Exhibit 10.18

 

LOGO [g87792image3.jpg]

 

LOAN AGREEMENT

 

This Agreement dated as of June 1, 2005, is between Bank of America, N.A. (the
“Bank”) and K-Swiss Inc. (the “Borrower”).

 

1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS

 

1.1 Line of Credit Amount.

 

(a) During the availability period described below, the Bank will provide a line
of credit to the Borrower. The amount of the line of credit (the “Facility No. 1
Commitment”) is Fifteen Million and 00/100 Dollars ($15,000,000.00).

 

(b) This is a revolving line of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.

 

(c) The Borrower agrees not to permit the principal balance outstanding to
exceed the Facility No. 1 Commitment. If the Borrower exceeds this limit, the
Borrower will immediately pay the excess to the Bank upon the Bank’s demand.

 

1.2 Availability Period. The line of credit is available between the date of
this Agreement and July 1, 2007, or such earlier date as the availability may
terminate as provided in this Agreement (the “Facility No. 1 Expiration Date”).

 

The availability period for this line of credit will be considered renewed if
and only if the Bank has sent to the Borrower a written notice of renewal
effective as of the Facility No. 1 Expiration Date for the line of credit (the
“Renewal Notice”). If this line of credit is renewed, it will continue to be
subject to all the terms and conditions set forth in this Agreement except as
modified by the Renewal Notice. If this line of credit is renewed, the term
“Expiration Date” shall mean the date set forth in the Renewal Notice as the
Expiration Date and the same process for renewal will apply to any subsequent
renewal of this line of credit. A renewal fee may be charged at the Bank’s
option. The amount of the renewal fee will be specified in the Renewal Notice.

 

1.3 Repayment Terms.

 

(a) The Borrower will pay interest on July 1, 2005, and then on the same day of
each month thereafter until payment in full of any principal outstanding under
this facility.

 

(b) The Borrower will repay in full any principal, interest or other charges
outstanding under this facility no later than the Facility No. 1 Expiration
Date. Any interest period for an optional interest rate (as described below)
shall expire no later than the Facility No. 1 Expiration Date.

 

1.4 Interest Rate.

 

(a) The interest rate is a rate per year equal to the Bank’s Prime Rate minus
0.75 percentage point(s).

 

(b) The Prime Rate is the rate of interest publicly announced from time to time
by the Bank as its Prime Rate. The Prime Rate is set by the Bank based on
various factors, including the Bank’s costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans. The Bank may price loans to its customers at, above, or below the Prime
Rate. Any change in the Prime Rate shall take effect at the opening of business
on the day specified in the public announcement of a change in the Bank’s Prime
Rate.

 

1.5 Optional Interest Rates. Instead of the interest rate based on the rate
stated in the paragraph entitled “Interest Rate” above, the Borrower may elect
the optional interest rates listed below for this Facility No. 1 during interest
periods agreed to by the Bank and the Borrower. The optional interest rates
shall be subject to the terms and conditions described later in this Agreement.
Any principal amount bearing interest at an optional rate under this Agreement
is referred to as a “Portion.” The following optional interest rates are
available:

 

(a) The IBOR Rate plus 1.25 percentage point(s).

 

Standard Loan Agreement   1   Revised 2/2005

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1.6 Letters of Credit.

 

(a) During the availability period, at the request of the Borrower, the Bank
will issue:

 

  (i) commercial letters of credit with a maximum maturity of two hundred
twenty-five (225) days but not to extend more than one hundred eighty (180) days
beyond the Facility No. 1 Expiration Date. Each commercial letter of credit will
require drafts payable at sight.

 

  (ii) standby letters of credit with a maximum maturity of three hundred
sixty-five (365) days but not to extend more than three hundred sixty-five (365)
days beyond the Facility No. 1 Expiration Date. The standby letters of credit
may include a provision providing that the maturity date will be automatically
extended each year for an additional year unless the Bank gives written notice
to the contrary.

 

(b) The amount of the letters of credit outstanding at any one time (including
the drawn and unreimbursed amounts of the letters of credit) may not exceed
Fifteen Million and 00/100 Dollars ($15,000,000).

 

(c) In calculating the principal amount outstanding under the Facility No. 1
Commitment, the calculation shall include the amount of any letters of credit
outstanding, including amounts drawn on any letters of credit and not yet
reimbursed.

 

(d) The following letters of credit are outstanding from the Bank for the
account of the Borrower:

 

Letter of Credit Number

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   Amount

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3066454    $ 500,000.00 3066455    $ 1,000,000.00

 

As of the date of this Agreement, these letters of credit shall be deemed to be
outstanding under this Agreement, and shall be subject to all the terms and
conditions stated in this Agreement.

 

(e) The Borrower agrees:

 

  (i) Any sum drawn under a letter of credit may, at the option of the Bank, be
added to the principal amount outstanding under this Agreement. The amount will
bear interest and be due as described elsewhere in this Agreement.

 

  (ii) If there is a default under this Agreement, to immediately prepay and
make the Bank whole for any outstanding letters of credit.

 

  (iii) The issuance of any letter of credit and any amendment to a letter of
credit is subject to the Bank’s written approval and must be in form and content
satisfactory to the Bank and in favor of a beneficiary acceptable to the Bank.

 

  (iv) To sign the Bank’s form Application and Agreement for Commercial Letter
of Credit or Application and Agreement for Standby Letter of Credit, as
applicable.

 

  (v) To pay negotiation fees of the greater of two-tenths (0.20%) of the amount
of each drawing or Seventy Five Dollars ($75), and other fees at the times and
in the amounts Bank advises Borrower from time to time, as being generally
applicable to commercial letters of credit issued by the Bank, including without
limitation, amendment, discrepancy, and cancellation fees.

 

  (vi) To pay any issuance and/or other fees that the Bank notifies the Borrower
will be charged for issuing and processing letters of credit for the Borrower.

 

  (vii) To allow the Bank to automatically charge its checking account for
applicable fees, discounts, and other charges.

 

  (viii) To pay the Bank a non-refundable fee equal to 1% per annum of the
outstanding undrawn amount of each standby letter of credit, payable quarterly
in advance, calculated on the basis of the face amount outstanding on the day
the fee is calculated.

 

1.7 Acceptances. This line of credit up to a maximum face value outstanding of
Fifteen Million and 00/100 Dollars ($15,000,000.00) may be used for financing
acceptance transactions for a maximum tenor of one hundred eighty (180) days but
not to extend beyond the Facility No. 1 Expiration Date. In calculating the
principal amount outstanding under the Facility No. 1 Commitment, the
calculation shall include the face amount of any acceptances outstanding.

 

Standard Loan Agreement   2   Revised 2/2005

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The Borrower agrees:

 

(a) Each acceptance shall be in an amount not less than Two Hundred Fifty
Thousand and 00/100 Dollars ($250,000.00).

 

(b) Any sum owed to the Bank under an acceptance may, at the option of the Bank,
be added to the principal amount outstanding under this Agreement. The amount
will bear interest and be due as described elsewhere in this Agreement.

 

(c) If there is a default under this Agreement, to immediately prepay and make
the Bank whole for any outstanding acceptances.

 

(d) The issuance of any acceptance is subject to the Bank’s express approval and
must be in form and content satisfactory to the Bank.

 

(e) To sign the Bank’s standard form agreement for acceptances, and to pay any
issuance and/or other fees that the Bank notifies the Borrower will be charged
for issuing and processing acceptances for the Borrower.

 

(f) To allow the Bank to automatically charge its checking account for
applicable fees, discounts, and other charges.

 

(g) The discount for each draft shall be at the discount rate in effect on the
date of such acceptance for prime acceptances of equal tenor. The commission for
each draft shall be equal to:

 

  (i) one percent (1.0%) per annum of the face amount thereof for each
acceptance greater than or equal to One Million Dollars ($1,000,000);

 

  (ii) one and one half percent (1.50%) per annum of the face amount for each
acceptance greater than or equal to Five Hundred Thousand Dollars ($500,000) but
less than One Million Dollars ($1,000,000);

 

  (iii) one and three fourths percent (1.75%) per annum of the face amount for
each acceptance less than Five Hundred Thousand Dollars ($500,000);

 

  (iv) provided, however, that in no event shall the acceptance commission be
less than Five Hundred Dollars ($500).

 

The acceptance commission with respect to each acceptance shall be payable in
full on the date of creation of such acceptance.

 

2. OPTIONAL INTEREST RATES

 

2.1 Optional Rates. Each optional interest rate is a rate per year. Interest
will be paid on July 1, 2005, and then on the same day of each month thereafter
until payment in full of any principal outstanding under this Agreement. No
Portion will be converted to a different interest rate during the applicable
interest period. Upon the occurrence of an event of default under this
Agreement, the Bank may terminate the availability of optional interest rates
for interest periods commencing after the default occurs. At the end of each
interest period, the interest rate will revert to the rate stated in the
paragraph(s) entitled “Interest Rate” above, unless the Borrower has designated
another optional interest rate for the Portion.

 

2.2 IBOR Rate. The election of IBOR Rates shall be subject to the following
terms and requirements:

 

(a) The interest period during which the IBOR Rate will be in effect will be no
shorter than thirty (30) days and no longer than one year. The last day of the
interest period will be determined by the Bank using the practices of the
offshore dollar inter-bank market.

 

(b) Each IBOR Rate Portion will be for an amount not less than One Hundred
Thousand and 00/100 Dollars ($100,000.00).

 

(c) The “IBOR Rate” means the interest rate determined by the following formula,
rounded upward to the nearest 1/100 of one percent. (All amounts in the
calculation will be determined by the Bank as of the first day of the interest
period.)

 

   

IBOR Rate =

            IBOR Base Rate            (1.00 -Reserve Percentage)     

 

Standard Loan Agreement   3   Revised 2/2005

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Where,

 

  (i) “IBOR Base Rate” means the interest rate at which the Bank of America’s
Grand Cayman Banking Center, Grand Cayman, British West Indies, would offer U.S.
dollar deposits for the applicable interest period to other major banks in the
offshore dollar inter-bank market.

 

  (ii) “Reserve Percentage” means the total of the maximum reserve percentages
for determining the reserves to be maintained by member banks of the Federal
Reserve System for Eurocurrency Liabilities, as defined in Federal Reserve Board
Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage
will be expressed as a decimal, and will include, but not be limited to,
marginal, emergency, supplemental, special, and other reserve percentages.

 

(d) The Bank will have no obligation to accept an election for an IBOR Rate
Portion if any of the following described events has occurred and is continuing:

 

  (i) Dollar deposits in the principal amount, and for periods equal to the
interest period, of an IBOR Rate Portion are not available in the offshore
dollar inter-bank market; or

 

  (ii) the IBOR Rate does not accurately reflect the cost of an IBOR Rate
Portion.

 

(e) Each prepayment of an IBOR Rate Portion, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued interest
on the amount prepaid, and a prepayment fee as described below. A “prepayment”
is a payment of an amount on a date earlier than the scheduled payment date for
such amount as required by this Agreement.

 

(f) The prepayment fee shall be in an amount sufficient to compensate the Bank
for any loss, cost or expense incurred by it as a result of the prepayment,
including any loss of anticipated profits and any loss or expense arising from
the liquidation or reemployment of funds obtained by it to maintain such Portion
or from fees payable to terminate the deposits from which such funds were
obtained. The Borrower shall also pay any customary administrative fees charged
by the Bank in connection with the foregoing. For purposes of this paragraph,
the Bank shall be deemed to have funded each Portion by a matching deposit or
other borrowing in the applicable interbank market, whether or not such Portion
was in fact so funded.

 

3. FEES AND EXPENSES

 

3.1 Fees.

 

(a) Unused Commitment Fee. The Borrower agrees to pay a fee on any difference
between the Facility No. 1 Commitment and the amount of credit it actually uses,
determined by the average of the daily amount of credit outstanding during the
specified period. The fee will be calculated at 0.125% per year. The calculation
of credit outstanding shall not include the undrawn amount of letters of credit
and acceptances.

 

  This fee is due on July 1, 2005, and on the same day of each following quarter
until the expiration of the availability period.

 

(b) Waiver Fee. If the Bank, at its discretion, agrees to waive or amend any
terms of this Agreement, the Borrower will, at the Bank’s option, pay the Bank a
fee for each waiver or amendment in an amount advised by the Bank at the time
the Borrower requests the waiver or amendment. Nothing in this paragraph shall
imply that the Bank is obligated to agree to any waiver or amendment requested
by the Borrower. The Bank may impose additional requirements as a condition to
any waiver or amendment.

 

(c) Late Fee. To the extent permitted by law, the Borrower agrees to pay a late
fee in an amount not to exceed four percent (4%) of any payment that is more
than fifteen (15) days late. The imposition and payment of a late fee shall not
constitute a waiver of the Bank’s rights with respect to the default.

 

3.2 Expenses. The Borrower agrees to immediately repay the Bank for expenses
that include, but are not limited to, filing, recording and search fees,
appraisal fees, title report fees, and documentation fees.

 

3.3 Reimbursement Costs. The Borrower agrees to reimburse the Bank for any
expenses it incurs in the preparation of this Agreement and any agreement or
instrument required by this Agreement. Expenses include, but are not limited to,
reasonable attorneys’ fees, including any allocated costs of the Bank’s in-house
counsel to the extent permitted by applicable law.

 

Standard Loan Agreement   4   Revised 2/2005

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4. DISBURSEMENTS, PAYMENTS AND COSTS

 

4.1 Disbursements and Payments.

 

(a) Each payment by the Borrower will be made in U.S. Dollars and immediately
available funds by direct debit to a deposit account as specified below or, for
payments not required to be made by direct debit, by mail to the address shown
on the Borrower’s statement or at one of the Bank’s banking centers in the
United States.

 

(b) Each disbursement by the Bank and each payment by the Borrower will be
evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require the Borrower to sign one or more promissory notes.

 

4.2 Telephone and Telefax Authorization.

 

(a) The Bank may honor telephone or telefax instructions for advances or
repayments or for the designation of optional interest rates and telefax
requests for the issuance of letters of credit given, or purported to be given,
by any one of the individuals authorized to sign loan agreements on behalf of
the Borrower, or any other individual designated by any one of such authorized
signers.

 

(b) Advances will be deposited in and repayments will be withdrawn from account
number 14650-50692 owned by the Borrower or such other of the Borrower’s
accounts with the Bank as designated in writing by the Borrower.

 

(c) The Borrower will indemnify and hold the Bank harmless from all liability,
loss, and costs in connection with any act resulting from telephone or telefax
instructions the Bank reasonably believes are made by any individual authorized
by the Borrower to give such instructions. This paragraph will survive this
Agreement’s termination, and will benefit the Bank and its officers, employees,
and agents.

 

4.3 Direct Debit (Pre-Billing).

 

(a) The Borrower agrees that the Bank will debit deposit account number
14650-50692 owned by the Borrower or such other of the Borrower’s accounts with
the Bank as designated in writing by the Borrower (the “Designated Account”) on
the date each payment of principal and interest and any fees from the Borrower
becomes due (the “Due Date”).

 

(b) Prior to each Due Date, the Bank will mail to the Borrower a statement of
the amounts that will be due on that Due Date (the “Billed Amount”). The bill
will be mailed a specified number of calendar days prior to the Due Date, which
number of days will be mutually agreed from time to time by the Bank and the
Borrower. The calculations in the bill will be made on the assumption that no
new extensions of credit or payments will be made between the date of the
billing statement and the Due Date, and that there will be no changes in the
applicable interest rate.

 

(c) The Bank will debit the Designated Account for the Billed Amount, regardless
of the actual amount due on that date (the “Accrued Amount”). If the Billed
Amount debited to the Designated Account differs from the Accrued Amount, the
discrepancy will be treated as follows:

 

  (i) If the Billed Amount is less than the Accrued Amount, the Billed Amount
for the following Due Date will be increased by the amount of the discrepancy.
The Borrower will not be in default by reason of any such discrepancy.

 

  (ii) If the Billed Amount is more than the Accrued Amount, the Billed Amount
for the following Due Date will be decreased by the amount of the discrepancy.

 

Regardless of any such discrepancy, interest will continue to accrue based on
the actual amount of principal outstanding without compounding. The Bank will
not pay the Borrower interest on any overpayment.

 

(d) The Borrower will maintain sufficient funds in the Designated Account to
cover each debit. If there are insufficient funds in the Designated Account on
the date the Bank enters any debit authorized by this Agreement, the Bank may
reverse the debit.

 

(e) The Borrower may terminate this direct debit arrangement at any time by
sending written notice to the Bank at the address specified at the end of this
Agreement. If the Borrower terminates this arrangement, then the principal
amount outstanding under this Agreement will at the option of the Bank bear
interest at a rate per annum which is 0.5 percentage point(s) higher than the
rate of interest otherwise provided under this Agreement.

 

Standard Loan Agreement   5   Revised 2/2005

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4.4 Banking Days. Unless otherwise provided in this Agreement, a banking day is
a day other than a Saturday, Sunday or other day on which commercial banks are
authorized to close, or are in fact closed, in the state where the Bank’s
lending office is located, and, if such day relates to amounts bearing interest
at an offshore rate (if any), means any such day on which dealings in dollar
deposits are conducted among banks in the offshore dollar interbank market. All
payments and disbursements which would be due on a day which is not a banking
day will be due on the next banking day. All payments received on a day which is
not a banking day will be applied to the credit on the next banking day.

 

4.5 Interest Calculation. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used. Installments of principal which are not paid
when due under this Agreement shall continue to bear interest until paid.

 

4.6 Default Rate. Upon the occurrence of any default or after maturity or after
judgement has been rendered on any obligation under this Agreement, all amounts
outstanding under this Agreement, including any interest, fees, or costs which
are not paid when due, will at the option of the Bank bear interest at a rate
which is 2.0 percentage point(s) higher than the rate of interest otherwise
provided under this Agreement. This may result in compounding of interest. This
will not constitute a waiver of any default.

 

4.7 Taxes. If any payments to the Bank under this Agreement are made from
outside the United States, the Borrower will not deduct any foreign taxes from
any payments it makes to the Bank. If any such taxes are imposed on any payments
made by the Borrower (including payments under this paragraph), the Borrower
will pay the taxes and will also pay to the Bank, at the time interest is paid,
any additional amount which the Bank specifies as necessary to preserve the
after-tax yield the Bank would have received if such taxes had not been imposed.
The Borrower will confirm that it has paid the taxes by giving the Bank official
tax receipts (or notarized copies) within thirty (30) days after the due date.

 

5. CONDITIONS

 

Before the Bank is required to extend any credit to the Borrower under this
Agreement, it must receive any documents and other items it may reasonably
require, in form and content acceptable to the Bank, including any items
specifically listed below.

 

5.1 Authorizations. If the Borrower or any guarantor is anything other than a
natural person, evidence that the execution, delivery and performance by the
Borrower and/or such guarantor of this Agreement and any instrument or agreement
required under this Agreement have been duly authorized.

 

5.2 Governing Documents. If required by the Bank, a copy of the Borrower’s
organizational documents.

 

5.3 Guaranties. Guaranties signed by K-Swiss Sales Corp. (“K-Swiss Sales”),
K-Swiss International Ltd. (“K-Swiss International”) and Royal Elastics Inc.
(“REI”).

 

5.4 Payment of Fees. Payment of all fees and other amounts due and owing to the
Bank, including without limitation payment of all accrued and unpaid expenses
incurred by the Bank as required by the paragraph entitled “Reimbursement
Costs.”

 

5.5 Good Standing. Certificates of good standing for the Borrower from its state
of formation and from any other state in which the Borrower is required to
qualify to conduct its business.

 

5.6 Insurance. Evidence of insurance coverage, as required in the “Covenants”
section of this Agreement.

 

6. REPRESENTATIONS AND WARRANTIES

 

When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewal of these representations and
warranties as of the date of the request:

 

6.1 Formation. If the Borrower is anything other than a natural person, it is
duly formed and existing under the laws of the state or other jurisdiction where
organized.

 

6.2 Authorization. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower’s powers, have been duly authorized, and do
not conflict with any of its organizational papers.

 

6.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.

 

Standard Loan Agreement   6   Revised 2/2005

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6.4 Good Standing. In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.

 

6.5 No Conflicts. This Agreement does not conflict with any law, agreement, or
obligation by which the Borrower is bound.

 

6.6 Financial Information. All financial and other information that has been or
will be supplied to the Bank is sufficiently complete to give the Bank accurate
knowledge of the Borrower’s (and any guarantor’s) financial condition, including
all material contingent liabilities. Since the date of the most recent financial
statement provided to the Bank, there has been no material adverse change in the
business condition (financial or otherwise), operations, properties or prospects
of the Borrower (or any guarantor). If the Borrower is comprised of the trustees
of a trust, the foregoing representations shall also pertain to the trustor(s)
of the trust.

 

6.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower which, if lost, would impair the Borrower’s
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.

 

6.8 Permits, Franchises. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights, copyrights and fictitious name rights necessary to enable
it to conduct the business in which it is now engaged.

 

6.9 Other Obligations. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation, except as have been disclosed in
writing to the Bank.

 

6.10 Tax Matters. The Borrower has no knowledge of any pending assessments or
adjustments of its income tax for any year and all taxes due have been paid,
except as have been disclosed in writing to the Bank.

 

6.11 No Event of Default. There is no event which is, or with notice or lapse of
time or both would be, a default under this Agreement.

 

6.12 Insurance. The Borrower has obtained, and maintained in effect, the
insurance coverage required in the “Covenants” section of this Agreement.

 

7. COVENANTS

 

The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:

 

7.1 Use of Proceeds. To use the proceeds of Facility No. 1 only for working
capital.

 

7.2 Financial Information. To provide the following financial information and
statements in form and content acceptable to the Bank, and such additional
information as requested by the Bank from time to time:

 

(a) Within one hundred twenty (120) days of the fiscal year end, the annual
financial statements of the Borrower. These financial statements must be audited
(with an opinion satisfactory to the Bank) by a Certified Public Accountant
acceptable to the Bank. The statements shall be prepared on a consolidated
basis.

 

(b) Within sixty (60) days of the period’s end, quarterly financial statements
of the Borrower. These financial statements may be company-prepared. The
statements shall be prepared on a consolidated basis.

 

(c) Promptly upon their becoming available, copies of all registration
statements and regular periodic reports, if any, which Borrower shall have filed
after the date hereof with the Securities and Exchange Commission (or any
governmental agency substituted therefore) or any national securities exchange.

 

(d) Within one hundred twenty (120) days of the end of each fiscal year and
within sixty (60) days of the end of each quarter, a compliance certificate of
the Borrower signed by an authorized financial officer, and setting forth (i)
the information and computations (in sufficient detail) to establish that the
Borrower is in compliance with all financial covenants at the end of the period
covered by the financial statements then being furnished and (ii) whether there
existed as of the date of such financial statements and whether there exists as
of the date of the certificate, any default under this Agreement and, if any
such default exists, specifying the nature thereof and the action the Borrower
is taking and proposes to take with respect thereto.

 

7.3 Tangible Net Worth. To maintain on a consolidated basis Tangible Net Worth
equal to at least the sum of the following:

 

Standard Loan Agreement   7   Revised 2/2005

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(a) One Hundred Twenty-Five Million and 00/100 Dollars ($125,000,000.00); plus

(b) the sum of 75% of net income after income taxes (without subtracting losses)
earned in each fiscal year ending after the date of this Agreement.

 

“Tangible Net Worth” means the value of total assets (including leaseholds and
leasehold improvements and reserves against assets but excluding goodwill,
patents, trademarks, trade names, organization expense, unamortized debt
discount and expense, capitalized or deferred research and development costs,
deferred marketing expenses, and other like intangibles, and monies due from
affiliates, officers, directors, employees, shareholders, members or managers)
less total liabilities, including but not limited to accrued and deferred income
taxes, but excluding the non-current portion of Subordinated Liabilities.

 

“Subordinated Liabilities” means liabilities subordinated to the Borrower’s
obligations to the Bank in a manner acceptable to the Bank in its sole
discretion.

 

7.4 Minimum EBITDA . To maintain on a consolidated basis EBITDA in an amount of
at least Fifty Million Dollars ($50,000,000).

 

“EBITDA” means net income, less income or plus loss from discontinued operations
and extraordinary items, plus income taxes, plus interest expense, plus
depreciation, depletion, and amortization.

 

This ratio will be calculated at the end of each reporting period for which the
Bank requires financial statements, using the results of the twelve-month period
ending with that reporting period.

 

7.5 Dividends and Stock Redemptions. Not to declare or pay dividends, or redeem
stock of the Borrower in an aggregate amount in excess of One Hundred Million
and 00/100 Dollars ($100,000,000.00).

 

7.6 Bank as Principal Depository. To maintain the Bank as its principal
depository bank, including for the maintenance of business, cash management,
operating and administrative deposit accounts.

 

7.7 Other Debts. Not to have outstanding or incur any direct or contingent
liabilities or lease obligations (other than those to the Bank), or become
liable for the liabilities of others, without the Bank’s written consent. This
does not prohibit:

 

(a) Acquiring goods, supplies, or merchandise on normal trade credit.

 

(b) Endorsing negotiable instruments received in the usual course of business.

 

(c) Obtaining surety bonds in the usual course of business.

 

(d) Liabilities, lines of credit and leases in existence on the date of this
Agreement disclosed in writing to the Bank.

 

(e) Additional purchase money indebtedness, including the present value of
capital lease obligations, for the acquisition of fixed or capital assets, which
does not exceed an aggregate principal amount of Five Million Dollars
($5,000,000) in any fiscal year.

 

(f) Unfunded pension fund and other employee benefit plan obligations and
liabilities to the extent they are permitted to remain unfunded under applicable
law.

 

(g) Liabilities assumed or guaranteed in connection with the Borrower’s
acquisition (by purchase, merger, recapitalization or otherwise) of all or
substantially all of the assets or equity interests of a third party.

 

(h) Additional liabilities not to exceed Five Million Dollars ($5,000,000) at
any time outstanding.

 

(i) Refinancing of any existing or permitted indebtedness.

 

(j) Hedging agreements not used for speculative purposes.

 

7.8 Other Liens. Not to create, assume, or allow any security interest or lien
(including judicial liens) on property the Borrower now or later owns, except:

 

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(a) Liens and security interests in favor of the Bank.

 

(b) Liens for taxes, assessments or other governmental charges which are not
delinquent.

 

(c) Liens outstanding on the date of this Agreement disclosed in writing to the
Bank.

 

(d) Liens assumed in the normal course of business with respect to obligations
which are not yet due or which are being contested in good faith.

 

(e) Purchase money security liens (including the interest of a lessor under a
capital lease), if the total principal amount of debts secured by such liens
does not exceed Five Million Dollars ($5,000,000) at any time outstanding.

 

(f) Additional liens securing indebtedness not to exceed Five Million Dollars
($5,000,000).

 

(g) The replacement, extension or renewal of any lien permitted hereunder upon
or in the same property subject thereto.

 

7.9 Maintenance of Assets.

 

(a) Not to sell, assign, lease, transfer or otherwise dispose of any part of the
Borrower’s business or the Borrower’s assets except in the ordinary course of
the Borrower’s business except in an aggregate amount not exceeding Five Hundred
Thousand Dollars ($500,000) in any fiscal year.

 

(b) Not to sell, assign, lease, transfer or otherwise dispose of any assets for
less than fair market value, or enter into any agreement to do so.

 

(c) Not to enter into any sale and leaseback agreement covering any of its fixed
assets.

 

(d) To maintain and preserve all rights, privileges, and franchises the Borrower
now has.

 

(e) To make any repairs, renewals, or replacements to keep the Borrower’s
properties in good working condition.

 

7.10 Loans and Investments. Not to have any existing, or make any new, loans or
other extensions of credit to, or investments in, any individual or entity, or
make any capital contributions or other transfers of assets to any individual or
entity, except for:

 

(a) Existing investments in the Borrower’s current subsidiaries.

 

(b) Investments in acquisitions of the Borrower’s subsidiaries or joint ventures
that do not exceed an aggregate amount of Ten Million Dollars ($10,000,000) in
any one fiscal year, provided that Borrower has management and voting control of
such entity(ies), and delivers to the Bank the guaranty of any such domestic
entity in which the aggregate of investments is greater than Five Million
Dollars ($5,000,000) or (ii) entity total assets of greater than Five Million
Dollars ($5,000,000) or (iii) total annual revenues greater than Five Million
Dollars ($5,000,000).

 

(c) Extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the ordinary
course of business to non-affiliated entities.

 

(d) Investments in any of the following:

 

  (i) interest bearing certificates of deposit issued by any commercial banking
institution issuing short-term obligations rated at least Prime 1 by Moody’s
Investors Service (“Moody’s”), or at least A-1 by Standard & Poor’s Corporation
(“S&P”), or at least F-1 by Fitch and organized under the laws of the United
States or any state thereof;

 

  (ii) prime commercial paper rated at least Prime 1 by Moody’s, or at least A-1
by S&P, or at least F-1 by Fitch;

 

  (iii) U.S. treasury bills and other obligations of the federal government;

 

(e) Extensions of credit to the Borrower’s subsidiaries or joint ventures (not
otherwise permitted under this paragraph) after the date of this Agreement that
to not exceed an aggregate amount of Fifteen Million Dollars ($15,000,000)
outstanding at any one time, provided that the Borrower has management and
voting control of such entity(ies).

 

Standard Loan Agreement   9   Revised 2/2005

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(f) Loans to any of the Borrower’s executives, officers, directors, employees or
shareholders not to exceed an aggregate amount of Five Hundred Thousand Dollars
($500,000) at any one time.

 

(g) Extensions of credit to Borrower’s officers permitted in preceding
paragraph.

 

7.11 Change of Management. Not to make any substantial change in the present
executive or management personnel of the Borrower.

 

7.12 Change of Ownership. Not to cause, permit, or suffer any change in capital
ownership such there is a material change, as determined by the Bank in its sole
discretion, in the direct or indirect capital ownership of the Borrower.

 

7.13 Additional Negative Covenants. Not to, without the Bank’s written consent:

 

(a) Enter into any consolidation, merger, or other combination, or become a
partner in a partnership, a member of a joint venture, or a member of a limited
liability company.

 

(b) Acquire or purchase a business or its assets for a consideration, including
assumption of direct or contingent debt (except as permitted in Paragraph
7.11(b) of this Agreement).

 

(c) Engage in any business activities substantially different from the
Borrower’s present business.

 

7.14 Notices to Bank. To promptly notify the Bank in writing of:

 

(a) Any lawsuit over One Million and 00/100 Dollars ($1,000,000.00) against the
Borrower (or any guarantor or, if the Borrower is comprised of the trustees of a
trust, any trustor).

 

(b) Any substantial dispute between any governmental authority and the Borrower
(or any guarantor or, if the Borrower is comprised of the trustees of a trust,
any trustor).

 

(c) Any event of default under this Agreement, or any event which, with notice
or lapse of time or both, would constitute an event of default.

 

(d) Any material adverse change in the Borrower’s (or any guarantor’s, or, if
the Borrower is comprised of the trustees of a trust, any trustor’s) business
condition (financial or otherwise), operations, properties or prospects, or
ability to repay the credit.

 

(e) Any change in the Borrower’s name, legal structure, place of business, or
chief executive office if the Borrower has more than one place of business.

 

(f) Any actual contingent liabilities of the Borrower (or any guarantor or, if
the Borrower is comprised of the trustees of a trust, any trustor), and any such
contingent liabilities which are reasonably foreseeable, where such liabilities
are in excess of One Million and 00/100 Dollars ($1,000,000.00) in the
aggregate.

 

7.15 General Business Insurance. To maintain insurance satisfactory to the Bank
as to amount, nature and carrier covering property damage (including loss of use
and occupancy) to any of the Borrower’s properties, business interruption
insurance, public liability insurance including coverage for contractual
liability, product liability and workers’ compensation, and any other insurance
which is usual for the Borrower’s business. Each policy shall provide for at
least 30 days prior notice to the Bank of any cancellation thereof.

 

7.16 Compliance with Laws. To comply with the laws (including any fictitious or
trade name statute), regulations, and orders of any government body with
authority over the Borrower’s business. The Bank shall have no obligation to
make any advance to the Borrower’s except in compliance with all applicable laws
and regulations and the Borrower’s shall fully cooperate with the Bank in
complying with all such applicable laws and regulations.

 

7.17 ERISA Plans. Promptly during each year, to pay and cause any subsidiaries
to pay contributions adequate to meet at least the minimum funding standards
under ERISA with respect to each and every Plan; file each annual report
required to be filed pursuant to ERISA in connection with each Plan for each
year; and notify the Bank within ten (10) days of the occurrence of any
Reportable Event that might constitute grounds for termination of any capital
Plan by the Pension Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer any Plan.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time. Capitalized terms in this paragraph shall have the meanings
defined within ERISA.

 

Standard Loan Agreement   10   Revised 2/2005

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7.18 Books and Records. To maintain adequate books and records.

 

7.19 Audits. To allow the Bank and its agents to inspect the Borrower’s
properties and examine, audit, and make copies of books and records at any
reasonable time. If any of the Borrower’s properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank’s requests for information concerning such
properties, books and records.

 

7.20 Cooperation. To take any action reasonably requested by the Bank to carry
out the intent of this Agreement.

 

8. HAZARDOUS SUBSTANCES

 

8.1 Indemnity Regarding Hazardous Substances. The Borrower will indemnify and
hold harmless the Bank from any loss or liability the Bank incurs in connection
with or as a result of this Agreement, which directly or indirectly arises out
of the use, generation, manufacture, production, storage, release, threatened
release, discharge, disposal or presence of a hazardous substance. This
indemnity will apply whether the hazardous substance is on, under or about the
Borrower’s property or operations or property leased to the Borrower. The
indemnity includes but is not limited to attorneys’ fees (including the
reasonable estimate of the allocated cost of in-house counsel and staff). The
indemnity extends to the Bank, its parent, subsidiaries and all of their
directors, officers, employees, agents, successors, attorneys and assigns.

 

8.2 Compliance Regarding Hazardous Substances. The Borrower represents and
warrants that the Borrower has complied with all current and future laws,
regulations and ordinances or other requirements of any governmental authority
relating to or imposing liability or standards of conduct concerning protection
of health or the environment or hazardous substances.

 

8.3 Notices Regarding Hazardous Substances. Until full repayment of the loan,
the Borrower will promptly notify the Bank in writing of any threatened or
pending investigation of the Borrower or its operations by any governmental
agency under any current or future law, regulation or ordinance pertaining to
any hazardous substance.

 

8.4 Definition of Hazardous Substances. “Hazardous substances” means any
substance, material or waste that is or becomes designated or regulated as
“toxic,” “hazardous,” “pollutant,” or “contaminant” or a similar designation or
regulation under any current or future federal, state or local law (whether
under common law, statute, regulation or otherwise) or judicial or
administrative interpretation of such, including without limitation petroleum or
natural gas.

 

8.5 Continuing Obligation. The Borrower’s obligations to the Bank under this
Article, except the obligation to give notices to the Bank, shall survive
termination of this Agreement and repayment of the Borrower’s obligations to the
Bank under this Agreement.

 

9. DEFAULT AND REMEDIES

 

If any of the following events of default occurs, the Bank may do one or more of
the following: declare the Borrower in default, stop making any additional
credit available to the Borrower, and require the Borrower to repay its entire
debt immediately and without prior notice. If an event which, with notice or the
passage of time, will constitute an event of default has occurred and is
continuing, the Bank has no obligation to make advances or extend additional
credit under this Agreement. In addition, if any event of default occurs, the
Bank shall have all rights, powers and remedies available under any instruments
and agreements required by or executed in connection with this Agreement, as
well as all rights and remedies available at law or in equity. If an event of
default occurs under the paragraph entitled “Bankruptcy,” below, with respect to
the Borrower, then the entire debt outstanding under this Agreement will
automatically be due immediately.

 

9.1 Failure to Pay. The Borrower fails to make a payment under this Agreement
within ten (10) days after the date when due.

 

9.2 Other Bank Agreements. Any default occurs under any other agreement the
Borrower (or any Obligor) or any of the Borrower’s related entities or
affiliates has with the Bank or any affiliate of the Bank. For purposes of this
Agreement, “Obligor” shall mean any guarantor, any party pledging collateral to
the Bank, or, if the Borrower is comprised of the trustees of a trust, any
trustor. If, in the Bank’s opinion, the breach is capable of being remedied, the
breach will not be considered an event of default under this Agreement for a
period of ten (10) days after the date on which the Bank gives written notice of
the breach to the Borrower.

 

9.3 Cross-default. Any default occurs under any agreement in connection with any
credit the Borrower (or any Obligor) or any of the Borrower’s related entities
or affiliates has obtained from anyone else or which the Borrower (or any
Obligor) or any of the Borrower’s related entities or affiliates has guaranteed
in the amount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) or more
in the aggregate if the default consists of failing to make a payment when due
or gives the other lender the right to accelerate the obligation.

 

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9.4 False Information. The Borrower or any Obligor has given the Bank false or
misleading information or representations.

 

9.5 Bankruptcy. The Borrower, any Obligor, or any general partner of the
Borrower or of any Obligor files a bankruptcy petition, a bankruptcy petition is
filed against any of the foregoing parties, or the Borrower, any Obligor, or any
general partner of the Borrower or of any Obligor makes a general assignment for
the benefit of creditors.

 

9.6 Receivers. A receiver or similar official is appointed for a substantial
portion of the Borrower’s or any Obligor’s business, or the business is
terminated, or, if any Obligor is anything other than a natural person, such
Obligor is liquidated or dissolved.

 

9.7 Judgments. Any judgments or arbitration awards are entered against the
Borrower or any Obligor, or the Borrower or any Obligor enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of Five Million and 00/100 Dollars ($5,000,000.00) or more in
excess of any established reserves in the case of that certain Internal Revenue
Service tax assessment pending against the Borrower and disclosed to the Bank
and One Million Dollars ($1,000,000) or more in excess of any insurance coverage
or established reserves in all other cases.

 

9.8 Material Adverse Change. A material adverse change occurs, or is reasonably
likely to occur, in the Borrower’s (or any Obligor’s) business condition
(financial or otherwise), operations, properties or prospects, or ability to
repay the credit.

 

9.9 Government Action. Any government authority takes action that the Bank
believes materially adversely affects the Borrower’s or any Obligor’s financial
condition or ability to repay.

 

9.10 Default under Related Documents. Any default occurs under any guaranty,
subordination agreement, security agreement, deed of trust, mortgage, or other
document required by or delivered in connection with this Agreement or any such
document is no longer in effect, or any guarantor purports to revoke or disavow
the guaranty.

 

9.11 ERISA Plans. Any one or more of the following events occurs with respect to
a Plan of the Borrower subject to Title IV of ERISA, provided such event or
events could reasonably be expected, in the judgment of the Bank, to subject the
Borrower to any tax, penalty or liability (or any combination of the foregoing)
which, in the aggregate, could have a material adverse effect on the financial
condition of the Borrower:

 

(a) A reportable event shall occur under Section 4043(c) of ERISA with respect
to a Plan.

 

(b) Any Plan termination (or commencement of proceedings to terminate a Plan) or
the full or partial withdrawal from a Plan by the Borrower or any ERISA
Affiliate.

 

9.12 Other Breach Under Agreement. A default occurs under any other term or
condition of this Agreement not specifically referred to in this Article. This
includes any failure or anticipated failure by the Borrower (or any other party
named in the Covenants section) to comply with the financial covenants set forth
in this Agreement, whether such failure is evidenced by financial statements
delivered to the Bank or is otherwise known to the Borrower or the Bank. If, in
the Bank’s opinion, the breach is capable of being remedied, the breach will not
be considered an event of default under this Agreement for a period of ten (10)
days after the date on which the Bank gives written notice of the breach to the
Borrower.

 

10. ENFORCING THIS AGREEMENT; MISCELLANEOUS

 

10.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.

 

10.2 California Law. This Agreement is governed by California state law.

 

10.3 Successors and Assigns. This Agreement is binding on the Borrower’s and the
Bank’s successors and assignees. The Borrower agrees that it may not assign this
Agreement without the Bank’s prior consent. The Bank may sell participations in
or assign this loan, and may exchange information about the Borrower (including,
without limitation, any information regarding any hazardous substances) with
actual or potential participants or assignees. If a participation is sold or the
loan is assigned, the purchaser will have the right of set-off against the
Borrower.

 

10.4 Arbitration and Waiver of Jury Trial

 

(a) This paragraph concerns the resolution of any controversies or claims
between the parties, whether arising in contract, tort or by statute, including
but not limited to controversies or claims that arise out of or relate to: (i)
this agreement (including any

 

Standard Loan Agreement   12   Revised 2/2005

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

renewals, extensions or modifications); or (ii) any document related to this
agreement (collectively a “Claim”). For the purposes of this arbitration
provision only, the term “parties” shall include any parent corporation,
subsidiary or affiliate of the Bank involved in the servicing, management or
administration of any obligation described or evidenced by this agreement.

 

(b) At the request of any party to this agreement, any Claim shall be resolved
by binding arbitration in accordance with the Federal Arbitration Act (Title 9,
U.S. Code) (the “Act”). The Act will apply even though this agreement provides
that it is governed by the law of a specified state. The arbitration will take
place on an individual basis without resort to any form of class action.

 

(c) Arbitration proceedings will be determined in accordance with the Act, the
then-current rules and procedures for the arbitration of financial services
disputes of the American Arbitration Association or any successor thereof
(“AAA”), and the terms of this paragraph. In the event of any inconsistency, the
terms of this paragraph shall control. If AAA is unwilling or unable to (i)
serve as the provider of arbitration or (ii) enforce any provision of this
arbitration clause, the parties may agree on a substitute arbitrator with
similar procedures to serve as the provider of arbitration and, if the parties
fail to agree within twenty (20) calendar days, any party may file a court
action regarding a Claim, subject to the waiver of the right to jury trial
provided in subparagraph (i) below.

 

(d) The arbitration shall be administered by AAA and conducted, unless otherwise
required by law, in any U.S. state where real or tangible personal property
collateral for this credit is located or if there is no such collateral, in the
state specified in the governing law section of this agreement. All Claims shall
be determined by one arbitrator; however, if Claims exceed Five Million Dollars
($5,000,000), upon the request of any party, the Claims shall be decided by
three arbitrators. All arbitration hearings shall commence within ninety (90)
days of the demand for arbitration and close within ninety (90) days of
commencement and the award of the arbitrator(s) shall be issued within thirty
(30) days of the close of the hearing. However, the arbitrator(s), upon a
showing of good cause, may extend the commencement of the hearing for up to an
additional sixty (60) days. The arbitrator(s) shall provide a concise written
statement of reasons for the award. The arbitration award may be submitted to
any court having jurisdiction to be confirmed, judgment entered and enforced.

 

(e) The arbitrator(s) will give effect to statutes of limitation in determining
any Claim and may dismiss the arbitration on the basis that the Claim is barred.
For purposes of the application of the statute of limitations, the service on
AAA under applicable AAA rules of a notice of Claim is the equivalent of the
filing of a lawsuit. Any dispute concerning this arbitration provision or
whether a Claim is arbitrable shall be determined by the arbitrator(s). The
arbitrator(s) shall have the power to award legal fees pursuant to the terms of
this agreement.

 

(f) This paragraph does not limit the right of any party to: (i) exercise
self-help remedies, such as but not limited to, setoff; (ii) initiate judicial
or non-judicial foreclosure against any real or personal property collateral;
(iii) exercise any judicial or power of sale rights, or (iv) act in a court of
law to obtain an interim remedy, such as but not limited to, injunctive relief,
writ of possession or appointment of a receiver, or additional or supplementary
remedies.

 

(g) The procedure described above will not apply if the Claim, at the time of
the proposed submission to arbitration, arises from or relates to an obligation
to the Bank secured by real property. In this case, all of the parties to this
agreement must consent to submission of the Claim to arbitration. If both
parties do not consent to arbitration, the Claim will be resolved as follows:
The parties will designate a referee (or a panel of referees) selected under the
auspices of AAA in the same manner as arbitrators are selected in AAA
administered proceedings. The designated referee(s) will be appointed by a court
as provided in California Code of Civil Procedure Section 638 and the following
related sections. The referee (or presiding referee of the panel) will be an
active attorney or a retired judge. The award that results from the decision of
the referee(s) will be entered as a judgment in the court that appointed the
referee, in accordance with the provisions of California Code of Civil Procedure
Sections 644 and 645.

 

(h) The filing of a court action is not intended to constitute a waiver of the
right of any party, including the suing party, thereafter to require submittal
of the Claim to arbitration.

 

(i) By agreeing to binding arbitration, the parties irrevocably and voluntarily
waive any right they may have to a trial by jury in respect of any Claim.
Furthermore, without intending in any way to limit this agreement to arbitrate,
to the extent any Claim is not arbitrated, the parties irrevocably and
voluntarily waive any right they may have to a trial by jury in respect of such
Claim. This provision is a material inducement for the parties entering into
this agreement.

 

Standard Loan Agreement   13   Revised 2/2005

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10.5 Severability; Waivers. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights, even if
it makes a loan after default. If the Bank waives a default, it may enforce a
later default. Any consent or waiver under this Agreement must be in writing.

 

10.6 Attorneys’ Fees. The Borrower shall reimburse the Bank for any reasonable
costs and attorneys’ fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and in
connection with any amendment, waiver, “workout” or restructuring under this
Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing
party is entitled to recover costs and reasonable attorneys’ fees incurred in
connection with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator. In the event that any case is commenced by or against the
Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar
or successor statute, the Bank is entitled to recover costs and reasonable
attorneys’ fees incurred by the Bank related to the preservation, protection, or
enforcement of any rights of the Bank in such a case. As used in this paragraph,
“attorneys’ fees” includes the allocated costs of a party’s in-house counsel.

 

10.7 One Agreement. This Agreement and any related security or other agreements
required by this Agreement, collectively:

 

(a) represent the sum of the understandings and agreements between the Bank and
the Borrower concerning this credit;

 

(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and

 

(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.

 

In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail. Any reference in any
related document to a “promissory note” or a “note” executed by the Borrower and
dated as of the date of this Agreement shall be deemed to refer to this
Agreement, as now in effect or as hereafter amended, renewed, or restated.

 

10.8 Indemnification. The Borrower will indemnify and hold the Bank harmless
from any loss, liability, damages, judgments, and costs of any kind relating to
or arising directly or indirectly out of (a) this Agreement or any document
required hereunder, (b) any credit extended or committed by the Bank to the
Borrower hereunder, and (c) any litigation or proceeding related to or arising
out of this Agreement, any such document, or any such credit. This indemnity
includes but is not limited to attorneys’ fees (including the allocated cost of
in-house counsel). This indemnity extends to the Bank, its parent, subsidiaries
and all of their directors, officers, employees, agents, successors, attorneys,
and assigns. This indemnity will survive repayment of the Borrower’s obligations
to the Bank. All sums due to the Bank hereunder shall be obligations of the
Borrower, due and payable immediately without demand.

 

10.9 Notices. Unless otherwise provided in this Agreement or in another
agreement between the Bank and the Borrower, all notices required under this
Agreement shall be personally delivered or sent by first class mail, postage
prepaid, or by overnight courier, to the addresses on the signature page of this
Agreement, or sent by facsimile to the fax numbers listed on the signature page,
or to such other addresses as the Bank and the Borrower may specify from time to
time in writing. Notices and other communications shall be effective (i) if
mailed, upon the earlier of receipt or five (5) days after deposit in the U.S.
mail, first class, postage prepaid, (ii) if telecopied, when transmitted, or
(iii) if hand-delivered, by courier or otherwise (including telegram, lettergram
or mailgram), when delivered.

 

10.10 Headings. Article and paragraph headings are for reference only and shall
not affect the interpretation or meaning of any provisions of this Agreement.

 

10.11 Counterparts. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.

 

10.12 Prior Agreement Superseded. This Agreement supersedes the Business Loan
Agreement entered into as of July 1, 2001, between the Bank and the Borrower,
and any credit outstanding thereunder shall be deemed to be outstanding under
this Agreement.

 

Standard Loan Agreement   14   Revised 2/2005

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This Agreement is executed as of the date stated at the top of the first page.

 

Borrower:   Bank: K-Swiss Inc.   Bank of America, N.A.

 

By:  

/s/ George Powlick

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

  By:  

/s/ Matthew Koenig

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

    George Powlick, Vice President and Director       Matthew Koenig, Senior
Vice President

 

Address where notices to the Borrower are to be sent:

  Address where notices to the Bank are to be sent:     Bank of America, N.A.
31248 Oak Crest Drive   333 S. Hope Street Westlake Village, CA 91361   Los
Angeles, CA 90071

 

Standard Loan Agreement   15   Revised 2/2005