**Exhibit 10.1**

** **

**AMENDED AND RESTATED**

**CREDIT AGREEMENT**

** **

**Between**

** **

**U.S. BANK NATIONAL ASSOCIATION**

** **

**and**

** **

**MACKIE DESIGNS INC.**

** **

** **

**Dated as of April 30, 2002**

 

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**TABLE OF CONTENTS**

 
| ARTICLE I.       |   | DEFINITIONS                                           |
|------------------|--------|-------------------------------------------------------|
|             |   |                                                  |
|             | 1.1    | Terms Defined                                         |
|             | 1.2    | Accounting  Terms                                     |
|             | 1.3    | Rules  of Construction                                |
|             | 1.4    | Incorporation of  Recitals and Exhibits               |
|             | 1.5    | Existing  Credit Agreement and Loan Documents; Waiver |
|             |   |                                                  |
| ARTICLE II.      |   | REVOLVING LOAN                                        |
|             |   |                                                  |
|             | 2.1    | Loan Commitment                                       |
|             | 2.2    | Use of Proceeds                                       |
|             | 2.3    | Revolving Note                                        |
|             | 2.4    | Interest Rate                                         |
|             | 2.5    | Repayment                                             |
|             | 2.6    | Fundings                                              |
|             | 2.7    | Revolving  Loan Fee                                   |
|             | 2.8    | Borrowing Base                                        |
|             |   |                                                  |
| ARTICLE III.     |   | TERM LOAN A                                      |
|             |   |                                                  |
|             | 3.1    | Loan Commitment                                       |
|             | 3.2    | Use of Proceeds                                       |
|             | 3.3    | Term Note A                                      |
|             | 3.4    | Interest Rates                                        |
|             | 3.5    | Repayment                                             |
|             | 3.6    | Term  Loan A Fee                                 |
|             | 3.7    | Adjustment of Principal  Balance                      |
|             |   |                                                  |
| ARTICLE IV.      |   | TERM LOAN B                                      |
|             |   |                                                  |
|             | 4.1    | Loan Commitment                                       |
|             | 4.2    | Use of Proceeds                                       |
|             | 4.3    | Term Note B                                      |
|             | 4.4    | Interest Rates                                        |
|             | 4.5    | Repayment                                             |
|             | 4.6    | Term  Loan B Fee                                 |
|             |   |                                                  |
| ARTICLE V   |   | LETTERS OF  CREDIT                                    |
|             |   |                                                  |
|             | 5.1    | Commitment                                            |
|             | 5.2    | Letter  of Credit Fees                                |
|             | 5.3    | Draws on Letters of Credit                            |
|             |   |                                                  |
| ARTICLE VI. |   | GENERAL  PROVISIONS APPLICABLE TO THE LOANS           |
|             |   |                                                  |
|             | 6.1    | Manner of  Payment                                    |

 

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|              | 6.2    | Statements                                                                             |
|-------------------|--------|----------------------------------------------------------------------------------------|
|              | 6.3    | Book  Entry Loan Account                                                               |
|              | 6.4    | Lockbox; Bank Control  Account                                                         |
|              | 6.5    | Computations  of Interest                                                              |
|              | 6.6    | Default  Interest                                                                      |
|              | 6.7    | Maximum  Interest Rate                                                                 |
|              | 6.8    | Late Charge                                                                            |
|              | 6.9    | Prepayments                                                                            |
|              | 6.10   | Extensions, Renewals and  Modifications                                                |
|              | 6.11   | Increased Costs                                                                        |
|              | 6.12   | LIBOR Rate Loan Provisions                                                             |
|              | 6.13   | Deposits  Unavailable or Interest Rate Unascertainable or Inadequate; Impracticability |
|              | 6.14   | Changes  in Law Rendering LIBOR Rate Loan Unlawful                                     |
|              | 6.15   | Discretion  of U.S. Bank as to Manner of Funding                                  |
|              | 6.16   | Collateral;  Existing Security Documents                                               |
|              |   |                                                                                   |
| ARTICLE VII. |   | CONDITIONS  PRECEDENT FOR FUNDINGS UNDER THE LOANS                                     |
|              |   |                                                                                   |
|              | 7.1    | Conditions  Precedent for Initial Funding                                              |
|              | 7.2    | Conditions  Precedent to Each Subsequent Funding                                       |
|              |   |                                                                                   |
| ARTICLE VIII.     |   | AFFIRMATIVE  COVENANTS                                                                 |
|              |   |                                                                                   |
|              | 8.1    | Financial Data                                                                         |
|              | 8.2    | Licenses  and Permits                                                                  |
|              | 8.3    | Maintenance of Properties                                                              |
|              | 8.4    | Payment of  Charges                                                                    |
|              | 8.5    | Insurance                                                                              |
|              | 8.6    | Maintenance  of Records                                                                |
|              | 8.7    | Inspection                                                                             |
|              | 8.8    | Hazardous  Substances                                                                  |
|              | 8.9    | Corporate  Existence                                                                   |
|              | 8.10   | Notice of Disputes  and Other Matters                                                  |
|              | 8.11   | Exchange of  Note                                                                      |
|              | 8.12   | Maintenance  of Liens                                                                  |
|              | 8.13   | Other  Agreements                                                                      |
|              | 8.14   | After-Acquired Collateral                                                              |
|              | 8.15   | Further  Assurances                                                                    |
|              | 8.16   | Maintenance of Bank  Accounts                                                          |
|              | 8.17   | Disposition  of Assets                                                                 |
|              | 8.18   | Appraisal                                                                              |
|              | 8.19   | Issuance of  Equity                                                                    |
|              |   |                                                                                   |
| ARTICLE IX.  |   | NEGATIVE  COVENANTS                                                                    |
|              |   |                                                                                   |
|              | 9.1    | Dividends and Distributions                                                            |

 

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|             | 9.2    | Transactions With  Affiliates             |
|------------------|--------|-------------------------------------------|
|             | 9.3    | Other  Indebtedness                       |
|             | 9.4    | Leases  and Leasebacks                    |
|             | 9.5    | Liens                                     |
|             | 9.6    | Advances  and Loans                       |
|             | 9.7    | Investments                               |
|             | 9.8    | Consolidation,  Merger and Sale of Assets |
|             | 9.9    | Subsidiaries                              |
|             | 9.10   | Type of  Business                         |
|             | 9.11   | Change of State of  Organization          |
|             | 9.12   | Change in  Documents                      |
|             | 9.13   | Control                                   |
|             | 9.14   | Pension Plan                              |
|             | 9.15   | Tangible  Net Worth                       |
|             | 9.16   | Funded Debt  Ratio                        |
|             | 9.17   | Fixed Charge Coverage Ratio               |
|             | 9.18   | Working Capital                           |
|             | 9.19   | Limitation on  Capital Expenditures       |
|             |   |                                      |
| ARTICLE X.  |   | REPRESENTATIONS AND  WARRANTIES           |
|             |   |                                      |
|             | 10.1   | Corporate  Status                         |
|             | 10.2   | Power and  Authority                      |
|             | 10.3   | No Violation of Agreements                |
|             | 10.4   | Recording and  Enforceability             |
|             | 10.5   | Litigation                                |
|             | 10.6   | Good  Title to Properties                 |
|             | 10.7   | Licenses  and Permits                     |
|             | 10.8   | No  Burdensome Agreements                 |
|             | 10.9   | Properties in Good  Condition             |
|             | 10.10  | Financial  Statements                     |
|             | 10.11  | Outstanding  Indebtedness                 |
|             | 10.12  | Taxes                                     |
|             | 10.13  | License Fees                              |
|             | 10.14  | Trademarks, Patents, Etc.                 |
|             | 10.15  | Disclosure                                |
|             | 10.16  | Regulations  U and X                      |
|             | 10.17  | Names                                     |
|             | 10.18  | Condition  of Property                    |
|             | 10.19  | Pension Plans                             |
|             |   |                                      |
| ARTICLE XI. |   | EVENTS OF  DEFAULT; REMEDIES              |
|             |   |                                      |
|             | 11.1   | Events of  Default                        |
|             | 11.2   | Acceleration;  Remedies                   |

 

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| ARTICLE XII. |   | MISCELLANEOUS                               |
|-------------------|--------|---------------------------------------------|
|              |   |                                        |
|              | 12.1   | Notices                                     |
|              | 12.2   | Payment  of Expenses                        |
|              | 12.3   | Setoff                                      |
|              | 12.4   | Waiver of  Setoff                           |
|              | 12.5   | Fees  and Commissions                       |
|              | 12.6   | No Waiver                                   |
|              | 12.7   | Entire Agreement and  Amendments            |
|              | 12.8   | Benefit  of Agreement                       |
|              | 12.9   | Severability                                |
|              | 12.10  | Descriptive  Headings                       |
|              | 12.11  | Governing Law                               |
|              | 12.12  | Consent  to Jurisdiction, Service and Venue |
|              | 12.13  | Counterparts                                |
|              | 12.14  | Jury Waiver                                 |
|              | 12.15  | Statutory  Notice                           |

 

**EXHIBITS**

** **

Exhibit A      —    RevolvingNote, Section 2.3

 

Exhibit B       —    TermNote A, Section 3.3

 

Exhibit C       —    TermNote B, Section 4.3

 

Exhibit D      —    BoardResolution and Incumbency Certificate, Section 7.1(d)(iii)

 

Exhibit E       —    ExistingLiens, Section 9.5

 

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**AMENDED AND RESTATED CREDIT AGREEMENT**

 

This amended and restatedcredit agreement is made and entered into as of the 30th day of April, 2002, byand between U.S. BANK NATIONAL ASSOCIATION, a national banking association(“U.S. Bank”), and MACKIE DESIGNS INC., a Washington corporation(“Borrower”).  Words and phrases withinitial capitalized letters have the meanings assigned in Article Ihereof.

 

**RECITALS**

 

A.            Borrower and U.S. Bank are parties to that certainCredit Agreement dated as of June 18, 1998 (collectively with allamendments and modifications thereto, the “Existing Credit Agreement”).

 

B.            Borrower has requested U.S. Bank to modifyBorrower’s existing credit facilities with U.S. Bank under the ExistingCredit Agreement.

 

C.            Borrower and U.S. Bank desire to amend and restatethe Existing Credit Agreement on the terms and conditions of this CreditAgreement and the other Loan Documents.

 

NOW, THEREFORE, inconsideration of the mutual covenants and conditions set forth herein, theparties hereto (a) agree that the Existing Credit Agreement is herebyamended and restated in its entirety as provided herein, (b) agree thatall the Loan Documents executed in connection with or relating to the ExistingCredit Agreement shall remain in full force and effect, except as specificallyprovided in this Agreement, and (c) further agree as follows:

# ** **

# **ARTICLE I.**                                                        DEFINITIONS

## ** **

## **1.1**                               Terms Defined

 

As used herein, thefollowing terms have the meanings set forth below:

 

“Adjusted EBITDA” means,for a given period, EBITDA less cash paid for principal and interest paymentson Interest Bearing Debt (excluding principal payments on the Revolving Loan),less cash income taxes paid and less Unfunded Capital Expenditures paid incash.

 

“Adjustment Date” meansthe date reasonably determined by U.S. Bank that is within 30 days ofthe date U.S. Bank receives, reviews and approves the Appraisal.

 

“Affiliate” means aPerson that now or hereafter, directly or indirectly through one or moreintermediaries, controls, is controlled by or is under common control withBorrower.  A Person shall be deemed tocontrol a corporation, limited liability company or partnership if

 

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such Personpossesses, directly or indirectly, the power to direct or cause the directionof the management of such corporation, limited liability company orpartnership, whether through the ownership of voting securities, by contract,or otherwise.

 

“Agreement” means thiscredit agreement and includes all amendments to this Agreement.

 

“Applicable Law” meansall applicable provisions and requirements of all (a) constitutions,statutes, ordinances, rules, regulations, standards, orders and directives ofany Governmental Bodies, (b) Governmental Approvals, and (c) orders,decisions, decrees, judgments, injunctions and writs of all courts andarbitrators, whether such Applicable Laws presently exist, or are modified,promulgated or implemented after the date hereof.

 

“Applicable Margin” meansthe rate per annum that is determined by reference to the following matrix andbased upon the quarterly financial statements of Borrower provided to U.S. Bankin accordance with the terms of this Agreement for the preceding fiscal quarterof Borrower.  Adjustments shall be made60 days after the end of each fiscal quarter of Borrower (when quarterlyfinancial statements are required to be delivered to U.S. Bank); provided,however, that if Borrower has not delivered its financial statements for theprevious fiscal quarter within 60 days of the end of such fiscal quarter, thenthe Applicable Margin in effect for the previous fiscal quarter shall continueto apply unless U.S. Bank exercises its right to impose the default rateprovided for in this Agreement.

| **Funded  Debt Ratio**                |   | **Prime Rate Loan Applicable Margin** |   | **LIBOR Rate Loan Applicable Margin** |   |
|---------------------------------------|--------|---------------------------------------|--------|---------------------------------------|--------|
| > 3.5:1.0                     |   | 2.00                                  | %      | 3.50                                  | %      |
| £  3.5:1.0 and > 3.0:1.0 |   | 0.75                                  | %      | 3.00                                  | %      |
| £  3.0:1.0 and > 2.0:1.0 |   | 0.50                                  | %      | 2.50                                  | %      |
| £  2.0:1.0 and > 1.0:1.0 |   | 0.25                                  | %      | 2.00                                  | %      |
| £  1.0:1.0                       |   | 0                                     | %      | 1.75                                  | %      |

 

Where:£ = less than or equal to>=  greater than

 

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The Applicable Marginsset forth above shall apply unless there exists an Event of Default, in whichcase U.S. Bank may elect to apply the default rate pursuant to the terms ofthis Agreement.  The Funded Debt Ratioas used in this definition shall be calculated as of the last day of therelevant fiscal quarter of Borrower for the four trailing fiscal quarters thenended.  U.S. Bank and Borroweracknowledge that notwithstanding the Applicable Margin matrix set forth above,Section 9.16 of the Credit Agreement provides that for Borrower’s fiscalquarter ending December 31, 2002, and for each of Borrower’s fiscalquarters thereafter, the Funded Debt Ratio shall not exceed 3.00:1.00.

 

“Appraisal” has themeaning set forth in Section 8.18 hereof.

 

“Borrower” means MackieDesigns Inc., a Washington corporation, and its successors.

 

“Borrowing Base” has themeaning set forth in Section 2.8 hereof.

 

“Borrowing Notice” hasthe meaning set forth in Section 2.6(a) hereof.

 

“Business Day” means anyday except a Saturday, Sunday or other day on which national banks in the stateof Washington are authorized or required by law to close.

 

“Capital Expenditures”means the aggregate amount of capital expenditures of Borrower as determined ona consolidated basis in accordance with generally accepted accountingprinciples, including leases that are or should be capitalized pursuant togenerally accepted accounting principles.

 

“Collateral” means allthe property, real or personal, tangible or intangible, now owned or hereafteracquired, in which U.S. Bank has been or is to be granted a securityinterest by Borrower or any other Person, to secure the Indebtedness ofBorrower to U.S. Bank.

 

“Commitment Period” hasthe meaning set forth in Section 2.1 hereof.

 

“Default” means anycondition or event that constitutes an Event of Default or with the giving ofnotice or lapse of time or both would, unless cured or waived, become an Eventof Default.

 

“Deficit Amount” has themeaning set forth in Section 3.7 hereof.

 

“Disposition Payment” hasthe meaning set forth in Section 8.17 hereof.

 

“EBITDA” for a givenperiod and on a consolidated basis, means Borrower’s net income, plus interestexpense, plus income tax expense, plus depreciation expense, plus amortizationexpense, and minus revenues derived from net gains from sales of capitalassets.

 

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“Eligible AccountsReceivable” means the accounts receivable owed directly to Borrower or any ofits domestic Subsidiaries, excluding the following:  (a) accounts receivable that have been outstanding in excessof 60 days from the due date, (b) all accounts receivable from anysingle customer of Borrower if 10 percent or more of such customer’saccounts owed to Borrower are ineligible for any reason, (c) accountsreceivable due from officers, employees, or Affiliates of Borrower,(d) accounts receivable that are partially or wholly subject to the rightof setoff, (e) accounts receivable resulting from COD sales, financecharges, and consignments, (f) accounts receivable due from Persons notresidents of the United States, (g) accounts receivable due from thefederal government, (h) accounts receivable that constitute any retainage,(i) accounts receivable that constitute dated billings, and(j) accounts receivable in which any Person other than U.S. Bank hasa security interest.  Notwithstandingthe foregoing, “Eligible Accounts Receivable” shall not include any accounts receivableunless and until U.S. Bank holds a first, valid, binding perfectedsecurity interest in any such accounts receivable.

 

“Eligible Inventory”means inventory owned directly by Borrower, including raw materials andfinished goods, valued at the lower of cost or market.  “Eligible Inventory” shall exclude inventorythat is obsolete, consigned inventory, inventory that is not in saleablecondition, work–in–process and inventory in which any Person otherthan U.S. Bank has a security interest. Notwithstanding the foregoing, “Eligible Inventory” shall not includeany inventory unless and until U.S. Bank holds a first, valid and bindingperfected security interest in that inventory.

 

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

 

“Equity Payment” has themeaning set forth in Section 8.19 hereof.

 

“Event of Default” hasthe meaning set forth in Section 11.1 hereof.

 

“Excess Amount” has themeaning set forth in Section 3.7 hereof.

 

“Existing CreditAgreement” has the meaning set forth in Recital A of this Agreement.

 

“Fixed Charge CoverageRatio” means the ratio of (a) EBITDA minus cash taxes, cash dividends andUnfunded Capital Expenditures for the relevant period to (b) the sum ofall required principal payments (on all Interest Bearing Debt and capitalleases), and interest expense for the relevant period.

 

“Funded Debt Ratio” meansthe ratio of Interest Bearing Debt to EBITDA.

 

“Funding” means anydisbursement of the proceeds of the Revolving Loan, Term Loan A, TermLoan B, or the issuance or renewal of any Letter of Credit.

 

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“Governmental Approval”means any authorization, consent, approval, certificate of compliance, license,permit or exemption from, contract with, registration or filing with, or reportor notice to, any Governmental Body required or permitted by Applicable Law.

 

“Governmental Body” meansthe government of the United States, any state or any foreign country, or anygovernmental or regulatory official, body, department, bureau, subdivision,agency, commission, court, arbitrator or authority, or any instrumentalitythereof, whether federal, state, or local.

 

“Guaranties” has themeaning set forth in Section 8.15(a)(vi) hereof and includes allreplacements, amendments and modifications of the Guaranties.

 

“Guarantors” meansBlackstone Technologies, Inc., Mackie Designs Manufacturing Inc., andSIA Software Company, Inc., each of whom is required to execute anddeliver to U.S. Bank a Guaranty pursuant to the terms of this Agreement.

 

“Hazardous Materials”means oil or petrochemical products, PCB’s, asbestos, urea formaldehyde,flammable explosives, radioactive materials, hazardous wastes, toxic substancesor related materials, including, but not limited to, substances defined as orincluded in the definition of “hazardous substances,” “hazardous wastes,”“hazardous materials” or “toxic substances” under any Hazardous Materials Laws.

 

“Hazardous MaterialsClaims” means (a) enforcement, cleanup, removal or other regulatoryactions instituted, completed or threatened by any Governmental Body pursuantto any applicable Hazardous Materials Laws and (b) claims made orthreatened by any third party against Borrower, any Subsidiary, or their propertyrelating to damage, contribution, cost recovery, compensation, loss or injuryresulting from Hazardous Materials.

 

“Hazardous MaterialsLaws” means all Applicable Laws pertaining to Hazardous Materials.

 

“Indebtedness” means allitems that in accordance with generally accepted accounting principles would beincluded in determining total liabilities as shown on the liabilities side ofthe balance sheet as of the date that “Indebtedness” is to be determined and inany event includes liabilities secured by any mortgage, deed of trust, pledge,lien or security interest on property owned or acquired, whether or not such aliability has been assumed, Subordinated Debt and the guaranties, endorsements(other than for collection in the ordinary course of business) and othercontingent obligations with regard to the obligations of other Persons.

 

“Interest Bearing Debt”means any Indebtedness of Borrower on a consolidated basis (other thancontingent obligations) that bears interest, including, without limitation,leases that are or should be capitalized under generally accepted accountingprinciples.

 

“Interest Differential”shall mean that sum equal to the greater of $-0- or the financial loss incurredby U.S. Bank resulting from prepayment, calculated as the difference betweenthe amount of interest U.S. Bank would have earned (from like investmentsin the Money

 

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Markets as of thefirst day of the LIBOR Rate Loan) had prepayment not occurred and the interestU.S. Bank will actually earn (from like investments in the Money Marketsas of the date of prepayment) as a result of the redeployment of funds from theprepayment.

 

“Letters of Credit” hasthe meaning set forth in Section 5.1 hereof and includes all renewals,replacements and modifications thereof.

 

“LIBOR Rate Loan” has themeaning set forth in Section 2.4 hereof.

 

“Loan Documents” meansthis Agreement, the Notes, the Pledge Agreements, the Security Agreements andthe Guaranties, together with all other agreements, instruments and documentsarising out of or relating to this Agreement, the Existing Credit Agreement, orthe Loans, and includes all renewals, replacements and amendments thereof.

 

“Loans” means theRevolving Loan, Term Loan A and Term Loan B, as well as all renewals,replacements and amendments thereof.

 

“Money Markets” refers toone or more wholesale funding markets available to U.S. Bank, includingnegotiable certificates of deposit, commercial paper, eurodollar deposits, banknotes, federal funds and others.

 

“Notes” means theRevolving Note, Term Note A and Term Note B, as well as all renewals,replacements and amendments thereof.

 

“Obligations” has themeaning set forth in Section 12.3 hereof.

 

“Participant” means anyfinancial institution to which U.S. Bank sells a participation in any ofthe Loans.

 

“Permitted Liens” has themeaning set forth in Section 9.5 hereof.

 

“Person” means anyindividual, partnership, limited liability company, joint venture, firm,corporation, association, trust or other enterprise or any Governmental Body.

 

“Plan” means an employeepension benefit plan that is covered by ERISA or subject to the minimum fundingstandards under Section 412 of the Internal Revenue Code of 1986 and iseither (a) maintained by Borrower or any Affiliate for employees ofBorrower or any Affiliate or (b) maintained pursuant to a collectivebargaining agreement or any other arrangement under which more than oneemployer makes contributions and to which Borrower or any Affiliate is thenmaking or accruing an obligation to make contributions or has within thepreceding five plan years made contributions.

 

“Pledge Agreement” hasthe meaning set forth in Section 8.15(a)(ii)****hereof and includes allrenewals, replacements and amendments of the Pledge Agreement.

 

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“Prime Rate” means theprime rate announced by U.S. Bank from time to time, as when such ratechanges.

 

“Prime Rate Loan” has themeaning set forth in Section 2.4 hereof.

 

“Revolving Loan” has themeaning set forth in Section 2.1 hereof and includes all renewals,replacements and amendments of the Revolving Loan.

 

“Revolving LoanCommitment Amount” means $25,000,000.

 

“Revolving Note” has themeaning set forth in Section 2.3 hereof and includes all renewals,replacements and amendments of the Revolving Note.

 

“Security Agreements” hasthe meaning set forth in Section 8.15(a)(i) hereof and includes allrenewals, replacements and amendments of the Security Agreements.

 

“Setoff” has the meaningset forth in Section 12.3 hereof.

 

“Subordinated Debt” meansthe Indebtedness of Borrower that is subordinated to the Indebtedness ofBorrower to U.S. Bank pursuant to a subordination agreement orsubordination provisions approved in writing by U.S. Bank.

 

“Subsidiary” means anycorporation, association, partnership, limited liability company, limitedliability partnership, joint venture or other business entity of which morethan 50 percent of the voting stock, membership interest or other equityinterests, is owned or controlled directly or indirectly by Borrower, or one ormore of the Subsidiaries of Borrower, or a combination thereof.

 

“Tangible Net Worth”means, on a consolidated basis, Borrower’s net worth determined in accordancewith generally accepted accounting principles, less (a) the amount of alldeferred charges; (b) all intangible assets, including, but not limitedto, goodwill, licenses, franchises, trademarks, trade names, service marks,patents and copyrights; (c) unamortized debt discount and expense;(d) the cost of capital stock of an Affiliate; (e) any Indebtednessowing to Borrower by an Affiliate thereof, unless such Indebtedness arose inconnection with the sale or lease of goods or property in the ordinary courseof business or the performance of services in the ordinary course of businessand would otherwise constitute current assets in accordance with generallyaccepted accounting principles; and (f) the amount of any write–upin book value of the assets of Borrower resulting from any revaluation ofassets.

 

“Term Loan A” hasthe meaning set forth in Section 3.1 hereof and includes all renewals,replacements and amendments of Term Loan A.

 

“Term Loan ACommitment Amount” has the meaning set forth in Section 3.1 hereof.

 

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“Term Loan B” hasthe meaning set forth in Section 4.1 hereof and includes all renewals,replacements and amendments of Term Loan B.

 

“Term Loan BCommitment Amount” has the meaning set forth in Section 4.1 hereof.

 

“Term Note A” hasthe meaning set forth in Section 3.3 hereof and includes all renewals,replacements and amendments of Term Note A.

 

“Term Note B” hasthe meaning set forth in Section 4.3 hereof and includes all renewals,replacements and amendments of Term Note B.

 

“U.S. Bank” meansU.S. Bank National Association, a national banking association, and itssuccessors and assigns.

 

“Unfunded CapitalExpenditures” means the sum of all purchases of capital assets or acquisitionsof other companies less the sum of all new financing amounts received orassumed to acquire capital assets or acquisitions of other companies for theperiod specified.

 

“Working Capital” meansBorrower’s current assets, less Borrower’s current liabilities; provided thatfor purposes of calculating Working Capital, short–term debt of MackieDesigns (Italy) S.p.A. and AVM S.r.l. shall not be deemed to constitute acurrent liability so long as U.S. Bank has received evidence satisfactoryto U.S. Bank that the maturity date of such short–term debt will beextended.  For purposes of calculatingWorking Capital, all outstanding principal on the Revolving Loan shall bedeemed to constitute a current liability.

 

## **1.2**                               Accounting Terms

 

Unless otherwisespecified herein, all accounting terms used herein shall be interpreted, allaccounting determinations and financial covenant calculations hereunder shallbe made, and all financial statements required to be delivered hereunder shallbe prepared on a consolidated basis in accordance with generally accepted accountingprinciples consistently applied.

 

## **1.3**                               Rules of Construction

 

Unless the contextotherwise requires, the following rules of construction apply to the LoanDocuments:

 

(a)           Words in the singular include theplural and in the plural include the singular.

 

(b)           Provisions of the Loan Documentsapply to successive events and transactions.

 

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(c)           In the event of any inconsistencybetween the provisions of this Agreement and the provisions of any of the otherLoan Documents, the provisions of this Agreement govern.

 

## **1.4**                               Incorporation of Recitals and Exhibits

 

The foregoing recitalsare incorporated into this Agreement by reference.  All references to “Exhibits” contained herein are references toexhibits attached hereto, the terms and conditions of which are made a parthereof for all purposes.

 

## **1.5**                               Existing Credit Agreement and LoanDocuments; Waiver

 

(a)           This Agreement amends and restates inits entirety the Existing Credit Agreement; provided, however, that nothingcontained herein is intended to amend or impair any other agreement,instrument, statement, or certificate delivered in connection with the ExistingCredit Agreement or the effect or efficacy thereof.  All Loan Documents executed in connection with the ExistingCredit Agreement shall remain in full force and effect and all referencestherein to “Credit Agreement” shall henceforth refer to this Agreement.

 

(b)           Upon satisfaction of the conditionsset forth in Section 7.1 hereof, U.S. Bank U.S. Bank herebywaives violation of the financial covenants set forth in Sections 7.15 —7.18 of the Existing Credit Agreement.

 

# **ARTICLE II.**                                                    REVOLVING LOAN

 

## **2.1**                               Loan Commitment

 

(a)           Subject to and upon the terms andconditions set forth herein and in reliance upon the representations,warranties, and covenants of Borrower contained herein or made pursuant hereto,U.S. Bank will make Fundings to Borrower from time to time during theperiod ending on April 30, 2003, (“Commitment Period”), but such Fundings(together with any outstanding Letters of Credit) shall not exceed, in theaggregate principal amount at any one time outstanding, the Revolving LoanCommitment Amount (the “Revolving Loan”). Borrower may borrow, repay and reborrow hereunder either the full amountof the Revolving Loan or any lesser sum.

 

(b)           The Revolving Loan is a renewal ofand in substitution for, but not in payment of, the revolving line of creditextended by U.S. Bank to Borrower pursuant to the terms of the ExistingCredit Agreement.  The parties agreethat the outstanding principal balances of the revolving credit loans under theExisting Credit Agreement shall constitute a Funding under the Revolving Loanfor all purposes of this Agreement and the other Loan Documents.

 

## **2.2**                               Use of Proceeds

 

The initial Funding ofthe Revolving Loan shall be used to refinance the “Revolving Loan” and aportion of the “Acquisition Loan” under the Existing Credit Agreement.

 

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SubsequentFundings of the Revolving Loan shall be used by Borrower for general businesspurposes.

 

## **2.3**                               Revolving Note

 

The Revolving Loan shallbe evidenced by a promissory note in the form attached hereto as Exhibit A(the “Revolving Note”).  The RevolvingNote shall be a renewal of and in substitution for, but not in payment of, thepromissory notes that evidence the “Revolving Loan” under the Existing CreditAgreement (which, upon satisfaction of the conditions set forth inArticle VI, shall be arked “renewed” and retained by U.S. Bank untilthe Revolving Loan has been repaid in full and U.S. Bank’s commitmentunder the Credit Agreement has terminated).

 

## **2.4**                               Interest Rate

 

Interest on theoutstanding principal balance of the Revolving Loan shall accrue at thefollowing per annum rates selected by Borrower (i) upon notice toU.S. Bank (or in the event that no other selection is made by Borrower),the Applicable Margin plus the Prime Rate (a “Prime Rate Loan”); or(ii) upon a minimum of two New York banking days prior notice, the ApplicableMargin plus the 1, 2, 3, 6, or 12–month LIBOR rate quoted byU.S. Bank from Telerate Page 3750 or any successor thereto (whichshall be the LIBOR rate in effect two New York banking days prior tocommencement of the LIBOR loan advance) (a “LIBOR Rate Loan”).  If a LIBOR Rate Loan is prepaid by Borrower,whether as a result of acceleration, upon default or otherwise, Borrower agreesto pay all of U.S. Bank’s costs, expenses and Interest Differential (asdetermined by U.S. Bank) incurred as a result of such prepayment.  Because of the short–term nature ofthis facility, Borrower agrees that the Interest Differential shall not bediscounted to its present value.  Anyprepayment of a LIBOR Rate Loan shall be in an amount equal to the remainingentire principal balance of such LIBOR Rate Loan.  In the event Borrower does not timely select another interestrate option at least two New York banking days before a LIBOR Rate Loanexpires, U.S. Bank may at any time thereafter convert the LIBOR Rate Loanto a Prime Rate Loan, but until such conversion, the funds advanced under theexpired LIBOR Rate Loan shall continue to accrue interest at the same rate asthe interest rate under such expired LIBOR Rate Loan.  U.S. Bank’s internal records of applicable interest ratesshall be determinative in the absence of manifest error.  Each LIBOR rate option selected shall applyto a minimum principal amount of $1,000,000 with increments of $500,000 inexcess thereof.  For determining paymentdates for LIBOR Rate Loans, the New York banking day shall be the standardconvention.  In the event after the dateof initial funding any governmental authority subjects U.S. Bank to anynew or additional charge, fee, withholding or tax of any kind with respect toany loans hereunder or changes the method of taxation of such loans or changesthe reserve or deposit requirements applicable to such loans, Borrower shallpay to U.S. Bank such additional amounts as will compensate U.S. Bankfor such costs or lost income resulting therefrom as reasonably determined byU.S. Bank.

 

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## **2.5**                               Repayment

 

(a)           Commencing on the first day of thefirst month following the initial Funding under the Revolving Loan and on thefirst day of each month thereafter, Borrower shall pay U.S. Bank an amountequal to all accrued interest on the Revolving Loan.

 

(b)           Borrower shall pay U.S. Bank allDisposition Payments and Equity Payments required under Sections 8.17 and8.19, respectively for application against the outstanding principal balance ofthe Revolving Loan.

 

(c)           Borrower shall pay U.S. Bank alloutstanding principal, accrued interest and other charges with respect to theRevolving Loan on the last day of the Commitment Period.

 

## **2.6**                               Fundings

 

(a)           U.S. Bank is hereby authorizedby Borrower to make Fundings under the Revolving Loan upon receipt for eachFunding of a written or oral request therefor (including written requestscommunicated by facsimile) calculating the Borrowing Base (“Borrowing Notice”)from the Chief Executive Officer or Chief Financial Officer of Borrower, eachof whom is authorized to request Fundings and direct the disposition of anysuch Fundings until written notice by Borrower of the revocation of suchauthority is received by U.S. Bank. Any such Funding shall be conclusively presumed to have been made to orfor the benefit of Borrower when made in accordance with such a request anddirection for disposition or when such Funding is deposited to the credit ofthe account of Borrower with U.S. Bank or is transmitted to any other bankwith directions to credit the same to the account of Borrower at such bank,regardless of whether persons other than those authorized hereunder to makerequests for Fundings have authority to draw against any such account.

 

(b)           Borrower acknowledges thatU.S. Bank cannot effectively determine whether a particular request for aFunding is valid, authorized or authentic. It is nevertheless important to Borrower that it has the privilege ofmaking requests for Fundings in accordance with Section 2.6(a)hereof.  Therefore, to induceU.S. Bank to lend funds in response to such requests and in considerationfor U.S. Bank’s agreement to receive and consider such requests, Borrowerassumes all risk of the validity, authenticity and authorization of suchrequests, whether or not the individual making such requests has authority torequest Fundings and whether or not the aggregate sum owing exceeds the maximumprincipal amount referred to above. U.S. Bank shall not be responsible under principles of contract,tort or otherwise for the amount of an unauthorized or invalid Funding; rather,Borrower agrees to repay any sums with interest as provided herein.

 

## **2.7**                               Revolving Loan Fee

 

Concurrently with theexecution of this Agreement, Borrower shall pay U.S. Bank a nonrefundablefee for the Revolving Loan in the amount of $62,500.

 

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## **2.8**                               Borrowing Base

 

(a)           The outstanding balance of principalon the Revolving Loan (together with the outstanding amount of any Letters ofCredit)****shallat no time exceed an amount equal to the following (“Borrowing Base”):

 

(i)            80 percent of Eligible AccountsReceivable, plus

 

(ii)           the lesser of(A) 50 percent of Eligible Inventory or (B) $14,000,000.

 

(b)           Borrower shall submit toU.S. Bank a Borrowing Base certificate in a form acceptable toU.S. Bank calculating the Borrowing Base and executed by Borrower(i) on or before Friday of each week dated as of the Friday of theprevious week; provided that for the first two months of this Agreement, suchBorrowing Base certificates shall be due every other Friday and dated as of theFriday of the previous week, and (ii) promptly after any request byU.S. Bank.

 

(c)           If at any time the aggregateprincipal amount of the Revolving Loan shall exceed the Borrowing Base,Borrower shall immediately repay such outstanding portion of the Revolving Loanin an amount equal to such excess within one Business Day.  Borrower’s failure to do so shall constitutean Event of Default without any further cure period.

 

# **ARTICLE III.**                                                TERM LOAN A

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## **3.1**                               Loan Commitment

 

(a)           Subject to and upon the terms andconditions set forth herein and in reliance upon the representations,warranties and covenants of Borrower contained herein or made pursuant hereto,U.S. Bank will lend $6,000,000 (“Term Loan A Commitment Amount”) toBorrower on a term loan basis (“Term Loan A”).

 

(b)           Term Loan A together with TermLoan B constitute renewals of and substitutions for, but not payment of,the “Acquisition Loan” extended by U.S. Bank to Borrower pursuant to theterms of the Existing Credit Agreement. The parties agree that the outstanding principal balance of the“Acquisition Loan” under the Existing Credit Agreement shall constitute aFunding under Term Loan A and Term Loan B for all purposes under thisAgreement and the other Loan Documents.

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## **3.2**                               Use of Proceeds

 

The proceeds of TermLoan A and Term Loan B, together with a portion of the proceeds ofthe Revolving Loan, shall be used solely to renew and refinance the “AcquisitionLoan” under the Credit Agreement.

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## **3.3**                               Term Note A

 

Term Loan A shall beevidenced by a promissory note in the form attached hereto as Exhibit B(“Term Note A”).  Term Note Aand Term Note B shall be a renewal of and in substitution for, but not inpayment of, the promissory notes that evidence the “Acquisition Loan” under theExisting Credit Agreement (which, upon satisfaction of the conditions set forthin Article VI, shall be marked “renewed” and retained by U.S. Bankuntil the Term Loan A and Term Loan B have been repaid in full andU.S. Bank’s commitment under the Credit Agreement has terminated).

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## **3.4**                               Interest Rates

 

Interest on theoutstanding principal balance of Term Loan A shall accrue at the followingper annum rates selected by Borrower (i) upon notice to U.S. Bank (orin the event that no other selection is made by Borrower), the ApplicableMargin plus the Prime Rate (a “Prime Rate Loan”); or (ii) upon a minimumof two New York banking days prior notice, the Applicable Margin plus the 1, 2,3, 6, or 12–month LIBOR rate quoted by U.S. Bank from TeleratePage 3750 or any successor thereto (which shall be the LIBOR rate ineffect two New York banking days prior to commencement of the LIBOR loanadvance) (a “LIBOR Rate Loan”).  If aLIBOR Rate Loan is prepaid by Borrower, whether as a result of acceleration,upon default or otherwise, Borrower agrees to pay all of U.S. Bank’scosts, expenses and Interest Differential (as determined by U.S. Bank)incurred as a result of such prepayment. Because of the short–term nature of this facility, Borrower agreesthat the Interest Differential shall not be discounted to its presentvalue.  Any prepayment of a LIBOR RateLoan shall be in an amount equal to the remaining entire principal balance ofsuch LIBOR Rate Loan.  In the eventBorrower does not timely select another interest rate option at least two NewYork banking days before a LIBOR Rate Loan expires, U.S. Bank may at anytime thereafter convert the LIBOR Rate Loan to a Prime Rate Loan, but untilsuch conversion, the funds advanced under the expired LIBOR Rate Loan shallcontinue to accrue interest at the same rate as the interest rate under suchexpired LIBOR Rate Loan. U.S. Bank’s internal records of applicable interest rates shall bedeterminative in the absence of manifest error.  Each LIBOR rate option selected shall apply to a minimumprincipal amount of $1,000,000 with increments of $500,000 in excessthereof.  For determining payment datesfor LIBOR Rate Loans, the New York banking day shall be the standardconvention.  In the event after the dateof initial funding any governmental authority subjects U.S. Bank to anynew or additional charge, fee, withholding or tax of any kind with respect toany loans hereunder or changes the method of taxation of such loans or changesthe reserve or deposit requirements applicable to such loans, Borrower shallpay to U.S. Bank such additional amounts as will compensate U.S. Bankfor such costs or lost income resulting therefrom as reasonably determined byU.S. Bank.

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## **3.5**                               Repayment

 

(a)           Borrower shall pay U.S. Bank anamount equal to all accrued interest on Term Loan A on the first day ofeach month until Term Loan A shall have been paid in full, commencing onJune 1, 2002.

 

(b)           Commencing on June 1, 2002,Borrower shall make principal payments to U.S. Bank on the first day ofeach month until Term Loan A is paid in full.  The amount of each such payment during the period from the dateof this Agreement to the Adjustment Date shall be $100,000.  The amount of each such payment thereaftershall be an amount equal to the outstanding principal balance of Term Loan Aon the Adjustment Date after the adjustment of such principal balance inaccordance with the provisions of Section 3.7 hereof, divided by 60.

 

(c)           Borrower shall pay U.S. Bank allDisposition Payments and Equity Payments required under Sections 8.17 and8.19, respectively, for application against the outstanding principal balanceof the Term Loan A in the inverse order of maturity.

 

(d)           Notwithstanding the five-yearamortization schedule set****forth in Section 3.5(b), Borrowershall pay U.S. Bank all outstanding principal, accrued interest and other chargeswith respect to Term Loan A on September 30, 2003.

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## **3.6**                               Term Loan A Fee

 

Concurrently with theexecution of this Agreement, Borrower shall pay U.S. Bank a nonrefundablefee for Term Loan A in the amount of $15,000.

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## **3.7**                               Adjustment of Principal Balance

 

(a)           On the Adjustment Date, theoutstanding principal balance of Term Loan A shall be adjusted to anamount equal to 75 percent of the appraised value of the fixed assets ofBorrower and its domestic Subsidiaries as established in the Appraisal.  In the event that such amount exceeds thethen outstanding principal balance of Term Loan A, then the outstandingprincipal balance of Term Loan A shall be increased by the difference(“Excess Amount”) and the outstanding principal balance of Term Loan Bshall be reduced by the Excess Amount. In the event that such amount is less than the then outstandingprincipal balance of Term Loan A, then the outstanding principal balanceof Term Loan A shall be decreased by the difference (“Deficit Amount”) andthe outstanding principal balance of Term Loan B shall be increased by theDeficit Amount.

 

(b)           Within 10 days of request byU.S. Bank after the Adjustment Date, Borrower shall execute and deliver toU.S. Bank notes to renew Term Note A and Term Note B in suchform as requested by U.S. Bank, in order to accurately reflect theadjusted principal balance of Term Loan A and Term Loan B inaccordance with Section 3.7(a).

 

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# **ARTICLE IV.**                                               TERM LOAN B

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## **4.1**                               Loan Commitment

 

(a)           Subject to and upon the terms andconditions set forth herein and in reliance upon the representations,warranties and covenants of Borrower contained herein or made pursuant hereto,U.S. Bank will lend $8,632,590 (“Term Loan B Commitment Amount”) to Borroweron a term loan basis (“Term Loan B”).

 

(b)           Term Loan A together with TermLoan B constitute renewals of and substitutions for, but not payment of,the “Acquisition Loan” extended by U.S. Bank to Borrower pursuant to theterms of the Existing Credit Agreement. The parties agree that the outstanding principal balance of the“Acquisition Loan” under the Existing Credit Agreement shall constitute aFunding under Term Loan A and Term Loan B for all purposes under thisAgreement and the other Loan Documents.

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## **4.2**                               Use of Proceeds

 

The proceeds of TermLoan A and Term Loan B, together with a portion of the proceeds ofthe Revolving Loan, shall be used solely to renew and refinance the“Acquisition Loan” under the Credit Agreement.

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## **4.3**                               Term Note B

 

Term Loan B shall beevidenced by a promissory note in the form attached hereto as Exhibit C(“Term Note B”).  Term Note Aand Term Note B shall be a renewal of and in substitution for, but not inpayment of, the promissory notes that evidence the “Acquisition Loan” under theExisting Credit Agreement (which, upon satisfaction of the conditions set forthin Article VI, shall be marked “renewed” and retained by U.S. Bankuntil the Term Loan A and Term Loan B have been repaid in full andU.S. Bank’s commitment under the Credit Agreement has terminated).

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## **4.4**                               Interest Rates

 

The unpaid principalbalance of Term Loan B will bear interest at an annual rate equal to3 percent plus the Prime Rate.

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## **4.5**                               Repayment

 

(a)           Borrower shall pay U.S. Bank anamount equal to all accrued interest on Term Loan B on the first day ofeach month until Term Loan B shall have been paid in full, commencing onJune 1, 2002.

 

(b)           Borrower shall make a principalpayment to U.S. Bank in an amount equal to 50 percent of the AdjustedEBITDA for Borrower’s fiscal year ending December 31, 2002.  One-half of such principal payment shall bedue on or before February 28, 2003, and shall be

 

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based uponBorrower’s preliminary fiscal year 2002 financial statements, with theremainder due on July 30, 2003, based upon Borrower’s fiscal year 2002audited financial statements.

 

(c)           In the event that U.S. Bankextends the maturity date of Term Loan B (which extension shall be inU.S. Bank’s sole and absolute discretion), Borrower shall make a principalpayment to U.S. Bank in an amount equal to 50 percent of the AdjustedEBITDA for each fiscal year of Borrower. One-half of each such principal payment shall be due on or beforeFebruary 28 of each year, and shall be based upon Borrower’s preliminaryfinancial statements for the prior fiscal year, with the remainder due onJuly 30, based upon Borrower’s audited financial statements for the priorfiscal year.  In no event shall thisprovision be construed as a commitment of U.S. Bank to extend the maturitydate of Term Loan B.

 

(d)           Borrower shall pay U.S. Bank allDisposition Payments and Equity Payments required under Sections 8.17 and8.19, respectively, for application against the outstanding principal balanceof the Term Loan B in the inverse order of maturity.

 

(e)           Borrower shall pay U.S. Bank alloutstanding principal, accrued interest and other charges with respect to TermLoan B on September 30, 2003.

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## **4.6**                               Term Loan B Fee

 

(a)           Concurrently with the execution ofthis Agreement, Borrower shall pay U.S. Bank a nonrefundable fee for TermLoan B in the amount of $21,600. In addition, on December 1, 2002, Borrower shall pay U.S. Banka nonrefundable fee for Term Loan B in an amount of equal to..25 percent of the outstanding principal balance of Term Loan B onsuch datein the event that the Funded Debt Ratio is greater than 3.5:1.0 asof September 30, 2002, for the four trailing fiscal quarters then ended.

 

(b)           Commencing March 1, 2003, and onfirst day of each June, September, December and March thereafter until TermLoan B is paid in full, Borrower shall pay U.S. Bank a nonrefundablefee for Term Loan B in an amount equal to .125 percent of theoutstanding principal balance of Term Loan B as of each such payment datein the event that the Funded Debt Ratio is greater than 3.5:1.0 as of the lastday of the fiscal quarter immediately preceding the applicable payment date forthe four trailing fiscal quarters then ended.

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# **ARTICLE V**                                                      LETTERS OF CREDIT

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## **5.1**                               Commitment

 

Subject to and upon theterms and conditions set forth herein and in reliance upon the representations,warranties and covenants of Borrower contained herein or made pursuant hereto,U.S. Bank will issue standby and commercial letters of credit (the “Lettersof Credit”) for the benefit of Borrower and the Subsidiaries in formsacceptable to U.S. Bank from time to time and for the period ending on thelast day of the Commitment Period.  Theexpiration

 

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date of any Letterof Credit shall not extend beyond the Commitment Period.  The maximum aggregate amount of outstandingLetters of Credit shall not exceed, at any one time, $5,000,000.  The maximum aggregate amount of outstandingLetters of Credit plus the aggregate outstanding amount of principal andinterest on the Revolving Loan shall not exceed, at any one time, the RevolvingLoan Commitment Amount.  The partiesagree that the outstanding letters of credit under the Existing CreditAgreement shall constitute Letters of Credit for all purposes under thisAgreement and the other Loan Documents.

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## **5.2**                               Letter of Credit Fees

 

Borrower shall pay toU.S. Bank a fee for the issuance of each Letter of Credit in an amountequal to U.S. Bank’s standard fee plus U.S. Bank’s customary fees andhandling charges.  Such fees may be paidto U.S. Bank by U.S. Bank’s making a Funding under the RevolvingLoan.

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## **5.3**                               Draws on Letters of Credit

Any draws on Letters ofCredit issued by U.S. Bank pursuant to the terms of this Agreement shallbe paid by Borrower immediately upon receipt of notice from U.S. Bank ofsuch draw.  So long as Borrower meetsthe conditions to Fundings under the Loans, draws on Letters of Credit may bepaid from Fundings under the Revolving Loan. In the event Borrower fails to make such immediate repayment,U.S. Bank shall be authorized to consider any such draws as Fundings underthe Revolving Loan.  In the event thatthere exists a Default or Event of Default under this Agreement on the date ofany such draw, such draw will nevertheless constitute a Funding on theRevolving Loan and shall not constitute a waiver of any of U.S. Bank’srights hereunder or under any of the other Loan Documents.  In the event that any Letters of Credit areoutstanding upon the expiration of the Commitment Period for the RevolvingLoan, Borrower shall, upon U.S. Bank’s request, deposit withU.S. Bank in a special demand deposit account set up by Borrower, anamount of cash necessary to cover all outstanding Letters of Credit.  Borrower hereby grants U.S. Bank asecurity interest in any such demand deposit account and gives U.S. Bankthe authority to charge against such account upon a draw on outstanding Lettersof Credit in an amount equal to the amount paid by U.S. Bank to the beneficiariesof such Letters of Credit.  In the eventBorrower does not establish such an account, or in the event the amount offunds in such account are insufficient to satisfy the obligations ofU.S. Bank under all outstanding Letters of Credit, then all payments madeby U.S. Bank under such Letters of Credit shall automatically constituteFundings under the Revolving Loan, notwithstanding the fact that the CommitmentPeriod for the Revolving Loan has expired. U.S. Bank shall maintain possession of the Revolving Note until allLetters of Credit have either expired, been canceled or been paid byU.S. Bank and U.S. Bank has been reimbursed in full.

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# **ARTICLE VI.**                                               GENERAL PROVISIONS APPLICABLE TO THELOANS

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## **6.1**                               Manner of Payment

 

All sums payable toU.S. Bank pursuant to this Agreement shall be paid directly toU.S. Bank in immediately available United States funds.  Whenever any payment to be made hereunder oron any of the Notes becomes due and payable on a day that is not a BusinessDay, such payment may be made on the next succeeding Business Day and suchextension of time shall in such case be included in computing interest on suchpayment.

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## **6.2**                               Statements

 

U.S. Bank shall sendBorrower statements of all amounts due hereunder; the statements shall beconsidered correct and conclusively binding, absent manifest error, on Borrowerunless Borrower notifies U.S. Bank to the contrary within 30 days ofreceipt of any statement that Borrower claims to be incorrect.  Borrower agrees that accounting entries madeby U.S. Bank with respect to Borrower’s loan accounts shall constituteevidence of all Fundings made under and payments made on any of the Loans.  Without limiting the methods by whichU.S. Bank may otherwise be entitled by Applicable Law to make demand forpayment of the Loans upon Borrower, Borrower agrees that any statement, invoiceor payment notice from U.S. Bank to Borrower with respect to any principalor interest obligation of Borrower to U.S. Bank shall be deemed to be ademand for payment in accordance with the terms of such statement, invoice orpayment notice.  Under no circumstancesshall a demand by U.S. Bank for partial payment of principal or interest orboth be construed as a waiver by U.S. Bank of its right thereafter todemand and receive payment (in part or in full) of any remaining principal orinterest obligation.

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## **6.3**                               Book Entry Loan Account

 

U.S. Bank shallestablish a book entry loan account for each of the Loans in whichU.S. Bank will make debit entries of all Fundings pursuant to the terms ofthis Agreement.  U.S. Bank willalso record in the applicable loan account, in accordance with customarybanking practices, all interest and other charges, expenses and other itemsproperly chargeable to Borrower, if any, together with all payments made byBorrower on account of the Indebtedness evidenced by Borrower’s respective loanaccounts and all other sums credited to the respective loan accounts.  The debit balance of Borrower’s respectiveloan accounts shall reflect the amount of Borrower’s Indebtedness toU.S. Bank from time to time by reason of advances, charges, payments orcredits.

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## **6.4**                               Lockbox; Bank Control Account

 

(a)           So long as any amounts remainoutstanding under any of the Loans, there shall be established for Borrower alockbox into which all payments made to Borrower by any Person shall bedeposited.

 

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(b)           So long as any amounts remainoutstanding under any of the Loans, there shall be established for Borrower abank control account at U.S. Bank into which all funds obtained byBorrower from the collection of accounts receivable, from the sale of inventoryor services or otherwise during the terms of the Loans (including all depositsin the lockbox referred to in Section 6.4(a)) shall be deposited.  U.S. Bank and Borrower hereby agreethat U.S. Bank may credit the bank control account in order to make anypayments under the Loans that Borrower is required to make pursuant to theterms of this Agreement and in order to reduce the outstanding principalbalance of the Revolving Loan.

 

## **6.5**                               Computations of Interest

 

All computations ofinterest shall be based on a 360–day year for the actual number of dayselapsed.

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## **6.6**                               Default Interest

 

Upon the occurrence andduring the continuance of any Event of Default, U.S. Bank may, at itsoption, raise the interest rate charged on the Loans to a rate of up to thethen applicable rate plus 4 percent per annum from the date of theoccurrence of the Event of Default until the Event of Default is cured orwaived by U.S. Bank or, absent cure or waiver, until the Loans are repaidin full.

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## **6.7**                               Maximum Interest Rate

 

Notwithstanding anyprovision contained herein or in the Notes, the total liability of Borrower forpayment of interest pursuant hereto, including late charges, shall not exceedthe maximum amount of interest permitted by Applicable Law to be charged,collected or received from Borrower; and if any payments by Borrower includeinterest in excess of that maximum amount, U.S. Bank shall apply theexcess first to reduce the unpaid balance of the Loans, then to reduce thebalance of any other Indebtedness of Borrower to U.S. Bank.  If there is no such Indebtedness, the excessshall be returned to Borrower.

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## **6.8**                               Late Charge

 

If any payment ofprincipal or interest required under any of the Loans is 15 days or morepast due, Borrower will be charged a late charge of 5 percent of thedelinquent payment or $5, whichever is greater, for each such late payment.  The 15–day period provided for hereinshall not be construed as a waiver of any Default or Event of Default resultingfrom any late payment under any of the Loans.

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## **6.9**                               Prepayments

 

Borrower shall have theright, at any time, to prepay the whole or any part of any Prime Rate Loanwithout prepayment charges concurrently with any regular monthly payment.  Borrower may not prepay all or any portionof any LIBOR Rate Loan whether voluntarily, by acceleration or otherwise unlessconcurrently with such prepayment Borrower

 

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paysU.S. Bank all amounts due in accordance with Section 2.4 orSection 3.4, as applicable.  Allprepayments shall be applied first to accrued interest on the Loans and then tothe outstanding principal balance of the Loans in the inverse order ofmaturity.

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## **6.10**                        Extensions, Renewals and Modifications

 

Any extensions, renewals,and modifications of the Loans shall be governed by the terms and conditions ofthis Agreement and the other Loan Documents unless otherwise agreed to inwriting by U.S. Bank and Borrower.

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## **6.11**                        Increased Costs

 

If, as a result of anylaw, rule, regulation, treaty or directive, or any change therein or in theinterpretation or administration thereof, or compliance by U.S. Bank withany request or directive (whether or not having the force of law) from anycourt, central bank, governmental authority, agency or instrumentality, orcomparable agency:

 

(a)           Any tax, duty or other charge to anyof the Loans is imposed thereunder, modified or deemed applicable, or the basisof taxation of payments to U.S. Bank of interest or principal of the Loansor of the commitment fees (other than taxes imposed on the overall net incomeof U.S. Bank by the jurisdiction in which has its principal office) ischanged;

 

(b)           Any reserve, special deposit, specialassessment or similar requirement against assets of, deposits with, or for theaccount of, or credit extended by, U.S. Bank is imposed, modified ordeemed applicable;

 

(c)           Any increase in the amount of capitalrequired or expected to be maintained by U.S. Bank or any person or entitycontrolling U.S. Bank is imposed, modified or deemed applicable; or

 

(d)           Any other condition affecting any ofthe Loans is imposed on U.S. Bank or the relevant funding markets;

 

and U.S. Bankdetermines that, by reason thereof, the cost to U.S. Bank of making ormaintaining the Loans is increased, or the amount of any sum receivable byU.S. Bank hereunder or under any of the Notes is reduced;

 

then,Borrower shall pay to U.S. Bank upon demand such additional amount oramounts as will compensate U.S. Bank (or the controlling person or entityin the instance of (c) above) for such additional costs or reduction (providedthat U.S. Bank has not been compensated for such additional cost orreduction in the calculation of the rate applicable to LIBOR Rate Loans).  Determinations by U.S. Bank forpurposes of this Section 6.11 of the additional amounts required to compensateU.S. Bank shall be conclusive in the absence of manifest error.  In determining such amounts, U.S. Bankmay use any reasonable averaging, attribution and allocation methods.

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## **6.12**                        LIBOR Rate Loan Provisions

 

(a)           Borrower may obtain LIBOR rate quotesfrom U.S. Bank between 8 a.m. and 12 noon (Seattle, Washingtontime) on any New York banking day.

 

(b)           There shall not be outstanding morethan three LIBOR Rate Loans under the Revolving Loan and three LIBORRate Loans under Term Loan A.

 

(c)           Notwithstanding any other term ofthis Agreement, Borrower may not select the LIBOR rate if an Event of Defaulthereunder has occurred and is continuing.

 

(d)           Nothing contained in this Agreement,including without limitation the determination of any monthly term for a LIBORRate Loan or U.S. Bank’s quotation of any LIBOR rate, shall be construedto prejudice U.S. Bank’s right to decline to make any requested Fundingprovided that U.S. Bank acts in accordance with the provisions of thisAgreement.

## ** **

## **6.13**                        Deposits Unavailable or Interest RateUnascertainable or Inadequate; Impracticability

 

If U.S. Bankreasonably determines (which determination shall be conclusive and binding onthe parties hereto) that:

 

(a)           Deposits of the necessary amount forthe relevant monthly term for any LIBOR Rate Loan are not available toU.S. Bank in the relevant markets or that, by reason of circumstancesaffecting such market, adequate and reasonable means do not exist forascertaining the LIBOR rate;

 

(b)           The LIBOR rate will not adequatelyand fairly reflect the cost to U.S. Bank of making or funding the LIBORRate Loan for a relevant monthly term; or

 

(c)           The making or funding of LIBOR RateLoans has become impracticable as a result of any event occurring after thedate of this Agreement which, in the opinion of U.S. Bank, materially andadversely affects such LIBOR Rate Loan or U.S. Bank’s commitment to makesuch LIBOR Rate Loan or the relevant market;

 

U.S. Bank shallpromptly give notice of such determination to Borrower, and (i) any noticeof a new LIBOR Rate Loan previously given by Borrower and not yet borrowed orconverted shall be deemed to be a notice to make a Prime Rate Loan, and(ii) Borrower shall be obligated to either prepay in full any outstandingLIBOR Rate Loan, on the expiration date of the current LIBOR Rate Loan withrespect thereto or convert any such LIBOR Rate Loan to a Prime Rate Loan onsuch expiration date.

## ** **

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** **

## **6.14**                        Changes in Law Rendering LIBOR RateLoan Unlawful

 

If at any time due to theadoption of any law, rule, regulation, treaty, or directive, or any changetherein or in the interpretation or administration thereof by any court,central bank, governmental authority, agency, or instrumentality, or comparableagency charged with the interpretation or administration thereof, or for anyother reason arising subsequent to the date of this Agreement, it shall becomeunlawful or impossible for U.S. Bank to make or fund any LIBOR Rate Loan,the obligation of U.S. Bank to provide such LIBOR Rate Loan shall, uponthe happening of such event, forthwith be suspended for the duration of suchillegality or impossibility.  If anysuch event shall make it unlawful or impossible for U.S. Bank to continueany LIBOR Rate Loan previously made by it hereunder, U.S. Bank shall, uponthe happening of such event, notify Borrower thereof in writing, and Borrowershall, at the time notified by U.S. Bank, either convert each suchunlawful LIBOR Rate Loan to a Prime Rate Loan or repay such LIBOR Rate Loan infull, together with accrued interest thereon, subject to the provisions ofSection 2.4 or Section 3.4, as applicable.

## ** **

## **6.15**                        Discretion of U.S. Bank as toManner of Funding

 

Notwithstanding anyprovision of this Agreement to the contrary, U.S. Bank shall be entitledto fund and maintain its funding of all or any part of the Loans in any mannerit elects; it being understood, however, that for purposes of this Agreement,all determinations hereunder shall be made as if U.S. Bank had actuallyfunded and maintained each LIBOR Rate Loan during the monthly term for suchLIBOR Rate Loan through the purchase of deposits having a term corresponding tosuch monthly term and bearing an interest rate equal to the LIBOR rate for suchmonthly term (whether or not U.S. Bank shall have granted anyparticipations in such LIBOR Rate Loan).

## ** **

## **6.16**                        Collateral; Existing SecurityDocuments

 

(a)           As security for repayment of all ofthe Loans and all other Indebtedness of Borrower to U.S. Bank,(i) Borrower and each Guarantor shall grant to U.S. Bank a first andexclusive Lien in substantially all of its personal property, tangible andintangible, including without limitation all accounts, general intangibles,chattel paper, documents, inventory, equipment, leasehold interests,trademarks, patents, copyrights, software, trade names, instruments, investmentproperty now owned or hereafter acquired, and proceeds thereof, and(ii) Borrower and each Guarantor shall grant to U.S. Bank, a firstand exclusive lien against all of the capital stock of their respectivedomestic Subsidiaries (now and hereafter formed) and 65 percent of thecapital stock of their respective foreign Subsidiaries (now and hereafterformed).

 

(b)           The parties acknowledge and agreethat all security agreements, pledge agreements, financing statements, andother Loan Documents executed in connection with the Existing Credit Agreement,creating, evidencing, or perfecting U.S. Bank’s security interests in andliens against the Collateral, shall remain in full force and effect and shallsecure all of Borrower’s Indebtedness to U.S. Bank, as such Indebtednessmay be amended or

 

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restated in thisAgreement.  Borrower agrees to execute,and cause each Guarantor to execute, such amendments to any such LoanDocuments, or such amended and restated security agreements or pledgeagreements, as are deemed necessary by U.S. Bank to reflect the terms ofthis Agreement.

# ** **

# **ARTICLE VII.**                                           CONDITIONS PRECEDENT FOR FUNDINGS UNDERTHE LOANS

## ** **

## **7.1**                               Conditions Precedent for InitialFunding

 

U.S. Bank shall notbe required to make the initial Funding under any of the Loans unless or untilthe following conditions have been fulfilled to the satisfaction ofU.S. Bank:

 

(a)           U.S. Bank shall have receivedthis Agreement, the Revolving Note, Term Note A, and Term Note B,duly executed and delivered by the respective parties thereto.

 

(b)           No Default or Event of Defaulthereunder shall exist, and after having given effect to the requested Funding,no Default or Event of Default shall exist.

 

(c)           All representations and warranties ofBorrower contained herein or otherwise made in writing in connection herewithshall be true and correct in all material respects with the same effect asthough such representations and warranties had been made on and as of the dateof the initial Funding.

 

(d)           All corporate proceedings ofBorrower, Guarantors and each other Subsidiary shall be satisfactory in formand substance to U.S. Bank, and U.S. Bank shall have received allinformation and copies of all documents, including records of all corporateproceedings, that U.S. Bank has requested in connection therewith, suchdocuments where appropriate to be certified by proper corporate authorities orGovernmental Bodies.  Borrower shallprovide U.S. Bank with the following documents prior to or upon theexecution of this Agreement:

 

(i)            Copies of thearticles or certificate of incorporation of Borrower, Guarantors, and eachother Subsidiary, together with all amendments thereto, certified by Borrowerto be true and complete;

 

(ii)           A certificate ofauthority/existence or good standing (as the case may be) for Borrower,Guarantors, and each other Subsidiary in their respective states ofincorporation and, in the case of Borrower and Guarantors, in the state ofWashington, dated within 30 days of the date of the execution of thisAgreement; and

 

(iii)          A certifiedresolution of the directors and incumbency certificate for Borrower and eachGuarantor, in the form attached hereto as Exhibit D.

 

(e)           U.S. Bank shall have receivedsuch evidence deemed necessary by U.S. Bank that U.S. Bank’s securityinterests in the Collateral constitute first priority and exclusive securityinterests, except as otherwise provided herein.

## ** **

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## **7.2**                               Conditions Precedent to EachSubsequent Funding

 

The obligation ofU.S. Bank to make any Funding subsequent to the initial Funding hereunderis subject to the fulfillment, to the satisfaction of U.S. Bank, of thefollowing:

 

(a)           The conditions set forth inSection 7.1 hereof shall have been previously satisfied, andU.S. Bank shall have received evidence satisfactory to U.S. Bank ofsatisfaction thereof;

 

(b)           U.S. Bank shall have received aBorrowing Notice for each requested Funding under the applicable Loan;

 

(c)           There shall be executed and deliveredto U.S. Bank such further instruments, agreements and documents, as may bereasonably necessary or proper in the opinion of U.S. Bank to confirm theobligations of Borrower to U.S. Bank hereunder, the grant of securitytherefor and the proper use of the proceeds of all Fundings;

 

(d)           The representations and warranties ofBorrower in Article X hereof shall be true on the date of each Fundingwith the same force and effect as if made on and as of that date;

 

(e)           No Default or Event of Default shallexist, and after having given effect to the requested Funding, no Default orEvent of Default shall exist; and

 

(f)            To the extent not previouslydelivered, all other documents, agreements and instruments from or with respectto Borrower or any other Person that may be called for hereunder shall be dulyexecuted and delivered to U.S. Bank, including, but not limited to, alldocuments, agreements and instruments deemed necessary by U.S. Bank toperfect its security interest in Collateral acquired after the date of thisAgreement.  For the purposes of thisAgreement, the waiver of delivery of any document, agreement or instrument fromor with respect to Borrower or any other Person does not constitute acontinuing waiver with respect to the obligation to fulfill the conditionsprecedent to each Funding hereunder.

# ** **

# **ARTICLE VIII.**                                       AFFIRMATIVE COVENANTS

 

Borrower hereby covenantsand agrees that so long as this Agreement is in effect, and until the Loans,together with interest thereon, and all other obligations incurred hereunderare paid or satisfied in full, Borrower shall:

## ** **

## **8.1**                               Financial Data

 

Keep its books of accountin accordance with generally accepted accounting principles, consistentlyapplied, and furnish to U.S. Bank:

 

(a)           As soon as practicable and in anyevent within 30 days after the close of each calendar month, the followingunaudited financial statements of Borrower on a consolidated

 

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basis, for eachsuch calendar month, all in reasonable detail and certified by Borrower to betrue and correct:  balance sheet andstatement of income.

 

(b)           As soon as practicable and in anyevent within 60 days after the close of each fiscal quarter of Borrower,the following unaudited financial statements of Borrower on a consolidatedbasis, for each such fiscal quarter, all in reasonable detail and certified byBorrower to be true and correct: balance sheet, statement of income and statement of cash flows.  There shall be included in such quarterlyfinancial report (i) a calculation of the financial covenants provided forin Article IX hereof and (ii) a copy of Borrower’s 10 Q reportfor such fiscal quarter.

 

(c)           As soon as practicable and in anyevent within 90 days after the close of each fiscal year of Borrower,(i) Borrower’s 10 K report for such fiscal year and (ii) thefollowing financial statements of Borrower, setting forth the correspondingfigures for the previous fiscal year in comparative form where appropriate, allin reasonable detail and audited (without any qualification or exception deemedmaterial by U.S. Bank) by Borrower’s current independent certified publicaccountant or such other independent certified public accountants selected byBorrower and satisfactory to U.S. Bank: balance sheet, statement of income and statement of cash flows.  Borrower shall provide U.S. Bank with acopy of its independent certified public accountants’ management letter orother similar report or correspondence to Borrower.

 

(d)           As soon as practicable and in anyevent within 60 days after the close of each fiscal quarter of Borrower,certificates signed by Borrower, stating that during such period no Default orEvent of Default existed or if any such Default or Event of Default existed,specifying the nature thereof, the period of existence thereof and what actionBorrower proposes to take or has taken with respect thereto, and that duringsuch period Borrower was in compliance with all of the financial covenants setforth in Article IX hereof; and promptly upon the occurrence of anyDefault or Event of Default, a certificate signed by Borrower, specifying thenature thereof, the period of existence thereof and what action Borrower proposesto take or has taken with respect thereto.

 

(e)           As soon as practicable and in anyevent within 30 days of the end of each calendar month, accountsreceivable and accounts payable agings for each such month in a form and insuch detail as is acceptable to U.S. Bank.

 

(f)            Upon request by U.S. Bank,copies of all reports relative to the operations of Borrower and its Affiliatesfiled with any Governmental Body.

 

(g)           As soon as practicable and in anyevent within 90 days after the beginning of each fiscal year of Borrower,a summary projecting all Capital Expenditures to be made or committed to duringsuch fiscal year with respect to Borrower and the Subsidiaries.

 

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(h)           With reasonable promptness, such otherinformation regarding the business, operations and financial condition ofBorrower and the Subsidiaries as U.S. Bank may from time to timereasonably request.

## ** **

## **8.2**                               Licenses and Permits

 

Maintain all GovernmentalApprovals and all related or other material agreements necessary for Borroweror the Subsidiaries to operate their businesses, as they now exist or as theymay be modified or expanded.  Borrowerwill at all times comply with all Applicable Laws relating to the operations,facilities or activities of Borrower or the Subsidiaries.

## ** **

## **8.3**                               Maintenance of Properties

 

Keep Borrower’s and theSubsidiaries’ properties in good repair and in good working order andcondition, in a manner consistent with past practices and comparable toindustry standards; from time to time make all appropriate and proper repairs,renewals, replacements, additions and improvements thereto; and keep allequipment that may now or in the future be subject to compliance with anyApplicable Laws in full compliance with such Applicable Laws.

## ** **

## **8.4**                               Payment of Charges

 

Duly pay and dischargeall material (a) taxes, assessments, levies and any other charges ofGovernmental Bodies imposed on or against Borrower or any Subsidiary or itsproperty or assets, or upon any property leased by Borrower or any Subsidiary,prior to the date on which penalties attached thereto, unless and to the extentonly that such taxes, assessments, levies and any other charges of GovernmentalBodies, after written notice thereof having been given to U.S. Bank, arebeing contested in good faith and by appropriate proceedings; (b) claimsallowed by Applicable Laws, whether for labor, materials, rentals or anythingelse, which could, if unpaid, become a lien or charge upon Borrower’s or anySubsidiary’s property or assets or the outstanding capital stock of Borrower orany Subsidiary or adversely affect the facilities or operations of Borrower orany Subsidiary (unless and to the extent only that the validity thereof isbeing contested in good faith and by appropriate proceedings after writtennotice thereof has been given to U.S. Bank); (c) trade bills inaccordance with the terms thereof or generally prevailing industry standards;and (d) other Indebtedness heretofore or hereafter incurred or assumed byBorrower, unless such Indebtedness be renewed or extended.  In the event any charge is being contestedby Borrower or any Subsidiary as allowed above, Borrower shall establishadequate reserves against possible liability therefor.

## ** **

## **8.5**                               Insurance

 

(a)           Maintain insurance upon Borrower’sand the Subsidiaries’ properties and business insuring against such risks asU.S. Bank shall reasonably determine from time to time.  Borrower shall cause each insurance policyissued in connection therewith to provide and shall cause the insurer issuingsuch policy to certify to U.S. Bank that (i) if such

 

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insurance isproposed to be canceled or materially changed for any reason whatsoever, suchinsurer will promptly notify U.S. Bank, and such cancellation or changeshall not be effective as to U.S. Bank for 30 days after receipt byU.S. Bank of such notice, unless the effect of the change is to extend orincrease coverage under the policy; (ii) U.S. Bank will have theright at its election to remedy any default in the payment of premiums within30 days of notice from the insurer of the default; and (iii) losspayments from casualty/property loss insurance in excess of $100,000 in eachinstance will be payable jointly to Borrower and U.S. Bank as securedparty or otherwise as its interest may appear.

 

(b)           From time to time upon request byU.S. Bank, promptly furnish or cause to be furnished to U.S. Bankevidence, in form and substance satisfactory to U.S. Bank, of themaintenance of all insurance, indemnities or bonds required by thisSection 8.5 or by any license, lease or other agreement to be maintained,including, but not limited to, such originals or copies as U.S. Bank mayrequest of policies, certificates of insurance, riders, assignments andendorsements relating to the insurance and proof of premium payments.

## ** **

## **8.6**                               Maintenance of Records

 

Keep at all times booksof account and other records in which full, true and correct entries will bemade of all dealings or transactions in relation to the business and affairs ofBorrower and the Subsidiaries.

## ** **

## **8.7**                               Inspection

 

Allow any representativeof U.S. Bank to visit and inspect any of the properties of Borrower andthe Subsidiaries, to examine the books of account and other records and files ofBorrower and the Subsidiaries, to make copies thereof, and to discuss theaffairs, business, finances and accounts of Borrower and the Subsidiaries withtheir officers, employees and accountants, all at such reasonable times and asoften as U.S. Bank may desire. This right of inspection shall specifically include U.S. Bank’scollateral and financial examinations.

## ** **

## **8.8**                               Hazardous Substances

 

(a)           Borrower hereby covenants and agreesthat so long as any Indebtedness of Borrower to U.S. Bank is outstanding:

 

(i)            Borrower will notpermit its property or that of the Subsidiaries or any portion thereof to be asite for the storage, use, generation, manufacture, disposal or transportationof Hazardous Materials in violation of Hazardous Materials Laws;

 

(ii)           Borrower will notpermit any Hazardous Materials to be disposed of off its property or that ofthe Subsidiaries other than in properly licensed disposal sites;

 

(iii)          Borrower, atBorrower’s sole cost and expense, will keep and maintain its property and thatof the Subsidiaries and each portion thereof in compliance with

 

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and shall not cause orpermit its property or any portion thereof to be in violation of any HazardousMaterials Laws; and

 

(iv)          Borrower willimmediately advise U.S. Bank in writing of any Hazardous Material Claim.

 

(b)           Borrower agrees to indemnifyU.S. Bank and hold U.S. Bank harmless from and against any and allclaims, demands, damages, losses, liens, liabilities, penalties, fines,lawsuits and other proceedings and costs and expenses (including attorneys’fees), arising directly or indirectly from or out of or in any way connectedwith (i) the accuracy of the representations contained inSection 10.18 hereof; (ii) any activities on the property of Borroweror any Subsidiary during their ownership, possession or control thereof whichdirectly or indirectly results in such property or any other property becomingcontaminated with Hazardous Materials; (iii) the discovery of HazardousMaterials on the property of Borrower or any Subsidiary; (iv) the cleanupof Hazardous Materials from the property of Borrower or any Subsidiary; and(v) the discovery of Hazardous Materials or the cleanup of HazardousMaterials from adjacent or other property that has become contaminated as aresult of any activity on the property of Borrower or any Subsidiary.  As between Borrower and U.S. Bank,Borrower acknowledges that it will be solely responsible for all costs and expensesrelating to the cleanup of Hazardous Materials from its property, the propertyof the Subsidiaries, or from any other properties that become contaminated withHazardous Materials as a result of activities on or the contamination of theproperty of Borrower or any Subsidiary.

 

(c)           Borrower’s obligations under thisSection 8.8 are unconditional and shall not be limited by any nonrecourseor other limitations of liability provided for in the Loan Documents.  The representations, warranties and covenantsof Borrower set forth in this Section 8.8 and Section 10.18 hereof(including, but not limited to, the indemnity provided for inSection 8.8(b) hereof) shall survive the closing and repayment of theLoans to U.S. Bank; and, to the extent permitted by Applicable Lawsand Hazardous Materials Laws, shall survive the transfer of its property byforeclosure proceedings (whether judicial or nonjudicial), deed in lieu offoreclosure or otherwise.  Borroweracknowledges and agrees that its covenants and obligations hereunder areseparate and distinct from its obligations under the Loans and the LoanDocuments.

## ** **

## **8.9**                               Corporate Existence

 

Maintain and preserve thecorporate existence of Borrower and the Subsidiaries.

## ** **

## **8.10**                        Notice of Disputes and Other Matters

 

Promptly give writtennotice to U.S. Bank of:

 

(a)           Any citation, order to show cause orother legal process or order that could have a material adverse effect onBorrower, directing Borrower to become a party to or to appear at anyproceeding or hearing by or before any Governmental Body that has granted to

 

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Borrower anyGovernmental Approval, and include with such notice a copy of any suchcitation, order to show cause, or other legal process or order;

 

(b)           Any (i) refusal, denial,threatened denial or failure by any Governmental Body to grant, issue, renew orextend any material Governmental Approval; (ii) proposed or actualrevocation, termination or modification (whether favorable or adverse) of anyGovernmental Approval by any Governmental Body; (iii) dispute or otheraction with regard to any Governmental Approval by any Governmental Body;(iv) notice from any Governmental Body of the imposition of any materialfines or penalties or forfeitures; or (v) threats or notice with respect toany of the foregoing or with respect to any proceeding or hearing that mightresult in any of the foregoing;

 

(c)           Any dispute concerning or anythreatened nonrenewal or modification of any material lease for real orpersonal property to which Borrower is a party; or

 

(d)           Any actions, proceedings or claims ofwhich Borrower may have notice that may be commenced or asserted againstBorrower or any Subsidiary in which the amount involved is $100,000 or more andis not fully covered by insurance or which, if not solely a claim for monetarydamages, could, if adversely determined, have a material adverse effect onBorrower.

## ** **

## **8.11**                        Exchange of Note

 

Upon receipt of a writtennotice of loss, theft, destruction or mutilation of a Note, and uponsurrendering such Note for cancellation if mutilated, execute and deliver a newNote or a Note of like tenor in lieu of such lost, stolen, destroyed ormutilated Note.  Any Note issuedpursuant to this Section 8.11 shall be dated so that neither gain nor lossof interest shall result therefrom.

## ** **

## **8.12**                        Maintenance of Liens

 

At all times maintain theliens and security interests provided under or pursuant to this Agreement asvalid and perfected first liens and security interests on the property andassets intended to be covered thereby. Except as contemplated under Section 9.5, hereof Borrower shalltake all action requested by U.S. Bank necessary to assure thatU.S. Bank has valid and exclusive liens and security interests in allCollateral.

## ** **

## **8.13**                        Other Agreements

 

Comply with all covenantsand agreements set forth in or required pursuant to any of the other LoanDocuments.

## ** **

## **8.14**                        After-Acquired Collateral

 

(a)           Within ten days from the date of thisAgreement and on or before the 30th day of June of each year duringthe term of the Loans, Borrower shall deliver to U.S. Bank an

 

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updated scheduleof all patents, trademarks, trade names, copyrights, and similar intellectualproperty of Borrower and each Guarantor (which schedule shall include all applicationsfor the foregoing), for use by U.S. Bank in perfecting its securityinterest in such Collateral.

 

(b)           Without the need for any request byU.S. Bank, execute and deliver to U.S. Bank appropriate instrumentsin order to effectuate the proper granting and perfection of a first prioritysecurity interest in or assignment of all property to U.S. Bank, whetherpersonal, real or mixed, hereafter acquired by Borrower or any Guarantor,concurrently with the acquisition thereof.

## ** **

## **8.15**                        Further Assurances

 

(a)           Within ten days of request byU.S. Bank, deliver to U.S. Bank the following:

 

(i)            A security agreement in form andsubstance acceptable to U.S. Bank, duly executed and delivered by Borrowerand each Guarantor, granting to U.S. Bank a first priority and exclusivesecurity interest in all of the personal property of Borrower or Guarantor (asapplicable), whether tangible or intangible, now owned or hereafter acquired(“Security Agreements”), ogether with landlord waivers executed and deliveredby Borrower’s and Guarantors’ landlords in a form reasonably designated byU.S. Bank**.**

 

(ii)           A pledge agreement in form andsubstance acceptable to U.S. Bank, (“Pledge Agreement”), duly executed anddelivered by Borrower and any Subsidiary that holds an equity interest in anyother Subsidiary, pledging to U.S. Bank a first priority Lien against allof the outstanding capital stock and other equity interests of all domesticSubsidiaries and 65 percent of all of the outstanding capital stock andother equity interests of all foreign Subsidiaries, together with an assignmentseparate from certificate for each share certificate pledged, the originals ofall share certificates representing the stock pledged thereunder and such otherinstruments, documents, opinion letters and other documentation reasonablyrequested by U.S. Bank.

 

(iii)          Such financing statements and otherdocuments deemed necessary by U.S. Bank to perfect the security interestgranted to U.S. Bank, together with an Article 9 certificate in aform designated by U.S. Bank, all duly executed and delivered by Borrowerand Guarantors.

 

(iv)          Such assignments of trademarks, tradenames, service marks, patents and applications therefor as deemed necessary byU.S. Bank in order to perfect a security interest in such Collateral, allduly executed and delivered by Borrower and Guarantors.

 

(v)           A guaranty in form and substanceacceptable to U.S. Bank, duly executed and delivered by each Guarantor(“Guaranties”).

 

(vi)          In connection with the execution anddelivery of this Agreement and the related documents, an opinion addressed toU.S. Bank in form and substance acceptable to U.S. Bank, from counselof Borrower, dated as of the date of this Agreement.

 

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(b)           Within ten days of request byU.S. Bank, duly execute and deliver or cause to be duly executed anddelivered to U.S. Bank such further instruments, agreements and documentsand do or cause to be done such further acts as may be necessary or proper inthe opinion of U.S. Bank to carry out more effectively the provisions andpurpose of this Agreement and the other Loan Documents, including, withoutlimitation lockbox agreements and sweep account agreements.

## ** **

## **8.16**                        Maintenance of Bank Accounts

 

As security for repaymentof the Loans, maintain its principal depository accounts with U.S. Bankand effectuate the transfer of such accounts within a reasonable period of timeafter execution of this Agreement. Borrower hereby grants to U.S. Bank a security interest in all suchaccounts in order to secure the obligations of Borrower hereunder.

## ** **

## **8.17**                        Disposition of Assets

 

Pay to U.S. Bank forapplication against the Loans the proceeds of any sale or other dispositions ofany asset of Borrower or any Guarantor (excluding sales of inventory in theordinary course of business and the sale of any assets for less than $5,000)(“Disposition Payment”).  AllDisposition Payments shall be due concurrently with the receipt by Borrower orany Guarantor of the proceeds of the disposition of the asset giving rise tothe requirement for the Disposition Payment. Disposition Payments shall be applied to the outstanding principalbalance of the Loans, in the inverse order of maturity, as follows:  (a) first, to reduce the outstandingprincipal balance of Term Loan B, (b) second, to reduce theoutstanding principal balance of Term Loan A, and (c) third, toreduce the outstanding principal balance of the Revolving Loan, with acorresponding permanent reduction in the Revolving Loan Commitment Amount.

## ** **

## **8.18**                        Appraisal

 

On or before May 31,2002, cause to be delivered to U.S. Bank an independent appraisal of thefixed assets of Borrower and the Guarantors (the “Appraisal”).  The Appraisal shall be addressed toU.S. Bank, prepared by an appraiser acceptable to U.S. Bank, andsubject to U.S. Bank’s approval. The Appraisal shall be at Borrower’s sole cost.

## ** **

## **8.19**                        Issuance of Equity

 

Concurrently with theissuance of any equity or the receipt of any Subordinated Debt, make aprincipal payment to U.S. Bank in the amount of 50 percent of theproceeds of such equity or Subordinated Debt net of ordinary and necessaryexpenses incurred in connection therewith, as applicable (“EquityPayment”).  All Equity Payments shall beapplied to the outstanding principal balance of the Loans, in the inverse orderof maturity, as follows: (a) first, to reduce the outstanding principal balance of TermLoan B, (b) second, to reduce the outstanding principal balance ofTerm Loan A, and (c) third, to reduce the outstanding principal balanceof the Revolving Loan, with a corresponding permanent reduction in theRevolving Loan Commitment Amount. Notwithstanding the foregoing, Equity Payments

 

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shall be requiredonly to the extent that after pro forma application of the Equity Payment tothe Loans as provided in this Section 8.19, the Funded Debt Ratio ofBorrower is greater 3.5:1.0 as of the last day of the previous fiscal quarterof Borrower for the four trailing fiscal quarters then ended.

# ** **

# **ARTICLE IX.**                                               NEGATIVE COVENANTS

 

Borrower covenants andagrees that until all the Loans, together with interest thereon, and all otherobligations incurred hereunder are paid or satisfied in full, Borrower shallnot, and shall not permit any Subsidiary to, without the prior written consentof U.S. Bank:

## ** **

## **9.1**                               Dividends and Distributions

 

Declare or pay any cashdistributions or dividends or return any capital to any of Borrower’sshareholders; authorize or make any distribution, payment or delivery of propertyor cash to any of Borrower’s shareholders; redeem, retire, purchase orotherwise acquire, directly or indirectly, for consideration, any shares orother interests of Borrower now or hereafter outstanding; or set aside anyfunds for any of the foregoing purposes.

 

## **9.2**                               Transactions With Affiliates

 

Enter into anytransaction, other than an arm’s length transaction, that results in a transferor conveyance of assets, tangible or intangible, real, personal, or mixed, byBorrower to any Affiliate of Borrower except (a) as otherwise provided bythis Agreement or (b) for the initial capitalization of a Subsidiary byBorrower with the prior written consent of U.S. Bank.

## ** **

## **9.3**                               Other Indebtedness

 

Create, incur, assume orsuffer to exist, contingently or otherwise, any Indebtedness measured on aconsolidated basis except (a) Indebtedness represented by the Notes;(b) accounts and other current payables arising from the ordinary courseof business; and (c) additional Indebtedness outstanding or committed toat any time (including, but not limited to, indebtedness evidenced by notes,bonds, debentures, leases, purchase agreements, and other contractualobligations) not in excess of an aggregate amount at any one time outstandingof $3,000,000.  Notwithstanding clause (c)above, Borrower may not guarantee or become contingently liable for theobligation of any Person except as provided for herein.  In computing the additional indebtednesspermitted by clause (c) hereof, all capital lease payments due fromBorrower within 12 months shall be included if the amounts of such rentalpayments are not otherwise included as Indebtedness in accordance withgenerally accepted accounting principles. Except as set forth in Section 9.5 hereof, none of the additionalindebtedness permitted by this Section 9.3 shall be secured by any assetsof Borrower of any Subsidiary.

## ** **

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## **9.4**                               Leases and Leasebacks

 

Except to the extentpermitted pursuant to the provisions of Section 9.3(c) hereof and exceptfor arrangements entered into prior to the date hereof, enter into any newagreement to rent or lease any material real or personal property or enter intoany arrangement with any bank, insurance company or other domestic bank orinvestor providing for the leasing of any real or personal property orequipment (a) that at the time has been or is sold or transferred byBorrower to such domestic bank or investor or (b) that has been or isbeing acquired from another Person by such domestic bank or investor or onwhich one or more buildings have been or are to be constructed by such domesticbank or investor, for the purpose of leasing such property to Borrower.

## ** **

## **9.5**                               Liens

 

Contract, create, incur,assume or suffer to exist any mortgage, pledge, lien or other charge orencumbrance of any kind (including, but not limited to, the charge uponproperty purchased under conditional sales or other title retention agreements)upon or grant any interest in any of its property or assets whether now ownedor hereafter acquired, except (a) liens granted pursuant to thisAgreement; (b) liens in connection with worker’s compensation,unemployment insurance or other social security obligations; (c) goodfaith deposits in connection with bids, tenders, contracts or leases ordeposits to secure public statutory obligations; (d) mechanic’s,carrier’s, repairmen’s or other like liens in the ordinary course of businesswith respect to obligations that are not overdue or that are being contested ingood faith and for which appropriate reserves have been established or forwhich deposits to obtain the release of such liens have been made;(e) liens for taxes, assessments, levies or charges of Governmental Bodiesimposed upon Borrower or its property, operations, income, products or profitsthat are not at the time due or payable or for which, if the validity thereofis being contested in good faith by legal or administrative proceedings,appropriate reserves have been established; (f) encumbrances consisting ofzoning regulations, easements, rights–of–way, survey exceptions andother similar restrictions on the use of real property or minor irregularitiesin title thereto that do not materially impair the use of such property in theoperation of the business of Borrower; (g) liens that are not consensualarising by operation of law out of judgments or awards with regard to whichBorrower shall be prosecuting an appeal in good faith and for which a stay ofexecution has been issued and appropriate reserves established; and (h) thecurrently existing liens listed on Exhibit E hereto.  The liens described in clauses(a) through (h) hereof are called the “Permitted Liens.”

## ** **

## **9.6**                               Advances and Loans

 

Lend money, make creditavailable (other than in the ordinary course of business to customers) or lendproperty or the use thereof to any Person; purchase or repurchase the stock orIndebtedness or all or a substantial part of the assets or properties of anyPerson; guarantee, assume, endorse or otherwise become responsible for(directly or indirectly or by any instrument having the effect of assuring anyPerson’s payment, performance, or capability) the Indebtedness, performance,obligations, stock or dividends of any Person; or agree to do

 

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any of theforegoing; provided that (a) Borrower may endorse negotiable instrumentsfor deposit or collection in the ordinary course of business and Borrower maymake loans to its Affiliates on an arm’s–length basis provided that theaggregate outstanding principal balance of such loans shall not exceed$2,000,000 at any time.

## ** **

## **9.7**                               Investments

 

Invest in (by capitalcontribution, assumption of Indebtedness or otherwise), acquire, purchase ormake any commitment to purchase the obligations, stock or other equity, or asubstantial portion of the assets of any Person except (a) directobligations of the government of the United States of America or any agency orinstrumentality thereof, (b) interest–bearing certificates ofdeposit or repurchase agreements issued by any commercial banking institutionsatisfactory to U.S. Bank and (c) stock or obligations issued insettlement of claims of Borrower against others by reason of bankruptcy or acomposition or readjustment of debt or reorganization of any debtor of Borrower.

## ** **

## **9.8**                               Consolidation, Merger and Sale of Assets

 

Wind up, liquidate ordissolve Borrower’s or any Subsidiary’s affairs or enter into any transactionof merger or consolidation with any Person; convey, sell, lease or otherwisedispose of (or agree to do any of the foregoing at any time) any of itsmaterial licenses, contracts or permits; sell all or a substantial part of itsproperty or assets or sell any part of its property or assets necessary ordesirable for the conduct of its business as now generally conducted or asproposed to be conducted; sell any of its notes receivable, installment orconditional sales agreements, or accounts receivable; purchase, lease orotherwise acquire all or a substantial part of the property or assets of anyother Person.

 

## **9.9**                               Subsidiaries

 

Form or acquire anyPerson or any portion thereof.

## ** **

## **9.10**                        Type of Business

 

Enter into any businesswhich is substantially different from or not connected with the manufacture andsale of audio equipment and software or make any substantial change in thenature of its business or operations.

## ** **

## **9.11**                        Change of State of Organization

 

Change (a) the stateof organization of Borrower or any Guarantor, (b) the chief executiveoffice of Borrower or any Guarantor, (b) Borrower’s or any Guarantor’sname, or (c) the location of any of the Collateral; or adopt or use anytrade name without (x) prior written notice to U.S. Bank and(y) the execution, delivery and filing (and payment of filing fees andtaxes) of all such documents as may be necessary or advisable in the opinion ofU.S. Bank to continue to perfect and protect the liens and securityinterests in the Collateral.

## ** **

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## **9.12**                        Change in Documents

 

Amend, supplement,terminate or otherwise modify in any way Borrower’s articles of incorporation,contracts or other documents delivered to U.S. Bank hereunder or executedin connection herewith.

## ** **

## **9.13**                        Control

 

Enter into any agreement(other than employment agreements) with any Person that confers upon suchPerson the right or authority to control or direct a major portion of thebusiness or assets of Borrower or any Subsidiary.

## ** **

## **9.14**                        Pension Plan

 

Terminate or partiallyterminate any Plan now existing or hereafter established for Borrower or itsAffiliates or withdraw from participation therein under circumstances thatresult or could result in liability to the Pension Benefit GuarantyCorporation, to the fund by which the Plan is funded, or to the employees (ortheir beneficiaries) for whom the Plan is or shall be maintained; or permit anyother event or circumstance to occur that results or could result in liabilityto the Pension Benefit Guaranty Corporation or a violation of ERISA.

## ** **

## **9.15**                        Tangible Net Worth

 

Permit Tangible Net Worthto be less than (a) $25,000,000 as of March 31, 2002, and (b) atany time thereafter, an amount equal to $25,000,000 plus, on a cumulativebasis, 50 percent of Borrower’s consolidated net income for each ofBorrower’s fiscal quarters, commencing with the fiscal quarter endingJune 30, 2002 (without reduction for any consolidated net lossesexperienced by Borrower in any fiscal quarter).

## ** **

## **9.16**                        Funded Debt Ratio

 

Permit the Funded DebtRatio to be greater than (a) 3.5:1.0 as of the last day of Borrower’sfiscal quarter ending September 30, 2002, for the trailing four quartersthen ended, and (b) 3.0:1.0 as of the last day of Borrower’s fiscalquarter ending December 31, 2002, or any fiscal quarter thereafter, forthe trailing four quarters then ended.

## ** **

## **9.17**                        Fixed Charge Coverage Ratio

 

Permit the Fixed ChargeCoverage Ratio to be less than (a) 1.10:1.00 as of the last day ofBorrower’s fiscal quarter ending June 30, 2002, for the fiscal quarterthen ended, (b) 1.15:1.00 as of the last day of Borrower’s fiscal quarterending September 30, 2002, for the fiscal quarter then ended, and(c) 1.25:1.00 as of the last day of Borrower’s fiscal quarter endingDecember 31, 2002 and any fiscal quarter thereafter, for the trailing fourquarters then ended.

## ** **

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## **9.18**                        Working Capital

 

Permit Working Capital tobe less than (a) $23,000,000 as of June 30, 2002, and (b) at anytime thereafter, an amount equal to $23,000,000 plus, on a cumulative basis,50 percent of Borrower’s consolidated net income for each of Borrower’sfiscal quarters, commencing with the fiscal quarter ending September 30,2002 (without reduction for any consolidated net losses experienced by Borrowerin any fiscal quarter).

## ** **

## **9.19**                        Limitation on Capital Expenditures

 

Permit the total amountof Capital Expenditures to exceed $5,000,000 during the fiscal year of Borrowerending December 31, 2002, and during any fiscal year of Borrowerthereafter.

# ** **

# **ARTICLE X.**                                                   REPRESENTATIONS AND WARRANTIES

 

In order to induceU.S. Bank to enter into this Agreement and to make the Loans as hereinprovided, Borrower hereby makes the following representations, covenants andwarranties, all of which shall survive the execution and delivery of thisAgreement and shall not be affected or waived by any inspection or examinationmade by or on behalf of U.S. Bank:

## ** **

## **10.1**                        Corporate Status

 

Borrower and MackieDesigns Manufacturing Inc. are corporations organized and validly existingunder the laws of the state of Washington. Blackstone Technologies, Inc. is corporation organized and validlyexisting under the laws of the state of Massachusetts.  SIA Software Company, Inc. is a corporationorganized and validly existing under the laws of the state of New York.  Borrower and each Subsidiary has the powerand authority to own its property and assets and to transact the business inwhich it is engaged or presently proposes to engage.  Borrower and each Subsidiary is qualified to do business in allstates except where the failure to be qualified could not have a materialadverse effect on Borrower or any Subsidiary.

## ** **

## **10.2**                        Power and Authority

 

Borrower and eachGuarantor has the power to execute, deliver and carry out the terms andprovisions of this Agreement and each of the Loan Documents and has taken allnecessary action to authorize the execution, delivery and performance of thisAgreement and the other Loan Documents, the borrowings hereunder and the makingand delivery of the Notes and all Loan Documents delivered hereunder.  This Agreement constitutes and the Notes andother Loan Documents and instruments issued or to be issued hereunder, whenexecuted and delivered pursuant hereto, constitute or will constitute theauthorized, valid and legally binding obligations of Borrower and Guarantors(as the case may be), enforceable in accordance with their respective terms.

## ** **

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## **10.3**                        No Violation of Agreements

 

Neither Borrower nor anySubsidiary is in default under any material provision of any agreement to whichit is a party or in violation of any Applicable Laws.  The execution and delivery of this Agreement, the Notes, theother Loan Documents and the instruments incidental hereto; the consummation ofthe transactions herein or therein contemplated; and compliance with the termsand provisions hereof or thereof (a) will not violate any materialApplicable Law, (b) will not conflict or be inconsistent with, result inany breach of any of the material terms, covenants, conditions or provisionsof, constitute a default under, or result in the creation or imposition of (orthe obligation to impose) any lien, charge or encumbrance upon any of theproperty or assets of Borrower or any Guarantor pursuant to the terms of anymaterial Governmental Approval, mortgage, deed of trust, lease, agreement orother instrument to which Borrower or any Guarantor is a party, by whichBorrower or any Guarantor may be bound or to which Borrower or any Guarantormay be subject, and (c) will not violate any of the provisions of thearticles of incorporation of Borrower or any Guarantor.  No Governmental Approval is necessary(x) for the execution of this Agreement, the making of the Notes or theassumption and performance of this Agreement, or the Notes by Borrower or theGuaranties by any Guarantor or (y) for the consummation by Borrower or anyGuarantor of the transactions contemplated by this Agreement, including, butnot limited to, the grant of the security interests to U.S. Bank.

## ** **

## **10.4**                        Recording and Enforceability

 

Neither the articles ofincorporation, bylaws or other applicable corporate documents of Borrower orany Guarantor nor other agreements require recording, filing, registration,notice or other similar action in order to insure the legality, validity,binding effect or enforceability against all Persons of this Agreement, theNotes or other Loan Documents executed or to be executed hereunder, other thanfilings or recordings that may be required under the Uniform Commercial Code orin connection with the perfection of the security interests of U.S. Bankin patents, trademarks and similar types of Collateral.

## ** **

## **10.5**                        Litigation

 

Except as disclosed inthis Section 10.5, there are no actions, suits or proceedings pending orthreatened against or affecting Borrower or any Subsidiary before anyGovernmental Body that could have a material adverse effect on Borrower, anySubsidiary, or the Collateral.  NeitherBorrower nor any Subsidiary is in default under any material provision of anyApplicable Law or Governmental Approval of any Governmental Body which couldhave a material adverse effect on Borrower, any Subsidiary, or on theCollateral.  U.S. Bank acknowledges the disclosure by Borrower of the existenceof the case entitled The Travelers Insurance Company vs. Eastern AcousticWorks, Inc., et al, Superior Court Department, Worcester Massachusetts, CivilAction No. 97-0922-B, and agrees that neither the existence of such case northe results of any trial or any pending motions in such case will be deemed aviolation of any warranty or representation given by Borrower or Eastern

 

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Acoustic Works, Inc. either in this Agreement or any other agreement ordocumentation given in connection herewith.

## ** **

## **10.6**                        Good Title to Properties

 

Borrower and eachSubsidiary has good and marketable title to, or a valid leasehold interest in,its property and assets, subject to no liens, mortgages, pledges, encumbrancesor charges of any kind, except those permitted under the provisions ofSection 9.5 hereof.

## ** **

## **10.7**                        Licenses and Permits

 

All GovernmentalApprovals with respect to the business of Borrower and each Subsidiary were toBorrower’s knowledge duly and validly issued by the respective GovernmentalBodies, are in full force and effect and are to Borrower’s knowledge valid andenforceable in accordance with their terms. With regard to such Governmental Approvals, no fact or circumstanceexists that constitutes or, with the passage of time or the giving of notice orboth, would constitute a material default under any thereof, or permit thegrantor thereof to cancel or terminate the rights thereunder, except upon theexpiration of the full term thereof. Borrower and each Subsidiary presently holds all material GovernmentalApprovals as are necessary or advisable in connection with the conduct of itsbusiness as now conducted and as presently proposed to be conducted.

## ** **

## **10.8**                        No Burdensome Agreements

 

Neither Borrower nor anySubsidiary is a party to any agreement or instrument or subject to anyrestrictions that now have or, as far as can be foreseen, could have a materialadverse effect on Borrower or any Subsidiary.

## ** **

## **10.9**                        Properties in Good Condition

 

All the materialproperties of Borrower and each Subsidiary are, and all material properties tobe added in connection with any contemplated expansion will be in good repairand good working order and condition in a manner consistent with past practicesof Borrower and each Subsidiary, and comparable to industry standards and areand will be in compliance with all Applicable Laws.

## ** **

## **10.10**                 Financial Statements

 

The (a) auditedfinancial statements of Borrower dated December 31, 2001, and allschedules and notes included in such financial statements and(b) unaudited financial statements of Borrower and each Subsidiary thathave heretofore been delivered to U.S. Bank are true and correct in allmaterial respects and present fairly (i) the financial position ofBorrower and each Subsidiary as of the date of said statements and(ii) the results of operations of Borrower and each Subsidiary for theperiods covered thereby; and there are not any significant liabilities thatshould have been reflected in the financial statements or the notes theretounder generally accepted accounting principles, contingent or otherwise,

 

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includingliabilities for taxes or any unusual forward or long–term commitments,that are not disclosed or reserved against in the statements referred to aboveor in the notes thereto or that are not disclosed herein.  All such financial statements have beenprepared in accordance with generally accepted accounting principlesconsistently applied.  There has been nomaterial adverse change (including, but not limited to, any such changeoccasioned by accident, act of God, war, fire, flood, explosion, strike orother labor dispute, or orders or action by any Governmental Body or publicutility) in the operations, business, property, assets or condition (financialor otherwise) of Borrower and each Subsidiary since December 31, 2001.

## ** **

## **10.11**                 Outstanding Indebtedness

 

Other than current tradepayables, Borrower has no Indebtedness, including, but not limited to,Indebtedness to Affiliates, that is not listed on Borrower’s unauditedfinancial statements dated December 31, 2001.

## ** **

## **10.12**                 Taxes

 

Borrower and eachSubsidiary has duly filed all tax returns and reports required by ApplicableLaw to be filed; and all taxes, assessments, levies, fees and other charges ofGovernmental Bodies upon Borrower and each Subsidiary or upon its assets thatare due and payable have been paid (except as otherwise permitted in thisAgreement).

## ** **

## **10.13**                 License Fees

 

Borrower and eachSubsidiary has paid all fees and charges that have become due for anyGovernmental Approval for its business or has made adequate provisions for anysuch fees and charges that have accrued.

## ** **

## **10.14**                 Trademarks, Patents, Etc.

 

Attached to the SecurityAgreements are schedules of all trademarks, trade names, service marks, patentsand applications therefor currently held by Borrower and each Subsidiary or inwhich it has an interest, e.g., a license. Borrower and each Subsidiary possesses all necessary trademarks, tradenames, service marks, copyrights, patents, patent rights and licenses toconduct its businesses as now and as proposed to be conducted, without conflictwith the rights or claimed rights of others.

## ** **

## **10.15**                 Disclosure

 

To the best of Borrower’sknowledge, the exhibits hereto, the financial information and statementsreferred to in Section 10.10 hereof, any certificate, statement, report orother document furnished to U.S. Bank by Borrower or any other Person inconnection herewith or in connection with any transaction contemplated hereby,and this Agreement, do not contain any untrue statements of material fact oromit to state any material fact necessary in order to make the statementscontained therein or herein not misleading.

## ** **

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## **10.16**                 Regulations U and X

 

Borrower does not own andno part of the proceeds hereof will be used to purchase or carry any marginstock (within the meaning of Regulation U of the Board of Governors of theFederal Reserve System) or to extend credit to others for the purpose ofpurchasing or carrying any margin stock. Borrower is not engaged principally or as one of its importantactivities in the business of extending credit for the purpose of purchasing orcarrying any margin stock.  If requestedby U.S. Bank, Borrower will furnish to U.S. Bank a statement inconformity with the requirements of Federal Reserve Form U–1referred to in said Regulation.  No partof the proceeds of the Loans will be used for any purpose that violates or isinconsistent with the provisions of Regulation X of said Board ofGovernors.

## ** **

## **10.17**                 Names

 

Neither Borrower, anyGuarantor, nor any of their predecessors operate or do business or during thepast five years have operated or done business under a fictitious, tradeor assumed name.

## ** **

## **10.18**                 Condition of Property

 

Except as otherwisedisclosed to U.S. Bank, Borrower hereby represents and warrants toU.S. Bank that as of the date hereof and continuing hereafter, Borrower’sproperty and that of each Subsidiary (both owned and leased) and each portionthereof (a) are not and to the best knowledge of Borrower after dueinvestigation have not been a site for the use, generation, manufacture,storage, disposal or transportation of any Hazardous Material in violation ofHazardous Materials Laws; (b) are presently in compliance with allHazardous Materials Laws; and (c) are not being used and to the bestknowledge of Borrower after due investigation have not been used in any mannerthat has resulted in or will result in Hazardous Materials being spilled ordisposed of on any adjacent or other property.

## ** **

## **10.19**                 Pension Plans

 

No “reportable event” asdefined in Section 4043(b) of Title IV of ERISA has occurred and iscontinuing with respect to any plan maintained for employees of Borrower or anyAffiliate.  In addition, each of theplans maintained for the employees of Borrower and its Affiliates are incompliance with the requirements of ERISA, including the minimum fundingrequirements.

# ** **

# **ARTICLE XI.**                                               EVENTS OF DEFAULT; REMEDIES

## ** **

## **11.1**                        Events of Default

 

“Event of Default,”wherever used herein, means any one of the following events (whatever thereason for the Event of Default, whether it shall relate to one or more of theparties hereto, and whether it shall be voluntary or involuntary or be pursuantto or affected by operation of Applicable Law):

 

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(a)           If Borrower fails to pay theprincipal of or any installment of interest on either of the Notes, within fivedays of the date when and as the same becomes due and payable, whether atscheduled maturity, by acceleration or otherwise; or

 

(b)           If any Indebtedness of Borrower orany Subsidiary for money borrowed or credit extended becomes or is declared dueand payable (after any applicable grace period) prior to the stated maturitythereof or is not paid as and when it becomes due and payable, or if any eventoccurs which constitutes an event of default under any instrument, agreement orevidence of Indebtedness relating to any such obligation of Borrower or anySubsidiary; or

 

(c)           If Borrower or any Subsidiary failsto pay or perform (after any applicable grace period) any obligation orIndebtedness to others in excess of $50,000 (other than as set forth inSection 11.1(b) hereof), whether now or hereafter incurred; or

 

(d)           If any representation or warranty(i) made by Borrower in this Agreement or (ii) made by Borrower, anyGuarantor, or any other Person in any document, certificate or statementfurnished pursuant to this Agreement or in connection herewith, is false ormisleading in any material respect; or

 

(e)           If Borrower fails to observe orperform any term, covenant or agreement to be performed or observed pursuant toArticles VIII and IX hereof; or

 

(f)            If Borrower fails to observe orperform (not otherwise specified in this Article XI) any term, covenant oragreement to be performed or observed pursuant to the provisions of thisAgreement, the other Loan Documents or any other agreement incidental heretoand such default is not cured within 30 days; or

 

(g)           If Borrower fails to perform any ofits obligations under any of the Loan Documents not otherwise specified in thisArticle XI, or if the validity of any of such documents has beendisaffirmed by or on behalf of any of the parties thereto other thanU.S. Bank and such default is not cured within 30 days; or

 

(h)           If custody or control of anysubstantial part of the property of Borrower or any Subsidiary is assumed byany Governmental Body or if any Governmental Body takes any final action, theeffect of which would be to have a material adverse effect on Borrower; or

 

(i)            If Borrower or any Subsidiarysuspends or discontinues its business, or if Borrower or any Subsidiary makesan assignment for the benefit of creditors or a composition with creditors, isunable or admits in writing its inability to pay its debts as they mature,files a petition in bankruptcy, becomes insolvent (howsoever such insolvencymay be evidenced), is adjudicated insolvent or bankrupt, petitions or appliesto any tribunal for the appointment of any receiver, liquidator or trustee ofor for it or any substantial part of its property or assets, commences anyproceeding relating to it under any Applicable Law of any jurisdiction whethernow or hereafter in effect relating to bankruptcy, reorganization, arrangement,readjustment of debt, receivership, dissolution or liquidation; or if there iscommenced against Borrower or any Subsidiary any such proceeding that remainsundismissed for a

 

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period of60 days or more, or an order, judgment or decree approving the petition inany such proceeding is entered; or if Borrower or any Subsidiary by any act orfailure to act indicates its consent to, approval of, or acquiescence in, anysuch proceeding or any appointment of any receiver, liquidator or trustee of orfor it or for any substantial part of its property or assets, suffers any suchappointment to continue undischarged or unstayed for a period of 90 daysor more, or takes any corporate action for the purpose of effecting any of theforegoing; or if any court of competent jurisdiction assumes jurisdiction withrespect to any such proceeding, or if a receiver or a trustee or other officeror representative of a court or of creditors, or if any Governmental Body,under color of legal authority, takes and holds possession of any substantialpart of the property or assets of Borrower or any Subsidiary; or

 

(j)            If there is any refusal or failureby any Governmental Body to issue, renew, or extend any lease or GovernmentalApproval with respect to the operation of the business of Borrower or anySubsidiary, or any denial, forfeiture or revocation by any Governmental Body ofany Governmental Approval that could have a material adverse effect on Borroweror any Subsidiary; or

 

(k)           If any of the events described in Section 8.10hereof occur or are threatened and, in U.S. Bank’s reasonable judgment,such event jeopardizes or could reasonably be expected to jeopardize repaymentof any of the Notes; or

 

(l)            If at any time Gregory C.Mackie does not own or have voting control of 20 percent or more of theissued and outstanding voting stock of Borrower; or

 

(m)          If any material adverse change in thebusiness or financial condition of Borrower or any Subsidiary occurs, or if anyevent that materially increases U.S. Bank’s risk or materially impairs theCollateral occurs.

## ** **

## **11.2**                        Acceleration; Remedies

 

(a)           If any Event of Default described inSection 11.1(i) shall occur, then immediately and automaticallyU.S. Bank’s commitment under the Revolving Loan shall terminate and allother amounts owing under this Agreement and the Revolving Note shall becomedue and payable and U.S. Bank’s obligation to make any advances under theRevolving Loan shall immediately terminate.

 

(b)           If any Event of Default other thanthose described in Section 11.1(i) shall occur and be continuing,U.S. Bank may (i) by written notice to Borrower, declareU.S. Bank’s commitment under the Revolving Loan terminated forthwith,whereupon such obligations shall immediately terminate; and (ii) bywritten notice of default to Borrower, declare the Revolving Loan, with accruedinterest thereon, and all other amounts owing under this Agreement and theRevolving Note to be due and payable forthwith, whereupon the same shallimmediately become due and payable.

 

(c)           Except as expressly provided above inthis Section 11.2, presentment, demand and all other notices of any kindare hereby expressly waived. U.S. Bank may proceed to

 

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protect andenforce its rights hereunder or realize on any or all security granted pursuantto any the Loan Documents in any manner or order it deems expedient withoutregard to any equitable principles of marshaling or otherwise.  No failure or delay on the part ofU.S. Bank in exercising any right, power or privilege hereunder and nocourse of dealing between Borrower and U.S. Bank shall operate as a waiverthereof; nor shall any single or partial exercise of any right, power orprivilege hereunder preclude any other or further exercise thereof or theexercise of any right, power or privilege. The rights and remedies herein expressly provided are cumulative and notexclusive of any rights or remedies that U.S. Bank would otherwise have.  No notice to or demand on Borrower in anycase shall entitle Borrower to any other or further notice or demand in similaror other circumstances or shall constitute a waiver of the right ofU.S. Bank to any other or further action in any circumstances withoutnotice or demand.

 

# **ARTICLE XII.**                                           MISCELLANEOUS

## ** **

## **12.1**                        Notices

 

All notices, requests,consents, demands, approvals and other communications hereunder shall be deemedto have been duly given, made or served if made in writing and deliveredpersonally, sent via facsimile or mailed by first–class mail, postageprepaid, to the respective parties to this Agreement as follows:

 

(a)                                  Ifto Borrower:

 

Mackie Designs Inc.16220 Woodinville-Redmond Road NEWoodinville, Washington 98072Attention:  Chief Financial OfficerFacsimile No.:  (425) 483-1801

 

(b)                                 Ifto U. S. Bank:

 

U. S. Bank National Association10800 NE Eighth Street, Suite 1000Bellevue, Washington  98004Attention:  Tom V. SilverFacsimile No.:  (425) 450-5989

 

The designation of thepersons to be so notified or the address of such persons for the purposes of suchnotice may be changed from time to time by similar notice in writing, exceptthat any communication with respect to a change of address shall be deemed tobe given or made when received by the party to whom such communication wassent.

## ** **

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## **12.2**                        Payment of Expenses

 

Whether or not thetransactions hereby contemplated are consummated, Borrower shall pay on demandall costs and expenses of U.S. Bank incurred in connection with thepreparation, negotiation, execution and delivery of the Loan Documents, as wellas any amendments, modifications, consents or waivers relating thereto,including, without limitation, reasonable attorneys’ fees, appraisal fees,title insurance fees and recording fees. In addition, if there shall occur any Default or Event of Default,U.S. Bank shall be entitled to recover any costs and expenses incurred inconnection with the preservation of rights under, and enforcement of, the LoanDocuments, whether or not any lawsuit or arbitration proceeding is commenced,in all such cases, including, without limitation, reasonable attorneys’ feesand costs (including the allocated fees of internal counsel).  Costs and expenses as referred to above,shall include, without limitation, a reasonable hourly rate for collectionpersonnel, whether employed in-house or otherwise, overhead costs as reasonablyallocated to the collection effort and all other expenses actuallyincurred.  Reasonable attorneys’ fees shallinclude, without limitation, attorneys’ fees and costs incurred in connectionwith any bankruptcy case or other insolvency proceeding commenced by or againstBorrower or any Person granting a security interest in any item of Collateral,including all fees incurred in connection with (a) moving from relief fromthe automatic stay, to convert or dismiss the case or proceeding, or to appointa trustee or examiner, or (b) proposing or opposing confirmation of a planof reorganization or liquidation, in any case without regard to the identity ofthe prevailing party.

## ** **

## **12.3**                        Setoff

 

As additional securityfor the payment of the obligations described in this Agreement and the otherLoan Documents and any other obligations of Borrower to U.S. Bank of anynature whatsoever (collectively the “Obligations”), Borrower hereby grants toU.S. Bank, and any Participant, a security interest in, a lien on and anexpress contractual right to set off against all depository account balances,cash and any other property of Borrower now or hereafter in the possession ofU.S. Bank, or any Participant, and the right to refuse to allowwithdrawals from any account (collectively “Setoff”).  U.S. Bank and any Participant may, at any time upon theoccurrence of a Default or Event of Default (notwithstanding any notice requirementsor grace/cure periods under this Agreement or the other Loan Documents) Setoffagainst the Obligations whether or not the Obligations (including futureinstallments) are then due or have been accelerated, all without any advance orcontemporaneous notice or demand of any kind to Borrower, such notice anddemand being expressly waived.

## ** **

## **12.4**                        Waiver of Setoff

 

In the event thatU.S. Bank sells all or any portion of the Loans to any Participant,Borrower hereby waives the right to interpose any setoff, counterclaim or cross–claim(other than compulsory counterclaims or cross–claims) in connection withany litigation or dispute under this Agreement, regardless of the nature ofsuch setoff, counterclaim or cross–claim.

## ** **

## **44**

## ****

##  

## **12.5**                        Fees and Commissions

 

Borrower agrees toindemnify U.S. Bank and hold it harmless with regard to any commissions,fees, judgments or expenses of any nature and kind that U.S. Bank maybecome liable to pay by reason of any claims by or on behalf of brokers,finders or agents in connection with any act or failure to act by Borrower orany litigation or similar proceeding arising from such claims.  Borrower states that it is aware of no validbasis for any such claims.

## ** **

## **12.6**                        No Waiver

 

No failure or delay onthe part of U.S. Bank or the holder of any of the Notes in exercising anyright, power or privilege hereunder and no course of dealing between Borrowerand U.S. Bank or the holder of any of the Notes shall operate as a waiverthereof; nor shall any single or partial exercise of any right, power orprivilege hereunder preclude any other or further exercise thereof or theexercise of any right, power or privilege. The rights and remedies herein expressly provided are cumulative and notexclusive of any rights or remedies that U.S. Bank or any subsequentholder of any of the Notes would otherwise have.  No notice to or demand on Borrower in any case shall entitleBorrower to any other or further notice or demand in similar or other circumstancesor shall constitute a waiver of the right of U.S. Bank to any other orfurther action in any circumstances without notice or demand.

## ** **

## **12.7**                        Entire Agreement and Amendments

 

This Agreement representsthe entire agreement between the parties hereto with respect to the Loans andthe transactions contemplated hereunder and, except as expressly providedherein, shall not be affected by reference to any other documents.  This Agreement, or any provision hereof, maynot be changed, waived, discharged or terminated orally, but only by aninstrument in writing, signed by the party against whom enforcement of thechange, waiver, discharge or termination is sought.

## ** **

## **12.8**                        Benefit of Agreement

 

This Agreement is bindingupon and inures to the benefit of Borrower and U.S. Bank and theirsuccessors and assigns and all subsequent holders of any of the Notes or anyportion thereof.  Borrower expresslyacknowledges that U.S. Bank is not prohibited or restricted from assigningrights or participations hereunder or any portion thereof to anotherPerson.  Borrower, however, is precludedfrom assigning any of its respective rights or delegating any of itsobligations hereunder or under any of the other agreements between Borrower andU.S. Bank without the prior written consent of U.S. Bank.

## ** **

## **12.9**                        Severability

 

If any provision of thisAgreement or any of the Loan Documents is held invalid under any ApplicableLaws, such invalidity shall not affect any other provision of this

 

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Agreement that canbe given an effect without the invalid provision, and, to this end, theprovisions hereof are severable.

## ** **

## **12.10**                 Descriptive Headings

 

The descriptive headingsof the several sections of this Agreement are inserted for convenience only anddo not affect the meaning or construction of any of the provisions hereof.

## ** **

## **12.11**                 Governing Law

 

Except to the extent thatthe federal laws of the United States of America provide U.S. Bank withgreater rights or remedies, this Agreement and the rights and obligations ofthe parties hereunder and under the other Loan Documents shall be construed inaccordance with and shall be governed by the laws of the state of Washingtonwithout regard to the choice of law rules thereof.

## ** **

## **12.12**                 Consent to Jurisdiction, Service and Venue

 

For the purpose ofenforcing payment of any of the Notes, performance of the obligations under anyof the Notes, any arbitration award under the other Loan Documents, orotherwise in connection herewith, Borrower hereby consents to the jurisdictionand venue of the courts of the state of Washington or of any federal courtlocated in such state including, but not limited to, the Superior Court ofWashington for King County and the United States District Court for the WesternDistrict of Washington.  Borrower herebywaives the right to contest the jurisdiction and venue of courts located inKing County, Washington, on the ground of inconvenience or otherwise and waivesany right to bring any action or proceeding against U.S. Bank in any courtoutside King County, Washington.  Theprovisions of this Section 12.12 do not limit or otherwise affect theright of U.S. Bank to institute and conduct action in any otherappropriate manner, jurisdiction, or court.

## ** **

## **12.13**                 Counterparts

 

This Agreement and eachof the Loan Documents may be executed in one or more counterparts, each ofwhich shall constitute an original agreement, but all of which together shallconstitute one and the same instrument.

## ** **

## **12.14**                 Jury Waiver

** **

**BORROWER HEREBY WAIVES ANY RIGHT TOTRIAL BY JURY OF ANY CLAIM ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOANDOCUMENT, WHETHER NOW OR HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT,TORT OR OTHERWISE, AND HEREBY CONSENTS AND AGREES THAT ANY SUCH CLAIM MAY, ATU.S. BANK’S ELECTION, BE DECIDED BY TRIAL WITHOUT A JURY AND THATU.S. BANK MAY FILE AN ORIGINAL COUNTERPART OR COPY OF THIS SECTION WITHANY COURT**

 

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**AS WRITTEN EVIDENCE OF THE WAIVER ANDAGREEMENT CONTAINED HEREIN.**

## ** **

## **12.15**                 Statutory Notice

** **

**ORAL AGREEMENTS OR ORAL COMMITMENTSTO LOAN MONEY, EXTEND CREDIT OR FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARENOT ENFORCEABLE UNDER WASHINGTON LAW.**

 

IN WITNESS WHEREOF,Borrower and U.S. Bank have caused this Agreement to be duly executed bythe respective, duly authorized signatories as of the date first above written.

 
|   |   | MACKIE DESIGNS INC.                 |                                                 |
|--------|--------|-------------------------------------|------------------------------------------------------|
|   |   |                                |                                                 |
|   |   |                                |                                                 |
|   | By     | /s/ William A. Garrard              |                                                 |
|   |   | Name:                               | Willliam A. Garrard                                  |   |
|   |   | Title:                              | Vice President, Finance and Chief Financial  Officer |   |
|   |   |                                |                                                 |
|   |   | U.S. BANK NATIONAL ASSOCIATION |                                                 |
|   |   |                                |                                                 |
|   |   |                                |                                                 |
|   | By     | /s/Tom V. Silver                    |                                                 |
|   |   | Name:                               | Tom Silver                                           |   |
|   |   | Title:                              | Vice President                                       |   |

 

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**ACKNOWLEDGMENT AND CONSENT**

 

Each of the undersignedhereby:  (a) acknowledges that ithas read the foregoing Amended and Restated Credit Agreement, (b) consentsto the execution, delivery and performance by Borrower of the foregoing Amendedand Restated Credit Agreement, (c) reaffirms and agrees that therespective Guaranty and Security Agreement to which the undersigned is a partyand all other documents and agreements executed and delivered by theundersigned to the U.S. Bank in connection with the Existing CreditAgreement (as amended and restated by this Agreement) are in full force andeffect, without defense, offset or counterclaim, and (d) agrees that itsguaranty guarantees and its security agreement secures the repayment of theLoans.  Capitalized terms used hereinhave the meanings specified in this Agreement.

 
|   |                              |   |   |
|--------|-----------------------------------|--------|--------|
|   | BLACKSTONE TECHNOLOGIES, INC.     |   |
|   |                              |   |   |
|   |                              |   |   |
|   | By                                |   |   |   |
|   |                              | Name:  |   |   |   |
|   |                              | Title: |   |   |   |
|   |                              |   |   |   |
|   |                              |   |   |   |
|   | MACKIE DESIGNS MANUFACTURING INC. |   |
|   |                              |   |   |
|   |                              |   |   |
|   | By                                |   |   |   |
|   |                              | Name:  |   |   |
|   |                              | Title: |   |   |
|   |                              |   |   |
|   |                              |   |   |
|   | SIA SOFTWARE COMPANY, INC.        |   |
|   |                              |   |   |
|   |                              |   |   |
|   | By                                |   |   |   |
|   |                              | Name:  |   |   |
|   |                              | Title: |   |   |
|        |                                   |        |        |  |  |  |  |  |  |  |  |

 

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