Exhibit 10.1

LOAN AND SECURITY AGREEMENT

          This LOAN AND SECURITY AGREEMENT dated as of August 13, 2009 (the
“Agreement”), is executed by and among INTRICON CORPORATION, a Pennsylvania
corporation (“IntriCon”), INTRICON, INC. (formerly known as Resistance
Technology, Inc.), a Minnesota corporation (“Inc.”), RTI ELECTRONICS, INC., a
Delaware corporation (“RTIE”), INTRICON TIBBETTS CORPORATION (formerly known as
TI Acquisition Corporation), a Maine corporation (“Tibbetts”), and JON BARRON,
INC. (d/b/a Datrix), a California corporation (“Datrix”) (each, a “Borrower”;
collectively, the “Borrowers”), and THE PRIVATEBANK AND TRUST COMPANY, an
Illinois banking corporation (the “Bank”).

RECITALS:

          A.      The Borrowers desire to borrow funds and obtain other
financial accommodations from the Bank.

          B.      Pursuant to the Borrowers’ request, the Bank is willing to
extend such financial accommodations to the Borrowers under the terms and
conditions set forth herein.

          NOW THEREFORE, in consideration of the premises, and the mutual
covenants and agreements set forth herein, the parties agree as follows, subject
to and upon the following terms and conditions:

AGREEMENTS:

Section 1.    DEFINITIONS.

          1.1     Defined Terms. For the purposes of this Agreement, the
following capitalized words and phrases shall have the meanings set forth below.

                    “Account Debtor” means a Person who is obligated on an
account.

                    “Acquisition” shall mean the stock purchase and sale
transaction provided for in the Acquisition Documents, pursuant to which
IntriCon will purchase 100% of Datrix’s capital stock from the Selling
Shareholder.

                    “Acquisition Agreement” shall mean that certain Stock
Purchase Agreement dated August 13, 2009 by and between IntriCon and the Selling
Shareholder, providing for the Acquisition.

                    “Acquisition Documents” means, collectively, the Acquisition
Agreement and all other documents, instruments and agreements evidencing or
otherwise relating to the stock purchase and sale transaction contemplated by
the Acquisition Agreement.

                    “Affiliate” of any Person shall mean (a) any other Person
which, directly or indirectly, controls or is controlled by or is under common
control with such Person, (b) any officer or director of such Person, and (c)
with respect to the Bank, any entity administered or managed by the Bank, or an
Affiliate or investment advisor thereof and which is engaged in making,
purchasing, holding or otherwise investing in commercial loans. A Person shall
be deemed to be “controlled by” any other Person if such Person possesses,
directly or indirectly, power to direct or cause the direction of the management
and

--------------------------------------------------------------------------------

policies of such Person whether by contract, ownership of voting securities,
membership interests or otherwise.

                    “Applicable Agreement” shall mean, collectively, any patent
license agreement, strategic license agreement or other agreement, commitment,
arrangement or instrument to which, as of any date, the Borrowers (or any of
them) is a party or by which any Borrower or any of its properties is bound,
including any note, indenture, loan agreement, mortgage, lease, or deed, the
performance or non-performance of which, as of such date, could reasonably be
expected to have a Material Adverse Effect.

                    “Applicable Base Rate Margin,” “Applicable LIBOR Rate
Margin,” “Applicable LOC Fee” and “Applicable Non-Use Fee” means, as of any
date, the applicable per annum rate shown in the applicable column in the table
set forth below based on the then applicable Leverage Ratio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving Loans

 

Term Loan

 

 

 

 

Leverage Ratio

 

Applicable
LIBOR Rate
Margin

 

Applicable
Base Rate
Margin

 

Applicable
LIBOR Rate
Margin

 

Applicable
Base Rate
Margin

 

Applicable
LOC Fee

 

Applicable
Non-Use Fee

 

≥ 3.25 to 1.00

 

4.00%

 

1.25%

 

4.00%

 

1.25%

 

4.00%

 

0.25%

 

 

 

 

 

 

 

 

 

 

 

 

 

≥ 2.75 to 1.00 and
< 3.25 to 1.00

 

3.75%

 

1.00%

 

3.75%

 

1.00%

 

3.75%

 

0.25%

 

 

 

 

 

 

 

 

 

 

 

 

 

≥ 2.25 to 1.00 and
< 2.75 to 1.00

 

3.50%

 

0.75%

 

3.50%

 

0.75%

 

3.50%

 

0.25%

 

 

 

 

 

 

 

 

 

 

 

 

 

< 2.25 to 1.00

 

3.00%

 

0.25%

 

3.00%

 

0.25%

 

3.00%

 

0.25%

                    For purposes of determining the Applicable LIBOR Rate
Margin, the Applicable Base Rate Margin, the Applicable LOC Fee, and the
Applicable Non-Use Fee, the Leverage Ratio will be determined as of the end of
each calendar quarter occurring during the term of this Agreement (the end of
each calendar quarter being a “Determination Date”) beginning with the calendar
quarter ending December 31, 2009. On the Bank’s receipt of the financial
statements required to be delivered to the Bank pursuant to Section 8.8, the
Applicable LIBOR Rate Margin, the Applicable Base Rate Margin, the Applicable
LOC Fee, and the Applicable Non-Use Fee will be subject to adjustment in
accordance with the table set forth above based on the then Leverage Ratio so
long as no Event of Default is existing as of applicable Determination Date or
as of the effective date of adjustment. The foregoing adjustment, if applicable,
to the Applicable LIBOR Rate Margin, the Applicable Base Rate Margin, the
Applicable LOC Fee, and the Applicable Non-Use Fee will become effective for
LIBOR Rate Loans requested, the unpaid principal balance of Base Rate Loans
outstanding, non-use fees accruing, and fees due with respect to Letters of
Credit issued or renewed, on and after the first day of the first calendar month
following delivery to the Bank of the financial statements required to be
delivered to the Bank pursuant to Section 8.8 until the next succeeding
effective date of adjustment pursuant to this Agreement. Each of the financial
statements required to be delivered to the Bank must be delivered to the Bank in
compliance with Section 8.8. If the Borrowers, however, have not timely
delivered their financial statements in accordance with Section 8.8, then,
without limiting any of the rights and remedies available to the Bank by reason
of such noncompliance, at the Bank’s option, commencing on the date upon which
such financial statements should have been delivered in accordance with Section
8.8 and continuing until such financial statements are actually delivered in
accordance with Sections 8.8, it shall be assumed for

2

--------------------------------------------------------------------------------

purposes of determining the Applicable LIBOR Rate Margin, the Applicable Base
Rate Margin, the Applicable LOC Fee, and the Applicable Non-Use Fee that the
Leverage Ratio was greater than or equal to 3.25 to 1.00 and the pricing
associated with a Leverage Ratio of greater than or equal to 3.25 to 1.00 will
be applicable on the then applicable Determination Date. As of the date hereof,
it shall be assumed for purposes of determining the Applicable LIBOR Rate
Margin, the Applicable Base Rate Margin, the Applicable LOC Fee, and the
Applicable Non-Use Fee that the Leverage Ratio was greater than or equal to 2.75
to 1.00 and less than 3.25 to 1.00.

                    “Asset Disposition” shall mean the sale, lease, assignment
or other transfer for value (each a “Disposition”) by any Borrower or any
Subsidiary thereof to any Person (other than another Borrower or any Subsidiary
thereof) of any asset or right of such Borrower or any Subsidiary thereof
(including, the loss, destruction or damage of any thereof or any actual
condemnation, confiscation, requisition, seizure or taking thereof), other than
(a) the Disposition of any asset which is to be replaced, and is in fact
replaced, within ninety (90) days with another asset performing the same or a
similar function, (b) the sale or lease of inventory in the ordinary course of
business and (c) Dispositions permitted under of Section 6.2 excluding clauses
(iii) and (ix) thereof.

                    “Bank Product Agreements” shall mean those certain
agreements entered into from time to time by the Borrowers (or any of them) or
any of their respective Subsidiaries with the Bank or any Affiliate of the Bank
concerning Bank Products.

                    “Bank Product Obligations” shall mean, collectively, all
obligations, liabilities, contingent reimbursement obligations, fees, and
expenses owing by the Borrowers (or any of them) and their respective
Subsidiaries to the Bank or any Affiliate of the Bank pursuant to or evidenced
by the Bank Product Agreements and irrespective of whether for the payment of
money, whether direct or indirect, and their absolute or contingent, due or to
become due, now existing or hereafter arising.

                    “Bank Products” shall mean, collectively, any service or
facility extended to the Borrowers (or any of them) and their Subsidiaries by
the Bank or any Affiliate of the Bank, including: (a) credit cards, (b) credit
card processing services, (c) debit cards, (d) purchase cards, (e) ACH
transactions, (f) cash management, including controlled disbursement, accounts
or services, or (g) Hedging Agreements.

                    “Bankruptcy Code” shall mean the United States Bankruptcy
Code, as now existing or hereafter amended.

                    “Base Rate” shall mean the higher of (a) the Prime Rate, and
(b) the Federal Funds Rate plus 0.5% per annum.

                    “Base Rate Loan” or “Base Rate Loans” shall mean that
portion, and collectively, those portions of the aggregate outstanding principal
balance of the Loans that bear interest at the Base Rate plus the applicable
margin (if any) specified in Section 2.1(b) or 2.2(b), as applicable.

                    “Borrowing Agent” shall mean IntriCon.

                    “Borrowing Base Amount” shall mean:

          (a)          an amount equal to eighty percent (80%) of the net amount
(after deduction of such reserves and allowances as the Bank deems proper and
necessary in the exercise of its commercially reasonable judgment) of all
Eligible Accounts of all Borrowers; plus

3

--------------------------------------------------------------------------------

          (b)          the lesser of (i) an amount equal to fifty percent (50%)
of the lower of cost or market value (after deduction of such reserves and
allowances as the Bank deems proper and necessary in the exercise of its
commercially reasonable judgment) of all Eligible Inventory of all Borrowers,
and (ii) Three Million and 00/100 Dollars ($3,000,000.00); plus

          (c)          the product of the Equipment Advance Rate multiplied by
the net orderly liquidation value of all Eligible Equipment of all Borrowers as
such values are set forth on the April 2009 appraisal prepared by American
Appraisal, a true, correct and complete copy of which has been delivered to the
Bank.

                    “Borrowing Base Certificate” shall mean a certificate to be
signed by the Borrowing Agent certifying to the accuracy of the Borrowing Base
Amount in form and substance satisfactory to the Bank.

                    “Business Day” shall mean any day other than a Saturday,
Sunday or a legal holiday on which banks are authorized or required to be closed
for the conduct of commercial banking business in Chicago, Illinois.

                    “Capital Expenditures” shall mean all expenditures
(including Capitalized Lease Obligations) which, in accordance with GAAP, would
be required to be capitalized and shown on the consolidated balance sheet of the
Borrowers, but excluding expenditures made in connection with the replacement,
substitution or restoration of assets to the extent financed (i) from insurance
proceeds (or other similar recoveries) paid on account of the loss of or damage
to the assets being replaced or restored, (ii) with awards of compensation
arising from the taking by eminent domain or condemnation of the assets being
replaced or (iii) from the proceeds of an Asset Disposition.

                     “Capital Lease” shall mean, as to any Person, a lease of
any interest in any kind of property or asset, whether real, personal or mixed,
or tangible or intangible, by such Person, as lessee, that is, or should be, in
accordance with Financial Accounting Standards Board Statement No. 13, as
amended from time to time, or, if such statement is not then in effect, such
statement of GAAP as may be applicable, recorded as a “capital lease” on the
financial statements of such Person prepared in accordance with GAAP.

                     “Capital Securities” shall mean, with respect to any
Person, all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of such Person’s capital, whether now
outstanding or issued or acquired after the date hereof, including common
shares, preferred shares, membership interests in a limited liability company,
limited or general partnership interests in a partnership or any other
equivalent of such ownership interest.

                     “Capitalized Lease Obligations” shall mean, as to any
Person, all rental obligations of such Person, as lessee under a Capital Lease
which are or will be required to be capitalized on the books of such Person.

                     “Cash Equivalent Investment” shall mean, at any time, (a)
any evidence of Debt, maturing not more than one year after such time, issued or
guaranteed by the United States government or any agency thereof, (b) commercial
paper, maturing not more than one year from the date of issue, or corporate
demand notes, in each case (unless issued by the Bank or its holding company)
rated at least A-l by Standard & Poor’s Ratings Services, a division of The
McGraw-Hill Companies, Inc. or P-l by Moody’s Investors Service, Inc., (c) any
certificate of deposit, time deposit or banker’s acceptance, maturing not more
than one year after such time, or any overnight Federal Funds transaction that
is issued or sold by the Bank or its holding company (or by a commercial banking
institution that is a member of

4

--------------------------------------------------------------------------------

the Federal Reserve System and has a combined capital and surplus and undivided
profits of not less than $500,000,000), (d) any repurchase agreement entered
into with the Bank, or other commercial banking institution of the nature
referred to in clause (c), which (i) is secured by a fully perfected security
interest in any obligation of the type described in any of clauses (a) through
(c) above, and (ii) has a market value at the time such repurchase agreement is
entered into of not less than 100% of the repurchase obligation of the Bank, or
other commercial banking institution, thereunder, (e) money market accounts or
mutual funds which invest exclusively in assets satisfying the foregoing
requirements, and (f) other short term liquid investments approved in writing by
the Bank.

                    “Change in Control” shall mean the occurrence of any of the
following events:

          (i)          any Person or “group” (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934) is or becomes the
“beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities
Exchange Act of 1934, except that a Person will be deemed to have “beneficial
ownership” of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 35% of the voting power of all classes of
voting stock of IntriCon;

          (ii)         IntriCon shall fail to own, with the power to vote, 100%
of all outstanding capital stock of each other Borrower;

          (iii)        During any consecutive two-year period, individuals who
at the beginning of such period constituted the board of directors of IntriCon
(together with any new directors whose election to such board of directors, or
whose nomination for election by the owners of IntriCon, was approved by a vote
of 66-2/3% of the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
board of directors of IntriCon then in office; or

          (iv)        Mark S. Gorder shall cease to maintain his position of
Chief Executive Officer of IntriCon, or shall otherwise cease to actively manage
such day-to-day business activities of IntriCon and a qualified replacement
thereof, as reasonably determined by the Bank, has not been obtained within
ninety (90) days thereafter.

                    “Collateral” shall have the meaning set forth in Section 6.1
hereof.

                    “Collateral Access Agreement” shall mean an agreement in
form and substance reasonably satisfactory to the Bank pursuant to which a
mortgagee or lessor of real property on which Collateral is stored or otherwise
located, or a warehouseman, processor or other bailee of Inventory or other
property owned by the Borrowers (or any of them) and their respective
Subsidiaries, acknowledge the Liens of the Bank and waive any Liens held by such
Person on such property, and, in the case of any such agreement with a mortgagee
or lessor, permit the Bank reasonable access to and use of such real property
following the occurrence and during the continuance of an Event of Default to
assemble, complete, inspect, remove and/or sell any collateral stored or
otherwise located thereon.

                    “Contingent Liability” and “Contingent Liabilities” shall
mean, respectively, each obligation and liability of the Borrowers (or any of
them) and all such obligations and liabilities of the Borrowers (or any of them)
incurred pursuant to any agreement, undertaking or arrangement by which any
Borrower: (a) guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss) the indebtedness,
dividend,

5

--------------------------------------------------------------------------------

obligation or other liability of any other Person in any manner (other than by
endorsement of instruments in the course of collection), including any
indebtedness, dividend or other obligation which may be issued or incurred at
some future time; (b) guarantees the payment of dividends or other distributions
upon the shares or ownership interest of any other Person; (c) undertakes or
agrees (whether contingently or otherwise): (i) to purchase, repurchase, or
otherwise acquire any indebtedness, obligation or liability of any other Person
or any property or assets constituting security therefor, (ii) to advance or
provide funds for the payment or discharge of any indebtedness, obligation or
liability of any other Person (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain solvency, assets,
level of income, working capital or other financial condition of any other
Person, or (iii) to make payment to any other Person other than for value
received; (d) agrees to lease property or to purchase securities, property or
services from such other Person with the purpose or intent of assuring the owner
of such indebtedness or obligation of the ability of such other Person to make
payment of the indebtedness or obligation; (e) to induce the issuance of, or in
connection with the issuance of, any letter of credit for the benefit of such
other Person; or (f) undertakes or agrees otherwise to assure a creditor against
loss. The amount of any Contingent Liability shall (subject to any limitation
set forth herein) be deemed to be the outstanding principal amount (or maximum
permitted principal amount, if larger) of the indebtedness, obligation or other
liability guaranteed or supported thereby.

                    “Debt” shall mean, as to any Person, without duplication,
(a) all indebtedness of such Person; (b) all borrowed money of such Person
(including principal, interest, fees and charges), whether or not evidenced by
bonds, debentures, notes or similar instruments; (c) all obligations to pay the
deferred purchase price of property or services; (d) all obligations, contingent
or otherwise, with respect to the maximum face amount of all letters of credit
(whether or not drawn), bankers’ acceptances and similar obligations issued for
the account of such Person (including the Letters of Credit), and all unpaid
drawings in respect of such letters of credit, bankers’ acceptances and similar
obligations; (e) all indebtedness secured by any Lien on any property owned by
such Person, whether or not such indebtedness has been assumed by such Person
(provided, however, if such Person has not assumed or otherwise become liable in
respect of such indebtedness, such indebtedness shall be deemed to be in an
amount equal to the fair market value of the property subject to such Lien at
the time of determination); (f) the aggregate amount of all Capitalized Lease
Obligations of such Person; (g) all Contingent Liabilities of such Person,
whether or not reflected on its balance sheet; (h) all Hedging Obligations of
such Person; (i) all Debt of any partnership of which such Person is a general
partner; (j) all monetary obligations of such Person under (i) a so-called
synthetic, off-balance sheet or tax retention lease, or (ii) an agreement for
the use or possession of property creating obligations that do not appear on the
balance sheet of such Person but which, upon the insolvency or bankruptcy of
such Person, would be characterized as the indebtedness of such Person (without
regard to accounting treatment); and (k) as to the Borrowers, all Foreign
Overdraft Debt. Notwithstanding the foregoing, Debt shall not include trade
payables and accrued expenses incurred by such Person in accordance with
customary practices and in the ordinary course of business of such Person.

                    “Default Rate” shall mean a per annum rate of interest equal
to the Prime Rate plus two percent (2%).

                    “Depreciation” shall mean the total amounts added to
depreciation, amortization, obsolescence, valuation and other proper reserves,
as reflected on a the consolidated financial statements of the Borrowers and
their Subsidiaries and determined in accordance with GAAP.

                    “Domestic Subsidiary” means, with respect to any Person, a
Subsidiary of such Person, which Subsidiary is incorporated or otherwise
organized under the laws of a state of the United States of America.

6

--------------------------------------------------------------------------------

                    “EBITDA” shall mean, for any period, the sum for such period
of: (i) Net Income, plus (ii) Interest Charges, plus (iii) federal and state
income taxes, plus (iv) Depreciation, plus (v) non-cash management compensation
expense, plus (vi) all other non-cash charges, minus (vii) all non-cash income
or gains, in each case to the extent included in determining Net Income for such
period, minus (viii) all cash payments made in such period on account of
non-cash charges expensed in a prior period, in each case determined on a
consolidated basis, plus, to the extent deducted in arriving at Net Income for
such period, the Transaction Costs.

                    “Eligible Account” and “Eligible Accounts” shall mean, with
respect to each Borrower, each Account and all such Accounts (exclusive of
sales, excise or other similar taxes) owing to each such Borrower which meets
each of the following requirements:

          (a)          it is genuine in all respects and has arisen in the
ordinary course of the applicable Borrower’s business from (i) the performance
of services by the applicable Borrower, which services have been fully
performed, acknowledged and accepted by the Account Debtor (provided, however,
that up to an aggregate amount of $500,000 of Accounts which are otherwise
Eligible Accounts hereunder but arise from a “progress billing” (i.e., the
services and/or goods giving rise to such Account have not been fully performed
or delivered (as applicable) by the applicable Borrower) shall not be excluded
from Eligible Accounts solely by reason of this clause (a)(i) so long as (A) no
Event of Default has occurred and is continuing and (B) the Account Debtor with
respect to each such Account is Medtronic, Inc., Starkey Laboratories or Smiths
Medical) or (ii) the sale or lease of Goods by the applicable Borrower,
including C.O.D. sales, which Goods have been completed in accordance with the
Account Debtor’s specifications (if any) and delivered to the Account Debtor,
and such Borrower or the applicable Subsidiary thereof has possession of, or has
delivered to the Bank at the Bank’s request, shipping and delivery receipts
evidencing such delivery;

          (b)          it is subject to a perfected, first priority Lien in
favor of the Bank and is not subject to any other assignment, claim or Lien,
subject only to Permitted Liens that do not have priority over the Lien in favor
of the Bank;

          (c)          it is the valid, legally enforceable and unconditional
obligation of the Account Debtor with respect thereto, and is not subject to the
fulfillment of any condition whatsoever or to any counterclaim or credit
(provided that any Account which is so subject to a counterclaim or credit shall
only be deemed ineligible pursuant to this clause (c) to the extent of such
counterclaims or credit, so long as such counterclaim or credit does not exceed
25% of such Account and arises in the ordinary course of such Borrower’s
business consistent with past practices), or to any trade or volume discount,
allowance, discount, rebate or adjustment by the Account Debtor with respect
thereto except for any such trade or volume discount, allowance, discount,
rebate or adjustment that does not exceed 25% of the applicable Account and that
is granted in the ordinary course of such Borrower’s business consistent with
past practices and reflected and/or disclosed on the original invoice for such
Account and/or the Borrowing Base Certificates and other collateral reporting
delivered to the Bank, or to any claim by such Account Debtor denying liability
thereunder in whole or in part (provided that any Account which is so subject to
a partial denial of liability shall only be deemed ineligible pursuant to this
clause (c) to the extent of such partial denial, so long as such partial denial
does not exceed 25% of such Account and arises in the ordinary course of such
Borrower’s business consistent with past practices) and the Account Debtor has
not refused to accept and/or has not returned or offered to return any of the
Goods or services which are the subject of such Account; (provided that any
Account which is so subject to any refusal to accept or return or offer to
return some but not all of such Goods or services shall only be deemed
ineligible pursuant to this clause (c) to the extent of

7

--------------------------------------------------------------------------------

such refused or returned Goods or services, so long as such to accept or return
or offer to return does not exceed 25% of such Account and arises in the
ordinary course of such Borrower’s business consistent with past practices);

          (d)          the Account Debtor with respect thereto is a resident or
citizen of, and is located within, the United States or Canada (other than the
province of Quebec), unless (x) such Account is insured pursuant to a policy of
credit insurance maintained by Borrowers and issued by an insurer and with
deductibles satisfactory to the Bank in the exercise of its commercially
reasonable judgment or (y) the sale of goods or services giving rise to such
Account is on letter of credit, banker’s acceptance or other credit support
terms satisfactory to the Bank in the exercise of its commercially reasonable
judgment;

          (e)          it is not an Account arising from a “sale on approval”,
“sale or return”, “consignment”, “guaranteed sale” or “bill and hold”, and it is
not subject to any other repurchase or return agreement;

          (f)          it is not an Account with respect to which possession
and/or control of the goods sold giving rise thereto is held, maintained or
retained by the applicable Borrower (or by any agent or custodian of such
Borrower) for the account of, or subject to, further and/or future direction
from the Account Debtor with respect thereto;

          (g)          it has not arisen out of contracts with the United States
or any department, agency or instrumentality thereof, unless the applicable
Borrower has assigned its right to payment of such Account to the Bank pursuant
to the Assignment of Claims Act of 1940, and evidence (satisfactory to the Bank)
of such assignment has been delivered to the Bank, or any state, county, city or
other governmental body, or any department, agency or instrumentality thereof;

          (h)          if the applicable Borrower maintains a credit limit for
an Account Debtor, the aggregate dollar amount of Accounts due from such Account
Debtor, including such Account, does not exceed such credit limit as increased
by such Borrower from time to time in the exercise of its commercially
reasonable judgment;

          (i)          if the Account is evidenced by chattel paper or an
instrument, the originals of such chattel paper or instrument shall have been
endorsed and/or assigned and delivered to the Bank or, in the case of electronic
chattel paper, shall be in the control of the Bank, in each case in a manner
satisfactory to the Bank;

          (j)          such Account is evidenced by an invoice delivered to the
related Account Debtor and is not more than (i) sixty (60) days past the due
date thereof, or (ii) one hundred twenty (120) days past the original invoice
date thereof, in each case according to the original terms of sale;

          (k)          it is not an Account with respect to an Account Debtor
that is located in any jurisdiction which has adopted a statute or other
requirement with respect to which any Person that obtains business from within
such jurisdiction must file a notice of business activities report or make any
other required filings in a timely manner in order to enforce its claims in such
jurisdiction’s courts unless (i) such notice of business activities report has
been duly and timely filed or the applicable Borrower is exempt from filing such
report and has provided the Bank with satisfactory evidence of such exemption or
(ii) the failure to make such filings may be cured retroactively by the
applicable Borrower for a nominal fee;

8

--------------------------------------------------------------------------------

          (l)          the Account Debtor with respect thereto is not an
Affiliate of any such Borrower;

          (m)          such Account does not arise out of a contract or order
which, by its terms, forbids or makes void or unenforceable the assignment
thereof by the applicable Borrower to the Bank and is not unassignable to the
Bank for any other reason;

          (n)          there is no bankruptcy, insolvency or liquidation
proceeding pending by or against the Account Debtor with respect thereto, nor
has the Account Debtor suspended business, made a general assignment for the
benefit of creditors or failed to pay its debts generally as they come due,
and/or, to Borrower’s knowledge, no condition or event has occurred that could
reasonably be expected to have a material adverse effect (as determined by the
Bank in its commercially reasonable judgment) on the Account Debtor which would
require the Accounts of such Account Debtor to be deemed uncollectible in
accordance with GAAP;

          (o)          it is not owed by an Account Debtor with respect to which
twenty five percent (25.00%) or more of the aggregate amount of outstanding
Accounts owed at such time by such Account Debtor is classified as ineligible
under any other clause of this definition;

          (p)          if the aggregate amount of all Accounts owed by the
Account Debtor thereon exceeds twenty five percent (25.00%) of the aggregate
amount of all Accounts at such time, then all Accounts owed by such Account
Debtor in excess of such amount shall be deemed ineligible; and

          (q)          it does not violate the negative covenants and does
satisfy the affirmative covenants of the applicable Borrower contained in this
Agreement, and it is otherwise not unacceptable to the Bank for any other reason
as determined by the Bank in the exercise of its commercially reasonable
judgment.

An Account which is at any time an Eligible Account, but which subsequently
fails to meet any of the foregoing requirements, shall forthwith cease to be an
Eligible Account. Further, with respect to any Account, if the Bank at any time
hereafter determine in the exercise of its commercially reasonable judgment that
the prospect of payment or performance by the Account Debtor with respect
thereto is materially impaired for any reason whatsoever, such Account shall
cease to be an Eligible Account after notice of such determination is given to
the applicable Borrower.

                    “Eligible Equipment” shall mean, with respect to each
Borrower, all Equipment of the applicable Borrower which meets each of the
following requirements:

          (a)          it is covered by the appraisal conducted by American
Appraisal in April 2009, a true, correct and complete copy of which has been
delivered to the Bank;

          (b)          it is listed on Schedule 1.1 attached hereto;

          (c)          such Borrower has good title to such Equipment;

          (d)          such Borrower has the right to subject such Equipment to
a Lien in favor of the Bank;

          (e)          such Equipment is subject to a first priority perfected
Lien in favor of the Bank and is free and clear of all other Liens of any nature
whatsoever (except for Permitted Liens which do not have priority over the Lien
in favor of the Bank);

9

--------------------------------------------------------------------------------

          (f)          the full purchase price for such Equipment has been paid
by such Borrower;

          (g)          such Equipment is located on premises (i) owned by the
Borrowers, which premises are subject to a first priority perfected Lien in
favor of the Bank, or (ii) leased by the Borrowers where (x) the lessor has
delivered to the Bank a landlord waiver in form and substance reasonably
satisfactory to the Bank or (y) the Bank has established reserves with respect
to such location as described in Section 3.1(a)(v);

          (h)          such Equipment is in good working order and condition
(ordinary wear and tear excepted) and is used or held for use by such Borrower
in the ordinary course of business of such Borrower;

          (i)          such Equipment is not subject to any agreement which
restricts the ability of such Borrower to use, sell, transport or dispose of
such Equipment or which restricts the Bank’s ability to take possession of, sell
or otherwise dispose of such Equipment; and

          (j)          such Equipment does not constitute “fixtures” under the
applicable laws of the jurisdiction in which such Equipment is located.

                    “Eligible Inventory” shall mean, with respect to each
Borrower, all Inventory of the applicable Borrower which meets each of the
following requirements:

          (a)          it is subject to a perfected, first priority Lien in
favor of the Bank and is not subject to any other assignment, claim or Lien,
subject only to Permitted Liens that do not have priority over the Lien in favor
of the Bank;

          (b)          it is salable and not slow-moving, obsolete or
discontinued, as determined by the Bank in the exercise of its commercially
reasonable judgment;

          (c)          it is in the possession and control of the applicable
Borrower and it is stored and held in facilities owned by such Borrower or, if
such facilities are not so owned, the Bank is in possession of a Collateral
Access Agreement with respect thereto (provided that, Inventory maintained at
any such facility not owned by Borrower and for which the Bank does not possess
a Collateral Access Agreement shall not be deemed ineligible under this clause
(c) to the extent the value of such Inventory does not exceed $100,000 at any
such facility or $200,000 for all such facilities in the aggregate or to the
extent the Bank has established reserves with respect to such location as
described in Section 3.1(a)(v));

          (d)          it is not Inventory produced in violation of the Fair
Labor Standards Act and subject to the “hot goods” provisions contained in Title
29 U.S.C. §215;

          (e)          it is not subject to any agreement or license which would
restrict the Bank’s ability to sell or otherwise dispose of such Inventory;

          (f)          it is located in the United States or in any territory or
possession of the United States that has adopted Article 9 of the Uniform
Commercial Code;

          (g)          it is not “in transit” to applicable Borrower or held by
such Borrower on consignment;

          (h)          it is not “work-in-progress” Inventory;

10

--------------------------------------------------------------------------------

          (i)          it is not supply items, packaging or any other similar
materials, provided that, nothing contained in the foregoing shall be deemed to
apply to the applicable Borrower’s raw materials, which shall be Eligible
Inventory so long as it complies with all of the other provisions of this
definition;

          (j)          it is not identified to any purchase order or contract to
the extent progress or advance payments are received with respect to such
Inventory;

          (k)          it does not breach any of the representations, warranties
or covenants pertaining to Inventory set forth in the Loan Documents; and

          (l)          the Bank shall not have determined in the exercise of its
commercially reasonable judgment that it is unacceptable due to age, type,
category, quality, quantity and/or any other reason whatsoever.

Inventory which is at any time Eligible Inventory but which subsequently fails
to meet any of the foregoing requirements shall forthwith cease to be Eligible
Inventory.

                    “Employee Plan” includes any pension, stock bonus, employee
stock ownership plan, retirement, profit sharing, deferred compensation, stock
option, bonus or other incentive plan, whether qualified or nonqualified, or any
disability, medical, dental or other health plan, life insurance or other death
benefit plan, vacation benefit plan, severance plan or other employee benefit
plan or arrangement, including those pension, profit-sharing and retirement
plans of any Borrower described from time to time in the consolidated financial
statements of Borrowers and any pension plan, welfare plan, Defined Benefit
Pension Plans (as defined in ERISA) or any multi-employer plan, maintained or
administered by such Borrower or to which such Borrower is a party or may have
any liability or by which such Borrower is bound.

                    “Environmental Laws” shall mean all present or future
federal, state or local laws, statutes, common law duties, rules, regulations,
ordinances and codes, together with all administrative or judicial orders,
consent agreements, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authority, in each case
relating to any matter arising out of or relating to public health and safety,
or pollution or protection of the environment or workplace, including any of the
foregoing relating to the presence, use, production, generation, handling,
transport, treatment, storage, disposal, distribution, discharge, emission,
release, threatened release, control or cleanup of any Hazardous Substance.

                    “Equipment Advance Rate” shall mean, for each period set
forth in the chart below, the percentage set forth opposite such period:

 

 

 

Period

 

Equipment Advance Rate

The date hereof through and including September 30, 2009

 

85%

October 1, 2009 through and including December 31, 2009

 

77%

January 1, 2010 through and including March 31, 2010

 

69%

April 1, 2010 through and including June 30, 2010

 

61%

July 1, 2010 through and including September 30, 2010

 

53%

October 1, 2010 through and including December 31, 2010

 

45%

January 1, 2011 through and including March 30, 2011

 

37%

April 1, 2011 through and including June 30, 2011

 

29%

July 1, 2011 through and including September 30, 2011

 

21%

October 1, 2011 through and including December 31, 2011

 

13%

January 1, 2012 through and including March 31, 2012

 

5%

April 1, 2012 and thereafter

 

0%

11

--------------------------------------------------------------------------------

                    “ERISA” shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.

                    “Event of Default” shall mean any of the events or
conditions which are set forth in Section 11 hereof.

                    “Existing Seller Debt” shall mean all indebtedness and other
obligations of RTIE under the promissory note made payable by RTIE in connection
with the acquisition by RTIE of Amecon, Inc.

                    “Federal Funds Rate” shall mean, for any day, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Bank from three Federal funds brokers of recognized
standing selected by the Bank. The Bank’s determination of such rate shall be
binding and conclusive absent manifest error.

                    “Final Payment” means (a) the indefeasible payment in full
in cash of all outstanding Loans, together with accrued and unpaid interest
thereon, (b) the cancellation and return of all outstanding Letters of Credit
(or alternatively, with respect to each such Letter of Credit, the furnishing to
the Bank of a cash deposit or standby letter(s) of credit in amounts and
pursuant to documentation acceptable to the Bank), (c) the payment in full in
cash of the accrued and unpaid fees, and (d) the payment in full in cash of all
reimbursable expenses and other Obligations (other than contingent
indemnification obligations to the extent no claim giving rise thereto has been
asserted), including without limitation any applicable LIBOR breakage
obligations arising under Section 2.4(a) as a result of any such payment of the
Loans and any related Hedging Obligations.

                    “Fixed Charge Coverage Ratio” shall have the meaning set
forth in Section 10.3 hereof.

                    “Foreign Overdraft Debt” shall mean all indebtedness and
other obligations of one or more of the Borrowers (and/or any of their
respective Subsidiaries) under that certain senior secured line of credit now or
hereafter made available by the Oversea-Chinese Banking Corporation Ltd. and any
replacement thereof.

                    “Foreign Subsidiary” means, with respect to any Person, a
Subsidiary of such Person, which Subsidiary is not a Domestic Subsidiary.

                    “Funded Debt” shall mean, as to any Person, all Debt of such
Person that matures more than one year from the date of its creation (or is
renewable or extendible, at the option of such Person, to a date more than one
year from such date). For avoidance of doubt and without limiting the generality
of the foregoing, as to the Borrowers (and/or any of their respective
Subsidiaries), Funded Debt includes Foreign Overdraft Debt, Subordinated Debt
evidenced by the Selling Shareholder Note, and Existing Seller Debt.

                    “GAAP” shall mean generally accepted accounting principles
set forth from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards

12

--------------------------------------------------------------------------------

Board (or agencies with similar functions of comparable stature and authority
within the U.S. accounting profession), which are applicable to the
circumstances as of the date of determination (subject to the provisions of
Section 1.2 of this Agreement below), provided, however, that interim financial
statements or reports shall be deemed in compliance with GAAP despite the
absence of footnotes and fiscal year-end adjustments as required by GAAP.

                    “Hazardous Substances” shall mean (a) any petroleum or
petroleum products, radioactive materials, asbestos in any form that is or could
reasonably be expected to become friable, urea formaldehyde foam insulation,
dielectric fluid containing levels of polychlorinated biphenyls, radon gas and
mold; (b) any chemicals, materials, pollutant or substances defined as or
included in the definition of “hazardous substances”, “hazardous waste”,
“hazardous materials”, “extremely hazardous substances”, “restricted hazardous
waste”, “toxic substances”, “toxic pollutants”, “contaminants”, “pollutants” or
words of similar import, under any applicable Environmental Law; and (c) any
other chemical, material or substance, the exposure to, or release of which is
prohibited, limited or regulated by any governmental authority or for which any
duty or standard of care is imposed pursuant to, any Environmental Law.

                    “Hedging Agreement” shall mean any interest rate, currency
or commodity swap agreement, cap agreement or collar agreement, and any other
agreement or arrangement designed to protect a Person against fluctuations in
interest rates, currency exchange rates or commodity prices.

                    “Hedging Obligation” shall mean, with respect to any Person,
any liability of such Person under any Hedging Agreement.

                    “Intellectual Property” shall mean the collective reference
to all rights, priorities and privileges relating to intellectual property,
whether arising under United States, multinational or foreign laws or otherwise,
including copyrights, patents, service marks and trademarks, and all
registrations and applications for registration therefor and all licensees
thereof, trade names, domain names, technology, know-how and processes, and all
rights to sue at law or in equity for any infringement or other impairment
thereof, including the right to receive all proceeds and damages therefrom.

                    “Interest Charges” shall mean, with respect to the Borrowers
and their Subsidiaries on a consolidated basis, for any period, the sum of: (a)
all interest, charges and fees and related expenses payable with respect to that
fiscal period to a lender in connection with borrowed money or the deferred
purchase price of assets that are treated as interest in accordance with GAAP,
plus (b) the portion of Capitalized Lease Obligations with respect to that
fiscal period that should be treated as interest in accordance with GAAP, plus
(or minus) (c) the net amount paid or payable in cash (or received or receivable
in cash) (without duplication) during that period with respect to any Hedging
Agreements.

                    “Interest Period” shall mean successive one, two or three
month periods, beginning and ending as provided in this Agreement.

                    “Investment” shall mean, with respect to any Person, any
investment in another Person by acquisition of any debt or equity security, by
making any loan or advance or by becoming obligated with respect to a Contingent
Liability in respect of obligations of such other Person (other than travel and
similar advances to employees in the ordinary course of business).

                    “Letter of Credit” and “Letters of Credit” shall mean,
respectively, a letter of credit and all such letters of credit issued by the
Bank, in its sole discretion, upon the execution and delivery by the Borrowing
Agent and the acceptance by the Bank of a Master Letter of Credit Agreement and
a Letter of Credit Application, as set forth in Section 2.7 of this Agreement.

13

--------------------------------------------------------------------------------

                    “Letter of Credit Application” shall mean, with respect to
any request for the issuance of a Letter of Credit, a letter of credit
application in the form being used by the Bank at the time of such request for
the type of Letter of Credit requested.

                    “Letter of Credit Commitment” shall mean, at any time, an
amount equal to the lesser of (a) the Revolving Loan Commitment minus the
aggregate amount of all Revolving Loans outstanding, (b) the Borrowing Base
Amount minus the aggregate amount of all Revolving Loans outstanding, or (c) Two
Hundred Thousand and 00/100 Dollars ($200,000.00).

                    “Letter of Credit Maturity Date” shall mean the date that is
twenty five (25) days prior to the Revolving Loan Maturity Date.

                    “Letter of Credit Obligations” shall mean, at any time, an
amount equal to the aggregate of the original face amounts of all Letters of
Credit minus the sum of (i) the amount of any reductions in the original face
amount of any Letter of Credit which did not result from a draw thereunder, (ii)
the amount of any payments made by the Bank with respect to any draws made under
a Letter of Credit for which the Borrowers have reimbursed the Bank, (iii) the
amount of any payments made by the Bank with respect to any draws made under a
Letter of Credit which have been converted to a Revolving Loan as set forth in
Section 2.7, and (iv) the portion of any issued but expired or surrendered
Letter of Credit which has not been drawn by the beneficiary thereunder. For
purposes of determining the outstanding Letter of Credit Obligations at any
time, the Bank’s acceptance of a draft drawn on the Bank pursuant to a Letter of
Credit shall constitute a draw on the applicable Letter of Credit at the time of
such acceptance.

                    “Leverage Ratio” shall have the meaning set forth in Section
10.2 hereof.

                    “LIBOR” shall mean a rate of interest equal to (a) the per
annum rate of interest at which United States dollar deposits for a period equal
to the relevant Interest Period are offered in the London Interbank Eurodollar
market at 11:00 a.m. (London time) two Business Days prior to the commencement
of such Interest Period (or three Business Days prior to the commencement of
such Interest Period if banks in London, England were not open and dealing in
offshore United States dollars on such second preceding Business Day), as
displayed in the Bloomberg Financial Markets system (or other authoritative
source selected by the Bank in its sole discretion), divided by (b) a number
determined by subtracting from 1.00 the then stated maximum reserve percentage
for determining reserves to be maintained by member banks of the Federal Reserve
System for Eurocurrency funding or liabilities as defined in Regulation D (or
any successor category of liabilities under Regulation D). The Bank’s
determination of LIBOR shall be conclusive, absent manifest error.

                    “LIBOR Loan” or “LIBOR Loans” shall mean that portion, and
collectively those portions, of the aggregate outstanding principal balance of
the Loans that bear interest at the LIBOR Rate, of which at any time, the
Borrowing Agent may identify no more than six (6) advances of the Revolving
Loans and/or the Term Loan which bear interest at the LIBOR Rate.

                    “LIBOR Rate” shall mean a per annum rate of interest equal
to LIBOR for the relevant Interest Period, which LIBOR Rate shall remain fixed
during such Interest Period.

                    “Lien” shall mean, with respect to any Person, any interest
granted by such Person in any real or personal property, asset or other right
owned or being purchased or acquired by such Person (including an interest in
respect of a Capital Lease) which secures payment or performance of any
obligation and shall include any mortgage, lien, encumbrance, title retention
lien, charge or other security interest of any kind, whether arising by
contract, as a matter of law, by judicial process or otherwise.

14

--------------------------------------------------------------------------------

                    “Loan Documents” shall mean each of the agreements,
documents, instruments and certificates set forth in Section 3.1 hereof, and any
and all such other instruments, documents, certificates and agreements from time
to time executed and delivered by the Borrowers (or any of them), or any of
their respective Subsidiaries for the benefit of the Bank pursuant to any of the
foregoing, and all amendments, restatements, supplements and other modifications
thereto.

                    “Loans” shall mean, collectively, all Revolving Loans and
the Term Loan made by the Bank to the Borrowers, in each case under and pursuant
to this Agreement.

                    “Lockbox Agreement” shall have the meaning set forth in
Section 3.1 hereof.

                    “Master Letter of Credit Agreement” shall have the meaning
set forth in Section 2.7 hereof.

                    “Material Adverse Effect” shall mean (a) a material adverse
change in, or a material adverse effect upon, the assets, business, properties,
condition (financial or otherwise) or results of operations of the Borrowers
taken as a whole, (b) a material impairment of the ability of the Borrowers
taken as a whole to perform any of the Obligations under any of the Loan
Documents, or (c) a material adverse effect on (i) any substantial portion of
the Collateral, (ii) the legality, validity, binding effect or enforceability
against the Borrowers (or any of them) of any of the Loan Documents, (iii) the
perfection or priority of the Liens on any material portion of the Collateral
granted to the Bank under any Loan Document, or (iv) the rights or remedies of
the Bank under any Loan Document.

                    “Net Cash Proceeds” shall mean:

          (a)          with respect to any Asset Disposition, the aggregate cash
proceeds (including cash proceeds received pursuant to policies of insurance or
by way of deferred payment of principal pursuant to a note, installment
receivable or otherwise, but only as and when received) received by the
Borrowers (or any of them) pursuant to such Asset Disposition net of (i) the
direct costs relating to such sale, transfer or other disposition (including
sales commissions and legal, accounting and investment banking fees), (ii) taxes
paid or reasonably estimated by the Borrowers (or any of them) to be payable as
a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), and (iii) amounts required to be
applied to the repayment of any Debt secured by a Lien on the asset subject to
such Asset Disposition (other than the Loans);

          (b)          with respect to any issuance of Capital Securities, the
aggregate cash proceeds received by the Borrowers (or any of them) pursuant to
such issuance, net of the direct costs relating to such issuance (including
sales and underwriters’ commissions and legal, accounting and investment banking
fees); and

          (c)          with respect to any issuance of Debt, the aggregate cash
proceeds received by the Borrowers (or any of them) pursuant to such issuance,
net of the direct costs of such issuance (including up-front, underwriters’ and
placement fees and legal, accounting and investment banking fees).

                    “Net Income” shall mean, with respect to the Borrowers and
their respective Subsidiaries for any period, the consolidated net income (or
loss) of the Borrowers and their respective Subsidiaries for such period as
determined in accordance with GAAP, excluding any gains from Asset Dispositions,
any extraordinary gains and any gains from discontinued operations. For
avoidance of doubt, it is understood and agreed that for all periods ending on
or prior to the date on which the Acquisition was

15

--------------------------------------------------------------------------------

consummated, the term “Net Income” shall consist of the sum of (a) the
consolidated net income (or loss) of the Borrowers other than Datrix, and their
respective Subsidiaries, plus (b) the consolidated net income (or loss) of
Datrix and its Subsidiaries, in each case for such period as determined in
accordance with GAAP, excluding any gains from Asset Dispositions, any
extraordinary gains and any gains from discontinued operations.

                    “Non-Excluded Taxes” shall have the meaning set forth in
Section 2.8(a) hereof.

                    “Note” and “Notes” shall mean, respectively, each of and
collectively, the Revolving Note and the Term Note.

                    “Obligations” shall mean the Loans, as evidenced by any
Note, all interest accrued thereon (including interest which would be payable as
post-petition in connection with any bankruptcy or similar proceeding, whether
or not permitted as a claim thereunder), any fees due the Bank hereunder, any
expenses incurred by the Bank hereunder, including without limitation, all
liabilities and obligations under this Agreement, under any other Loan Document,
any reimbursement obligations of the Borrowers (or any of them) in respect of
Letters of Credit, all Hedging Obligations of the Borrowers (or any of them)
which are owed to the Bank or any Affiliate of the Bank, and all Bank Product
Obligations of the Borrowers (or any of them), and any and all other liabilities
and obligations owed by the Borrowers (or any of them), any of their respective
Subsidiaries or any other Obligor (individually and collectively) to the Bank
from time to time, howsoever created, arising or evidenced, whether direct or
indirect, joint or several, absolute or contingent, now or hereafter existing,
or due or to become due, together with any and all renewals, extensions,
restatements or replacements of any of the foregoing.

                    “Obligor” shall mean each Borrower, any guarantor,
accommodation endorser, third party pledgor, or any other party liable with
respect to all or any portion of the Obligations.

                    “Organizational Identification Number” means, with respect
to a Borrower, the organizational identification number assigned to such
Borrower by the applicable governmental unit or agency of the jurisdiction of
organization of such Borrower.

                    “Other Taxes” shall mean any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from the execution, delivery, enforcement or registration of,
or otherwise with respect to, this Agreement or any of the other Loan Documents.

                    “Permitted Liens” shall mean (a) Liens for Taxes,
assessments or other governmental charges not at the time delinquent or
thereafter payable without penalty or being contested in good faith by
appropriate proceedings so long as the applicable Borrower(s) shall set aside on
its books adequate reserves with respect thereto in accordance with GAAP and,
such contest proceedings stay the foreclosure of such Lien or the sale of any
portion of the Collateral to satisfy such claim; (b) Liens arising in the
ordinary course of business (such as (i) Liens of carriers, warehousemen,
mechanics and materialmen and other similar Liens imposed by law, and (ii) Liens
in the form of deposits or pledges incurred in connection with worker’s
compensation, unemployment compensation and other types of social security
(excluding Liens arising under ERISA) or in connection with surety bonds, bids,
performance bonds and similar obligations) for sums not overdue or being
contested in good faith by appropriate proceedings and not involving any
advances or borrowed money or the deferred purchase price of property or
services, which do not in the aggregate materially detract from the value of the
property or assets of the Borrowers (or any of them) or materially impair the
use thereof in the operation of such Borrower’s business and, in each case, so
long as the applicable Borrower(s) shall set aside on its books adequate
reserves with respect thereto in accordance with GAAP and, such contest
proceedings stay the foreclosure of such Lien or the sale of any portion of the
Collateral to satisfy such claim; (c) Liens described on Schedule 9.2 as of

16

--------------------------------------------------------------------------------

the date hereof; (d) attachments, appeal bonds, judgments and other similar
Liens, for sums not exceeding Fifty Thousand and 00/100 Dollars ($50,000.00) in
the aggregate arising in connection with court proceedings, provided the
execution or other enforcement of such Liens is effectively stayed and the
claims secured thereby are being actively contested in good faith and by
appropriate proceedings and to the extent such judgments or awards do not
constitute an Event of Default under Section 11.8 hereof; (e) easements, rights
of way, restrictions, minor defects or irregularities in title and other similar
Liens not interfering in any material respect with the ordinary conduct of the
business of the Borrowers (or any of them); (f) subject to the limitation set
forth in Section 9.1(e), Liens arising in connection with purchase money Debt
and Capitalized Lease Obligations (and attaching only to the property being
purchased or leased); (g) subject to the limitation set forth in Section 9.1(e),
Liens that constitute purchase money security interests on any property securing
Debt incurred for the purpose of financing all or any part of the cost of
acquiring such property, provided that any such Lien attaches to such property
within twenty (20) days of the acquisition thereof and attaches solely to the
property so acquired; and (h) Liens granted to the Bank hereunder and under the
Loan Documents.

                    “Person” shall mean any natural person, partnership, limited
liability company, corporation, trust, joint venture, joint stock company,
association, unincorporated organization, government or agency or political
subdivision thereof, or other entity, whether acting in an individual, fiduciary
or other capacity.

                    “Pledged Entities” means, collectively, Inc., RTIE, Tibbetts
and Datrix.

                    “Pledged Equity Interests” means all of the Capital
Securities of the Pledged Entities, in each case now or hereafter owned by
IntriCon, together with the certificates or other agreements or instruments, if
any, representing or evidencing such Capital Securities, and all options. The
term Pledged Equity Interests shall specifically include, but shall not be
limited to:

          (a)          all capital stock, membership interests, partnership
interests, shares or securities representing a dividend on any of the Pledged
Equity Interests, or representing a distribution or return of capital upon or in
respect of the Pledged Equity Interests, or resulting from a split, revision,
reclassification or other exchange therefor, and any subscriptions, warrants,
rights or options issued to the holder of, or otherwise in respect of, the
Pledged Equity Interests; and

          (b)          without affecting the obligations of IntriCon or any
other Borrower under any provision prohibiting such action hereunder, in the
event of any consolidation or merger involving the issuer of any Pledged Equity
Interests and in which such issuer is not the surviving entity, all shares of
each class of Capital Securities or other equity interest of the successor
entity formed by or resulting from such consolidation or merger.

                    “Prime Rate” shall mean the floating per annum rate of
interest which at any time, and from time to time, shall be most recently
announced by the Bank as its Prime Rate, which is not intended to be the Bank’s
lowest or most favorable rate of interest at any one time. The effective date of
any change in the Prime Rate shall for purposes hereof be the date the Prime
Rate is changed by the Bank. The Bank shall not be obligated to give notice of
any change in the Prime Rate.

                    “Regulatory Change” shall mean the introduction of, or any
change in any applicable law, treaty, rule, regulation or guideline or in the
interpretation or administration thereof by any governmental authority or any
central bank or other fiscal, monetary or other authority having jurisdiction
over the Bank or its lending office.

17

--------------------------------------------------------------------------------

                       “Revolving Interest Rate” shall mean, with respect to any
Loan, the Borrowing Agent’s option from time to time of (i) a per annum rate of
interest equal to the LIBOR Rate plus the Applicable LIBOR Rate Margin for
Revolving Loans, or (ii) a floating per annum rate of interest equal to the Base
Rate plus the Applicable Base Rate Margin for Revolving Loans.

                       “Revolving Loan” and “Revolving Loans” shall mean,
respectively, each direct advance and the aggregate of all such direct advances
made by the Bank to the Borrowers (or any of them) under and pursuant to this
Agreement, as set forth in Section 2.1 of this Agreement.

                       “Revolving Loan Availability” shall mean, at any time, an
amount equal to the lesser of (a) the Revolving Loan Commitment minus the Letter
of Credit Obligations, or (b) the Borrowing Base Amount minus the Letter of
Credit Obligations.

                       “Revolving Loan Commitment” shall mean Eight Million and
00/100 Dollars ($8,000,000.00).

                       “Revolving Loan Mandatory Prepayment” shall have the
meaning set forth in Section 2.1(c)(ii) hereof.

                       “Revolving Loan Maturity Date” shall mean August 13,
2012, unless extended by the Bank pursuant to any modification, extension or
renewal note executed by the Borrowers and accepted by the Bank in its sole and
absolute discretion in substitution for the Revolving Note.

                       “Revolving Note” shall mean a revolving note in the form
prepared by and acceptable to the Bank, dated as of the date hereof, in the
amount of the Revolving Loan Commitment and maturing on the Revolving Loan
Maturity Date, duly executed by the Borrowers and made jointly and severally
payable to the order of the Bank, together with any and all renewal, extension,
modification or replacement notes executed by the Borrowers and delivered to the
Bank and given in substitution therefor.

                       “Selling Shareholder Note” means that certain promissory
note dated as of August 13, 2009 in the original principal amount of
$1,050,000.00 made payable by IntriCon to the Selling Shareholder, as the same
may be amended, supplemented, restated or otherwise modified from time to time.

                       “Selling Shareholder Subordination Agreement” means that
certain Subordination Agreement made by the Selling Shareholder in favor of the
Bank bearing even date herewith, as the same may be amended, restated,
supplemented or otherwise modified from time to time.

                       “Selling Shareholder” means, Jon V. Barron, an adult
individual.

                       “Senior Debt” shall mean all Debt of the Borrowers other
than Subordinated Debt.

                       “Subject Agreements” shall mean, collectively, (a) that
certain Patent License Agreement made effective as of January 1, 1997 by and
between IntriCon and K/S HIMPP, a partnership organized and existing under the
laws of Denmark, and (b) that certain Strategic Alliance Agreement dated as of
October 1, 2008 by and between IntriCon and Dynamic Hearing Pty Ltd, a
corporation organized and existing under the laws of Victoria, Australia, in
each case as the same may be amended, restated, supplemented or otherwise
modified from time to time.

                       “Subordinated Debt” shall mean, collectively, (a) the
Debt evidenced by the Selling Shareholder Note and (b) that portion of the other
Debt of the Borrowers (or any of them) which is

18

--------------------------------------------------------------------------------

subordinated to the Obligations in a manner satisfactory to the Bank, including
subordination of right and time of payment of principal and interest, priority
of collateral security (if any) and remedies enforcement.

                       “Subordinated Debt Default” means the occurrence of any
of the following (or any combination of the following) other than as a result of
the operation of the applicable subordination agreement or subordination
provisions: (i) a default or breach of or under any of the Subordinated Debt
Documents, (ii) any event or circumstance that would become a default or breach
on a Subordinated Creditor’s election or would become a default or breach after
notice, the lapse of time, or on the satisfaction of any other condition, or all
of the foregoing, or (iii) the maturity of the Subordinated Debt without the
Subordinated Debt being fully paid, performed and satisfied.

                       “Subordinated Debt Documents” means, collectively, (i)
the Selling Shareholder Note, and (ii) any and all other agreements,
instruments, and documents signed or delivered by or on behalf of any Borrower
in connection with the Subordinated Debt (other than the Acquisition Documents),
as any or all of the foregoing documents, instruments, and agreements are now in
effect or, subject to Section 9.16, as at any time after the date of this
Agreement amended, modified, supplemented, restated, renewed, extended, or
otherwise changed and any documents, instruments, or agreements given, subject
to Section 9.16, in substitution of any of them.

                       “Subsidiary” and “Subsidiaries” shall mean, respectively,
with respect to any Person, each and all such corporations, partnerships,
limited partnerships, limited liability companies, limited liability
partnerships, joint ventures or other entities of which or in which such Person
owns, directly or indirectly, such number of outstanding Capital Securities as
have more than fifty percent (50.00%) of the ordinary voting power for the
election of directors or other managers of such corporation, partnership,
limited liability company or other entity. Unless the context otherwise
requires, each reference to Subsidiaries herein shall be a reference to
Subsidiaries of any Borrower.

                       “Tangible Assets” shall mean the aggregate total of all
assets appearing on the consolidated balance sheets of the Borrowers prepared in
accordance with GAAP (with Inventory being valued at the lower of cost or
market), after deducting all proper reserves (including reserves for
Depreciation) minus the sum of (i) goodwill, patents, trademarks, prepaid
expenses, deposits, deferred charges and other personal property which is
classified as intangible property in accordance with GAAP, and (ii) any amounts
due from shareholders, Affiliates, officers or employees of the Borrowers.

                       “Taxes” shall mean any and all present and future taxes,
duties, levies, imposts, deductions, assessments, charges or withholdings, and
any and all liabilities (including interest and penalties and other additions to
taxes) with respect to the foregoing.

                       “Term Interest Rate” shall mean, with respect to any
Loan, the Borrowing Agent’s option from time to time of (i) a per annum rate of
interest equal to the LIBOR Rate plus the Applicable LIBOR Rate Margin for the
Term Loan, or (ii) a floating per annum rate of interest equal to the Base Rate
plus the Applicable Base Rate Margin for the Term Loan.

                       “Term Loan” shall mean the direct advance made by the
Bank to the Borrowers in the form of a term loan under and pursuant to this
Agreement, as set forth in Section 2.2 of this Agreement.

                       “Term Loan Commitment” shall mean Three Million Five
Hundred Thousand and 00/100 Dollars ($3,500,000.00).

19

--------------------------------------------------------------------------------

                       “Term Loan Mandatory Prepayment” shall have the meaning
set forth in Section 2.2(d) hereof.

                       “Term Loan Maturity Date” shall mean August 13, 2012,
unless extended by the Bank pursuant to any modification, extension or renewal
note executed by the Borrowers and accepted by the Bank in its sole and absolute
discretion in substitution for the Term Note.

                       “Term Note” shall mean a term note in the form prepared
by and acceptable to the Bank, dated as of the date hereof, in the amount of the
Term Loan Commitment and maturing on the Term Loan Maturity Date, duly executed
by the Borrowers and made jointly and severally payable to the order of the
Bank, together with any and all renewal, extension, modification or replacement
notes executed by the Borrowers and delivered to the Bank and given in
substitution therefor.

                       “Transaction Costs” means the lesser of (a) $300,000 and
(b) the aggregate of all actual, out-of-pocket costs, fees and other expenses
paid or incurred by the Borrowers between June 1, 2009 and August 31, 2009
relating to the Acquisition and/or the financing transactions contemplated by
this Agreement.

                       “UCC” shall mean the Uniform Commercial Code in effect in
the state of Minnesota from time to time.

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

                       “Voidable Transfer” shall have the meaning set forth in
Section 13.21 hereof.

          1.2        Accounting Terms. Any accounting terms used in this
Agreement which are not specifically defined herein shall have the meanings
customarily given them in accordance with GAAP. Calculations and determinations
of financial and accounting terms used and not otherwise specifically defined
hereunder and the preparation of financial statements to be furnished to the
Bank pursuant hereto shall be made and prepared, both as to classification of
items and as to amount, in accordance with sound accounting practices and GAAP
as used in the preparation of the consolidated financial statements of the
Borrowers on the date of this Agreement. If any changes in accounting principles
or practices from those used in the preparation of the financial statements are
hereafter occasioned by the promulgation of rules, regulations, pronouncements
and opinions by or required by the Financial Accounting Standards Board or the
American Institute of Certified Public Accountants (or any successor thereto or
agencies with similar functions), which results in a material change in the
method of accounting in the financial statements required to be furnished to the
Bank hereunder or in the calculation of financial covenants, standards or terms
contained in this Agreement, the parties hereto agree to enter into good faith
negotiations to amend such provisions so as equitably to reflect such changes to
the end that the criteria for evaluating the financial condition and performance
of the Borrowers will be the same after such changes as they were before such
changes; and until any such amendment is agreed on and/or if the parties fail to
agree on the amendment of such provisions, Borrowers will furnish consolidated
financial statements in accordance with such changes, but shall provide
calculations for all financial covenants, perform all financial covenants and
otherwise observe all financial standards and terms in accordance with
applicable accounting principles and practices in effect immediately prior to
such changes.

          1.3        Other Terms Defined in UCC. All other capitalized words and
phrases used herein and not otherwise specifically defined herein shall have the
respective meanings assigned to such terms in the UCC, to the extent the same
are used or defined therein.

20

--------------------------------------------------------------------------------

          1.4        Other Interpretive Provisions.

 

 

 

             (a)          The meanings of defined terms are equally applicable
to the singular and plural forms of the defined terms. Whenever the context so
requires, the neuter gender includes the masculine and feminine, the single
number includes the plural, and vice versa, and in particular the word
“Borrower” shall be so construed.

 

 

 

             (b)          Section and Schedule references are to this Agreement
unless otherwise specified. The words “hereof”, “herein” and “hereunder” and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.

 

 

 

             (c)          The term “including” is not limiting, and means
“including, without limitation”.

 

 

 

             (d)          In the computation of periods of time from a specified
date to a later specified date, the word “from” means “from and including”; the
words “to” and “until” each mean “to but excluding”, and the word “through”
means “to and including”.

 

 

 

             (e)          Unless otherwise expressly provided herein,
(i) references to agreements (including this Agreement and the other Loan
Documents) and other contractual instruments shall be deemed to include all
subsequent amendments, restatements, supplements and other modifications
thereto, provided, however, that the foregoing provision shall not limit or
otherwise adversely affect any of the Bank’s rights or remedies in the event any
such amendments, restatements, supplements or other modifications are prohibited
by the terms of any Loan Document, and (ii) references to any statute or
regulation shall be construed as including all statutory and regulatory
provisions amending, replacing, supplementing or interpreting such statute or
regulation.

 

 

 

             (f)          To the extent any of the provisions of the other Loan
Documents are inconsistent with the terms of this Agreement, the provisions of
this Agreement shall govern.

 

 

 

             (g)          This Agreement and the other Loan Documents may use
several different limitations, tests or measurements to regulate the same or
similar matters. All such limitations, tests and measurements are cumulative and
each shall be performed in accordance with its terms.

Section 2.       COMMITMENT OF THE BANK.

          2.1        Revolving Loans.

 

 

 

             (a)          Revolving Loan Commitment. Subject to the terms and
conditions of this Agreement and the other Loan Documents, and in reliance upon
the representations and warranties of each Borrowing Agent set forth herein and
in the other Loan Documents, the Bank agrees to make such Revolving Loans at
such times as the Borrowing Agent may from time to time request until, but not
including, the Revolving Loan Maturity Date, and in such amounts as the
Borrowing Agent may from time to time request, provided, however, that the
aggregate principal balance of all Revolving Loans outstanding at any time shall
not exceed the Revolving Loan Availability. Revolving Loans made by the Bank may
be repaid and, subject to the terms and conditions hereof, borrowed again up to,
but not including the Revolving Loan Maturity Date unless the Revolving Loans
are otherwise accelerated, terminated or extended as provided in this Agreement.
The Revolving Loans shall be used by the Borrowers solely for the purpose of (i)

21

--------------------------------------------------------------------------------

 

 

 

 

 

 

refinancing certain existing Senior Debt, (ii) financing their working capital
requirements, (iii) financing certain transaction costs, and (iv) for general
corporate purposes.

 

 

 

          (b)          Revolving Loan Interest and Payments. Except as otherwise
provided in this Section 2.1(b), the principal amount of the Revolving Loans
outstanding from time to time shall bear interest at the applicable Revolving
Interest Rate. Accrued and unpaid interest on the unpaid principal balance of
all Revolving Loans outstanding from time to time which are Base Rate Loans,
shall be due and payable monthly, in arrears, commencing on September 30, 2009
and continuing on the last day of each calendar month thereafter, and on the
Revolving Loan Maturity Date. Accrued and unpaid interest on the unpaid
principal balance of all Revolving Loans outstanding from time to time which are
LIBOR Loans shall be payable on the last Business Day of each Interest Period,
commencing on the first such date to occur after the date hereof, on the date of
any principal repayment of a LIBOR Loan and on the Revolving Loan Maturity Date.
From and after maturity, or after the occurrence and during the continuation of
an Event of Default, interest on the outstanding principal balance of the
Revolving Loans, at the option of the Bank, may accrue at the Default Rate and
shall be payable upon demand from the Bank.

 

 

 

 

          (c)          Revolving Loan Principal Payments.

 

 

 

 

 

               (i)          Revolving Loan Mandatory Payments. All Revolving
Loans hereunder shall be repaid by the Borrowers on the Revolving Loan Maturity
Date, unless payable sooner pursuant to the provisions of this Agreement. In the
event the aggregate outstanding principal balance of all Revolving Loans and
Letter of Credit Obligations hereunder exceeds the Revolving Loan Availability,
the Borrowers shall, without notice or demand of any kind, immediately make such
repayments of the Revolving Loans or take such other actions as are satisfactory
to the Bank as shall be necessary to eliminate such excess.

 

 

 

 

 

               (ii)         Optional Prepayments. The Borrowers may from time to
time prepay the Revolving Loans, in whole or in part, without any prepayment
penalty whatsoever, provided that any prepayment of the entire principal balance
of the Base Rate Loans shall include accrued interest on such Base Rate Loans to
the date of such prepayment, and further provided that any prepayment of any
LIBOR Rate Loans shall include accrued interest on such LIBOR Rate Loans to the
date of such prepayment together with any applicable LIBOR breakage obligations
arising under Section 2.4(a) as a result of such LIBOR Rate Loan prepayment.

 

 

 

2.2     Term Loan.

 

 

 

          (a)          Term Loan Commitment. Subject to the terms and conditions
of this Agreement and the other Loan Documents, and in reliance upon the
representations and warranties of each Borrower set forth herein and in the
other Loan Documents, the Bank agrees to make a Term Loan equal to the Term Loan
Commitment. The Term Loan shall be available to the Borrowers in a single
principal advance on such date as the conditions set forth in Section 3 shall
have been satisfied. The Term Loan shall be used by the Borrowers solely for the
purposes of (i) funding the purchase price payable under the Acquisition
Agreement and the costs and expenses (including legal fees) associated with the
Acquisition and all related transactions (including the costs and expenses of
obtaining the credit facilities provided under and the closing on the Agreement
and the other Loan Documents) and (ii) to the extent of any excess proceeds of
the Term Loan, financing their working capital requirements and general
corporate purposes. The Term Loan may be prepaid in whole or in part at any time
subject to Section 2.2(e), but shall be

22

--------------------------------------------------------------------------------

 

 

 

due in full on the Term Loan Maturity Date, unless the credit extended under the
Term Loan is otherwise accelerated, terminated or extended as provided in this
Agreement.

 

 

 

          (b)          Term Loan Interest and Payments. Except as otherwise
provided in this Section 2.2(b), the principal amount of the Term Loan
outstanding from time to time shall bear interest at the applicable Term
Interest Rate. Accrued and unpaid interest on that portion of the principal
balance of the Term Loan outstanding from time to time which is a Base Rate
Loan, shall be due and payable monthly, in arrears, commencing on September 30,
2009 and continuing on the last day of each calendar month thereafter, and on
the Term Loan Maturity Date. Accrued and unpaid interest on those portions of
the principal balance of the Term Loan outstanding from time to time which are
LIBOR Loans shall be payable on the last Business Day of each Interest Period,
commencing on the first such date to occur after the date hereof, on the date of
any principal repayment of a LIBOR Loan and on the Term Loan Maturity Date. From
and after maturity, or after the occurrence and during the continuation of an
Event of Default, interest on the outstanding principal balance of the Term
Loan, at the option of the Bank, may accrue at the Default Rate and shall be
payable upon demand from the Bank.

 

 

 

          (c)          Term Loan Principal Payments. The outstanding principal
balance of the Term Loan shall be repaid in installments, commencing on
September 30, 2009, payable on the payment dates set forth below, in the
following amounts:

 

 

 

 

Payment Date

 

 

Installment

 

 

 

September 30, 2009

 

$100,000

December 31, 2009

 

$150,000

March 31, 2010

 

$175,000

June 30, 2010

 

$175,000

September 30, 2010

 

$168,750

December 31, 2010

 

$168,750

March 31, 2011

 

$168,750

June 30, 2011

 

$168,750

September 30, 2011

 

$187,500

December 31, 2011

 

$187,500

March 31, 2012

 

$187,500

June 30, 2012

 

$187,500

 

 

 

 

Principal amounts repaid on the Term Note may not be borrowed again. The
remaining unpaid principal of the Term Loan, together with all accrued and
unpaid interest thereon, shall be due and payable on the Term Loan Maturity
Date.

 

 

 

          (d)          Term Loan Mandatory Prepayment. The Borrowers shall make
a prepayment (the “Term Loan Mandatory Prepayment”) of the outstanding principal
amount of the Term Loan until paid in full upon the occurrence of any of the
following events, at the following times and in the following amounts:

 

 

 

 

 

               (i)          Concurrently with the receipt by the Borrowers (or
any of them) of any Net Cash Proceeds from any Asset Disposition, in an amount
equal to 100% of such Net Cash Proceeds.

 

 

 

 

 

               (ii)         Concurrently with the receipt by the Borrowers (or
any of them) of any Net Cash Proceeds from any issuance of Capital Securities
(excluding (A) any issuance

23

--------------------------------------------------------------------------------

 

 

 

 

 

of Capital Securities pursuant to any employee or director option program,
benefit plan or compensation program or any issuance of Capital Securities as
payment of a stock dividend to the holders of the Capital Securities of
IntriCon, and (B) any issuance by a Subsidiary to a Borrower or another
Subsidiary), in an amount equal to 100% of such Net Cash Proceeds.

 

 

 

 

 

               (iii)        Concurrently with the receipt by the Borrowers (of
any of them) of any Net Cash Proceeds from any issuance of Debt (other than Debt
permitted under Section 9.1(e)) in an amount equal to 100% of such net Cash
Proceeds.

 

 

 

Any prepayments under this subsection (d) shall be applied against the remaining
unpaid installments of the Term Loan principal in the inverse order of their
maturity.

 

 

 

          (e)          Optional Prepayments. The Borrowers may from time to time
prepay the Term Loan, in whole or in part, without any prepayment penalty
whatsoever, provided that any prepayment of the entire principal balance of the
Base Rate Loans shall include accrued interest on such Base Rate Loans to the
date of such prepayment, and further provided that any prepayment of any LIBOR
Rate Loans shall include accrued interest on such LIBOR Rate Loans to the date
of such prepayment together with any applicable LIBOR breakage obligations
arising under Section 2.4(a) as a result of such LIBOR Rate Loan prepayment. Any
prepayments under this subsection (e) shall be applied against the remaining
unpaid installments of the Term Loan principal in the inverse order of their
maturity.

          2.3      Termination of Commitments. The Borrowers may at any time
terminate the Revolving Loan Commitment and the Letter of Credit Commitment upon
Final Payment.

          2.4      Additional LIBOR Loan Provisions.

 

 

 

          (a)          LIBOR Loan Prepayments. If, for any reason, a LIBOR Loan
is paid prior to the last Business Day of any Interest Period, whether
voluntary, involuntary, by reason of acceleration or otherwise, each such
prepayment of a LIBOR Loan will be accompanied by the amount of accrued interest
on the amount prepaid and any and all costs, expenses, penalties and charges
incurred by the Bank as a result of the early termination or breakage of a LIBOR
Loan, plus the amount, if any, by which (i) the additional interest which would
have been payable during the Interest Period on the LIBOR Loan prepaid had it
not been prepaid, exceeds (ii) the interest which would have been recoverable by
the Bank by placing the amount prepaid on deposit in the domestic certificate of
deposit market, the eurodollar deposit market, or other appropriate money market
selected by the Bank, for a period starting on the date on which it was prepaid
and ending on the last day of the Interest Period for such LIBOR Loan. The
amount of any such loss or expense payable by the Borrowers (or any of them) to
the Bank under this Section shall be determined in the Bank’s sole discretion
based upon the assumption that the Bank funded its loan commitment for LIBOR
Loans in the London Interbank Eurodollar market and using any reasonable
attribution or averaging methods which the Bank deems appropriate and practical,
provided, however, that the Bank is not obligated to accept a deposit in the
London Interbank Eurodollar market in order to charge interest on a LIBOR Loan
at the LIBOR Rate.

 

 

 

          (b)          LIBOR Unavailability. If the Bank determines in its
commercially reasonable discretion (which determination shall be conclusive,
absent manifest error) prior to the commencement of any Interest Period that (i)
the making or maintenance of any LIBOR Loan would violate any applicable law,
rule, regulation or directive, whether or not having the force of law, (ii)
United States dollar deposits in the principal amount, and for periods equal to
the Interest

24

--------------------------------------------------------------------------------

 

 

 

Period for funding any LIBOR Loan are not available in the London Interbank
Eurodollar market in the ordinary course of business, (iii) by reason of
circumstances affecting the London Interbank Eurodollar market, adequate and
fair means do not exist for ascertaining the LIBOR Rate to be applicable to the
relevant LIBOR Loan, or (iv) the LIBOR Rate does not accurately reflect the cost
to the Bank of a LIBOR Loan, the Bank shall promptly notify the Borrowing Agent
thereof and, so long as the foregoing conditions continue, none of the Loans may
be advanced as a LIBOR Loan thereafter. In addition, at the Borrowing Agent’s
option, each existing LIBOR Loan shall be (i) converted to a Base Rate Loan on
the last Business Day of the then existing Interest Period or (ii) due and
payable on the last Business Day of the then existing Interest Period, without
further demand, presentment, protest or notice of any kind, all of which are
herby waived by each Borrower.

 

 

 

          (c)          Regulatory Change. In addition, if, after the date
hereof, a Regulatory Change shall, in the commercially reasonable discretion of
the Bank, make it unlawful for the Bank to make or maintain the LIBOR Loans,
then the Bank shall promptly notify the Borrowing Agent and none of the Loans
may be advanced as a LIBOR Loan thereafter. In addition, at the Borrowing
Agent’s option, each existing LIBOR Loan shall be (i) converted to a Base Rate
Loan on the last Business Day of the then existing Interest Period or (ii) due
and payable on the last Business Day of the then existing Interest Period,
without further demand, presentment, protest or notice of any kind, all of which
are herby waived by each Borrower.

 

 

 

          (d)          LIBOR Indemnity. If any Regulatory Change, or compliance
by the Bank or any Person controlling the Bank with any request or directive of
any governmental authority, central bank or comparable agency (whether or not
having the force of law) shall (a) impose, modify or deem applicable any
assessment, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of or loans by, or any other acquisition
of funds or disbursements by, the Bank; (b) subject the Bank or any LIBOR Loan
to any tax, duty, charge, stamp tax or fee or change the basis of taxation of
payments to the Bank of principal or interest due from the Borrowers to the Bank
hereunder (other than a change in the taxation of the overall net income of the
Bank); or (c) impose on the Bank any other condition regarding such LIBOR Loan
or the Bank’s funding thereof, and the Bank shall determine in its commercially
reasonable discretion (which determination shall be conclusive, absent manifest
error) that the result of the foregoing is to increase the cost to, or to impose
a cost on, the Bank or such controlling Person of making or maintaining such
LIBOR Loan or to reduce the amount of principal or interest received by the Bank
hereunder, then the Borrowers shall jointly and severally pay to the Bank or
such controlling Person, on demand, such additional amounts as the Bank shall,
from time to time, determine are sufficient to compensate and indemnify the Bank
for such increased cost or reduced amount.

          2.5     Interest and Fee Computation; Collection of Funds. Except as
otherwise set forth herein, all interest and fees shall be calculated on the
basis of a year consisting of 360 days and shall be paid for the actual number
of days elapsed. Principal payments submitted in funds not immediately available
shall continue to bear interest until collected. If any payment to be made by
the Borrowers hereunder or under any Note shall become due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day and
such extension of time shall be included in computing any interest in respect of
such payment. Notwithstanding anything to the contrary contained herein, the
final payment due under any of the Loans must be made by wire transfer or other
immediately available funds. All payments made by the Borrowers hereunder or
under any of the Loan Documents shall be made without setoff, counterclaim, or
other defense.

25

--------------------------------------------------------------------------------

          2.6     Late Charge. If any payment of interest or principal due
hereunder is not made within ten (10) days after such payment is due in
accordance with the terms hereof, then, in addition to the payment of the amount
so due, the Borrowers shall pay to the Bank a “late charge” of five cents for
each whole dollar so overdue to defray part of the cost of collection and
handling such late payment. Each Borrower agrees that the damages to be
sustained by the Bank for the detriment caused by any late payment are extremely
difficult and impractical to ascertain, and that the amount of five cents for
each one dollar due is a reasonable estimate of such damages, does not
constitute interest, and is not a penalty.

          2.7     Letters of Credit. Subject to the terms and conditions of this
Agreement and upon (i) the execution by the Borrowing Agent and the Bank of a
Master Letter of Credit Agreement in form and substance acceptable to the Bank
(together with all amendments, modifications and restatements thereof, the
“Master Letter of Credit Agreement”), and (ii) the execution and delivery by the
Borrowing Agent, and the acceptance by the Bank, in its sole and absolute
discretion, of a Letter of Credit Application, the Bank agrees to issue for the
account of the applicable Borrower such Letters of Credit in the standard form
of the Bank and otherwise in form and substance acceptable to the Bank, from
time to time during the term of this Agreement, provided that the Letter of
Credit Obligations may not at any time exceed the Letter of Credit Commitment
and provided further, that no Letter of Credit shall have an expiration date
later than the Letter of Credit Maturity Date. The amount of any payments made
by the Bank with respect to draws made by a beneficiary under a Letter of Credit
for which the Borrowers have failed to reimburse the Bank upon the earlier of
(i) the Bank’s demand for repayment, or (ii) five (5) days from the date of such
payment to such beneficiary by the Bank, shall be deemed to have been converted
to a Revolving Loan as of the date such payment was made by the Bank to such
beneficiary. Upon the occurrence of an Event of a Default and at the option of
the Bank, all Letter of Credit Obligations shall be converted to Revolving Loans
consisting of Base Rate Loans, all without demand, presentment, protest or
notice of any kind, all of which are hereby waived by each Borrower, for the
purpose of cash collateralizing the Letter of Credit Obligations as contemplated
by Section 12.10 below. To the extent the provisions of the Master Letter of
Credit Agreement differ from, or are inconsistent with, the terms of this
Agreement, the provisions of this Agreement shall govern.

          2.8     Taxes.

 

 

 

          (a)          All payments made by the Borrowers (or any of them) under
this Agreement shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
governmental authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Bank as a result of a present or
former connection between the Bank and the jurisdiction of the governmental
authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from the Bank
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any other Loan Document). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings (collectively, “Non-Excluded Taxes”) or Other Taxes are required to
be withheld from any amounts payable to the Bank hereunder, the amounts so
payable to the Bank shall be increased to the extent necessary to yield to the
Bank (after payment of all Non-Excluded Taxes and Other Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, provided, however, that the Borrowers shall not be required to
increase any such amounts payable to the Bank with respect to any Non-Excluded
Taxes that are attributable to the Bank’s failure to comply with the
requirements of Section 2.8(c).

26

--------------------------------------------------------------------------------

 

 

 

          (b)          The Borrowers shall pay any Other Taxes to the relevant
governmental authority in accordance with applicable law.

 

 

 

          (c)          At the request of the Borrowing Agent and at the
Borrowers’ sole cost, the Bank shall take reasonable steps to (i) contest its
liability for any Non-Excluded Taxes or Other Taxes that have not been paid, or
(ii) seek a refund of any Non-Excluded Taxes or Other Taxes that have been paid.

 

 

 

          (d)          Whenever any Non-Excluded Taxes or Other Taxes are
payable by the Borrowers, as promptly as possible thereafter the Borrowing Agent
shall send to the Bank a certified copy of an original official receipt received
by the Borrower showing payment thereof. If any Borrower fails to pay any
Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority
or fails to remit to the Bank the required receipts or other required
documentary evidence or if any governmental authority seeks to collect a
Non-Excluded Tax or Other Tax directly from the Bank for any other reason, the
Borrowers shall jointly and severally indemnify the Bank on an after-tax basis
for any incremental taxes, interest or penalties that may become payable by the
Bank.

 

 

 

          (e)          The agreements in this Section shall survive the
satisfaction and payment of the Obligations and the termination of this
Agreement.

          2.9     All Loans to Constitute Single Obligation. The Loans and other
Obligations shall constitute one general joint and several obligation of the
Borrowers, and shall be secured by Bank’s first priority security interest in
and Lien upon all of the Collateral and by all other security interests, Liens,
claims and encumbrances heretofore, now or at any time or times hereafter
granted by the Borrowers (or any of them) to the Bank, subject only to Permitted
Liens.

          2.10   Borrowing Agency Provisions. Each Borrower hereby irrevocably
designates the 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, and hereby authorizes the Bank to pay over or credit
all Loan proceeds in accordance with the request of the Borrowing Agent.
Although they are separate legal entities that observe all corporate and
organizational formalities consistent with such separateness, the Borrowers are
part of one consolidated organization constituting a single economic and
business enterprise and share an identity of interests such that any benefit
received by any Borrower benefits the other Borrowers. The handling of this
credit facility as a co-borrowing facility in the manner set forth in this
Agreement is solely as an accommodation to the Borrowers and at their request.
The Bank shall not incur liability to any Borrower or any other Person as a
result thereof. To induce the Bank to do so and in consideration thereof, each
Borrower hereby indemnifies the Bank and holds the Bank harmless from and
against any and all liabilities, expenses, losses, damages and claims of damage
or injury asserted against the Bank by any Person arising from or incurred by
reason of the handling of the financing arrangements of the Borrowers as
provided herein, reliance by the Bank on any request or instruction from the
Borrowing Agent or any other action taken by the Bank with respect to this
Section 2.10, except due to willful misconduct or gross negligence of the Bank.

          2.11   Obligations Joint and Several. All obligations of the Borrowers
hereunder and under the other Loan Documents shall be joint and several. Each
Borrower hereby agrees to make payment upon the maturity of the Obligations,
whether by acceleration or otherwise, and such obligation and liability on the
part of each Borrower shall in no way be impaired or otherwise affected by any
act or omission of the Bank (other than acts or omissions resulting from the
gross negligence or willful misconduct of the Bank) including, without
limitation any extension, renewal or forbearance granted by the Bank to any
Borrower,

27

--------------------------------------------------------------------------------

any failure of the Bank to pursue or preserve its rights against any Borrower or
the release by the Bank of any collateral now or hereafter given as security for
all or any part of such obligations.

          2.12   Waiver of Subrogation. Subject only to the provisions of
Section 2.13 below, each Borrower expressly waives any and all rights of
subrogation, reimbursement, indemnity, exoneration, contribution or any other
claim which such Borrower may now or hereafter have against any other Borrower
or any other Obligor, or against or with respect to any other Borrower’s
property (including, without limitation, any property which is collateral for
the Obligations), arising from the existence or performance of this Agreement,
until repayment in full of the Obligations. In addition, each Borrower hereby
expressly waives: (a) notice of the acceptance by the Bank of this Agreement;
(b) notice of the existence or creation or non-payment of all or any of the
Obligations; (c) presentment, demand, notice of dishonor, protest, and all other
notices whatsoever; (d) all diligence in collection or protection of or
realization upon the Obligations or any thereof, any obligation hereunder, or
any security for or guaranty of any of the foregoing; and (e) any event or
conduct or action of any other Borrower, the Bank or any other party that might
otherwise constitute a legal or equitable discharge of a surety or guarantor but
for this provision, other than payment in full of the Obligations.

          2.13   Contribution and Indemnification Among the Borrowers. Each
Borrower is obligated to repay the Obligations as joint and several obligors
under this Agreement. To the extent that any Borrower shall, under this
Agreement as a joint and several obligor, repay any of the Obligations
constituting Loans made to (or reimbursement obligations relating to Letters of
Credit issued for the account of) another Borrower (an “Accommodation Payment”),
then the Borrower making such Accommodation Payment shall be entitled to
contribution and indemnification from, and be reimbursed by, each of the other
Borrowers in an amount, for each of such other Borrowers, equal to a fraction of
such Accommodation Payment, the numerator of which fraction is such other
Borrower’s “Allocable Amount” (as defined below) and the denominator of which
the sum of the Allocable Amounts of all of the Borrowers. As of any date of
determination, the “Allocable Amount” of each Borrower shall be equal to the
maximum amount of liability for Accommodation Payments which could be asserted
against such Borrower hereunder without (a) rendering such Borrower “insolvent”
within the meaning of Section 101(31) of Title 11 of the Bankruptcy Code,
Section 2 of the Uniform Fraudulent Transfer Act (the “UFTA”), or Section 2 of
the Uniform Fraudulent Conveyance Act (“UFCA”), (b) leaving such Borrower with
unreasonably small capital or assets, within the meaning of Section 548 of the
Bankruptcy Code, Section 4 of the UFTA, or Section 4 of the UFCA, or (c) leaving
such Borrower unable to pay its debts as they become due within the meaning of
Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 5 of the
UFCA. All rights and claims of contribution, indemnification and reimbursement
under this Section 2.13 shall be subordinate in right of payment to the prior
payment in full of the Obligations.

Section 3.     CONDITIONS OF BORROWING.

          3.1     Conditions of Initial Loan. Notwithstanding any other
provision of this Agreement, the Bank shall not be required to disburse or make
the Term Loan or the initial Revolving Loan, if any of the following conditions
shall have occurred:

 

 

 

 

          (a)          Delivery of Documents. The Borrowers (or any of them)
shall have failed to deliver to the Bank any of the following, all of which must
be satisfactory to the Bank and the Bank’s counsel in form, substance and
execution, except to the extent waived by Bank in its sole discretion:

 

 

 

 

 

               (i)          Loan Agreement. Two copies of this Agreement duly
executed by the Borrowers.

28

--------------------------------------------------------------------------------

 

 

 

 

 

               (ii)          Revolving Note. A Revolving Note duly executed by
the Borrowers, in the form prepared by and acceptable to the Bank.

 

 

 

 

 

               (iii)          Term Note. A Term Note duly executed by the
Borrowers, in the form prepared by and acceptable to the Bank.

 

 

 

 

 

               (iv)          Master Letter of Credit Agreement. A Master Letter
of Credit Agreement prepared by and acceptable to the Bank, duly executed by the
Borrowing Agent in favor of the Bank.

 

 

 

 

 

               (v)          Collateral Access Agreement. Collateral Access
Agreements dated as of the date of this Agreement, from the owner, lessor or
mortgagee, as the case may be, (other than any Borrower or any of its
Subsidiaries) of any real estate whereon any Collateral is stored or otherwise
located, in the form prepared by and reasonably acceptable to the Bank.

 

 

 

          (b)          Borrowing Base Certificate. A Borrowing Base Certificate
in the form prepared by the Bank, certified as accurate by the Borrowing Agent,
and dated as of the Business Day immediately preceding the date such Loan is
requested to be made.

 

 

 

          (c)          Search Results; Lien Terminations. Copies of UCC search
reports dated such a date as is reasonably acceptable to the Bank, listing all
effective financing statements which name the Borrowers (or any of them), under
their present names and any previous names, as debtors, together with (i) copies
of such financing statements, (ii) payoff letters evidencing repayment in full
of all existing Debt to be repaid with the Loans, the termination of all
agreements relating thereto and the release of all Liens granted in connection
therewith, with UCC or other appropriate termination statements and documents
effective to evidence the foregoing (other than Permitted Liens), and (iii) such
other UCC termination statements as the Bank may reasonably request.

 

 

 

          (d)          Organizational and Authorization Documents. Copies of (i)
the Articles of Incorporation and Bylaws of each Borrower; (ii) resolutions of
the board of directors of each Borrower approving and authorizing such Person’s
execution, delivery and performance of the Loan Documents to which it is party
and the transactions contemplated thereby; (iii) signature and incumbency
certificates of the officers of each Borrower, executing any of the Loan
Documents, each of which such Borrower hereby certifies to be true and complete,
and in full force and effect without modification, it being understood that the
Bank may conclusively rely on each such document and certificate until formally
advised by such Borrower of any changes therein; and (iv) good standing
certificates in the state of incorporation of each Borrower and in each other
state requested by the Bank.

 

 

 

          (e)          Insurance. Evidence satisfactory to the Bank of the
existence of insurance required to be maintained pursuant to Section 8.6,
together with evidence that the Bank has been named as a lender’s loss payee and
as an additional insured on all related insurance policies.

 

 

 

          (f)          Lockbox Agreement. The Master Cash Management Service
Agreement, duly executed by the Borrowers and the Bank (the “Lockbox
Agreement”), in the form prepared by and acceptable to the Bank.

29

--------------------------------------------------------------------------------

 

 

 

 

          (g)          Subordination Agreement. The Selling Shareholder
Subordination Agreement, duly executed by the Selling Shareholder and
acknowledged by IntriCon, in form and substance acceptable to the Bank.

 

 

 

 

          (h)          Pledged Equity Interests. Certificates, instruments,
agreements, acknowledgements and other documents required by Section 6.12.

 

 

 

 

          (i)          Acquisition. Evidence satisfactory to the Bank that each
of the following conditions has been satisfied:

 

 

 

 

 

              (i)          The Acquisition Agreement shall have been duly
executed and delivered by the parties thereto and shall be in full force and
effect. All material conditions precedent to the Acquisition pursuant to the
Acquisition Agreement shall have been satisfied (except to the extent waived
with the written consent of the Bank, which consent shall not be unreasonably
withheld or delayed). All necessary authorizations, consents, approvals,
exceptions or other actions by or notices to or filings with any court or
administrative or governmental body or other Person required in connection with
the execution, delivery or performance of the Acquisition Agreement or the
consummation of the transactions contemplated thereby shall be final and in full
force and effect. The Bank shall have received a copy of the Acquisition
Agreement and all other Acquisition Documents, certified by a duly authorized
officer of IntriCon, dated the date of closing, as true, correct and complete.

 

 

 

 

 

              (ii)         The Selling Shareholder under the Acquisition
Documents has received the Selling Shareholder Note in form and substance
acceptable to the Bank.

 

 

 

          (j)          Closing Costs. Evidence that the out-of-pocket costs,
expenses and fees (including attorneys’ fees) paid or incurred by the Bank in
connection with the preparation, negotiation and closing of this Agreement and
the other Loan Documents have been (or shall be simultaneously) paid in full.

 

 

 

          (k)          Closing Fee. Payment by the Borrowers to the Bank of a
wholly earned, non-refundable closing fee in the amount of $143,750.

 

 

 

          (l)          Opinion. A favorable opinion, dated on or about the date
hereof, of Blank Rome LLP, counsel to Borrowers, covering such matters as the
Bank may reasonably request (and each Borrower hereby instructs such counsel to
deliver such opinion to the Bank).

 

 

 

          (m)          Financial Statements. (i) Audited consolidated financial
statements for the Borrowers and their respective Subsidiaries for the fiscal
years ending December 31, 2006, December 31, 2007 and December 31, 2008, and
(ii) unaudited interim consolidated financial statements for the Borrowers and
their respective Subsidiaries for each fiscal month ended after December 31,
2008 but at least thirty (30) days before the date hereof.

 

 

 

          (n)          Projections. Consolidated projected income statements,
balance sheets and cash flow statements for Borrowers’ fiscal year 2009 prepared
by the Borrowers and giving effect to the Loans and the use of proceeds
therefrom, and giving effect to the consummation of the Acquisition.

 

 

 

          (o)          EBITDA. Evidence that as of June 30, 2009 the Borrowers’
EBITDA (i) for the period of twelve (12) consecutive calendar months then-ended
shall be not less than $2,750,000

30

--------------------------------------------------------------------------------

 

 

 

and (ii) for the period of six (6) consecutive calendar months then-ended shall
be not less than $325,000.

 

 

 

          (p)          Due Diligence. The Bank shall not be satisfied in any
respect with the results of any legal or business related due diligence.

 

 

 

          (q)          Appraisals. The Bank shall not have received a field
audit examination and appraisals (including appraisals of fixed assets and
inventory) requested by the Bank, the results of which are satisfactory to the
Bank, in its sole and absolute discretion.

 

 

 

          (r)          Additional Documents. Such other certificates, financial
statements, schedules, resolutions, opinions of counsel, notes and other
documents which are provided for hereunder or which the Bank shall require.

 

 

 

          (s)          Event of Default. Any Event of Default, or Unmatured
Event of Default shall have occurred and be continuing.

 

 

 

          (t)          Material Adverse Effect. The occurrence of any event
having a Material Adverse Effect upon any Borrower.

 

 

 

          (u)          Litigation. Any litigation or governmental proceeding
shall have been instituted against any Borrower or any of its officers or
shareholders having a Materially Adverse Effect upon such Borrower.

 

 

 

          (v)          Representations and Warranties. Any representation or
warranty of the Borrowers (or any of them) contained herein or in any Loan
Document shall be untrue or incorrect in any material respect as of the date of
any Loan as though made on such date, except to the extent such representation
or warranty expressly relates to an earlier date.

          3.2     Conditions Precedent to all Loans. The obligation of the Bank
to make any Loan and/or issue any Letter of Credit hereunder shall be subject to
the following additional conditions precedent (and any request for a Loan shall
be deemed a representation by the Borrowers that the following are satisfied):

 

 

 

          (a)          Before and after giving effect to such Loan or Letter of
Credit, the representation and warranties contained in Section 7 shall be true
and correct in all material respects, as though made on the date of such Loan,
except to the extent such representation and warranty, by its express terms,
relates solely to a prior date, and except that the representations and
warranties contained in Section 7.26 shall be true and correct in all material
respects, as though made on the date of the financial statements most recently
delivered to the Bank pursuant to Section 8.8(a) hereof.

 

 

 

          (b)          Before and after giving effect to such Loan, no Unmatured
Event of Default or Event of Default shall have occurred and be continuing.

Section 4.    NOTES EVIDENCING LOANS.

          4.1     Revolving Note. The Revolving Loans and the Letter of Credit
Obligations shall be evidenced by the Revolving Note. At the time of the initial
disbursement of a Revolving Loan and at each time any additional Revolving Loan
shall be requested hereunder or a repayment made in whole or in part thereon, a
notation thereof shall be made on the books and records of the Bank. All amounts
recorded shall be, absent demonstrable error, conclusive and binding evidence of
(i) the principal amount

31

--------------------------------------------------------------------------------

of the Revolving Loans advanced hereunder and the amount of all Letter of Credit
Obligations, (ii) any accrued and unpaid interest owing on the Revolving Loans,
and (iii) all amounts repaid on the Revolving Loans or the Letter of Credit
Obligations. The failure to record any such amount or any error in recording
such amounts shall not, however, limit or otherwise affect the joint and several
obligations of the Borrowers under the Revolving Note to repay the principal
amount of the Revolving Loans, together with all interest accruing thereon.

          4.2    Term Note. The Term Loan shall be evidenced by the Term Note.
At the time of the disbursement of the Term Loan or a repayment made in whole or
in part thereon, a notation thereof shall be made on the books and records of
the Bank. All amounts recorded shall be, absent demonstrable error, conclusive
and binding evidence of (i) the principal amount of the Term Loan advanced
hereunder, (ii) any accrued and unpaid interest owing on the Term Loan and (iii)
all amounts repaid on the Term Loan. The failure to record any such amount or
any error in recording such amounts shall not, however, limit or otherwise
affect the joint and several obligations of the Borrowers under the Term Note to
repay the principal amount of the Term Loan, together with all interest accruing
thereon.

Section 5.   MANNER OF BORROWING.

          5.1    Borrowing Procedures. Each Revolving Loan and the Term Loan, or
any portion of the Term Loan, may be advanced either as a Base Rate Loan or a
LIBOR Loan, provided, however, that at any time, the Borrowing Agent may
identify no more than six (6) Revolving Loans or portions of the Term Loan which
may be LIBOR Loans. Each Loan shall be made available to the Borrowers upon any
written, verbal, electronic, telephonic or telecopy loan request from the
Borrowing Agent which the Bank in good faith believes to emanate from a properly
authorized representative of such Borrower, whether or not that is in fact the
case. Each such request shall be effective upon receipt by the Bank, shall be
irrevocable, and shall specify the date, amount and type of borrowing and, in
the case of a LIBOR Loan, the initial Interest Period therefor. The Borrowing
Agent shall select Interest Periods so as not to require a payment or prepayment
of any LIBOR Loan during an Interest Period for such LIBOR Loan. The final
Interest Period for any LIBOR Loan must be such that its expiration occurs on or
before the maturity date of such Loan. A request for a Base Rate Loan must be
received by the Bank no later than 11:00 a.m. Chicago, Illinois time, on the day
it is to be funded. A request for a LIBOR Loan must be (i) received by the Bank
no later than 11:00 a.m. Chicago, Illinois time, three days before the day it is
to be funded, and (ii) in an amount equal to One Hundred Thousand and 00/100
Dollars ($100,000.00) or a higher integral multiple of One Hundred Thousand and
00/100 Dollars ($100,000.00). The proceeds of each Loan shall be made available
at the office of the Bank by credit to the account of the Borrowing Agent or by
other means requested by the Borrowing Agent and acceptable to the Bank. Without
limiting the generality of the indemnity provisions set forth in Section 13.20
below, each Borrower does hereby specifically and irrevocably confirm, ratify
and approve all such advances by the Bank and does hereby indemnify the Bank
against losses and expenses (including court costs, attorneys’ and paralegals’
fees) and shall hold the Bank harmless with respect thereto.

          5.2   LIBOR Conversion and Continuation Procedures. Whenever the last
day of any Interest Period with respect to any LIBOR Loan would otherwise occur
on a day other than a Business Day, the last day of such Interest Period shall
be extended to occur on the next succeeding Business Day. Whenever an Interest
Period with respect to any LIBOR Loan would otherwise end on a day of a month
for which there is no numerically corresponding day in the calendar month, such
Interest Period shall end on the last day of such calendar month, unless such
day is not a Business Day, in which event such Interest Period shall be extended
to end on the next Business Day. Upon receipt by the Bank of such subsequent
notice, the Borrowing Agent may, subject to the terms and conditions of this
Agreement, elect, as of the last day of the applicable Interest Period, to
continue any LIBOR Loan having an Interest Period expiring on such day for a
different Interest Period, or to convert any such LIBOR Loan to a Base

32

--------------------------------------------------------------------------------

Rate Loan. Such notice shall, in the case of a conversion to a Base Rate Loan,
be given before 11:00 a.m., Chicago time, on the proposed date of such
conversion, and in the case of conversion to a LIBOR Loan having a different
Interest Period, be given before 11:00 a.m., Chicago time, at least three
Business Days prior to the proposed date of such conversion, specifying: (i) the
proposed date of conversion; (ii) the aggregate amount of Loans to be converted;
(iii) the type of Loans resulting from the proposed conversion; and (iv) the
duration of the requested Interest Period. Absent timely notice of continuation
or conversion, each LIBOR Loan shall automatically convert into a Base Rate Loan
on the last day of an applicable Interest Period, unless paid in full on such
last day. The Borrowing Agent may not elect a LIBOR Rate, and an Interest Period
for a LIBOR Loan shall not automatically renew, with respect to any principal
amount which is scheduled to be repaid before the last day of the applicable
Interest Period, and any such amounts shall bear interest at the Base Rate until
repaid.

          5.3    Letters of Credit. All Letters of Credit shall bear such
application, issuance, renewal, negotiation and other fees and charges as
charged by the Bank according to its standard rates as in effect from time to
time or otherwise payable pursuant to the Master Letter of Credit Agreement. In
addition to the foregoing, each standby Letter of Credit issued under and
pursuant to this Agreement shall bear an annual issuance fee equal to the
Applicable LOC Fee multiplied by the undrawn face amount of such standby Letter
of Credit, payable by the Borrowers prior to the issuance by the Bank of such
Letter of Credit and annually thereafter, until (i) such Letter of Credit has
expired or has been returned to the Bank, or (ii) the Bank has paid the
beneficiary thereunder the full face amount of such Letter of Credit.

          5.4    Automatic Debit. In order to effectuate the timely payment of
any of the Obligations when due, each Borrower hereby authorizes and directs the
Bank, at the Bank’s option, to (a) debit the amount of the Obligations to any
ordinary deposit account of the Borrowing Agent, or (b) make a Revolving Loan
hereunder to pay the amount of the Obligations; provided that, so long as no
Unmatured Event of Default or Event of Default has occurred and is continuing
and sufficiency availability exists under the Borrowing Base, the Bank shall
first make a Revolving Loan under the preceding clause (b) to the extent of such
availability before exercising its rights under the preceding clause (a).

          5.5    Discretionary Disbursements. The Bank, in its sole and absolute
discretion, may immediately upon notice to the Borrowing Agent, disburse any or
all proceeds of the Loans made or available to the Borrowers pursuant to this
Agreement to pay any fees, costs, expenses or other amounts required to be paid
by the Borrowers hereunder and not so paid. All monies so disbursed shall be a
part of the Obligations, jointly and severally payable by the Borrowers on
demand from the Bank.

Section 6.   SECURITY FOR THE OBLIGATIONS.

          6.1    Security for Obligations. As security for the payment and
performance of the Obligations, each Borrower does hereby pledge, assign,
transfer, deliver and grant to the Bank, for its own benefit and as agent for
its Affiliates, a continuing and unconditional first priority (subject only to
Permitted Liens) security interest in and to any and all property of such
Borrower, of any kind or description, tangible or intangible, wheresoever
located and whether now existing or hereafter arising or acquired, including the
following (all of which property, along with the products and proceeds
therefrom, are individually and collectively referred to as the “Collateral”):

 

 

 

 

         (a)          all property of, or for the account of, such Borrower now
or hereafter coming into the possession, control or custody of, or in transit
to, the Bank or any agent or bailee for the Bank or any parent, Affiliate or
Subsidiary of the Bank or any participant with the Bank in the Loans or other
Obligations (whether for safekeeping, deposit, collection, custody, pledge,
transmission or otherwise), including all earnings, dividends, interest, or
other rights in connection therewith and the products and proceeds therefrom,
including the proceeds of insurance thereon; and

33

--------------------------------------------------------------------------------

 

 

 

 

 

 

 

          (b)          the additional property of such Borrower, whether now
existing or hereafter arising or acquired, and wherever now or hereafter
located, together with all additions and accessions thereto, substitutions,
betterments and replacements therefor, products and Proceeds therefrom, and all
of such Borrower’s books and records and recorded data relating thereto
(regardless of the medium of recording or storage), together with all of each
such Borrower’s right, title and interest in and to all computer software
required to utilize, create, maintain and process any such records or data on
electronic media, identified and set forth as follows:

 

 

 

 

 

               (i)          All Accounts and all Goods whose sale, lease or
other disposition by such Borrower has given rise to Accounts and have been
returned to, or repossessed or stopped in transit by, such Borrower, or rejected
or refused by an Account Debtor;

 

 

 

 

 

               (ii)         All Inventory, including raw materials,
work-in-process and finished goods;

 

 

 

 

 

               (iii)        All Goods (other than Inventory), including embedded
software, Equipment, vehicles, furniture and Fixtures;

 

 

 

 

 

               (iv)        All Software and computer programs;

 

 

 

 

 

               (v)         All Securities, Investment Property, Financial Assets
and Deposit Accounts; provided that, notwithstanding anything to the contrary
contained in the foregoing or otherwise in this Agreement, any Liens created in
favor of Bank hereunder and/or under any other Loan Document in the Capital
Securities of any Subsidiary that is organized under the laws of a jurisdiction
other than the United States or any state thereof or the District of Columbia
(an “Excluded Foreign Subsidiary”) shall be limited to a Lien on and pledge of
no more than 65% of the Capital Securities of such Excluded Foreign Subsidiary
if a pledge of more than 65% of such Capital Securities of such Excluded Foreign
Subsidiary would, in the reasonable and good faith judgment of Borrower, result
in increased tax liability to any Borrower;

 

 

 

 

 

               (vi)        All Chattel Paper, Electronic Chattel Paper,
Instruments, Documents, Letter of Credit Rights, all proceeds of letters of
credit, Health-Care-Insurance Receivables, Supporting Obligations, notes secured
by real estate, Commercial Tort Claims described on Schedule 6.1. and General
Intangibles, including Payment Intangibles;

 

 

 

 

 

               (vii)       All Pledged Equity Interests;

 

 

 

 

 

               (viii)      Without limiting the description of the property or
any rights or interests in the property described above in this definition of
Collateral, all of each Borrower’s rights, titles and interests in and to (a)
all money, cash, and other funds; (b) all attachments, accessions, parts and
appurtenances to, all substitutions for, and all replacements of any and all of
each Borrower’s equipment, fixtures and other goods; (c) all of each Borrower’s
agreements, as-extracted collateral, tangible chattel paper, electronic chattel
paper, health-care-insurance receivables, leases, lease contracts, lease
agreements, payment intangibles, proceeds of letters of credit, promissory
notes, records, and software; (d) all of each Borrower’s franchises, customer
lists, insurance refunds, insurance refund claims, tax refunds, tax refund
claims, pension plan refunds, pension plan reversions, patents, patent
applications, service marks, service mark applications, trademarks, trademark
applications, trade names, domain names (including without

34

--------------------------------------------------------------------------------

 

 

 

 

 

limitation, www.intricon.com, www.rti-corp.com, www.rtie.com,
www.amecon-magnetics.com and www.ecgrecorder.com) trade secrets, goodwill,
copyrights, copyright applications, and licenses; and (e) all royalty fees,
franchise payments, or licensing fees or other amounts owing at any time and
from time to time to any Borrower pursuant to the franchise agreements or
similar documents to which it is a party from time to time.

 

 

 

 

 

          (ix)         All supporting obligations; and

 

 

 

 

 

          (x)          All Proceeds (whether Cash Proceeds or Noncash Proceeds)
of the foregoing property, including all insurance policies and proceeds of
insurance payable by reason of loss or damage to the foregoing property,
including unearned premiums, and of eminent domain or condemnation awards.

 

 

 

 

 

provided, however, notwithstanding anything to the contrary contained in this
Agreement or the other Loan Documents, no Lien or security interest is hereby
granted on any Excluded Property and the Collateral shall not include any
Excluded Property; provided, further, that if and when any property shall cease
to be Excluded Property, a Lien on and security in such property shall be deemed
granted therein and such property shall then constitute part of the Collateral.

 

 

 

 

 

For purposes hereof, “Excluded Property” means, collectively, (i) any voting
Capital Securities in excess of 65% of the outstanding voting Capital Securities
of any Foreign Subsidiary, (ii) any permit, license, contract or agreement
entered into by any Borrower (A) that prohibits or requires the consent of any
Person other than any Borrower or its Affiliates which has not been obtained as
a condition to the creation by such Borrower of a Lien on any right, title or
interest in such permit, license, contract or agreement or any Capital
Securities related thereto or (B) to the extent that any requirement of law
applicable thereto prohibits the creation of a Lien thereon, but only, with
respect to the prohibition in (A) and (B), to the extent, and for as long as,
such prohibition is not terminated or rendered unenforceable or otherwise deemed
ineffective by the UCC or any other applicable law, (iii) property owned by any
Borrower that is subject to a purchase money Lien or a Capital Lease permitted
under this Agreement if the contract or agreement pursuant to which such Lien is
granted (or in the document providing for such Capital Lease) prohibits or
requires the consent of any Person other than any Borrower or its Affiliates
which has not been obtained as a condition to the creation of any other Lien on
such property, and (iv) any “intent to use” trademark applications for which a
statement of use has not been filed (but only until such statement is filed);
provided, however, that “Excluded Property” shall not include any proceeds,
products, substitutions or replacements of Excluded Property (unless such
proceeds, products, substitutions or replacements would otherwise constitute
Excluded Property).

          6.2     Possession and Transfer of Collateral; Fixtures. Unless an
Event of Default has occurred and is continuing hereunder, the Borrowers shall
be entitled to possession or use of the Collateral (other than Instruments or
Documents, Tangible Chattel Paper, Investment Property consisting of
certificated securities and other Collateral required to be delivered to the
Bank pursuant to this Section 6). The cancellation or surrender of any Note,
upon payment or otherwise, shall not affect the right of the Bank to retain the
Collateral for any other of the Obligations. No Borrower shall sell, assign (by
operation of law or otherwise), license, lease or otherwise dispose of, or grant
any option with respect to any of the Collateral, except that Borrowers (or any
of them) may (i) sell Inventory in the ordinary course of business; (ii) sell
any Cash Equivalent Investments; (iii) sell Equipment which is obsolete, past
its useful working life or no longer needed in the conduct of Borrowers’
business, so long as (x) the fair market

35

--------------------------------------------------------------------------------

value of all Equipment disposed of under this clause (iii) shall not exceed
$50,000 in any fiscal year and (y) all proceeds of any such distribution of
Equipment under this clause (iii), if not earlier used to purchase replacement
or additional Equipment within ninety (90) days following the date of such
disposition, shall be delivered by Borrowers to the Bank to be applied to the
Obligations in accordance with this Agreement; (iv) lease, sublease, license or
sublicense Collateral to third parties in the ordinary course of business and
not interfering with the business of the Borrowers; (v) dispose of any Account
resulting from a compromise or settlement in the ordinary course of business of
such Account for less than the full amount thereof in a manner and to an extent
substantially consistent with past practices; (vi) dispose of Collateral among
Borrowers in the ordinary course of business and for legitimate and lawful
business purposes; (vii) settle, surrender, waive or release contract rights or
litigation claims in the ordinary course of business; (viii) abandon
intellectual property in the ordinary course of business;. Each Borrower hereby
represents, warrants and covenants to the Bank that no material portion of the
Collateral owned by such Borrower is now or will hereafter become a “fixture”
under applicable law; (ix) sell up to $250,000 of Equipment presently owned by
RTIE; and (x) the non-exclusive license by Datrix to the Selling Shareholder of
the trademark “Datrix” on the terms set forth in the Acquisition Documents.

          6.3          Financing Statements. Each Borrower shall, at the Bank’s
request, at any time and from time to time, execute and deliver to the Bank such
financing statements, amendments and other documents and do such acts as the
Bank deems necessary in order to establish and maintain valid, attached and
perfected first priority security interests in the Collateral in favor of the
Bank, free and clear of all Liens and claims and rights of third parties
whatsoever, except Permitted Liens. Each Borrower hereby irrevocably authorizes
the Bank at any time, and from time to time, to file in any jurisdiction any
initial financing statements and amendments thereto without the signature of
such Borrower that (a) indicate the Collateral (i) is comprised of all assets of
such Borrower or words of similar effect, regardless of whether any particular
asset comprising a part of the Collateral falls within the scope of Article 9 of
the Uniform Commercial Code of the jurisdiction wherein such financing statement
or amendment is filed, or (ii) as being of an equal or lesser scope or within
greater detail as the grant of the security interest set forth herein, and (b)
contain any other information required by Section 5 of Article 9 of the Uniform
Commercial Code of the jurisdiction wherein such financing statement or
amendment is filed regarding the sufficiency or filing office acceptance of any
financing statement or amendment, including (i) whether such Borrower is an
organization, the type of organization and any Organizational Identification
Number issued to such Borrower, and (ii) in the case of a financing statement
filed as a fixture filing or indicating Collateral as as-extracted collateral or
timber to be cut, a sufficient description of the real property to which the
Collateral relates. Each Borrower hereby agrees that a photocopy or other
reproduction of this Agreement is sufficient for filing as a financing statement
and each Borrower authorizes the Bank to file this Agreement as a financing
statement in any jurisdiction. Each Borrower agrees to furnish any such
information to the Bank promptly upon request. Each Borrower further ratifies
and affirms its authorization for any financing statements and/or amendments
thereto, executed and filed by the Bank in any jurisdiction prior to the date of
this Agreement. In addition, each Borrower shall make appropriate entries on its
books and records disclosing the Bank’s security interests in the Collateral.

          6.4          Additional Collateral. Each Borrower shall pledge, assign
or transfer to the Bank immediately upon its demand, such collateral owned by
such Borrower which is other than the collateral addressed in Section 6.1 above,
as the Bank may from time to time request, should the value of the Collateral,
in the Bank’s commercially reasonable discretion, decline, deteriorate,
depreciate or become impaired in any material respect, which collateral, when
pledged, assigned and transferred to the Bank shall be and become part of the
Collateral; provided that, if the additional collateral requested by the Bank
which would require the consent of a third-party that is not an Affiliate of any
Borrower in order to create a Lien therein, Borrowers shall not be deemed to be
in default of this Section 6.4 if such third-party will not grant such consent
so long as Borrowers have used all commercially reasonable efforts to obtain
such

36

--------------------------------------------------------------------------------

consent. The Bank’s security interests in all of the foregoing Collateral shall
be valid, complete and perfected whether or not covered by a specific
assignment.

          6.5          Preservation of the Collateral. The Bank may, but is not
required, to take such actions from time to time as the Bank deems appropriate
to maintain or protect the Collateral. The Bank shall have exercised reasonable
care in the custody and preservation of the Collateral if the Bank takes such
action as the Borrowing Agent shall reasonably request in writing which is not
inconsistent with the Bank’s status as a secured party, but the failure of the
Bank to comply with any such request shall not be deemed a failure to exercise
reasonable care; provided, however, the Bank’s responsibility for the
safekeeping of the Collateral shall (i) be deemed reasonable if such Collateral
is accorded treatment substantially equal to that which the Bank accords its own
property, and (ii) not extend to matters beyond the control of the Bank,
including acts of God, war, insurrection, riot or governmental actions. In
addition, any failure of the Bank to preserve or protect any rights with respect
to the Collateral against prior or third parties, or to do any act with respect
to preservation of the Collateral, not so requested by a Borrower, shall not be
deemed a failure to exercise reasonable care in the custody or preservation of
the Collateral. The Borrowers shall have the sole responsibility for taking such
action as may be necessary, from time to time, to preserve all rights of the
Borrowers and the Bank in the Collateral against prior or third parties. Without
limiting the generality of the foregoing, where Collateral consists in whole or
in part of securities, each Borrower represent to, and covenants with, the Bank
that such Borrower has made arrangements for keeping informed of changes or
potential changes affecting the securities (including rights to convert or
subscribe, payment of dividends, reorganization or other exchanges, tender
offers and voting rights), and such Borrower agrees that the Bank shall have no
responsibility or liability for informing such Borrower of any such or other
changes or potential changes or for taking any action or omitting to take any
action with respect thereto.

          6.6          Other Actions as to any and all Collateral. Each Borrower
further agrees to take any other action reasonably requested by the Bank to
ensure the attachment, perfection and first priority (subject only to Permitted
Liens) of, and the ability of the Bank to enforce, the Bank’s security interest
in any and all of the Collateral, including (a) causing the Bank’s name to be
noted as secured party on any certificate of title for a titled good if such
notation is a condition to attachment, perfection or priority of, or ability of
the bank to enforce, the Bank’s security interest in such Collateral, (b)
complying with any provision of any statute, regulation or treaty of the United
States as to any Collateral if compliance with such provision is a condition to
attachment, perfection or priority of, or ability of the Bank to enforce, the
Bank’s security interest in such Collateral, (c) using all commercially
reasonable efforts to obtain governmental and other third party consents and
approvals, including any consent of any licensor, lessor or other Person
obligated on Collateral, it being understood and agreed, however, that any
failure to obtain such consents and approvals may (in accordance with clause (e)
of the definition of Eligible Inventory) result in decreased availability under
the Borrowing Base, (d) using all commercially reasonable efforts to obtain
waivers from mortgagees and landlords in form and substance satisfactory to the
Bank, it being understood and agreed, however, that any failure to obtain such
waivers may (in accordance with clause (c) of the definition of Eligible
Inventory) result in decreased availability under the Borrowing Base, and (e)
taking all actions required by the UCC in effect from time to time or by other
law, as applicable in any relevant UCC jurisdiction, or by other law as
applicable in any foreign jurisdiction. Each Borrower further agrees to
indemnify and hold the Bank harmless against claims of any Persons not a party
to this Agreement concerning disputes arising over the Collateral.

          6.7          Collateral in the Possession of a Warehouseman or Bailee.
If any of the Collateral at any time is in the possession of a warehouseman or
bailee, the Borrowing Agent shall promptly notify the Bank thereof, and, upon
request of the Bank, Borrowers shall use all commercially reasonable efforts to
promptly obtain a Collateral Access Agreement, it being understood and agreed,
however, that any failure to obtain such Collateral Access Agreement may (in
accordance with clause (c) of the definition of

37

--------------------------------------------------------------------------------

Eligible Inventory) result in decreased availability under the Borrowing Base.
The Bank agrees with the Borrowers that the Bank shall not give any instructions
to such warehouseman or bailee pursuant to such Collateral Access Agreement
unless an Event of Default has occurred and is continuing.

          6.8          Lockbox Arrangement. Each Borrower shall direct all of
its Account Debtors to make all payments on the Accounts directly to a post
office box (the “Lockbox”) designated by, and under the exclusive control of,
the Bank. Pursuant to the Lockbox Agreement, the Borrowing Agent shall establish
the Lockbox and an account (the “Lockbox Account”) in the Borrowing Agent’s name
with the Bank into which all payments received in the Lockbox shall be
deposited, and into which each Borrower will immediately deposit all payments
made for Inventory sold by such Borrower or the performance of services by such
Borrower, and received by such Borrower in the identical form in which such
payments were made, whether by cash or check. If any Borrower, any of its
Subsidiaries or any director, officer, employee, or agent of any such Borrower
or any such Subsidiary, or any other Person acting for or in concert with such
Borrower shall receive any monies, checks, notes, drafts or other payments
relating to or as proceeds of Accounts or other Collateral, such Borrower, such
Subsidiary and each such Person shall receive all such items in trust for, and
as the sole and exclusive property of, the Bank and, immediately upon receipt
thereof, shall remit the same (or cause the same to be remitted) in kind to the
Lockbox Account. The parties agree that all payments made to such Lockbox and
Lockbox Account or otherwise received by the Bank, whether in respect of the
Accounts or as proceeds of other Collateral or otherwise, (a) at all times
following the occurrence and during the continuance of an Event of Default, will
be applied on account of the Revolving Loans in accordance with Section 12.8 of
this Agreement, and (b) at all other times, subject to final collection and the
Bank’s availability schedule, will be released to the Borrowing Agent’s
operating account maintained with the Bank. Each Borrower agrees it shall be
jointly and severally liable for all fees, costs and expenses which the Bank
incurs in connection with opening and maintaining the Lockbox and the Lockbox
Account and depositing for collection by the Bank any check or other item of
payment received by the Bank on account of the Obligations. All of such fees,
costs and expenses shall constitute Obligations hereunder, shall be payable to
the Bank by the Borrowers upon demand, and, until paid, shall bear interest at
the Default Rate. All checks, drafts, instruments and other items of payment or
proceeds of Collateral shall be endorsed by the applicable Borrower or Borrowing
Agent to the Bank, and, if that endorsement of any such item shall not be made
for any reason, the Bank is hereby irrevocably authorized to endorse the same on
such Borrower’s behalf. For the purpose of this Section, each Borrower
irrevocably hereby makes, constitutes and appoints the Bank (and all Persons
designated by the Bank for that purpose) as such Borrower’s true and lawful
attorney and agent-in-fact (i) to endorse such Borrower’s name upon such items
of payment and/or proceeds of Collateral and upon any Chattel Paper, document,
instrument, invoice or similar document or agreement relating to any Account of
such Borrower or goods pertaining thereto; (ii) to take control in any manner of
any item of payment or proceeds thereof; and (iii) to have access to the
Lockbox, and also, after the occurrence and during the continuance of an Event
of Default any other lockbox or postal box into which any of such Borrower’s
mail is deposited, and open and process all mail addressed to such Borrower and
deposited therein.

          6.9          Letter-of-Credit Rights. If any Borrower at any time is a
beneficiary under a letter of credit now or hereafter issued in favor of such
Borrower in a face amount of $10,000 or more, such Borrower shall promptly
notify the Bank thereof and, at the request and option of the Bank, such
Borrower shall, pursuant to an agreement in form and substance satisfactory to
the Bank, either (i) arrange for the issuer and any confirmer of such letter of
credit to consent to an assignment to the Bank of the proceeds of any drawing
under the letter of credit, or (ii) arrange for the Bank to become the
transferee beneficiary of the letter of credit, with the Bank agreeing, in each
case, that the proceeds of any drawing under the letter to credit are to be
applied as provided in this Agreement.

38

--------------------------------------------------------------------------------

          6.10          Commercial Tort Claims. If any Borrower shall at any
time hold or acquire a Commercial Tort Claim seeking damages of $10,000 or more,
the Borrowing Agent or such Borrower shall immediately notify the Bank in
writing signed by the Borrowing Agent or such Borrower of the details thereof
and grant to the Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, in each case in form and
substance satisfactory to the Bank, and shall execute any amendments hereto
deemed reasonably necessary by the Bank to perfect its security interest in such
Commercial Tort Claim.

          6.11          Electronic Chattel Paper and Transferable Records. If
any Borrower at any time holds or acquires an interest in any electronic chattel
paper or any “transferable record”, as that term is defined in Section 201 of
the federal Electronic Signatures in Global and National Commerce Act, or in
Section 16 of the Uniform Electronic Transactions Act as in effect in any
relevant jurisdiction, the Borrowing Agent or the Borrower shall promptly notify
the Bank thereof and, at the request of the Bank, shall take such action as the
Bank may reasonably request to vest in the Bank control under Section 9-105 of
the UCC of such electronic chattel paper or control under Section 201 of the
federal Electronic Signatures in Global and National Commerce Act or, as the
case may be, Section 16 of the Uniform Electronic Transactions Act, as so in
effect in such jurisdiction, of such transferable record. The Bank agrees with
the Borrowers that the Bank will arrange, pursuant to procedures satisfactory to
the Bank and so long as such procedures will not result in the Bank’s loss of
control, for the Borrowers to make alterations to the electronic chattel paper
or transferable record permitted under Section 9-105 of the UCC or, as the case
may be, Section 201 of the federal Electronic Signatures in Global and National
Commerce Act or Section 16 of the Uniform Electronic Transactions Act for a
party in control to make without loss of control.

          6.12          Pledged Equity Interests. With respect to the Pledged
Equity Interests, IntriCon hereby agrees as follows:

 

 

 

                 (a)          IntriCon shall deliver to Bank (i) simultaneously
with or prior to the execution and delivery of this Agreement, all certificates
representing the Pledged Equity Interests (if any), and (ii) promptly upon the
receipt thereof by or on behalf of IntriCon, all other certificates and
instruments constituting Pledged Equity Interests. Prior to delivery to Bank,
all such certificates and instruments constituting Pledged Equity Interests (or
proceeds thereof) shall be held in trust by IntriCon for the benefit of Bank
pursuant hereto. All such certificates shall be delivered in suitable form for
transfer by delivery or shall be accompanied by duly executed instruments of
transfer or assignment in blank, substantially in the form provided in Exhibit
6.12(a) attached hereto.

 

 

 

                 (b)          If any issuer of Pledged Equity Interests is
organized in a jurisdiction which does not permit the use of certificates to
evidence equity ownership, or if any of the Pledged Equity Interests is at any
time not evidenced by certificates of ownership, then IntriCon shall (i) to the
extent permitted by applicable law, record on the equityholder register or the
books of the issuer the pledge of the Pledged Equity Interests hereunder, (ii)
cause the issuer to execute and deliver to Bank an acknowledgment of such pledge
of the Pledged Equity Interests substantially in the form of Exhibit 6.12(b)
annexed hereto, and (iii) execute any customary pledge forms or other documents
reasonably necessary or appropriate to complete the pledge and give Bank the
right and power to transfer such Pledged Equity Interests in accordance with the
terms hereof.

 

 

 

                 (c)          If IntriCon shall receive, by virtue of its being
or having been the owner of any Pledged Equity Interests (or any proceeds
thereof), any (i) certificate representing Pledged Equity Interests, including
without limitation, any certificate representing a dividend or distribution in
connection with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares or membership or equity
interests, stock splits, spin-off or split-

39

--------------------------------------------------------------------------------

 

 

 

off, promissory notes or other instrument; (ii) option or right, whether as an
addition to, substitution for, or an exchange for, any Pledged Equity Interests
or otherwise; (iii) dividends payable in securities; or (iv) distributions of
securities or other equity interests in connection with a partial or total
liquidation, dissolution or reduction of capital, capital surplus or paid-in
surplus, then IntriCon shall receive such certificate, instrument, option, right
or distribution in trust for the benefit of Bank, shall segregate it from
IntriCon’s other property and shall deliver it forthwith to Bank in the exact
form received together with any necessary endorsement and/or appropriate
instruments of transfer or assignment duly executed in blank, substantially in
the form provided in Exhibit 6.12(a), to be held by Bank as Collateral and as
further collateral security for the Obligations.

Section 7.         REPRESENTATIONS AND WARRANTIES.

          To induce the Bank to make the Loans and issue the Letters of Credit,
each Borrower makes the following representations and warranties to the Bank,
each of which shall survive the execution and delivery of this Agreement:

          7.1          Corporate Status. The exact legal name of each Borrower
is as set forth in the first paragraph of this Agreement, and no Borrower
currently conducts, nor has it during the last five (5) years conducted,
business under any other name or trade name, other than those names and trade
names listed on Schedule 7.1; and the organizational identification no. and
principal place of business of each Borrower is set forth on Schedule 7.1. Each
Borrower (i) is duly organized and is and shall remain validly existing and in
good standing under the laws of its state of organization, and is and shall
remain qualified to do business as a foreign corporation under the laws of the
jurisdictions listed on Schedule 7.1 and under the laws of each other
jurisdiction in which the failure to be so qualified and in good standing would
have a Material Adverse Effect, and (ii) has and shall maintain all requisite
power and authority, corporate or otherwise, to conduct its business, to own its
property, to execute, deliver and perform all of its obligations under this
Agreement and each of the other Loan Documents, and to grant the Liens on the
Collateral provided by it. No Borrower is (a) an “investment company”, (b) an
“investment adviser”, or (c) a company “controlled” by an “investment company”
as such terms are defined in the Investment Company Act of 1940, as amended.
Other than IntriCon Pte Ltd and IntriCon GmbH, there are no Subsidiaries of any
Borrower that are not, themselves, a Borrower hereunder.

          7.2          Authorization. Each Borrower has full right, power and
authority to enter into this Agreement, to make the borrowings and execute and
deliver the Loan Documents as provided herein and to perform all of its duties
and obligations under this Agreement and the other Loan Documents. IntriCon has
the full right, power and authority to enter into the Acquisition Agreement and
all of the other Acquisition documents and to perform all of its duties and
obligations thereunder. The execution and delivery of this Agreement and the
other Loan Documents will not, nor will the observance or performance of any of
the matters and things herein or therein set forth, violate or contravene any
provision of law or of the organizational documents of any Borrower. All
necessary and appropriate action has been taken on the part of each Borrower to
authorize the execution and delivery of this Agreement and the Loan Documents.

          7.3          Validity and Binding Nature. This Agreement and the other
Loan Documents are the legal, valid and binding obligations of the each
Borrower, enforceable against each such Borrower in accordance with their terms,
subject to bankruptcy, insolvency and similar laws affecting the enforceability
of creditors’ rights generally and to general principles of equity.

          7.4          Consent; Absence of Breach. The execution, delivery and
performance of this Agreement, the other Loan Documents and any other documents
or instruments to be executed and

40

--------------------------------------------------------------------------------

delivered by each Borrower in connection with the Loans and/or the Letters of
Credit, and the borrowings by each Borrower hereunder, do not and will not (a)
require any consent, approval, authorization of, or filings with, notice to or
other act by or in respect of, any governmental authority or any other Person
(other than any consent or approval which has been obtained and is in full force
and effect); (b) conflict with (i) any provision of law or any applicable
regulation, order, writ, injunction or decree of any court or governmental
authority, (ii) the organizational documents of the Borrowers, or (iii) any
material agreement, indenture, instrument or other document, or any judgment,
order or decree, which is binding upon any Borrower or any of its Subsidiaries
or any of their respective properties or assets; or (c) require, or result in,
the creation or imposition of any Lien on any asset of any Borrower or any of
its Subsidiaries, other than Liens in favor of the Bank created pursuant to this
Agreement. Without limiting the generality of the foregoing, the Borrowers
specifically represent and warrant to the Bank that the stock purchase and sale
transaction contemplated by the Acquisition Documents will be entered into and
consummated in accordance with applicable law.

          7.5          Ownership of Properties; Liens. No Borrower owns the fee
interest in any real property. Each Borrower is the sole owner all of its
properties and assets, real and personal, tangible and intangible, of any nature
whatsoever (including patents, trademarks, trade names, service marks and
copyrights), free and clear of all Liens, charges and claims, other than
Permitted Liens.

          7.6          Equity Ownership. All issued and outstanding Capital
Securities of each Borrower and each of its Subsidiaries are duly authorized and
validly issued, fully paid, non-assessable, and in the case of Borrowers other
than IntriCon, free and clear of all Liens other than those in favor of the
Bank, if any, and all such securities were issued in compliance with all
applicable state and federal laws concerning the issuance of securities. Except
as set forth on Schedule 7.6, as of the date hereof, there are no pre-emptive or
other outstanding rights, options, warrants, conversion rights or other similar
agreements or understandings for the purchase or acquisition of any Capital
Securities of the Borrowers (or any of them) or any of their respective
Subsidiaries. There exists no “adverse claim” within the meaning of Section
9-102 of the UCC with respect to any of the Pledged Equity Interests. No
Borrower has any outstanding shares of any class of capital stock or other
equity interests which has priority over any other class of capital stock or
other equity interests of such Borrower as to dividends or distributions or in
liquidation.

          7.7          Intellectual Property. Except as set forth on Schedule
7.7, each Borrower owns and possesses or has a license or other right to use all
Intellectual Property, as are necessary for the conduct of the businesses of
such Borrower as presently conducted, without any infringement upon rights of
others which could reasonably be expected to have a Material Adverse Effect upon
such Borrower, and no material claim has been asserted and is pending by any
Person challenging or questioning the use of any Intellectual Property or the
validity or effectiveness of any Intellectual Property nor does such Borrower
know of any valid basis for any such claim.

          7.8          Financial Statements. All financial statements submitted
to the Bank have been prepared in accordance with sound accounting practices and
GAAP on a basis, except as otherwise noted therein, consistent with the previous
fiscal year and present fairly in all material respects the financial condition
of each Borrower and the results of the operations for each such Borrower as of
such date and for the periods indicated, subject in the case of interim
financial statements, to the absence of footnotes and to normal year-end
accruals. Since the date of the most recent consolidated financial statement
submitted by the Borrowers to the Bank, there has been no change in the
financial condition or in the assets or liabilities of any Borrower having a
Material Adverse Effect on any such Borrower.

          7.9          Litigation and Contingent Liabilities. There is no
litigation, arbitration proceeding, demand, charge, claim, petition or
governmental investigation or proceeding pending, or to the knowledge of any
Borrower, threatened, against any Borrower, which, if adversely determined,
which

41

--------------------------------------------------------------------------------

might reasonably be expected to have a Material Adverse Effect, except as set
forth in Schedule 7.9. Other than any liability incident to such litigation or
proceedings, and except as permitted by Section 9.1, no Borrower has any
material guarantee obligations, Contingent Liabilities, liabilities for taxes,
or any long-term leases or unusual forward or long-term commitments, including
any interest rate or foreign currency swap or exchange transaction or other
obligation in respect of derivatives, that are not fully-reflected or fully
reserved for, to the extent required by GAAP, in the most recent audited
financial statements delivered pursuant to Section 8.8(a) or fully-reflected or
fully reserved, to the extent required by GAAP, for in the most recent financial
statements delivered pursuant to Section 8.8(b), except for any such obligations
or liabilities or transactions entered into after the date hereof and after the
date of the most recent financial statements delivered under Section 8.8(a) or
Section 8.8(b) and which will be fully reflected or fully reserved for, to the
extent required by GAAP, on the next set of financial statements to be delivered
by Borrowers under Section 8.8(a) or Section 8.8(b).

          7.10         Event of Default. No Event of Default or Unmatured Event
of Default exists or would result from the incurrence by any Borrower of any of
the Obligations hereunder or under any of the other Loan Document, and no
Borrower is in default (without regard to grace or cure periods) under any other
contract or agreement to which it is a party if the terminations of such
contract or agreement and/or failure of the other party or parties to such
contract or agreement to perform their obligations under such contract or
agreement, would have a Material Adverse Effect.

          7.11         Adverse Circumstances. No condition, circumstance, event,
agreement, document, instrument, restriction, litigation or proceeding (or
threatened litigation or proceeding or basis therefor) exists which (a) would
have a Material Adverse Effect, or (b) would constitute an Event of Default or
an Unmatured Event of Default. No Borrower is in default under any Applicable
Agreement, nor has any Borrower received any notice of breach, termination or
acceleration or demand for adequate assurances under any Applicable Agreement
that has not been communicated to the Bank.

          7.12         Environmental Laws and Hazardous Substances. Except as
set forth on Schedule 7.12, no Borrower has generated, used, stored, treated,
transported, manufactured, handled, produced or disposed of any Hazardous
Substances, on or off any of the premises of any Borrower (whether or not owned
by it) in any manner which might reasonably be expected to have a Material
Adverse Effect upon any Borrower. Each Borrower will comply in all material
respects with all Environmental Laws and will obtain all licenses, permits
certificates, approvals and similar authorizations thereunder. Except as could
not reasonably be expected to have a Material Adverse Effect, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other Person, nor is any pending or,
to the best of each Borrower’s knowledge, threatened. Each Borrower shall notify
the Bank in writing in five business days upon receiving actual notice of any
investigation, proceeding, complaint, order, directive, claim, or citation and
shall take prompt and appropriate actions to respond thereto, with respect to
any non-compliance with, or violation of, the requirements of any Environmental
Law by any Borrower or the release, spill or discharge, threatened or actual, of
any Hazardous Material or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Material or any other environmental, health or safety matter, which might
reasonably be expected to have a Material Adverse Effect upon any Borrower.
Except as set forth on Schedule 7.12, no Borrower has, to the best of each
Borrower’s knowledge, any material liability, contingent or otherwise, in
connection with a release, spill or discharge, threatened or actual, of any
Hazardous Substances or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Material. Each
Borrower further agrees to allow the Bank or its agent access to the properties
of such Borrower and its respective Subsidiaries to confirm compliance with all
Environmental Laws, and the applicable Borrower shall, following determination
by the Bank that there is non-compliance, or any condition which requires any
action by or on behalf of such Borrower in order to avoid any non-compliance,
with any Environmental Law, at such

42

--------------------------------------------------------------------------------

Borrower’s sole expense, cause an independent environmental engineer acceptable
to the Bank to conduct such tests of the relevant site as are appropriate, and
prepare and deliver a report setting forth the result of such tests, a proposed
plan for remediation as is required under applicable Environmental Laws and an
estimate of the costs thereof. This Section 7.12 shall constitute the only
representations that are made by each Borrower with respect to Environmental
Laws and Hazardous Substances.

          7.13         Solvency, etc. As of the date hereof, and immediately
prior to and after giving effect to the payment of the purchase price under the
Acquisition Agreement, the issuance of each Letter of Credit and each Loan
hereunder and the use of the proceeds thereof, (a) the fair value of each
Borrower’s assets is greater than the amount of its liabilities (including
disputed, contingent and unliquidated liabilities) as such value is established
and liabilities evaluated as required under the Section 548 of the Bankruptcy
Code, (b) the present fair saleable value of each Borrower’s assets is not less
than the amount that will be required to pay the probable liability on its debts
as they become absolute and matured, (c) each Borrower is able to realize upon
its assets and pay its debts and other liabilities (including disputed,
contingent and unliquidated liabilities) as they mature in the normal course of
business, (d) no Borrower intends to, nor believes that it will, incur debts or
liabilities beyond its ability to pay as such debts and liabilities mature, and
(e) no Borrower is engaged in business or a transaction, and is not about to
engage in business or a transaction, for which its property would constitute
unreasonably small capital.

          7.14         ERISA Obligations. All Employee Plans of each Borrower
meet the minimum funding standards of Section 302 of ERISA and 412 of the
Internal Revenue Code where applicable, and each such Employee Plan that is
intended to be qualified within the meaning of Section 401 of the Internal
Revenue Code of 1986 is qualified. No withdrawal liability has been incurred
under any such Employee Plans and no “Reportable Event” or “Prohibited
Transaction” (as such terms are defined in ERISA), has occurred with respect to
any such Employee Plans, unless approved by the appropriate governmental
agencies. Each Borrower has promptly paid and discharged all obligations and
liabilities arising under ERISA of a character which if unpaid or unperformed
might result in the imposition of a Lien against any of its properties or
assets.

          7.15         Labor Relations. Except as could not reasonably be
expected to have a Material Adverse Effect, (i) there are no strikes, lockouts
or other labor disputes against any Borrower or, to the best knowledge of each
Borrower, threatened, (ii) hours worked by and payment made to employees of any
Borrower have not been in violation of the Fair Labor Standards Act or any other
applicable law, and (iii) no unfair labor practice complaint is pending against
any Borrower or, to the best knowledge of each Borrower, threatened before any
governmental authority.

          7.16         Security Interest. This Agreement creates a valid
security interest in favor of the Bank in the Collateral and, when properly
perfected by filing in the appropriate jurisdictions, or by possession or
Control of such Collateral by the Bank or delivery of such Collateral to the
Bank, shall constitute a valid, perfected, first-priority security interest in
such Collateral except for Permitted Liens.

          7.17         Lending Relationship. The relationship hereby created
between the Borrower and the Bank is and has been conducted on an open and arm’s
length basis in which no fiduciary relationship exists, and no Borrower has
relied and is not relying on any such fiduciary relationship in executing this
Agreement and in consummating the Loans. The Bank represents that it will
receive any Note payable to its order as evidence of a bank loan.

          7.18         Business Loan. The Loans and Letters of Credit, including
interest rate, fees and charges as contemplated hereby, (i) are business loans
under applicable law, (ii) are an exempted transaction under the Truth In
Lending Act, 12 U.S.C. 1601 et seq., as amended from time to time, and (iii) do
not, and when disbursed shall not, violate the provisions of the Minnesota usury
laws, any consumer credit

43

--------------------------------------------------------------------------------

laws or the usury laws of any state which may have jurisdiction over this
transaction, any Borrower or any property securing the Loans or other
Obligations.

          7.19         Taxes. Each Borrower has timely filed all federal, state
and local tax returns and reports required by law to have been filed by it and
has paid all taxes, governmental charges and assessments due and payable with
respect to such returns, except any such taxes or charges which are being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books, or are insured against or bonded over to the satisfaction of the Bank,
and the contesting of such payment does not create a Lien on the Collateral
which is not a Permitted Lien. As of the date hereof, except as set forth on
Schedule 7.19, there is no controversy or objection pending, or to the knowledge
of any Borrower, threatened in respect of any tax returns of any Borrower. Each
Borrower has made adequate reserves on its books and records in accordance with
GAAP for all taxes that have accrued but which are not yet due and payable.

          7.20         Compliance with Regulations U and X. No portion of the
proceeds of the Loans or Letters of Credit shall be used by any Borrower or any
Subsidiary or Affiliate of any Borrower, either directly or indirectly, for the
purpose of purchasing or carrying any margin stock, within the meaning of
Regulation U or Regulation X as adopted by the Board of Governors of the Federal
Reserve System or any successor thereto.

          7.21         Governmental Regulation. No Borrower, nor any of its
Subsidiaries or any other Obligors are, or after giving effect to any loan, will
be, (a) subject to regulation under the ICC Termination Act of 1995 or the
Investment Company Act of 1940 or to any federal or state statute or regulation
limiting its ability to incur indebtedness for borrowed money; (b) a “holding
company” or a “subsidiary company” or an “affiliate” of a “holding company” or
of a “subsidiary company” of a “holding company”, within the meaning of the
Energy Policy Act of 2005 or (c) a “public utility” within the meaning of the
Federal Power Act, as amended.

          7.22         Bank Accounts. All Deposit Accounts and operating bank
accounts of each Borrower are located at the Bank and no Borrower has other
Deposit Accounts except those listed on Schedule 7.22 attached hereto and those
opened after the date hereof in accordance with Section 9.12 of this Agreement
below.

          7.23         Place of Business. The principal places of business and
books and records of each Borrower is set forth on Schedule 7.1, and the
location of all Collateral, if other than at such principal places of business,
is as set forth on Schedule 7.23 attached hereto and made a part hereof, and as
updated from time to time pursuant to the following sentence. Each Borrower or
the Borrowing Agent shall promptly notify the Bank of any change in such
locations. No Borrower will remove or permit the Collateral to be removed from
such locations without at least sixth (60) days prior written notice to the Bank
in connection with the establishment of a new business location by Borrowers
within the United States as contemplated by and in accordance with the previous
sentence, except for transfers from one Collateral location of Borrowers
disclosed to the Bank to another disclosed Collateral location of Borrowers and
for Collateral sold in compliance with Section 6.2 of this Agreement, it being
understood and agreed, however, that any such relocation may (in accordance with
clause (c) of the definition of Eligible Inventory) result in decreased
availability under the Borrowing Base unless the Borrowers have delivered to the
Bank a Collateral Access Agreement covering such new location.

          7.24         Complete Information. This Agreement and all financial
statements, schedules, certificates, confirmations, agreements, contracts, and
other materials and information heretofore or contemporaneously herewith
furnished in writing by the Borrowers (or any of them) to the Bank for purposes
of, or in connection with, this Agreement and the transactions contemplated
hereby is, and all

44

--------------------------------------------------------------------------------

written information hereafter furnished by or on behalf of the Borrowers (or any
of them) to the Bank pursuant hereto or in connection herewith will be, true and
accurate in every material respect on the date as of which such information is
dated or certified, and none of such information is or will be incomplete by
omitting to state any material fact necessary to make such information not
misleading in light of the circumstances under which made (it being recognized
by the Bank that any projections and forecasts provided by the Borrowers (or any
of them) are based on good faith estimates and assumptions believed by the
Borrowers to be reasonable as of the date of the applicable projections or
assumptions and that actual results during the period or periods covered by any
such projections and forecasts may differ from projected or forecasted results).

          7.25         [RESERVED]

          7.26         Internal Controls.

 

 

 

                (a)          IntriCon has established and maintains disclosure
controls and procedures (as such term is defined in Rule 13a-15(e) under the
U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”)), which
(i) are designed to ensure that material information relating to the Borrowers
is made known to IntriCon’s principal executive officer and its principal
financial officer or persons performing similar functions by others within those
entities, particularly during the periods in which the periodic reports required
under the Exchange Act are being prepared; (ii) have been evaluated for
effectiveness as a date within ninety (90) days prior to the filing of such
Borrower’s most recent annual or quarterly report filed with the Securities
Exchange Commission; and (iii) are effective in all material respects to perform
the functions for which they were established;

 

 

 

                (b)          Based on the evaluation of its internal control
over financial reporting, as defined in Exchange Act Rule 13a-15(f), such
Borrower is not aware of (i) any material weakness in the design or operation of
internal control over financial reporting which are reasonably likely to have a
material adverse effect on IntriCon’s ability to record, process, summarize and
report financial data or (ii) any fraud, whether or not material, that involves
management or other employees who have a significant role in such Borrower’s
internal control over financial reporting; and

 

 

 

                (c)          Since the date of the most recent evaluation of its
internal control over financial reporting, as defined above, there have been no
changes in internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, internal controls over
financial reporting, including any corrective actions with regard to significant
deficiencies and material weaknesses.

          7.27         Insurance. Schedule 7.27 correctly describes all of the
insurance policies maintained by Borrowers as of the date hereof, including the
carriers thereof, and the types of coverage and insured amounts covered thereby.

          7.28         Pledged Equity Interests. All of the Pledged Equity
Interests are duly authorized and validly issued capital stock or membership
interests (as applicable) of the applicable Pledged Entity, are fully paid and
nonassessable and are not subject to the preemptive rights of any Person. All of
the Pledged Equity Interests were issued pursuant to a valid exemption from the
registration requirements of the Securities Act of 1933, as amended, and fully
comply with any and all applicable state securities laws. No authorization,
approval or action by, and no notice or filing with any governmental authority
or with the issuer of any Pledged Equity Interests is required either (i) for
the pledge of the Pledged Equity Interests made by IntriCon hereunder or for the
granting of the security interest therein by IntriCon

45

--------------------------------------------------------------------------------

pursuant to this Agreement, or (ii) for the exercise by Bank of its rights and
remedies hereunder with respect to the Pledged Equity Interests (except as may
be required by laws affecting the offering and sale of securities). This
Agreement creates a valid security interest in favor of Bank in the Pledged
Equity Interests. The taking of possession by Bank of the certificates (if any)
evidencing the Pledged Equity Interests will perfect and establish the first
priority of Bank’s security interest in such certificated Pledged Equity
Interests. The filing of a UCC Financing Statement describing the Pledged Equity
Interests with the Secretary of State of Pennsylvania will perfect the Bank’s
security interest in any uncertificated Pledged Equity Interests, and
furthermore, the execution of a written agreement by the issuer of each such
uncertificated Pledged Equity Interest that it will comply with instructions
originated by the Bank with respect to any such uncertificated Pledged Equity
Interests issued by it without further consent by IntriCon will establish
“control” (as defined in the UCC) by the Bank over any such uncertificated
Pledged Equity Interest and perfect and establish the first priority of Bank’s
security interest in such uncertificated Pledged Equity Interests. No action
other than obtaining possession of the certificates representing all
certificated Pledged Equity Interests and obtaining “control” over all
uncertificated Pledged Equity Interests as described in the foregoing sentences
is necessary to perfect or otherwise protect the Bank’s security interest in the
Pledged Equity Interests. Schedule 7.28 attached hereto sets forth a statement
of the authorized, issued and outstanding capital stock of the Pledged Entities
and, the owners of such capital stock. None of the issued and outstanding
capital stock of the Pledged Entities that are owned by IntirCon are subject to
any vesting, redemption, or repurchase agreement, and there are no warrants or
options outstanding with respect to such capital stock.

          7.29         Acquisition. Set forth on Schedule 7.29 is an accurate
and complete list of all of the material Acquisition Documents. Except as set
forth on Schedule 7.29, as of the date hereof, the Acquisition Documents have
not been amended, modified, revoked or rescinded since their respective dates of
execution, and none of the conditions to the obligations of the respective
parties to the Acquisition Documents have been waived by any such party. As of
the date hereof, subject to the qualifications contained therein (including
knowledge qualifiers), the representations and warranties of IntriCon, and, to
the best of IntriCon’s knowledge, of each other party contained in the
Acquisition Documents are true and correct in all material respects. All
transactions described in the Acquisition Documents that are to occur prior to
the date hereof have been consummated in all material respects in accordance
with the terms and provisions thereof, and, except as set forth in Schedule
7.29, the only condition to the consummation of the contemplated stock purchase
and sale transaction in accordance with the Acquisition Documents remaining to
be satisfied thereunder (which condition will be satisfied contemporaneously
with the funding of the initial Revolving Loan and Term Loan hereunder) is the
delivery of funds sufficient to pay the purchase price required to be paid under
the Acquisition Documents. The aggregate purchase price that is payable under
the Acquisition Agreement does not exceed $2,575,000, of which $1,225,000 is
payable in cash.

Section 8.         AFFIRMATIVE COVENANTS.

          8.1          Compliance with Bank Regulatory Requirements; Increased
Costs. If the Bank shall reasonably determine that any Regulatory Change, or
compliance by the Bank or any Person controlling the Bank with any request or
directive (whether or not having the force of law) of any governmental
authority, central bank or comparable agency has or would have the effect of
reducing the rate of return on the Bank’s or such controlling Person’s capital
as a consequence of the Bank’s obligations hereunder or under any Letter of
Credit to a level below that which the Bank or such controlling Person could
have achieved but for such Regulatory Change or compliance (taking into
consideration the Bank’s or such controlling Person’s policies with respect to
capital adequacy) by an amount deemed by the Bank or such controlling Person to
be material or would otherwise reduce the amount of any sum received or
receivable by the Bank under this Agreement or under any Note with respect
thereto, then from time to time, upon demand by the Bank (which demand shall be
accompanied by a statement setting forth the basis for such

46

--------------------------------------------------------------------------------

demand and a calculation of the amount thereof in reasonable detail), the
Borrowers shall pay directly to the Bank or such controlling Person such
additional amount as will compensate the Bank for such increased cost or such
reduction, so long as such amounts have accrued on or after the day which is one
hundred eighty days (180) days prior to the date on which the Bank first made
demand therefor.

          8.2          Borrowers’ Existence. Each Borrower shall at all times
(a) preserve and maintain its existence and good standing in the jurisdiction of
its organization, (b) preserve and maintain its qualification to do business and
good standing in each jurisdiction where the nature of its business makes such
qualification necessary (other than such jurisdictions in which the failure to
be qualified or in good standing could not reasonably be expected to have a
Material Adverse Effect), and (c) continue as a going concern in the business
which such Borrower is presently conducting. If any Borrower does not have an
Organizational Identification Number and later obtains one, such Borrower shall
promptly notify the Bank of such Organizational Identification Number. No
Borrower shall form or otherwise acquire a new Subsidiary without the prior
written consent of the Bank.

          8.3          Compliance With Laws. Each Borrower shall use the
proceeds of the Loans and Letter of Credit for the purposes permitted in
Sections 2.1(a) and 2.2(a) (as applicable) and not in contravention of any
requirements of law (except to the extent no Material Adverse Effect would
result from any such contravention) and not in violation of this Agreement, and
shall comply, and cause each Subsidiary to comply, in all respects, including
the conduct of its business and operations and the use of its properties and
assets, with all applicable laws, rules, regulations, decrees, orders,
judgments, licenses and permits, except where failure to comply could not
reasonably be expected to have a Material Adverse Effect. In addition, and
without limiting the foregoing sentence, each Borrower shall (a) ensure, and
cause each Subsidiary to ensure, that no Person who owns a controlling interest
in or otherwise controls any Borrower or any Subsidiary is or shall be listed on
the Specially Designated Nationals and Blocked Person List or other similar
lists maintained by the Office of Foreign Assets Control (“OFAC”), the
Department of the Treasury or included in any Executive Orders, (b) not use or
permit the use of the proceeds of the Loans or Letters of Credit to violate any
of the foreign asset control regulations of OFAC or any enabling statute or
Executive Order relating thereto, and (c) comply, and cause each Subsidiary to
comply, with all applicable Bank Secrecy Act (“BSA”) laws and regulations, as
amended. The Acquisition shall be consummated in accordance with the terms and
conditions of the Acquisition Documents and all applicable laws.

          8.4          Payment of Taxes and Liabilities. The Borrowers jointly
and severally agree to pay, and cause each Subsidiary to pay, and discharge,
prior to delinquency and before penalties accrue thereon, all property and other
taxes, and all governmental charges or levies against it or any of the
Collateral, as well as claims of any kind which, if unpaid, could become a Lien
on any of its property other than Permitted Liens; provided that the foregoing
shall not require the Borrowers (or any of them) or any respective Subsidiary to
pay any such tax or charge so long as it shall contest the validity thereof in
good faith by appropriate proceedings and shall set aside on its books adequate
reserves with respect thereto in accordance with GAAP and, in the case of a
claim which could become a Lien on any of the Collateral, such contest
proceedings stay the foreclosure of such Lien or the sale of any portion of the
Collateral to satisfy such claim.

          8.5          Maintain Property. Each Borrower shall at all times
maintain, preserve and keep its plant, properties and Equipment, including any
Collateral, in good repair, working order and condition, normal wear and tear
excepted, and shall from time to time make all needful and proper repairs,
renewals, replacements, and additions thereto so that at all times the
efficiency thereof shall be fully preserved and maintained.

47

--------------------------------------------------------------------------------

          8.6          Maintain Insurance. Each Borrower shall at all times
maintain, and cause each Subsidiary to maintain, with insurance companies
reasonably acceptable to the Bank, such insurance coverage as may be required by
any law or governmental regulation or court decree or order applicable to it and
such other insurance, to such extent and against such hazards and liabilities,
including employers’, public and professional liability risks and business
interruption, as is customarily maintained by companies similarly situated, and
shall have insured amounts no less than, and deductibles no higher than, are
reasonably acceptable to the Bank. Each Borrower shall furnish to the Bank a
certificate setting forth in reasonable detail the nature and extent of all
insurance maintained by such Borrower, which shall be reasonably acceptable in
all respects to the Bank. Each Borrower shall cause each issuer of an insurance
policy to provide the Bank with an endorsement (i) showing the Bank as mortgagee
and loss payee with respect to each policy of property or casualty insurance and
naming the Bank as an additional insured with respect to each policy of
liability insurance; and (ii) providing that thirty (30) days notice will be
given to the Bank prior to any cancellation of, material reduction or change in
coverage provided by or other material modification to such policy. Each
Borrower shall execute and deliver to the Bank a collateral assignment, in form
and substance satisfactory to the Bank, of each business interruption insurance
policy maintained by such Borrower.

          In the event any Borrower either fails to provide the Bank with
evidence of the insurance coverage required by this Section or at any time
hereafter shall fail to obtain or maintain any of the policies of insurance
required above, or to pay any premium in whole or in part relating thereto, then
the Bank, without waiving or releasing any obligation or default by such
Borrower hereunder, may at any time (but shall be under no obligation to so
act), obtain and maintain such policies of insurance and pay such premiums and
take any other action with respect thereto, which the Bank deems advisable. This
insurance coverage (a) may, but need not, protect such Borrower’s interests in
such property, including the Collateral, and (b) may not pay any claim made by,
or against, such Borrower in connection with such property, including the
Collateral. Such Borrower may later cancel any such insurance purchased by the
Bank, but only after providing the Bank with evidence that such Borrower has
obtained the insurance coverage required by this Section. If the Bank purchases
insurance for the Collateral, such Borrower will be responsible for the costs of
that insurance, including interest and any other charges that may be imposed
with the placement of the insurance, until the effective date of the
cancellation or expiration of the insurance. The costs of the insurance may be
added to the principal amount of the Loans owing hereunder. The costs of the
insurance may be more than the cost of the insurance such Borrower may be able
to obtain on its own.

          8.7          ERISA Liabilities; Employee Plans. Each Borrower shall
(i) keep in full force and effect any and all Employee Plans which are presently
in existence or may, from time to time, come into existence under ERISA, and not
withdraw from any such Employee Plans, unless such withdrawal can be effected or
such Employee Plans can be terminated without material liability to such
Borrower; (ii) make contributions to all of such Employee Plans in a timely
manner and in a sufficient amount to comply with the standards of ERISA;
including the minimum funding standards of ERISA; (iii) comply with all material
requirements of ERISA which relate to such Employee Plans; (iv) notify the Bank
immediately upon receipt by such Borrower of any notice concerning the
imposition of any withdrawal liability or of the institution of any proceeding
or other action which may result in the termination of any such Employee Plans
or the appointment of a trustee to administer such Employee Plans; (v) promptly
advise the Bank of the occurrence of any “Reportable Event” or “Prohibited
Transaction” (as such terms are defined in ERISA), with respect to any such
Employee Plans; and (vi) amend any Employee Plan that is intended to be
qualified within the meaning of Section 401 of the Internal Revenue Code of 1986
to the extent necessary to keep the Employee Plan qualified, and to cause the
Employee Plan to be administered and operated in a manner that does not cause
the Employee Plan to lose its qualified status.

48

--------------------------------------------------------------------------------

          8.8          Financial Statements. Each Borrower shall at all times
maintain a standard and modern system of accounting, on the accrual basis of
accounting and in all respects in accordance with GAAP, and shall furnish to the
Bank or its authorized representatives such information regarding the business
affairs, operations and financial condition of such Borrower, including:

 

 

 

               (a)          promptly when available, and in any event, within
ninety (90) days after the close of each of its fiscal years, a copy of (i) the
annual audited consolidated financial statements of Borrowers and their
Subsidiaries, including consolidated balance sheet, statement of income and
retained earnings, statement of cash flows for the fiscal year then ended, in
reasonable detail, prepared and certified, without adverse reference to going
concern value and without qualification, by Baker Tilly Virchow Krause LLP, or
another independent auditor of recognized standing selected by the Borrowers and
reasonably acceptable to the Bank and (ii) a consolidating balance sheet of the
Borrowers and their Subsidiaries as of the end of each of its fiscal years and
consolidating statements of earnings and cash flows for the Borrowers and their
Subsidiaries for each of its fiscal years, certified by each Borrower’s
treasurer or chief financial officer on behalf of such Borrower as fairly
presenting in all material respects the financial condition and results of
operation of the Borrowers and their consolidated Subsidiaries for the period
covered thereby;

 

 

 

               (b)          promptly when available, and in any event, within
thirty (30) days following the end of each calendar month (or in the case of any
month that is the last month in a fiscal quarter, forty-five (45) days), other
than the last fiscal month in any fiscal year, a copy of the consolidated and
consolidating balance sheets, income statement and cash flow statement of the
Borrowers and their respective Subsidiaries for the calendar month then ended
and such other information (including nonfinancial information) as the Bank may
reasonably request, in reasonable detail, prepared and certified by each
Borrower’s treasurer or chief financial officer on behalf of such Borrower as
fairly presenting in all material respects the financial condition and results
of operation of the Borrowers and their consolidated Subsidiaries for the period
covered thereby;

 

 

 

               (c)          within ten (10) days after the filing due date (as
such date may be extended in accordance with properly granted extensions) each
year, a signed copy of the complete federal and state income tax returns filed
with the Internal Revenue Service and applicable state taxing authorities by
each Borrower; and

 

 

 

               (d)          promptly after the sending or filing thereof, copies
of all regular and periodic reports which any Borrower shall file with the
Securities and Exchange Commission or any national securities exchange.

No change with respect to such accounting principles shall be made by the
Borrowers (or any of them) without giving prior notification to the Bank. Each
Borrower represents and warrants to the Bank that the financial statements
delivered to the Bank at or prior to the execution and delivery of this
Agreement and to be delivered at all times thereafter fairly present in all
material respects and will fairly present in all material respects the financial
condition of such Borrower in accordance with GAAP, subject in the case of
interim statements to the absence of footnotes and to normal year-end
adjustments.

          8.9          Management Letters; Supplemental Financial Statements.
Each Borrower shall immediately upon receipt thereof, provide to the Bank copies
of management letters and other interim and supplemental reports if any,
submitted to such Borrower by independent accountants in connection with any
annual, interim or special audit or review of the books of such Borrower.

          8.10        Borrowing Base Certificate. The Borrowing Agent shall,
within thirty (30) days after the end of each month, deliver to the Bank a
Borrowing Base Certificate dated as of the last Business Day of

49

--------------------------------------------------------------------------------

such month, certified as true and correct by an authorized representative of the
Borrowing Agent and acceptable to the Bank in its sole and absolute discretion;
provided, however, at any time an Event of Default exists, the Bank may require
the Borrowing Agent to deliver Borrowing Base Certificates more frequently.

          8.11         Aged Accounts Schedule. The Borrowing Agent shall, within
thirty (30) days after the end of each month, deliver to the Bank a consolidated
aged schedule of the Accounts of each Borrower, listing the name and amount due
from each Account Debtor and showing the aggregate amounts due from (a) 0-30
days, (b) 31-60 days, (c) 61-90 days and (d) more than 90 days, and certified as
accurate by such Borrower’s treasurer or chief financial officer.

          8.12         Inventory Reports. The Borrowing Agent shall, within
thirty (30) days after the end of each month, deliver to the Bank a consolidated
inventory report, certified as accurate by each Borrower’s treasurer or chief
financial officer, and within each such time as the Bank may reasonably specify,
such other schedules and reports as the Bank may require.

          8.13         Covenant Compliance Certificate. The Borrowers shall,
contemporaneously with the furnishing of the financial statements pursuant to
Section 8.8, deliver to the Bank a duly completed compliance certificate (in
substantially the form attached hereto as Exhibit 8.13), dated the date of such
financial statements and certified as true and correct by an appropriate officer
of each Borrower, containing a computation of each of the financial covenants
set forth in Section 10 and stating that no Borrower has become aware of any
Event of Default or Unmatured Event of Default that has occurred and is
continuing or, if there is any such Event of Default or Unmatured Event of
Default describing it and the steps, if any, being taken to cure it.

          8.14         Collateral Inspections; Field Audits. Each Borrower shall
permit the Bank to inspect the Inventory, other Tangible Assets and/or other
business operations of such Borrower and each Subsidiary, to perform appraisals
of the Equipment of such Borrower and each Subsidiary, and to inspect, audit,
check and make copies of, and extracts from, the books, records, computer data,
computer programs, journals, orders, receipts, correspondence and other data
relating to Inventory, Accounts and any other Collateral, the results of which
must disclose compliance by Borrowers with all of the terms and provisions of
this Agreement and not disclose the existence of any Event of Default. All such
inspections or audits by the Bank shall be at such Borrower’s sole expense,
provided, however, that so long as no Event of Default or Unmatured Event of
Default exists, such Borrower shall not be required to reimburse the Bank for
more than one (1) inspection or audit each fiscal year.

          8.15         Other Reports. Each Borrower shall, within such period of
time as the Bank may specify, deliver to the Bank such other schedules and
reports as the Bank may reasonably require.

          8.16         Collateral Records. Each Borrower shall keep full and
accurate books and records relating to the Collateral and place a legend, in
form and content acceptable to the Bank, on all Chattel Paper created by such
Borrower indicating that the Bank has a Lien in such Chattel Paper. IntriCon
shall cause each issuer of Pledged Equity Interests to mark its books and
records to reflect the security interest granted to the Bank pursuant to this
Agreement.

          8.17         Intellectual Property. Each Borrower shall maintain,
preserve and renew all Intellectual Property necessary for the conduct of its
business as and where the same is currently located as heretofore or as
hereafter conducted by it.

          8.18         Notice of Proceedings. Each Borrower, promptly upon
becoming aware, shall give written notice to the Bank of any litigation,
arbitration or governmental investigation or proceeding not

50

--------------------------------------------------------------------------------

previously disclosed by such Borrower to the Bank which has been instituted or,
to the knowledge of such Borrower, is threatened against such Borrower or any of
its Subsidiaries or to which any of their respective properties is subject which
might reasonably be expected to have a Material Adverse Effect.

          8.19         Notice of Event of Default or Material Adverse Effect.
Each Borrower shall, immediately after the commencement thereof, give notice to
the Bank in writing of the occurrence of any Event of Default or any Unmatured
Event of Default, or the occurrence of any condition or event having a Material
Adverse Effect. Without limiting the generality of the foregoing, each Borrower
specifically agrees that is will notify Bank in writing, within five (5)
Business Days after the earlier of when a Borrower learns, or is notified of the
occurrence, of any material breach by such Borrower of, a notice of termination
or acceleration, or any demand for adequate assurances under, any Applicable
Agreement to which such Borrower is a party.

          8.20         Environmental Matters. If any release or threatened
release or other disposal, in each case not in compliance with applicable
Environmental Laws of Hazardous Substances shall occur or shall have occurred on
any real property or any other assets of any Borrower or any of its
Subsidiaries, the applicable Borrower shall, or shall cause the applicable
Subsidiary to, comply with applicable Environmental Laws with respect to any
non-compliance. Without limiting the generality of the foregoing, each Borrower
shall, and shall cause each Subsidiary to, comply with any Federal or state
judicial or administrative order requiring the performance at any real property
of such Borrower or any respective Subsidiary of activities in response to the
release or threatened release of a Hazardous Substance. To the extent that the
transportation of Hazardous Substances is permitted by this Agreement, each
Borrower shall, and shall cause its Subsidiaries to, dispose of such Hazardous
Substances, or of any other wastes, only at licensed disposal facilities
operating in compliance with Environmental Laws.

          8.21         [RESERVED]

          8.22         Banking Relationship. Each Borrower covenants and agrees,
at all times during the term of this Agreement, to utilize the Bank as its
primary bank of account and depository for all financial services, including all
receipts, disbursements, cash management and related service.

          8.23         Non-Use Fee. Each Borrower jointly and severally agrees
to pay to the Bank a non-use fee equal to the Applicable Non-Use Fee multiplied
by the total of (a) the Revolving Loan Commitment, minus (b) the sum of (i) the
daily average of the aggregate principal amount of all Revolving Loans
outstanding, plus (ii) the daily average of the aggregate amount of the Letter
of Credit Obligations, which non-use fee shall be (A) calculated on the basis of
a year consisting of 360 days, (B) paid for the actual number of days elapsed,
and (C) payable quarterly in arrears on the last day of each calendar quarter,
commencing on September 30, 2009, and on the Revolving Loan Maturity Date.

          8.24         Interest Rate Protection. Each Borrower agrees to enter
into, not later than forty-five (45) days after the date hereof, a Hedging
Agreement with a term of at least three (3) years on an ISDA standard form to
hedge the interest rate with respect to not less than $1,000,000 of the Loans,
in form and substance reasonably satisfactory to the Bank.

          8.25         Annual Projections. Promptly when available and in any
event not later than thirty (30) days prior to the end of the fiscal year of
Borrowers, IntriCon shall furnish to Bank detailed projections for the next
fiscal year setting forth projected income and cash flow for each month, the
monthly operating budget, the monthly balance sheet, and the monthly borrowing
availability of Borrowers, all on a consolidated basis, accompanied by a
certificate of IntriCon’s chief financial officer, countersigned by such
Borrower’s chief executive officer, stating (a) the assumptions on which the
projections were prepared, (b) that the assumptions, except as otherwise noted,
were prepared on a consistent basis with the

51

--------------------------------------------------------------------------------

operation of Borrowers’ business during the immediately preceding fiscal year
and with factors known to exist as of the date of the certificate or reasonably
anticipated to exist during the periods covered by the projections, and (c) that
the officers signing the certificate have no reason to believe that the
projections are incorrect or misleading in any material respect.

          8.26         [RESERVED]

Section 9.         NEGATIVE COVENANTS.

          9.1          Debt. No Borrower shall, either directly or indirectly,
create, assume, incur or have outstanding any Debt (including purchase money
indebtedness), or become liable, whether as endorser, guarantor, surety or
otherwise, for any debt or obligation of any other Person, except:

 

 

 

               (a)          the Obligations under this Agreement and the other
Loan Documents;

 

 

 

               (b)          obligations of the Borrowers (or any of them) for
Taxes, assessments, municipal or other governmental charges;

 

 

 

               (c)          obligations of the Borrowers (or any of them) for
accounts payable, other than for money borrowed, incurred in the ordinary course
of business;

 

 

 

               (d)          Hedging Obligations incurred in favor of the Bank or
an Affiliate thereof for bona fide hedging purposes and not for speculation;

 

 

 

               (e)          purchase money Debt and Capitalized Lease
Obligations incurred to acquire Equipment or other fixed assets, whether payable
currently or in the future, provided that the amount of such Debt incurred shall
not exceed Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00)
in the aggregate for any calendar year;

 

 

 

               (f)          Debt described on Schedule 9.1 and any extension,
renewal or refinancing thereof so long as the principal amount thereof is not
increased;

 

 

 

               (g)          Debt incurred as a result of endorsing negotiable
instruments received in the ordinary course of business;

 

 

 

               (h)          guarantees by any Borrower(s) in respect of the Debt
or other obligations of any other Borrower(s) so long as, in the case of Debt,
such Debt so guaranteed is otherwise permitted under this Section 9.1; and

 

 

 

               (i)          Subordinated Debt.

          9.2          Encumbrances. No Borrower shall, either directly or
indirectly, create, assume, incur or suffer or permit to exist any Lien or
charge of any kind or character upon any asset of any Borrower, whether owned at
the date hereof or hereafter acquired, except for Permitted Liens and Liens in
favor of Bank to secure the Obligations. Without limiting the generality of the
foregoing, each Borrower specifically agrees that it will not pledge to any
Person other than the Bank, or otherwise permit to exist any Lien against, any
of its capital stock or other equity interests (if any) in IntriCon Pte Ltd or
IntriCon GmbH. Notwithstanding the foregoing, no Lien (other than in favor of
the Bank) may at any time attach to any Borrower’s (1) Accounts, other than
those permitted under clauses (a) and (d) of the definition of Permitted Liens,
or (2) Inventory, other than those permitted under clauses (a), (b) and (d) of
the definition of Permitted Liens.

52

--------------------------------------------------------------------------------

          9.3          Investments. No Borrower shall, either directly or
indirectly, make or have outstanding any Investment, except:

 

 

 

               (a)          equity Investments by any Borrower in any other
Borrower;

 

 

 

               (b)          guarantees by Borrower(s) of the Debts or other
obligations of other Borrower(s) permitted under Section 9.1(h) above;

 

 

 

               (c)          Cash Equivalent Investments;

 

 

 

               (d)          Equity and/or debt securities issued by any Account
Debtors of Borrowers in the settlement of delinquent Accounts in the ordinary
course of business consistent with past practices or in the course of any
proceedings regarding such Account Debtors under the Bankruptcy Code in
satisfaction of Borrowers’ claims against such Account Debtors;

 

 

 

               (e)          Investments listed on Schedule 9.3 as of the date
hereof, including Investments in the Foreign Subsidiaries of Borrowers;

 

 

 

               (f)          Investments permitted under Section 9.7; and

 

 

 

               (g)          Investments of up to $100,000 in the aggregate in
any fiscal year in respect of capital calls related to IntriCon’s 50% interest
in the joint venture Global Coils;

provided, however, that any Investment which when made complies with the
requirements of the definition of the term “Cash Equivalent Investment” may
continue to be held notwithstanding that such Investment if made thereafter
would not comply with such requirements.

          9.4          Transfer; Merger; Sales. No Borrower shall, nor permit
any Subsidiary to, whether in one transaction or a series of related
transactions, (a) be a party to any merger or consolidation, or purchase or
otherwise acquire all or substantially all of the assets or any Capital
Securities of any class of, or any partnership or joint venture interest in, any
other Person, except for (i) any such merger, consolidation, sale, transfer,
conveyance, lease or assignment of or by any Borrower into any other Borrower;
and (ii) any such purchase or other acquisition by any Borrower of the assets or
equity interests of any other Borrower, (b) sell, transfer, convey or lease all
or any substantial part of its assets or Capital Securities (including the sale
of Capital Securities of any Subsidiary), except for asset dispositions
permitted pursuant to Section 6.2, or (c) sell or assign, with or without
recourse, any receivables.

          9.5          Issuance of Capital Securities. No Borrower shall and
shall not permit any Subsidiary to, issue any Capital Securities other than (a)
any issuance of shares of the such Borrower’s common Capital Securities pursuant
to any employee or director option program, benefit plan or compensation
program, (b) any issuance of Capital Securities by a Subsidiary to the
applicable Borrower or another Subsidiary to such Borrower in accordance with
Section 9.6 and (c) any issuance of common stock by IntriCon provided that a
mandatory prepayment in the amount of the Net Cash Proceeds of such common stock
is made if and to the extent required by Section 2.2(d).

          9.6          Distributions. No Borrower shall and shall not permit any
Subsidiary to, (a) make any distribution or dividend (other than stock
dividends), whether in cash or otherwise, to any of its equityholders, (b)
purchase or redeem any of its equity interests or any warrants, options or other
rights in respect thereof, (c) pay any management fees or similar fees to any of
its equityholders or any Affiliate thereof, (d) pay or prepay interest on,
principal of, premium, if any, redemption, conversion, exchange, purchase,
retirement, defeasance, sinking fund or any other payment in respect of any
Subordinated Debt

53

--------------------------------------------------------------------------------

except if, as and to the extent permitted by the applicable subordination
agreement or subordination provisions governing the subordination of such
Subordinated Debt in favor of the Obligations, or (e) set aside funds for any of
the foregoing. Notwithstanding the foregoing, any Subsidiary may pay dividends
or make other distributions to the applicable Borrower.

          9.7          Transactions with Affiliates. Except as set forth on
Schedule 9.7, no Borrower shall, directly or indirectly, enter into or permit to
exist any transaction with any of its Affiliates or with any director, officer
or employee of any Borrower other than (i) programs relating to the Capital
Securities of IntriCon established for the employees, officers and/or directors
of Borrowers and their Subsidiaries which are approved by IntriCon’s board of
directors and fully disclosed to the Bank, (ii) payment of salaries, bonuses and
other compensation to the employees, directors and officers of Borrowers and
their Subsidiaries in the ordinary course of business consistent with past
practices, (iii) loans and advances to employees and officers in an aggregate
principal amount of $25,000 outstanding at any one time, (iv) in the case of
IntriCon, director fees in an aggregate amount not to exceed $200,000 in any
fiscal year and (v) any other transactions in the ordinary course of, and
pursuant to the reasonable requirements of, the business of any such Borrower
and upon fair and reasonable terms which are fully disclosed to the Bank and are
no less favorable to such Borrower than would be obtained in a comparable arm’s
length transaction with a Person that is not an Affiliate of such Borrower.
Notwithstanding anything to the contrary contained in this Section or otherwise
in this Agreement or any other Loan Document, nothing contained herein or
therein shall be deemed to prohibit Borrowers from accepting collections from
the Account Debtors of its non-Borrower Foreign Subsidiaries and remitting such
collections (but only such collections) to such non-Borrower Foreign
Subsidiaries for the purposes of facilitating payment by and collection from
such Account Debtors obligated to such non-Borrower Foreign Subsidiaries, which
transactions shall be reflected on the books and records of Borrowers and their
Subsidiaries as the creation of intercompany Accounts owing from Borrowers to
the applicable non-Borrower Foreign Subsidiaries and the subsequent satisfaction
and payment of such intercompany Accounts, all in the ordinary course of
business consistent with the past practices of Borrowers and their non-Borrower
Foreign Subsidiaries with respect to such matters.

          9.8          Unconditional Purchase Obligations. No Borrower shall and
shall not permit any Subsidiary to, enter into or be a party to any contract for
the purchase of materials, supplies or other property or services if such
contract requires that payment be made by it regardless of whether delivery is
ever made of such materials, supplies or other property or services.

          9.9          Cancellation of Debt. No Borrower shall and shall not
permit any Subsidiary to, cancel any claim or debt owing to it, except for (i)
trade or volume discount, allowance, discount, rebate or adjustment granted to
Account Debtors in the ordinary course of such Borrower’s business consistent
with past practices and (ii) other cancellations for reasonable consideration or
in the ordinary course of business.

          9.10        Inconsistent Agreements. No Borrower shall and shall not
permit any Subsidiary to, enter into any agreement containing any provision
which would (a) be violated or breached by any borrowing by any Borrower
hereunder or by the performance by any Borrower or any Subsidiary of any of its
Obligations hereunder or under any other Loan Document, (b) prohibit any
Borrower or any Subsidiary from granting to the Bank a Lien on any of its assets
or (c) create or permit to exist or become effective any encumbrance or
restriction on the ability of any Subsidiary to (i) pay dividends or make other
distributions to any Borrower or any other Subsidiary, or pay any Debt owed to
any Borrower or any other Subsidiary, (ii) make loans or advances to any
Borrower or any other Subsidiary, or (iii) transfer any of its assets or
properties to any Borrower or any other Subsidiary, other than (A) customary
restrictions and conditions contained in agreements relating to the sale of all
or a substantial part of the assets of any Subsidiary pending such sale,
provided that such restrictions and conditions apply only to

54

--------------------------------------------------------------------------------

the Subsidiary to be sold and such sale is permitted hereunder, (B) restrictions
or conditions imposed by any agreement relating to purchase money Debt, Capital
Leases and other secured Debt permitted by this Agreement if such restrictions
or conditions apply only to the property or assets securing such Debt,
(C) customary provisions in leases and other contracts restricting the
assignment thereof, and (D) customary restrictions and conditions with respect
to any Foreign Subsidiary or its assets contained in agreements relating to Debt
incurred by such Foreign Subsidiary.

          9.11         Use of Proceeds. Neither the Borrowers nor any of their
respective Subsidiaries or Affiliates shall use any portion of the proceeds of
the Loans or Letters of Credit, either directly or indirectly, for the purpose
of purchasing any securities underwritten by any Affiliate of the Bank.

          9.12         Bank Accounts. No Borrower shall establish any new
Deposit Accounts or other bank accounts, other than Deposit Accounts or other
bank accounts established at or with the Bank, without the prior written consent
of the Bank; provided, however, that the Borrowers may maintain Deposit Accounts
or other bank accounts without the prior written consent of the Bank and without
obtaining control agreement therefor so long as the aggregate amount maintained
in such accounts does not exceed $70,000 at any time.

          9.13         Business Activities; Change of Legal Status and
Organizational Documents. No Borrower shall and shall not permit any Subsidiary
to, (a) engage in any line of business other than the businesses engaged in on
the date hereof and businesses reasonably related thereto, (b) change its name,
its Organizational Identification Number, if it has one, its type of
organization, or its jurisdiction of organization without giving at least sixty
(60) days prior notice of such change to the Bank (provided, however, that
Datrix may change its name to IntriCon Datrix Corporation on or before five (5)
days from the date hereof provided that upon such name change the Borrowers
promptly deliver to the Bank true and correct copies of the documents effecting
such name change), or (c) permit its charter, bylaws or other organizational
documents to be amended or modified in any way which could reasonably be
expected to materially adversely affect the interests of the Bank.

          9.14         Modification of Applicable Agreements. Promptly upon
execution thereof, each Borrower will deliver to the Bank a true and correct
copy of any and all amendments, restatements, replacements, extensions,
supplements or other modifications of any Applicable Agreement, provided,
however, each Borrower agrees that it will not amend, restate, replace, extend,
supplement or otherwise modify any of the Applicable Agreements set forth on
Schedule 9.14 in any way which could reasonably be expected to materially
adversely affect the interests of the Bank without providing prior written
notice of the same to the Bank. Other than as set forth on Schedule 9.14, as of
the date hereof, no Borrower is a party to any Applicable Agreement.

          9.15         Amendments to Acquisition Agreement. Each Borrower
covenants that it will not enter into any material amendment or modification of,
or waive, or consent to any waiver of, any of the material provisions of, the
Acquisition Agreement or any other Acquisition Document without the consent of
the Bank, not to be unreasonably withheld or delayed.

          9.16         Payments on and Changes to Subordinated Debt.

 

 

 

                (a)          Payments on Subordinated Debt. Each Borrower
covenants that it will not (i) make any payment (including any principal,
premium, interest, fee or charge) with respect to any Subordinated Debt except,
in each instance, to the extent, and in the manner, expressly permitted by the
Selling Shareholder Subordination Agreement or other subordination agreement
relating to such Subordinated Debt, or (ii) repurchase, redeem, defease, acquire
or reacquire for value any of the Subordinated Debt.

55

--------------------------------------------------------------------------------

 

 

 

                (b)          Changes to Subordinated Debt Terms or Documents.
Each Borrower covenants that it will not seek, agree to or permit, directly or
indirectly, the amendment, waiver or other change to (i) any of the pricing or
payment terms (including, principal, interest or premium provisions) of or
applicable to, or the provisions governing the priority of or security for the
payment and performance of the obligations under or applicable to, or
acceleration, termination, or default provisions of or applicable to, the
Subordinated Debt or any of the Subordinated Debt Documents other than
amendments or other changes to pricing or payment terms, or acceleration,
termination or default provisions, that are more favorable to Borrowers than
such terms or provisions prior to giving effect to such amendment or change, or
(ii) any other material term of or applicable to any of the Subordinated Debt
Documents. For purposes of this Section 9.16, “material” means any modification,
waiver, or amendment of the Subordinated Debt or any of the Subordinated Debt
Documents, which, in the judgment of Bank exercised in a commercially reasonable
manner, could (a) adversely affect any of Bank’s rights or remedies under the
Loan Documents, the value of the Collateral, or Bank’s security interest in or
other Lien on the Collateral (including the priority of Bank’s interests) or (b)
create or result in an Event of Default.

Section 10.        FINANCIAL COVENANTS.

          10.1         Minimum EBITDA. As of each of the measurement dates set
forth in the chart below, for the period of twelve (12) consecutive calendar
months then-ended, the Borrowers and their respective consolidated Subsidiaries
shall maintain EBITDA in an amount not less than the amount set forth opposite
such date in the chart below:

 

 

 

Measurement Date

 

Minimum EBITDA

Last day of each calendar month ending August 31, 2009 through and including
December 31, 2009

 

$2,600,000

 

 

 

Last day of each calendar month ending January 31, 2010 through and including
March 31, 2010

 

$3,000,000

 

 

 

Last day of each calendar month ending April 30, 2010 through and including June
30, 2010

 

$3,750,000

 

 

 

July 31, 2010 and the last day of each calendar month ending thereafter

 

$4,500,000

          10.2         Funded Debt to EBITDA. As of each of the measurement
dates set forth in the chart below, the Borrowers and their respective
consolidated Subsidiaries shall maintain a ratio of consolidated Funded Debt as
of such date to consolidated EBITDA (the “Leverage Ratio”), for the period of
twelve (12) consecutive calendar months then-ended, of not greater than the
amount set forth opposite such measurement date in the chart below:

 

 

 

Measurement Date

 

Maximum Leverage Ratio

Last day of each calendar month ending August 31, 2009 through and including
December 31, 2009

 

3.75 to 1.00

 

 

 

Last day of each calendar month ending January 31, 2010 through and including
June 30, 2010

 

3.25 to 1.00

 

 

 

Last day of each calendar month ending July 31, 2010 through and including
December 31, 2010

 

2.75 to 1.00

 

 

 

January 31, 2011 and the last day of each calendar month ending thereafter

 

2.25 to 1.00

56

--------------------------------------------------------------------------------

          10.3         Fixed Charge Coverage. As of each of the measurement
dates set forth in the chart below, for the period of twelve (12) consecutive
calendar months then-ended, the Borrowers and their respective consolidated
Subsidiaries shall maintain a ratio (the “Fixed Charge Coverage Ratio”) of (a)
the total of consolidated EBITDA for such period, minus the sum of all income
taxes paid in cash by the Borrowers on a consolidated basis, minus all Capital
Expenditures of the Borrowers made during such period which are not financed
with Funded Debt, minus that portion of the aggregate cash payments made by the
applicable Borrower(s) in respect of the Subject Agreements and Applicable
Agreements during such period that was not deducted as an expense in arriving at
Net Income for such period, plus, without duplication, cash proceeds received
during such period by the Borrowers in respect of the promissory note made
payable to IntriCon in connection with IntriCon’s sale of its heat technology
segment in 2005, plus (or minus), to the extent not included as income or gain
(or deducted as an expense or loss) in arriving at Net Income for such period,
cash received (or paid) from dividends (or capital calls) related to IntriCon’s
50% interest in the joint venture Global Coils (in the case of capital calls,
subject to any applicable restrictions under Section 9.3) to (b) the sum for
such period of (i) Interest Charges paid in cash (other than Interest Charges in
respect of the early termination of IntriCon’s existing Hedging Agreement with
Bank of America, N.A.), plus (ii) regularly scheduled payments made (and,
without duplication, payments required to be made) in respect of principal of
Funded Debt (including the Term Loan, but excluding the Revolving Loans), plus
(iii) all cash dividends and distributions paid or declared in respect of
Capital Securities of the Borrowers, of not less than the amount set forth
opposite such measurement date in the chart below:

 

 

 

Measurement Date

 

Minimum Fixed Charge
Coverage Ratio

Last day of each calendar month ending August 31, 2009 through and including
March 31, 2010

 

1.05 to 1.00

 

 

 

April 30, 2010 and the last day of each calendar month ending thereafter

 

1.25 to 1.00

          10.4         Capital Expenditures. The Borrowers shall not incur
Capital Expenditures in an amount greater than Two Million Five Hundred Thousand
and 00/100 Dollars ($2,500,000.00) in the aggregate in any one fiscal year.

          10.5         Minimum Revolving Loan Availability. The Borrowers shall
at all times maintain Revolving Loan Availability of not less than $500,000.

57

--------------------------------------------------------------------------------

 

 

Section 11.

 EVENTS OF DEFAULT.

          The Borrowers, without notice or demand of any kind, shall be in
default under this Agreement upon the occurrence of any of the following events
(each an “Event of Default”).

          11.1          Nonpayment of Obligations. Any amount due and owing on
any Note or any of the Obligations, whether by its terms or as otherwise
provided herein, is not paid when due.

          11.2          Misrepresentation. Any written warranty, representation,
certificate or statement of any Obligor in this Agreement, the other Loan
Documents shall be false in any material respect when made (or deemed made
pursuant to Section 3.5), or if any financial data or any other information now
or hereafter furnished to the Bank by or on behalf of any Obligor shall prove to
be false, inaccurate or misleading in any material respect.

          11.3          Nonperformance. Any failure to perform or default in the
performance of any covenant, condition or agreement contained in this Agreement
and, if capable of being cured, such failure to perform or default in
performance continues for a period of twenty days (20) days after the Borrowing
Agent receives notice or knowledge from any source of such failure to perform or
default in performance, or in the other Loan Documents and, if capable of being
cured, such failure to perform or default in performance continues for a period
of twenty (20) days after the Borrowing Agent receives notice or knowledge from
any source of such failure to perform or default in performance; provided that,
in either such case, if Borrowers have promptly commenced appropriate actions to
cure such default during such twenty (20) day period and have diligently pursued
such actions but are not able to complete such cure within such twenty (20) days
through no fault of their own, such period shall be extended by an additional
ten (10) days; and provided further, that failure by any Borrower to comply with
Section 8.24 hereof shall not be subject to the foregoing twenty (20)-day cure
period or additional ten (10)-day cure period.

          11.4          Subordinated Debt Default. (i) There occurs a
Subordinated Debt Default, (ii) the Selling Shareholder Subordination Agreement
is terminated or ceases, for any reason, to be in full and effect, or (iii) the
Selling Shareholder attempts to limit or terminate or revoke his obligations
under the Selling Shareholder Subordination Agreement.

          11.5          Default under Other Debt. Any default by any Obligor in
the payment of any Debt for any other obligation with an outstanding principal
balance of $50,000 or more beyond any period of grace provided with respect
thereto or in the performance of any other term, condition or covenant contained
in any agreement (including any capital or operating lease or any agreement in
connection with the deferred purchase price of property) under which any such
obligation is created, the effect of which default is to cause or permit the
holder of such obligation (or the other party to such other agreement) to cause
such obligation to become due prior to its stated maturity or terminate such
other agreement.

          11.6          Default under Applicable Agreement. There occurs a
material breach by any Borrower under any Applicable Agreement, the result of
which breach is the suspension of the other parties’ performance thereunder, the
delivery of a notice of acceleration, or the termination of such Applicable
Agreement.

          11.7          Bankruptcy, Insolvency, etc. Any Obligor becomes
insolvent or generally fails to pay, or admits in writing its inability or
refusal to pay, debts as they become due; or any decree or order for relief in
respect of any Obligor is entered under any bankruptcy, reorganization,
compromise, arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law, whether now or hereafter in effect, of any
jurisdiction; or any Obligor applies for, consents to, or acquiesces in the
appointment of a trustee, receiver or other custodian for such Obligor or any
property thereof, or makes a general

58

--------------------------------------------------------------------------------

assignment for the benefit of creditors; or, in the absence of such application,
consent or acquiescence, a trustee, receiver or other custodian is appointed for
any Obligor or for a substantial part of the property of any thereof and is not
discharged within sixty (60) days; or any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any bankruptcy or insolvency law,
or any dissolution or liquidation proceeding, is commenced in respect of any
Obligor, and if such case or proceeding is not commenced by such Obligor, it is
consented to or acquiesced in by such Obligor, or remains undismissed for sixty
(60) days; or any Obligor takes any action to authorize, or in furtherance of,
any of the foregoing.

          11.8          Judgments. The entry of any final judgment, decree,
levy, attachment, garnishment or other process for the amount in excess of
$50,000 against any Borrower or any other Obligor which is not fully covered by
insurance, and such judgment or other process shall not have been, within thirty
(30) days from the entry thereof, (i) bonded over to the satisfaction of the
Bank and appealed, (ii) vacated, or (iii) discharged.

          11.9          Divestitures. Any order, judgment or decree is entered
in any proceedings against the any Obligor decreeing a split-up of such Obligor
which requires the divestiture of assets representing a substantial part, or the
divestiture of the stock of a Subsidiary of any Obligor whose assets represent a
substantial part, of the consolidated assets of the such Obligor and its
Subsidiaries (determined in accordance with GAAP) or which requires the
divestiture of assets, or stock of a Subsidiary, which shall have contributed a
substantial part of the Net Income of any Obligor and its Subsidiaries
(determined in accordance with GAAP) for any of the three fiscal years then most
recently ended, and such order, judgment or decree remains unstayed and in
effect for more than 60 days.

          11.10        Change in Control. The occurrence of any Change in
Control.

          11.11        Collateral Impairment. Any event shall occur, whether or
not insured or insurable, as a result of which (a) the Borrowing Base is reduced
during any month by more than fifteen percent (15%) other than as a result of
sales of Inventory and collections of Accounts in the ordinary course, (b)
Contingent Liabilities are incurred by the Borrowers on a consolidated basis in
excess of $1,000,000 which would be required to be reflected in the footnotes or
a balance sheet prepared in accordance with generally accepted accounting
principles, consistently applied and could reasonably be expected to become
actual liabilities of one or more of the Borrowers, excluding, however,
Contingent Liabilities arising from pending litigation, arbitration proceedings
or governmental investigations or proceedings that have not resulted in a final
judgment, decree, levy, attachment, garnishment or other process that would
constitute an Event of Default under Section 11.8, (c) operations of any
Borrower are suspended or terminated for twenty (20) days or more at any
facility of any Borrower generating more than twenty percent (20%) of such
Borrower’s consolidated revenues for the preceding fiscal year; or (d) any
customer or group of customers representing more than twenty (20%) of any
Borrower’s consolidated revenues for the preceding fiscal year terminate or
suspend purchases of Inventory from such Borrower.

          11.12        Material Adverse Effect. Any event shall occur that the
Bank determines (which determination shall be conclusive) could reasonably be
expected to have a Material Adverse Effect.

          11.13        Employee Plan. A contribution failure occurs with respect
to any Employee Plan sufficient to give rise to a Lien under Section 302(f) of
ERISA.

 

 

Section 12.

 REMEDIES.

          Upon the occurrence and during the continuance of an Event of Default,
the Bank shall have all rights, powers and remedies set forth in the Loan
Documents, in any written agreement or instrument

59

--------------------------------------------------------------------------------

(other than this Agreement or the Loan Documents) relating to any of the
Obligations or any security therefor, as a secured party under the UCC or as
otherwise provided at law or in equity. Without limiting the generality of the
foregoing, the Bank may, at its option upon the occurrence and during the
continuance of an Event of Default, declare its commitments to the Borrowers to
be terminated and all Obligations to be immediately due and payable, provided,
however, that upon the occurrence of an Event of Default under Section 11.7, all
commitments of the Bank to the Borrowers shall immediately terminate and all
Obligations shall be automatically due and payable, all without demand, notice
or further action of any kind required on the part of the Bank. Each Borrower
hereby waives any and all presentment, demand, notice of dishonor, protest, and
all other notices and demands in connection with the enforcement of Bank’s
rights under the Loan Documents, and hereby consents to, and waives notice of
release, with or without consideration, of any of the Borrowers or of any of the
other Obligors or of any Collateral, notwithstanding anything contained herein
or in the Loan Documents to the contrary. In addition to the foregoing, upon the
occurrence and during the continuation of any Event of Default:

          12.1          Possession and Assembly of Collateral. The Bank may,
without notice, demand or legal process of any kind, take possession of any or
all of the Collateral (in addition to Collateral of which the Bank already has
possession), wherever it may be found, and for that purpose may pursue the same
wherever it may be found, and may at any time enter into any Borrower’s premises
where any of the Collateral may be or is supposed to be, and search for, take
possession of, remove, keep and store any of the Collateral until the same shall
be sold or otherwise disposed of and the Bank shall have the right to store and
conduct a sale of the same in any Borrower’s premises without cost to the Bank.
At the Bank’s request, the applicable Borrower will, at such Borrower’s sole
expense, assemble the Collateral and make it available to the Bank at a place or
places to be designated by the Bank which is reasonably convenient to the Bank
and such Borrower.

          12.2          Sale of Collateral. The Bank may sell any or all of the
Collateral at public or private sale, upon such terms and conditions as the Bank
may deem proper, and the Bank may purchase any or all of the Collateral at any
such sale. Each Borrower acknowledges that the Bank may be unable to effect a
public sale of all or any portion of the Collateral because of certain legal
and/or practical restrictions and provisions which may be applicable to the
Collateral and, therefore, may be compelled to resort to one or more private
sales to a restricted group of offerees and purchasers. Each Borrower consents
to any such private sale so made even though at places and upon terms less
favorable than if the Collateral were sold at public sale. The Bank shall have
no obligation to clean-up or otherwise prepare the Collateral for sale. The Bank
may apply the net proceeds, after deducting all costs, expenses, attorneys’ and
paralegals’ fees incurred or paid at any time in the collection, protection and
sale of the Collateral and the Obligations, to the payment of any Note and/or
any of the other Obligations, returning the excess proceeds, if any, to the
Borrowers. The Borrowers shall remain liable for any amount remaining unpaid
after such application, with interest at the Default Rate. Any notification of
intended disposition of the Collateral required by law shall be conclusively
deemed reasonably and properly given if given by the Bank at least ten (10)
calendar days before the date of such disposition. Each Borrower hereby
confirms, approves and ratifies all acts and deeds of the Bank relating to the
foregoing, and each part thereof, and expressly waives any and all claims of any
nature, kind or description which it has or may hereafter have against the Bank
or its representatives, by reason of taking, selling or collecting any portion
of the Collateral. Each Borrower consents to releases of the Collateral at any
time (including prior to default) and to sales of the Collateral in groups,
parcels or portions, or as an entirety, as the Bank shall deem appropriate. Each
Borrower expressly absolves the Bank from any loss or decline in market value of
any Collateral by reason of delay in the enforcement or assertion or
nonenforcement of any rights or remedies under this Agreement.

          12.3          Standards for Exercising Remedies. To the extent that
applicable law imposes duties on the Bank to exercise remedies in a commercially
reasonable manner, each Borrower acknowledges and agrees that it is not
commercially unreasonable for the Bank (a) to fail to incur expenses reasonably

60

--------------------------------------------------------------------------------

deemed significant by the Bank to prepare Collateral for disposition or
otherwise to complete raw material or work-in-process into finished goods or
other finished products for disposition, (b) to fail to obtain third party
consents for access to Collateral to be disposed of, or to obtain or, if not
required by other law, to fail to obtain governmental or third party consents
for the collection or disposition of Collateral to be collected or disposed of,
(c) to fail to exercise collection remedies against Account Debtors or other
Persons obligated on Collateral or to remove liens or encumbrances on or any
adverse claims against Collateral, (d) to exercise collection remedies against
Account Debtors and other Persons obligated on Collateral directly or through
the use of collection agencies and other collection specialists, (e) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (f) to
contact other Persons, whether or not in the same business as the Borrowers (or
any of them), for expressions of interest in acquiring all or any portion of the
Collateral, (g) to hire one or more professional auctioneers to assist in the
disposition of Collateral, whether or not the collateral is of a specialized
nature, (h) 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 capability of doing so, or that match buyers and sellers of
assets, (i) to dispose of assets in wholesale rather than retail markets, (j) to
disclaim disposition warranties, including any warranties of title, (k) to
purchase insurance or credit enhancements to insure the Bank against risks of
loss, collection or disposition of Collateral or to provide to the Bank a
guaranteed return from the collection or disposition of Collateral, or (l) to
the extent deemed appropriate by the Bank, to obtain the services of other
brokers, investment bankers, consultants and other professionals to assist the
Bank in the collection or disposition of any of the Collateral. Each Borrower
acknowledges that the purpose of this Section is to provide non-exhaustive
indications of what actions or omissions by the Bank would not be commercially
unreasonable in the Bank’s exercise of remedies against the Collateral and that
other actions or omissions by the Bank shall not be deemed commercially
unreasonable solely on account of not being indicated in this Section. Without
limitation upon the foregoing, nothing contained in this Section shall be
construed to grant any rights to the Borrowers (or any of them) or to impose any
duties on the Bank that would not have been granted or imposed by this Agreement
or by applicable law in the absence of this Section.

          12.4          UCC and Offset Rights. The Bank may exercise, from time
to time, any and all rights and remedies available to it under the UCC or under
any other applicable law in addition to, and not in lieu of, any rights and
remedies expressly granted in this Agreement or in any other agreements between
any Obligor and the Bank, and may, without demand or notice of any kind,
appropriate and apply toward the payment of such of the Obligations, whether
matured or unmatured, including costs of collection and attorneys’ and
paralegals’ fees, and in such order of application as the Bank may, from time to
time, elect, any indebtedness of the Bank to any Obligor, however created or
arising, including balances, credits, deposits, accounts or moneys of such
Obligor in the possession, control or custody of, or in transit to the Bank.
Each Borrowers, on behalf of itself and each Obligor, hereby waives the benefit
of any law that would otherwise restrict or limit the Bank in the exercise of
its right, which is hereby acknowledged, to appropriate at any time hereafter
any such indebtedness owing from the Bank to any Obligor.

          12.5          Additional Remedies. The Bank shall have the right and
power to:

 

 

 

 

                 (a)          instruct the Borrowers (or any of them), at such
Borrower’s own expense, to notify any parties obligated on any of the
Collateral, including any Account Debtors, to make payment directly to the Bank
of any amounts due or to become due thereunder, or the Bank may directly notify
such obligors of the security interest of the Bank, and/or of the assignment to
the Bank of the Collateral and direct such obligors to make payment to the Bank
of any amounts due or to become due with respect thereto, and thereafter,
collect any such amounts due on the Collateral directly from such Persons
obligated thereon;

61

--------------------------------------------------------------------------------

 

 

 

 

               (b)          enforce collection of any of the Collateral,
including any Accounts, by suit or otherwise, or make any compromise or
settlement with respect to any of the Collateral, or surrender, release or
exchange all or any part thereof, or compromise, extend or renew for any period
(whether or not longer than the original period) any indebtedness thereunder;

 

 

 

 

               (c)          take possession or control of any proceeds and
products of any of the Collateral, including the proceeds of insurance thereon;

 

 

 

 

               (d)          extend, renew or modify for one or more periods
(whether or not longer than the original period) any Note, any other of the
Obligations, any obligation of any nature of any other obligor with respect to
any Note or any of the Obligations;

 

 

 

 

               (e)          grant releases, compromises or indulgences with
respect to any Note, any of the Obligations, any extension or renewal of any of
the Obligations, any security therefor, or to any other obligor with respect to
any Note or any of the Obligations;

 

 

 

 

               (f)          transfer the whole or any part of securities which
may constitute Collateral into the name of the Bank or the Bank’s nominee
without disclosing, if the Bank so desires, that such securities so transferred
are subject to the security interest of the Bank, and any corporation,
association, or any of the managers or trustees of any trust issuing any of such
securities, or any transfer agent, shall not be bound to inquire, in the event
that the Bank or such nominee makes any further transfer of such securities, or
any portion thereof, as to whether the Bank or such nominee has the right to
make such further transfer, and shall not be liable for transferring the same;

 

 

 

 

               (g)          vote the Collateral;

 

 

 

 

               (h)          make an election with respect to the Collateral
under Section 1111 of the Bankruptcy Code or take action under Section 364 or
any other section of the Bankruptcy Code; provided, however, that any such
action of the Bank as set forth herein shall not, in any manner whatsoever,
impair or affect the liability of any Borrower hereunder, nor prejudice, waive,
nor be construed to impair, affect, prejudice or waive the Bank’s rights and
remedies at law, in equity or by statute, nor release, discharge, nor be
construed to release or discharge, any Borrower, any guarantor or other Person
liable to the Bank for the Obligations;

 

 

 

 

               (i)          at any time, and from time to time, accept additions
to, releases, reductions, exchanges or substitution of the Collateral, without
in any way altering, impairing, diminishing or affecting the provisions of this
Agreement, the Loan Documents, or any of the other Obligations, or the Bank’s
rights hereunder, under any Note or under any of the other Obligations;

 

 

 

 

               (j)          to the extent that Bank deems it impracticable to
effect a public sale of all or any part of the Pledged Equity Interests, Bank
may elect to make one or more private sales of any such Collateral to a
restricted group of purchasers who will be obligated to agree, among other
things, to acquire such Collateral for their own account, for investment and not
with a view to the distribution or resale thereof. Each Borrower acknowledges
that any such private sale may be at prices and on terms less favorable to the
seller than the prices and other terms which might have been obtained at a
public sale and, notwithstanding the foregoing, agrees that such private sale
shall be deemed to have been made in a commercially reasonable manner and that
Bank shall have no obligation to delay sale of any such securities for the
period of time necessary to permit the issuer of such securities to register
such securities for public sale under the Securities Act of

62

--------------------------------------------------------------------------------

 

 

 

 

1933. To the extent not specified by applicable law, the parties agree that ten
(10) days shall constitute a “commercially reasonable amount of time” for
purpose of this subsection (j); and

 

 

 

 

                 (k)          to vote for a board resolution, or to sign an
instrument in writing, sanctioning the transfer of any or all of the Pledged
Equity Interests into the name of Bank or into the name of any transferee to
whom the Pledged Equity Interests or any part thereof may be sold pursuant to
this Section 12.

Each Borrower agrees that the Bank shall not be liable for any error of judgment
or mistakes of fact or law made in good faith, and not constituting gross
negligence or intentional misconduct, with respect to actions taken in
connection with the Collateral or the administration or enforcement of this
Agreement.

          12.6          Attorney-in-Fact. Each Borrower hereby irrevocably
makes, constitutes and appoints the Bank (and any officer of the Bank or any
Person designated by the Bank for that purpose) as such Borrower’s true and
lawful proxy and attorney-in-fact (and agent-in-fact) in such Borrower’s name,
place and stead, with full power of substitution, to (i) take such actions as
are permitted in this Agreement, (ii) execute such financing statements and
other documents and to do such other acts as the Bank may require to perfect and
preserve the Bank’s security interest in, and to enforce such interests in the
Collateral, and (iii) carry out any remedy provided for in this Agreement,
including endorsing such Borrower’s name to checks, drafts, instruments and
other items of payment, and proceeds of the Collateral, executing change of
address forms with the postmaster of the United States Post Office serving the
address of such Borrower, changing the address of such Borrower to that of the
Bank, opening all envelopes addressed to such Borrower and applying any payments
contained therein to the Obligations; provided that all such powers (other than
the powers to (1) endorse Borrowers’ names to checks, drafts, instruments and
other items of payment, and proceeds of the Collateral received by the Bank, (2)
opening mail received into any Lockbox established under Section 6.8 and (3)
applying all proceeds of Collateral received by the Bank (including any such
proceeds enclosed with the mail opened under the preceding clause (2)) to the
Obligations, which powers the Bank may exercise at any time) shall be
exercisable by the Bank only after either (x) a request for the applicable
Borrower(s) to take such actions and the failure by Borrowers to take such
actions within five (5) days of such request or (y) the occurrence and during
the continuance of an Event of Default. Each Borrower hereby acknowledges that
the constitution and appointment of such proxy and attorney-in-fact are coupled
with an interest and are irrevocable. Each Borrower hereby ratifies and confirms
all that such attorney-in-fact may do or cause to be done by virtue of any
provision of this Agreement.

          12.7          No Marshaling. The Bank shall not be required to marshal
any present or future collateral security (including this Agreement and the
Collateral) for, or other assurances of payment of, the Obligations or any of
them or to resort to such collateral security or other assurances of payment in
any particular order. To the extent that it lawfully may, each Borrower hereby
agrees that it will not invoke any law relating to the marshaling of collateral
which might cause delay in or impede the enforcement of the Bank’s rights under
this Agreement or under any other instrument creating or evidencing any of the
Obligations or under which any of the Obligations is outstanding or by which any
of the Obligations is secured or payment thereof is otherwise assured, and, to
the extent that it lawfully may, each Borrower hereby irrevocably waives the
benefits of all such laws.

          12.8          Application of Proceeds. The Bank will within three (3)
Business Days after receipt of cash or solvent credits from collection of items
of payment, proceeds of Collateral or any other source, apply the whole or any
part thereof against the Obligations secured hereby. After the occurrence and
during the continuance of an Event of Default, the Bank shall further have the
exclusive right to determine how, when and what application of such payments and
such credits shall be made on the Obligations, and such determination shall be
conclusive upon each Borrower. Any proceeds of any

63

--------------------------------------------------------------------------------

disposition by the Bank of all or any part of the Collateral may be first
applied by the Bank to the payment of expenses incurred by the Bank in
connection with the Collateral, including attorneys’ fees and legal expenses as
provided for in Section 13 hereof.

          12.9            No Waiver. No Event of Default shall be waived by the
Bank except in writing. No failure or delay on the part of the Bank in
exercising any right, power or remedy hereunder shall operate as a waiver of the
exercise of the same or any other right at any other time; nor shall any single
or partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder. There shall be no obligation on the part of the Bank to exercise any
remedy available to the Bank in any order. The remedies provided for herein are
cumulative and not exclusive of any remedies provided at law or in equity. Each
Borrower agrees that in the event that such Borrower fails to perform, observe
or discharge any of its Obligations or liabilities under this Agreement or any
other agreements with the Bank, no remedy of law will provide adequate relief to
the Bank, and further agrees that the Bank shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.

          12.10          Letters of Credit. With respect to all Letters of
Credit for which presentment for honor shall not have occurred at the time of an
acceleration pursuant to this Section 12, the Borrowers shall at such time
deposit in a cash collateral account opened by the Bank an amount equal to the
Letter of Credit Obligations then outstanding. Amounts held in such cash
collateral account shall be applied by the Bank to the payment of drafts drawn
under such Letters of Credit, and the unused portion thereof after all such
Letters of Credit shall have expired or been fully drawn upon, if any, shall be
applied to repay the Obligations, in such order of application as the Bank may,
in its sole discretion, from time to time elect. After Final Payment has been
made and the Revolving Loan Commitment and Letter of Credit Commitment have been
terminated, the balance, if any, in such cash collateral account shall be
returned to the Borrowers or such other Person as may be lawfully entitled
thereto.

          12.11          Voting Rights in Respect of the Pledged Equity
Interests. So long as no Event of Default shall have occurred and be continuing
and the Bank shall not have given notice to Borrowers that it is exercising its
rights under this Section 12.11, to the extent permitted by law, IntriCon may
exercise any and all voting and other consensual rights pertaining to the
Pledged Equity Interests or any part thereof for any purpose not inconsistent
with the terms of this Agreement. Upon the occurrence and during the continuance
of an Event of Default and notice from the Bank to Borrowers that it is
exercising its rights under this Section 12.11, all rights of IntriCon to
exercise the voting and other consensual rights which it would otherwise be
entitled to exercise pursuant to this Section 12.11 shall cease and all such
rights shall thereupon become vested in the Bank which shall then have the sole
right to exercise such voting and other consensual rights.

          12.12          Distribution Rights in Respect of the Pledged Equity
Interests.

 

 

 

 

                   (a)          So long as no Event of Default shall have
occurred and be continuing and the Bank shall not have given notice to Borrowers
that it is exercising its rights under this Section 12.12, and subject to
Section 6.12(c) hereof, IntriCon may receive and retain any and all
distributions or interest paid in respect of the Pledged Equity Interests.

 

 

 

 

                   (b)          Upon the occurrence and during the continuance
of an Event of Default and after notice from the Bank to Borrowers that it is
exercising its rights under this Section 12.12:

 

 

 

 

 

                (i)          all rights of IntriCon to receive the distributions
and interest payments which it would otherwise be authorized to receive and
retain pursuant to paragraph (a) of this Section 12.12 shall cease and all such
rights shall thereupon be vested in Bank which

64

--------------------------------------------------------------------------------

 

 

 

 

 

shall then have the sole right to receive and hold as additional Collateral such
dividends and interest payments; and

 

 

 

 

 

                (ii)          all distributions and interest payments which are
received by IntriCon contrary to the provisions of paragraph (ii) of this clause
shall be received in trust for the benefit of Bank, shall be segregated from
other property or funds of IntriCon, and shall be forthwith paid over to Bank as
additional Collateral in the exact form received, to be held by Bank as
additional Collateral and as further collateral security for the Obligations.

 

 

Section 13.

 MISCELLANEOUS.

          13.1          Obligations Absolute. None of the following shall affect
the Obligations of any Borrower to the Bank under this Agreement or the Bank’s
rights with respect to the Collateral:

 

 

 

                 (a)          acceptance or retention by the Bank of other
property or any interest in property as security for the Obligations;

 

 

 

                 (b)          release by the Bank of any of the Borrowers or any
of the other Obligors or of all or any part of the Collateral (other than with
respect to the Obligor or Collateral so released);

 

 

 

                 (c)          release, extension, renewal, modification or
substitution by the Bank of any Note, or any note evidencing any of the
Obligations, or the compromise of the liability of any Borrower or any other
Obligor; or

 

 

 

                 (d)          failure of the Bank to resort to any other
security or to pursue Borrowers (or any of them) or any other obligor liable for
any of the Obligations before resorting to remedies against the Collateral.

          13.2          Entire Agreement. This Agreement and the other Loan
Documents (i) are valid, binding and enforceable against each Borrower and the
Bank in accordance with their respective provisions and no conditions exist as
to their legal effectiveness; (ii) constitute the entire agreement between the
parties with respect to the subject matter hereof and thereof; and (iii) are the
final expression of the intentions of each Borrower and the Bank. No promises,
either expressed or implied, exist between any Borrower and the Bank, unless
contained herein or therein. This Agreement, together with the other Loan
Documents, supersedes all negotiations, representations, warranties,
commitments, term sheets, discussions, negotiations, offers or contracts (of any
kind or nature, whether oral or written) prior to or contemporaneous with the
execution hereof with respect to any matter, directly or indirectly related to
the terms of this Agreement and the other Loan Documents. This Agreement and the
other Loan Documents are the result of negotiations among the Bank, the
Borrowers and the other parties thereto, and have been reviewed (or have had the
opportunity to be reviewed) by counsel to all such parties, and are the products
of all parties. Accordingly, this Agreement and the other Loan Documents shall
not be construed more strictly against the Bank merely because of the Bank’s
involvement in their preparation.

          13.3          Amendments; Waivers. No delay on the part of the Bank in
the exercise of any right, power or remedy shall operate as a waiver thereof,
nor shall any single or partial exercise by the Bank of any right, power or
remedy preclude other or further exercise thereof, or the exercise of any other
right, power or remedy. No amendment, modification or waiver of, or consent with
respect to, any provision of this Agreement or the other Loan Documents shall in
any event be effective unless the same shall be in writing and acknowledged by
the Bank, and then any such amendment, modification, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

65

--------------------------------------------------------------------------------

          13.4          WAIVER OF DEFENSES. EACH BORROWER, ON BEHALF OF ITSELF
AND ANY OTHER OBLIGOR, WAIVES EVERY PRESENT AND FUTURE DEFENSE, CAUSE OF ACTION,
COUNTERCLAIM OR SETOFF WHICH THE SUCH BORROWER MAY NOW HAVE OR HEREAFTER MAY
HAVE TO ANY ACTION BY THE BANK IN ENFORCING THIS AGREEMENT. PROVIDED THE BANK
ACTS IN GOOD FAITH, EACH BORROWER RATIFIES AND CONFIRMS WHATEVER THE BANK MAY DO
PURSUANT TO THE TERMS OF THIS AGREEMENT. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE BANK GRANTING ANY FINANCIAL ACCOMMODATION TO THE BORROWERS.

          13.5          FORUM SELECTION AND CONSENT TO JURISDICTION. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED
EXCLUSIVELY IN THE COURTS OF THE STATE OF MINNESOTA, OR IN THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF MINNESOTA; PROVIDED THAT NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE BANK FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION. EACH BORROWER HEREBY
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE
OF MINNESOTA, AND THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA
FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH BORROWER FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID AND RETURN RECEIPT REQUESTED, OR BY PERSONAL SERVICE WITHIN OR
WITHOUT THE STATE OF MINNESOTA. EACH BORROWER HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY
SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.

          13.6          WAIVER OF JURY TRIAL. THE BANK AND EACH BORROWER, AFTER
CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, EACH
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY, ANY RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT, ANY OF THE OTHER OBLIGATIONS, THE
COLLATERAL, OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR
WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR
ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE
FOREGOING, OR ANY COURSE OF CONDUCT OR COURSE OF DEALING IN WHICH THE BANK AND
EACH BORROWER ARE ADVERSE PARTIES, AND EACH AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THIS PROVISION
IS A MATERIAL INDUCEMENT FOR THE BANK GRANTING ANY FINANCIAL ACCOMMODATION TO
THE BORROWERS.

          13.7          Assignability. The Bank may at any time assign the
Bank’s rights in this Agreement, the other Loan Documents, the Obligations, or
any part thereof and transfer the Bank’s rights in any or all of the Collateral,
and the Bank thereafter shall be relieved from all liability with respect to
such Collateral; provided, however, that so long as no Event of Default has
occurred and is continuing, the Bank shall not make any such assignment other
than to an Affiliate of the Bank without the prior written of the Borrowers,
such consent not to be unreasonably withheld, conditioned or delayed. In
addition, the Bank may at any time sell one or more participations in the Loans
and/or other Obligations. No Borrower may sell or assign this Agreement, or any
other agreement with the Bank or any portion thereof, either

66

--------------------------------------------------------------------------------

voluntarily or by operation of law, without the prior written consent of the
Bank. This Agreement shall be binding upon the Bank and each Borrower and their
respective legal representatives and successors. All references herein to the
Borrowers or Borrower shall be deemed to include any successors, whether
immediate or remote. In the case of a joint venture or partnership, the terms
“Borrower” or “Borrowers” shall be deemed to include all joint venturers or
partners thereof, who shall be jointly and severally liable hereunder.

          13.8          Confirmations. Each Borrower and the Bank agree from
time to time, upon written request received by it from the other, to confirm to
the other in writing the aggregate unpaid principal amount of the Loans and/or
other Obligations then outstanding under such Note.

          13.9          Confidentiality. The Bank agrees to use commercially
reasonable efforts (equivalent to the efforts the Bank applies to maintain the
confidentiality of its own confidential information) to maintain as confidential
all information provided to it by any Borrower, including all information
designated as confidential, except that the Bank may disclose such information
(a) to Persons employed or engaged by the Bank in evaluating, approving,
structuring or administering the Loans and/or Letters of Credit; (b) to any
assignee or participant or potential assignee or participant that has agreed to
comply with the covenant contained in this Section 13.9 (and any such assignee
or participant or potential assignee or participant may disclose such
information to Persons employed or engaged by them as described in clause (a)
above); (c) as required or requested by any federal or state regulatory
authority or examiner, or as reasonably believed by the Bank to be compelled by
any court decree, subpoena or legal or administrative order or process; (d) as,
on the advice of the Bank’s counsel, is required by law; (e) in connection with
the exercise of any right or remedy under the Loan Documents or in connection
with any litigation to which the Bank is a party; (f) to any nationally
recognized rating agency that requires access to information about the Bank’s
investment portfolio in connection with ratings issued with respect to the Bank;
(g) to any Affiliate of the Bank who may provide Bank Products to any Borrower
or any Subsidiary of any Borrower, or (h) that ceases to be confidential through
no fault of the Bank.

          13.10        Binding Effect. This Agreement shall become effective
upon execution by each Borrower and the Bank. If this Agreement is not dated or
contains any blanks when executed by the Borrowers, the Bank is hereby
authorized, without notice to the Borrowers, to date this Agreement as of the
date when it was executed by the Borrowers, and to complete any such blanks
according to the terms upon which this Agreement is executed.

          13.11        Governing Law. This Agreement, the Loan Documents and any
Note shall be delivered and accepted in and shall be deemed to be contracts made
under and governed by the internal laws of the State of Minnesota (but giving
effect to federal laws applicable to national banks) applicable to contracts
made and to be performed entirely within such state, without regard to conflict
of laws principles.

          13.12        Enforceability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by,
unenforceable or invalid under any jurisdiction, such provision shall as to such
jurisdiction, be severable and be ineffective to the extent of such prohibition
or invalidity, without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.

          13.13        Survival of Borrowers’ Representations. All covenants,
agreements, representations and warranties made by each Borrower herein shall,
notwithstanding any investigation by the Bank, be deemed material and relied
upon by the Bank and shall survive the making and execution of this Agreement
and the Loan Documents and the issuance of any Note, and shall be deemed to be
continuing representations and warranties until such time as the Borrowers have
fulfilled all of their Obligations to

67

--------------------------------------------------------------------------------

the Bank, and the Bank has been indefeasibly paid in full in cash. The Bank, in
extending financial accommodations to the Borrowers, is expressly acting and
relying on the aforesaid representations and warranties.

          13.14        Extensions of Bank’s Commitment. This Agreement shall
secure and govern the terms of (i) any extensions or renewals of the Bank’s
commitment hereunder, and (ii) any replacement note executed by the Borrowers
and accepted by the Bank in its sole and absolute discretion in substitution for
any Note.

          13.15        Time of Essence. Time is of the essence in making
payments of all amounts due the Bank under this Agreement and in the performance
and observance by each Borrower of each covenant, agreement, provision and term
of this Agreement.

          13.16        Counterparts; Facsimile Signatures. This Agreement may be
executed in any number of counterparts and by the different parties hereto on
separate counterparts and each such counterpart shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Agreement. Receipt of an executed signature page to this Agreement by
facsimile or other electronic transmission shall constitute effective delivery
thereof. Electronic records of executed Loan Documents maintained by the Bank
shall deemed to be originals thereof.

          13.17        Notices. Except as otherwise provided herein, the
Borrower waives all notices and demands in connection with the enforcement of
the Bank’s rights hereunder. All notices, requests, demands and other
communications provided for hereunder shall be in writing and addressed as
follows:

 

 

To any Borrower:

IntriCon Corporation

 

 

1260 Red Fox Road

 

 

Arden Hills, MN 55112

 

 

Attention: Scott Longval

 

 

 

 

With a copy to:

Blank Rome LLP

 

 

One Logan Square

 

 

130 North 18th Street

 

 

Philadelphia, PA 19103

 

 

Attention: Francis E. Dehel

 

 

 

 

To the Bank:

The PrivateBank and Trust Company

 

 

50 South 6th Street, Suite 1415

 

 

Minneapolis, MN 55402

 

 

Attention: Seth Hove

 

 

 

 

With copy to:

Briggs and Morgan, P.A.

 

 

2200 IDS Center

 

 

80 South Eighth Street

 

 

Minneapolis, MN 55402-2157

 

 

Attention: Todd D. Lee

or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party complying as to delivery with the terms
of this Subsection. All notices addressed as above shall be deemed to have been
properly given (i) if served in person, upon acceptance or refusal of delivery;
(ii) if mailed by certified or registered mail, return receipt requested,
postage prepaid, on the third (3rd) day following the day such notice is
deposited in any post office station or letter box; or (iii) if

68

--------------------------------------------------------------------------------

sent by recognized overnight courier, on the first (1st) day following the day
such notice is delivered to such carrier. No notice to or demand on the
Borrowers (or any of them) in any case where such notice or demand is not
expressly required hereunder shall entitle the Borrowers (or any of them) to any
other or further notice or demand in similar or other circumstances.

          13.18        Release of Claims Against Bank. In consideration of the
Bank making the Loans and issuing the Letters of Credit, each Borrower and all
other Obligors do each hereby release and discharge the Bank of and from any and
all claims, harm, injury, and damage of any and every kind, known or unknown,
legal or equitable, which any Obligor may have against the Bank from the date of
their respective first contact with the Bank until the date of this Loan
Agreement, including any claim arising from any reports (environmental reports,
surveys, appraisals, etc.) prepared by any parties hired or recommended by the
Bank. Each Borrower and all other Obligors confirm to Bank that they have
reviewed the effect of this release with competent legal counsel of their
choice, or have been afforded the opportunity to do so, prior to execution of
this Agreement and the Loan Documents and do each acknowledge and agree that the
Bank is relying upon this release in extending the Loans and issuing the Letters
of Credit to the Borrowers.

          13.19        Costs, Fees and Expenses. Subject to any express
limitations otherwise set forth in this Agreement or any other Loan Document,
the Borrowers jointly and severally agree to pay or reimburse the Bank for all
reasonable costs, fees and expenses incurred by the Bank or for which the Bank
becomes obligated in connection with the negotiation, preparation, consummation,
collection of the Obligations or enforcement of this Agreement, the other Loan
Documents and all other documents provided for herein or delivered or to be
delivered hereunder or in connection herewith (including any amendment,
supplement or waiver to any Loan Document), or during any workout, restructuring
or negotiations in respect thereof, including reasonable consultants’ fees and
attorneys’ fees and time charges of counsel to the Bank, which shall also
include attorneys’ fees and time charges of attorneys who may be employees of
the Bank or any Affiliate of the Bank, plus costs and expenses of such attorneys
or of the Bank; search fees, costs and expenses; and all taxes payable in
connection with this Agreement or the other Loan Documents, whether or not the
transaction contemplated hereby shall be consummated. In furtherance of the
foregoing, the Borrowers jointly and severally agree to pay any and all stamp
and other taxes, UCC search fees, filing fees and other costs and expenses in
connection with the execution and delivery of this Agreement, any Note and the
other Loan Documents to be delivered hereunder, and agrees to save and hold the
Bank harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such costs and expenses.
That portion of the Obligations consisting of costs, expenses or advances to be
reimbursed by the Borrowers to the Bank pursuant to this Agreement or the other
Loan Documents which are not paid on or prior to the date hereof shall be
jointly and severally payable by the Borrowers to the Bank on demand. If at any
time or times hereafter the Bank: (a) employs counsel for advice or other
representation (i) with respect to this Agreement or the other Loan Documents,
(ii) to represent the Bank in any litigation, contest, dispute, suit or
proceeding or to commence, defend, or intervene or to take any other action in
or with respect to any litigation, contest, dispute, suit, or proceeding
(whether instituted by the Bank, the Borrowers (or any of them), or any other
Person) in any way or respect relating to this Agreement, the other Loan
Documents or any Borrower’s business or affairs, or (iii) to enforce any rights
of the Bank against the Borrowers (or any of them) or any other Person that may
be obligated to the Bank by virtue of this Agreement or the other Loan
Documents; (b) takes any action to protect, collect, sell, liquidate, or
otherwise dispose of any of the Collateral; and/or (c) attempts to or enforces
any of the Bank’s rights or remedies under the Agreement or the other Loan
Documents, the costs and expenses incurred by the Bank in any manner or way with
respect to the foregoing, shall be part of the Obligations, jointly and
severally payable by the Borrowers to the Bank on demand.

69

--------------------------------------------------------------------------------

          13.20        Indemnification. Each Borrower agrees to defend (with
counsel satisfactory to the Bank), protect, indemnify, exonerate and hold
harmless each Indemnified Party from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and distributions of any kind or nature (including the
disbursements and the reasonable fees of counsel for each Indemnified Party
thereto, which shall also include, without limitation, reasonable attorneys’
fees and time charges of attorneys who may be employees of any Indemnified
Party), which may be imposed on, incurred by, or asserted against, any
Indemnified Party (whether direct, indirect or consequential and whether based
on any federal, state or local laws or regulations, including securities laws,
Environmental Laws, commercial laws and regulations, under common law or in
equity, or based on contract or otherwise) in any manner relating to or arising
out of this Agreement or any of the Loan Documents, or any act, event or
transaction related or attendant thereto, the preparation, execution and
delivery of this Agreement and the Loan Documents, including the making or
issuance and management of the Loans and/or Letters of Credit, the use or
intended use of the proceeds of the Loans and/or Letters of Credit, the
enforcement of the Bank’s rights and remedies under this Agreement, the Loan
Documents, any Note, any other instruments and documents delivered hereunder, or
under any other agreement between the Borrowers (or any of them) and the Bank;
provided, however, that no Borrower shall have any obligations hereunder to any
Indemnified Party with respect to matters determined by a court of competent
jurisdiction by final and nonappealable judgment to have been caused by or
resulting from the willful misconduct or gross negligence of such Indemnified
Party. To the extent that the undertaking to indemnify set forth in the
preceding sentence may be unenforceable because it violates any law or public
policy, each Borrower shall satisfy such undertaking to the maximum extent
permitted by applicable law. Any liability, obligation, loss, damage, penalty,
cost or expense covered by this indemnity shall be paid to each Indemnified
Party on demand, and failing prompt payment, together with interest thereon at
the Default Rate from the date incurred by each Indemnified Party until paid by
the Borrowers, shall be added to the Obligations of the Borrowers and be secured
by the Collateral. The provisions of this Section shall survive the satisfaction
and payment of the other Obligations and the termination of this Agreement.

          13.21        Revival and Reinstatement of Obligations. If the
incurrence or payment of the Obligations by any Obligor or the transfer to the
Bank of any property should for any reason subsequently be declared to be void
or voidable under any state or federal law relating to creditors’ rights,
including provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, or other voidable or recoverable payments of money or transfers of
property (collectively, a “Voidable Transfer”), and if the Bank is required to
repay or restore, in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that the Bank is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of the
Bank, the Obligations shall automatically shall be revived, reinstated, and
restored and shall exist as though such Voidable Transfer had never been made.

          13.22        Customer Identification - USA Patriot Act Notice. The
Bank hereby notifies the Borrowers that pursuant to the requirements of the USA
Patriot Act (Title III of Pub. L. 107-56, signed into law October 26, 2001) (the
“Act”), and the Bank’s policies and practices, the Bank is required to obtain,
verify and record certain information and documentation that identifies each
Borrower, which information includes the name and address of each Borrower and
such other information that will allow the Bank to identify the Borrowers in
accordance with the Act.

          13.23        Release of Collateral, etc.

 

 

 

                 (a)          Upon (i) Final Payment and (ii) termination of the
Revolving Loan Commitment and the Letter of Credit Commitment, the Collateral
shall be released from the Liens created hereby, and this Agreement and all
obligations (other than those expressly stated to survive such termination) of
Bank and Borrowers hereunder shall terminate, all without delivery of any

70

--------------------------------------------------------------------------------

 

 

 

instrument or performance of any act by any party. At the request and sole
expense of Borrowers following any such termination, Bank shall deliver to
Borrowers any Collateral held by Bank hereunder, and execute and deliver to
Borrowers such documents as Borrowers shall reasonably request to evidence such
termination.

 

 

 

                 (b)          If any of the Collateral shall be sold,
transferred or otherwise disposed of by any Borrower in a transaction permitted
hereunder, then Bank, at the request and sole expense of Borrowers, shall
execute and deliver to Borrowers all releases or other documents reasonably
necessary or desirable for the release of the Liens created hereby on such
Collateral.

 

 

 

                 (c)          The foregoing provisions of this Section 13.23 are
expressly subject to the terms of Section 13.21 above.

[Remainder of page intentionally left blank;
signature pages follow]

71

--------------------------------------------------------------------------------

          IN WITNESS WHEREOF, the Borrowers and the Bank have executed this Loan
and Security Agreement as of the date first above written.

 

 

 

BORROWER

 

 

AND BORROWING AGENT:

INTRICON CORPORATION,

 

a Pennsylvania corporation

 

 

 

By:

/s/ Scott Longval

 

Name:   Scott Longval

 

Title:     Chief Financial Officer

 

 

 

 

Address for notices:

 

 

 

 

1260 Red Fox Road

 

Arden Hills, MN 55112

 

Attention:   Scott Longval

 

Telephone:   651.636.9770

 

Facsimile:    651.636.9503

SIGNATURE PAGE TO LOAN AND SECURITY AGREEMENT

--------------------------------------------------------------------------------

 

 

 

 

 

 

BORROWER:

INTRICON, INC. (formerly known as Resistance

 

Technology, Inc.), a Minnesota corporation

 

 

 

 

By:

/s/ Scott Longval

 

Name:   Scott Longval

 

Title:     Chief Financial Officer

 

 

 

Address for notices:

 

 

 

1260 Red Fox Road

 

Arden Hills, MN 55112

 

Attention:  Scott Longval

 

Telephone:   651.636.9770

 

Facsimile:    651.636.9503

 

 

 

SIGNATURE PAGE TO LOAN AND SECURITY AGREEMENT

--------------------------------------------------------------------------------

 

 

 

BORROWER:

RTI ELECTRONICS, INC.,

 

a Delaware corporation

 

 

 

 

By:

/s/ Scott Longval

 

Name:   Scott Longval

 

Title:     Chief Financial Officer

 

 

 

 

Address for notices:

 

 

 

1260 Red Fox Road

 

Arden Hills, MN 55112

 

Attention:   Scott Longval

 

Telephone:   651.636.9770

 

Facsimile:    651.636.9503

 

 

 

SIGNATURE PAGE TO LOAN AND SECURITY AGREEMENT

--------------------------------------------------------------------------------

 

 

 

BORROWER:

INTRICON TIBBETTS CORPORATION

 

(formerly known as TI Acquisition Corporation),

 

a Maine corporation

 

 

 

 

By:

/s/ Scott Longval

 

Name:   Scott Longval

 

Title:     Chief Financial Officer

 

 

 

 

Address for notices:

 

 

 

 

1260 Red Fox Road

 

Arden Hills, MN 55112

 

Attention:   Scott Longval

 

Telephone:   651.636.9770

 

Facsimile:    651.636.9503

 

 

SIGNATURE PAGE TO LOAN AND SECURITY AGREEMENT

--------------------------------------------------------------------------------

 

 

 

BORROWER:

JON BARRON, INC. (d/b/a Datrix),

 

a California corporation

 

 

 

 

By:

/s/ Scott Longval

 

Name:   Scott Longval

 

Title:     Chief Financial Officer

 

 

 

 

Address for notices:

 

 

 

 

1260 Red Fox Road

 

Arden Hills, MN 55112

 

Attention:   Scott Longval

 

Telephone:   651.636.9770

 

Facsimile:    651.636.9503

 

 

SIGNATURE PAGE TO LOAN AND SECURITY AGREEMENT

--------------------------------------------------------------------------------

 

 

 

BANK:

THE PRIVATEBANK AND TRUST COMPANY,

 

an Illinois banking corporation

 

 

 

 

By:

/s/ Seth Hove

 

Name:   Seth Hove

 

Title:     Officer

 

 

 

 

Address for notices:

 

 

 

 

The PrivateBank and Trust Company

 

50 South 6th Street, Suite 1415

 

Minneapolis, MN 55402

 

Attn: Seth Hove

 

Fax: (612) 605-6193

 

 

 

SIGNATURE PAGE TO LOAN AND SECURITY AGREEMENT

--------------------------------------------------------------------------------