Credit Agreement - Exhibit 10.10





Exhibit 10.10








CREDIT AGREEMENT












between








BIOANALYTICAL SYSTEMS, INC.








and








THE PROVIDENT BANK






















Dated as of October 29, 2002








                                TABLE OF CONTENTS
                                -----------------


ARTICLE 1.     DEFINITIONS..................................................   1
  SECTION 1.1  DEFINED TERMS................................................   1
  SECTION 1.2  RULES OF CONSTRUCTION........................................  14
  SECTION 1.3  ACCOUNTING TERMS.............................................  14

ARTICLE 2.     CREDIT.......................................................  14
  SECTION 2.1  LINE OF CREDIT COMMITMENT....................................  14
  SECTION 2.2  INTEREST; UNUSED FEES AND RATE SELECTION.....................  14
      2.2.1.   LINE OF CREDIT - INTEREST....................................  14
      2.2.2.   GENERAL......................................................  14
      2.2.3.   UNUSED FEE/REDUCTION OF LINE OF CREDIT COMMITMENT............  14
      2.2.4.   INTEREST RATE SELECTION - EURODOLLAR RATE OPTION.............  15
  SECTION 2.3  PAYMENTS OF PRINCIPAL AND INTEREST...........................  15
      2.3.1.   LINE OF CREDIT...............................................  15
      2.3.2.   METHOD OF PAYMENT............................................  16
      2.3.3.   BANKING DAY..................................................  16
  SECTION 2.4  ISSUANCE OF LETTERS OF CREDIT................................  16
  SECTION 2.5  UNCONDITIONAL REIMBURSEMENT OBLIGATION.......................  17
  SECTION 2.6  RISK OF MISUSE OF LETTER OF CREDIT...........................  17
  SECTION 2.7  PREPAYMENT/EXIT FEE..........................................  18
  SECTION 2.8  USE OF PROCEEDS..............................................  18
  SECTION 2.9  METHOD OF ADVANCE............................................  18
      2.9.1.   LINE OF CREDIT...............................................  18
      2.9.2.   GENERAL......................................................  19
  SECTION 2.10 TAXES........................................................  19
      2.10.1.  GENERAL......................................................  19
      2.10.2.  TAX INDEMNITY................................................  19
  SECTION 2.11 YIELD PROTECTION.............................................  20
  SECTION 2.12 CHANGES IN CAPITAL ADEQUACY REGULATIONS......................  20
  SECTION 2.13 FUNDING INDEMNIFICATION......................................  21
  SECTION 2.14 AVAILABILITY OF TYPES OF ADVANCES............................  21
  SECTION 2.15 BANK STATEMENTS; SURVIVAL OF INDEMNITY.......................  21

ARTICLE 3.     SECURITY AND GUARANTY........................................  22
  SECTION 3.1  SECURITY.....................................................  22
  SECTION 3.2  ADDITION OF GUARANTORS; ADDITION OF PLEDGED CAPITAL STOCK
               AND OTHER COLLATERAL.........................................  22
  SECTION 3.3  ADDITIONAL COLLATERAL/SETOFF.................................  23

ARTICLE 4.     REPRESENTATIONS AND WARRANTIES...............................  23
  SECTION 4.1  DUE ORGANIZATION.............................................  23
  SECTION 4.2  DUE QUALIFICATION............................................  23
  SECTION 4.3  CORPORATE POWER..............................................  23
  SECTION 4.4  CORPORATE AUTHORITY..........................................  23
  SECTION 4.5  FINANCIAL STATEMENTS.........................................  23
  SECTION 4.6  NO MATERIAL ADVERSE CHANGE...................................  23
  SECTION 4.7  SUBSIDIARIES.................................................  23









  SECTION 4.8  BINDING OBLIGATIONS..........................................  24
  SECTION 4.9  MARKETABLE TITLE.............................................  24
  SECTION 4.10 INDEBTEDNESS.................................................  24
  SECTION 4.11 DEFAULT......................................................  24
  SECTION 4.12 TAX RETURNS..................................................  24
  SECTION 4.13 LITIGATION...................................................  24
  SECTION 4.14 ERISA........................................................  24
  SECTION 4.15 FULL DISCLOSURE..............................................  25
  SECTION 4.16 CONTRACTS OF SURETY..........................................  25
  SECTION 4.17 LICENSES.....................................................  25
  SECTION 4.18 COMPLIANCE WITH LAW..........................................  25
  SECTION 4.19 FORCE MAJEURE................................................  25
  SECTION 4.20 MARGIN STOCK.................................................  25
  SECTION 4.21 APPROVALS....................................................  26
  SECTION 4.22 INSOLVENCY...................................................  26
  SECTION 4.23 REGULATION...................................................  26
  SECTION 4.24 ENVIRONMENTAL MATTERS........................................  26
  SECTION 4.25 CONDITIONS PRECEDENT.........................................  28
  SECTION 4.26 GENERAL......................................................  28

ARTICLE 5.     COVENANTS....................................................  28
  SECTION 5.1  NEGATIVE COVENANTS...........................................  28
      5.1.1.   DISPOSE OF COLLATERAL........................................  28
      5.1.2.   FURTHER ENCUMBER.............................................  28
      5.1.3.   CONDUCT OF BUSINESS; SUBSIDIARIES; ACQUISITIONS..............  28
      5.1.4.   PURCHASE STOCK...............................................  29
      5.1.5.   SELL AND LEASEBACK...........................................  29
      5.1.6.   BORROWINGS/SUBORDINATED DEBT PAYMENTS........................  29
      5.1.7.   INVESTMENTS..................................................  29
      5.1.8.   GUARANTEES...................................................  29
      5.1.9.   CHANGE NAME OR PLACE OF BUSINESS.............................  29
      5.1.10.  SPECIAL CORPORATE TRANSACTIONS...............................  30
      5.1.11.  ACCOUNTING POLICIES..........................................  30
      5.1.12.  CHANGE OF BUSINESS...........................................  30
      5.1.13.  BENEFIT PLANS................................................  30
      5.1.14.  ADVERSITY....................................................  30
      5.1.15.  DIVIDENDS/DISTRIBUTIONS......................................  30
      5.1.16.  RESTRICTIVE AGREEMENTS.......................................  30
      5.1.17.  TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES................  30
  SECTION 5.2  AFFIRMATIVE COVENANTS........................................  30
      5.2.1.   FINANCIAL REPORTING..........................................  31
      5.2.2.   GOOD STANDING................................................  32
      5.2.3.   TAXES, ETC...................................................  32
      5.2.4.   MAINTAIN PROPERTIES..........................................  33
      5.2.5.   INSURANCE....................................................  33
      5.2.6.   BOOKS AND RECORDS............................................  33
      5.2.7.   REPORTS......................................................  33










      5.2.8.   LICENSES.....................................................  33
      5.2.9.   NOTICE OF MATERIAL ADVERSE CHANGE............................  34
      5.2.10.  COMPLIANCE WITH LAW..........................................  34
      5.2.11.  TRADE ACCOUNTS...............................................  34
      5.2.12.  USE OF PROCEEDS..............................................  34
      5.2.13.  LOAN PAYMENTS................................................  34
      5.2.14.  ENVIRONMENTAL MATTERS........................................  34
      5.2.15.  BANKING RELATIONSHIP.........................................  34
      5.2.16.  SUBORDINATED DEBT............................................  35
      5.2.17.  EQUIPMENT APPRAISAL..........................................  35
      5.2.18.  SALE OF REAL ESTATE..........................................  35
  SECTION 5.3  FINANCIAL COVENANTS..........................................  35
      5.3.1.   FUNDED DEBT RATIO............................................  35
      5.3.2.   TOTAL DEBT RATIO.............................................  35
      5.3.3.   FIXED CHARGE COVERAGE RATIO..................................  35
      5.3.4.   CURRENT RATIO................................................  35
      5.3.5.   CAPITAL EXPENDITURES.........................................  35

ARTICLE 6.     CONDITIONS PRECEDENT.........................................  35
  SECTION 6.1  CONDITIONS TO INITIAL ADVANCE................................  35
      6.1.1.   AUTHORIZATION................................................  36
      6.1.2.   INSURANCE....................................................  36
      6.1.3.   LOAN DOCUMENTS...............................................  36
      6.1.4.   INCUMBENCY...................................................  36
      6.1.5.   LEGAL MATTERS................................................  36
      6.1.6.   BORROWING BASE, ETC..........................................  36
      6.1.7.   OPINIONS OF COUNSEL..........................................  36
      6.1.8.   LANDLORD WAIVERS.............................................  36
      6.1.9.   UCC SEARCHES/LIFE INSURANCE QUESTIONNAIRE....................  36
      6.1.10.  FEES.........................................................  36
      6.1.11.  REGULATION U.................................................  37
      6.1.12.  NO DEFAULT...................................................  37
      6.1.13.  CONSENTS.....................................................  37
      6.1.14.  FIELD AUDIT..................................................  37
      6.1.15.  INTERCREDITOR AGREEMENT......................................  37
      6.1.16.  ADDITIONAL DOCUMENTATION.....................................  37
  SECTION 6.2  CONDITIONS TO SUBSEQUENT ADVANCES............................  37
      6.2.1.   NO DEFAULT...................................................  37
      6.2.2.   REPRESENTATIONS AND WARRANTIES...............................  37
      6.2.3.   LEGAL MATTERS................................................  37
  SECTION 6.3  GENERAL......................................................  37

ARTICLE 7.     DEFAULT......................................................  37










ARTICLE 8.     REMEDY.......................................................  39
  SECTION 8.1  ACCELERATION.................................................  39
  SECTION 8.2  DEPOSIT TO SECURE REIMBURSEMENT OBLIGATIONS..................  39
  SECTION 8.3  SUBROGATION..................................................  40
  SECTION 8.4  REMEDY.......................................................  40
  SECTION 8.5  PRESERVATION OF RIGHTS.......................................  40

ARTICLE 9.     GENERAL PROVISIONS...........................................  40
  SECTION 9.1  BENEFIT OF AGREEMENT.........................................  40
  SECTION 9.2  SURVIVAL OF REPRESENTATIONS..................................  40
  SECTION 9.3  GOVERNMENTAL REGULATION......................................  41
  SECTION 9.4  CONFLICT.....................................................  41
  SECTION 9.5  CHOICE OF LAW................................................  41
  SECTION 9.6  HEADINGS.....................................................  41
  SECTION 9.7  ENTIRE AGREEMENT.............................................  41
  SECTION 9.8  EXPENSES.....................................................  41
  SECTION 9.9  INDEMNIFICATION..............................................  42
  SECTION 9.10 CONFIDENTIALITY..............................................  42
  SECTION 9.11 GIVING NOTICE................................................  42
  SECTION 9.12 COUNTERPARTS.................................................  42
  SECTION 9.13 INCORPORATION BY REFERENCE...................................  42
  SECTION 9.14 TIME OF ESSENCE..............................................  43
  SECTION 9.15 NO JOINT VENTURE.............................................  43
  SECTION 9.16 RELATIONSHIP OF PARTIES; RELEASE OF CONSEQUENTIAL DAMAGES....  43
  SECTION 9.17 SEVERABILITY.................................................  43
  SECTION 9.18 GENDER.......................................................  43
  SECTION 9.19 WAIVER AND AMENDMENT.........................................  43
  SECTION 9.20 BANK NOT IN CONTROL..........................................  43
  SECTION 9.21 WAIVER OF JURY TRIAL.........................................  43

Schedule 1 Permitted Encumbrances

Schedule 4.7 Subsidiaries

Schedule 4.10 and 5.1.6 Other Indebtedness

Schedule 4.13 Material Pending or Threatened Litigation

Schedule 5.1.7 Existing Investments


Exhibit A - Credit Note

Exhibit B - General Security Agreement

Exhibit C - Policy Assignment

Exhibit D - Form of 6% Subordinated Convertible Note








CREDIT AGREEMENT



        
THIS CREDIT  AGREEMENT,  dated as of October 29, 2002, is between  BIOANALYTICAL
SYSTEMS, INC. and THE PROVIDENT BANK. The parties agree as follows:



ARTICLE 1.        
DEFINITIONS



        
Section 1.1   Defined Terms.   
As used herein:



        “Accounts”,
“Chattel    Paper”,     “Deposit    Accounts”,
“Documents”,                      “Equipment”,
“Fixtures”,       “General       Intangibles”,
“Goods”,                        “Instruments”,
“Inventory”  and  “Proceeds”  shall  have  the
meanings ascribed in the Security Agreements. 



        “Acquisition”
means any transaction, or any series of related transactions,  consummated on or
after the date of this Agreement,  by which Borrower or any of its  Subsidiaries
(a) acquires any going business or all or substantially all of the assets of any
firm,  corporation  or division  thereof,  whether  through  purchase of assets,
merger or otherwise or (b) directly or indirectly  acquires (in one  transaction
or as the most  recent  transaction  in a  series  of  transactions)  at least a
majority  (in number of votes) of the  securities  of a  corporation  which have
ordinary  voting  power for the  election of  directors  (other than  securities
having  such  power  only by  reason of the  happening  of a  contingency)  or a
majority (by percentage of voting power) of the outstanding  equity interests of
another Person. 


 
        "Advance"     means     a
disbursement of proceeds of the Facilities.



        “    Affiliate”
means,  with respect to any Person,  any other Person (a) directly or indirectly
through one or more intermediaries,  controlling, controlled by, or under common
control with,  such Person,  and (b) that directly or indirectly  owns more than
Ten Percent  (10%) of any class of the voting  securities or capital stock of or
equity  interests  in such Person.  A Person shall be deemed to control  another
Person if such Person possesses,  directly or indirectly, the power to direct or
cause the direction of the management and policies of such other Person, whether
through  the  ownership  of  voting   securities,   by  contract  or  otherwise.




        
"Agreement" means this Credit Agreement, as amended from time to time.




        “ Applicable
Fee”  means the per annum fee payable to Bank,  which shall be based
on the Funded Debt Ratio and  determined  by reference to the  following  table:








                                Applicable Fee          Applicable Fee for              Applicable Fee for
     Funded Debt Ratio         for Non-Use Fees      Standby Letters of Credit     Commercial Letters of Credit
     -----------------         ----------------      -------------------------     ----------------------------

Equal to or greater than             .50%                      3.50%                        2.00%
4.00 to 1.0

Less than 4.00 to 1.00 and           .25%                      3.00%                        2.00%
equal to or greater than
3.50 to 1.0

Less than 3.50 to 1.0 and            .25%                      2.50%                        2.00%
equal to or greater than
2.50 to 1.0

Less than 2.50 to 1.0                .25%                      2.00%                        2.00%






        
The Applicable Fee shall initially be determined based on a Funded Debt Ratio of
2.50 to 1.0.  The  Applicable  Fee  shall  be  adjusted  quarterly  (upwards  or
downwards,  as appropriate) based upon the Funded Debt Ratio determined from the
Financial  Statements for the immediately  preceding fiscal quarter and upon the
closing of any permitted Acquisition.  The adjustment (upwards or downwards,  as
appropriate),  if any, to the  Applicable  Fee shall be  effective  on the fifth
(5th) Banking Day after delivery of the Financial Statements.  In the event Bank
has not received the required  Financial  Statements  pursuant to Section  5.2.1
hereof within the time periods provided  therein,  the highest Funded Debt Ratio
set forth in the foregoing  table shall be  conclusively  presumed to be correct
until the fifth (5th) Banking Day after Bank receives such Financial Statements,
at which time the  Applicable  Fee shall be adjusted  based upon the Funded Debt
Ratio  determined  from  such  Financial  Statements.  In  no  event  shall  the
Applicable  Fee be adjusted  downward  if there  exists a Default on the date on
which such downward  adjustment would otherwise become effective until such time
as the Default has been cured, waived or ceases to exist. The provisions of this
definition  are not intended to, and shall not be construed  to,  authorize  any
violation by Borrower of any financial covenant contained in Article 5 hereof or
to constitute a waiver  thereof or any commitment by Bank to waive any violation
by Borrower of any financial covenant contained in Article 5 hereof. 



        
“Applicable Margin”  means the incremental margin to be paid by
Borrower on the  Advances  hereunder,  which margin shall be based on the Funded
Debt Ratio and determined by reference to the following table: 





                                              Applicable Margin         Applicable Margin
                                                  for Prime              for  Eurodollar
         Funded Debt Ratio                       Rate Advances            Rate Advances
         -----------------                    -----------------         -----------------

         Equal to or greater
         than 4.00 to 1.0                            1.25%                      3.50%

         Less than 4.00 to 1.0 and
         equal to or greater
         than 3.50 to 1.0                             .75%                      3.00%

         Less than 3.50 to 1.0 and                    .50%                      2.50%
         equal to or greater than 2.50 to 1.0

         Less than 2.50 to 1.0                        -0-                       2.00%






–2–





        
The Applicable Margin shall initially be determined based on a Funded Debt Ratio
of 2.50 to 1.0. The Applicable  Margin shall be adjusted  quarterly  (upwards or
downwards,  as appropriate) based upon the Funded Debt Ratio determined from the
Financial  Statements for the immediately  preceding fiscal quarter and upon the
closing of any permitted Acquisition.  The adjustment (upwards or downwards,  as
appropriate),  if any, to the Applicable  Margin shall be effective on the fifth
(5th) Banking Day after delivery of the Financial Statements.  In the event Bank
has not received the required  Financial  Statements  pursuant to Section  5.2.1
hereof within the time periods provided  therein,  the highest Funded Debt Ratio
set forth in the foregoing  table shall be  conclusively  presumed to be correct
until the fifth (5th) Banking Day after Bank receives such Financial Statements,
at which time the Applicable Margin shall be adjusted based upon the Funded Debt
Ratio  determined  from  such  Financial  Statements.  In  no  event  shall  the
Applicable  Margin be adjusted downward if there exists a Default on the date on
which such downward  adjustment would otherwise become effective until such time
as the Default has been cured, waived or ceases to exist. The provisions of this
definition  are not intended to, and shall not be construed  to,  authorize  any
violation by Borrower of any financial covenant contained in Article 5 hereof or
to constitute a waiver  thereof or any commitment by Bank to waive any violation
by Borrower of any financial covenant contained in Article 5 hereof. 



        
“Approved PKL Acquisition” means the Acquisition by Borrower of
Pharmakinetics Laboratories, Inc., pursuant to a merger agreement dated June 20,
2002,  as  amended by  instrument  dated  July 24,  2002,  and as may be further
amended with the written  consent of Bank,  and as described in  Borrower’s
Form S-4 filed September 13, 2002, but only if  Borrower’s  6% Subordinated
Convertible  Note  to  be  issued  to  certain  shareholders  of  Pharmakinetics
Laboratories, Inc. is in the form attached hereto as Exhibit D.




        
“Approved  LCR  Acquisition”  means the  Acquisition of all the
outstanding  capital stock of LC Resources,  Inc., pursuant to the terms of that
Letter of Intent dated July 1, 2002, between Borrower and LC Resources, Inc. (or
upon such other terms as Bank agrees in  writing),  but only if  Borrower’s
obligations  under its promissory note to LC Resources are  subordinated to Bank
upon the same  subordination  terms as are  required by Bank with respect to the
Approved PKL Acquisition. 



        
“Bank”   means  The  Provident   Bank,   its   successors   and
assigns.



        
“Banking  Day”  means a day on  which  the  principal  domestic
office of Bank is open for the purpose of  conducting  substantially  all of its
business activities. 



        
“Borrower”   means  Bioanalytical  Systems,  Inc.,  an  Indiana
corporation.



        
“Borrowing Base” means, on any date of determination, an amount
equal  to  (a)  Eighty  Percent  (80%)  of  Borrower’s  Eligible  Accounts,
plus  (b) the lesser of (i) Fifty  Percent (50%) of  Borrower’s  raw
materials and finished  goods  Eligible  Inventory or (ii)  Sixty-Seven  Percent
(67%) of Borrower’s Eligible Accounts,  minus (c) the maximum credit
limit under  Borrower’s  corporate credit card issued by Bank,  plus
(d) the sum of (i) One Million Five Hundred Thousand Dollars ($1,500,000),
minus  (ii) the product of (A) Twenty-Five  Thousand  Dollars  ($25,000),
multiplied by (B) as of any relevant  date,  the number of full calendar  months
that have elapsed after the month of October 2002. (For example,  in June, 2003,
the amount  added as part of the  Borrowing  Base under clause (d) above will be
One Million Five Hundred Thousand Dollars ($1,500,000)  minus One Hundred
Seventy-Five  Thousand  Dollars  ($175,000)  (seven times  Twenty-Five  Thousand
Dollars ($25,000)), or a total of One Million Three Hundred Twenty-Five Thousand
Dollars ($1,325,000)).




–3–





        

“Capitalized  Expenditures”  means,  without  duplication,  any
expenditures  for any purchase or other  acquisition of any asset which would be
classified as a fixed or capital  asset on a balance sheet of Borrower  prepared
in accordance with GAAP. 



        
“Capitalized  Lease”  means  any  lease of  property  which  would be
capitalized  on a financial  statement of a Person  prepared in accordance  with
GAAP. 



        
“Capitalized  Lease  Obligations”   means  the  amount  of  the
obligations of a Person under Capitalized  Leases which are shown as liabilities
on a balance sheet of such Person prepared in accordance with GAAP. 



        
“CERCLA”   means  the  Comprehensive   Environmental  Response,
Compensation and Liability Act of 1980, as amended. 



        
“CERCLIS”   means  the  Comprehensive   Environmental  Response
Compensation Liability Information System List under CERCLA. 



        
“Change”  shall have the  meaning  ascribed  thereto in Section
2.11 hereof. 



        
“Change in Control”  means (a) the acquisition by any Person or
two or more Persons  acting in concert (other than (i) current  shareholders  of
Borrower as of the date of this Agreement and their  respective  legal heirs and
any trusts  created  for the  benefit of such  Persons or (ii) any  employee  or
director benefit plan or stock plan of Borrower or any trustee or fiduciary with
respect to any such plan when acting in that  capacity  or any trust  related to
any such plan), of beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934) of
twenty  percent  (20%) or more of the  outstanding  shares  of  voting  stock of
Borrower;  or (b) the  occurrence  during any period of twelve (12)  consecutive
months, commencing before or after the date of this Agreement, pursuant to which
individuals  who on the first day of such  period  were  directors  of  Borrower
(together  with any  replacement  or additional  directors who were nominated or
elected by  Borrower’s  nominating  committee or by a majority of directors
then in office)  cease to  constitute  a majority of the Board of  Directors  of
Borrower. 



        
“Code”  means the Internal  Revenue  Code of 1986,  as amended,
reformed or otherwise modified from time to time. 



        
“Compliance Certificate” means a Compliance Certificate, in the
form prescribed by Bank, duly executed by the chief executive or chief financial
officer of Borrower. 



        
“Credit  Note”  means the Promissory Note, in substantially the
form of Exhibit  A hereto,  duly executed by Borrower to Bank to evidence
Advances  under  the Line of  Credit,  including  any  amendment,  modification,
renewal, extension or replacement thereof. 



        
“Current  Assets”  means all assets of a Person which would, in
accordance with GAAP, be classified as current assets of an entity  conducting a
business the same as or similar to that of such Person. 



–4–





        
“Current  Liabilities”  means all liabilities of a Person which
would,  in accordance  with GAAP, be  classified  as current  liabilities  of an
entity  conducting  a business  the same as or  similar to that of such  Person,
including,   without  limitation,  all  lease  rental  payments  and  all  fixed
prepayments  of and  sinking  fund  payments  with  respect to any  Indebtedness
required  to be made  within  one  (1)  year  from  the  date of  determination.




        
“Default” means any of the events specified in Article 7 hereof.




        
“EBITDA”  means, as of any date of determination,  with respect
to Borrower,  the sum of (a) net income,  plus (b) to the extent deducted
in  determining  net  income,  income  taxes paid or  accrued,  plus  (c)
depreciation,  amortization and other non-cash charges shown as a charge against
earnings for such period,  minus (plus) (d) to the extent included
(deducted) in determining net income, any gain (loss) which may be treated as an
extraordinary  item under GAAP or realized upon the sale or other disposition of
any Property  that is not sold in the ordinary  course of business,  plus
(e) interest expense, minus (f) interest income, plus (g) fees and
expenses incurred in connection with the Approved PKL Acquisition,  the Approved
LCR Acquisition,  the Facilities,  and the financings provided by Union Planters
Bank, National  Association and Fifth Third Bank, Indiana in an aggregate amount
not  exceeding  Five  Hundred  Thousand  Dollars  ($500,000),   plus  (h)
severance payments made in 2002 in an aggregate amount not exceeding Two Hundred
Thousand Dollars  ($200,000);  in each instance determined for the trailing four
(4)  quarter  period  ending  on the  date of  determination.  EBITDA  shall  be
calculated in accordance with GAAP and determined from the Financial Statements.




        
“Eligible  Accounts”  means, on any date of determination,  all
Accounts then owned by Borrower,  which  conforms with the  representations  and
warranties  set forth in  Borrower’s  Security  Agreement  and which is not
subject to any prior Lien, except (a) Accounts outstanding more than ninety (90)
days from the date of invoice;  (b) all Accounts of any account debtor if Twenty
Percent  (20%) or more of the amount owing by such  account  debtor is more than
ninety  (90) days past due from the date of  invoice;  (c) all  Accounts  of the
account  debtor  which  Bank  reasonably  deems  unacceptable   because  of  the
credit-worthiness of the account debtor; (d) Accounts of account debtors who are
also  creditors  of Borrower  to the extent of the amount  owed to such  account
debtors;  (e) Accounts owned by account  debtors who are Affiliates of Borrower;
(f) Accounts for uncompleted sales, including  pre-billings,  consignment sales,
and  guaranteed  sales;  (g)  progress  billings  other than a portion of a sale
pursuant to a purchase  order which has been shipped and has been recorded as an
Account;  (h)  Accounts  of account  debtors who are  Governmental  Authorities,
unless  proper  assignments  to Bank  have  been  completed;  (i)  Accounts  not
denominated  in  U.S.   Dollars;   (j)  Accounts  of  account  debtors  who  are
non-residents  of the United  States,  unless  collateralized  by an  acceptable
letter of credit  or  guaranty,  and other  than  large  foreign  pharmaceutical
companies  having a rating of  “A-or  better”  by S &  P or
“A-3 or better”  by Moody’s;  (k) Accounts with respect to
which the  account  debtor is located in  Minnesota  (or any other  jurisdiction
which  adopts a statute or other  requirement  with  respect to which any Person
that obtains business from within such  jurisdiction or is otherwise  subject to
such  jurisdiction’s  tax law  requiring  such  Person  to file a  Business
Activity  Report or make any other required  filings in a timely manner in order
to enforce its claims in such  jurisdiction’s  courts or arising under such
jurisdiction’s laws); provided, however, such receivables shall nonetheless
be  eligible  if  Borrower  has  filed a  Business  Activity  Report  (or  other
applicable  report  or  filing)  with the  applicable  state  office by the time
required or is  qualified to do business in such  jurisdiction  and, at the time
the receivable was created, was qualified to do business in such jurisdiction or
had on file with the applicable state office a current Business  Activity Report
(or other  applicable  report or  filing);  (l)  Accounts  to such  extent  such
Accounts  are  subject  to  known  payments,  adjustments  or  credits;  and (m)
Accounts,  or any portion thereof,  which are considered  uncollectible  for any
reason,   including,   without   limitation,   Inventory   returned,   rejected,
repossessed,  lost or  damaged.  Notwithstanding  the  foregoing  exclusions  of
Eligible  Accounts,  Bank will  consider  including  Accounts  up to one hundred
twenty (120) days past due for S & P  “A-or  better”  rated
account debtors or Moody’s  “A-3 or better”  rated account
debtors. 



–5–





        
“Eligible Inventory”  means, on any date of determination, that
portion of Inventory owned by Borrower  consisting of raw materials and finished
goods (i) on which Bank has a first  (1st) and prior lien,  (ii) which  conforms
with the  representations  and warranties set forth in Borrower’s  Security
Agreement,  (iii)  which is not  obsolete or slow  moving,  (iv) which is not in
transit,  (v) which is not placed on consignment,  (vi) which is not stored with
any bailee,  warehouseman or other party, (vii) which does not constitute labor,
overhead  or  miscellaneous  charges,  and (viii)  which Bank has not  otherwise
reasonably determined unacceptable. 




        
“Environmental  Laws”  means all provisions of laws,  statutes,
ordinances,   rules,   regulations,   permits,   licenses,   judgments,   writs,
injunctions,   decrees,   orders,   awards  and  standards  promulgated  by  any
Governmental  Authority  concerning  the  protection  of, or  regulation  of the
discharge of substances into, the environment or concerning the health or safety
of  persons  with  respect  to  environmental  hazards,  and  includes,  without
limitation,  the Hazardous  Materials  Transportation  Act, 42  U.S.C. § 1801 et
seq., the Comprehensive  Environmental Response,  Compensation and Liability Act
of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986,
42  U.S.C.§ 9601  et seq.,  the Solid Waste  Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1976 and the Solid and Hazardous Waste
Amendments of 1984, 42  U.S.C. § 6901  et seq.,  the Federal Water  Pollution
Control Act, as amended by the Clean Water Act of 1977, 33  U.S.C. § 1251  et
seq., the Clean Air Act of 1966, as amended,  42  U.S.C. § 7401  et seq., the
Toxic Substances Control Act of 1976, 15  U.S.C. § 2601  et seq., the Federal
Insecticide,  Fungicide,  and  Rodenticide  Act, 7  U.S.C. § 7401  et seq.,  the
Occupational  Safety and Health Act of 1970, as amended,  29  U.S.C. § 651 et
seq.,  the  Emergency  Planning  and  Community  Right-to-Know  Act of 1986,  42
U.S.C. § 11001  et seq.,  the National  Environmental  Policy Act of 1975, 42
U.S.C. § 4321  et seq., the Safe Drinking  Water Act of 1974, as amended,  42
U.S.C. § 300(f)  et seq., and any similar or implementing  state law, and all
amendments, rules, and regulations promulgated thereunder.



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



–6–





        
“ERISA  Affiliate”  means any trade or business, whether or not
incorporated,  which  together  with the  subject  Person  would be treated as a
single employer under ERISA. 



        
“Eurodollar Base Rate” means, with respect to a Eurodollar Rate
Advance for any specified Interest Period, the applicable British  Bankers’
Association  Interest  Settlement Rate for deposits in U.S. dollars appearing on
Reuters Screen FRBD as of 11:00 a.m. (London time) two (2) Banking Days prior to
the first day of such  Interest  Period,  and  having a  maturity  equal to such
Interest  Period,  provided that, (a) if Reuters Screen FRBD is not available to
Bank for any  reason,  the  applicable  Eurodollar  Base  Rate for the  relevant
Interest   Period  shall  instead  be  the  applicable   British   Bankers’
Association Interest Settlement Rate for deposits in U.S. dollars as reported by
any other generally  recognized  financial  information service as of 11:00 a.m.
(London  time) two (2)  Banking  Days  prior to the  first day of such  Interest
Period, and (b) if no such British Bankers’ Association Interest Settlement
Rate is available to Bank, the applicable  Eurodollar Base Rate for the relevant
Interest  Period  shall  instead  be the rate  determined  by Bank,  in its sole
discretion,  to be the rate at which  deposits  in U.S.  Dollars  are offered to
first-class   banks   in  the   London   interbank   market   at   approximately
11:00 a.m.  (London time) for the relevant Interest Period two Banking Days
prior to the first day of such Interest Period. Such determination by Bank shall
be presumed correct absent manifest error. 



        
“Eurodollar  Rate”  means,  with respect to a  Eurodollar  Rate
Advance for the relevant Interest Period, the Eurodollar Base Rate applicable to
such Interest Period plus the then Applicable Margin. The Eurodollar Rate
shall be rounded to the next  higher  multiple of 1/100 of 1% if the rate is not
such a multiple. 



        
“Eurodollar Rate Advance” means an Advance which bears interest
at the Eurodollar Rate. 



        
“Facilities”  means the Line of  Credit,  and any other  credit
facility   provided   by   Bank   from   time   to   time   pursuant   to   this
Agreement.



        
“Financial Contract”  of a Person means (a) any exchange-traded
or over-the-counter futures, forward, swap or option contract or other financial
instrument  with  similar  characteristics,   (b)  any  agreements,  devices  or
arrangements  providing for payments  related to fluctuations of interest rates,
exchange rates or forward rates,  including,  but not limited to,  interest rate
exchange agreements, forward currency exchange agreements,  interest rate cap or
collar protection agreements, forward rate currency or interest rate options, or
(c) to the extent not  otherwise  included in the  foregoing,  any Rate  Hedging
Agreement. 



        
“Financial  Statements”  means, as the context may require, (a)
the financial statements of Borrower as of June 30, 2002, and/or (b) the similar
financial statements of Borrower furnished from time to time pursuant to Section
5.2.1  hereof;  in all  cases  together  with  any  accompanying  notes or other
disclosures  to such  financial  statements,  and any  other  documents  or data
furnished to Bank in connection therewith. 



–7–





        
“Fixed  Charge  Coverage Ratio”  means, with respect to
Borrower,  (a)  the  sum of  (i)  EBITDA,  minus  (ii)  Unfunded  Capital
Expenditures,  plus  (iii) Rentals,  divided by (b) the sum of (i)
interest  expense,   plus  (ii)  mandatory  payments  of  all  long  term
Indebtedness,  plus (iii) taxes paid,  plus (iv) Rentals;  in each
instance  determined for the trailing four (4) quarter period ending on the date
of  determination,  except that for  purposes of  determining  the Fixed  Charge
Coverage  Ratio (aa) for the fiscal  period ending  December 31, 2002,  Unfunded
Capital  Expenditures and mandatory payments of all long term Indebtedness shall
be determined by  multiplying  such amounts for the  quarter-annual  period then
ending by a factor of 4,  (bb) for the  fiscal  period  ending  March 31,  2003,
Unfunded  Capital   Expenditures  and  mandatory   payments  of  all  long  term
Indebtedness shall be determined by multiplying such amounts for the semi-annual
period then ending by a factor of 2, and (cc) for the fiscal  period ending June
30, 2003, Unfunded Capital  Expenditures and mandatory payments of all long term
Indebtedness  shall be  determined  by  multiplying  such  amounts for the three
quarter-annual period then ending by a factor of 1.33. The Fixed Charge Coverage
Ratio shall be determined from the Financial Statements. 



        
“Funded Debt Ratio”  means, with respect to Borrower, as of the
last  day  of  any  fiscal  quarter  and as of  the  closing  of  any  permitted
Acquisition, the ratio of (a) interest bearing Indebtedness minus, to the
extent  included  in interest  bearing  Indebtedness,  Subordinated  Debt to (b)
EBITDA. The Funded Debt Ratio shall be determined from the Financial Statements.




        
“GAAP”  means generally accepted  accounting  principles in the
United  States of  America  in effect  from time to time as  promulgated  by the
Financial  Accounting  Standards  Board and  recognized  and  interpreted by the
American Institute of Certified Public Accountants. 



        
“Governmental  Authority”  means any nation or government,  any
state  or  other  political  subdivision  thereof,  and  any  entity  exercising
executive,  legislative,  judicial, regulatory or administrative functions of or
pertaining to any government,  including, without limiting the generality of the
foregoing,  any agency,  body,  commission,  court or department thereof whether
federal, state, local or foreign. 



        
“Guarantors”     means     any     U.S.     Subsidiaries     of
Borrower.



        
“Guaranty”   means  any  Guaranty   duly  executed  by  a  U.S.
Subsidiary of Borrower,  in the form prescribed by Bank, including any amendment
or modification thereof. 



        
“Hazardous   Materials”   mean   (a)   any   “hazardous
substance,”   as  defined  by   CERCLA,   (b)  any   “hazardous
waste,”  as defined by the Resource  Conservation  and Recovery Act, as
amended,  (c) any  petroleum  product,  or (d) any pollutant or  contaminant  or
hazardous, dangerous or toxic chemical, material or substance within the meaning
of any other federal,  state or local law, regulation,  ordinance or requirement
(including consent decrees and  administrative  orders) relating to, or imposing
liability or standards of conduct concerning,  any hazardous, toxic or dangerous
waste, substance or material, all as amended or hereafter amended. 



–8–





        
“Indebtedness”   of  a  Person  means  such  Person’s  (a)
obligations  for  borrowed  money,  (b)  obligations  representing  the deferred
purchase price of Property or services (other than trade payables arising in the
ordinary course of such Person’s business payable on terms customary in the
trade), (c) obligations,  whether or not assumed, secured by any Lien upon or in
Property  owned  by the  subject  Person  or  payable  out of  the  proceeds  or
production from Property now or hereafter owned or acquired by such Person,  (d)
obligations which are evidenced by notes, acceptances, or other instruments, (e)
Capitalized  Lease  Obligations,  (f)  indebtedness or other  obligations of any
other Person for borrowed  money or for the deferred  purchase price of property
or  services,  the  payment  or  collection  of which  the  subject  Person  has
guaranteed  (except by reason of  endorsement  for  collection  in the  ordinary
course of  business)  or in  respect  of which  the  subject  Person is  liable,
contingently or otherwise,  including,  without limitation,  liability by way of
agreement  to  purchase,  to provide  funds for  payment,  to supply funds to or
otherwise  to invest in such other  Person,  or  otherwise  to assure a creditor
against loss, (g)  reimbursement or other obligations in connection with letters
of credit,  (h) obligations in connection with Sale and Leaseback  Transactions,
(i)  any Net  Mark-To-Market  Exposure  of  Rate  Hedging  Agreements  or  other
Financial  Contracts,  and (j) any  other  transaction  which is the  functional
equivalent of, or takes the place of borrowing, but which would not constitute a
liability on a balance sheet of such Person  prepared in  accordance  with GAAP.




        
“Intercreditor Agreement”  means the Intercreditor Agreement of
even date herewith between Union Planters Bank,  National  Association and Bank,
as amended from time to time. 



        
“Interest  Period”  means,  with respect to a  Eurodollar  Rate
Advance,  a period  of one (1),  two (2) or three  (3)  months  commencing  on a
Banking Day  selected by Borrower  pursuant  to this  Agreement.  Such  Interest
Period shall end on (but exclude) the day which corresponds  numerically to such
date one, two or three months thereafter; provided,  however, that
if there is no such numerically  corresponding day in such next, second or third
succeeding month, such Interest Period shall end on the last Banking Day of such
next,  second or third  succeeding  month,  as the case may be.  If an  Interest
Period would  otherwise  end on a day which is not a Banking Day,  such Interest
Period  shall  end  on  the  next  succeeding   Banking  Day;   provided,
however, that if said next succeeding Banking Day falls in a new calendar
month, such Interest Period shall end on the immediately  preceding Banking Day.




        
“Investments”  of a Person means any loan,  advance (other than
commission,  travel and similar  advances to officers and employees  made in the
ordinary  course  of  business),   extension  of  credit  (other  than  accounts
receivable  arising in the ordinary course of business on terms customary in the
trade) or contribution of capital by such Person;  stocks,  bonds, mutual funds,
partnership  interests,  notes,  debentures  or other  securities  owned by such
Person;  any deposit  accounts and certificates of deposit owned by such Person;
and  structured  notes,  derivative  financial  instruments  and  other  similar
instruments or contracts owned by such Person. 



        
“Letters of Credit” means all standby and commercial Letters of
Credit now and hereafter  issued by Bank from time to time at the request of and
for the account of Borrower, including any renewal,  replacement,  substitution,
extension or modification thereof. 



–9–





        
“Lien”  means any lien (statutory or other), security interest,
mortgage, pledge, hypothecation, assignment for the purpose of security, deposit
arrangement for the purpose of security, encumbrance or preference,  priority or
other security  agreement of any kind or nature whatsoever  (including,  without
limitation,  the  interest  of a vendor or lessor  under any  conditional  sale,
Capitalized Lease or other title retention agreement). 



        
“Line of Credit”  means the secured revolving line of credit to
Borrower in the maximum  principal  amount of Six Million Dollars  ($6,000,000),
governed  by  this  Agreement,  including  any  renewal  or  extension  thereof.




        
“Line of Credit Maturity Date” means September 30, 2005.



        
“Loan  Documents”  means this  Agreement,  the Credit Note, the
Security  Agreement,  the Policy  Assignment,  any  Guaranty,  any UCC Financing
Statements  and all other  documents  executed and  delivered by Borrower or the
Subsidiaries to govern, evidence or secure the Facilities. 



        
“Loss”   shall  have  the  meaning   ascribed  in  Section  9.9
hereof.



        
“Material  Adverse  Effect”  means any event,  circumstance  or
condition that could reasonably be expected to have a material adverse effect on
(a) the business,  operations,  financial condition,  Properties or prospects of
Borrower and its Subsidiaries,  taken as a whole, (b) the ability of Borrower to
perform the Obligations,  (c) the validity or  enforceability of any of the Loan
Documents,  or  any  material  provision  thereof  or any  material  transaction
contemplated  thereby,  or (d) the rights and  remedies of Bank under any of the
Loan Documents. 



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



        
“Net Mark-to-Market Exposure” of a Person means, as of any date
of  determination,  the  excess  (if  any) of all  unrealized  losses  over  all
unrealized profits of such Person arising from Rate Hedging Agreements, where
“unrealized losses” means the fair market value of the cost to
such  Person  of  replacing  such  Rate  Hedging  Agreement  as of the  date  of
determination  (assuming the Rate Hedging  Agreement were to be terminated as of
that  date),  and  “unrealized  profits”  means the fair market
value of the gain to such Person of replacing such Rate Hedging  Agreement as of
the date of  determination  (assuming  such Rate  Hedging  Agreement  were to be
terminated as of that date). 



        
“Net  Worth”  means the excess of a Person’s  total assets
over  such  Person’s  total  liabilities,  as shown on the  balance  sheets
furnished  to  Bank  from  time  to  time  pursuant  to  Section  5.2.1  hereof.




        
“New  Subsidiary”  has the meaning  ascribed thereto in Section
5.1.3 hereof. 



        
“Obligations” means all unpaid principal and accrued and unpaid
interest on the Credit Note,  actual and  contingent  reimbursement  obligations
under the Letters of Credit, all accrued and unpaid fees hereunder,  obligations
of  Borrower  to Bank or an  affiliate  of Bank in respect  of any Rate  Hedging
Obligations, and all other obligations,  indemnities and liabilities of Borrower
to Bank of every type and  description,  direct or indirect,  joint,  several or
joint and  several,  absolute  or  contingent,  arising in  connection  with the
Facilities,  due or to become due, now existing or hereafter arising and whether
or not  contemplated  by  Borrower  or Bank as of the  date  hereof,  including,
without  limitation,  any Advances  pursuant to any amendment of this Agreement,
all  reasonable  costs of  collection  and  enforcement  of any and all thereof,
including reasonable attorney fees. 



–10–





        
“Operating  Lease”  of a Person  means  any  lease of  Property
(other than a Capitalized Lease) by such Person as lessee. 



        
“PBGC”   means  the  Pension   Benefit   Guaranty   Corporation
established pursuant to ERISA, or any successor entity. 



        
“Permissible Increment” means a minimum principal amount of One
Million Dollars  ($1,000,000)  and minimum  increments of Five Hundred  Thousand
Dollars ($500,000) above One Million Dollars ($1,000,000). 



        
“Permitted   Encumbrances”   means   (a)  Liens  for  taxes  or
assessments  which are not yet due,  Liens for taxes or  assessments or Liens of
judgments  which are being  contested,  appealed  or  reviewed  in good faith by
appropriate  proceedings  which prevent  foreclosure of any such Lien or levy of
execution  thereunder  and against which Liens,  if any,  adequate  insurance or
reserves  have been  provided;  (b)  pledges or  deposits  to secure  payment of
workers’  compensation  obligations  and deposits or  indemnities to secure
public or statutory obligations or for similar purposes; (c) those minor defects
which in the opinion of Bank’s  counsel do not  materially  affect title to
the  collateral  for the  Obligations;  (d)  Liens in favor of Bank;  (e)  Liens
imposed by law, such as carrier’s,  warehousemen’s and mechanic’s
liens and other similar Liens arising in the ordinary  course of business  which
secure  payment  of  obligations  not more than  sixty  (60) days past due;  (f)
utility  easements,  building  restrictions,  zoning  ordinances  and such other
encumbrances  or charges  against  real  Property  as are of a nature  generally
existing with respect to real Properties of a similar character and which do not
in any material way affect the  marketability  of the same or interfere with the
use thereof in the  business of  Borrower;  (g)  lessors’  interests  under
Capitalized Leases now existing; (h) subject to the Intercreditor Agreement, the
mortgage liens and assignment of rents in favor of Union Planters Bank, National
Association  encumbering  the  UPB  Priority  Collateral,   as  defined  in  the
Intercreditor  Agreement;  (i) the  mortgage  lien in favor of Fifth Third Bank,
Indiana (Central) encumbering the Baltimore, Maryland real estate to be acquired
by Borrower  as part of the  Approved  PKL  Acquisition;  and (j) those  further
encumbrances (if any) shown on Schedule 1 attached hereto. 



        
“Person”  means and includes an individual,  a  partnership,  a
joint  venture,  a  corporation,  a  limited  liability  company,  a  trust,  an
unincorporated association and a Governmental Authority. 



        
“Plan”  means an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum  funding  standards under Section
412 of the Code as to which a Borrower may have any liability. 



        
“Policy  Assignment”  means the  Assignment  of Life  Insurance
Policy as Collateral, in substantially the form of Exhibit C hereto, duly
executed by Borrower to Bank to secure the Obligations,  including any amendment
or modification thereof. 



–11–





        
“Prime Rate” means the rate of interest quoted and announced as
its  prime  rate  by  Bank,  through  its  usual  and  customary  procedures  as
established  from  time  to  time  by  Bank  in  its  sole  discretion  with  no
responsibility to consult with or notify Borrower in connection with any changes
in such  procedures or rate, and for any specific time shall mean the prime rate
then most  recently  announced as the prime rate of Bank,  changing  when and as
such prime rate changes. 



        
“Prime Rate  Advance”  means any Advance when and to the extent
that the  interest  rate thereof is  determined  by reference to the Prime Rate.




        
“Property”  of a Person  means  any and all  property,  whether
real, personal, tangible,  intangible, or mixed, of such Person, or other assets
owned, leased or operated by such Person. 



        
“Qualified Investments” means (a) short term obligations of, or
fully  guaranteed by, the United States of America,  (b) commercial  paper rated
A-1 or better by S&P or P-1 or better by  Moody’s,  (c) demand  deposit
accounts maintained in the ordinary course of business,  and (d) certificates of
deposit  issued by commercial  banks having capital and surplus in excess of One
Hundred Million Dollars ($100,000,000). 



        
“Rate  Hedging   Agreement”   means  an  agreement,  device  or
arrangement providing for payments which are related to fluctuations of interest
rates,  exchange  rates  or  forward  rates,  including,  but  not  limited  to,
dollar-denominated or cross-currency interest rate exchange agreements,  forward
currency exchange agreements, interest rate cap or collar protection agreements,
forward rate currency or interest rate options, puts and warrants. 



        
“Rate  Hedging  Obligations”  of a  Person  means  any  and all
obligations  of such Person,  whether  absolute or contingent  and howsoever and
whensoever  created,  arising,  evidenced or acquired  (including  all renewals,
extensions and modifications thereof and substitutions therefor),  under (a) any
and all Rate Hedging Agreements,  and (b) any and all cancellations,  buy backs,
reversals,   terminations   or  assignments  of  any  Rate  Hedging   Agreement.




        
“Rentals” means,  as of the last day of any  fiscal  quarter  of
Borrower,  the aggregate  amount of rental  expense (as determined in accordance
with  GAAP)  under  any  Operating  Lease  for the four (4)  consecutive  fiscal
quarters ending on the date of determination. 



        
“Reserves” means the maximum reserve requirement, as prescribed
by the Board of Governors of the Federal  Reserve System (or any successor) with
respect  to  “Eurocurrency  liabilities”  or in  respect of any
other category of liabilities  which includes deposits by reference to which the
interest  rate  on  Eurodollar  Rate  Advances  is  determined  or  category  of
extensions of credit or other assets which includes loans by a non-United States
office of any Bank to United States residents. 



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



        
“Sale  and  Leaseback  Transaction”  means  any  sale or  other
transfer of any property by any Person with the intent to lease such property as
lessee. 



–12–





        
“Security  Agreement”  means the General Security Agreement, in
substantially the form of Exhibit B hereto,  duly executed by Borrower in
favor of Bank to secure the Obligations, including any amendment or modification
thereof. 



        
“Subordinated  Debt”  means  Indebtedness  of Borrower  that is
subordinated  in  writing  to the full,  final and  irrevocable  payment  of the
Obligations,  in form and  substance  acceptable  to Bank  pursuant  to either a
Subordination Agreement or the documents evidencing such Indebtedness,  provided
Bank has  specifically  agreed in  writing  that such  Indebtedness  constitutes
Subordinated  Debt (which agreement Bank will not  unreasonably  refuse to make,
delay making, or make conditional upon other terms). 



        
“Subordination  Agreement”  means each Subordination  Agreement
executed  by a holder of  Subordinated  Debt,  in the form  prescribed  by Bank,
including any amendment or modification thereof. 



        
“Subsidiaries”  means,  as to any Person,  (a) a corporation of
which shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a  contingency)  to elect a majority of
the Board of Directors  or other  managers of such  corporation  are at the time
owned,  or  the  management  of  which  is  otherwise  controlled,  directly  or
indirectly through one or more intermediaries,  or both, by such Person, and (b)
any partnership, association, joint venture or other entity in which such Person
and/or one or more  Subsidiaries  of such  Person has more than a Fifty  Percent
(50%) equity interest. 



        
“Tangible  Net Worth”  means on any date of determination,  the
amount by which (a) Net Worth, exceeds (b) the sum of (i) all assets which would
be classified as intangible assets under GAAP,  including,  without  limitation,
goodwill  (whether  representing  the  excess of cost over book  value of assets
acquired or otherwise), patents, tradenames,  copyrights,  franchises, operating
permits, unamortized debt discount and expense, organization costs, and research
and  development   costs,   (ii)  treasury  stock  and  minority   interests  in
subsidiaries  or other  entities,  (iii) cash set apart and held in a sinking or
other similar fund established for the purpose of redemption or other retirement
of capital stock,  and (iv) to the extent not otherwise  deducted,  reserves for
depreciation,  depletion, obsolescence and/or amortization of properties and all
other reserves or  appropriations of retained earnings which, in accordance with
GAAP,  should be  established in connection  with the business  conducted by the
subject  Person,  and (v) any  revaluation  or other  write-up  in book value of
assets. 



        
“Taxes”  shall  have  the  meaning  ascribed  in  Section  2.10
hereof.



        
“Total Debt Ratio”  means, with respect to Borrower,  the ratio
of (a)  Indebtedness  divided  by (b) the sum of (i)  Tangible  Net Worth
plus  (ii)  Subordinated  Debt.  The Total Debt Ratio shall be determined
from the Financial Statements. 



        
“Type”  means,  with  respect to any  Advance,  its nature as a
Prime Rate Advance or a Eurodollar Rate Advance. 



        
“Unfunded Capital Expenditures”  means capital expenditures not
funded by long term  Indebtedness,  as shown on the balance  sheet  furnished to
Bank from time to time pursuant to Section 5.2.1 hereof. 



–13–





        
“Unmatured Default” means any event which with notice, or lapse
of time, or both, would constitute a Default. 



        
“U.S.  Subsidiary” means a Subsidiary organized or incorporated
within the United States of America or within any United States  territories  or
possessions.




        
Section 1.2   Rules of Construction.   
The foregoing  definitions shall be equally  applicable to both the singular and
plural forms of the defined  terms.  Use of the terms  “herein”
“hereof”,  and  “hereunder”  shall  be  deemed
references  to this  Agreement in its entirety and not to the Section  clause in
which such term appears. 



        
Section 1.3   Accounting Terms.   
All  accounting  terms not  specifically  defined  herein  shall be construed in
accordance  with GAAP  consistent  with those applied in the  preparation of the
Financial Statements. 



ARTICLE 2.        
CREDIT



        
Section 2.1   Line of Credit Commitment.   
Subject to the terms and conditions of this Agreement,  Bank shall make Advances
under the Line of Credit  available  to Borrower in a maximum  principal  amount
equal  to the  lesser  of:  (a) Six  Million  Dollars  ($6,000,000),  or (b) the
Borrowing  Base.  Advances  under the Line of Credit  shall be  evidenced by the
Credit Note.



        
Section 2.2   Interest; Unused Fees and Rate Selection.   



	

	
                
2.2.1.        
Line of Credit - Interest. Prior to maturity or Default, the outstanding
principal balance of Advances under the Line of Credit shall bear interest at a
per annum rate equal to the Prime Rate plus the Applicable Margin, except
that, at the option of Borrower as exercised as provided in Section 2.2.4
hereof, the outstanding principal balance of Advances under the Line of Credit
in Permissible Increments may accrue interest at the Eurodollar Rate. At the
expiration of each Interest Period, unless Borrower selects the Eurodollar Rate
option as provided in Section 2.2.4 hereof, interest shall again accrue at a per
annum rate equal to the Prime Rate plus the Applicable Margin.






	

	
                
2.2.2.        
General. Interest shall be due and payable for the exact number of days
principal is outstanding and shall be calculated on the basis of a three hundred
sixty (360) day year. Any change in the interest rates occasioned by a change in
the Prime Rate shall be effective on the same day as the change in the Prime
Rate. After the maturity of any Facility, whether by acceleration or otherwise,
and while and so long as there shall exist any uncured Default, the Facilities
shall bear interest at a per annum rate equal to Four Percent (4%) above the
otherwise applicable rates.






	

	
                
2.2.3.        
Unused Fee/Reduction of Line of Credit Commitment. Borrower shall pay to
Bank from and after the date hereof until the date on which Bank’s
commitment under the Line of Credit is terminated in whole, an unused fee
accruing at the rate of the Applicable Fee per annum on the average daily
unborrowed portion of the Line of Credit minus outstanding Letters of Credit.
All such unused fees payable under this clause shall be payable quarterly in
arrears on the last day of each fiscal quarter of Borrower occurring after the
date hereof (with the first such payment being calculated for the period from
the date hereof and ending on December 31, 2002), and, in addition, on the date
on which the Bank’s commitment under the Line of Credit is terminated in
whole. Such unused fee shall be calculated on the basis of the actual number of
days elapsed and a three hundred sixty (360) day year. Borrower may permanently
reduce the Bank’s commitment under the Line of Credit, in whole or in part,
in integral multiples of One Million Dollars ($1,000,000), upon at least three
(3) Banking Days’ written notice to Bank, which notice shall specify the
amount of any such reduction; provided, however, that the amount of Bank’s
commitment under the Line of Credit may not be reduced below the aggregate
principal amount outstanding thereunder.







–14–




	

	
                
2.2.4.        
Interest Rate Selection - Eurodollar Rate  Option.  A Eurodollar Rate may
be elected only in accordance with the following procedures and subject to other
conditions contained in this Agreement:






	

	
                
(a)        
No Eurodollar Rate may be elected at any time a Default or an Unmatured  Default
exists.







	

	
                
(b)        
Borrower shall notify Bank of its election or renewal of a Eurodollar Rate prior
to 11:00 a.m.  (Indianapolis time) not less than three (3) Banking Days prior to
the commencement of the applicable  Interest Period therefor  specifying (i) the
election or renewal  date,  (ii) the amount of the Advance  (or  Advances  taken
together)  elected or renewed which amount shall be in a Permissible  Increment,
and (iii) the duration of the Interest Period selected to apply thereto.







	

	
                
(c)        
An election of a Eurodollar  Rate may be  communicated by telephone or by telex,
facsimile  machine or other form of written  electronic  communication,  or by a
writing  delivered  to Bank.  Borrower  shall  confirm in writing  any  election
communicated  by  telephone.  Bank  shall  be  entitled  to rely  on any  verbal
communication  of the  election  of a  Eurodollar  Rate which is  received  by a
designated  employee  of Bank from anyone  reasonably  believed in good faith by
such employee to be authorized.







	

	
                
(d)        
Not more than three (3) Eurodollar Rate Advances may be selected at any one time
to apply thereto.







        
Section 2.3   Payments of Principal and Interest.



	

	
                
2.3.1.        
Line of Credit. Interest only on the outstanding balance of Advances
under the Line of Credit  from time to time  throughout  the term of the Line of
Credit shall be due and payable (a) on the last day of each calendar  month with
respect  to each Prime Rate  Advance,  and (b) on the last day of an  applicable
Interest  Period with respect to a Eurodollar  Rate  Advance.  From time to time
during the term of the Line of Credit, Borrower shall make principal payments in
an amount  sufficient that the outstanding  principal  balance of Advances under
the Line of Credit shall not exceed the  Borrowing  Base.  The entire  principal
balance of  Advances  under the Line of Credit,  together  with all  accrued and
unpaid  interest  thereon,  and all  fees  and  charges  payable  in  connection
therewith,   shall  be  due  and   payable  on  the  Line  of  Credit   Maturity
Date.







–15–




	

	
                
2.3.2.        
Method of Payment. All payments of principal and interest hereunder shall
be made in immediately available funds to Bank at Bank’s address set forth
on the signature page hereof or at any other place specified in writing by Bank
to Borrower, by Noon (Indianapolis time) on the date when due. Borrower
authorizes Bank to charge the account of Borrower maintained with Bank for each
payment of principal, interest and fees as it becomes due hereunder.






	

	
                
2.3.3.        
Banking Day. If any installment of principal or interest provided herein
becomes due and payable on a date other than a Banking Day, the maturity of the
installment of principal or interest shall be extended to the next succeeding
Banking Day, and interest shall be payable during such extension of maturity.







        
Section 2.4   
Issuance  of  Letters  of  Credit.  Subject  to the terms and  conditions
hereof,  the Line of Credit, at the option of Borrower upon delivery of a proper
Letter  of  Credit  Application,  in the form  prescribed  by Bank,  may also be
utilized  in the form of  Letters  of Credit  issued by Bank for the  account of
Borrower.  Each Letter of Credit  shall have an  expiration  date not later than
twelve (12) months from the date of  issuance.  The  aggregate of the Letters of
Credit  outstanding at any time plus the aggregate amount of unreimbursed
drawings  under  the  Letters  of  Credit  shall not  exceed  the  lesser of the
unborrowed  available  portion  of the Line of  Credit  or One  Million  Dollars
($1,000,000). The amount of any Letter of Credit outstanding at any time for all
purposes  hereof  shall be the maximum  amount  which could be drawn  thereunder
under any circumstances from and after the date of determination. The Letters of
Credit and each unreimbursed  drawing  thereunder shall count against and reduce
the  available  amount  under the Line of Credit by the  amount of any Letter of
Credit  outstanding  unless and until such Letter of Credit expires by its terms
or otherwise terminates or the amount of a drawing thereunder is reimbursed,  in
which event the Line of Credit shall be  reinstated by the amount of such Letter
of Credit or the  amount of such  reimbursement,  as the case may be.  Each such
Letter of Credit  shall  conform  to the  general  requirements  of Bank for the
issuance  of such  credits,  as to form and  substance,  shall be subject to the
Uniform   Customs  and  Practices  for   Documentary   Credits  (1993  Revision)
International  Chamber of Commerce  Publication No. 500 and shall be a letter of
credit which Bank may lawfully  issue.  If and to the extent a drawing is at any
time made under any Letter of Credit, Borrower agrees to pay to Bank immediately
and unconditionally upon demand for reimbursement, in lawful money of the United
States,  an amount equal to each amount which shall be so drawn,  together  with
interest from the date of such drawing to and including the date such payment is
reimbursed  to Bank or  converted  to an  Advance  under  the Line of  Credit as
provided  herein.  Until  demand  for  reimbursement,  such  interest  shall  be
calculated at a variable per annum rate equal to the Prime Rate  plus the
Applicable  Margin,  and  interest  shall be  calculated  after such demand at a
variable  per annum  rate  equal to the Prime Rate  plus  the  Applicable
Margin  plus  Four Percent (4%). All such interest shall be calculated on
the basis that an entire  year’s  interest is earned in three hundred sixty
(360) days. Bank shall convert  automatically the  reimbursement  obligations of
Borrower  arising out of any such drawing into Advances under the Line of Credit
so long as the Line of Credit has not expired,  and Borrower hereby  irrevocably
authorizes  Bank to refinance,  without  notice to Borrower,  the  reimbursement
obligation of Borrower  arising out of any such drawing into Advances  under the
Line of Credit,  evidenced by the Credit Note and for all purposes under, on and
subject to the terms and  conditions of this  Agreement,  without  regard to the
conditions  precedent  to making an  Advance  under the Line of Credit or to any
requirement of this Agreement that each Advance be a minimal amount or multiple.
This  Agreement and the other Loan  Documents  shall  supersede any terms of any
letter of  credit  applications  or other  documents  which  are  irreconcilably
inconsistent  with the terms hereof or thereof.  Borrower agrees to pay to Bank,
at the time of issuance,  Letter of Credit fees equal to the  Applicable  Fee of
the face amount of each  commercial  Letter of Credit and the Applicable Fee per
annum of each standby Letter of Credit.  Such Letter of Credit fees shall be due
and payable upon issuance and  thereafter  quarterly in advance on the first day
of each  calendar  quarter and shall be  calculated  on the basis that an entire
year consists of three hundred sixty (360) days.  Such fees shall not be reduced
or refundable for any reason. Borrower shall also pay Bank’s reasonable and
customary costs of issuing,  servicing,  and negotiating draws under the Letters
of Credit. Borrower hereby authorizes Bank to collect such fees by deducting the
amount thereof from any account of Borrower at Bank. 



–16–





        
Section 2.5   
Unconditional  Reimbursement  Obligation.  The obligations of Borrower to
reimburse   any  drawing   under  the  Letters  of  Credit  shall  be  absolute,
unconditional  and  irrevocable  and  shall be paid and  performed  strictly  in
accordance  with  the  terms  of  this  Agreement,  as  applicable,   under  all
circumstances,   whatsoever,   including,  without  limitation,  the  following:



	

	
                
(a)        
any lack of validity or  enforceability  of any Letter of Credit or any Loan
Document;






	

	
                
(b)        
any  amendment  or waiver of or consent to  departure  from the terms of any
Loan Document;






	

	
                
(c)        
the existence of any claim,  setoff,  defense or other right which  Borrower
may  have at any  time  against  the  beneficiary  of a Letter  of  Credit,  any
transferee  thereof,  Bank or any other Person,  whether in connection  with the
Loan Documents, any Letter of Credit or any unrelated transaction;






	

	
                
(d)        
any statement,  draft or other document  presented  under a Letter of Credit
proving to be forged, fraudulent,  invalid or insufficient in any respect or any
statement  therein  being  untrue  or  inaccurate  in  any  respect  whatsoever;






	

	
                
(e)        
the  surrender  or  impairment  of any  security  for  the  performance  or
observance of the terms of the Loan Documents or any Letter of Credit; or







	

	
                
(f)        
any circumstance,  happening or omission whatsoever,  whether or not similar
to any of the foregoing,  including, without limitation, those matters described
in Section 2.6 hereof.







        
Section 2.6   
Risk of Misuse of Letter of Credit. Except as expressly set forth herein,
Borrower assumes all risk for the acts, omissions and/or  misrepresentations  of
the  parties  benefited  by a  Letter  of  Credit.  Neither  Bank nor any of its
affiliates or correspondents shall be responsible for the validity, sufficiency,
truthfulness  or genuineness of any document  required to draw under a Letter of
Credit even if such  document  should in fact prove to be in any or all respects
invalid,  insufficient,  fraudulent  or forged,  provided only that the document
appears on its face to be in accordance  with the terms of such Letter of Credit
and provided Bank is not grossly negligent or engaging in willful misconduct, or
for failure of any draft to bear reference or adequate  reference to a Letter of
Credit or  failure  of any Person to note the amount of any draft on a Letter of
Credit or to surrender or take up a Letter of Credit,  each of which  provisions
may be waived by Bank,  or for errors,  omissions,  interruptions,  or delays in
transmission  or delivery of any  messages or  documents.  Without  limiting the
generality of the  foregoing,  Borrower  agrees that any action taken by Bank or
any of its  correspondents  under or in connection with any Letter of Credit, if
taken in good faith and without gross negligence, shall be binding upon Borrower
and shall not put Bank or any such correspondent  under any resulting  liability
to Borrower, and Borrower likewise agrees as to any omission unless in breach of
good faith or  grossly  negligent.  Bank is  expressly  authorized  to honor any
request for payment  which is made under and in  compliance  with the terms of a
Letter of Credit  without  regard to and without any duty on its part to inquire
into the  existence of any disputes or  controversies  between  Borrower and the
beneficiary  of a Letter of Credit  or any other  Person or into the  respective
rights, duties or liabilities of any of them or whether any facts or occurrences
represented in any of the documents  presented under a Letter of Credit are true
and correct. No Person,  other than the parties hereto, shall have any rights of
any  nature  under  this  Agreement  or by  reason  hereof.  In no  event  shall
Bank’s reliance and payment against documents presented under any Letter of
Credit appearing on its face to  substantially  comply with the terms thereof be
deemed to constitute gross negligence or willful misconduct. 



–17–





        
Section 2.7   
Prepayment/Exit Fee.  Subject  to  the  provisions  of  this  Agreement,
Borrower may borrow,  pay, reborrow and repay the available  principal amount of
the Line of Credit at any time, and from time to time, in any multiple,  without
premium or penalty,  except that Eurodollar Rate Advances may only be prepaid on
the last day of the applicable  Interest Period therefor.  In the event the Line
of Credit or this  Agreement  is  terminated  prior to  September  30, 2005 as a
result of the Line of Credit being refinanced with funds provided by a financial
institution  other than Bank,  Borrower shall pay Bank an exit fee in the amount
of One Hundred Fifty Thousand Dollars ($150,000). 



        
Section 2.8   
Use of Proceeds.  The proceeds of Advances under the Line of Credit shall
be used for  working  capital  purposes of  Borrower  and its U.S.  Subsidiaries
(including  refinancing certain existing  indebtedness to Bank One, NA), and may
be used to pay closing  costs  related to the Approved PKL  Acquisition,  and to
fund the Approved LCR Acquisition. 



        
Section 2.9   
Method of Advance. 


	

	
                
2.9.1.        
Line of Credit. Except as to autoline Advances (if applicable), Borrower
shall give Bank  telephonic,  telex or  telegraphic  notice of its  intention to
borrow  under  the Line of  Credit by not later  than  10:00  o’clock  a.m.
(Indianapolis time) on the proposed borrowing date which shall be a Banking Day,
subject to Section 2.2.4 hereof with respect to Eurodollar  Rate Advances.  Each
request  once  received by Bank shall be  irrevocable,  subject to Section  2.13
hereof.  Borrower  agrees that Bank may rely on any such  telephonic,  telex, or
telegraphic  notices  made by any Person whom Bank in good faith  believes to be
authorized.  If Bank requests, each requested Advance based on telephonic notice
shall be confirmed in writing by Borrower. In the event any notice by such means
shall conflict with the written  confirmation,  such notice shall govern if Bank
has acted in good faith in reliance thereon. Each request shall in and of itself
constitute a  representation  and warranty on behalf of Borrower that no Default
or Unmatured  Default has occurred  and is  continuing  or would result from the
making of the requested  Advance and that the requested  Advance shall not cause
the  principal  balance  of the Line of  Credit  to exceed  the  maximum  amount
available  under  the Line of  Credit  from time to time.  Other  than  autoline
Advances and subject to Section  2.2.4 hereof with  respect to  Eurodollar  Rate
Advances,  the principal amount of Advances under the Line of Credit made on any
borrowing date shall be in minimum amounts of Fifty Thousand  Dollars  ($50,000)
and  in  integral   multiples  of  One  Thousand   Dollars  ($1,000)  in  excess
thereof.







–18–




	

	
                
2.9.2.        
General.  All  Advances  by Bank under the  Facilities  and  payments  by
Borrower on the  Facilities  shall be recorded by Bank on its books and records,
and the principal amount  outstanding  from time to time,  plus  interest
payable  thereon,  shall be determined  from the books and records of Bank.  The
books and  records  of Bank shall be  presumed  prima  facie  correct as to such
matters.







        
Section 2.10   Taxes.


	

	
                
2.10.1.        
General. All payments by Borrower under this Agreement or the Credit Note
shall be made free and clear of, and without  deduction or withholding  for, any
present or future income, stamp or other taxes, levies, duties, imposts, charges
or   fees   or  any   related   penalties,   interest   or   other   liabilities
(“Taxes”).  If any Taxes are required to be deducted or withheld  from
any amount  payable to Bank under this  Agreement or the Credit  Note,  Borrower
shall pay  additional  amounts  so that the  amount  received  by Bank after the
deduction of such Taxes (including Taxes on such additional  amounts) equals the
amount that the Bank would have received if no Taxes had been deducted. Borrower
shall pay to the appropriate  taxing authority all Taxes required to be deducted
or withheld. Within thirty (30) days after paying any such Taxes, Borrower shall
deliver  to Bank  the  original  or a  certified  copy of the  receipt  for such
payment.  Borrower  shall not be required to pay  additional  amounts to Bank on
account of any Taxes,  including,  but not limited  to,  income  taxes,  imposed
solely  by  reason  of a  present  or  past  connection  between  Bank  and  the
jurisdiction  imposing such Taxes (except a connection  arising  solely from the
execution,  delivery,  performance,  enforcement  of or the  receipt of payments
under this Agreement or the Credit Note).






	

	
                
2.10.2.        
Tax Indemnity. Borrower shall indemnify Bank against any Taxes imposed on
(and  any  related  expenses  reasonably  incurred  by) Bank on  account  of the
execution,  delivery,  performance  or enforcement of or the receipt of payments
under this  Agreement  or the Credit  Note  other than Taxes  imposed  solely by
reason of the cause  specified in the last  sentence of Section  2.10.1  hereof.
Borrower  also  shall  pay  and  indemnify  Bank  against  any  stamp  or  other
documentary, excise or property taxes or similar levies, imposts, or charges (or
any related  liability)  arising  from the  execution,  delivery,  registration,
performance or enforcement of this Agreement or the Credit Note.







–19–





        
Section 2.11   
Yield  Protection.  If,  on or  after  the  date of this  Agreement,  the
adoption of any law or any governmental or quasi-governmental  rule, regulation,
policy,  guideline or directive (whether or not having the force of law), or any
change in the  interpretation or  administration  thereof by any governmental or
quasi-governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Bank with any request
or  directive  (whether  or not having the force of law) of any such  authority,
central bank or comparable agency: 


	

	
                
(a)        subjects  Bank to any  Taxes,
or changes the basis of taxation of payments  (other than with  respect to Taxes
imposed only by reason of the cause  specified  in the last  sentence of Section
2.10.1  hereof)  to  Bank  in  respect  of  its  Eurodollar  Rate  Advances,  or







	

	
                
(b)        
imposes or increases or deems  applicable  any  reserve,  assessment,  insurance
charge,  special deposit or similar requirement against assets of, deposits with
or for the account of, or credit  extended  by,  Bank (other than  reserves  and
assessments  taken into account in determining  the interest rate  applicable to
Eurodollar Rate Advances), or






	

	
                
(c)        
imposes any other  condition the result of which is to increase the cost to Bank
of making,  funding or maintaining  its Eurodollar  Rate Advances or reduces any
amount  receivable by Bank in connection with its Eurodollar  Rate Advances,  or
requires  Bank to make any  payment  calculated  by  reference  to the amount of
Eurodollar  Rate Advances  held or interest  received by it, by an amount deemed
material by Bank,







and the result of any of the foregoing is to increase the cost to Bank of making
or  maintaining  its  Eurodollar  Rate  Advances or  Commitment or to reduce the
return  received by Bank in  connection  with such  Eurodollar  Rate Advances or
Bank’s  commitment,  then,  within  fifteen  (15)  days of  demand by Bank,
Borrower  shall pay Bank such  additional  amount or amounts as will  compensate
Bank for such increased cost or reduction in amount received.



        
Section 2.12   
Changes in Capital Adequacy Regulations. If Bank determines the amount of
capital  required  or  expected  to be  maintained  by Bank  or any  corporation
controlling Bank is increased as a result of a Change, then, within fifteen (15)
days of  demand  by  Bank,  Borrower  shall  pay Bank the  amount  necessary  to
compensate  for any  shortfall  in the rate of  return  on the  portion  of such
increased  capital which Bank determines is attributable to this Agreement,  the
Facilities  or its  commitment  to make  Advances  hereunder  (after taking into
account Bank’s policies as to capital adequacy).  “Change”
means (a) any change after the date of this Agreement in the Risk-Based  Capital
Guidelines,  or (b) any adoption of or change in any other law,  governmental or
quasi-governmental  rule,  regulation,  policy,  guideline,  interpretation,  or
directive  (whether  or not  having  the  force of law)  after  the date of this
Agreement  which  affects  the  amount of capital  required  or  expected  to be
maintained  by Bank or any  corporation  controlling  Bank.  “Risk-Based
Capital  Guidelines”  means (i) the  risk-based  capital  guidelines in
effect in the United States on the date of this Agreement,  including transition
rules, and (ii) the corresponding capital regulations  promulgated by regulatory
authorities  outside the United States  implementing the July 1988 report of the
Basle  Committee  on  Banking  Regulation  and  Supervisory  Practices  Entitled
“International   Convergence   of  Capital   Measurements   and  Capital
Standards,”  including  transition  rules,  and any  amendments to such
regulations  adopted prior to the date of this  Agreement.  The  obligations  of
Borrower  under  this  Section  shall  survive  payment of the  Obligations  and
termination of this Agreement. 



–20–





        
Section 2.13   
Funding Indemnification. If any payment of a Eurodollar Rate Advance
occurs on a date which is not the last day of the  applicable  Interest  Period,
whether because of acceleration,  prepayment or otherwise,  or a Eurodollar Rate
Advance is not made on the date  specified by Borrower for any reason other than
default  by  Bank,  or  Borrower  attempts  to  revoke   (expressly,   by  later
inconsistent  notices or otherwise) in whole or in part any notice stated herein
to be  irrevocable  (Bank having in its sole  discretion  the option (a) to give
effect to such attempted  revocation and obtain indemnity under this Section, or
(b) to treat such attempted revocation as having no force or effect, as if never
made),  Borrower  will  indemnify  Bank  for any  loss or  cost  incurred  by it
resulting  therefrom,  including,  without  limitation,  any  loss  or  cost  in
liquidating or employing  deposits  acquired to fund or maintain such Eurodollar
Rate Advance. 



        
Section 2.14   
Availability of Types of Advances. If Bank determines that maintenance of
its Eurodollar Rate Advances would violate any applicable law, rule, regulation,
or directive, whether or not having the force of law, or if Bank determines that
(a) deposits of a type and maturity  appropriate to match fund  Eurodollar  Rate
Advances  are not  available or (b) the interest  rate  applicable  to a Type of
Advance  does not  accurately  reflect  the cost of making or  maintaining  such
Advance,  then Bank shall  suspend  the  availability  of the  affected  Type of
Advance  and  require  any  affected  Eurodollar  Rate  Advances to be repaid or
converted  to  Prime  Rate  Advances,  subject  to the  payment  of any  funding
indemnification amounts required by Section 2.13. 



        
Section 2.15   
Bank  Statements;   Survival  of  Indemnity.  To  the  extent  reasonably
possible, Bank shall designate an alternate lending installation with respect to
its  Eurodollar  Rate Advances to reduce any liability of Borrower to Bank under
Section 2.11 or to avoid the  unavailability  of Eurodollar  Rate Advances under
Section  2.14,  so long as such  designation  is not,  in the  judgment of Bank,
disadvantageous  to Bank. Bank shall deliver a written  statement to Borrower as
to the amount due, if any,  under  Section  2.11,  Section 2.12 or Section 2.13.
Such written  statement  shall set forth in reasonable  detail the  calculations
upon which  Bank  determined  such  amount  and shall be final,  conclusive  and
binding on Borrower in the absence of manifest error.  Determination  of amounts
payable under such Sections in connection  with a Eurodollar  Rate Advance shall
be  calculated  as though Bank funded its  Eurodollar  Rate Advance  through the
purchase of a deposit of the type and maturity corresponding to the deposit used
as a reference in determining the Eurodollar Rate Advance,  whether in fact that
is the case or not. Unless otherwise  provided  herein,  the amount specified in
the  written  statement  of Bank  shall be payable  on demand  after  receipt by
Borrower of such written  statement.  The  obligations of Borrower under Section
2.11, Section 2.12 and Section 2.13 shall survive payment of the Obligations and
termination of this Agreement. 




–21–





ARTICLE 3.        
SECURITY AND GUARANTY



        
Section 3.1   
Security. The Obligations shall be secured by the following:


	

	
                
(a)        
the Security  Agreement  constituting a first priority  security interest in
all Accounts,  Inventory, General Intangibles,  Chattel Paper, Equipment, Goods,
Deposit Accounts,  Instruments,  Investment  Property (provided that only 65% of
Borrower’s interest in non-U.S.  Subsidiaries shall be pledged),  Documents
and all other personal  property of Borrower  (excluding  Fixtures) now owned or
hereafter acquired and all Proceeds thereof;






	

	
                
(b)        
the  Policy  Assignment  constituting  collateral  assignment  to Bank of an
acceptable  life insurance  policy owned by Borrower  insuring the life of Peter
Kissinger in the face amount of not less than One Million Dollars  ($1,000,000);
and






	

	
                
(c)        
such other security interests as may be described in the Loan Documents.







        
Section 3.2   
Addition  of  Guarantors;   Addition  of  Pledged  Capital  Stock  and  other
Collateral.  Borrower shall cause each U.S.  Subsidiary that is a Subsidiary
as of the date of this Agreement or at any time  thereafter,  to deliver to Bank
an executed Guaranty and appropriate corporate  resolutions,  opinions and other
documentation  in form and  substance  reasonably  satisfactory  to  Bank,  such
Guaranty and other documentation to be delivered to Bank as promptly as possible
but in any  event  (a)  within  two  (2)  Banking  Days  after  the  date of the
consummation  of a  permitted  Acquisition  involving  such  Subsidiary  and (b)
otherwise within thirty (30) days of determination that a Subsidiary needs to be
added as a Guarantor.  Simultaneously  with any Subsidiary becoming a Guarantor,
Borrower shall (or, if the capital stock of such  Subsidiary is owned by another
Subsidiary,  shall cause such other  Subsidiary  to) deliver to Bank an executed
supplement  to  the  existing  Security  Agreement  or a new  Pledge  Agreement,
together with appropriate corporate resolutions,  opinions,  stock certificates,
UCC  filings or  amendments  and other  documentation,  in each case in form and
substance reasonably satisfactory to Bank and Bank shall be reasonably satisfied
that it has a first priority perfected pledge of all of the outstanding  capital
stock of each U.S.  Subsidiary and 65% of the outstanding  capital stock of each
non-U.S.  Subsidiary,  in either case,  owned by Borrower and its  Subsidiaries.
Simultaneously with any U.S. Subsidiary becoming a Guarantor, Borrower shall, or
shall cause such U.S.  Subsidiary  to,  (i) execute  and deliver a Security
Agreement  (and  deliver the other  documents  required  thereby) and such other
collateral documents as Bank may require in its sole and reasonable  discretion;
and (ii) deliver such other documentation as Bank may reasonably require in
connection with the foregoing,  including,  without limitation,  appropriate UCC
financing   statements,   UCC   searches,   certified   resolutions   and  other
organizational  and  authorizing  documents of such U.S.  Subsidiary,  favorable
opinions of counsel to such U.S.  Subsidiary  (which  shall  cover,  among other
things,  the  legality,  validity,  binding  effect  and  enforceability  of the
documentation  referred  to  above  and  the  perfection  of  Bank’s  liens
thereunder)  and other items of the types  required to be  delivered by Borrower
pursuant to Section 6.1 as of the closing date,  all in form,  content and scope
reasonably satisfactory to Bank. 



–22–





        
Section 3.3   
Additional  Collateral/Setoff.  Borrower  hereby  grants to Bank (and any
participant of the Facilities),  as additional  security for the Obligations,  a
continuing  lien upon all monies,  securities and other property of Borrower now
or hereafter  held or received by, or in transit to, Bank from or for  Borrower.
Bank (and any such  participant of the Facilities) is authorized at any time and
from time to time while there exists a Default,  without notice to Borrower, and
shall have the right to setoff,  appropriate and apply its own debt or liability
to Borrower,  or to any other  Person  liable for the  Obligations,  in whole or
partial payment of any Obligation in such order or manner as Bank may reasonably
determine, without any requirements of mutual maturity. 



ARTICLE 4.        
REPRESENTATIONS AND WARRANTIES



        
Borrower represents, covenants and warrants to Bank as follows:




        
Section 4.1   
Due  Organization.  Borrower is a corporation  duly organized and validly
existing under the laws of the State of Indiana.



        
Section 4.2   
Due  Qualification.  Borrower and each  Subsidiary is qualified,  in good
standing  and  authorized  to do  business as a foreign  corporation  or limited
liability  company in such other states  wherein the failure to so qualify would
have a Material Adverse Effect. 



        
Section 4.3   
Corporate Power. Borrower possesses the requisite power to enter into the
Loan Documents, as applicable,  to borrow thereunder, to execute and deliver the
Loan Documents and to perform its respective obligations thereunder. 



        
Section 4.4   
Corporate Authority. Borrower has taken the necessary corporate action to
authorize the execution and delivery of the Loan Documents,  as applicable,  and
the borrowings  thereunder and the granting of the security  interests  therein,
and none of the provisions of the Loan Documents  violate,  breach,  contravene,
conflict  with,  or cause a  default  under any  provision  of the  articles  of
incorporation,  or by-laws of Borrower or any  provision of any  existing  note,
bond, mortgage, debenture, indenture, trust, license, lease, instrument, decree,
order, judgment, or agreement to which Borrower is a party or by which it or its
assets may be bound or affected,  which in any case is reasonably likely to have
a Material Adverse Effect. 



        
Section 4.5   
Financial   Statements.   The  Financial   Statements  were  prepared  in
accordance with GAAP consistent with prior years, unless specifically  otherwise
noted  thereon,  and  fairly  present in all  material  respects  the  financial
condition of Borrower as of the date  thereof and the results of its  operations
for the period  then  ended,  and no material  adverse  change in the  financial
condition of Borrower has occurred since the date of the Financial Statements.




        
Section 4.6   
No Material Adverse Change. The information submitted by Borrower to Bank
discloses all known or anticipated material  liabilities,  direct or contingent,
of Borrower as of the dates  thereof,  and, to the best  knowledge  of Borrower,
since such dates,  there has been no material adverse change in  Borrower’s
financial condition. 



        
Section 4.7   
Subsidiaries. Except as disclosed on Schedule 4.7 hereto, Borrower has no
Subsidiaries.



–23–





        
Section 4.8   
Binding Obligations. Each of the Loan Documents, when issued for value,
will constitute a legal, valid and binding obligation of Borrower, enforceable
against Borrower in accordance with its terms, except as the same may be limited
by reorganization, bankruptcy, insolvency, moratorium or other laws affecting
generally the enforcement of creditors’ rights. 



        
Section 4.9   
Marketable Title. Borrower and each Subsidiary has good and marketable
title to all of its real Property and good title to all of its other Properties
shown on the Financial Statements, except such Properties as have been disposed
of since the date of the Financial Statements in the ordinary course of
business. Except for Permitted Encumbrances, (a) the assets of Borrower and the
Subsidiaries are not subject to any Lien and the security interests in favor of
Bank under the Loan Documents will constitute first, senior and prior perfected
security interests in the collateral therein described, and (b) no financing
statement or similar instrument which names Borrower or its Subsidiaries as
debtor or relates to any of its Property, has been filed in any state or other
jurisdiction and remains unreleased, and Borrower and its Subsidiaries have not
signed any financing statement or similar instrument or security agreement
authorizing the secured party thereunder to file any such financing statement or
similar instrument. 



        
Section 4.10   
Indebtedness. Except as shown on the Financial Statements, except as set
forth on Schedule 4.10 hereto, and except for trade debt incurred in the
ordinary course of business since the date of the Financial Statements, neither
Borrower nor any Subsidiary has any outstanding Indebtedness. 



        
Section 4.11   
Default. Neither Borrower nor any Subsidiary has committed or suffered to
exist any default or any circumstance which with notice, lapse of time, or both,
would constitute a default under the terms and conditions of any trust,
debenture, indenture, note, bond, instrument, mortgage, lease, agreement, order,
decree, or judgment to which Borrower or a Subsidiary is a party or by which it
or its assets may be bound or affected, which in any case is reasonably likely
to have a Material Adverse Effect. 



        
Section 4.12   
Tax Returns. All tax returns or reports of Borrower and its Subsidiaries
required by law have been filed, and all taxes, assessments, contributions, fees
and other governmental charges (other than those presently payable without
penalty or interest and those currently being contested in good faith and
against which adequate reserves have been established) upon Borrower, its
Subsidiaries or their assets, properties or income, which are payable, have been
paid, except for the failure to file or pay that are not reasonably likely to
have a Material Adverse Effect. 



        
Section 4.13   
Litigation. Except as set forth on any Schedule 4.13 hereto, no
litigation or proceeding of any Governmental Authority or other Person is
presently pending or, to Borrower’s knowledge, threatened, nor has any
claim been asserted, against Borrower or its Subsidiaries which, if adversely
determined, is reasonably likely to have a Material Adverse Effect. 



        
Section 4.14   
ERISA. Borrower and each ERISA Affiliate is in compliance in all material
respects with all applicable provisions of ERISA, and neither Borrower nor any
ERISA Affiliate has incurred any liability to the PBGC. Neither a
“reportable event”, nor a “prohibited
transaction”, has occurred under, nor has there occurred any complete
or partial withdrawal from, nor has there occurred any other event which would
constitute grounds for termination of or the appointment of a trustee to
administer any “employee benefit plan” (including any
“multi-employer plan”) maintained for employees of Borrower or
any ERISA Affiliate, all within the meanings ascribed by ERISA. 



–24–





        
Section 4.15   
Full Disclosure. No information, exhibit, memorandum, or report (excluding
estimated future operating results) furnished by Borrower to Bank in connection
with the negotiation of the Facilities contains any material misstatement of
fact, or omits to state any material fact necessary to make the statements
contained therein not materially misleading in light of the circumstances when
made, and all estimated future operating results, if furnished, were prepared on
the basis of assumptions, data, information, tests or other conditions believed
to be valid or accurate or to exist at the time such estimates were prepared and
furnished. To Borrower’s knowledge, there presently exists no fact or
circumstance relative to Borrower or its Subsidiaries, whether or not disclosed,
which is presently anticipated to have a Material Adverse Effect. 



        
Section 4.16   
Contracts of Surety. Except for the endorsements of Borrower or a
Subsidiary of negotiable instruments for deposit or collection in the ordinary
course of business and except the Guaranty, neither Borrower nor any Subsidiary
is a party to any contract of guaranty or surety. 



        
Section 4.17   
Licenses. Borrower and each Subsidiary possesses such franchises,
licenses, permits, patents, copyrights, trademarks, and consents of appropriate
Governmental Authorities to own its property (including any assets acquired
pursuant to the Approved PKL Acquisition and the Approved LCR Acquisition) and
as are necessary to carry on its business, except where the failure to obtain
any of the foregoing, singularly or in aggregate, is not reasonably likely to
have a Material Adverse Effect. 



        
Section 4.18   
Compliance with Law. Borrower and each Subsidiary is in substantial
compliance with all applicable requirements of law and of all Governmental
Authorities noncompliance with which is reasonably likely to have a Material
Adverse Effect. 



        
Section 4.19   
Force Majeure. Neither the business nor the properties of Borrower or a
Subsidiary are presently affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God or of the public enemy or other casualty that is reasonably likely to
have a Material Adverse Effect. 



        
Section 4.20   
Margin Stock. Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System), and no
part of the proceeds of the Facilities will be used, either directly or
indirectly, for the purpose, whether immediate, incidental or remote, of
purchasing or carrying any margin stock or of extending credit to others for the
purpose of purchasing or carrying any margin stock, and Borrower shall furnish
to Bank, upon its request, a statement in conformity with the requirements of
Federal Reserve Board Form U-1 referred to in Regulation U. Further, no part of
the proceeds of the Facilities will be used for any purpose that violates, or
which is inconsistent with, the provisions of Regulations T, U or X of the Board
of Governors. 



–25–





        
Section 4.21   
Approvals. No authorization, consent, approval or any form of exemption
of any Governmental Authority is required in connection with the execution and
delivery by Borrower of the Loan Documents, the borrowings and performance by
Borrower thereunder or the issuance of the Credit Note. 



        
Section 4.22   
Insolvency. Borrower and each Subsidiary is not
“insolvent” within the meaning of that term as defined in the
Federal Bankruptcy Code and each is able to pay its debts as they mature. 



        
Section 4.23   
Regulation. Borrower is not an “investment company”
within the meaning of the Investment Company Act of 1940, as amended, or a
“holding company” or an “affiliate of a holding
company” or a “subsidiary of a holding company” within
the meanings of the Public Utility Holding Company Act of 1935, as amended. 



        
Section 4.24   
Environmental Matters. In the ordinary course of its business, Borrower
conducts an ongoing review of the effect of Environmental Laws on the business,
operations and Properties of Borrower and its Subsidiaries, in the course of
which it identifies and evaluates associated liabilities and costs (including
any capital or operating expenditures required for clean-up or closure of
Properties presently owned or operated, any capital or operating expenditures
required to achieve or maintain compliance with environmental protection
standards imposed by Environmental Laws or as a condition of any license, permit
or contract any related constraints on operating activities, including any
periodic or permanent shutdown of any facility or reduction in the level of or
change in the nature of operations conducted thereat and any actual or potential
liabilities to third parties, including employees, and any related costs and
expenses). On the basis of this review, Borrower has reasonably concluded that
Environmental Laws cannot reasonably be expected to have a Material Adverse
Effect. Borrower has not received any notice to the effect that its operations
are not in compliance with any of the requirements of applicable Environmental
Laws or are the subject of any federal or state investigation evaluating whether
any remedial action is needed to respond to a release of any Hazardous
Materials. Except as disclosed in writing to Bank as of the date of this
Agreement, to the best of its knowledge (provided that clause (e) below is not
subject to any such knowledge qualification except as specifically provided in
clause (e)): 


	

	
                
(a)        
All facilities and Property (including underlying groundwater) owned, leased
or operated by Borrower  and its  Subsidiaries  have been,  and  continue to be,
owned,  leased or operated by Borrower or such Subsidiary in compliance with all
applicable  Environmental  Laws,  except for incidences of noncompliance  which,
singly or in the aggregate, have not, or may not reasonably be expected to have,
a Material Adverse Effect;






	

	
                
(b)        
There have been no past unresolved, and there are no pending or threatened,






	

	
                
(i)        
claims,  complaints,  notices or inquiries,  to, or requests for information
received by, Borrower and its Subsidiaries with respect to any alleged violation
of any  Environmental  Law, that,  singly or in the aggregate,  have had, or may
reasonably be expected to have, a Material Adverse Effect, or







–26–




	

	
                
(ii)        
claims,  complaints,  notices  or  inquiries  to, or  requests  for  information
received by, Borrower and its Subsidiaries  regarding  potential liability under
any Environmental Law or under any common law theories relating to operations or
the condition of any facilities or Property by Borrower or such Subsidiary that,
singly or in the  aggregate,  have had, or may reasonably be expected to have, a
Material Adverse Effect.






	

	
                
(c)        
There have been no  releases  of  Hazardous  Materials,  at, on or under any
Property now or previously owned or leased by Borrower or its Subsidiaries that,
singly or in the  aggregate,  have had, or may reasonably be expected to have, a
Material Adverse Effect;






	

	
                
(d)        
Borrower and each  Subsidiary has been issued and is in compliance  with all
permits, certificates,  approvals, licenses and other authorizations relating to
environmental  matters and necessary for its business,  the  noncompliance  with
which, singly or in the aggregate, has not had, or is not reasonably expected to
have, a Material Adverse Effect;






	

	
                
(e)        
No Property now or previously  owned,  leased or operated by Borrower or its
Subsidiaries  is listed or, to the best  knowledge  of  Borrower,  proposed  for
listing on the  National  Priorities  List  pursuant  to CERCLA (or any  similar
Environmental  Law) or on the  CERCLIS or on any other  federal or state list of
sites requiring  investigation or clean-up, to the extent that any such listing,
singly or in the  aggregate,  has had, or may  reasonably be expected to have, a
Material Adverse Effect; 






	

	
                
(f)        
There are no  underground  storage  tanks,  active or  abandoned,  including
petroleum  storage  tanks,  on or under any  Property now or  previously  owned,
leased or  operated  by a Borrower or its  Subsidiaries  that,  singly or in the
aggregate,  have had,  or may  reasonably  be  expected  to have had, a Material
Adverse Effect; 






	

	
                
(g)        
Neither  Borrower nor any  Subsidiary  has directly  transported or directly
arranged for the  transportation  of any Hazardous  Material to any location (i)
which is listed or proposed for listing on the National Priorities List pursuant
to CERCLA (or any similar Environmental Law) or on the CERCLIS or on any federal
or state list, to the extent that any such listing,  singly or in the aggregate,
has had, or may reasonably be expected to have, a Material  Adverse  Effect,  or
(ii) which is the  subject of  federal,  state or local  enforcement  actions or
other  investigations  which  may  lead  to  claims  against  Borrower  or  such
Subsidiary  for any  remedial  work,  damage to natural  resources  or  personal
injury,  including claims under any  Environmental  Law, to the extent that such
claims,  singly or in the  aggregate,  has had, or may reasonably be expected to
have, a Material Adverse Effect; 






	

	
                
(h)        
There are no  polychlorinated  biphenyl,  radioactive  materials  or friable
asbestos  present at any Property now or previously  owned or leased by Borrower
or  its  Subsidiaries  that,  singly  or in  the  aggregate,  have  had,  or may
reasonably be expected to have, a Material Adverse Effect; and 







–27–




	

	
                
(i)        
No condition  exists at, on or under any Property now or previously owned or
leased by Borrower or its Subsidiaries  which,  with the passage of time, or the
giving of notice  or both,  would  give  rise to  material  liability  under any
Environmental Law that, singly or in the aggregate may reasonably be expected to
have a Material Adverse Effect.







        
Section 4.25   
Conditions Precedent. Each item furnished to Bank pursuant to Section 6.1
hereof is a true and correct copy thereof, has not been modified or amended and
is in full force and effect on the date hereof. 



        
Section 4.26   
General. All statements contained in any certificate or financial
statement delivered by or on behalf of Borrower to Bank under any Loan Document
shall constitute representations and warranties made by Borrower hereunder. 



ARTICLE 5.        
COVENANTS



        
Section 5.1   
Negative Covenants. Until the Obligations shall have been fully and
finally paid and performed, and so long as any commitment of Bank is
outstanding, without the prior written consent of Bank, Borrower shall not and
shall not permit any Subsidiary to: 


	

	
                
5.1.1.        
Dispose of Collateral.  Sell, transfer, lease or otherwise dispose of any
collateral  granted or pledged to Bank, or discount,  with or without  recourse,
any  Accounts,  except (a) for sales from  Inventory in the  ordinary  course of
business,  (b) as  otherwise  provided  in the  Security  Agreement  and (c) the
write-off of uncollectible Accounts in the ordinary course of business.






	

	
                
5.1.2.        
Further Encumber. Except for Permitted Encumbrances,  create or suffer to
exist  any Lien  upon any of its  Properties,  whether  now  owned or  hereafter
acquired.






	

	
                
5.1.3.        
Conduct of Business; Subsidiaries; Acquisitions.






	

	
                
(a)        
Neither  Borrower nor any of its  Subsidiaries  shall engage in any business
other than the  businesses  engaged in by  Borrower  on the date  hereof,  those
business  engaged in by the entities  acquired in the Approved PKL  Acquisition,
the Approved LCR  Acquisition  or in other  Acquisitions  approved in writing by
Bank, and any business or activities which are substantially similar, related or
incidental thereto.






	

	
                
(b)        
Borrower  shall  not  create,  acquire  or  capitalize  any  Subsidiary  (a
“New  Subsidiary”)  after  the  date  hereof  pursuant  to  any
transaction unless such transaction is permitted by or not otherwise  prohibited
by this Agreement and upon the creation or  acquisition of each New  Subsidiary,
Borrower  shall  cause  each New  Subsidiary  to  promptly  deliver  to Bank the
documents,  instruments and agreements  required pursuant to Section 3.3 hereof.
After the formation or acquisition of any New Subsidiary permitted hereunder, if
requested by Bank, Borrower shall provide a supplement to Schedule 4.7 to
this Agreement.







–28–




	

	
                
(c)        
Borrower shall not and shall not permit any of its  Subsidiaries to make any
Acquisitions,  except so long as there  then  exists no  Default  and no Default
would be occasioned  thereby and subject to compliance with the other provisions
of  this   Agreement,   the  Approved  PKL  Acquisition  and  the  Approved  LCR
Acquisition.






	

	
                
5.1.4.        
Purchase  Stock.  Purchase,  redeem,  retire or  otherwise  acquire  any
outstanding shares of its capital stock.







	

	
                
5.1.5.        
Sell and  Leaseback.  Other than a leaseback  of the real estate sold in
accordance  with  Section  5.2.18  hereof,  enter  into any  Sale and  Leaseback
Transaction.







	

	
                
5.1.6.        
Borrowings/Subordinated  Debt Payments.  Create, incur, assume or
suffer to exist any Indebtedness,  except (a) trade accounts and normal business
accruals  payable in the ordinary course of business,  (b) Indebtedness to Bank,
(c) Subordinated  Debt, (d) Indebtedness  owed to Union Planters Bank,  National
Association   in  the  maximum   principal   amount  of  Ten   Million   Dollars
($10,000,000),  (e) Indebtedness owed to Fifth Third Bank,  Indiana (Central) in
the maximum  principal  amount of Three  Million Five Hundred  Thousand  Dollars
($3,500,000), and (f) as set forth on Schedule 5.1.6 hereto. Borrower and
its  Subsidiaries  shall  not  make  any  payment  in  respect  of  any  of  the
Subordinated  Debt,  except (i) as  permitted  in the  applicable  Subordination
Agreement,   or  (ii)  pursuant  to  the  terms  of  the  documents   evidencing
Subordinated  Debt that Bank has specifically  approved in writing to constitute
Subordinated   Debt,    notwithstanding   the   absence   of   a   Subordination
Agreement.







	

	
                
5.1.7.        
Investments.  Make any  Investment,  except (a) advances to trade
debtors in the  ordinary  course of business,  (b)  Qualified  Investments,  (c)
existing Investments  described on Schedule 5.1.7 hereto, (d) Investments
to  and  in  (i)  a  U.S.  Subsidiary  that  is a  Guarantor,  or  (ii)  foreign
Subsidiaries  in an amount at any time not  exceeding  One Million  Five Hundred
Thousand  Dollars  ($1,500,000)  in the  aggregate  in addition to the  existing
investments in foreign  Subsidiaries  shown on Schedule  5.1.7,  provided
that in any case under  clause (d) above  there  exists no Default or  Unmatured
Default at the time of, or after giving effect to, such  Investment and provided
the  Subsidiary  is  not  “insolvent”   at  the  time  of  such
Investment nor rendered “insolvent”  (as such terms are used in
the  Federal  Bankruptcy  Code) by such  Investment,  and loans and  advances to
Borrower by a Guarantor, and (e) loans to Pharmakinetics  Laboratories,  Inc. in
an aggregate  amount not  exceeding  Five Hundred  Thousand  Dollars  ($500,000)
secured   by   a   first   priority    security   interest   in   all   personal
property.







	

	
                
5.1.8.        
Guarantees.  Assume, guarantee or otherwise become liable as a guarantor
or surety for the  obligations  of any Person,  except (a) the  endorsements  by
Borrower of  negotiable  instruments  for deposit or  collection in the ordinary
course of business, and (b) those in favor of Bank.







	

	
                
5.1.9.        
Change Name or Place of Business.  Change its name or principal place of
business, except on not less than thirty (30) days prior written notice to Bank.








–29–




	

	
                
5.1.10.        
Special  Corporate  Transactions.  Engage in any  transaction  with any
Person other than in the ordinary course of business.







	

	
                
5.1.11.        
Accounting  Policies.  Change its fiscal year or any of its significant
accounting policies, except to the extent necessary to comply with GAAP.







	

	
                
5.1.12.        
Change of  Business.  Make any  material  change  in the  nature of its
business as carried on as of the date of this Agreement,  other than as a result
of the Approved PKL Acquisition or the Approved LCR Acquisition.







	

	
                
5.1.13.        
Benefit Plans.  Permit any condition to exist in connection with
any  employee  benefit  plan  which  might  constitute  grounds  for the PBGC to
institute  proceedings to have the employee benefit plan terminated or a trustee
appointed to  administer  the employee  benefit plan; or engage in, or permit to
exist or occur any other  condition,  event or  transaction  with respect to any
employee  benefit  plan which could  result in Borrower  incurring  any material
liability, fine or penalty.







	

	
                
5.1.14.        
Adversity.  Permit any event to occur or condition to exist which has a
Material Adverse Effect.







	

	
                
5.1.15.        
Dividends/Distributions.  Declare  or pay  any  dividend  or  make  any
distribution on account of stock, in cash or other property.







	

	
                
5.1.16.        
Restrictive  Agreements.  Enter into any agreement (excluding any
restrictions existing under the Loan Documents)  prohibiting (a) the creation or
assumption of any lien upon any of its Property,  (b) the ability of Borrower to
amend or otherwise modify this Agreement or any other Loan Document,  or (c) the
ability of any  Subsidiary  to make any  payment,  directly  or  indirectly,  to
Borrower   by  way  of   advances,   repayments   of   loans  or   advances   or
otherwise.







	

	
                
5.1.17.        
Transactions with Shareholders and Affiliates.  Neither Borrower
nor any of its Subsidiaries shall directly or indirectly enter into or permit to
exist any transaction (including,  without limitation, the purchase, sale, lease
or exchange of any property or the  rendering of any service) with any holder or
holders  of any of the  capital  stock of  Borrower,  or with any  Affiliate  of
Borrower  which is not its  Subsidiary,  on terms  that  are less  favorable  to
Borrower or any of its  Subsidiaries,  as  applicable,  than those that might be
obtained in an arm’s  length  transaction  at the time from Persons who are
not such a holder or Affiliate.








        
Section 5.2   
Affirmative Covenants. Until the Obligations shall have been fully and
finally  paid  and  performed,  and  so  long  as  any  commitment  of  Bank  is
outstanding,  unless  expressly  waived  in  writing  by Bank,  Borrower  shall:




–30–




	

	
                
5.2.1.        
Financial Reporting. Furnish or caused to be furnished to Bank:







	

	
                
(a)        
as soon as  practicable,  but in any event  within one hundred  twenty (120)
days after the end of each fiscal year, consolidated and consolidating financial
statements  of  Borrower,  including a balance  sheet,  statement  of income and
retained  earnings and a statement  of cash flows,  with  accompanying  notes to
financial  statements,  all prepared in accordance  with GAAP on a  consolidated
basis consistent with prior years unless specifically noted thereon, accompanied
by the unqualified  opinion of Ernst & Young or other independent  certified
public  accountants  acceptable  to Bank and shall  state  that  such  financial
statements  fairly present in all material  respects the consolidated  financial
position of the Borrower and its  Subsidiaries as at the dates indicated and the
results  of their  operations  and  cash  flows  for the  periods  indicated  in
conformity with GAAP and that the examination by such  accountants in connection
with such consolidated and consolidating  financial  statements has been made in
accordance with generally accepted auditing  standards,  and further accompanied
by the certificate of the chief financial  officer of Borrower that there exists
no Default or Unmatured  Default under the Loan Documents,  or if any Default or
Unmatured Default exists, stating the nature and status thereof;






	

	
                
(b)        
as soon as possible,  but in any event within thirty (30) days after the end
of each month, similar  consolidated  financial statements of Borrower as of the
end of such  month and the  results  of its  operations  for the  portion of the
fiscal year then elapsed,  prepared and signed by the chief financial officer of
Borrower,  all  prepared  in  accordance  with  GAAP  on  a  consolidated  basis
consistent  with prior periods,  unless  specifically  otherwise  noted thereon,
except for the omission of full  footnotes  which may be required under GAAP and
subject to normal year end  adjustments,  and  accompanied by the certificate of
the chief  financial  officer  of  Borrower  that  there  exists no  Default  or
Unmatured  Default  under the Loan  Documents  or if any  Default  or  Unmatured
Default exists, stating the nature and status thereof;







	

	
                
(c)        
as soon as possible,  but in any event  within five (5) days after  Borrower
becomes aware  thereof,  a written  statement  signed by the chief  executive or
chief  financial  officer of  Borrower  as to the  occurrence  of any Default or
Unmatured Default stating the specific nature thereof,  Borrower’s intended
action  to cure the same and the time  period  in which  such  cure is to occur;







	

	
                
(d)        
as soon as  possible,  but in any event  within  thirty  (30) days after the
commencement  thereof, a written statement describing any litigation  instituted
by or against  Borrower,  its  Subsidiaries or any Affiliate which, if adversely
determined, may have a Material Adverse Effect;







–31–




	

	
                
(e)        
within  ten (10)  Banking  Days  after the end of each  calendar  month,  a
Borrowing  Base  Certificate,  in the form  prescribed by Bank,  executed by the
chief  financial  officer of Borrower,  evidencing  the Borrowing Base as of the
close of the  immediately  preceding  calendar  month,  showing the  calculation
thereof, the outstanding principal amount of the Facilities (including,  without
limitation, Letters of Credit) and such other information as Bank may reasonably
request;







	

	
                
(f)        
within  ten (10)  Banking  Days  after the end of each  calendar  month,  a
certificate setting forth, as of the end of such immediately preceding month, an
accounts  receivable  aging statement and an accounts payable aging statement of
Borrower;







	

	
                
(g)        
within thirty (30) days after the end of each calendar  month,  a Compliance
Certificate,  in form and substance acceptable to Bank, showing  Borrower’s
compliance  with the  financial  covenants  set  forth in  Section  5.3  hereof;







	

	
                
(h)        
as soon as possible,  but in any event  within ten (10) days after  Borrower
becomes aware thereof,  a written  statement  describing any reportable event or
prohibited  transaction  which has occurred with respect to any employee benefit
plan and the  action  which  Borrower  proposes  to take with  respect  thereto;







	

	
                
(i)        
as soon as  practicable,  but in any event  within  ten (10) days  after the
filing with the Securities and Exchange Commission, or any successor thereto, or
any states’  securities  regulatory  authority,  copies of all registration
statements  and all  periodic  and special  reports  required or permitted to be
filed under federal or state securities laws and regulations;







	

	
                
(j)        
as soon as practicable,  but any event within ten (10) days after receipt by
Borrower,  a copy of any notice,  complaint,  Lien,  inquiry or claim (i) to the
effect  that  Borrower  is or may be  liable  to any  Person  as a result of the
release by Borrower,  or any other Person of any  Hazardous  Substance  into the
environment,  or  (ii)  alleging  any  violation  of  any  Environmental  Law by
Borrower, which, in either case, could reasonably be expected to have a Material
Adverse Effect; and







	

	
                
(k)        
such other information as Bank may from time to time reasonably request.








	

	
                
5.2.2.        
Good  Standing.  Maintain,  and cause each Subsidiary to maintain,
its corporate  existence  and right to do business in its state of  organization
and in such other states wherein  non-qualification is reasonably likely to have
a Material Adverse Effect.







	

	
                
5.2.3.        
Taxes,  Etc. Pay and discharge,  and cause each Subsidiary to pay
and discharge,  all taxes,  assessments,  judgments,  orders,  and  governmental
charges  or  levies  imposed  upon it or on its  income or  profits  or upon its
property  prior to the date on which  penalties  attach  thereto  and all lawful
claims which, if unpaid, may become a Lien or charge upon its Property, provided
that  Borrower  and its  Subsidiaries  shall  not be  required  to pay any  tax,
assessment,  charge,  judgment,  order,  levy or claim, if such payment is being
contested diligently,  in good faith, and by appropriate  proceedings which will
prevent foreclosure or levy upon its Property and adequate reserves against such
liability have been established.







–32–




	

	
                
5.2.4.        
Maintain  Properties.  Maintain,  and cause  each  Subsidiary  to
maintain,  all  Properties  and assets used by, or useful to, it in the ordinary
course of its business in good working  order and  condition,  ordinary wear and
tear excepted,  and suitable for the purpose for which it is intended,  and from
time to time, make any necessary repairs and replacements.







	

	
                
5.2.5.        
Insurance.  Maintain,  and cause each Subsidiary to maintain,  in
full  force  and  effect  public  liability  insurance,   business  interruption
insurance,  worker’s compensation insurance and casualty insurance policies
with  coverages and with such  companies as are  reasonably  acceptable to Bank.
Each such policy providing  liability coverage shall be endorsed to reflect Bank
as an additional  insured,  and each such policy covering  Properties pledged as
collateral to Bank shall have a  lender’s  loss payable  clause in favor of
Bank, and a copy of each policy, accompanied by a certificate of coverage issued
by the  insurance  carrier,  shall be  delivered  to  Bank.  Such  policy  shall
stipulate that the insurance cannot be cancelled or materially  modified without
thirty  (30)  days’  prior  written  notice to Bank and shall  insure  Bank
notwithstanding the act or neglect of Borrower or its Subsidiaries.







	

	
                
5.2.6.        
Books  and  Records.  Keep proper books of account in which full,
true and correct entries will be made of all dealings and transactions of and in
relation to the business and affairs of Borrower and its  Subsidiaries,  and, at
all  reasonable  times,  and as  often as Bank may  request,  permit  authorized
representatives  of Bank to (a) have access to the  premises and  Properties  of
Borrower and its  Subsidiaries  and to the records relating to the operations of
Borrower and its Subsidiaries; (b) make copies of or excerpts from such records;
(c) discuss the affairs,  finances and accounts of Borrower  with and be advised
as to the same by the chief  executive and financial  officers of Borrower;  and
(d)  audit  and  inspect   such  books,   records,   accounts,   memoranda   and
correspondence  at all  reasonable  times,  to make such  abstracts  and  copies
thereof  as  Bank  may  deem  necessary,  and to  furnish  copies  of  all  such
information   to   any   proposed   purchaser   of   or   participant   in   the
Facilities.







	

	
                
5.2.7.        
Reports.  File, and cause each Subsidiary to file, as appropriate,
on a timely basis,  annual reports,  operating  records and any other reports or
filings  required  to be made  with any  Governmental  Authority,  except to the
extent  the  failure  to so file any of the  foregoing,  individually  or in the
aggregate,   is   not   reasonably   likely   to   have   a   Material   Adverse
Effect.







	

	
                
5.2.8.        
Licenses. Maintain, and cause each Subsidiary to maintain, in full
force and effect all operating permits, licenses, franchises, and rights used by
it in the ordinary  course of  business,  except to the extent the failure to so
maintain  any  of  the  foregoing,  individually  or in  the  aggregate,  is not
reasonably likely to have a Material Adverse Effect.







–33–




	

	
                
5.2.9.        
Notice of Material Adverse Change. Give prompt notice in writing to Bank
of the occurrence of any development,  financial or otherwise, including pending
or threatened  litigation which is reasonably  likely to have a Material Adverse
Effect.







	

	
                
5.2.10.        
Compliance with Law. Comply, and cause each Subsidiary to comply,
in all material  respects,  with all laws,  ordinances,  rules,  regulations and
other legal requirements  applicable to it, including,  without limitation,  all
Environmental Laws and ERISA.







	

	
                
5.2.11.        
Trade  Accounts.  Pay,  and cause  each  Subsidiary  to pay,  all trade
accounts in accordance with standard industry practices.







	

	
                
5.2.12.        
Use of  Proceeds.  Use the  proceeds of the  Facilities  solely for the
purposes herein described.







	

	
                
5.2.13.        
Loan Payments. Duly and punctually pay or cause to be paid principal and
interest on the  Facilities in lawful money of the United States at the time and
places and in the manner  specified herein according to the stated terms and the
true intent and meaning hereof.







	

	
                
5.2.14.        
Environmental  Matters. (a) Use, operate and maintain, and cause
each Subsidiary to use, operate and maintain,  all of its Properties in material
compliance with all applicable Environmental Laws, keep or acquire all necessary
permits, approvals, certificates,  licenses and other authorizations relating to
environmental matters in effect and remain in material compliance therewith, and
handle all  Hazardous  Substances  in material  compliance  with all  applicable
Environmental  Laws,  (b) within  ninety (90) days after  filing  thereof,  have
dismissed  with  prejudice  any  actions or  proceedings  against  Borrower or a
Subsidiary  relating  to  compliance  with  Environmental  Laws  which,  in  the
reasonable  opinion of Bank,  is  reasonably  likely to have a Material  Adverse
Effect, and (c) diligently pursue cure of any material underlying  environmental
problem which forms the basis of any claim,  complaint,  notice,  Lien, inquiry,
proceeding or action referred to in Section  5.2.1(j)  hereof.  If Borrower or a
Subsidiary  is  notified  of any event  described  in Section  5.2.1(j)  hereof,
Borrower shall, upon the request of Bank, establish appropriate reserves against
such  potential  liabilities  and  engage  a  firm  or  firms  of  engineers  or
environmental  consultants  appropriately  qualified  to determine as quickly as
practical the extent of contamination and the potential  financial  liability of
Borrower or its Subsidiary with respect thereto, and Bank shall be provided with
a copy of any report prepared by such firm or by any  Governmental  Authority as
to such matters as soon as any such report becomes available to Borrower or such
Subsidiary.  The selection of any engineers or environmental consultants engaged
pursuant to the requirements of this Section shall be subject to the approval of
Bank, which approval shall not be unreasonably withheld or delayed.







	

	
                
5.2.15.        
Banking Relationship.  Maintain its primary banking accounts with
Bank, including,  without limitation,  operating, lockbox and autoline accounts.
Borrower shall  maintain a minimum  balance on account with Bank at all times of
not less than One Hundred Thousand Dollars ($100,000).







–34–




	

	
                
5.2.16.        
Subordinated  Debt.  At all times,  cause the  Subordinated  Debt to be
subordinated to the full, final and irrevocable  payment of the Obligations,  in
form and substance acceptable to Bank.







	

	
                
5.2.17.        
Equipment  Appraisal.  Within  forty-five  (45) days of the date
hereof, furnish Bank an appraisal of Borrower’s  Equipment,  prepared by an
independent  appraiser acceptable to Bank, showing a forced liquidation value of
not less than Two Million Five Hundred Thousand Dollars ($2,500,000).







	

	
                
5.2.18.        
Sale of Real Estate. Within one hundred eighty (180) days of the closing
of the  Approved  PKL  Acquisition,  cause  the  real  estate  acquired  in such
Acquisition to be sold for fair market value.








        
Section  5.3   
Financial  Covenants.  Until the  Obligations  shall  have been fully and
finally paid and performed and so long as any commitment of Bank is outstanding,
unless expressly waived in writing by Bank, Borrower shall: 


	

	
                
5.3.1.        
Funded Debt Ratio.  Maintain its Funded Debt Ratio at not greater
than  (a) 3.75 to 1.00 at each  fiscal  quarter  ending  through  and  including
December 31, 2002,  (b) 3.50 to 1.00 as of March 31, 2003 and June 30, 2003, (c)
3.00 to 1.00 as of September 30, 2003,  (b) 2.50 to 1.00 as of December 31, 2003
and at each fiscal quarter ending thereafter through and including September 30,
2004, and (c) 2.00 to 1.00 as of December 31, 2004 and as of each fiscal quarter
ending thereafter.







	

	
                
5.3.2.        
Total  Debt  Ratio.  Maintain its Total Debt Ratio at not greater
than (a) 2.00 to 1.00 at all times through and including September 30, 2003, (b)
1.75 to 1.00 as of  October  1,  2003 and at all  times  through  and  including
September 30, 2004,  and (c) 1.50 to 1.00 as of October 1, 2004 and at all times
thereafter.







	

	
                
5.3.3.        
Fixed Charge Coverage Ratio.  Maintain its Fixed Charge Coverage Ratio at
not less than 1.20 to 1.00 at each fiscal quarter end.







	

	
                
5.3.4.        
Current  Ratio.   Maintain  its  ratio  of  Current  Assets  to  Current
Liabilities of not less than 1.15 to 1.00 at all times.







	

	
                
5.3.5.        
Capital  Expenditures.  Not  make  any  Unfunded  Capital  Expenditures,
including  Capitalized  Lease  Obligations,  exceeding  One  Million Six Hundred
Thousand  Dollars  ($1,600,000)  on a  consolidated  basis for  Borrower and its
Subsidiaries during any fiscal year.







ARTICLE 6.        
CONDITIONS PRECEDENT



        
Section 6.1   
Conditions  to Initial  Advance.  The  obligation of the Bank to make the
initial  Advance under the Facilities is subject to  satisfaction of each of the
following conditions precedent:



–35–




	

	
                
6.1.1.        
Authorization.  Bank shall have received and approved,  certified
copies of Borrower’s  and each  Guarantor’s  articles of incorporation
and  by-laws,  all as  amended,  accompanied  by a  recent  certificate  of good
standing  issued by the appropriate  official of its place of  organization  and
certificates of good standing from those states in which Borrower or a Guarantor
owns property or maintains an office and a certified copy of resolutions adopted
by Borrower’s and each Guarantor’s  Board of Directors authorizing the
Facilities and  specifying the names and capacities of those persons  authorized
to execute and deliver the Loan Documents.






	

	
                
6.1.2.        
Insurance.  Borrower  shall  have  furnished  to  Bank  evidence  of the
insurance required by this Agreement.







	

	
                
6.1.3.        
Loan Documents. Each of the Loan Documents, in the form prescribed
by Bank,  shall have been executed and delivered by Borrower and the Guarantors,
as applicable,  to Bank, and the other loan documents and guaranties required by
this  Agreement,  in the form  prescribed by Bank,  shall have been executed and
delivered by the appropriate parties thereto.







	

	
                
6.1.4.        
Incumbency.  Bank shall have received an Incumbency  Certificate,
executed by the Secretary or Assistant  Secretary of Borrower and each Guarantor
which shall  identify the name and title and bear the  signature of the officers
of Borrower and such Guarantor  authorized to sign the Loan Documents,  and Bank
shall be entitled to rely upon such certificate  until informed of any change in
writing by Borrower.







	

	
                
6.1.5.        
Legal Matters.  All legal matters incident to the Loan Documents and the
making of Advances shall be reasonably satisfactory to Bank and its counsel.







	

	
                
6.1.6.        
Borrowing Base, Etc. Satisfactory  certificates as to Borrowing Base, and
such other certificates as Bank may reasonably require, shall have been executed
by the appropriate officers of Borrower and delivered to Bank.







	

	
                
6.1.7.        
Opinions of Counsel.  Bank shall have  received  the  favorable  written
opinion(s)  of  counsel  to  Borrower  and the  Guarantors,  dated of even  date
herewith, as to those matters which Bank may reasonably require.







	

	
                
6.1.8.        
Landlord Waivers. Borrower shall have used commercially reasonable
best efforts to procure  landlord and  warehousemen  lien  waivers,  in the form
prescribed by Bank,  pursuant to which its various  landlords  and  warehousemen
shall  have  waived all liens or other  rights of  detainer  against  its assets
constituting collateral for the Obligations.







	

	
                
6.1.9.        
UCC  Searches/Life  Insurance  Questionnaire.   Bank  shall  have
received  satisfactory  return  after  search  in  accordance  with the  Uniform
Commercial  Code  in  such  governmental  offices  as  Bank  shall  have  deemed
appropriate,  and  Bank  shall  have  received  a  satisfactory  life  insurance
questionnaire  with  respect  to the life  insurance  policy to be  assigned  to
Bank.







	

	
                
6.1.10.        
Fees. Borrower shall have paid Bank a non-refundable facility fee
of Twenty-Eight  Thousand One Hundred  Twenty-Five  Dollars  ($28,125),  a field
audit fee of Five Thousand Dollars ($5,000),  and Borrower shall have reimbursed
Bank for all reasonable legal fees and other reasonable  out-of-pocket  expenses
of Bank in connection with the Facilities.








–36–




	

	
                
6.1.11.        
Regulation  U.  Bank shall have received such  certificates  and
other documents as it shall have deemed reasonably  appropriate as to compliance
with  Regulations  U, T and X of the Board of Governors  of the Federal  Reserve
System.







	

	
                
6.1.12.        
No Default. As of the date hereof, and after giving effect to the
initial funding of the Facilities,  there shall not exist a Default or Unmatured
Default,  and Bank shall have received  evidence  satisfactory  to Bank that the
transactions  contemplated  by this  Agreement do not create a default under any
agreement to which Borrower is a party.







	

	
                
6.1.13.        
Consents.  All consents necessary for the secured financing transaction
contemplated  by this Agreement  pursuant to the Loan Documents  shall have been
obtained.







	

	
                
6.1.14.        
Field Audit. Bank shall have completed,  to its  satisfaction,  a field
audit of Borrower's financial and accounting records,  books,  journals,  orders
and receipts.







	

	
                
6.1.15.        
Intercreditor  Agreement.  Bank  and  Union  Planters  Bank,  National
Association shall have entered into the Intercreditor Agreement.







	

	
                
6.1.16.        
Additional Documentation. Bank shall have received such other documents,
instruments,   financing  statements,  waivers,  certificates,   reaffirmations,
consents and opinions as it may request.








        
Section 6.2   
Conditions to Subsequent Advances.  Prior to each subsequent Advance
under the Line of Credit or the issuance of a Letter of Credit:


	

	
                
6.2.1.        
No Default.  No Default or Unmatured  Default shall have occurred and be
continuing.







	

	
                
6.2.2.        
Representations and Warranties.  Each representation and warranty
contained in Article 4 shall be true and correct as of the date of such Advance,
except to the extent any such  representation  or warranty  relates solely to an
earlier date and except for changes  reflecting  transactions  permitted by this
Agreement.







	

	
                
6.2.3.        
Legal Matters.  All legal matters incident to the making of such Advance
shall be reasonably satisfactory to Bank and its counsel.








        
Section 6.3   
General.  Each request for an Advance shall  constitute a  representation
and  warranty by  Borrower  that the  applicable  conditions  contained  in this
Section 6.3 have been satisfied. 




ARTICLE 7.        
DEFAULT



        The  occurrence  of  any  of the
following events shall be deemed a Default hereunder: 



–37–




	

	
                
(a)        
any  representation  or  warranty  made by or on  behalf  of  Borrower,  any
Subsidiary  or any  Affiliate  to Bank  under  or in  connection  with  any Loan
Document or any  subordination  agreement shall be false in any material respect
as of the date on which made;







	

	
                
(b)        
Borrower  fails to make any  payment of  principal  of or  interest  on the
Facilities  or any fee or  other  payment  Obligation  in  connection  with  the
Facilities when due;







	

	
                
(c)        
the breach of any of the covenants contained in Section 5.2.2, 5.2.4, 5.2.7,
5.2.8,  5.2.10,  5.2.11 or 5.2.14 which breach  remains  uncured for a period of
thirty (30) days after  written  notice to Borrower;  or the breach of any other
covenant contained in Article 5 hereof;







	

	
                
(d)        
the breach of any other terms or  provisions  of the Loan  Documents  (other
than a breach which  constitutes a Default under Article 7(a), (b) or (c) above)
not cured  within  thirty (30) days after  written  notice from Bank to Borrower
specifying such breach;







	

	
                
(e)        
the failure of Borrower or any Subsidiary to pay any other Indebtedness when
due or within any applicable grace or cure period;  or the breach by Borrower or
any  Subsidiary of any term,  provision or condition  contained in any agreement
under which any such Indebtedness was created or is governed,  which constitutes
a default  thereunder,  or any other event shall occur or condition  exist,  the
effect  of which is to  cause,  or to  permit  the  holder  or  holders  of such
Indebtedness  to cause  such  Indebtedness  to become  due  prior to its  stated
maturity,  or any  Indebtedness  shall  be  declared  to be due and  payable  or
required  to be prepaid or  repurchased  (other  than by a  regularly  scheduled
payment) prior to the stated maturity thereof;







	

	
                
(f)        
Borrower or any  Subsidiary  shall (i) have an order for relief entered with
respect  to it under the  Federal  Bankruptcy  Code,  (ii) not pay,  or admit in
writing its inability to pay, its debts generally as they become due, (iii) make
an assignment for the benefit of creditors, (iv) apply for, seek, consent to, or
acquiesce  in, the  appointment  of a receiver,  custodian,  trustee,  examiner,
liquidator or similar  official for it or any substantial  part of its property,
(v)  institute  any  proceeding  seeking an order for relief  under the  Federal
Bankruptcy Code or seeking to adjudicate it a bankrupt or insolvent,  or seeking
dissolution, winding up, liquidation, reorganization, arrangement, adjustment or
composition of it or its debts under any law relating to bankruptcy,  insolvency
or  reorganization  or  relief  of  debtors  or fail to file an  answer or other
pleading  denying the material  allegations of any such proceeding filed against
it, or (vi) suspend  operations  as presently  conducted  or  discontinue  doing
business as an ongoing concern;







	

	
                
(g)        
without the application,  approval or consent of Borrower or any Subsidiary,
a receiver, trustee, examiner, liquidator or similar official shall be appointed
for Borrower or such  Subsidiary or any substantial  part of its Property,  or a
proceeding  described in item (f) above shall be instituted  against Borrower or
any Subsidiary and such  appointment  continues  undischarged or such proceeding
continues  undismissed or unstayed for a period of sixty (60) consecutive  days;








–38–




	

	
                
(h)        
any Governmental Authority shall condemn, seize or otherwise appropriate, or
take  custody or control of all or any  substantial  portion of the  Property of
Borrower or any Subsidiary;







	

	
                
(i)        
Borrower or any  Subsidiary  shall fail within thirty (30) days to pay, bond
or otherwise  discharge  any judgment or order for the payment of money which is
not stayed on appeal or otherwise  appropriately contested in good faith, or any
attachment,  levy or  garnishment  is issued against any Property of Borrower or
such Subsidiary;







	

	
                
(j)        
if there occurs a Change in Control;







	

	
                
(k)        
there occurs a “reportable  event” or a “prohibited
transaction”  under, or any complete or partial withdrawal from, or any
other event which would constitute grounds for termination of or the appointment
of a trustee to administer, any  “plan”  maintained by Borrower
or any ERISA Affiliate for the benefit of its  “employees”  (as
such terms are  defined in ERISA)  which  will have a Material  Adverse  Effect;







	

	
                
(l)        
any Loan Document  shall for any reason fail to create a valid and perfected
first  priority  security  interest in any  collateral  purported  to be covered
thereby  (except as  permitted by the terms of any Loan  Document),  or any Loan
Document  shall fail to remain in full  force or effect or any  action  shall be
taken to discontinue or to assert the invalidity or unenforceability  of, or the
security interest created under, any Loan Document; or







	

	
                
(m)        
any Guaranty or any  material  provision  thereof  shall cease to be in full
force or effect,  or any guarantor fails to promptly perform under its Guaranty,
or any  guarantor  terminates  or revokes or attempts to terminate or revoke its
Guaranty;  or the breach by a guarantor  of any other term or  provision  of any
Loan  Document  to which it is a party not cured  within  thirty (30) days after
written notice from Bank.








ARTICLE 8.        
REMEDY



        
Section 8.1   
Acceleration.  If any  Default  described  in  Article  7 item (f) or (g)
occurs,  the  Facilities  and the  commitment of Bank to make Advances under the
Facilities shall  automatically  terminate and the Obligations shall immediately
become due and payable  without any  election or action on the part of Bank.  If
any other  Default  occurs,  Bank may terminate  its  commitments  hereunder and
declare the Obligations to be due and payable,  whereupon the Obligations  shall
become  immediately due and payable,  without  presentment,  demand,  protest or
notice of any kind, all of which Borrower hereby expressly waives. 



        
Section 8.2   
Deposit  to  Secure  Reimbursement  Obligations.   When  any  Default  or
Unmatured Default has occurred and is continuing,  Bank may demand that Borrower
immediately pay to Bank an amount equal to the aggregate  outstanding  amount of
the Letters of Credit and Borrower shall  immediately  upon any such demand make
such payment.  Borrower hereby irrevocably grants to Bank a security interest in
all funds  deposited  to the credit of or in transit to any  deposit  account or
fund established  pursuant to this Section 8.2,  including,  without limitation,
any investment of such fund.  Borrower hereby  acknowledges and agrees that Bank
would not have an  adequate  remedy at law for  failure by Borrower to honor any
demand  made  under  this  Section  8.2 and Bank shall have the right to require
Borrower specifically to perform its undertakings in this Section 8.2 whether or
not any draws  have been made under the  Letters  of  Credit.  In the event Bank
makes a demand  pursuant to this Section  8.2,  and  Borrower  makes the payment
demanded,  Bank  agrees to invest the amount of such  payment for the account of
Borrower and at  Borrower’s  risk and direction in  short-term  investments
reasonably acceptable to Bank. 



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Section 8.3   
Subrogation. Bank shall, to the extent of any payments made by Bank under
the Letters of Credit that are not  reimbursed  to Bank,  be  subrogated  to all
rights of the  beneficiary  of the  Letters of Credit as to all  obligations  of
Borrower  with  respect  to which  such  payment  shall  have been made by Bank.




        
Section 8.4   
Remedy. Upon the occurrence and during the continuance of a Default, Bank
may immediately  proceed to exercise all remedies available to it under the Loan
Documents or otherwise under  applicable law. No right or remedy  conferred upon
or reserved to Bank under the Loan  Documents is intended to be exclusive of any
other available  remedy or right,  but each and every remedy shall be cumulative
and  concurrent  and shall be in addition to every other remedy now or hereafter
existing  at law or in  equity.  No single or partial  exercise  of any power or
right  shall  preclude  any  further  or other  exercise  of any power or right.




        
Section 8.5   
Preservation  of  Rights.  No delay or omission  of Bank to exercise  any
power or right under the Loan  Documents  shall impair such power or right or be
construed  to be a waiver of any  Default or an  acquiescence  therein,  and any
single or partial  exercise  of any power or right shall not  preclude  other or
further exercise thereof or the exercise of any other power or right. No Advance
hereunder  shall  constitute a waiver of any of the  conditions  of  Bank’s
obligation  to make further  Advances,  nor, in the event  Borrower is unable to
satisfy any such condition, shall a waiver of such condition in any one instance
have the effect of precluding Bank from  thereafter  declaring such inability to
be a Default hereunder,  unless such condition was permanently  expressly waived
in writing by Bank. No course of dealing shall be binding upon Bank. 



ARTICLE 9.        
GENERAL PROVISIONS



        
Section 9.1   
Benefit  of  Agreement.  Bank will  accept the Credit Note as evidence of
loans made in the ordinary course of its commercial banking business.  The terms
and provisions of this  Agreement,  the Credit Note and the other Loan Documents
shall be binding  upon and inure to the benefit of  Borrower  and Bank and their
respective  successors  and  assigns  of their  entire  interests,  except  that
Borrower shall not have the right to assign this Agreement. 



        
Section 9.2   
Survival  of   Representations.   All  representations,   warranties  and
agreements of Borrower contained in the Loan Documents shall survive delivery of
the Credit Note and the making of the Facilities. 



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Section 9.3   
Governmental  Regulation.  Anything  contained  in this  Agreement to the
contrary  notwithstanding,  Bank  shall not be  obligated  to  extend  credit to
Borrower  in  violation  of  any  limitation  or  prohibition  provided  by  any
applicable statute or regulation. 



        
Section 9.4   
Conflict.   This  Agreement  and  the  other  Loan  Documents   shall  be
interpreted,  wherever possible, in a manner consistent with one another, but in
the event of any  irreconcilable  inconsistency,  this Agreement  shall control.




        
Section 9.5   
Choice of Law. The Loan Documents (other than those containing a contrary
express choice of law  provision) and the rights and  obligations of the parties
thereunder and hereunder  shall be governed by, and construed and interpreted in
accordance  with the laws of the State of Indiana (but giving  effect to federal
laws  applicable  to  national  banks),  notwithstanding  the fact that  Indiana
conflict of law rules might otherwise  require the  substantive  rules of law of
another  jurisdiction to apply.  Borrower hereby consents to the jurisdiction of
any state or federal court located within Marion County, Indiana. All service of
process may be made by messenger, certified mail, return receipt requested or by
registered  mail  directed  to  Borrower  at the  address  indicated  aside  its
signature to this Agreement,  and Borrower  otherwise waives personal service of
any and all process made upon  Borrower.  Borrower  waives any  objection  which
Borrower  may have to any  proceeding  commenced  in a  federal  or state  court
located  within Marion County,  Indiana,  based upon improper venue or forum non
conveniens.  Nothing contained in this Section shall affect the right of Bank to
serve legal process in any other manner  permitted by law or to bring any action
or  proceeding  against  Borrower  or its  property  in the  courts of any other
jurisdiction. 



        
Section 9.6   
Headings.  Section  headings in the Loan Documents are for convenience of
reference only and shall not govern the  interpretation of any of the provisions
of the Loan Documents.



        
Section 9.7   
Entire  Agreement.  The Loan  Documents  embody the entire  agreement and
understanding  between  Borrower and Bank and supersede all prior agreements and
understandings between Borrower and Bank relating to the subject matter thereof.




        
Section 9.8   
Expenses.  Borrower shall reimburse Bank and its participants for any and
all reasonable costs, charges and out-of-pocket  expenses (including  reasonable
attorneys’  fees and time charges of attorneys for Bank),  paid or incurred
by Bank  and its  participants  in  connection  with  the  preparation,  review,
execution,  delivery, amendment,  modification,  administration,  collection and
enforcement of the Facilities  and/or the Loan Documents and in connection  with
the conduct by  Bank’s  internal  auditors of periodic  field and servicing
audits of Borrower,  provided, so long as no Default exists, that Borrower shall
not be  responsible  for the  payment of more than one audit per fiscal year and
the cost per audit shall not exceed Five Thousand Dollars ($5,000). Bank may pay
or deduct  from the loan  proceeds  any of such  expenses,  and any  proceeds so
applied  shall be deemed to be Advances  under this  Agreement  evidenced by the
Credit Note and secured by the Loan  Documents,  and shall bear  interest at the
rate of interest provided in the Credit Note. 



–41–





        
Section 9.9   
Indemnification.  Borrower  agrees to indemnify  Bank, and its successors
and assigns (including any purchaser of a participation in the Facilities),  and
their  directors,  officers and employees,  against all losses,  claims,  costs,
damages,  liabilities and expenses,  including, without limitation, all expenses
of litigation or preparation  therefor (a  “Loss”),  which they
may pay or incur in  connection  with or arising  out of the direct or  indirect
application of the proceeds of the Facilities hereunder. The indemnity set forth
herein  shall be in  addition  to any  other  Obligations  of  Borrower  to Bank
hereunder or at common law or otherwise,  and shall survive any  termination  of
this Agreement,  the expiration of the obligation of Bank to make the Facilities
and the payment of all Obligations. 



        
Section 9.10   
Confidentiality.  Bank agrees to treat all information  received by it in
connection with the Loan Documents  (except such information  which is generally
available or has been made available to the public) as  confidential,  provided,
however,  that nothing in this Section 9.10 shall prohibit Bank from, or subject
Bank to liability  for,  disclosing  any such  information  to any  Governmental
Authority to whose jurisdiction Bank is subject,  and provided further that Bank
may provide such  information to proposed  purchasers of or  participants in the
Facilities from time to time. 



        
Section 9.11   
Giving Notice.  Any notice required or permitted to be given under
this  Agreement  may be, and shall be deemed  effective  if made in writing  and
delivered to the  recipient’s  address,  telex  number or facsimile  number
addressed to Borrower or Bank at the addresses  indicated aside their signatures
to this Agreement by any of the following means:  (a) hand delivery,  (b) United
States first class mail,  postage  prepaid,  (c)  registered or certified  mail,
postage  prepaid,  with  return  receipt  requested,  (d) by a  reputable  rapid
delivery  service,  (e) by telegraph or telex when delivered to the  appropriate
office for transmission,  charges prepaid, with request for assurance of receipt
in a  manner  typical  with  respect  to  communication  of that  type or (f) by
facsimile  transmission  if the  transmitting  party  receives  confirmation  of
successful  transmission.  Notice made in accordance  with this Section shall be
deemed given upon receipt if delivered by hand or wire  transmission,  three (3)
Banking  Days after  mailing if mailed by first class,  registered  or certified
mail, or one (1) Banking Day after deposit with an overnight  courier service if
delivered  by overnight  courier.  Borrower and Bank may each change the address
for  service  of notice  upon it by a notice  in  writing  to the other  parties
hereto. 



        
Section 9.12   
Counterparts.   This   Agreement   may  be  executed  in  any  number  of
counterparts,  all of which taken together shall  constitute one agreement,  and
any of the  parties  hereto may  execute  this  Agreement  by  signing  any such
counterpart.  This  Agreement  shall be effective  when it has been  executed by
Borrower and Bank. 



        
Section 9.13   
Incorporation  by Reference.  All Exhibits hereto are incorporated herein
by this reference. Each of the other Loan Documents shall be made subject to all
of the terms, covenants,  conditions,  obligations,  stipulations and agreements
contained in this  Agreement to the same extent and effect as if fully set forth
therein,  and this  Agreement  is made  subject to all of the terms,  covenants,
conditions, obligations, stipulations and agreements contained in the other Loan
Documents  to the same  extent  and  effect as if fully set forth  therein.  The
provisions of this Agreement, including, without limitation, provisions relating
to maintenance of insurance,  are in addition to, and not a limitation upon, the
requirements  of  any  other  Loan  Document  or  any  subordination  agreement.




–42–





        
Section 9.14   
Time of Essence. Time is of the essence under the Loan Documents.



        
Section 9.15   
No  Joint  Venture.  Notwithstanding  anything  to  the  contrary  herein
contained or implied, Bank, by this Agreement, or by any action pursuant hereto,
shall not be deemed to be a partner of, or a joint venturer with, Borrower,  and
Borrower  hereby  indemnifies  and  agrees  to defend  and hold  Bank  harmless,
including  the  payment  of  reasonable  attorneys’  fees,  from  any  Loss
resulting from any judicial  construction of the  parties’  relationship as
such. 



        
Section 9.16   
Relationship   of  Parties;   Release  of  Consequential   Damages.   The
relationship  between  Borrower  and Bank shall be solely that of  borrower  and
lender.  Bank shall not have any fiduciary  responsibilities  to Borrower.  Bank
undertakes  no  responsibility  to Borrower to review or inform  Borrower of any
matter in connection with any phase of  Borrower’s  business or operations.
Bank shall not have any liability  with respect to, and Borrower  hereby waives,
releases  and  agrees  not to sue for,  any  special  or  consequential  damages
suffered by it in connection with,  arising out of, or in any way related to the
Loan Documents or the transactions contemplated thereby. 



        
Section 9.17   
Severability.  In the event any provision of this Agreement or any of the
Loan Documents shall be held invalid or  unenforceable by any court of competent
jurisdiction,  such holding  shall not affect the  validity,  enforceability  or
legality  of the  remaining  provisions  hereof or  thereof,  all of which shall
continue unaffected and unimpaired thereby. 



        
Section 9.18   
Gender.  As used herein,  the masculine gender shall be deemed to include
the  feminine  and the neuter and the  singular  number  shall also  include the
plural. 



        
Section 9.19   
Waiver  and  Amendment.  Borrower  and Bank  may  enter  into  agreements
supplemental  hereto for the purpose of adding or modifying  provisions  of this
Agreement  or  changing  the  respective  rights,  powers,  privileges,  duties,
liabilities, covenants or obligations of Bank or Borrower or waiving any Default
hereunder,  provided,  however,  that no such agreements  supplemental  shall be
binding unless in writing and duly signed by the parties  hereto,  and then only
to the extent specifically set forth therein. 



        
Section 9.20   
Bank Not in Control.  None of the covenants or other provisions contained
in the Loan Documents shall, or shall be deemed to, give Bank the right or power
to exercise control over the affairs and/or management of Borrower, the power of
Bank being  limited to the right to exercise the  remedies  provided in the Loan
Documents,  provided,  however,  that if Bank  becomes the owner of any stock or
other equity interest in any Person,  whether through  foreclosure or otherwise,
Bank shall be entitled  (subject to  requirements of law) to exercise such legal
rights as it may have by virtue of being the owner of such stock or other equity
interest in such Person. 



        
Section 9.21   
Waiver Of Jury Trial.  BANK AND BORROWER,  AFTER CONSULTING OR HAVING HAD
THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY,  INTENTIONALLY,
UNCONDITIONALLY  AND  IRREVOCABLY  WAIVE ANY RIGHT  EITHER OF THEM MAY HAVE TO A
TRIAL BY JURY IN ANY  LITIGATION  BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY  OTHER  LOAN  DOCUMENT  OR ANY  OF THE  TRANSACTIONS  CONTEMPLATED  BY  THIS
AGREEMENT  OR ANY  COURSE  OF  CONDUCT,  DEALING,  STATEMENTS  (WHETHER  ORAL OR
WRITTEN),  OR ACTIONS OF EITHER OF THEM. NEITHER BANK NOR BORROWER SHALL SEEK TO
CONSOLIDATE,  BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS
BEEN  WAIVED  WITH ANY OTHER  ACTION IN WHICH A JURY TRIAL  CANNOT BE OR HAS NOT
BEEN WAIVED.  THESE  PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY
RESPECT  OR  RELINQUISHED  BY  EITHER  BANK  OR  BORROWER  EXCEPT  BY A  WRITTEN
INSTRUMENT EXECUTED BY BOTH OF THEM. 



–43–





        
IN WITNESS WHEREOF,  Borrower and Bank have caused this Agreement to be executed
by their respective officers duly authorized as of the date first above written.




[Remainder of page intentionally left blank]



–44–





SIGNATURE PAGE OF

BIOANALYTICAL SYSTEMS, INC.

TO CREDIT AGREEMENT




	
	
"BORROWER"



BIOANALYTICAL SYSTEMS, INC.







By:  /s/ Peter T. Kissinger



Its:  Chairman & Chief Executive Officer



	
Address:



2701 Kent Avenue

West Lafayette, IN  47906

Attention:  President

Facsimile:  (765) 497-1102









SIGNATURE PAGE OF

THE PROVIDENT BANK

TO CREDIT AGREEMENT




	
	
"BANK"



THE PROVIDENT BANK







By:  /s/ Jeffrey A. Salesman



Its:  Vice President



	
Address:



The Guaranty Building, Suite 400

20 N. Meridian St.

Indianapolis, Indiana  46204

Attention:  Jeff Salesman

Facsimile:  317-822-9800