Customs and Practice for Documentary Credits as most recently published by the
International Chamber of Commerce at the time a Letter of Credit is issued (the
“UCP”) or the International Standby Practices (ISP98-International Chamber of
Commerce Publication Number 590) (the “ISP98 Rules”)), and any subsequent
revision thereof at the time a standby Letter of Credit is issued, as determined
by Agent, and each trade Letter of Credit shall be subject to the UCP.
          (c) Agent shall use its reasonable efforts to notify Lenders of the
request by Borrowing Agent for a Letter of Credit hereunder.

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     2.11. Requirements For Issuance of Letters of Credit.
          (a) Borrowing Agent shall authorize and direct any Issuer to name the
applicable Borrower as the “Applicant” or “Account Party” of each Letter of
Credit. If Agent is not the Issuer of any Letter of Credit, Borrowing Agent
shall authorize and direct the Issuer to deliver to Agent all instruments,
documents, and other writings and property received by the Issuer pursuant to
the Letter of Credit and to accept and rely upon Agent’s instructions and
agreements with respect to all matters arising in connection with the Letter of
Credit and the application therefor.
          (b) In connection with all Letters of Credit issued or caused to be
issued by Agent under this Agreement, each Borrower hereby appoints Agent and
Issuer, or their designee, as its attorney, with full power and authority if an
Event of Default shall have occurred, (i) to sign and/or endorse such Borrower’s
name upon any warehouse or other receipts, letter of credit applications and
acceptances, (ii) to sign such Borrower’s name on bills of lading; (iii) to
clear Inventory through the United States of America Customs Department
(“Customs”) in the name of such Borrower or Agent or Agent’s designee, and to
sign and deliver to Customs officials powers of attorney in the name of such
Borrower for such purpose; and (iv) to complete in such Borrower’s name or
Agent’s or Issuer’s, or in the name of Agent’s or Issuer’s designee, any order,
sale or transaction, obtain the necessary documents in connection therewith, and
collect the proceeds thereof. Neither Issuer, Agent nor their respective
attorneys will be liable for any acts or omissions nor for any error of judgment
or mistakes of fact or law, except for Agent’s or its attorney’s willful
misconduct or gross negligence. This power, being coupled with an interest, is
irrevocable as long as any Letters of Credit remain outstanding.
     2.12. Disbursements, Reimbursement.
          (a) Immediately upon the issuance of each Letter of Credit, each
Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to,
purchase from Agent a participation in such Letter of Credit and each drawing
thereunder in an amount equal to such Lender’s Commitment Percentage of the
Maximum Face Amount of such Letter of Credit and the amount of such drawing,
respectively.
          (b) In the event of any request for a drawing under a Letter of Credit
by the beneficiary or transferee thereof, Agent will promptly notify Borrowing
Agent. Provided that Borrowing Agent shall have received such notice, the
Borrowers shall reimburse (such obligation to reimburse Agent shall sometimes be
referred to as a “Reimbursement Obligation”) Agent prior to 12:00 Noon, New York
time on each date that an amount is paid by Agent under any Letter of Credit
(each such date, a “Drawing Date”) in an amount equal to the amount so paid by
Agent. In the event Borrowers fail to reimburse Agent for the full amount of any
drawing under any Letter of Credit by 12:00 Noon, New York time, on the Drawing
Date, Agent will promptly notify each Lender thereof, and Borrowers shall be
deemed to have requested that a Revolving Advance maintained as a Domestic Rate
Loan be made by the Lenders to be disbursed on the Drawing Date under such
Letter of Credit, subject to the amount of the unutilized portion of the lesser
of Maximum Revolving Advance Amount or the Formula Amount and subject to
Section 8.2 hereof. Any notice given by Agent pursuant to this Section

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2.12(b) may be oral if immediately confirmed in writing; provided that the lack
of such an immediate confirmation shall not affect the conclusiveness or binding
effect of such notice.
          (c) Each Lender shall upon any notice pursuant to Section 2.12(b) make
available to Agent an amount in immediately available funds equal to its
Commitment Percentage of the amount of the drawing, whereupon the participating
Lenders shall (subject to Section 2.12(d)) each be deemed to have made a
Revolving Advance maintained as a Domestic Rate Loan to Borrowers in that
amount. If any Lender so notified fails to make available to Agent the amount of
such Lender’s Commitment Percentage of such amount by no later than 2:00 p.m.,
New York time on the Drawing Date, then interest shall accrue on such Lender’s
obligation to make such payment, from the Drawing Date to the date on which such
Lender makes such payment (i) at a rate per annum equal to the Federal Funds
Effective Rate during the first three days following the Drawing Date and
(ii) at a rate per annum equal to the rate applicable to Revolving Advances
maintained as a Domestic Rate Loan on and after the fourth day following the
Drawing Date. Agent will promptly give notice of the occurrence of the Drawing
Date, but failure of Agent to give any such notice on the Drawing Date or in
sufficient time to enable any Lender to effect such payment on such date shall
not relieve such Lender from its obligation under this Section 2.12(c), provided
that such Lender shall not be obligated to pay interest as provided in
Section 2.12(c) (i) and (ii) until and commencing from the date of receipt of
notice from Agent of a drawing.
          (d) With respect to any unreimbursed drawing that is not converted
into a Revolving Advance maintained as a Domestic Rate Loan to Borrowers in
whole or in part as contemplated by Section 2.12(b), because of Borrowers’
failure to satisfy the conditions set forth in Section 8.2 (other than any
notice requirements) or for any other reason, Borrowers shall be deemed to have
incurred from Agent a borrowing (each a “Letter of Credit Borrowing”) in the
amount of such drawing. Such Letter of Credit Borrowing shall be due and payable
on demand (together with interest) and shall bear interest at the rate per annum
applicable to a Revolving Advance maintained as a Domestic Rate Loan. Each
Lender’s payment to Agent pursuant to Section 2.12(c) shall be deemed to be a
payment in respect of its participation in such Letter of Credit Borrowing and
shall constitute a “Participation Advance” from such Lender in satisfaction of
its Participation Commitment under this Section 2.12.
          (e) Each Lender’s Participation Commitment shall continue until the
last to occur of any of the following events: (x) Agent ceases to be obligated
to issue or cause to be issued Letters of Credit hereunder; (y) no Letter of
Credit issued or created hereunder remains outstanding and uncancelled and
(z) all Persons (other than the Borrowers) have been fully reimbursed for all
payments made under or relating to Letters of Credit.
     2.13. Repayment of Participation Advances.
          (a) Upon (and only upon) receipt by Agent for its account of
immediately available funds from Borrowers (i) in reimbursement of any payment
made by the Issuer or Agent under the Letter of Credit with respect to which any
Lender has made a Participation Advance to Agent, or (ii) in payment of interest
on such a payment made by Agent under such a Letter of Credit, Agent will pay to
each Lender, in the same funds as those received by Agent, the amount of such
Lender’s Commitment Percentage of such funds, except Agent shall retain

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the amount of the Commitment Percentage of such funds of any Lender that did not
make a Participation Advance in respect of such payment by Agent.
          (b) If Agent is required at any time to return to any Borrower, or to
a trustee, receiver, liquidator, custodian, or any official in any insolvency
proceeding, any portion of the payments made by Borrowers to Agent pursuant to
Section 2.13(a) in reimbursement of a payment made under the Letter of Credit or
interest or fee thereon, each Lender shall, on demand of Agent, forthwith return
to Agent the amount of its Commitment Percentage of any amounts so returned by
Agent plus interest at the Federal Funds Effective Rate.
     2.14. Documentation. Each Borrower agrees to be bound by the terms of the
Letter of Credit Application and by Agent’s interpretations of any Letter of
Credit issued on behalf of such Borrower and by Agent’s written regulations and
customary practices relating to letters of credit, though Agent’s
interpretations may be different from such Borrower’s own. In the event of a
conflict between the Letter of Credit Application and this Agreement, this
Agreement shall govern. It is understood and agreed that, except in the case of
gross negligence or willful misconduct (as determined by a court of competent
jurisdiction in a final non-appealable judgment), Agent and Issuer shall not be
liable for any error, negligence and/or mistakes, whether of omission or
commission, in following the Borrowing Agent’s or any Borrower’s instructions or
those contained in the Letters of Credit or any modifications, amendments or
supplements thereto.
     2.15. Determination to Honor Drawing Request. In determining whether to
honor any request for drawing under any Letter of Credit by the beneficiary
thereof, Issuer and Agent shall be responsible only to determine that the
documents and certificates required to be delivered under such Letter of Credit
have been delivered and that they comply on their face with the requirements of
such Letter of Credit and that any other drawing condition appearing on the face
of such Letter of Credit has been satisfied in the manner so set forth.
     2.16. Nature of Participation and Reimbursement Obligations. Each Lender’s
obligation in accordance with this Agreement to make the Revolving Advances or
Participation Advances as a result of a drawing under a Letter of Credit, and
the obligations of Borrowers to reimburse Agent upon a draw under a Letter of
Credit, shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Section 2.16 under all
circumstances, including the following circumstances:
               (i) any set-off, counterclaim, recoupment, defense or other right
which such Lender may have against Agent, any Borrower or any other Person for
any reason whatsoever;
               (ii) the failure of any Borrower or any other Person to comply,
in connection with a Letter of Credit Borrowing, with the conditions set forth
in this Agreement for the making of a Revolving Advance, it being acknowledged
that such conditions are not required for the making of a Letter of Credit
Borrowing and the obligation of the Lenders to make Participation Advances under
Section 2.12;
               (iii) any lack of validity or enforceability of any Letter of
Credit;

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               (iv) any claim of breach of warranty that might be made by
Borrower or any Lender against the beneficiary of a Letter of Credit, or the
existence of any claim, set-off, recoupment, counterclaim, cross-claim, defense
or other right which any Borrower or any Lender may have at any time against a
beneficiary, any successor beneficiary or any transferee of any Letter of Credit
or the proceeds thereof (or any Persons for whom any such transferee may be
acting), Agent or any Lender or any other Person, whether in connection with
this Agreement, the transactions contemplated herein or any unrelated
transaction (including any underlying transaction between any Borrower or any
Subsidiaries of such Borrower and the beneficiary for which any Letter of Credit
was procured);
               (v) the lack of power or authority of any signer of (or any
defect in or forgery of any signature or endorsement on) or the form of or lack
of validity, sufficiency, accuracy, enforceability or genuineness of any draft,
demand, instrument, certificate or other document presented under or in
connection with any Letter of Credit, or any fraud or alleged fraud in
connection with any Letter of Credit, or the transport of any property or
provisions of services relating to a Letter of Credit, in each case even if
Issuer or Agent or any of their respective Affiliates has been notified thereof;
               (vi) payment by Agent or Issuer under any Letter of Credit
against presentation of a demand, draft or certificate or other document which
does not comply with the terms of such Letter of Credit;
               (vii) the solvency of, or any acts or omissions by, any
beneficiary of any Letter of Credit, or any other Person having a role in any
transaction or obligation relating to a Letter of Credit, or the existence,
nature, quality, quantity, condition, value or other characteristic of any
property or services relating to a Letter of Credit;
               (viii) any failure by the Agent, Issuer or any of Agent’s
Affiliates to issue or cause to be issued any Letter of Credit in the form
requested by Borrowing Agent, unless the Agent has received written notice from
Borrowing Agent of such failure within three (3) Business Days after the Agent
shall have furnished Borrowing Agent a copy of such Letter of Credit and such
error is material and no drawing has been made thereon prior to receipt of such
notice;
               (ix) any Material Adverse Effect on any Borrower;
               (x) any breach of this Agreement or any Other Document by any
party thereto;
               (xi) the occurrence or continuance of an insolvency proceeding
with respect to any Borrower;
               (xii) the fact that a Default or Event of Default shall have
occurred and be continuing;
               (xiii) the fact that the Term shall have expired or this
Agreement or the Obligations hereunder shall have been terminated; and

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               (xiv) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
     2.17. Indemnity. In addition to amounts payable as provided in
Section 16.5, each Borrower hereby agrees to protect, indemnify, pay and save
harmless Issuer, Agent and any of Agent’s Affiliates that have issued a Letter
of Credit from and against any and all claims, demands, liabilities, damages,
taxes, penalties, interest, judgments, losses, costs, charges and expenses
(including reasonable fees, expenses and disbursements of counsel and allocated
costs of internal counsel) which Issuer, Agent or any of Agent’s Affiliates may
incur or be subject to as a consequence, direct or indirect, of the issuance of
any Letter of Credit, other than as a result of (A) the gross negligence or
willful misconduct of the Agent or Issuer as determined by a final and
non-appealable judgment of a court of competent jurisdiction or (b) the wrongful
dishonor by the Issuer, Agent or any of Agent’s Affiliates of a proper demand
for payment made under any Letter of Credit, except if such dishonor resulted
from any act or omission, whether rightful or wrongful, of any present or future
de jure or de facto Governmental Body (all such acts or omissions herein called
“Governmental Acts”).
     2.18. Liability for Acts and Omissions. As between Borrowers and Agent and
Lenders, each Borrower assumes all risks of the acts and omissions of, or misuse
of the Letters of Credit by, the respective beneficiaries of such Letters of
Credit. In furtherance and not in limitation of the respective foregoing, Issuer
and Agent shall not be responsible for: (i) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any party in
connection with the application for an issuance of any such Letter of Credit,
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged (even if Agent shall have been
notified thereof); (ii) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any such Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (iii) the
failure of the beneficiary of any such Letter of Credit, or any other party to
which such Letter of Credit may be transferred, to comply fully with any
conditions required in order to draw upon such Letter of Credit or any other
claim of any Borrower against any beneficiary of such Letter of Credit, or any
such transferee, or any dispute between or among any Borrower and any
beneficiary of any Letter of Credit or any such transferee; (iv) errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, facsimile, telex or otherwise, whether or not they be in cipher;
(v) errors in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Letter of Credit or of the proceeds thereof; (vii) the
misapplication by the beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit; or (viii) any consequences arising
from causes beyond the control of Issuer or Agent, including any governmental
acts, and none of the above shall affect or impair, or prevent the vesting of,
any of Agent’s rights or powers hereunder. Nothing in the preceding sentence
shall relieve Issuer or Agent from liability for Issuer’s or Agent’s gross
negligence or willful misconduct (as determined by a court of competent
jurisdiction in a final non-appealable judgment) in connection with actions or
omissions described in such clauses (i) through (viii) of such sentence. In no
event shall Issuer, Agent or Agent’s Affiliates be liable to any Borrower for
any indirect, consequential, incidental, punitive, exemplary or special damages
or expenses (including without limitation attorneys’ fees), or for any damages
resulting from any change in the value of any property relating to a Letter of
Credit.

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     Without limiting the generality of the foregoing, Issuer, Agent and each of
its Affiliates (i) may rely on any oral or other communication believed in good
faith by Issuer, Agent or such Affiliate to have been authorized or given by or
on behalf of the applicant for a Letter of Credit, (ii) may honor any
presentation if the documents presented appear on their face substantially to
comply with the terms and conditions of the relevant Letter of Credit; (iii) may
honor a previously dishonored presentation under a Letter of Credit, whether
such dishonor was pursuant to a court order, to settle or compromise any claim
of wrongful dishonor, or otherwise, and shall be entitled to reimbursement to
the same extent as if such presentation had initially been honored, together
with any interest paid by Agent or its Affiliates; (iv) may honor any drawing
that is payable upon presentation of a statement advising negotiation or
payment, upon receipt of such statement (even if such statement indicates that a
draft or other document is being delivered separately), and shall not be liable
for any failure of any such draft or other document to arrive, or to conform in
any way with the relevant Letter of Credit; (v) may pay any paying or
negotiating bank claiming that it rightfully honored under the laws or practices
of the place where such bank is located; and (vi) may settle or adjust any claim
or demand made on Agent or its Affiliate in any way related to any order issued
at the applicant’s request to an air carrier, a letter of guarantee or of
indemnity issued to a carrier or any similar document (each an “Order”) and
honor any drawing in connection with any Letter of Credit that is the subject of
such Order, notwithstanding that any drafts or other documents presented in
connection with such Letter of Credit fail to conform in any way with such
Letter of Credit.
     In furtherance and extension and not in limitation of the specific
provisions set forth above, any action taken or omitted by Issuer or Agent under
or in connection with the Letters of Credit issued by it or any documents and
certificates delivered thereunder, if taken or omitted in good faith and without
gross negligence (as determined by a court of competent jurisdiction in a final
non-appealable judgment), shall not put Issuer or Agent under any resulting
liability to any Borrower or any Lender.
     2.19. Additional Payments. 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 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be charged to Borrowers’
Account as a Revolving Advance and added to the Obligations.
     2.20. Manner of Borrowing and Payment.
          (a) Each borrowing of Revolving Advances shall be advanced according
to the applicable Commitment Percentages of Lenders.
          (b) Each payment (including each prepayment) by any Borrower on
account of the principal of and interest on the Revolving Advances, shall be
applied to the Revolving Advances pro rata according to the applicable
Commitment Percentages of Lenders. Except as expressly provided herein, all
payments (including prepayments) to be made by any Borrower on account of
principal, interest and fees shall be made without set off or counterclaim and
shall be made to Agent on behalf of the Lenders to the Payment Office, in each
case on or prior to 1:00 P.M., New York time, in Dollars and in immediately
available funds.

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          (c) (i) Notwithstanding anything to the contrary contained in
Sections 2.20(a) and (b) hereof, commencing with the first Business Day
following the Closing Date, each borrowing of Revolving Advances shall be
advanced by Agent and each payment by any Borrower on account of Revolving
Advances shall be applied first to those Revolving Advances advanced by Agent.
On or before 1:00 P.M., New York time, on each Settlement Date commencing with
the first Settlement Date following the Closing Date, Agent and Lenders shall
make certain payments as follows: (I) if the aggregate amount of new Revolving
Advances made by Agent during the preceding Week (if any) exceeds the aggregate
amount of repayments applied to outstanding Revolving Advances during such
preceding Week, then each Lender shall provide Agent with funds in an amount
equal to its applicable Commitment Percentage of the difference between (w) such
Revolving Advances and (x) such repayments and (II) if the aggregate amount of
repayments applied to outstanding Revolving Advances during such Week exceeds
the aggregate amount of new Revolving Advances made during such Week, then Agent
shall provide each Lender with funds in an amount equal to its applicable
Commitment Percentage of the difference between (y) such repayments and (z) such
Revolving Advances.
               (ii) Each Lender shall be entitled to earn interest at the
applicable Revolving Interest Rate on outstanding Advances which it has funded.
               (iii) Promptly following each Settlement Date, Agent shall submit
to each Lender a certificate with respect to payments received and Advances made
during the Week immediately preceding such Settlement Date. Such certificate of
Agent shall be conclusive in the absence of manifest error.
          (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 Lenders 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 Lenders; 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 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.
          (e) Unless Agent shall have been notified by telephone, confirmed in
writing, by any Lender that such Lender will not make the amount which would
constitute its applicable Commitment Percentage of the Advances available to
Agent, Agent may (but shall not be obligated to) assume that such Lender shall
make such amount available to Agent on the next Settlement Date and, in reliance
upon such assumption, make available to Borrowers a corresponding amount. Agent
will promptly notify Borrowing Agent of its receipt of any such notice from a
Lender. If such amount is made available to Agent on a date after such next

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Settlement Date, such Lender shall pay to Agent on demand an amount equal to the
product of (i) the daily average Federal Funds Rate (computed on the basis of a
year of 360 days) during such period as quoted by Agent, times (ii) such amount,
times (iii) the number of days from and including such Settlement Date to the
date on which such amount becomes immediately available to Agent. A certificate
of Agent submitted to any Lender with respect to any amounts owing under this
paragraph (e) shall be conclusive, in the absence of manifest error. If such
amount is not in fact made available to Agent by such Lender within three
(3) Business Days after such Settlement Date, Agent shall be entitled to recover
such an amount, with interest thereon at the rate per annum then applicable to
such Revolving Advances hereunder, on demand from Borrowers; provided, however,
that Agent’s right to such recovery shall not prejudice or otherwise adversely
affect Borrowers’ rights (if any) against such Lender.
     2.21. Mandatory Prepayments. Subject to Section 4.3 hereof, when any
Borrower sells or otherwise disposes of any Collateral other than Inventory in
the Ordinary Course of Business, Borrowers shall repay the Advances in an amount
equal to the net proceeds of such sale (i.e., gross proceeds less the reasonable
costs of such sales or other dispositions), 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
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 reborrow Revolving Advances in accordance with
the terms hereof.
     2.22. Use of Proceeds.
          (a) Borrowers shall apply the proceeds of Advances to (i) pay fees and
expenses relating to this transaction, and (iii) provide for their working
capital needs and reimburse drawings under Letters of Credit.
          (b) Without limiting the generality of Section 2.22(a) above, neither
the Borrowers nor any other Person which may in the future become party to this
Agreement or the Other Documents as a Borrower, intends to use nor shall they
use any portion of the proceeds of the Advances, directly or indirectly, for any
purpose in violation of the Trading with the Enemy Act.
     2.23. Defaulting Lender.
          (a) Notwithstanding anything to the contrary contained herein, in the
event any Lender (x) has refused (which refusal constitutes a breach by such
Lender of its obligations under this Agreement) to make available its portion of
any Advance or (y) notifies either Agent or Borrowing Agent that it does not
intend to make available its portion of any Advance (if the actual refusal would
constitute a breach by such Lender of its obligations under this Agreement)
(each, a “Lender Default”), all rights and obligations hereunder of such Lender
(a “Defaulting Lender”) as to which a Lender Default is in effect and of the
other parties hereto shall be modified to the extent of the express provisions
of this Section 2.23 while such Lender Default remains in effect.

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          (b) Advances shall be incurred pro rata from Lenders (the
“Non-Defaulting Lenders”) which are not Defaulting Lenders based on their
respective Commitment Percentages, and no 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 such Lender Default. Amounts received in respect of
principal of any type of Advances shall be applied to reduce the applicable
Advances of each Lender (other than any Defaulting Lender) pro rata based on the
aggregate of the outstanding Advances of that type of all Lenders at the time of
such application; provided, that, Agent shall not be obligated to transfer to a
Defaulting Lender any payments received by Agent for the 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.
          (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. 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
Lenders”, a Defaulting Lender shall be deemed not to be a Lender and not to have
either Advances outstanding or a Commitment Percentage.
          (d) Other than as expressly set forth in this Section 2.23, 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 2.23 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 Lender
may have against any Defaulting Lender as a result of any default by such
Defaulting Lender hereunder.
          (e) In the event a Defaulting Lender retroactively cures to the
satisfaction of Agent the breach which caused a Lender to become a Defaulting
Lender, such Defaulting Lender shall no longer be a Defaulting Lender and shall
be treated as a Lender under this Agreement.
     III. INTEREST AND FEES.
     3.1. Interest. Interest on Advances shall be payable in arrears on the
first day of each month with respect to Domestic Rate Loans and, with respect to
Eurodollar Rate Loans, at the end of each Interest Period. 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
applicable Revolving Interest Rate. Whenever, subsequent to the date of this
Agreement, the Alternate Base Rate is increased or decreased, the Revolving
Interest Rate for Domestic Rate Loans shall be similarly changed without notice
or demand of any kind by an amount equal to the amount of such change in the
Alternate Base Rate during the time such change or changes remain in effect. The
Eurodollar Rate shall be adjusted with respect to Eurodollar Rate Loans without
notice or demand of any kind on the effective date of any change in the Reserve
Percentage as of such effective date. 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

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Required Lenders, the Obligations shall bear interest at the applicable
Revolving Interest Rate plus two (2%) percent per annum (the “Default Rate”).
     3.2. Letter of Credit Fees.
          (a) Borrowers shall pay (x) to Agent, for the ratable benefit of
Lenders, fees for each Letter of Credit for the period from and excluding the
date of issuance of same to and including the date of expiration or termination,
equal to the average daily face amount of each outstanding Letter of Credit
multiplied by the Applicable Margin for Eurodollar Rate Loans per annum, such
fees to be calculated on the basis of a 360-day year for the actual number of
days elapsed and to be payable quarterly in arrears on the first day of each
quarter and on the last day of the Term, and (y) to the Issuer, a fronting fee
of one quarter of one percent (0.25%) per annum, together with any and all
administrative, issuance, amendment, payment and negotiation charges with
respect to Letters of Credit and all fees and expenses as agreed upon by the
Issuer and the Borrowing Agent in connection with any Letter of Credit,
including in connection with the opening, amendment or renewal of any such
Letter of Credit and any acceptances created thereunder and shall reimburse
Agent for any and all fees and expenses, if any, paid by Agent to the Issuer
(all of the foregoing fees, the “Letter of Credit Fees”). All such charges shall
be deemed earned in full on the date when the same are due and payable hereunder
and shall not be subject to rebate or pro-ration upon the termination of this
Agreement for any reason. Any such charge in effect at the time of a particular
transaction shall be the charge for that transaction, notwithstanding any
subsequent change in the Issuer’s prevailing charges for that type of
transaction. All Letter of Credit Fees payable hereunder shall be deemed earned
in full on the date when the same are due and payable hereunder and shall not be
subject to rebate or pro-ration upon the termination of this Agreement for any
reason. 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, the Letter of Credit Fees described in clause (x) of this
Section 3.2(a) shall be increased by an additional two percent (2%) per annum.
     At Agent’s request after an Event of Default or Default has occurred,
Borrowers will cause cash to be deposited and maintained in an account with
Agent, as cash collateral, in an amount equal to one hundred and five percent
(105%) of the Maximum Undrawn Amount of all outstanding Letters of Credit, and
each Borrower hereby irrevocably authorizes Agent, in its discretion, on such
Borrower’s behalf and in such Borrower’s name, to open such an account and to
make and maintain deposits therein, or in an account opened by such Borrower, in
the amounts required to be made by such Borrower, out of the proceeds of
Receivables or other Collateral or out of any other funds of such Borrower
coming into any Lender’s possession at any time. Agent will invest such cash
collateral (less applicable reserves) in such short-term money-market items as
to which Agent and such Borrower mutually agree and the net return on such
investments shall be credited to such account and constitute additional cash
collateral. No Borrower may withdraw amounts credited to any such account except
upon the occurrence of all of the following: (x) payment and performance in full
of all Obligations, (y) expiration of all Letters of Credit and (z) termination
of this Agreement.
     3.3. Closing Fee and Facility Fee.

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          (a) Closing Fee. Upon the execution of this Agreement, Borrowers shall
pay to Agent for the ratable benefit of Lenders a closing fee of $250,000 less
that portion of the commitment fee of $125,000 heretofore paid by Borrowers to
Agent remaining after application of such fee to out of pocket expenses.
          (b) Facility Fee. For any calendar quarter during the Term, (i) if the
average daily unpaid balance of the Revolving Advances and undrawn amount of any
outstanding Letters of Credit for each day of such calendar quarter does not
equal the Maximum Revolving Advance Amount but is greater than or equal to 25%
of the Maximum Revolving Advance Amount, then Borrowers shall pay to Agent for
the ratable benefit of Lenders a fee at a rate equal to .50% per annum on the
amount by which the Maximum Revolving Advance Amount exceeds such average daily
unpaid balance, or (ii) if the average daily unpaid balance of the Revolving
Advances and undrawn amount of any outstanding Letters of Credit for each day of
such calendar quarter does not equal the Maximum Revolving Advance Amount but is
less than 25% of the Maximum Revolving Advance Amount, then Borrowers shall pay
to Agent for the ratable benefit of Lenders a fee at a rate equal to 1.00% per
annum on the amount by which the Maximum Revolving Advance Amount exceeds such
average daily unpaid balance, Such fee shall be payable to Agent in arrears on
the first day of each calendar quarter with respect to the previous calendar
quarter.
     3.4. Collateral Evaluation Fee and Collateral Monitoring Fee.
          (a) Collateral Evaluation Fee. Borrowers shall pay Agent a collateral
evaluation fee equal to $3,000 per month commencing on the first day of the
month following the Closing Date and on the first day of each month thereafter
during the Term. The collateral evaluation fee shall be deemed earned in full on
the date when same is due and payable hereunder and shall not be subject to
rebate or proration upon termination of this Agreement for any reason.
          (b) Collateral Monitoring Fee. Borrowers shall pay to Agent on the
first day of each month following any month in which Agent performs any
collateral monitoring — namely any field examination, collateral analysis or
other business analysis, the need for which is to be determined by Agent and
which monitoring is undertaken by Agent or for Agent’s benefit — a collateral
monitoring fee in an amount equal to $850 per day for each person employed to
perform such monitoring, plus all costs and disbursements incurred by Agent in
the performance of such examination or analysis. But if no Default or Event of
Default has occurred, Borrowers are only obligated to pay for four field
examinations per 12-month period.
     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 Revolving
Interest Rate for Domestic Rate Loans during such extension.
     3.6. Maximum Charges. In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permissible under law. In the
event interest and other charges as computed hereunder would otherwise exceed
the highest rate permitted under law,

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such excess amount shall be first applied to any unpaid principal balance owed
by Borrowers, and 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 Costs. In the event that any Applicable Law, or any change
therein or in the interpretation or application thereof, 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) and
the office or branch where Agent or any Lender (as so defined) makes or
maintains any Eurodollar Rate Loans 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 of any kind whatsoever with
respect to this Agreement or any Other Document or change the basis of taxation
of payments to Agent or any Lender of principal, fees, interest or any other
amount payable hereunder or under any Other Documents (except for changes in the
rate of tax on the overall net income of Agent or any Lender by any taxing
jurisdiction);
          (b) impose, modify or hold applicable any reserve, special deposit,
assessment 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 or the London interbank Eurodollar
market any other condition with respect to this Agreement or any Other Document;
and the result of any of the foregoing is to increase the cost to Agent or any
Lender of making, renewing or maintaining its Advances hereunder by an amount
that Agent or such 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 such 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 , provided that the
foregoing shall not apply to increased costs which are reflected in the
Eurodollar Rate, as the case may be. Agent or such Lender shall certify the
amount of such additional cost or reduced amount to Borrowing Agent, and such
certification shall be conclusive absent manifest error.
     3.8. Basis For Determining Interest Rate Inadequate or Unfair. In the event
that Agent or any Lender shall have determined that:
          (a) reasonable means do not exist for ascertaining the Eurodollar Rate
for any Interest Period; or
          (b) Dollar deposits in the relevant amount and for the relevant
maturity are not available in the London interbank Eurodollar market, with
respect to an outstanding Eurodollar Rate Loan, a proposed Eurodollar Rate Loan,
or a proposed conversion of a Domestic Rate Loan into a Eurodollar Rate Loan,

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     then Agent shall give Borrowing Agent prompt written or telephonic notice
of such determination. If such notice is given, (i) any such requested
Eurodollar Rate Loan shall be made as a Domestic Rate Loan, unless Borrowing
Agent shall notify Agent no later than 10:00 a.m. (New York City time) two
(2) Business Days prior to the date of such proposed borrowing, that its request
for such borrowing shall be cancelled or made as an unaffected type of
Eurodollar Rate Loan, (ii) any Domestic Rate Loan or Eurodollar Rate Loan which
was to have been converted to an affected type of Eurodollar Rate Loan shall be
continued as or converted into a Domestic Rate Loan, or, if Borrowing Agent
shall notify Agent, no later than 10:00 a.m. (New York City time) two (2)
Business Days prior to the proposed conversion, shall be maintained as an
unaffected type of Eurodollar Rate Loan, and (iii) any outstanding affected
Eurodollar Rate Loans shall be converted into a Domestic Rate Loan, or, if
Borrowing Agent shall notify Agent, no later than 10:00 a.m. (New York City
time) two (2) Business Days prior to the last Business Day of the then current
Interest Period applicable to such affected Eurodollar Rate Loan, shall be
converted into an unaffected type of Eurodollar Rate Loan, on the last Business
Day of the then current Interest Period for such affected Eurodollar Rate Loans.
Until such notice has been withdrawn, Lenders shall have no obligation to make
an affected type of Eurodollar Rate Loan or maintain outstanding affected
Eurodollar Rate Loans and no Borrower shall have the right to convert a Domestic
Rate Loan or an unaffected type of Eurodollar Rate Loan into an affected type of
Eurodollar Rate Loan.
     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
therein, 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) and the
office or branch where Agent or any Lender (as so defined) makes or maintains
any Eurodollar Rate Loans 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 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 Borrowing Agent shall be conclusive
absent manifest error.

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     3.10. Gross Up for Taxes. If any Borrower shall be required by Applicable
Law to withhold or deduct any taxes from or in respect of any sum payable under
this Agreement or any of the Other Documents to Agent, or any Lender, assignee
of any Lender, or Participant (each, individually, a “Payee” and collectively,
the “Payees”), (a) the sum payable to such Payee or Payees, as the case may be,
shall be increased as may be necessary so that, after making all required
withholding or deductions, the applicable Payee or Payees receives an amount
equal to the sum it would have received had no such withholding or deductions
been made (the “Gross-Up Payment”), (b) such Borrower shall make such
withholding or deductions, and (c) such Borrower shall pay the full amount
withheld or deducted to the relevant taxation authority or other authority in
accordance with Applicable Law. Notwithstanding the foregoing, no Borrower shall
be obligated to make any portion of the Gross-Up Payment that is attributable to
any withholding or deductions that would not have been paid or claimed had the
applicable Payee or Payees properly claimed a complete exemption with respect
thereto pursuant to Section 3.11 hereof.
     3.11. Withholding Tax Exemption.
          (a) Each Payee that is not incorporated under the Laws of the United
States of America or a state thereof (and, upon the written request of Agent,
each other Payee) agrees that it will deliver to Borrowing Agent and Agent two
(2) duly completed appropriate valid Withholding Certificates (as defined under
§1.1441-1(c)(16) of the Income Tax Regulations (“Regulations”)) certifying its
status (i.e., U.S. or foreign person) and, if appropriate, making a claim of
reduced, or exemption from, U.S. withholding tax on the basis of an income tax
treaty or an exemption provided by the Code. The term “Withholding Certificate”
means a Form W-9; a Form W-8BEN; a Form W-8ECI; a Form W-8IMY and the related
statements and certifications as required under §1.1441-1(e)(2) and/or (3) of
the Regulations; a statement described in §1.871-14(c)(2)(v) of the Regulations;
or any other certificates under the Code or Regulations that certify or
establish the status of a payee or beneficial owner as a U.S. or foreign person.
          (b) Each Payee required to deliver to Borrowing Agent and Agent a
valid Withholding Certificate pursuant to Section 3.11(a) hereof shall deliver
such valid Withholding Certificate as follows: (A) each Payee which is a party
hereto on the Closing Date shall deliver such valid Withholding Certificate at
least five (5) Business Days prior to the first date on which any interest or
fees are payable by any Borrower hereunder for the account of such Payee;
(B) each Payee shall deliver such valid Withholding Certificate at least five
(5) Business Days before the effective date of such assignment or participation
(unless Agent in its sole discretion shall permit such Payee to deliver such
Withholding Certificate less than five (5) Business Days before such date in
which case it shall be due on the date specified by Agent). Each Payee which so
delivers a valid Withholding Certificate further undertakes to deliver to
Borrowing Agent and Agent two (2) additional copies of such Withholding
Certificate (or a successor form) on or before the date that such Withholding
Certificate expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent Withholding Certificate so delivered by
it, and such amendments thereto or extensions or renewals thereof as may be
reasonably requested by Borrowing Agent or Agent.

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          (c) Notwithstanding the submission of a Withholding Certificate
claiming a reduced rate of or exemption from U.S. withholding tax required under
Section 3.11(b) hereof, 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 Regulations. Further, Agent
is indemnified under §1.1461-1(e) of the Regulations against any claims and
demands of any Payee for the amount of any tax it deducts and withholds in
accordance with regulations under §1441 of the Code.
     IV. COLLATERAL: GENERAL TERMS
     4.1. Security Interest in the Collateral. To secure the prompt payment and
performance of the Obligations, each Borrower hereby assigns, pledges and grants
to Agent for its benefit and for the ratable benefit of each Lender (and each
other holder of any of the Obligations) a continuing security interest in and to
and Lien on all of its Collateral, whether now owned or existing or hereafter
acquired or arising and wheresoever located. Each Borrower shall mark its books
and records as may be necessary or appropriate to evidence, protect and perfect
Agent’s security interest and shall cause its financial statements to reflect
such security interest. Each Borrower shall promptly provide Agent with written
notice of all commercial tort claims, such notice to contain the case title
together with the applicable court and a brief description of the claim(s). Upon
delivery of each such notice, such Borrower shall be deemed to hereby grant to
Agent a security interest and lien in and to such commercial tort claims and all
proceeds thereof.
     4.2. Perfection of Security Interest. Each Borrower 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 Encumbrances, (ii) obtaining Lien Waiver Agreements, (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 credits and advices thereof and
documents evidencing or forming a part of the Collateral, (iv) entering into
warehousing, lockbox and other custodial arrangements satisfactory to Agent, and
(v) 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 Borrower hereby authorizes Agent to file against such Borrower, one
or more financing, continuation or amendment statements pursuant to the Uniform
Commercial Code in form and substance satisfactory to Agent (which statements
may have a description of collateral that states “all assets” or other similar
language). All charges, expenses and fees Agent may incur in doing any of the
foregoing, and any local taxes relating thereto, shall be charged to Borrowers’
Account as a Revolving Advance of a Domestic Rate Loan and added to the
Obligations, or, at Agent’s option, shall be paid to Agent for its benefit and
for the ratable benefit of Lenders immediately upon demand.

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     4.3. Disposition of Collateral. Each Borrower will safeguard and protect
all Collateral for Agent’s general account and make no disposition thereof
whether by sale, lease or otherwise except (a) the sale of Inventory in the
Ordinary Course of Business before an Event of Default occurs, (b) the
disposition or transfer of obsolete and worn-out Equipment in the Ordinary
Course of Business during any fiscal year having an aggregate fair market value
of not more than $250,000 (plus, during fiscal year 2010, an additional $350,000
of equipment in connection with closing the London, Ontario and Jackson,
Michigan operations), and only to the extent that (i) the proceeds of any such
disposition are used to acquire replacement Equipment which is subject to
Agent’s first priority security interest or (ii) the proceeds of which are
remitted to Agent to be applied pursuant to Section 2.21, and (c) the sale of
any Real Property so long as (x) no Event of Default or Default then exists,
(y) the gross cash sale proceeds for such Real Property are equal to or greater
than fifty percent (50%) of the appraised value of such Real Property, and Agent
has received evidence of compliance with this condition in form and substance
satisfactory to Agent in its sole discretion, and (z) 100% of the net proceeds
(net of customary expenses and charges, and net of transfer, property and
capital gains taxes due) of which are remitted to Agent to be applied pursuant
to Section 2.21, provided, that if there are no Revolving Advances outstanding
at the time of any sale of Real Property, the net proceeds shall be invested by
and on behalf of the applicable Borrower in a National City investment account.
     4.4. Preservation of Collateral. 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 such security guards or the placing of other
security protection measures as Agent may deem appropriate; (b) may employ and
maintain at any of any Borrower’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 Borrower’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 Borrower’s owned or leased property. Each Borrower 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 Borrowers’ Account as a Revolving
Advance maintained as a Domestic Rate Loan and added to the Obligations.
     4.5. Ownership of Collateral.
          (a) With respect to the Collateral, at the time the Collateral becomes
subject to Agent’s security interest: (i) each Borrower shall be the sole owner
of and fully authorized and able to sell, transfer, pledge and/or grant a first
priority security interest in each and every item of its respective Collateral
to Agent; and, except for Permitted Encumbrances the Collateral shall be free
and clear of all Liens and encumbrances whatsoever; (ii) each document and
agreement executed by each Borrower 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 Borrower that appear on such
documents and agreements shall be genuine and each Borrower shall have full
capacity to execute same; and (iv) each Borrower’s Equipment and Inventory shall
be located as set forth on Schedule 4.5 and shall not be removed from such

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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 4.3 hereof.
          (b) (i) There is no location at which any Borrower has any Inventory
(except for Inventory in transit) other than those locations listed on
Schedule 4.5; (ii) Schedule 4.5 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 Borrower is stored; none of the receipts received by any
Borrower 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 4.5 hereto sets forth a correct and
complete list as of the Closing Date of (A) each place of business of each
Borrower and (B) the chief executive office of each Borrower; and (iv) Schedule
4.5 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 Borrower, together with the names and addresses of any landlords.
     4.6. Defense of Agent’s and Lenders’ 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 Borrower shall, without Agent’s prior written
consent, pledge, sell (except Inventory in the Ordinary Course of Business and
Equipment and Real Property to the extent permitted in Section 4.3 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 Encumbrances, any part
of the Collateral. Each Borrower 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, Borrowers 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 Lenders 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. Each Borrower shall, and
Agent may, at its option, after an Event of Default or Default 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 Borrower’s possession, they, and each of them, shall
be held by such Borrower in trust as Agent’s trustee, and such Borrower will
immediately deliver them to Agent in their original form together with any
necessary endorsement.
     4.7. Books and Records. Each Borrower shall (a) keep proper books of record
and account in which full, true and correct entries will be made of all dealings
or transactions of or in relation to its business and affairs; (b) set up on its
books accruals with respect to all taxes, assessments, charges, levies and
claims; and (c) on a reasonably current basis set up on its books, from its
earnings, allowances against doubtful Receivables, advances and investments and
all other proper accruals (including by reason of enumeration, accruals for
premiums, if any, due on required payments and accruals for depreciation,
obsolescence, or amortization of properties), which should be set aside from
such earnings in connection with its business. All determinations pursuant to
this subsection shall be made in accordance with, or as required by, GAAP

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consistently applied in the opinion of such independent public accountant as
shall then be regularly engaged by Borrowers.
     4.8. Financial Disclosure. Each Borrower hereby irrevocably authorizes and
directs all accountants and auditors employed by such Borrower at any time
during the Term to exhibit and deliver to Agent and each Lender copies of any of
such Borrower’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
Borrower’s financial status and business operations. Each Borrower hereby
authorizes all Governmental Bodies to furnish to Agent and each Lender copies of
reports or examinations relating to such Borrower, whether made by such Borrower
or otherwise; however, Agent and each Lender will attempt to obtain such
information or materials directly from such Borrower prior to obtaining such
information or materials from such accountants or Governmental Bodies.
     4.9. Compliance with Laws. Each Borrower shall comply in all material
respects with all Applicable Laws with respect to the Collateral or any part
thereof or to the operation of such Borrower’s business the non-compliance with
which could reasonably be expected to have a Material Adverse Effect. The
Collateral at all times shall be maintained in accordance with the requirements
of all insurance carriers which provide insurance with respect to the Collateral
so that such insurance shall remain in full force and effect.
     4.10. Inspection of Premises. At all reasonable times Agent and each Lender
shall have full access to and the right to audit, check, inspect and make
abstracts and copies from each Borrower’s books, records, audits, correspondence
and all other papers relating to the Collateral and the operation of each
Borrower’s business. Agent, any Lender and their agents may enter upon any
premises of any Borrower at any time during business hours and at any other
reasonable time, and from time to time, for the purpose of inspecting the
Collateral and any and all records pertaining thereto and the operation of such
Borrower’s business. The Agent and Lenders shall have the right to conduct such
audits, appraisals and field examinations at such times as the Agent and Lenders
deem necessary and audits, appraisals and field examinations shall be at the
Borrowers’ expense. But if no Default or Event of Default has occurred,
Borrowers are only obligated to pay for four field examinations and two
appraisals per 12-month period.
     4.11. Insurance. The assets and properties of each Borrower at all times
shall be maintained in accordance with the requirements of all insurance
carriers which provide insurance with respect to the assets and properties of
such Borrower so that such insurance shall remain in full force and effect. Each
Borrower shall bear the full risk of any loss of any nature whatsoever with
respect to the Collateral. At each Borrower’s own cost and expense in amounts
and with carriers acceptable to Agent, each Borrower shall (a) keep all its
insurable properties and properties in which such Borrower has an interest
insured against the hazards of fire, flood, sprinkler leakage, those hazards
covered by extended coverage insurance and such other hazards, and for such
amounts, as is customary in the case of companies engaged in businesses similar
to such Borrower’s including business interruption insurance; (b) maintain a
bond in such amounts as is customary in the case of companies engaged in
businesses similar to such Borrower insuring against larceny, embezzlement or
other criminal misappropriation of insured’s officers and employees who may
either singly or jointly with others at any time have access to the assets

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or funds of such Borrower either directly or through authority to draw upon such
funds or to direct generally the disposition of such assets; (c) maintain public
and product liability insurance against claims for personal injury, death or
property damage suffered by others; (d) maintain all such worker’s compensation
or similar insurance as may be required under the laws of any state or
jurisdiction in which such Borrower is engaged in business; and (e) furnish
Agent with (i) copies of all policies and evidence of the maintenance of such
policies by the renewal thereof at least thirty (30) days before any expiration
date, and (ii) appropriate loss payable endorsements in form and substance
satisfactory to Agent, naming Agent as a co-insured and loss payee as its
interests may appear with respect to all insurance coverage referred to in
clauses (a), and (c) above, and providing (A) that all proceeds thereunder shall
be payable to Agent, (B) no such insurance shall be affected by any act or
neglect of the insured or owner of the property described in such policy, and
(C) that such policy and loss payable clauses may not be cancelled, amended or
terminated unless at least thirty (30) days’ prior written notice is given to
Agent. In the event of any loss thereunder, the carriers named therein hereby
are directed by Agent and the applicable Borrower to make payment for such loss
to Agent and not to such Borrower and Agent jointly. If any insurance losses are
paid by check, draft or other instrument payable to any Borrower and Agent
jointly, Agent may endorse such Borrower’s name thereon and do such other things
as Agent may deem advisable to reduce the same to cash. Upon the occurrence of
an Event of Default, Agent is hereby authorized to adjust and compromise claims
under insurance coverage referred to in clauses (a) and (b) above. All loss
recoveries received by Agent or Borrowers upon any such insurance will be
applied to the Obligations, in such order as Agent in its sole discretion shall
determine. Any surplus shall be paid by Agent to Borrowers or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by Borrowers to
Agent, on demand. If no Event of Default has occurred, Borrowers may reborrow
insurance proceeds that have been applied to the Obligations in an amount of up
to $500,000 per fiscal year to rebuild or replace damaged assets on terms and
conditions satisfactory to Agent in its Permitted Discretion.
     4.12. Failure to Pay Insurance. If any Borrower fails to obtain insurance
as hereinabove provided, or to keep the same in force, Agent, if Agent so
elects, may obtain such insurance and pay the premium therefor on behalf of such
Borrower, and charge Borrowers’ Account therefor as a Revolving Advance of a
Domestic Rate Loan and such expenses so paid shall be part of the Obligations.
     4.13. Payment of Taxes. Each Borrower will pay, when due, all taxes,
assessments and other Charges lawfully levied or assessed upon such Borrower or
any of the Collateral including real and personal property taxes, assessments
and charges and all franchise, income, employment, social security benefits,
withholding, and sales taxes. If any tax by any Governmental Body is or may be
imposed on or as a result of any transaction between any Borrower and Agent or
any Lender which Agent or any Lender may be required to withhold or pay or if
any taxes, assessments, or other Charges remain unpaid after the date fixed for
their payment, or if any claim shall be made which, in Agent’s or any Lender’s
opinion, may possibly create a valid Lien on the Collateral, Agent may without
notice to Borrowers pay the taxes, assessments or other Charges and each
Borrower hereby indemnifies and holds Agent and each Lender harmless in respect
thereof. The amount of any payment by Agent under this Section 4.13 shall be
charged to Borrowers’ Account as a Revolving Advance maintained as a Domestic
Rate Loan and added to the Obligations and, until Borrowers shall furnish Agent
with an

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indemnity therefor (or supply Agent with evidence satisfactory to Agent that due
provision for the payment thereof has been made), Agent may hold without
interest any balance standing to Borrowers’ credit and Agent shall retain its
security interest in and Lien on any and all Collateral held by Agent.
     4.14. Payment of Leasehold Obligations. Each Borrower shall at all times
pay, when and as due, its rental obligations under all leases under which it is
a tenant, and shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect and, at Agent’s
request will provide evidence of having done so.
     4.15. Receivables.
          (a) Nature of Receivables. 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 except as may be stated on the
accounts receivable schedules delivered by Borrowers to Agent.
          (b) Solvency of Customers. Each Customer, to the best of each
Borrower’s knowledge, as of the date each Receivable is created, is and will be
solvent and able to pay all Receivables on which the Customer is obligated in
full when due or with respect to such Customers of any Borrower who are not
solvent such Borrower has set up on its books and in its financial records bad
debt reserves adequate to cover such Receivables.
          (c) Location of Borrowers. Each Borrower’s chief executive office is
located at the locations set forth on Schedule 4.15(c). Until written notice is
given to Agent by Borrowing Agent of any other office at which any Borrower
keeps its records pertaining to Receivables, all such records shall be kept at
such executive office.
          (d) Collection of Receivables. Until any Borrower’s authority to do so
is terminated by Agent (which notice Agent may give at any time following the
occurrence of an Event of Default or a Default or when Agent in its sole
discretion deems it to be in Lenders’ best interest to do so), each Borrower
will, at such Borrower’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
Borrower’s funds or use the same except to pay Obligations. Each Borrower shall
deposit in the Blocked Account 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.
          (e) Notification of Assignment of Receivables. At any time Agent shall
have the right to send notice of the assignment of, and Agent’s security
interest in and Lien on, the Receivables to any and all Customers or any third
party holding or otherwise concerned with any of the Collateral. Thereafter,
Agent shall have the sole right to collect the Receivables, take

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possession of the Collateral, or both. Agent’s actual collection expenses,
including, but not limited to, stationery and postage, telephone and telegraph,
secretarial and clerical expenses and the salaries of any collection personnel
used for collection, may be charged to Borrowers’ Account and added to the
Obligations.
          (f) Power of Agent to Act on Borrowers’ Behalf. Agent shall have the
right to receive, endorse, assign and/or deliver in the name of Agent or any
Borrower any and all checks, drafts and other instruments for the payment of
money relating to the Receivables, and each Borrower hereby waives notice of
presentment, protest and non-payment of any instrument so endorsed. Without
limiting Agent’s or Lenders’ rights under the Uniform Commercial Code, each
Borrower hereby constitutes Agent or Agent’s designee as such Borrower’s
attorney with power (i) to endorse such Borrower’s name upon any notes,
acceptances, checks, drafts, money orders or other evidences of payment or
Collateral; (ii) to sign such Borrower’s name on any invoice or bill of lading
relating to any of the Receivables, drafts against Customers, assignments and
verifications of Receivables; (iii) to send verifications of Receivables to any
Customer; (iv) to sign such Borrower’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; (v) to demand payment of the Receivables; (vi) to enforce payment of the
Receivables by legal proceedings or otherwise; (vii) to exercise all of such
Borrower’s rights and remedies with respect to the collection of the Receivables
and any other Collateral; (viii) to settle, adjust, compromise, extend or renew
the Receivables; (ix) to settle, adjust or compromise any legal proceedings
brought to collect Receivables; (x) to prepare, file and sign such Borrower’s
name on a proof of claim in bankruptcy or similar document against any Customer;
(xi) to prepare, file and sign such Borrower’s name on any notice of Lien,
assignment or satisfaction of Lien or similar document in connection with the
Receivables; and (xii) to do all other acts and things necessary to carry out
this Agreement; provided that Agent may only use the attorney-in-fact powers
granted under this Section with respect to acts listed in (v), (vi), (vii),
(viii), and (ix) after an Event of Default or Default has occurred. 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. Agent shall have the
right at any time to change the address for delivery of mail addressed to any
Borrower to such address as Agent may designate and to receive, open and dispose
of all mail addressed to any Borrower.
          (g) No Liability. 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. After an Event of Default or Default has
occurred, Agent may, without notice or consent from any Borrower, sue upon or
otherwise collect, extend the time of payment of, compromise or settle for cash,
credit or upon any terms any of the Receivables or any other securities,
instruments or insurance applicable thereto and/or release any obligor thereof.
Agent is authorized and empowered to accept the return of the goods represented
by any of the Receivables, without notice to or consent by any Borrower, all
without discharging or in any way affecting any Borrower’s liability hereunder.

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          (h) Establishment of a Lockbox Account, Dominion Account. All proceeds
of Collateral shall be deposited by Borrowers into either (i) a lockbox account,
dominion account or such other “blocked account” (“Blocked Accounts”)
established at a bank or banks (each such bank, a “Blocked Account Bank”)
pursuant to an arrangement with such Blocked Account Bank as may be selected by
Borrowing Agent and be acceptable to Agent or (ii) depository accounts
(“Depository Accounts”) established at the Agent for the deposit of such
proceeds. Each applicable Borrower, Agent and each Blocked Account Bank shall
enter into a deposit account control agreement in form and substance
satisfactory to Agent directing such Blocked Account Bank to transfer such funds
so deposited to Agent, either to any account maintained by Agent at said Blocked
Account Bank or by wire transfer to appropriate account(s) of Agent. All funds
deposited in such Blocked Accounts shall immediately become the property of
Agent and Borrowing Agent shall obtain the agreement by such Blocked Account
Bank to waive any offset rights against the funds so deposited. Unless Agent has
the right to hold funds deposited into the Blocked Account, if no Advances are
outstanding then Agent will remit amounts deposited into the Blocked Account to
Borrowing Agent in accordance with Agent’s standard practices. 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. All deposit accounts
and investment accounts of each Borrower and its Subsidiaries are set forth on
Schedule 4.15(h).
          (i) Adjustments. No Borrower 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 business of such
Borrower.
     4.16. Inventory. To the extent Inventory held for sale or lease has been
produced by any Borrower, it has been and will be produced by such Borrower in
accordance with the Federal Fair Labor Standards Act of 1938, as amended, and
all rules, regulations and orders thereunder.
     4.17. 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
Borrower shall use or operate the Equipment in violation of any law, statute,
ordinance, code, rule or regulation. Each Borrower shall have the right to sell
Equipment to the extent set forth in Section 4.3 hereof.
     4.18. Exculpation of Liability. Nothing herein contained shall be construed
to constitute Agent or any Lender as any Borrower’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 Borrower’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 Borrower of any of
the terms and conditions thereof.
     4.19. Environmental Matters.

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          (a) Borrowers shall ensure that the Real Property and all operations
and businesses conducted thereon remains in compliance with all Environmental
Laws and they shall not place or permit to be placed any Hazardous Substances on
any Real Property except as permitted by Applicable Law or appropriate
governmental authorities.
          (b) Borrowers shall establish and maintain a system to assure and
monitor continued compliance with all applicable Environmental Laws which system
shall include periodic reviews of such compliance.
          (c) Borrowers shall (i) employ in connection with the use of the Real
Property appropriate technology necessary to maintain compliance with any
applicable Environmental Laws and (ii) dispose of any and all Hazardous Waste
generated at the Real Property only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable Environmental Laws.
Borrowers shall use their best efforts to obtain certificates of disposal, such
as hazardous waste manifest receipts, from all treatment, transport, storage or
disposal facilities or operators employed by Borrowers in connection with the
transport or disposal of any Hazardous Waste generated at the Real Property.
          (d) In the event any Borrower obtains, gives or receives notice of any
Release or threat of Release of a reportable quantity of any Hazardous
Substances at the Real Property (any such event being hereinafter referred to as
a “Hazardous Discharge”) or receives any notice of violation, request for
information or notification that it is potentially responsible for investigation
or cleanup of environmental conditions at the Real Property, demand letter or
complaint, order, citation, or other written notice with regard to any Hazardous
Discharge or violation of Environmental Laws affecting the Real Property or any
Borrower’s interest therein (any of the foregoing is referred to herein as an
“Environmental Complaint”) from any Person, including any state agency
responsible in whole or in part for environmental matters in the state in which
the Real Property is located or the United States Environmental Protection
Agency (any such person or entity hereinafter the “Authority”), then Borrowing
Agent shall, within five (5) Business Days, give written notice of same to Agent
detailing facts and circumstances of which any Borrower is aware giving rise to
the Hazardous Discharge or Environmental Complaint. Such information is to be
provided to allow Agent to protect its security interest in and Lien on the Real
Property and the Collateral and is not intended to create nor shall it create
any obligation upon Agent or any Lender with respect thereto.
          (e) Borrowing Agent shall promptly forward to Agent copies of any
request for information, notification of potential liability, demand letter
relating to potential responsibility with respect to the investigation or
cleanup of Hazardous Substances at any other site owned, operated or used by any
Borrower to dispose of Hazardous Substances and shall continue to forward copies
of correspondence between any Borrower and the Authority regarding such claims
to Agent until the claim is settled. Borrowing Agent shall promptly forward to
Agent copies of all documents and reports concerning a Hazardous Discharge at
the Real Property that any Borrower 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 Real Property and the Collateral.

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          (f) Borrowers shall respond promptly to any Hazardous Discharge or
Environmental Complaint and take all necessary action in order to safeguard the
health of any Person and to avoid subjecting the Collateral or Real Property to
any Lien. If any Borrower shall fail to respond promptly to any Hazardous
Discharge or Environmental Complaint or any Borrower shall fail to comply with
any of the requirements of any Environmental Laws, Agent on behalf of Lenders
may, but without the obligation to do so, for the sole purpose of protecting
Agent’s interest in the Collateral: (A) give such notices or (B) enter onto the
Real Property (or authorize third parties to enter onto the Real Property) and
take such actions as Agent (or such third parties as directed by Agent) deem
reasonably necessary or advisable, to clean up, remove, mitigate or otherwise
deal with any such Hazardous Discharge or Environmental Complaint. All
reasonable costs and expenses incurred by Agent and Lenders (or such third
parties) in the exercise of any such rights, including any sums paid in
connection with any judicial or administrative investigation or proceedings,
fines and penalties, together with interest thereon from the date expended at
the Default Rate for Domestic Rate Loans constituting Revolving Advances shall
be paid upon demand by Borrowers, and until paid shall be added to and become a
part of the Obligations secured by the Liens created by the terms of this
Agreement or any other agreement between Agent, any Lender and any Borrower.
          (g) Promptly upon the written request of Agent from time to time in
Agent’s Permitted Discretion, Borrowers shall provide Agent, at Borrowers’
expense, with an environmental site assessment or environmental audit report
prepared by an environmental engineering firm acceptable in the reasonable
opinion of Agent, to assess with a reasonable degree of certainty the existence
of a Hazardous Discharge and the potential costs in connection with abatement,
cleanup and removal of any Hazardous Substances found on, under, at or within
the Real Property. Any report or investigation of such Hazardous Discharge
proposed and acceptable to an appropriate Authority that is charged to oversee
the clean-up of such Hazardous Discharge shall be acceptable to Agent. If such
estimates, individually or in the aggregate, exceed $100,000, Agent shall have
the right to require Borrowers to post a bond, letter of credit or other
security reasonably satisfactory to Agent to secure payment of these costs and
expenses.
          (h) Borrowers shall defend and indemnify Agent and Lenders and hold
Agent, Lenders and their respective employees, agents, directors and officers
harmless from and against all loss, liability, damage and expense, claims,
costs, fines and penalties, including attorney’s fees, suffered or incurred by
Agent or Lenders under or on account of any Environmental Laws, including the
assertion of any Lien thereunder, with respect to any Hazardous Discharge, the
presence of any Hazardous Substances affecting the Real Property, whether or not
the same originates or emerges from the Real Property or any contiguous real
estate, including any loss of value of the Real Property as a result of the
foregoing except to the extent such loss, liability, damage and expense is
attributable to any Hazardous Discharge resulting from actions on the part of
Agent or any Lender. Borrowers’ obligations under this Section 4.19 shall arise
upon the discovery of the presence of any Hazardous Substances at the Real
Property, whether or not any federal, state, or local environmental agency has
taken or threatened any action in connection with the presence of any Hazardous
Substances. Borrowers’ obligation and the indemnifications hereunder shall
survive the termination of this Agreement.

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          (i) For purposes of Section 4.19 and 5.7, all references to Real
Property shall be deemed to include all of each Borrower’s right, title and
interest in and to its owned and leased premises.
     4.20. Financing Statements. Except as respects the financing statements
filed by Agent and the financing statements described on Schedule 1.2, no
financing statement covering any of the Collateral or any proceeds thereof is on
file in any public office.
     V. REPRESENTATIONS AND WARRANTIES.
     Each Borrower represents and warrants as follows:
     5.1. Authority. Each Borrower has full power, authority and legal right to
enter into this Agreement and the Other Documents and to perform all its
respective Obligations hereunder and thereunder. This Agreement and the Other
Documents have been duly executed and delivered by each Borrower, and this
Agreement and the Other Documents constitute the legal, valid and binding
obligation of such Borrower enforceable in accordance with their terms, except
as such enforceability may be limited by any applicable bankruptcy, insolvency,
moratorium or similar laws affecting creditors’ rights generally. The execution,
delivery and performance of this Agreement and of the Other Documents (a) are
within such Borrower’s corporate powers, have been duly authorized by all
necessary corporate action, are not in contravention of law or the terms of such
Borrower’s by-laws, certificate of incorporation or other applicable documents
relating to such Borrower’s formation or to the conduct of such Borrower’s
business or of any material agreement or undertaking to which such Borrower is a
party or by which such Borrower is bound, (b) will not conflict with or violate
any law or regulation, or any judgment, order or decree of any Governmental
Body, (c) will not require the Consent of any Governmental Body or any other
Person, except those Consents set forth on Schedule 5.1 hereto, all of which
will have been duly obtained, made or compiled prior to the Closing Date and
which are in full force and effect and (d) will not conflict with, nor result in
any breach in any of the provisions of or constitute a default under or result
in the creation of any Lien except Permitted Encumbrances upon any asset of such
Borrower under the provisions of any agreement, charter document, instrument,
by-law or other instrument to which such Borrower is a party or by which it or
its property is a party or by which it may be bound.
     5.2. Formation and Qualification.
          (a) Each Borrower is duly incorporated and in good standing under the
laws of the state or country listed on Schedule 5.2(a) and is qualified to do
business and is in good standing in the states and countries listed on
Schedule 5.2(a) which constitute all states and countries in which qualification
and good standing are necessary for such Borrower to conduct its business and
own its property and where the failure to so qualify could reasonably be
expected to have a Material Adverse Effect on such Borrower. Each Borrower has
delivered to Agent true and complete copies of its certificate of incorporation
and by-laws and will promptly notify Agent of any amendment or changes thereto.
          (b) The only Subsidiaries of each Borrower are listed on
Schedule 5.2(b).

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     5.3. Survival of Representations and Warranties. All representations and
warranties of such Borrower contained in this Agreement and the Other Documents
shall be true at the time of such Borrower’s execution of this Agreement and the
Other Documents, and shall survive the execution, delivery and acceptance
thereof by the parties thereto and the closing of the transactions described
therein or related thereto.
     5.4. Tax Returns. Each Borrower’s federal tax identification number is set
forth on Schedule 5.4. Each Borrower has filed all federal, state and local tax
returns and other reports each is required by law to file and has paid all
taxes, assessments, fees and other governmental charges that are due and
payable. Federal tax returns of each Borrower have been examined and reported
upon by the appropriate taxing authority or closed by applicable statute and
satisfied for all fiscal years prior to and including the fiscal year ending
June 30, 2005. The provision for taxes on the books of each Borrower is adequate
for all years not closed by applicable statutes, and for its current fiscal
year, and no Borrower has any knowledge of any deficiency or additional
assessment in connection therewith (including state and local taxes) not
provided for on its books.
     5.5. Financial Statements.
          (a) Reserved.
          (b) The twelve-month cash flow projections of Borrowers on a
Consolidated Basis and their projected balance sheets as of the Closing Date,
copies of which are annexed hereto as Exhibit 5.5(b) (the “Projections”) were
prepared by the Chief Financial Officer of Sparton, 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) The consolidated and consolidating balance sheets of Borrowers,
their Subsidiaries and such other Persons described therein (including the
accounts of all Subsidiaries for the respective periods during which a
subsidiary relationship existed) as of June 30, 2008, and the related statements
of income, changes in stockholder’s equity, and changes in cash flow for the
period ended on such date, all accompanied by reports thereon containing
opinions without qualification by independent certified public accountants,
copies of which have been delivered to Agent, have been prepared in accordance
with GAAP, consistently applied (except for changes in application in which such
accountants concur) and present fairly the financial position of Borrowers and
their Subsidiaries at such date and the results of their operations for such
period. Since June 30, 2008 there has been no change in the condition, financial
or otherwise, of Borrowers or their Subsidiaries as shown on the consolidated
balance sheet as of such date and no change in the aggregate value of machinery,
equipment and Real Property owned by Borrowers and their respective
Subsidiaries, except (x) changes in the Ordinary Course of Business, none of
which individually or in the aggregate has been materially adverse and
(y) changes disclosed in Borrowers’ March 31, 2009 financial statements, copies
of which have been provided to Agent, and the Projections.

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     5.6. Entity Names. Except with respect to Sparton Medical as disclosed in
its articles of incorporation, no Borrower has been known by any other corporate
name in the past five years and does not sell Inventory under any other name
except as set forth on Schedule 5.6, nor has any Borrower been the surviving
corporation of a merger or consolidation or acquired all or substantially all of
the assets of any Person during the preceding five (5) years.
     5.7. O.S.H.A. and Environmental Compliance.
          (a) Except as disclosed on Schedule 5.7, each Borrower has duly
complied with, and its facilities, business, assets, property, leaseholds, Real
Property and Equipment are in compliance in all material respects with, the
provisions of the Federal Occupational Safety and Health Act, the Environmental
Protection Act, RCRA and all other Environmental Laws; there have been no
outstanding citations, notices or orders of non-compliance issued to any
Borrower or relating to its business, assets, property, leaseholds or Equipment
under any such laws, rules or regulations.
          (b) Each Borrower has been issued all required federal, state and
local licenses, certificates or permits relating to all applicable Environmental
Laws.
          (c) Except as disclosed on Schedule 5.7, (i) there are no visible
signs of releases, spills, discharges, leaks or disposal (collectively referred
to as “Releases”) of Hazardous Substances at, upon, under or within any Real
Property or any premises leased by any Borrower; (ii) to the best of Borrowers’
knowledge, there are no underground storage tanks or polychlorinated biphenyls
on the Real Property or any premises leased by any Borrower; (iii) to the best
of Borrowers’ knowledge, neither the Real Property nor any premises leased by
any Borrower has ever been used as a treatment, storage or disposal facility of
Hazardous Waste; and (iv) to the best of Borrowers’ knowledge, no Hazardous
Substances are present on the Real Property or any premises leased by any
Borrower, excepting such quantities as are handled in accordance with all
applicable manufacturer’s instructions and governmental regulations and in
proper storage containers and as are necessary for the operation of the
commercial business of any Borrower or of its tenants.
     5.8. Solvency; No Litigation, Violation, Indebtedness or Default.
          (a) Each of Sparton, Sparton Florida, Sparton Medical, and Sparton
Technology is solvent, able to pay its debts as they mature, has capital
sufficient to carry on its business and all businesses in which it is about to
engage, and (i) as of the Closing Date, the fair present saleable value of its
assets, calculated on a going concern basis, is in excess of the amount of its
liabilities and (ii) subsequent to the Closing Date, the fair saleable value of
its assets (calculated on a going concern basis) will be in excess of the amount
of its liabilities. Each of Sparton Canada, Spartronics and Sparton Vietnam is
able to pay its debts as they mature, has capital sufficient to carry on its
business and all businesses in which it is about to engage, and (i) as of the
Closing Date, the fair present saleable value of its assets, calculated on a
going concern basis, is in excess of the amount of its non-intercompany
liabilities and (ii) subsequent to the Closing Date, the fair saleable value of
its assets (calculated on a going concern basis) will be in excess of the amount
of its non-intercompany liabilities.

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          (b) Except as disclosed in Schedule 5.8(b), no Borrower has (i) any
pending or threatened litigation, arbitration, actions or proceedings which
involve the possibility of having a Material Adverse Effect, and (ii) any
liabilities or indebtedness for borrowed money other than the Obligations.
          (c) No Borrower is in violation of any applicable statute, law, rule,
regulation or ordinance in any respect which could reasonably be expected to
have a Material Adverse Effect, nor is any Borrower in violation of any order of
any court, Governmental Body or arbitration board or tribunal.
          (d) No Borrower nor any member of the Controlled Group maintains or
contributes to any Plan other than (i) as of the Closing Date, those listed on
Schedule 5.8(d) hereto and (ii) thereafter, as permitted under this Agreement.
(i) No Plan has incurred any “accumulated funding deficiency,” as defined in
Section 302(a)(2) of ERISA and Section 412(a) of the Code, whether or not
waived, and each Borrower and each member of the Controlled Group has met all
applicable minimum funding requirements under Section 302 of ERISA in respect of
each Plan; (ii) each Plan which is intended to be a qualified plan under Section
401(a) of the Code as currently in effect has been determined by the Internal
Revenue Service to be qualified under Section 401(a) of the Code and the trust
related thereto is exempt from federal income tax under Section 501(a) of the
Code; (iii) neither any Borrower nor any member of the Controlled Group has
incurred any liability to the PBGC other than for the payment of premiums, and
there are no premium payments which have become due which are unpaid; (iv) no
Plan has been terminated by the plan administrator thereof nor by the PBGC, and
there is no occurrence which would cause the PBGC to institute proceedings under
Title IV of ERISA to terminate any Plan; (v) at this time, the current value of
the assets of each Plan in the aggregate is approximately $5,000,000 less than
the present value of the accrued benefits and other liabilities of such Plan (as
disclosed in Borrowers’ financial statements delivered to Agent) and neither any
Borrower nor any member of the Controlled Group knows of any facts or
circumstances which would materially change the value of such assets and accrued
benefits and other liabilities; (vi) neither any Borrower nor any member of the
Controlled Group has breached any of the responsibilities, obligations or duties
imposed on it by ERISA with respect to any Plan; (vii) neither any Borrower nor
any member of a Controlled Group has incurred any liability for any excise tax
arising under Section 4972 or 4980B of the Code, and no fact exists which could
give rise to any such liability; (viii) neither any Borrower nor any member of
the Controlled Group nor any fiduciary of, nor any trustee to, any Plan, has
engaged in a “prohibited transaction” described in Section 406 of the ERISA or
Section 4975 of the Code nor taken any action which would constitute or result
in a Termination Event with respect to any such Plan which is subject to ERISA;
(ix) each Borrower and each member of the Controlled Group has made all
contributions due and payable with respect to each Plan; (x) there exists no
event described in Section 4043(b) of ERISA, for which the thirty (30) day
notice period has not been waived; (xi) neither any Borrower nor any member of
the Controlled Group has any fiduciary responsibility for investments with
respect to any plan existing for the benefit of persons other than employees or
former employees of any Borrower and any member of the Controlled Group;
(xii) neither any Borrower nor any member of the Controlled Group maintains or
contributes to any Plan which provides health, accident or life insurance
benefits to former employees, their spouses or dependents, other than in
accordance with Section 4980B of the Code; (xiii) neither any Borrower nor any
member of the Controlled Group has withdrawn, completely or partially, from

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any Multiemployer Plan so as to incur liability under the Multiemployer Pension
Plan Amendments Act of 1980 and there exists no fact which would reasonably be
expected to result in any such liability; and (xiv) no Plan fiduciary (as
defined in Section 3(21) of ERISA) has any liability for breach of fiduciary
duty or for any failure in connection with the administration or investment of
the assets of a Plan.
     5.9. Patents, Trademarks, Copyrights and Licenses. All patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, copyrights, copyright applications, design rights, tradenames,
assumed names, trade secrets and licenses owned or utilized by any Borrower are
set forth on Schedule 5.9, are valid and have been duly registered or filed with
all appropriate Governmental Bodies and constitute all of the intellectual
property rights which are necessary for the operation of its business; there is
no objection to or pending challenge to the validity of any such patent,
trademark, copyright, design rights, tradename, trade secret or license and no
Borrower is aware of any grounds for any challenge, except as set forth in
Schedule 5.9 hereto. Each patent, patent application, patent license, trademark,
trademark application, trademark license, service mark, service mark
application, service mark license, design rights, copyright, copyright
application and copyright license owned or held by any Borrower and all trade
secrets used by any Borrower consist of original material or property developed
by such Borrower or was lawfully acquired by such Borrower from the proper and
lawful owner thereof. Each of such items has been maintained so as to preserve
the value thereof from the date of creation or acquisition thereof. With respect
to all software used by any Borrower, such Borrower is in possession of all
source and object codes related to each piece of software or is the beneficiary
of a source code escrow agreement, each such source code escrow agreement being
listed on Schedule 5.9 hereto.
     5.10. Licenses and Permits. Except as set forth in Schedule 5.10, each
Borrower (a) is in compliance with and (b) has procured and is now in possession
of, all material licenses or permits required by any applicable federal, state,
provincial or local law, rule or regulation for the operation of its business in
each jurisdiction wherein it is now conducting or proposes to conduct business
and where the failure to procure such licenses or permits could have a Material
Adverse Effect.
     5.11. Default of Indebtedness. No Borrower is in default in the payment of
the principal of or interest on any Indebtedness or under any instrument or
agreement under or subject to which any Indebtedness has been issued and no
event has occurred under the provisions of any such instrument or agreement
which with or without the lapse of time or the giving of notice, or both,
constitutes or would constitute an event of default thereunder.
     5.12. No Default. No Borrower is in default in the payment or performance
of any of its contractual obligations and no Default has occurred.
     5.13. No Burdensome Restrictions. No Borrower is party to any contract or
agreement the performance of which could have a Material Adverse Effect. Each
Borrower has heretofore made available to Agent true and complete copies of all
material contracts to which it is a party or to which it or any of its
properties is subject. No Borrower has agreed or consented to cause or permit in
the future (upon the happening of a contingency or otherwise) any of its
property,

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whether now owned or hereafter acquired, to be subject to a Lien which is not a
Permitted Encumbrance.
     5.14. No Labor Disputes. No Borrower is involved in any labor dispute;
there are no strikes or walkouts or union organization of any Borrower’s
employees threatened or in existence and no labor contract is scheduled to
expire during the Term other than as set forth on Schedule 5.14 hereto.
     5.15. Margin Regulations. No Borrower is engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of “purchasing” or “carrying” any “margin stock” within
the respective meanings of each of the quoted terms under Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect. No part of the proceeds of any Advance will be used for
“purchasing” or “carrying” “margin stock” as defined in Regulation U of such
Board of Governors.
     5.16. Investment Company Act. No Borrower is an “investment company”
registered or required to be registered under the Investment Company Act of
1940, as amended, nor is it controlled by such a company.
     5.17. Disclosure. No representation or warranty made by any Borrower in
this Agreement or in any financial statement, report, certificate or any other
document furnished in connection herewith or therewith contains any untrue
statement of fact or omits to state any fact necessary to make the statements
herein or therein not misleading. There is no fact known to any Borrower or
which reasonably should be known to such Borrower which such Borrower has not
disclosed to Agent in writing with respect to the transactions contemplated by
this Agreement which could reasonably be expected to have a Material Adverse
Effect.
     5.18. [Intentionally Omitted].
     5.19. Swaps. No Borrower is a party to, nor will it be a party to, any swap
agreement whereby such Borrower has agreed or will agree to swap interest rates
or currencies unless same provides that damages upon termination following an
event of default thereunder are payable on an unlimited “two-way basis” without
regard to fault on the part of either party.
     5.20. Conflicting Agreements. No provision of any mortgage, indenture,
contract, agreement, judgment, decree or order binding on any Borrower or
affecting the Collateral conflicts with, or requires any Consent which has not
already been obtained to, or would in any way prevent the execution, delivery or
performance of, the terms of this Agreement or the Other Documents.
     5.21. Application of Certain Laws and Regulations. Neither any Borrower nor
any Affiliate of any Borrower is subject to any law, statute, rule or regulation
which regulates the incurrence of any Indebtedness, including laws, statutes,
rules or regulations relative to common or interstate carriers or to the sale of
electricity, gas, steam, water, telephone, telegraph or other public utility
services.

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     5.22. Business and Property of Borrowers. Upon and after the Closing Date,
Borrowers do not propose to engage in any business other than the provision of
design and electronic manufacturing services, including a complete range of
engineering, pre-manufacturing and post-manufacturing services, and activities
necessary to conduct the foregoing. On the Closing Date, each Borrower will own
all the property and possess all of the rights and Consents necessary for the
conduct of the business of such Borrower.
     5.23. Section 20 Subsidiaries. Borrowers do not intend to use and shall not
use any portion of the proceeds of the Advances, directly or indirectly, to
purchase during the underwriting period, or for 30 days thereafter, Ineligible
Securities being underwritten by a Section 20 Subsidiary.
     5.24. Anti-Terrorism Laws.
          (a) General. Neither any Borrower nor any Affiliate of any Borrower is
in violation of any Anti-Terrorism Law or engages in or conspires to engage in
any transaction that evades or avoids, or has the purpose of evading or
avoiding, or attempts to violate, any of the prohibitions set forth in any
Anti-Terrorism Law.
          (b) Executive Order No. 13224. Neither any Borrower nor any Affiliate
of any Borrower or their respective agents acting or benefiting in any capacity
in connection with the Advances or other transactions hereunder, is any of the
following (each a “Blocked Person”):
               (i) a Person that is listed in the annex to, or is otherwise
subject to the provisions of, the Executive Order No. 13224;
               (ii) a Person owned or controlled by, or acting for or on behalf
of, any Person that is listed in the annex to, or is otherwise subject to the
provisions of, the Executive Order No. 13224;
               (iii) a Person or entity with which any Lender is prohibited from
dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;
               (iv) a Person or entity that commits, threatens or conspires to
commit or supports “terrorism” as defined in the Executive Order No. 13224;
               (v) a Person or entity that is named as a “specially designated
national” on the most current list published by the U.S. Treasury Department
Office of Foreign Asset Control at its official website or any replacement
website or other replacement official publication of such list, or
               (vi) a Person or entity who is affiliated or associated with a
Person or entity listed above.
     Neither any Borrower nor to the knowledge of any Borrower, any of its
agents acting in any capacity in connection with the Advances or other
transactions hereunder (i) conducts any business or engages in making or
receiving any contribution of funds, goods or services to or for the benefit of
any Blocked Person, or (ii) deals in, or otherwise engages in any transaction

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relating to, any property or interests in property blocked pursuant to the
Executive Order No. 13224.
     5.25. Trading with the Enemy. No Borrower has engaged, nor does it intend
to engage, in any business or activity prohibited by the Trading with the Enemy
Act.
     5.26. Federal Securities Laws. Neither any Borrower nor any of its
Subsidiaries has filed a registration statement that has not yet become
effective under the Securities Act.
     VI. AFFIRMATIVE COVENANTS.
     Each Borrower shall, until payment in full of the Obligations and
termination of this Agreement:
     6.1. Payment of Fees. Pay to Agent on demand all usual and customary fees
and expenses which Agent incurs in connection with (a) the forwarding of Advance
proceeds and (b) the establishment and maintenance of any Blocked Accounts or
Depository Accounts as provided for in Section 4.15(h). Agent may, without
making demand, charge Borrowers’ Account for all such fees and expenses.
     6.2. Conduct of Business and Maintenance of Existence and Assets.
(a) Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in its
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including all licenses, patents, copyrights, design rights,
tradenames, trade secrets and trademarks and take all actions necessary to
enforce and protect the validity of any intellectual property right or other
right included in the Collateral; (b) keep in full force and effect its
existence and comply in all material respects with the laws and regulations
governing the conduct of its business where the failure to do so could
reasonably be expected to have a Material Adverse Effect; and (c) make all such
reports and pay all such franchise and other taxes and license fees and do all
such other acts and things as may be lawfully required to maintain its rights,
licenses, leases, powers and franchises under the laws of the United States or
any political subdivision thereof where the failure to do so could reasonably be
expected to have a Material Adverse Effect.
     6.3. Violations. Promptly notify Agent in writing of any violation of any
law, statute, regulation or ordinance of any Governmental Body, or of any agency
thereof, applicable to any Borrower which could reasonably be expected to have a
Material Adverse Effect.
     6.4. 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 contracts between any
Borrower and the United States, any state or any department, agency or
instrumentality of any of them.
     6.5. Financial Covenants.

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          (a) [Intentionally Omitted.]
          (b) [Intentionally Omitted.]
          (c) Minimum EBITDA Borrowers must cause their consolidated cumulative
EBITDA to be not less than the amounts indicated during the periods indicated as
measured at the end of each such period:

          Period   Minimum EBITDA  
July 1, 2009 through September 30, 2009
  $ 800,000  
July 1, 2009 through December 31, 2009
  $ 3,600,000  
July 1, 2009 through March 31, 2010
  $ 4,700,000  
July 1, 2009 through June 30, 2010
  $ 6,850,000  

          (d) [Intentionally Omitted.]
          (e) Fixed Charge Coverage Ratio. Cause to be maintained as of the end
of each fiscal quarter, beginning on September 30, 2010, a Fixed Charge Coverage
Ratio of not less than 1.15 to 1.0. The Fixed Charge Coverage Ratio is
calculated as of the last day of each fiscal quarter for the period equal to the
four consecutive fiscal quarters then ending.
     6.6. Execution of Supplemental Instruments. Execute and deliver to Agent
from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as Agent may request, in order that the
full intent of this Agreement may be carried into effect.
     6.7. Payment of Indebtedness. Pay, discharge or otherwise satisfy at or
before maturity (subject, where applicable, to specified grace periods and, in
the case of the trade payables, to normal payment practices) all its obligations
and liabilities of whatever nature, except when the failure to do so could not
reasonably be expected to have a Material Adverse Effect or when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and each Borrower shall have provided for such reserves as Agent may
reasonably deem proper and necessary, subject at all times to any applicable
subordination arrangement in favor of Lenders.
     6.8. Standards of Financial Statements. Cause all financial statements
referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12 and 9.13 as to which
GAAP is applicable to be complete and correct in all material respects (subject,
in the case of interim financial statements, to normal year-end audit
adjustments) and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein (except as
concurred in by such reporting accountants or officer, as the case may be, and
disclosed therein).

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     VII. NEGATIVE COVENANTS.
     No Borrower shall, until satisfaction in full of the Obligations and
termination of this Agreement:
     7.1. Merger, Consolidation, Acquisition and Sale of Assets.
          (a) Enter into any merger, consolidation or other reorganization with
or into any other Person or acquire all or a substantial portion of the assets
or Equity Interests of any Person or permit any other Person to consolidate with
or merge with it except with or to another Borrower that is an entity organized
under the laws of any state in the United States.
          (b) Sell, lease, transfer or otherwise dispose of any of its
properties or assets, except (i) dispositions of Inventory, Equipment, and Real
Property to the extent expressly permitted by Section 4.3, (ii) sales or
dispositions of assets by one Borrower to another Borrower in the Ordinary
Course of Business not exceeding $500,000 in book value per calendar year, and
(iii) any other sales or dispositions expressly permitted by this Agreement.
     7.2. Creation of Liens. Create or suffer to exist any Lien or transfer upon
or against any of its property or assets now owned or hereafter acquired, except
Permitted Encumbrances.
     7.3. Guarantees. Become liable upon the obligations or liabilities of any
Person by assumption, endorsement or guaranty thereof or otherwise (other than
to Lenders) except (i) the endorsement of checks in the Ordinary Course of
Business and (ii) guarantees by a Borrower of another Borrower’s Indebtedness if
that Indebtedness is allowed under this Agreement.
     7.4. Investments. Purchase or acquire obligations or Equity Interests of,
or any other interest in, any Person, except (a) obligations issued or
guaranteed by the United States of America or any agency thereof, (b) commercial
paper with maturities of not more than 180 days and a published rating of not
less than A-1 or P-1 (or the equivalent rating), (c) certificates of time
deposit and bankers’ acceptances having maturities of not more than 180 days and
repurchase agreements backed by United States government securities of a
commercial bank if (i) such bank has a combined capital and surplus of at least
$500,000,000, or (ii) its debt obligations, or those of a holding company of
which it is a Subsidiary, are rated not less than A (or the equivalent rating)
by a nationally recognized investment rating agency, (d) U.S. money market funds
that invest solely in obligations issued or guaranteed by the United States of
America or an agency thereof, and (e) purchases of Sparton Corporation’s common
stock of not more than $1,500,000 in any twelve month period if each of the
following conditions are met: (i) no Event of Default or Default then exists,
(ii) the Borrowing Base Availability Block has been satisfactorily released and
reduced to $0, (iii) Borrowers can demonstrate a proforma Fixed Charge Covenant
Ratio of at least 1.25 to 1.00 immediately prior to and after the effect of any
stock repurchase, and (iv) the Borrowers can demonstrate a proforma Undrawn
Availability of greater than $4,000,000 immediately prior to and after the
effect of any stock repurchase.
     7.5. Loans. Make advances, loans or extensions of credit to any Person,
including any Parent, Subsidiary or Affiliate except (i) with respect to the
extension of commercial trade credit in connection with the sale of Inventory in
the Ordinary Course of Business and (ii) loans or

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extensions of credit by one Borrower to another Borrower in the Ordinary Course
of Business not exceeding $750,000 in the aggregate at any one time outstanding.
     7.6. Capital Expenditures. Contract for, purchase or make any expenditure
or commitments for Capital Expenditures in any fiscal year in an aggregate
amount for all Borrowers in excess of $2,500,000.
     7.7. Dividends. Declare, pay or make any dividend or distribution on any
shares of the common stock or preferred stock of any Borrower (other than
dividends or distributions payable in its stock, or split-ups or
reclassifications of its stock or dividends and distributions by a Borrower to
Sparton) or apply any of its funds, property or assets to the purchase,
redemption or other retirement of any common or preferred stock, or of any
options to purchase or acquire any such shares of common or preferred stock of
any Borrower except as permitted under Section 7.4.
     7.8. Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness (exclusive of trade debt) except in respect of (i) Indebtedness to
Lenders; (ii) Indebtedness incurred for Capital Expenditures permitted under
Section 7.6 hereof; (iii) Indebtedness described on Schedule 7.8 hereto.
     7.9. Nature of Business. Substantially change the nature of the business in
which it is presently engaged, nor except as specifically permitted hereby
purchase or invest, directly or indirectly, in any assets or property other than
in the Ordinary Course of Business for assets or property which are useful in,
necessary for and are to be used in its business as presently conducted.
     7.10. 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 (including
Spartronics Vietnam Co., Ltd), except transactions disclosed to the Agent, which
are in the Ordinary Course of Business, on an arm’s-length basis on terms and
conditions no less favorable than terms and conditions which would have been
obtainable from a Person other than an Affiliate.
     7.11. Leases. Enter as lessee into any lease arrangement for real or
personal property (unless capitalized and permitted under Section 7.6 hereof) if
after giving effect thereto, aggregate annual rental payments for all leased
property would exceed $4,500,000 in any one fiscal year in the aggregate for all
Borrowers.
     7.12. Subsidiaries.
          (a) Form any Subsidiary.
          (b) Enter into any partnership, joint venture or similar arrangement.
     7.13. Fiscal Year and Accounting Changes. Change its fiscal year from
June 30 or make any significant change (i) in accounting treatment and reporting
practices except as required by GAAP or (ii) in tax reporting treatment except
as required by law.

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     7.14. Pledge of Credit. Now or hereafter pledge Agent’s or any Lender’s
credit on any purchases or for any purpose whatsoever or use any portion of any
Advance in or for any business other than such Borrower’s business as conducted
on the date of this Agreement.
     7.15. Amendment of Articles of Incorporation, By-Laws. Amend, modify or
waive any term or provision of its Articles of Incorporation or By-Laws except
(i) as required by law or (ii) immaterial amendments to its Articles of
Incorporation or By-Laws upon five Business Days’ prior written notice to Agent.
     7.16. Compliance with ERISA. (i) (x) Maintain, or permit any member of the
Controlled Group to maintain, or (y) become obligated to contribute, or permit
any member of the Controlled Group to become obligated to contribute, to any
Plan, other than those Plans disclosed on Schedule 5.8(d) or any other Plan for
which Agent has provided its prior written consent, (ii) engage, or permit any
member of the Controlled Group to engage, in any non-exempt “prohibited
transaction”, as that term is defined in section 406 of ERISA and Section 4975
of the Code, (iii) incur, or permit any member of the Controlled Group to incur,
any “accumulated funding deficiency”, as that term is defined in Section 302 of
ERISA or Section 412 of the Code, (iv) terminate, or permit any member of the
Controlled Group to terminate, any Plan where such event could result in any
liability of any Borrower or any member of the Controlled Group or the
imposition of a lien on the property of any Borrower or any member of the
Controlled Group pursuant to Section 4068 of ERISA, (v) assume, or permit any
member of the Controlled Group to assume, any obligation to contribute to any
Multiemployer Plan not disclosed on Schedule 5.8(d), (vi) incur, or permit any
member of the Controlled Group to incur, any withdrawal liability to any
Multiemployer Plan; (vii) fail promptly to notify Agent of the occurrence of any
Termination Event, (viii) fail to comply, or permit a member of the Controlled
Group to fail to comply, with the requirements of ERISA or the Code or other
Applicable Laws in respect of any Plan, (ix) fail to meet, or permit any member
of the Controlled Group to fail to meet, all minimum funding requirements under
ERISA or the Code or postpone or delay or allow any member of the Controlled
Group to postpone or delay any funding requirement with respect of any Plan.
     7.17. Prepayment of Indebtedness. At any time, directly or indirectly,
prepay any Indebtedness (other than to Lenders), or repurchase, redeem,
retire(except at maturity) or otherwise acquire any Indebtedness of any
Borrower.
     7.18. Anti-Terrorism Laws. No Borrower shall, until satisfaction in full of
the Obligations and termination of this Agreement, nor shall it permit any
Affiliate or agent to:
          (a) Conduct any business or engage in any transaction or dealing with
any Blocked Person, including the making or receiving any contribution of funds,
goods or services to or for the benefit of any Blocked Person.
          (b) Deal in, or otherwise engage in any transaction relating to, any
property or interests in property blocked pursuant to the Executive Order
No. 13224.
          (c) Engage in or conspire to engage in any transaction that evades or
avoids, or has the purpose of evading or avoiding, or attempts to violate, any
of the prohibitions set forth

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in the Executive Order No. 13224, the USA PATRIOT Act or any other
Anti-Terrorism Law. Borrower shall deliver to Lenders any certification or other
evidence requested from time to time by any Lender in its sole discretion,
confirming Borrower’s compliance with this Section.
     7.19. Membership/Partnership Interests. Elect to treat or permit any of its
Subsidiaries to (x) treat its 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 Uniform Commercial Code or (y) certificate its limited liability company
membership interests or partnership interests, as the case may be.
     7.20. Trading with the Enemy Act. Engage in any business or activity in
violation of the Trading with the Enemy Act.
     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) Note. Agent shall have received the Note duly executed and
delivered by an authorized officer of each Borrower;
          (b) Filings, Registrations and Recordings. Each document (including
any Uniform Commercial Code financing statement) required by this Agreement, any
related agreement or under law or reasonably requested by the Agent to be filed,
registered or recorded in order to create, in favor of Agent, a 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, and Agent shall have received
an acknowledgment copy, or other evidence satisfactory to it, of each such
filing, registration or recordation and satisfactory evidence of the payment of
any necessary fee, tax or expense relating thereto;
          (c) Corporate Proceedings of Borrowers. Agent shall have received a
copy of the resolutions in form and substance reasonably satisfactory to Agent,
of the Board of Directors of each Borrower authorizing (i) the execution,
delivery and performance of this Agreement, the Note, the Mortgage, any related
agreements (collectively the “Documents”) and (ii) the granting by each Borrower
of the security interests in and liens upon the Collateral in each case
certified by the Secretary or an Assistant Secretary of each Borrower as of the
Closing Date; and, such certificate shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded as of the date
of such certificate;
          (d) Incumbency Certificates of Borrowers. Agent shall have received a
certificate of the Secretary or an Assistant Secretary of each Borrower, dated
the Closing Date, as to the incumbency and signature of the officers of each
Borrower executing this Agreement, the Other Documents, any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;

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          (e) Intentionally Omitted.
          (f) Certificates. Agent shall have received a copy of the Articles or
Certificate of Incorporation of each Borrower, and all amendments thereto,
certified by the Secretary of State or other appropriate official of its
jurisdiction of incorporation together with copies of the By-Laws of each
Borrower and all agreements of each Borrower’s shareholders certified as
accurate and complete by the Secretary of each Borrower;
          (g) Intentionally Omitted.
          (h) Good Standing Certificates. Agent shall have received good
standing certificates for each Borrower dated not more than 15 days prior to the
Closing Date, issued by the Secretary of State or other appropriate official of
each Borrower’s jurisdiction of incorporation and each jurisdiction where the
conduct of each Borrower’s business activities or the ownership of its
properties necessitates qualification;
          (i) Legal Opinion. Agent shall have received the executed legal
opinion of Varnum LLP in form and substance satisfactory to Agent which shall
cover such matters incident to the transactions contemplated by this Agreement,
the Note, the Other Documents, and related agreements as Agent may reasonably
require and each Borrower hereby authorizes and directs such counsel to deliver
such opinions to Agent and Lenders;
          (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 shall have been issued by any Governmental Body;
          (k) Financial Condition Certificates. Agent shall have received an
executed Financial Condition Certificate in the form of Exhibit 8.1(k).
          (l) Collateral Examination. Agent shall have completed Collateral
examinations and received appraisals, the results of which shall be satisfactory
in form and substance to Lenders, of the Receivables, Inventory, General
Intangibles, Real Property, Leasehold Interest and Equipment of each Borrower
and all books and records in connection therewith;
          (m) Fees. Agent shall have received all fees payable to Agent and
Lenders on or prior to the Closing Date hereunder, including pursuant to
Article III hereof;
          (n) [Intentionally Omitted];
          (o) [Intentionally Omitted];
          (p) [Intentionally Omitted];

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          (q) Insurance. Agent shall have received in form and substance
satisfactory to Agent, certified copies of Borrowers’ casualty insurance
policies, together with loss payable endorsements on Agent’s standard form of
loss payee endorsement naming Agent as loss payee, and certified copies of
Borrowers’ liability insurance policies, together with endorsements naming Agent
as a co-insured;
          (r) Title Insurance Commitments. Agent shall have received title
insurance commitments with respect to the Real Property showing that the
Mortgage will create a valid Lien on the Real Property with only such exceptions
that are acceptable to Agent in its sole discretion;
          (s) Environmental Reports. Agent shall have received all environmental
studies and reports prepared by independent environmental engineering firms with
respect to all Real Property owned or leased by any Borrower;
          (t) Payment Instructions. Agent shall have received written
instructions from Borrowing Agent directing the application of proceeds of the
initial Advances made pursuant to this Agreement;
          (u) Blocked Accounts. Agent shall have received duly executed
agreements establishing the Blocked Accounts or Depository Accounts with
financial institutions acceptable to Agent for the collection or servicing of
the Receivables and proceeds of the Collateral;
          (v) Consents. Agent shall have received any and all Consents necessary
to permit the effectuation of the transactions contemplated by this Agreement
and the Other Documents; and, Agent shall have received such Consents and
waivers of such third parties as might assert claims with respect to the
Collateral, as Agent and its counsel shall deem necessary;
          (w) No Adverse Material Change. (i) since June 30, 2008, except as
disclosed in Borrowers’ March 31, 2009 financial statements, copies of which
have been provided to Agent, and the Projections, there shall not have occurred
any event, condition or state of facts which could reasonably be expected to
have a Material Adverse Effect and (ii) no representations made or information
supplied to Agent or Lenders shall have been proven to be inaccurate or
misleading in any material respect;
          (x) Leasehold Agreements. Agent shall have received landlord,
mortgagee or warehouseman agreements satisfactory to Agent with respect to all
premises leased by Borrowers at which Inventory and books and records are
located;
          (y) Mortgage and Title Commitments. Agent shall have received in form
and substance satisfactory to Agent (i) the executed Mortgage covering the Real
Property and (ii) the title commitments referred to in subsection (r) above;
          (z) [Intentionally Omitted].
          (aa) Other Documents. Agent shall have received the executed Other
Documents, all in form and substance satisfactory to Agent;

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          (bb) [Intentionally Omitted];
          (cc) Contract Review. Agent shall have reviewed all material contracts
of Borrowers including leases, union contracts, labor contracts, vendor supply
contracts, license agreements and distributorship agreements and such contracts
and agreements shall be satisfactory in all respects to Agent;
          (dd) Closing Certificate. Agent shall have received a closing
certificate signed by the Chief Financial Officer of each Borrower dated as of
the date hereof, 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) Borrowers are on such date in compliance with all the terms and
provisions set forth in this Agreement and the Other Documents and (iii) on such
date no Default or Event of Default has occurred or is continuing;
          (ee) Borrowing Base. Agent shall have received evidence from Borrowers
that the aggregate amount of Eligible Receivables and Eligible Inventory is
sufficient in value and amount to support Advances in the amount requested by
Borrowers on the Closing Date;
          (ff) Undrawn Availability. After giving effect to the initial Advances
hereunder, Borrowers shall have Undrawn Availability of at least $5,000,000; and
          (gg) Compliance with Laws. Agent shall be reasonably satisfied that
each Borrower is in compliance with all pertinent federal, state, local or
territorial regulations, including those with respect to the Federal
Occupational Safety and Health Act, the Environmental Protection Act, ERISA and
the Trading with the Enemy Act.
          (hh) 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 and its counsel.
     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 any Borrower 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 material respects on and as of such date as if made on and as of
such 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; and

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          (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.
     Each request for an Advance by any Borrower 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.
     IX. INFORMATION AS TO BORROWERS.
     Each Borrower shall, or (except with respect to Section 9.11) shall cause
Borrowing 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
collectibility 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, or cause Borrowing Agent to deliver, to Agent on
or before the fifteenth (15th) 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). In addition, the Borrowers
will deliver, or cause the Borrowing Agent to deliver, to the Lender on Thursday
of each week an interim Borrowing Base Certificate (which shall not be binding
upon the Lender or restrictive of the Lender’s rights under this Agreement) as
of the closing of business on the preceding Sunday and reflecting all activity
(sales, collections, credits, etc.) impacting the Receivables of the Borrowers
for all Business Days since the preparation of the immediately prior interim
Borrowing Base Certificate. 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.
     9.3. Environmental Reports. Furnish Agent, concurrently with the delivery
of the financial statements referred to in Sections 9.7 and 9.8, with a
Compliance Certificate signed by an Authorized Agent stating, to the best of his
knowledge, that each Borrower is in compliance in all material respects with all
federal, state and local Environmental Laws. To the extent any

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Borrower 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
Borrower will implement in order to achieve full compliance.
     9.4. Litigation. Promptly notify Agent in writing of any claim, litigation,
suit or administrative proceeding affecting any Borrower, whether or not the
claim is covered by insurance, and of any litigation, suit or administrative
proceeding, which in any such case affects the Collateral or which could
reasonably be expected to have a Material Adverse Effect.
     9.5. Material Occurrences. Promptly notify Agent in writing upon the
occurrence of (a) any Event of Default or Default; (b) 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
Borrower as of the date of such statements; (c) any accumulated retirement plan
funding deficiency which, if such deficiency continued for two plan years and
was not corrected as provided in Section 4971 of the Code, could subject any
Borrower to a tax imposed by Section 4971 of the Code; (d) each and every
default by any Borrower which might result in the acceleration of the maturity
of any Indebtedness, including the names and addresses of the holders of such
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
Indebtedness; and (e) any other development in the business or affairs of any
Borrower 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.
     9.6. Government Receivables. Notify Agent immediately if any of its
Receivables arise out of contracts between any Borrower and the United States,
any state, or any department, agency or instrumentality of any of them.
     9.7. Annual Financial Statements. Furnish Agent and Lenders within 120 days
after the end of each fiscal year of Borrowers, financial statements of
Borrowers on a consolidated 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, and on a consolidating basis (by the following lines of
business: electronics, medical, government and corporate) a statement of income
from the beginning of the current fiscal year to the end of the fiscal year, all
prepared in accordance with GAAP applied on a basis consistent with prior
practices, and in reasonable detail and, except in the case of consolidating
statements, reported upon without qualification by an independent certified
public accounting firm selected by Borrowers 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 6.5, 7.4, 7.5, 7.6, 7.7, 7.8 and 7.11 hereof. In addition,
the reports shall be accompanied by a Compliance Certificate.

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     9.8. Quarterly Financial Statements. Furnish Agent and Lenders within
45 days after the end of each fiscal quarter, an unaudited balance sheet of
Borrowers on a consolidated basis and unaudited statements of income and
stockholders’ equity and cash flow of Borrowers on a consolidated basis, and an
unaudited statement of income on a consolidating basis (by the following
business lines: electronics, medical, government and corporate), reflecting
results of operations from the beginning of the fiscal year to the end of such
quarter and for such 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 Borrowers’ business. The reports shall be accompanied by a
Compliance Certificate.
     9.9. Monthly Financial Statements. Furnish Agent and Lenders within thirty
(30) days after the end of each month, an unaudited balance sheet of Borrowers
on a consolidated basis and unaudited statements of income and stockholders’
equity and cash flow of Borrowers on a consolidated basis, and an unaudited
statement of income on a consolidating basis (by the following business lines:
electronics, medical, government and corporate), 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
Borrowers’ business. The reports shall be accompanied by a Compliance
Certificate.
     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 as each Borrower shall send 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 Note 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 and Lenders, no later than
the first day of each Borrower’s fiscal years commencing with fiscal year
beginning July 1, 2010, a month by month projected operating budget and cash
flow of Borrowers on a consolidated basis for such fiscal year (including an
income statement for each month and a balance sheet as at the end of the last
month in each fiscal quarter), and on a consolidating basis (by the following
business lines: electronics, medical, government and corporate) an income
statement for such fiscal year (including an income statement for each month),
such projections to be accompanied by a certificate signed by the Chief
Executive Officer, President or Chief Financial Officer of each Borrower to the
effect that such projections have been prepared on the basis of sound financial
planning practice consistent with past budgets and financial statements and that
such

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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, concurrently with the
delivery of the financial statements referred to in Section 9.7 and each
quarterly and monthly report, 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 prompt written
notice of (i) any lapse or other termination of any Consent issued to any
Borrower by any Governmental Body or any other Person that is material to the
operation of any Borrower’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 Borrower with any Governmental Body or
Person, if such reports indicate any material change in the business,
operations, affairs or condition of any Borrower, or if copies thereof are
requested by Lender, and (iv) copies of any material notices and other
communications from any Governmental Body or Person which specifically relate to
any Borrower.
     9.15. ERISA Notices and Requests. Furnish Agent with immediate written
notice in the event that (i) any Borrower or any member of the Controlled Group
knows or has reason to know that a Termination Event has occurred, together with
a written statement describing such Termination Event and the action, if any,
which such Borrower 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 Borrower or any member of the Controlled Group knows
or has reason to know that a prohibited transaction (as defined in Sections 406
of ERISA and 4975 of the Code) has occurred together with a written statement
describing such transaction and the action which such Borrower 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 Plan
together with all communications received by any Borrower or any member of the
Controlled Group with respect to such request, (iv) any increase in the benefits
of any existing Plan or the establishment of any new Plan or the commencement of
contributions to any Plan to which any Borrower or any member of the Controlled
Group was not previously contributing shall occur, (v) any Borrower or any
member of the Controlled Group shall receive from the PBGC a notice of intention
to terminate a Plan or to have a trustee appointed to administer a Plan,
together with copies of each such notice, (vi) any Borrower or any member of the
Controlled Group shall receive any favorable or unfavorable determination letter
from the Internal Revenue Service regarding the qualification of a Plan under
Section 401(a) of the Code, together with copies of each such letter; (vii) any
Borrower 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 Borrower or any member of the Controlled Group shall fail to
make a required installment or any other required payment under Section 412 of
the Code on or before the due date for such installment or payment; or (ix) any
Borrower 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, or (c) the PBGC
has instituted or will institute proceedings under Section 4042 of ERISA to
terminate a Multiemployer Plan.

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     9.16. Additional Documents. Execute and deliver to Agent, upon 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.
     X. EVENTS OF DEFAULT.
     The occurrence of any one or more of the following events shall constitute
an “Event of Default”:
     10.1. Nonpayment. Failure by any Borrower to pay any principal or interest
on the Obligations when due, whether at maturity or by reason of acceleration
pursuant to the terms of this Agreement or by notice of intention to prepay, or
by required prepayment or failure to pay any other liabilities or make any other
payment, fee or charge provided for herein when due or in any Other Document;
     10.2. Breach of Representation. Any representation or warranty made or
deemed made by any Borrower in this Agreement, 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 misleading in any material respect on the date when made or deemed to have
been made;
     10.3. Financial Information. Failure by any Borrower to (i)(x) furnish
financial information when due, or (y) if no due date is specified, within
5 days of when requested, or (ii) permit the inspection of its books or records
in accordance with this Agreement;
     10.4. Judicial Actions. Issuance of a notice of Lien, levy, assessment,
injunction or attachment involving $10,000 or more against any Borrower’s
Inventory or Receivables or against a material portion of any Borrower’s other
property;
     10.5. Noncompliance. Except as otherwise provided for in Sections 10.1,
10.3 and 10.5(ii), (i) failure or neglect of any Borrower 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 Borrower and Agent or any Lender, or (ii) failure or
neglect of any Borrower to perform, keep or observe any term, provision,
condition or covenant, contained in Sections 4.6, 4.7, 4.9, 4.17, 6.1, 6.3, 6.4,
6.6, 9.3, 9.4, 9.6, or 9.16 hereof which is not cured within 15 days from the
occurrence of such failure or neglect;
     10.6. Judgments. Any judgment or judgments are rendered against any
Borrower for an aggregate amount in excess of $250,000 or against all Borrowers
for an aggregate amount in excess of $250,000 and (i) enforcement proceedings
shall have been commenced by a creditor upon such judgment, (ii) there shall be
any period of thirty (30) consecutive days during which a stay of enforcement of
such judgment, by reason of a pending appeal or otherwise, shall not be in
effect, and an appropriate Reserve shall not be in place or (iii) any such
judgment results in the creation of a Lien upon any of the Collateral (other
than a Permitted Encumbrance);
     10.7. Bankruptcy. Any Borrower shall (i) apply for, consent to or suffer
the appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or similar

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fiduciary of itself or of all or a substantial part of its property, (ii) make a
general assignment for the benefit of creditors, (iii) commence a voluntary case
under any state or federal bankruptcy laws (as now or hereafter in effect),
(iv) be adjudicated a bankrupt or insolvent, (v) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vi) acquiesce
to, or fail to have dismissed, within 60 days, any petition filed against it in
any involuntary case under such bankruptcy laws, or (vii) take any action for
the purpose of effecting any of the foregoing;
     10.8. Inability to Pay. Any Borrower shall admit in writing its inability,
or be generally unable, to pay its debts as they become due or cease operations
of its present business;
     10.9. Affiliate Bankruptcy. Any Affiliate or any Subsidiary of any Borrower
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 creditors, (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, (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 60 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;
     10.10. Material Adverse Effect. Any change in any Borrower’s results of
operations or condition (financial or otherwise) which in Agent’s opinion (as
determined in its Permitted Discretion) has a Material Adverse Effect;
     10.11. Lien Priority. Any Lien created hereunder or provided for hereby or
under any related agreement for any reason ceases to be or is not a valid and
perfected Lien having a first priority interest;
     10.12. [Intentionally Omitted];
     10.13. Cross Default. A default of the obligations of any Borrower under
any other agreement to which it is a party shall occur which, in Agent’s opinion
(as determined in its Permitted Discretion), adversely affects its condition,
affairs or prospects (financial or otherwise) which default is not cured within
any applicable grace period;
     10.14. [Intentionally Omitted];
     10.15. Change of Control. Any Change of Control shall occur;
     10.16. Invalidity. Any material provision of this Agreement or any Other
Document shall, for any reason, cease to be valid and binding on Borrower, or
any Borrower shall so claim in writing to Agent or any Lender;
     10.17. Licenses. (i) Any Governmental Body shall (A) revoke, terminate,
suspend or adversely modify any license, permit, patent trademark or tradename
of any Borrower, or (B) commence proceedings to suspend, revoke, terminate or
adversely modify any such license,

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permit, trademark, tradename or patent and such proceedings shall not be
dismissed or discharged within sixty (60) days, or (C) schedule or conduct a
hearing on the renewal of any license, permit, trademark, tradename or patent
necessary for the continuation of any Borrower’s business and the staff of such
Governmental Body issues a report recommending the termination, revocation,
suspension or material, adverse modification of such license, permit, trademark,
tradename or patent and any such action could reasonably be expected to have a
Material Adverse Effect; (ii) any agreement which is necessary or material to
the operation of any Borrower’s business shall be revoked or terminated and not
replaced by a substitute acceptable to Agent within thirty (30) days after the
date of such revocation or termination, and such revocation or termination and
non-replacement would reasonably be expected to have a Material Adverse Effect;
     10.18. Seizures. Any portion of the Collateral shall be seized or taken by
a Governmental Body, or any Borrower or the title and rights of any Borrower or
any Original Owner which is the owner of any material portion of the Collateral
shall have become the subject matter of claim, litigation, suit or other
proceeding which might, in the opinion of Agent (as determined in its Permitted
Discretion), upon final determination, result in impairment or loss of the
security provided by this Agreement or the Other Documents;
     10.19. Operations. The operations of any Borrower’s manufacturing facility
are interrupted at any time for more than 72 hours during any period of 5
consecutive days, unless such Borrower shall (i) be entitled to receive for such
period of interruption, proceeds of business interruption insurance sufficient
to assure that its per diem cash needs during such period is at least equal to
its average per diem cash needs for the consecutive three month period
immediately preceding the initial date of interruption and (ii) receive such
proceeds in the amount described in clause (i) preceding not later than thirty
(30) days following the initial date of any such interruption; provided,
however, that notwithstanding the provisions of clauses (i) and (ii) of this
section, an Event of Default shall be deemed to have occurred if such Borrower
shall be receiving the proceeds of business interruption insurance for a period
of thirty (30) consecutive days in connection with a plant or group of assets
from which Borrowers derived, directly or indirectly, 10% or more of their
revenues in the prior fiscal year (calculated after giving effect to Borrowers’
movement of production from the affected plant or assets to another plant or
other assets); or
     10.20. Pension Plans. An event or condition specified in Sections 7.16 or
9.15 hereof shall occur or exist with respect to any Plan and, as a result of
such event or condition, together with all other such events or conditions, any
Borrower or any member of the Controlled Group shall incur, or in the opinion of
Agent be reasonably likely to incur, a liability to a Plan or the PBGC (or both)
which, in the reasonable judgment of Agent, would have a Material Adverse
Effect.
     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 all Obligations shall be immediately due and payable and this
Agreement and the obligation of

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Lenders to make Advances shall be deemed terminated; and, (ii) any of the other
Events of Default and at any time thereafter (such default not having previously
been cured), at the option of Required Lenders all Obligations shall be
immediately due and payable and Lenders shall have the right to terminate this
Agreement and to terminate the obligation of Lenders to make Advances and
(iii) a filing of a petition against any Borrower in any involuntary case under
any state or federal bankruptcy laws, the obligation of Lenders to make Advances
hereunder shall be terminated other than as may be required by an appropriate
order of the bankruptcy court having jurisdiction over such Borrower. Upon the
occurrence 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 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. Agent may
enter any of any Borrower’s premises or other premises without legal process and
without incurring liability to any Borrower 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 Borrowers to make the Collateral available to Agent at a
convenient place. 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, Agent shall give Borrowers reasonable notification of such sale or
sales, it being agreed that in all events written notice mailed to Borrowing
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 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
Borrower. 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
Borrower’s (a) trademarks, trade styles, trade names, patents, patent
applications, copyrights, service marks, licenses, franchises and other
proprietary rights which are used or useful in connection with Inventory for the
purpose of marketing, advertising for sale and selling or otherwise disposing of
such Inventory 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 in the order set forth in 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.
          (b) To the extent that Applicable Law imposes duties on the Agent to
exercise remedies in a commercially reasonable manner, each Borrower
acknowledges and agrees that it is not commercially unreasonable for the Agent
(i) to fail to incur expenses reasonably deemed significant by the 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

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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 sellers 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 the Agent against risks of loss, collection or
disposition of Collateral or to provide to the 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 the 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 the Agent would not be commercially
unreasonable in the Agent’s exercise of remedies against the Collateral and that
other actions or omissions by the 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 or to take any other action
with respect thereto and such determination will not in any way modify or affect
any of Agent’s or Lenders’ rights hereunder.
     11.3. Setoff. Subject to Section 14.12, in addition to any other rights
which Agent or any Lender may have under Applicable Law, upon the occurrence 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 to reduce the Obligations.
     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 the Agent on account of the

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Obligations or any other amounts outstanding under any of the Other Documents or
in respect of the Collateral may, at Agent’s discretion, be paid over or
delivered as follows:
     FIRST, to the payment of all reasonable out-of-pocket costs and expenses
(including reasonable attorneys’ fees) of the Agent in connection with enforcing
its rights and the rights of the Lenders under this Agreement and the Other
Documents and any protective advances made by the Agent with respect to the
Collateral under or pursuant to the terms of this Agreement;
     SECOND, to payment of any fees owed to the Agent;
     THIRD, to the payment of all reasonable out-of-pocket costs and expenses
(including reasonable attorneys’ fees) of each of the Lenders to the extent
owing to such Lender pursuant to the terms of this Agreement;
     FOURTH, to the payment of all of the Obligations consisting of accrued fees
and interest;
     FIFTH, to the payment of the outstanding principal amount of the
Obligations (including the payment or cash collateralization of any outstanding
Letters of Credit);
     SIXTH, to all other Obligations and other obligations which shall have
become due and payable under the Other Documents or otherwise and not repaid
pursuant to clauses “FIRST” through “FIFTH” above; and
     SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully
entitled to receive such surplus.
     In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (ii) each of the Lenders shall receive (so long as it is
not a Defaulting Lender) an amount equal to its pro rata share (based on the
proportion that the then outstanding Advances held by such Lender bears to the
aggregate then outstanding Advances) of amounts available to be applied pursuant
to clauses “FOURTH”, “FIFTH” and “SIXTH” above; and (iii) to the extent that any
amounts available for distribution pursuant to clause “FIFTH” above are
attributable to the issued but undrawn amount of outstanding Letters of Credit,
such amounts shall be held by the Agent in a cash collateral account and applied
(A) first, to reimburse the Issuer from time to time for any drawings under such
Letters of Credit and (B) then, following the expiration of all Letters of
Credit, to all other obligations of the types described in clauses “FIFTH” and
“SIXTH” above in the manner provided in this Section 11.5.
     XII. WAIVERS AND JUDICIAL PROCEEDINGS.
     12.1. Waiver of Notice. Each Borrower 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, 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, DEMAND, ACTION OR CAUSE OF ACTION
(A) ARISING UNDER THIS AGREEMENT 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 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, 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.
     XIII. EFFECTIVE 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
Borrower, Agent and each Lender, shall become effective on the date hereof and
shall continue in full force and effect until August 13, 2012 (the “Term”)
unless sooner terminated as herein provided. Borrowers may terminate this
Agreement at any time upon ninety (90) days’ prior written notice upon payment
in full of the Obligations. In the event the Obligations are prepaid in full
prior to the last day of the Term (the date of such prepayment hereinafter
referred to as the “Early Termination Date”), Borrowers shall pay to Agent for
the benefit of Lenders an early termination fee in an amount equal to (y)
$600,000 if the Early Termination Date occurs on or after the Closing Date to
and including the date immediately preceding the first anniversary of the
Closing Date, and (z) $400,000 if the Early Termination Date occurs on or after
the first anniversary of the Closing Date to and including the date immediately
preceding the third anniversary of the Closing Date, provided, that no early
termination fee will be due and payable in the event the Borrowers refinance the
Obligations during this period through NCBC or any of its Affiliates.
     13.2. Termination. The termination of the Agreement shall not affect any
Borrower’s, Agent’s or any Lender’s rights, or any of the Obligations having
their inception prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights or interests created or Obligations have been fully and
indefeasibly paid, 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 Borrowers’
Account may from time to time be temporarily in a zero or credit position, until
all of the Obligations of each Borrower have been indefeasibly paid and
performed in full after

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the termination of this Agreement or each Borrower has furnished Agent and
Lenders with an indemnification satisfactory to Agent and Lenders with respect
thereto. Accordingly, each Borrower 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 each Borrower, 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 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.
     XIV. REGARDING AGENT.
     14.1. Appointment. Each Lender hereby designates NCBC 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 set forth in
Sections 3.3(a) and 3.4) charges and collections (without giving effect to any
collection days) 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 the Required Lenders, and such instructions shall be
binding; provided, however, that Agent shall not be required to take any action
which 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.
     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 Borrower 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 Borrower 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 Borrower. 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

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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
except as expressly set forth herein.
     14.3. Lack of Reliance on Agent and Resignation. 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 Borrower 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 Borrower.
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,
collectibility or sufficiency of this Agreement or any Other Document, or of the
financial condition of any Borrower, 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 of any Borrower, or the existence of any Event of Default or any
Default.
     Agent may resign on sixty (60) days’ written notice to each of Lenders and
Borrowing Agent and upon such resignation, the Required Lenders will promptly
designate a successor Agent reasonably satisfactory to Borrowers.
     Any such successor Agent shall succeed to the rights, powers and duties of
Agent, 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. After any Agent’s resignation as Agent, the provisions of this
Article XIV shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.
     14.4. 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 the 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 the Required Lenders.
     14.5. Reliance. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, 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-

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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.
     14.6. 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 notice from a Lender or Borrowing
Agent referring to this Agreement or the Other Documents, describing such
Default or Event of Default and stating that such notice is a “notice of
default”. 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 the 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.
     14.7. Indemnification. To the extent Agent is not reimbursed and
indemnified by Borrowers, each Lender will reimburse and indemnify Agent in
proportion to its respective portion of the Advances (or, if no Advances are
outstanding, according to its Commitment Percentage), 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).
     14.8. 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.
     14.9. Delivery of Documents. To the extent Agent receives financial
statements required under this Agreement or Borrowing Base Certificates 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.
     14.10. 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.

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     14.11. No Reliance on Agent’s Customer Identification Program. Each Lender
acknowledges and agrees that neither such Lender, nor any of its Affiliates,
participants or assignees, may rely on the 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 Borrower, its Affiliates or its agents,
this Agreement, the Other Documents or the transactions hereunder or
contemplated hereby: (1) any identity verification procedures, (2) any
record-keeping, (3) comparisons with government lists, (4) customer notices or
(5) other procedures required under the CIP Regulations or such other laws.
     14.12. 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 Lender to any Borrower or any deposit
accounts of any Borrower 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. BORROWING AGENCY.
     15.1. Borrowing Agency Provisions.
          (a) Each Borrower hereby irrevocably designates Borrowing Agent to be
its attorney and agent and in such capacity to borrow, sign and endorse notes,
and execute and deliver all instruments, documents, writings and further
assurances now or hereafter required hereunder, on behalf of such Borrower or
Borrowers, and hereby authorizes Agent to pay over or credit all loan proceeds
hereunder in accordance with the request of Borrowing Agent.
          (b) The handling of this credit facility as a co-borrowing facility
with a borrowing agent in the manner set forth in this Agreement is solely as an
accommodation to Borrowers and at their request. Neither Agent nor any Lender
shall incur liability to Borrowers as a result thereof. To induce Agent and
Lenders to do so and in consideration thereof, each Borrower 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 Borrowing 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 each Borrower shall
in no way be affected by any extensions, renewals and forbearance granted to
Agent or any Lender to any Borrower, failure of Agent or any Lender to give any
Borrower notice of borrowing or any other notice, 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 Borrowers or any Collateral for such Borrower’s
Obligations or the lack thereof. Each Borrower waives all suretyship defenses.
     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 other
Borrowers or other Person directly or contingently liable for the Obligations
hereunder, or against or with respect to the other Borrowers’ 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 shall be governed by and construed in
accordance with the laws of the State of Michigan applied to contracts to be
performed wholly within the State of Michigan. Any judicial proceeding brought
by or against any Borrower with respect to any of the Obligations, this
Agreement, the Other Documents or any related agreement may be brought in any
court of competent jurisdiction in the State of Michigan, United States of
America, and, by execution and delivery of this Agreement, each Borrower 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.
Each Borrower hereby waives personal service of any and all process upon it and
consents that all such service of process may be made by registered mail (return
receipt requested) directed to Borrowing 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 the Agent’s option, by service upon Borrowing Agent which each
Borrower irrevocably appoints as such Borrower’s Agent for the purpose of
accepting service within the State of Michigan. 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 Oakland or a federal court located in Detroit,
Michigan.

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     16.2. Entire Understanding.
          (a) This Agreement and the documents executed concurrently herewith
contain the entire understanding between each Borrower, 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. 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.
          (b) The Required Lenders, Agent with the consent in writing of the
Required Lenders, and 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 Lenders, 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, without the
consent of all Lenders:
               (i) increase the Commitment Percentage, the maximum dollar
commitment of any Lender or the Maximum Revolving Advance Amount.
               (ii) extend the maturity of any Note or the due date for any
amount payable hereunder, or decrease the rate of interest or reduce any fee
payable by Borrowers to Lenders pursuant to this Agreement.
               (iii) alter the definition of the term Required Lenders or alter,
amend or modify this Section 16.2(b).
               (iv) release any Collateral during any calendar year (other than
in accordance with the provisions of this Agreement) having an aggregate value
in excess of $250,000.
               (v) change the rights and duties of Agent.
               (vi) permit any Revolving Advance to be made if after giving
effect thereto the total of Revolving Advances outstanding hereunder would
exceed the Formula Amount for more than sixty (60) consecutive Business Days or
exceed one hundred and ten percent (110%) of the Formula Amount.
               (vii) increase the Advance Rates above the Advance Rates in
effect on the Closing Date.

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               (viii) release any guarantor.
     Any such supplemental agreement shall apply equally to each Lender and
shall be binding upon Borrowers, Lenders and Agent and all future holders of the
Obligations. In the case of any waiver, Borrowers, 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.
     In the event that Agent requests the consent of a Lender pursuant to this
Section 16.2 and such consent is denied, then NCBC may, at its option, require
such Lender to assign its interest in the Advances to NCBC or to another Lender
or to any other Person designated by the 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 PNC elects to
require any Lender to assign its interest to PNC or to the Designated Lender,
PNC 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 PNC 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, PNC or the
Designated Lender, as appropriate, and Agent.
     Notwithstanding (a) the existence of a Default or an Event of Default,
(b) that any of the other applicable conditions precedent set forth in
Section 8.2 hereof have not been satisfied or (c) any other provision of this
Agreement, Agent may at its discretion and without the consent of the Required
Lenders, voluntarily permit the sum of the outstanding Revolving Advances and
the Maximum Undrawn Amount at any time to exceed an amount equal to the sum of
(i)] the Formula Amount minus (ii) the amount of minimum Undrawn Availability
required by Section 6.5(f) hereof at such time (such sum, the “Overadvance
Threshold Amount”)] by up to ten percent (10%) of the Formula Amount for up to
sixty (60) consecutive Business Days (the “Out-of-Formula Loans”); provided,
that, such outstanding Advances do not exceed the Maximum Revolving Advance
Amount. If Agent is willing in its sole and absolute discretion to make such
Out-of-Formula Loans, such Out-of-Formula Loans shall be payable on demand and
shall bear interest at the Default Rate for Revolving Advances consisting of
Domestic Rate Loans; provided that, if Lenders do make Out-of-Formula Loans,
neither Agent nor Lenders shall be deemed thereby to have changed the limits of
Section 2.1(a). 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 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, 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 Formula Amount by more than ten
percent (10%), Agent shall use its 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

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existence of involuntary overadvances shall be deemed to be involuntary
overadvances and shall be decreased in accordance with the preceding sentence.
     In addition to (and not in substitution of) the discretionary Revolving
Advances permitted above in this Section 16.2, the Agent is hereby authorized by
Borrowers and the Lenders, from time to time in the Agent’s sole discretion,
(A) after the occurrence and during the continuation of a Default or an Event of
Default, or (B) at any time that any of the other applicable conditions
precedent set forth in Section 8.2 hereof have not been satisfied, to make
Revolving Advances to Borrowers on behalf of the Lenders which the 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; provided, that at any time after giving effect to any such
Revolving Advances the outstanding Revolving Advances do not exceed one hundred
and ten percent (110%) of the Formula Amount.
     16.3. Successors and Assigns; Participations; New Lenders.
          (a) This Agreement shall be binding upon and inure to the benefit of
Borrowers, Agent, each Lender, all future holders of the Obligations and their
respective successors and permitted assigns, except that no Borrower may assign
or transfer any of its rights or obligations under this Agreement without the
prior written consent of Agent and each Lender.
          (b) Each Borrower acknowledges that in the regular course of
commercial banking business one or more Lenders may at any time and from time to
time sell participating interests in the Advances to other financial
institutions (each such transferee or purchaser of a participating interest, a
“Participant”). Each Lender shall use good faith efforts to notify the Borrowing
Agent of all sales to all Participants. Each Participant may exercise all rights
of payment (including rights of set-off) with respect to the portion of such
Advances held by it or other Obligations payable hereunder as fully as if such
Participant were the direct holder thereof provided that Borrowers shall not be
required to pay to any Participant more than the amount which it would have been
required to pay to Lender which granted an interest in its Advances or other
Obligations payable hereunder to such Participant had such Lender retained such
interest in the Advances hereunder or other Obligations payable hereunder and in
no event shall Borrowers be required to pay any such amount arising from the
same circumstances and with respect to the same Advances or other Obligations
payable hereunder to both such Lender and such Participant. Each Borrower hereby
grants to any Participant a continuing security interest in any deposits, moneys
or other property actually or constructively held by such Participant as
security for the Participant’s interest in the Advances.
          (c) Any Lender, with the consent of Agent which shall not be
unreasonably withheld or delayed, may sell, assign or transfer all or any part
of its rights and obligations under or relating to Revolving Advances under this
Agreement and the Other Documents to one or more additional banks or financial
institutions and one or more additional banks or financial institutions may
commit to make Advances hereunder (each a “Purchasing Lender”), in minimum
amounts of not less than $1,000,000, pursuant to a Commitment Transfer
Supplement, executed by a Purchasing Lender, the transferor Lender, and Agent
and delivered to Agent for

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recording. Upon such execution, delivery, acceptance and recording, 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 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 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 Borrower hereby consents to
the addition of such Purchasing Lender and the resulting adjustment of the
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. Before an Event of Default, each selling Lender shall give the
Borrowing Agent five days’ written notice before selling or assigning all or any
part of its rights and obligations under or relating to Revolving Advances.
          (d) 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
Revolving 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. Each Borrower hereby consents to the addition of such Purchasing
CLO. Borrowers shall execute and deliver such further documents and do such
further acts and things in order to effectuate the foregoing.
          (e) 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

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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 Lenders 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 Borrowing 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.
          (f) Each Borrower authorizes each Lender to disclose to any Transferee
and any prospective Transferee any and all financial information in such
Lender’s possession concerning such Borrower which has been delivered to such
Lender by or on behalf of such Borrower pursuant to this Agreement or in
connection with such Lender’s credit evaluation of such Borrower.
     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
Borrower makes a payment or Agent or any Lender receives any payment or proceeds
of the Collateral for any Borrower’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. Each Borrower shall indemnify Agent, each Lender and each
of their respective officers, directors, Affiliates, attorneys, employees and
agents from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind or nature whatsoever (including fees and disbursements of counsel) which
may be imposed on, incurred by, or asserted against Agent or any Lender in any
claim, litigation, proceeding or investigation instituted or conducted by any
Governmental Body or instrumentality or any other Person with respect to any
aspect of, or any transaction contemplated by, or referred to in, or any matter
related to, this Agreement or the Other Documents, whether or not Agent or any
Lender is a party thereto, except to the extent that any of the foregoing arises
out of the willful misconduct or gross negligence of the party being indemnified
(as determined by a court of competent jurisdiction in a final and
non-appealable judgment). Without limiting the generality of the foregoing, this
indemnity shall extend to any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind or nature whatsoever (including fees and disbursements of counsel) asserted
against or incurred by any of the indemnitees described above in this
Section 16.5 by any Person under any Environmental Laws or similar laws by
reason of any Borrower’s or any other Person’s failure to comply with laws
applicable to solid or hazardous waste materials, including Hazardous Substances
and Hazardous Waste, or other Toxic Substances. Additionally, if any taxes
(excluding taxes imposed upon or measured solely by the net income of Agent and
Lenders, but including any intangibles taxes, stamp tax, recording tax or
franchise tax) shall be payable by Agent, Lenders or Borrowers on account of the
execution or delivery of this Agreement, or the execution, delivery, issuance or
recording of any of the Other Documents, or

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the creation or repayment of any of the Obligations hereunder, by reason of any
Applicable Law now or hereafter in effect, Borrowers will pay (or will promptly
reimburse Agent and Lenders for payment of) all such taxes, including interest
and penalties thereon, and will indemnify and hold the indemnitees described
above in this Section 16.5 harmless from and against all liability in connection
therewith.
     16.6. Notice. Any notice or request hereunder may be given to Borrowing
Agent or any Borrower 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 Loan 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 site on
the World Wide Web (a “Website Posting”) if Notice of such Website 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 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, a
Website 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 a Website 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.
     Any Lender giving a Notice to Borrowing Agent or any Borrower shall
concurrently send a copy thereof to the Agent, and the Agent shall promptly
notify the other Lenders of its receipt of such Notice.

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  (A)   If to Agent or NCB at:
 
       
 
      National City Business Credit, Inc.
 
      1965 East 6th Street, 4th Floor
 
      Locator: 01-3049
 
      Cleveland, Ohio 44114
 
      Attention:     Roger F. Reeder
 
      Telephone:    (216) 222-8719
 
      Facsimile:     (216) 222-9555
 
       
 
      with a copy to:
 
       
 
      PNC Business Credit
 
      1965 East 6th Street, 4th Floor
 
      Locator: 01-3049
 
      Cleveland, Ohio 44114
 
      Attention:       Brian Rujawitz
 
      Telephone:     (216) 222-8780
 
      Facsimile:       (216) 222-8155
 
       
 
      with an additional copy to:
 
       
 
      Dickinson Wright PLLC
 
      500 Woodward Avenue, Suite 4000
 
      Detroit, MI 48226
 
      Attention:       Theodore B. Sylwestrzak
 
      Telephone:     (313) 223-3036
 
      Facsimile:       (313) 223-3598
 
       
 
  (B)   If to a Lender other than Agent, as specified on the signature pages
hereof.
 
       
 
  (C)   If to Borrowing Agent or any Borrower:
 
       
 
      Sparton Corporation
 
      425 N. Martingale Road, Suite 2050
 
      Schaumburg, Illinois 60173
 
      Attention:       Gregory A. Slome
 
      Telephone:     (847) 762-5812
 
      Facsimile:       (847) 762-5820
 
       
 
      with a copy to:
 
       
 
      Sparton Corporation
 
      425 N. Martingale Road, Suite 2050
 
      Schaumburg, Illinois 60173
 
      Attention: Joseph S. Lerczak

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      Telephone: (847) 762-5816
 
      Facsimile: (847) 762-5820

     16.7. Survival. The obligations of Borrowers under Sections 2.2(f), 3.7,
3.8, 3.9, 4.19(h), and 16.5 and the obligations of Lenders under Section 14.7,
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.
     16.9. Expenses. All costs and expenses including reasonable attorneys’ fees
(including the allocated costs of in house counsel) and disbursements incurred
by Agent on its behalf or on behalf of Lenders (a) in all efforts made to
enforce payment of any Obligation or effect collection of any Collateral, or
(b) in connection with the entering into, modification, amendment,
administration and enforcement of this Agreement or any consents or waivers
hereunder and all related agreements, documents and instruments, or (c) in
instituting, maintaining, preserving, enforcing and foreclosing on Agent’s
security interest in or Lien on any of the Collateral, or maintaining,
preserving or enforcing any of Agent’s or any Lender’s rights hereunder and
under all related agreements, documents and instruments, whether through
judicial proceedings or otherwise, or (d) in defending or prosecuting any
actions or proceedings arising out of or relating to Agent’s or any Lender’s
transactions with any Borrower, or (e) in connection with any advice given to
Agent or any Lender with respect to its rights and obligations under this
Agreement and all related agreements, documents and instruments, may be charged
to Borrowers’ Account and shall be part of the Obligations.
     16.10. Injunctive Relief. Each Borrower recognizes that, in the event any
Borrower 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; therefore, Agent, if Agent so requests, shall be
entitled to 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 Borrower (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

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agreement. Any signature delivered by a party by facsimile transmission 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.
     16.15. Confidentiality; Sharing Information. Agent, each Lender and each
Transferee shall hold all non-public information obtained by Agent, such Lender
or such Transferee pursuant to the requirements of this Agreement in accordance
with Agent’s, such Lender’s and such Transferee’s customary procedures for
handling confidential information of this nature; provided, however, Agent, each
Lender and each Transferee may disclose such confidential information (a) to its
examiners, Affiliates, outside auditors, counsel and other professional
advisors, (b) to Agent, any Lender or to any prospective Transferees, and (c) as
required or requested by any Governmental Body or representative thereof or
pursuant to legal process; provided, further that (i) unless specifically
prohibited by Applicable Law, Agent, each Lender and each Transferee shall use
its reasonable best efforts prior to disclosure thereof, to notify the
applicable Borrower of the applicable request for disclosure of such non-public
information (A) by a Governmental Body or representative thereof (other than any
such request in connection with an examination of the financial condition of a
Lender or a Transferee by such Governmental Body) or (B) pursuant to legal
process and (ii) in no event shall Agent, any Lender or any Transferee be
obligated to return any materials furnished by any Borrower other than those
documents and instruments in possession of Agent or any Lender in order to
perfect its Lien on the Collateral once the Obligations have been paid in full
and this Agreement has been terminated. Each Borrower acknowledges that from
time to time financial advisory, investment banking and other services may be
offered or provided to such Borrower or one or more of its Affiliates (in
connection with this Agreement or otherwise) by any Lender or by one or more
Subsidiaries or Affiliates of such Lender and each Borrower hereby authorizes
each Lender to share any information delivered to such Lender by such Borrower
and its Subsidiaries pursuant to this Agreement, or in connection with the
decision of such Lender to enter into this Agreement, to any such Subsidiary or
Affiliate of such Lender, it being understood that any such Subsidiary or
Affiliate of any Lender receiving such information shall be bound by the
provisions of this Section 16.15 as if it were a Lender hereunder. Such
authorization shall survive the repayment of the other Obligations and the
termination of this Agreement.
     16.16. Publicity. Each Borrower and each Lender hereby authorizes Agent to
make appropriate announcements of the financial arrangement entered into among
Borrowers, Agent and Lenders, including announcements which are commonly known
as tombstones, in such publications and to such selected parties as Agent shall
in its sole and absolute discretion deem appropriate.
     16.17. Certifications From Banks and Participants; US PATRIOT Act. 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

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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 10 days after the Closing Date, and (2) as
such other times as are required under the USA PATRIOT Act.
[Remainder of Page Intentionally Left Blank]

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     Each of the parties has signed this Agreement as of the day and year first
above written.

            SPARTON CORPORATION
      By:   /s/ Gregory A. Slome       Gregory A. Slome,        Senior Vice
President and Chief Financial Officer        SPARTON ELECTRONICS FLORIDA, INC.
      By:   /s/ Gregory A. Slome       Gregory A. Slome, Treasurer and
Secretary                SPARTRONICS, INC.
      By:   /s/ Gregory A. Slome       Gregory A. Slome, Treasurer and
Secretary                SPARTON MEDICAL SYSTEMS, INC.
      By:   /s/ Gregory A. Slome       Gregory A. Slome, Treasurer and
Secretary                SPARTRONICS VIETNAM CO., LTD.
      By:   /s/ Cary B. Wood       Cary B. Wood, General Director               
SPARTON TECHNOLOGY, INC.
      By:   /s/ Gregory A. Slome       Gregory A. Slome, Treasurer and
Secretary                SPARTON OF CANADA, LIMITED
      By:   /s/ Cary B. Wood       Cary B. Wood, President             

Signature Page to Revolving Credit Agreement

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            NATIONAL CITY BUSINESS CREDIT, INC.,
as Lender and as Agent
      By:   /s/ Ben Pugliesi       Ben Pugliesi, Vice President         
     755 West Big Beaver Road
     Troy, Michigan 48084

     Commitment Percentage: 100%     

Signature Page to Revolving Credit Agreement
DETROIT 37890-3 1122606v9 8/12/2009

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