EXECUTION
COPY

     

    
      
        

      



    REVOLVING
CREDIT AGREEMENT

     

    -
Between -

     

    MOD-PAC
CORP.

    as
Borrower

     

    -
And -

     

    MANUFACTURERS
AND TRADERS TRUST COMPANY

    as
Lender

     

    
      
        

      



    Dated:
as of June 9, 2010


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    WITNESSETH

     

    REVOLVING
CREDIT AGREEMENT (“Agreement”) dated as of June 9, 2010 between MOD-PAC
CORP., a New York Corporation with its principal place of business at
1801 Elmwood Avenue, Buffalo New York 14207 (“Borrower”) and MANUFACTURERS
AND TRADERS TRUST COMPANY, a New York banking corporation, with a place
of business at One Fountain Plaza, Buffalo, New York 14203 (together with its
successors and/or assigns the “Lender”).

     

    BACKGROUND

     

    WHEREAS,
Borrower has requested that Lender provide financing to Borrower in the form of
a revolving loan facility for its general corporate purposes, to finance the
future working capital requirements of Borrower and to provide letters of credit
to Borrower; and

     

    WHEREAS,
the Lender is willing to provide financing to the Borrower on the terms and
conditions set forth herein.

     

    NOW,
THEREFORE, the Borrower and the Lender agree as
follows:

     

    ARTICLE
II.   DEFINITIONS

     

    1.1           Definitions.  As
used in this Agreement, unless otherwise specified, the following terms shall
have the following respective meanings:

     

     “Administrative
Fee”- has the meaning set forth in Section
2.4(j).

     

     “Advance”,
or collectively, “Advances”
– any amount advanced to the Borrower under the Revolving Credit.

     

    “Affiliate”
or “Affiliates”
– singly or collectively, any Person that directly or indirectly, through one or
more intermediaries, Controls, or is Controlled by, or is under Common Control
with the Person specified. Notwithstanding the foregoing, no individual shall be
considered an Affiliate of a Person solely by reason of such individual’s
position as an officer or director of such Person or an Affiliate of such
Person.

     

     “Anti-Terrorism
Laws” – any statutes, regulations, codes, rules and/or executive orders
and relating to terrorism or money laundering, including Executive Order No.
13224, the USA Patriot Act, the Laws comprising or implementing the Bank Secrecy
Act, and the Laws administered by the United States Treasury Department’s Office
of Foreign Asset Control (as any of the forgoing Laws may from time to time be
amended, renewed, extended or replaced).

     

     “Applicable
Interest Margin” – two hundred seventy-five (275) basis
points.


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

     “Borrower”
– as defined in the opening paragraph of this Agreement.

     

     “Business
Day” – any day excluding Saturday, Sunday, and any day in which banks in
Buffalo, New York are authorized by law or governmental action to
close.

     

     “Change
of Control” – means (a) the acquisition of ownership or voting control,
directly or indirectly, beneficially (within the meaning of Rules 13d-3 and
13d-5 of the Exchange Act, as then in effect) or of record, on or after the
Closing Date, by any Person or group (within the meaning of Sections 13d and 14d
of the Exchange Act, as then in effect), of shares representing more than fifty
percent (50%) of the aggregate ordinary Voting Power represented by the issued
and outstanding capital stock of Borrower; (b) the occupation of a majority of
the seats (other than vacant seats) on the board of directors or other governing
body of Borrower by Persons who were neither (i) nominated by the board of
directors or other governing body of Borrower nor (ii) appointed by directors so
nominated or (c) the sale of substantially all of the assets of the
Borrower.

     

     “Closing
Date” – the date of this Agreement.

     

     “Code”
– the Internal Revenue Code of 1986, as amended.

     

     “Collateral”
– as defined in Section 3.4 of this Agreement.

     

     “Collateral
Documents” – collectively, the Security Agreement and Financing
Statements.

     

     “Compliance
Certificate” – a certificate from the Chief Executive Officer, Chief
Financial Officer or Vice President of Finance of Borrower substantially in the
form of Exhibit C
attached hereto with all blanks appropriately completed.

     

     “Control”,
“Controlling”,
“Controlled
by”, and “under
Common Control with” – the possession, direct or indirect, of the power
to (a) vote 51% or more of the securities having ordinary voting power for
the election of directors, or (b) cause the direction of the management and
policies, whether by contract or through the ownership of stock or other
interests, or otherwise.

     

     “Credit”
– the Revolving Credit as defined in this Agreement.

     

    “Current
Assets” means, at any time, the consolidated aggregate amount of all
current assets of the Borrower and any Subsidiaries, including, but not limited
to, cash, cash equivalents, marketable securities, receivables maturing within
twelve (12) months from such time, and inventory (net of LIFO Reserve), all as
determined in accordance with GAAP.

     

    “Current
Liabilities” means, at any time, the consolidated aggregate amount of all
liabilities and obligations of the Borrower and any Subsidiaries which are due
and payable on demand or within twelve (12) months from such time, or should be
properly reflected as attributable to such twelve (12) month period in
accordance with GAAP.


    
      
         


      

      
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     “Current
Ratio” means, at any time, the ratio of (i) (a) Current Assets minus
(b) cash to (ii) (a) Current Liabilities plus
(b) the sum of (I) the aggregate outstanding principal amount of all Revolving
Loans and (II) the LC Exposure.

     

     “Disposal”
– the intentional or unintentional abandonment, discharge, deposit, injection,
dumping, spilling, leaking, storing, burning, terminal destruction or placing of
any substance so that it or any of its constituents may enter the
Environment.

     

    “Domestic
Subsidiary” shall mean each Subsidiary of the Borrower that is organized
under the laws of the United States, any state, territory, protectorate or
commonwealth thereof, or the District of Columbia.

     

     “Environment”
– any water including, but not limited to, surface water and ground water or
water vapor; any land including land surface or subsurface; stream sediments;
air; fish; wildlife; plants; and all other natural resources or environmental
media.

     

     “Environmental
Laws” – all federal, state, provincial and local environmental, land use,
zoning, health, chemical use, safety and sanitation laws, statutes, ordinances,
regulations, codes and rules relating to the protection of the Environment
and/or governing the use, storage, treatment, generation, transportation,
processing, handling, production or disposal of Hazardous Substances and the
policies, guidelines, procedures, interpretations, decisions, orders and
directives of federal, state and local governmental agencies and authorities
with respect thereto.

     

     “Environmental
Permits” – all licenses, permits, approvals, authorizations, consents or
registrations required by any applicable Environmental Laws and all applicable
judicial and administrative orders in connection with ownership, lease,
purchase, transfer, closure, use and/or operation of Borrower’s property and/or
as may be required for the storage, treatment, generation, transportation,
processing, handling, production or disposal of Hazardous
Substances.

     

    “Environmental
Questionnaire” – a questionnaire and all attachments thereto
concerning:  (a) activities and conditions affecting the Environment at any
property of Borrower or (b) the enforcement or possible enforcement of any
Environmental Law against Borrower. As of the date hereof, Borrower has not
delivered any Environmental Questionnaire to Lender

     

     “Environmental
Report” – a written report prepared for Borrower by an environmental
consulting or environmental engineering firm. As of the date hereof, Borrower
has not delivered any Environmental Report to Lender.

     

     “ERISA”
– the Employee Retirement Income Security Act of 1974, as amended by the
Multiemployer Pension Plan Amendments Act of 1980.

     

     “Event
of Default” – as defined in Section 7.1 of this
Agreement.


    
      
         


      

      
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    “Exchange
Act” – means the Securities Exchange Act of 1934, as
amended.

     

     “Executive
Order No. 13224” - the Executive Order No. 13224 on Terrorist Financing,
effective September 24, 2001, as the same has been, or shall hereafter be,
amended, renewed, extended or replaced.

     

     “Fiscal
Year” or “fiscal
year” – each twelve (12) month period ending on December 31of each
year.

     

    “Foreign
Subsidiary” means a Subsidiary that is organized under the laws of any
jurisdiction other than the United States, any State thereof or the District of
Columbia.

     

     “GAAP”
– means as of the date of any determination, generally accepted accounting
principles in effect from time to time in the United States of America,
consistently applied and maintained throughout the relevant periods and from
period to period.

     

    “Hazardous
Substances” – without limitation, any explosives, radon, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum and petroleum products, methane, hazardous materials,
hazardous wastes, hazardous or toxic substances and any other material defined
as a hazardous substance in Section 101(14) of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section
9601(14).

     

     “Incipient
Default” – an event or condition which, but for the requirements of
notice, or lapse of time, or both, would constitute an Event of
Default.

     

    “Indebtedness”
– at a particular date, without duplication, (a) all indebtedness of a Person
for borrowed money whether or not evidenced by a note, bond, debenture or other
debt instrument, or for the deferred purchase price of property (excluding trade
accounts payable in the ordinary course of business), whether short term or long
term, (b) any indebtedness secured by a lien on a Person’s assets whether or not
such Person is primarily liable for repayment thereof, (c) the Stated Amount of
all letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder and not repaid by such Person, (d)
lease obligations of such Person which, in accordance with GAAP, should be
capitalized , (e) any other transaction (including forward sale or purchase
agreements) having the commercial effect of a borrowing of money entered into by
such Person to finance its operations or capital requirements and (f) any
obligations described in any of the preceding clauses for which a Person is
obligated pursuant to a guaranty (and not already included as part of the
consolidated Indebtedness of such Person).

     

     “Intangible
Assets” – on a consolidated basis with respect to the Borrower and any
Subsidiaries, (a) all loans or advances to and other receivables owing from, any
officer and employees and other receivables owing from, any officers, employees
and Affiliates, (b) goodwill, and (c) any other assets deemed
intangible under GAAP.


    
      
         


      

      
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    “Inventory”
– inventory, as defined in the Uniform Commercial Code as in effect in New York
State as of the date of this Agreement, and in any event shall include returned
or repossessed goods.

     

    “LC
Disbursement” –means the aggregate amount of all draws paid by the Lender
pursuant to the Letters of Credit.

     

    “LC
Exposure” – means, at any time, the sum of (a) the aggregate undrawn
amounts of all outstanding Letters of Credit at such time, plus
(b) the aggregate amount of all LC Disbursements drawn under any Letters of
Credit that have not yet been reimbursed by the Borrower at such
time.

     

    “Letter
of Credit” – means any irrevocable standby letter of credit issued to
Lender pursuant to this Agreement.

     

    “Letter
of Credit Commitment” – means the commitment of the Lender under this
Agreement to issue Letters of Credit in an aggregate Stated Amount available to
be drawn not to exceed, at any time, (i) one million Five Hundred Thousand and
00/100 dollars ($1,500,000.00) minus
(ii) the LC Exposure at such time.

     

    “Letter
of Credit Documents” – means, with respect to any Letter of Credit,
collectively, any application therefor and any other agreements, instruments,
guarantees or other documents (whether general in application or applicable only
to such Letter of Credit) governing or providing for (a) the rights and
obligations of the parties concerned or at risk with respect to such Letter of
Credit, or (b) any collateral security for any of such obligations, each as the
same may be modified and supplemented and in effect from time to
time.

     

    “Letter
of Credit Fees” – as defined in Section
2.4(i).

     

     “Lender”
– as defined in the opening paragraph of this Agreement, and its successors and
assigns.

     

     “Libor
Loan” – any portion of the Revolving Credit on which interest is
calculated based on the Libor Rate plus an Applicable Interest
Margin.

     

     “Libor
Rate” – the rate per annum (rounded upward, if necessary, to the nearest
1/16th of 1%)
obtained by dividing (i) the applicable  London Interbank Offered Rate
for the one-month interest period, as fixed by the British Bankers Association
for United States dollar deposits in the London interbank market at
approximately 11:00 a.m. London, England time (or as soon thereafter as
practicable) each day (or if such day is not a London Business Day, as fixed in
the same manner on the immediately preceding London Business Day, which day’s
rate shall, unless otherwise provided for, apply to the immediately succeeding
non-London Business Days), as determined by the Lender from any broker, quoting
service or commonly available source utilized by the Lender, by (ii) a
percentage equal to 100% minus the stated maximum rate of all reserves required
to be maintained against “Eurocurrency Liabilities” as specified in Regulation D
(or against any other category of liabilities, which includes deposits by
reference to which the interest rate on LIBOR Rate Loan(s) is determined, or any
category of extensions of credit or other assets which includes loans by a
non-United States’ office of a bank to United States’ residents) on such date to
any member bank of the Federal Reserve System. Notwithstanding any provision
above, the practice of rounding to determine LIBOR may be discontinued at any
time in the Bank’s sole discretion.


    
      
         


      

      
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     “Lien”
– any mortgage, deed of trust, pledge, hypothecation, assignment, security
interest, lien, charge or encumbrance, or preference, priority or other security
agreement or preferential arrangement in respect of any asset of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the Uniform Commercial Code or comparable
law of any jurisdiction).

     

     “Loan”
or “Loans”
– individually and collectively, any Advance under the Revolving Loan, whether
initially made as a Libor Loan or converted to a Prime Rate Loan pursuant to
Section 2.10.

     

     “Loan
Account” – an account maintained with the Lender for the Borrower into
which the proceeds of any funds borrowed hereunder shall be initially
deposited.

     

     “Loan
Document” – any document executed and delivered by Borrower or the Lender
in connection with this Agreement including, without limitation, the Revolving
Note, the Collateral Documents and the Letter of Credit Documents.

     

    “London
Business Day” shall mean any day on which dealings in United States
dollar deposits are carried on by banking institutions in the London interbank
market

     

     “Material
Adverse Effect” – means any condition or event that the Lender reasonably
determines has had or is reasonably likely to have  a material adverse
effect on (a) the business, operations, property or condition (financial or
otherwise) or prospects of the Borrower, (b) the business, operations, property,
condition (financial or otherwise) or prospects of the Borrower and its
Subsidiaries, if any, taken as a whole, or (c) the validity or enforceability of
this Agreement or any of the other Loan Documents or the rights and remedies of
Lender hereunder or thereunder.

     

     “Maximum
Limit” – the maximum aggregate amount which the Borrower can borrow under
the Credit, which is Three Million and 00/100 dollars
($3,000,000.00).

     

     “Net
Income” – for any fiscal period, the net after tax income (loss) of the
Borrower and any Subsidiaries on a consolidated basis for such period determined
on an accrual and consolidated basis.


    
      
         


      

      
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     “Note”
or “Notes”
– any and all notes evidencing any Indebtedness created under this
Agreement.

     

    “Obligations”
means any and all indebtedness or other obligations of the Borrower to the
Lender in any capacity, now existing or hereafter incurred, however created or
evidenced, regardless of kind, class or form, whether direct, indirect, absolute
or contingent (including obligations pursuant to any guaranty, endorsement,
other assurance of payment or otherwise), whether joint or several, whether from
time to time reduced and thereafter increased, or entirely extinguished and
thereafter reincurred, together with all extensions, renewals and replacements
thereof, and all interest, fees, charges, costs or expenses which accrue on or
in connection with the foregoing, including any indebtedness or obligations (i)
not yet outstanding but contracted for, or with regard to which any other
commitment by the Lender exists; (ii) arising prior to, during or after any
pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding; (iii)
owed by the Borrower to others and which the Lender obtained, or may obtain, by
assignment or otherwise; and (iv) payable under this
Agreement.

     

    “Pension
Plan” – any pension plan as defined in Section 3(2) of ERISA which is a
multiemployer plan or single employer plan as defined in Section 4001 of ERISA
and subject to Title IV of ERISA and which is (i) a plan maintained by Borrower
for employees or former employees of Borrower, (ii) a plan to which Borrower
contributes or is required to contribute, (iii) a plan to which Borrower was
required to make contributions at any time, or (iv) any other plan with respect
to which Borrower has incurred or may incur liability, including contingent
liability, under Title IV of ERISA, to such plan or to the Pension Benefit
Guaranty Corporation. For purposes of this definition and for purposes of
Sections 4.10 and 5.10 hereof, “Borrower” shall include any trade or business
(whether or not incorporated) which is deemed to be a “single employer” within
the meaning of Section 4001(b)(1) of ERISA. Each such Pension Plan in existence
as of the date of this Agreement is listed and
identified on Schedule 1 annexed hereto

     

     “Permitted
Encumbrances” – all encumbrances described on Schedule 4.3 to this
Agreement.

     

     “Person”
– any individual, corporation, limited liability company, partnership, joint
venture, trust, unincorporated association, government or political subdivision
or other entity, body, organization or group.

     

     “Prime
Rate” – the rate of interest publicly announced by the Lender from time
to time as its prime rate and as a base rate for calculating interest on certain
loans.  The Prime Rate may or may not be the most favorable rate
charged by the Lender to its customers.

     

     “Prime
Rate Loan” – any portion of the Revolving Credit for which interest is
calculated based on the Prime Rate.


    
      
         


      

      
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     “Receivable”
– the right to payment for Goods sold or leased or services rendered by the
applicable entity, whether or not earned by performance, and may, without
limitation, in whole or in part be in the form of an Account, Chattel Paper,
Document, or Instrument, as such terms are defined in the Uniform Commercial
Code as in effect in New York State on the date of this Agreement.

     

     “Release”
– has the same meaning as given to that term in Section 101(22) of the
Comprehensive, Environmental Response, Compensation and Liability Act of 1980,
42 U.S.C. Section 9601, et.
seq. and the regulations promulgated thereunder.

     

     “Reportable
Event” – any event with regard to a Pension Plan described in
Section 4043(c) of ERISA, or in regulations issued thereunder.

     

     “Request
Certificate” – a certificate in the form annexed hereto as Exhibit
B, with all blanks appropriately completed, and duly executed on behalf
of the applicable Person.

     

     “Revolving
Credit” – as defined in Section 2.1 of this Agreement.

     

     “Revolving
Credit Commitment” –the obligation of Lender to make Revolving Loans and
issue Letters of Credit, subject to the terms of this Agreement.

     

     “Revolving
Credit Maturity Date” – June 9, 2013 which date may be shortened in
accordance with Sections 2.12 or 7.2 of this Agreement.

     

     “Revolving
Loan” or “Revolving
Loans” – as defined in Section 2.1 of this Agreement.

     

     “Revolving
Note” – the promissory note of the Borrower in the form of Exhibit A
hereto, and all replacements and renewals thereof, evidencing the promise of the
Borrower to repay to the Lender all Advances under the Revolving
Credit.

     

     “Security
Agreement” and “Security
Interests” – as defined in Section 3.6 of this
Agreement.

     

     “Stated
Amount” means the stated amount available to be drawn under a Letter of
Credit after giving effect to any reductions in such Stated Amount which have
occurred pursuant to the terms of such Letter of Credit.

     

     “Subordinated
Debt” means all indebtedness of the Borrower which has been formally
subordinated to payment and collection of the
Obligations.

     

     “Subsidiary”
– with respect to a Person, any entity of which at least 50% of the voting stock
or voting equity interests is owned by such Person directly, or indirectly
through one or more Subsidiaries.  If such Person has no Subsidiaries,
the provisions of this Agreement relating to Subsidiaries shall be inapplicable,
without affecting the applicability of such provisions to any entity
alone.


    
      
         


      

      
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     “Tangible
Net Worth” means the consolidated aggregate assets of Borrower and any
Subsidiaries excluding all Intangible Assets, less liabilities, plus
Subordinated Debt, all determined in accordance with GAAP (except to the extent
that under GAAP “tangible net worth” excludes leasehold improvements which are
included in “Tangible Net Worth” as defined herein).

     

     “USA
Patriot Act” - the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,
Public Law 107-56, as the same has been, or shall hereafter be, renewed,
extended, amended or replaced.

     

     “Voting
Power” means, with respect to any Person, the exclusive ability to
control, through the ownership of shares of capital stock, partnership
interests, membership interests or otherwise, the election of members of the
board of directors or other similar governing body of such Person.  The
holding of a designated percentage of Voting Power of a Person means the
ownership of shares of capital stock, partnership interests, membership
interests or other interests of such Person sufficient to control exclusively
the election of that percentage of the members of the board of directors or
similar governing body of such Person.

     

    1.2           Accounting
Terms.  All
accounting terms not otherwise defined herein have the meaning assigned to them
in accordance with GAAP. If a change in GAAP affects the computation of any
financial ratio or requirement set forth in this Agreement, and either the
Borrower or the Lender shall so request, the Lender and the Borrower shall
negotiate in good faith to amend such ratio or requirement to preserve the
original intent thereof in light of such change in GAAP; and until such
amendment shall have been agreed to the ratio or requirement shall be computed
without giving effect to such change.

     

    ARTICLE
II.   THE
CREDIT

     

    2.1 The
Revolving Credit.

     

    (a)  Revolving
Loans.  The Lender agrees, subject to the terms and conditions
and relying upon the representations and warranties set forth in this Agreement
and within the limits hereof, to make one or more loans (each a “Revolving
Loan”, and collectively the “Revolving Loans”) to Borrower, and Borrower may
make a request for a Revolving Loan or Revolving Loans from the Lender, at any
one time and from time to time, from the date hereof until the Revolving Credit
Maturity Date or the earlier termination of this Agreement pursuant to the terms
hereof, in total not in excess of the Maximum Limit in the aggregate at any one
time outstanding (collectively, the “Revolving Credit”).  The
Revolving Loans may be repaid and reborrowed in accordance with the provisions
hereof.


    
      
         


      

      
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    (b)  Method
for Loans.  When Borrower wants the Lender to make a Revolving
Loan available, the Borrower shall notify the Lender not later than 2:00 P.M. on
the Business Day that such Revolving Loan is requested.  In such
notice, which may be given by means of a Request Certificate in the form of
Exhibit B hereto, as appropriate, with all blanks appropriately completed, the
Borrower shall specify (i) the aggregate amount of the Revolving Loan
requested, which shall be in a minimum amount of $20,000 and shall be in whole
multiples of $10,000 for amounts in excess of such minimum amount and
(ii) the proposed date on which the Revolving Loan is to be funded which
shall be a Business Day.  Lender will make the proceeds of the
Revolving Loan available to the Borrower by a deposit to the applicable Loan
Account on the Business Day of such request if the request is made before 2:00
P.M., and on the next Business Day if made after 2:00 P.M., provided the
conditions set forth in Article III of this Agreement have been
satisfied.

     

    The
Lender shall not incur any liability to Borrower  in acting upon any
notice referred to above or upon any telephonic notice which the Lender believes
in good faith to have been given on behalf of the Borrower by a duly authorized
officer or other Person authorized to borrow on behalf of Borrower or for
otherwise acting in good faith hereunder.

     

    2.2 The
Revolving Note.  The
Revolving Loans shall be evidenced by the Revolving Note, with all blanks
appropriately completed, payable as provided therein to the
Lender.  The Revolving Note shall be inscribed by the holder thereof
on the schedule attached thereto and any continuation thereof with the date of
the making of each Revolving Loan, the amount of each Revolving Loan, all
payments of principal, and the aggregate outstanding principal balance
thereof.  Any such inscription shall constitute prima facie evidence
of the accuracy of the information so recorded; provided, however, the failure
of the Lender to make any such inscription shall not affect the obligations of
Borrower under the Revolving Note or this Agreement.

     

    2.3 Interest.

     

    (a)  Rates.  The
Revolving Note shall bear interest payable monthly in arrears on the first day
of each month for interest accrued during the preceding month prior to maturity
(whether by acceleration or otherwise) on the balance of principal thereof from
time to time unpaid.  Revolving Loans shall bear interest at a per
annum rate of interest equal to the LIBOR Rate plus the Applicable Interest
Margin, unless the circumstances set forth in 2.10 below are applicable. The
LIBOR Rate shall be determined daily and the interest rate applicable to the
Revolving Note will change simultaneously with each change in the LIBOR Rate. In
no event shall the per annum interest rate applicable to the Revolving Note be
less than 3.35%.

     

    (b)  Default
Rate.  After maturity, whether by acceleration or otherwise,
the Revolving Note shall bear interest at a per annum rate equal to three
percent (3%) in excess of the otherwise applicable rate of interest thereon;
provided, however, in no event shall the rate of interest on the Revolving Note
exceed the maximum rate authorized by law.

     

    (c)  Computation
of Interest.  Interest on Libor Loans shall be calculated on
the basis of days elapsed in a year of 360 days, which will result in a higher
effective annual rate. Interest on Prime Rate Loans, if any, shall be calculated
on the basis of the actual number of days elapsed in a year of 365/366
days.  If the Revolving Note is not paid when due, whether because the
Revolving Note becomes due on a Saturday, Sunday or bank holiday or for any
other reason, the Borrower will pay interest thereon at the aforesaid rate until
the date of actual receipt of payment by the holder of the Revolving
Note.


    
      
         


      

      
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    2.4 Letters
of Credit.

     

    (a)  Letters
of Credit.  Subject
to the terms and conditions set forth herein, the Borrower may request the
Lender to issue, at any time and from time to time, Letters of Credit for the
account of the Borrower in such form as is acceptable to the Lender in its
reasonable determination in an aggregate Stated Amount not to exceed the lesser
of: (i) the Letter of Credit Commitment less the Letter of Credit Exposure and
(ii) the Maximum Limit, less all outstanding Revolving Loans and the LC Exposure
at such time.  Letters of Credit issued hereunder shall constitute
utilization of the Revolving Credit.

     

    (b)  Notice
of Issuance; Amendment; Renewal or Extension.  To request the
issuance of a Letter of Credit (or the amendment, renewal or extension of an
outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or
transmit by electronic communication, including without limitation PDF documents
delivered via electronic mail) to the Lender (reasonably in advance of the
requested date of issuance, amendment, renewal or extension) a notice requesting
the issuance of a Letter of Credit, or identifying the Letter of Credit to be
amended, renewed or extended, and specifying the date of issuance, amendment,
renewal or extension (which shall be a Business Day), the date on which such
Letter of Credit is to expire (in compliance with paragraph (d) of this
Section), the amount of such Letter of Credit, the name and address of the
beneficiary thereof and such other information as shall be necessary to prepare,
amend, renew or extend such Letter of Credit. The Borrower shall submit a letter
of credit application on the Lender's standard form in connection with any
request for a Letter of Credit.  In the event of any inconsistency
between the terms and conditions of this Agreement and the terms and conditions
of any form of letter of credit application or other agreement submitted by the
Borrower to, or entered into by the Borrower with, the Lender relating to any
Letter of Credit, the terms and conditions of this Agreement shall
control.  In addition, to the extent that any provision of any such
letter of credit application or other agreement is more restrictive (from the
perspective of the Borrower) than a similar provision of this Agreement, then
the less restrictive provision in this Agreement shall
control.  Furthermore, nothing contained in any such letter of credit
application or other agreement shall derogate from any of the rights, or add to
the obligations, of the Borrower contained in this
Agreement.

     

    (c)    Limitations
on Amounts. A Letter of Credit shall be issued, amended, renewed or
extended only if (and upon issuance, amendment, renewal or extension of each
Letter of Credit the Borrowers shall be deemed to represent and warrant that),
after giving effect to such issuance, amendment, renewal or extension the Letter
of Credit Exposure does not exceed the lesser of: (i) the Letter of Credit
Commitment or (ii) the Maximum Limit less all outstanding Revolving Loans at
such time.


    
      
         


      

      
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    (d)    Expiration
Date.  Each Letter of Credit shall expire at or prior to the
close of business on the earlier of (i) the date which is twelve (12) months
after the date of the issuance of such Letter of Credit (or, in the case of any
renewal or extension thereof, twelve (12) months after the then current
expiration date of such Letter of Credit) or (ii) the Revolving Credit Maturity
Date.

     

    (e)    Reimbursement.  If
the Lender shall receive a request for a drawing for an LC Disbursement in
respect of a Letter of Credit, the Lender shall provide the Borrower with notice
thereof, which notice may be telephonic or by e-mail correspondence to the Chief
Executive Officer, Chief Financial Officer  or Vice President of
Finance of the Borrower, as soon as possible thereafter but in any event at
least two Business Days prior to the Business Day on which such LC Disbursement
is to be made to the beneficiary.  The Borrower shall pay to the
Letter of Credit Issuer the amount in dollars of each such LC Disbursement
(which may be funded with the proceeds of a Revolving Loan) on the Business Day
preceding the Business Day on which such LC Disbursement is to be paid to the
beneficiary thereof.

     

    (f)    Obligations
Absolute.  The Borrower’s obligation to reimburse LC
Disbursements shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement and the Letter
of Credit Documents under any and all circumstances whatsoever and irrespective
of (i) any lack of validity or enforceability of any Letter of Credit, or any
term or provision therein, (ii) any draft or other document presented under a
Letter of Credit proving to be forged, fraudulent or invalid in any respect or
any statement therein being untrue or inaccurate in any respect, and (iii) any
other event or circumstance whatsoever, whether or not similar to any of the
foregoing, that might, but for the provisions of this Section, constitute a
legal or equitable discharge of the Borrower’s obligations
hereunder.  Neither the Lender, nor any of its employees, officers or
directors, shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit by the Lender
or any payment or failure to make any payment thereunder (irrespective of any of
the circumstances referred to in the preceding sentence), or any error,
omission, interruption, loss or delay in transmission or delivery of any draft,
notice or other communication under or relating to any Letter of Credit
(including any document required to make a drawing thereunder), any error in
interpretation of technical terms or any consequence arising from causes beyond
the control of the Lender; provided
that the foregoing shall not be construed to excuse the Lender from liability to
the Borrower to the extent of any direct damages (as opposed to consequential
damages, claims in respect of which are hereby waived by the Borrower to the
extent permitted by applicable law) suffered by the Borrower that are caused by
the Lender's paying a draft  or other demand for payment presented
under a Letter of Credit when the draft does not substantially comply with the
terms of the Letter of Credit. The parties hereto expressly agree that the
Lender, acting in good faith, may accept documents that appear on their face to
be in compliance with the terms of a Letter of Credit without responsibility for
further investigation, regardless of any notice or information to the contrary,
and may make payment upon presentation of documents that appear on their face to
be in compliance with the terms of such Letter of
Credit:

     

    (I)    the
Lender shall have the right, in its sole discretion but acting in good faith, to
decline to accept such documents and to make such payment if such documents are
not in strict compliance with the terms of such Letter of Credit;
and


    
      
         


      

      
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     (II)      this
sentence shall establish the standard of care to be exercised by the Lender when
determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof (and the parties hereto hereby waive, to
the extent permitted by applicable law, any standard of care inconsistent with
the foregoing).

     

    (g)   Disbursement
Procedures.  The Lender shall, within a reasonable time
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Lender shall promptly after
such examination notify the Borrower by telephone (confirmed by telecopy) of
such demand for payment and whether the Lender has made or will make an LC
Disbursement thereunder; provided
that any failure to give or delay in giving such notice shall not relieve the
Borrower of their obligation to reimburse the Lender with respect to any such LC
Disbursement.

     

    (h)   Interim
Interest.  If
the Lender shall make any LC Disbursement, then, unless the Borrower reimburses
the Lender for such LC Disbursement, in full, on or prior to the date such LC
Disbursement is made, the unpaid amount thereof shall bear interest, for each
day from and including the date such LC Disbursement is made to but excluding
the date that the Borrower reimburses such LC Disbursement, at the rate per
annum equal to the LIBOR Rate plus the Applicable Interest Margin; provided
that, if the Borrower fails to reimburse such LC Disbursement within five (5)
Business Days of becoming due pursuant to paragraph (e) of this Section, then
default interest shall accrue in accordance with Section 2.2(b)
hereof.

     

    (i)    Letter
of Credit Fees.  The Borrower agrees to pay to the Lender a fee
with respect to each Letter of Credit, which shall accrue at a rate per
annum equal to 1.75%  on the Stated Amount thereof for the
period from the date of issuance (or renewal) to the expiration date thereof
(the “Letter of
Credit Fees”). Letter of Credit Fees accrued through and including the
end of each fiscal quarter of Borrower shall be payable on the third (3rd)
Business Day following such date, commencing on the first such date to occur
after the effective date of the Letter of Credit; provided
that all such fees shall be payable on the date on which the Revolving Credit
terminates and any such fees accruing after the date on which the Revolving
Credit terminates shall be payable on demand. Any other fees payable to the
Lender pursuant to this paragraph shall be payable within ten (10) days after
demand.

     

    (j)    Administrative
Fees.  The
Borrower agrees to pay directly to the Lender, a fee in respect of each Letter
of Credit issued by it (an “Administrative
Fee”) in the amount of the Lender’s standard fees, as announced to its
customers from time to time, for issuance, negotiation and amendment (including
any extensions of such expiration date that may be made at the election of the
beneficiary thereof).  Accrued Administrative Fees shall be due and
payable on demand.

     

    2.5  Charge
to Account.
On the date that any principal of or interest on the Notes or any fees or
charges payable under this Agreement are due, Borrower authorizes the Lender to
debit any deposit account of Borrower maintained with Lender on such due date in
an amount equal to such unpaid principal, interest, fees or charges, as
applicable due from Borrower


    
      
         


      

      
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    2.6  Optional
Prepayments

     

    (a)  Libor
Loans.  Borrower shall have the right to repay without premium
all or any portion of the Revolving Loans outstanding under the Revolving Credit
at any time.

     

    All
repayments of the Revolving Loans shall be subject to a minimum amount of
$10,000, and incremental multiples of $10,000.

     

    2.7  Use
of Proceeds.  Borrower
covenants to the Lender that it will use the proceeds of the all Advances for
working capital and general corporate requirements, including, but not limited
to, for repurchases of Borrower’s stock, acquisitions, and the payment of
dividends.

     

    2.8  Late
Charge.  Upon
failure to make any payment of principal or interest on the Revolving Note
(other than the principal amount due on maturity) within ten (10) days of
the due date thereof, the Borrower promises to pay, upon demand by the Lender, a
late charge equal to five percent (5%) of the amount of any such overdue
amount of principal or interest.

     

    2.9  Special
Provisions Governing Libor Loans - Increased Costs.

     

    (a)  In
the event that on any day, the Lender shall have determined (which determination
shall be final, conclusive and binding) that:

     

    (I)  by
reason of conditions in the London Interbank Eurodollar Market or of conditions
affecting the position of the Lender in such market occurring after the date
hereof, adequate fair means do not exist for establishing the Libor Rate,
or

     

    (II) by
reason of (a) any change in any applicable law or governmental rule,
regulation, guideline or order (or any written interpretation thereof and
including any new law or governmental rule, regulation, guideline or order but
excluding any of the foregoing relating to taxes referred to in
Section 2.11), or (ii) other circumstances affecting the Lender or the
London Interbank Eurodollar Market or the position of the Lender in such Market
(such as, but not limited to, official reserve requirements), the Libor Rate
does not represent the effective pricing to the Lender for U.S. dollar deposits
of comparable amounts for the relevant period due to such increased costs; then,
and in either such event, the Lender shall on such date  give notice
by telephone, confirmed in writing, to the Borrower of such
determination.

     

    (b)  Thereafter,
the Borrower shall pay to the Lender upon written request therefor, such
additional amounts as the Lender shall reasonably determine to be required to
compensate the Lender for such increased costs.  A certificate as to
such additional amounts submitted to the Borrower by the Lender setting forth
the applicable computation in reasonable detail shall, absent manifest error, be
final, conclusive and binding upon Borrower and the
Lender.

     

    (c)  In
lieu of paying to the Lender such additional amounts as required by this
Section 2.9, the Borrower may, if such determination by the Lender relates
to a Libor Loan then being requested by the Borrower pursuant to the terms
hereof, on such day by giving notice by telephone to the Lender, withdraw such
request.


    
      
         


      

      
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    2.10    Required
Termination and Repayment of Libor Loans.

     

    (a)  In
the event the Lender shall have reasonably determined, at any time (which
determination shall be final, conclusive and binding but shall be made only
after consultation with the Borrower), that the making or continuation of any or
all of the Libor Loans hereunder:

     

    (I)  has
become unlawful by compliance by the Lender in good faith with any applicable
law, governmental rule, regulation, guideline or order, or

     

    (II) would
cause the Lender severe hardship as a result of a contingency occurring after
the date hereof which materially and adversely affects the London Interbank
Eurodollar Market (such as, but not limited to disruptions resulting from
political or economic events); then, and in either such event, the Lender shall
on such date (and in any event as soon as possible after making such
determination) give telephonic notice to the Borrower, confirmed in writing, of
such determination, identifying which of the Libor Loans was so
affected.

     

    (b)  The
Borrower then shall  repay each such affected Libor Loan, together
with all interest accrued thereon.

     

    (c)  In
lieu of the repayment to the Lender required by Section 2.10(b), the
Borrower may exercise the following options:

     

    (I)  If
the determination by the Lender relates to a Libor Loan then being requested by
Borrower pursuant to the terms hereof, the Borrower may, on such date by giving
notice by telephone to the Lender, withdraw such request; or

     

    (II) The
Borrower may, by giving notice by telephone to the Lender, require the Lender to
make the Libor Loan then being requested in the form of a Prime Rate Loan, or to
convert its outstanding Libor Loan or Loans that are so affected into a Prime
Rate Loan.  Such notice shall pertain only to the affected Libor
Loans  outstanding or to be outstanding.

     

    2.11    Taxes.  If
any taxes or duties of any kind shall be payable, or ruled to be payable, by or
to any taxing authority of or in the United States, or any other foreign
country, or any political subdivision of any thereof, in respect of any of the
transactions contemplated by this Agreement (including, but not limited to,
execution, delivery, performance, enforcement, or payment of principal or
interest of or under the Revolving Note or the making of any Libor Loan), by
reason of any now existing or hereafter enacted statute, rule, regulation or
other determination (excluding any taxes imposed on or measured by the net
income of the Lender), the Borrower will:

    (a)  pay
on written request therefor all such taxes or duties, including interest and
penalty, if any,


    
      
         


      

      
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    (b)  promptly
furnish the Lender with evidence of any such payment,
and

     

    (c)  indemnify
and hold the Lender and any holder or holders of the Revolving Note harmless and
indemnified against any liability or liabilities with respect to or in
connection with any such taxes or the payment thereof or resulting from any
delay or omission to pay such taxes;

     

    provided,
however, the Borrower shall not have any obligation to indemnify or hold
harmless the Lender or to “gross up” the Lender or any holder of the Note for
withholding taxes or similar taxes that become payable following the Lender’s
assignment of all or any portion of its rights under this
Agreement  or the Note if such withholding or other taxes would not be
payable if the Lender had not effected such
assignment.

     

    Without
prejudice to the survival of any other agreement of Borrower under this
Agreement, the agreement and obligations of the Borrower contained in this
Section 2.11 shall survive the termination of this Agreement.

     

    2.12    Annual
Facility Fee; Termination of Facilities.

     

    As consideration for the
Lender’s commitment to make available the Revolving Credit, the Borrower agrees
to pay to Lender a fee (“Facility Fee”) on the average daily unused portion of
the Revolving Credit Commitment from the date of this Agreement until the
Revolving Credit Maturity Date at the per annum rate of 0.125%, calculated on
the basis of a year of 360 days, payable monthly, in arrears, on the first day
of each month during the term of this Agreement and a final payment on the
Revolving Credit Maturity Date.

     

    Borrower
may terminate this Agreement at any time by providing prior written notice (a
“Termination Notice”) to Lender setting forth the  proposed effective
date of any such termination.Borrower shall not be required to pay any fee for
such termination.

     

    Any termination of this
Agreement shall only become effective, after receipt by Lender of a Termination
Notice, on the first day thereafter that all outstanding Advances and LC
Exposure, together with any accrued and unpaid interest, fees and/or
expenses  have been reduced to zero and Borrower has paid all other
amounts due and payable to Lender under this Agreement or any Loan Document. On
such date, Lender shall have no further commitment to make Advances or issue
Letters of Credit under this Agreement.

     

    2.13    Payments.
All payments of interest, principal, fees and other expenses by the
Borrower under this Agreement unless otherwise specified shall be made in lawful
currency of the United States of America and in immediately available funds
without counterclaim or setoff and free and clear and without reduction for any
present or future income, stamp or other taxes, deductions or withholdings
(except as may be required by law and subject to the proviso of Section 2.11
hereof), all of which shall be paid by the Borrower for its own
account.  All payments shall be made not later than 12:00 Noon
(Buffalo, New York time) on the due date at the Lender’s office, unless such
amount is sooner paid by the Lender debiting a deposit account for
Borrower.  All payments (unless stated herein otherwise) shall be
applied first to the payment of all fees, expenses and other amounts due to the
Lender (excluding principal and interest), then to accrued interest, and the
balance on account of outstanding principal; provided, however, that after an
Event of Default, payments will be applied to the obligations of Borrower to the
Lender as the Lender determines in its sole
discretion.


    
      
         


      

      
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      ARTICLE
III.   CONDITIONS TO THE
CREDIT

       

      The
Lender’s agreement to lend, contained in this Agreement, shall be effective only
upon fulfillment of the following conditions at or prior to the date of the
execution of this Agreement.

      


      3.4    Borrower
Action.  The
Borrower shall have taken all necessary and appropriate corporate and
shareholder action and shall have adopted resolutions authorizing the execution
and delivery of this Agreement, the Revolving Note, the Loan Documents and the
taking of all action required of Borrower by this Agreement; and the Borrower
shall have furnished to the Lender copies certified as of the date of the
execution of this Agreement of such resolutions and such other company documents
as the Lender shall reasonably request.

      


      3.5    Borrower
Documents. There
shall have been furnished to the Lender a general certificate from Borrower
including: (i) certificates of Borrower’s good standing duly issued of
recent date by each jurisdiction where Borrower is qualified to do business;
(ii) copies of the certificates of incorporation and current by-laws of
Borrower, certified by its Secretary as of the date of the execution of this
Agreement; (iii) an incumbency certificate specifying the officers of
Borrower, together with their specimen signatures; and (iv) such other
certifications and exhibits as the Lender may reasonably request.

      


      3.6    Note. The Borrower shall have
executed and delivered to the Lender the Revolving Note, appropriately
completed, evidencing the Borrower’s obligations to repay the
Credit.

      


      3.7    Security
Agreement.
Borrower shall have executed and delivered to the Lender (i) one or
more security agreements (“Security Agreements”) in form and content
satisfactory to the Lender granting to the Lender, security interests (“Security
Interests”) in all of Borrower’s Equipment, Inventory, Accounts, Documents,
Instruments, Chattel Paper, Investment Property, General Intangibles, Deposit
Accounts, Letter of Credit Rights, Patents, Trademarks, Tradenames, Copyrights,
Hedge Agreements, Insurance Proceeds, Tax Refunds, Cash and License Rights,
whether now owned or hereafter acquired, wherever located, and any and all
proceeds thereof (“Collateral”), as continuing collateral security for the
payment of any and all Indebtedness and liabilities, whether now existing or
hereafter incurred, of the Borrower to the Lender arising under this Agreement
and the Loan Documents; and (ii) appropriate financing statements
(“Financing Statements”) to perfect the Security Interests, which Security
Interests shall, at the time  of the execution of this Agreement, be
superior to all other liens and security interests in such property except as to
liens and security interests approved by the Lender, including those set forth
on Schedule 4.3.


      
        
           


        

        
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      3.8    Opinion. Independent counsel for the
Borrower shall have furnished to the Lender, their favorable opinion, in form
and content satisfactory to the Lender and its counsel, dated the date of the
execution of this Agreement..

      


      3.9    Certificates.  The Borrower shall
have provided to the Lender, appropriately completed insurance certificates,
binders or policies evidencing compliance with Section 5.5 of this
Agreement, and an appropriately completed Request Certificate indicating the
amount requested to be borrowed on the Closing Date.

      


      3.10   Subsequent
Extensions of Credit-Revolving Credit.  Subsequent to the
satisfaction of the conditions set forth herein, each request to the Lender for
a Revolving Loan after the date hereof shall constitute confirmation by the
Borrower of all the factual matters set forth in the form of Compliance
Certificate as of the date of such Revolving Loan in the same manner as if a
written Compliance Certificate had been delivered, and such factual matters
shall be true on the date such Revolving Loan is made.  No Revolving Loan
shall be made if such certification is not made without
qualification.

      


      3.11   Other
Matters. All
matters incidental to the execution and delivery of this Agreement, the
Revolving Note, the Collateral Documents and the other documents required hereby
including, without limitation, the payment of all fees and expenses required to
be paid by the Borrower to the Lender and its counsel, and all action required
by this Agreement, shall be satisfactory to the Lender and to its counsel, and
this Agreement shall be in effect.

      


      ARTICLE
IV.   REPRESENTATIONS AND
WARRANTIES

       

      The
Borrower makes the following representations and warranties:

      


      4.1    Good
Standing and Authority.  Borrower is a corporation, duly organized,
validly existing, and in good standing under the laws of its jurisdiction of
organization; has powers and authority to transact the business in which it is
engaged; is duly licensed or qualified and in good standing in each jurisdiction
in which the conduct of such business requires such licensing or such
qualification except where the failure to do so could not reasonably be expected
to have a Material Adverse Effect; Borrower has all necessary power and
authority to execute, deliver and perform this Agreement, the Revolving Note,
the Collateral Documents and any other Loan Documents to which it is a party,
all of which have been duly authorized by all proper and necessary corporate and
shareholder action.

      


      4.2    Valid and
Binding Obligation.  This Agreement, the
Revolving Note, the Loan Documents, and any other document executed in
connection herewith to which Borrower is a party, will constitute the legal,
valid and binding obligations of the Borrower, enforceable in accordance with
their respective terms, except as enforceability (i) may be limited by
state, provincial or federal bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the rights of creditors generally and
(ii) may be subject to equity principles in the event equitable remedies
are sought.

      


      4.3    Good
Title. The
Borrower has good and marketable title to, or a valid leasehold interest in, all
of its assets, none of which is subject to any mortgage, indenture, pledge,
Lien, conditional sales contract, security interest, encumbrance, claim, trust
or charge, except for  Permitted Encumbrances.


      
        
           


        

        
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      4.4    No
Pending Litigation.
Except as set forth on Schedule 4.4, there are not any actions,
suits, proceedings (whether or not purportedly on behalf of Borrower) or
investigations pending or, to the knowledge of Borrower, threatened, against
Borrower, which would, in any case or in the aggregate, be reasonably expected
to have a Material Adverse Effect, or which question the validity of this
Agreement, the Revolving Note, the Collateral Documents, or any other documents
required by this Agreement, or any action taken or to be taken pursuant to any
of the foregoing.

      


      4.5    No
Consent or Filing.
No consent, license, approval or authorization of, or registration,
declaration or filing with, any court, governmental body or authority or other
Person or entity is required in connection with the valid execution, delivery or
performance of this Agreement, the Revolving Note, the Collateral Documents, or
any other Loan Document to which Borrower is a party, or in connection with any
of the transactions contemplated thereby, other than filings and recordings in
connection with the Collateral Documents.

      


      4.6    No
Violations. 
Borrower is not in material violation of any term of its certificate of
incorporation or by-laws, or of any mortgage, borrowing agreement or other
material instrument or agreement pertaining to Indebtedness for borrowed
money.  Borrower is not in violation of any order, writ, judgment,
injunction or decree of any court of competent jurisdiction or, of any statute,
rule or regulation of any competent governmental authority which might
reasonably be expected to result in, a Material Adverse Effect.  The
execution and delivery of this Agreement, the Revolving Note, the Collateral
Documents, and the other Loan Documents, and to the best of Borrower’s
knowledge, the performance of all of the same is and will be in compliance with
the foregoing and will not result in any violation or result in the creation of
any mortgage, Lien, security interest, charge or encumbrance upon any of its
properties or assets except in favor of the Lender.  There exists no fact
or circumstance not disclosed in this Agreement or in the documents furnished in
connection herewith (so far as Borrower can now reasonably foresee) that would
be reasonably expected to have a Material Adverse Effect.

      


      4.7    Financial
Statements.
Borrower has furnished to the Lender audited financial statements showing
the financial condition of Borrower as of December 31, 2009 prepared by the
accounting firm of Ernst & Young, LLP, which statements present fairly the
financial position of Borrower and its Subsidiaries as of such date and the
results of its operations and changes in its financial position for such period
then ended and has been prepared in conformity with GAAP applied on a basis
consistent with that of similar periods for preceding years. To the best of
Borrower’s knowledge, from the date of such financial statements to the date of
the execution of this Agreement, there have not been any materially adverse
changes in the financial condition of Borrower except as disclosed in such
financial statements.  None of the property or assets shown in the
financial statements delivered to the Lender has been materially adversely
affected as the result of any fire, explosion, accident, flood, drought, storm,
earthquake, condemnation, requisition, statutory or regulatory change, act of
God, or act of public enemy or other casualty, whether or not
insured.


      
        
           


        

        
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      4.8    Tax
Returns. Borrower
has duly filed all federal and other tax returns required to be filed and has
duly paid all taxes required by such returns through the date hereof after
giving effect to any extensions.  Borrower has not received any notice of
assessments by the Internal Revenue Service or any other taxing authority for
additional unpaid taxes except as set forth in Schedule 4.8 hereto.

      


      4.9    Subsidiaries
and Affiliates. 
 Except as set forth on Schedule 4.9, Borrower does not have any
Subsidiaries or Affiliates.

      


      4.10   ERISA
Matters.  No
Pension Plan has been terminated or partially terminated or is insolvent or in
reorganization, nor have any proceedings been instituted to terminate or
reorganize any Pension Plan; Borrower has not withdrawn from any Pension Plan in
a complete or partial withdrawal, nor has a condition occurred which if
continued would result in a complete or partial withdrawal; Borrower has not
incurred any withdrawal liability, including contingent withdrawal liability, to
any Pension Plan pursuant to Title IV of ERISA; Borrower has not incurred
any liability to the Pension Benefit Guaranty Corporation other than for
required insurance premiums which have been paid when due; no Reportable Event
has occurred; and no Pension Plan or other “employee pension benefit plan” as
defined in Section 3(2) of ERISA to which Borrower is a party has an
“accumulated funding deficiency” (whether or not waived) as defined in
Section 302 of ERISA or in Section 412 of the Internal Revenue
Code.  Each Pension Plan and each other “employee benefit plan” as defined
in Section 3(2) of ERISA to which Borrower is a party is in substantial
compliance with ERISA, and no such plan, or any administrator, trustee or
fiduciary thereof has engaged in a prohibited transaction described in
Section 406 of ERISA or in Section 4975 of the Internal Revenue
Code.

      


      4.11   Licenses,
Permits and Approvals.  Borrower has obtained,
and shall maintain in effect at all times hereafter, all necessary licenses,
permits, approvals, consents and registrations which are appropriate or
necessary to conduct its business.

      


      4.12   Environmental
Matters.

      


      (a)  To
the knowledge of Borrower, no above ground or underground storage tanks
containing Hazardous Substances are located on any property owned, leased or
operated by Borrower, and no such tanks have been located on any property,
owned, leased or operated by Borrower, except as may have been removed in
material compliance with applicable Environmental Laws.

       

      (b)  To
the knowledge of Borrower, no property owned, leased or operated by Borrower is
or has been used for the Disposal of any Hazardous Substance or for the
unpermitted or unauthorized treatment, storage or Disposal of Hazardous
Substances in violation of any applicable Environmental Law or except as would
not be reasonably expected to have a Material Adverse Effect.

       

      (c)  To
the knowledge of Borrower, no material Release of a Hazardous Substance has
occurred or is threatened on, at, from or, to our knowledge, near any property
owned, leased or operated by Borrower that will now or in the future (based on
Environmental Laws currently in effect) require (i) remedial or corrective
action, removal, monitoring or closure pursuant to any Environmental Law
currently in effect or (ii) Borrower to incur costs pursuant to the terms or
conditions of any lease, except as would not be reasonably expected to have a
Material Adverse Effect.


      
        
           


        

        
          20

          
            

          

        

        
           


        

      


      (d)  Borrower
is not subject to any existing, pending or threatened suit, claim, notice of
violation or non-routine request for information under any material
Environmental Law.

       

      (e)  Borrower
is in compliance with, and has obtained all Environmental Permits required by
all Environmental Laws, except as would not be reasonably expected to have a
Material Adverse Effect.

       

      4.13   Anti-Terrorism
Laws.

      


      (a) General. 
Borrower is not in violation of any Anti-Terrorism Law or engaged in or
conspiring to engage in any transaction that evades or avoids, or has the
purpose of evading or avoiding, or attempts to violate, any of the prohibitions
set forth in any Anti-Terrorism Law.

       

      (b) Executive
Order No. 13224.  Neither the Borrower or its Affiliates or their
respective agents acting or benefiting in any capacity in connection with the
Loans or other transactions hereunder, is any of the following (each a “Blocked
Person”):

       

      (I) a
Person that is listed in the annex to, or is otherwise subject to the provisions
of, the Executive Order No. 13224;

       

      (II) a
Person owned or controlled by, or acting for or on behalf of, any Person that is
listed in the annex to, or is otherwise subject to the provisions of, the
Executive Order No. 13224;

       

      (III) a
Person or entity with which any Bank is prohibited from dealing or otherwise
engaging in any transaction by any Anti-Terrorism Law;

       

      (IV) a
Person or entity that commits, threatens or conspires to commit or supports
“terrorism” as defined in the Executive Order No. 13224;

       

      (V) a
Person or entity that is named as a “specially designated national” on the most
current list published by the U.S. Treasury Department Office of Foreign Asset
Control at its official website or any replacement website or other replacement
official publication of such list; or

       

      (VI) a
Person or entity who is affiliated or associated with a Person or entity listed
above.

       

      Neither
the Borrower, or any Affiliate of the Borrower or, to the knowledge of the
Borrower, any of its agents acting in any capacity in connection with the Loans
or other transactions hereunder (i) conducts any business or engages in making
or receiving any contributions of funds, goods or services to or for the benefit
of any Blocked Person, or (ii) deals in, or otherwise engages in any
transaction relating to, any property or interests in property blocked pursuant
to the Executive Order No. 13224.


      
        
           


        

        
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      4.14   Regulations.
The Borrower is not engaged principally or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying any “margin stock” (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System of the United States of America).
Neither the granting of any Revolving Loan (or any conversion thereof) or Letter
of Credit nor the use of the proceeds of any Revolving Loan or Letter of Credit
will violate, or be inconsistent with, the provisions of Regulation T, U or X or
any other regulation of such Board of Governors.

      


      ARTICLE
V.   AFFIRMATIVE
COVENANTS

       

      During
the term of this Agreement, and so long thereafter as any Indebtedness of
Borrower to the Lender shall remain unpaid, including any Indebtedness for fees
and expenses, Borrower will:

      


      5.1    Payments.
Duly and punctually pay the principal of, interest on, and all fees and charges
on, all Indebtedness incurred by Borrower pursuant to this Agreement in the
manner set forth in this Agreement.

      


      5.2    Future
Financial Statements.  Furnish to the
Lender:

      


      (a) Within one hundred
and twenty (120) days after the end of each fiscal year of the Borrower, (i)
audited financial statements of Borrower as of the end of such year, fairly
presenting Borrower’s financial position, which statements shall consist of a
balance sheet and related statements of income, retained earnings, and cash flow
covering the period of Borrower immediately preceding fiscal year, and which
shall be prepared by independent certified public accountants satisfactory to
Borrower and the Lender, (ii) a completed Compliance Certificate from the
Borrower in the form of Exhibit C
attached hereto, (iii) a copy of any Management Letter delivered by such
accountants to Borrower in connection with any such audited financial statements
and (iv) a Receivables aging report and an Inventory summary report signed by
the Borrower in form satisfactory to the Lender.

       

      (b) Within thirty (30)
days after the end of each month of the Borrower, financial statements of
Borrower as of the end of such month, fairly presenting its financial position,
which statements shall consist of a balance sheet and related statements of
income, retained earnings, and cash flow covering the period from the end of the
immediately preceding fiscal year to the end of such quarter, all in such detail
as the Lender may request.

       

      (c) Furnish to the
Lender, within thirty (30) days after the end of each quarter after the date
hereof during the term of this Agreement or more frequently if requested by the
Lender, with respect to Borrower, a Compliance Certificate, in form and content
satisfactory to the Lender.


      
        
           


        

        
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      (d) Promptly after their
preparation, copies of  all registration statements and annual or
quarterly reports that Borrower is required to file with the SEC on Form 10-K or
10-Q (or any successor form) which Borrower files with the Securities and
Exchange Commission.

       

      (e) Such additional
information as the Lender may from time to time reasonably request regarding the
financial and business affairs of Borrower.

       

      5.3    Notice.  Promptly notify the
Lender in writing of  (a) any pending or proposed audits of Borrower’s
federal income tax returns by the Internal Revenue Service when Borrower has
knowledge thereof, and the results of each such audit after its completion and
(b) any default by Borrower under any material agreement, or any modification of
a material agreement,  that in either case,  would be
reasonably expected to have a Material Adverse Effect.

      


      5.4    Taxes.   Promptly pay and
discharge all of its taxes, assessments and other governmental charges
(including any charged or assessed on the issuance of the Revolving Note) prior
to the date on which penalties are attached thereto, establish adequate reserves
for the payment of taxes and assessments and make all required withholding and
other tax deposits; provided, however, that nothing herein contained shall be
interpreted to require the payment of any tax, assessment or charge so long as
its validity is being contested in good faith and by appropriate proceedings
diligently conducted.

      


      5.5    Insurance. 
 (a) Keep all of Borrower’s property insured at all times with responsible
insurance carriers against fire, theft and other risks in reasonable coverage,
form and amount satisfactory to the Lender; (b) keep adequately insured at
all times in reasonable amounts with responsible insurance carriers against
liability on account of damage to persons or property, including, without
limitation, coverage against liability based on products liability and under all
applicable worker’s compensation laws; (c) promptly deliver to the Lender
certificates of insurance or the insurance policies required to be carried by
Borrower pursuant hereto, with appropriate endorsements designating the Lender
as a named insured and loss payee; and (d) cause each such insurance policy
to contain a thirty (30) day mandatory notice of cancellation provision
satisfactory to the Lender.

      


      5.6    Litigation.  Promptly notify the
Lender in writing as soon as Borrower has knowledge thereof, of the institution
or filing of any litigation, action, suit, claim, counterclaim, or
administrative proceeding against, or investigation of, Borrower as to which
Borrower is a party by or before any regulatory body or governmental
agency:  (i) the outcome of which might reasonably be expected to
have a Material Adverse Effect, or (ii) which questions the validity of
this Agreement, the Revolving Note, or any Collateral Document, or any action
taken or to be taken pursuant to the foregoing; and furnish or cause to be
furnished to the Lender such information regarding the same as the Lender may
request.

      


      5.7    Corporate
Standing. 
Maintain its corporate existence in good standing and remain or become
duly licensed or qualified and in good standing in each jurisdiction in which
the conduct of its business requires such qualification or licensing except
where failure to become so licensed or qualified is not reasonably likely to
have a Material Adverse Effect.


      
        
           


        

        
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      5.8    Books and
Records. 
Keep proper books and records in accordance with GAAP consistently
applied, and keep such books and records in the location where they are kept on
the date of this Agreement unless the Lender is given thirty (30) days prior
written notice of any relocation of such books and records.

      


      5.9    Compliance
with Law. Comply
in material respects with all applicable laws and governmental rules and
regulations, except where the failure to so comply would not be reasonably
expected to have a Material Adverse Effect.

      


      5.10   Pension
Report. With
respect to each Pension Plan, the Borrower will furnish, or cause to be
furnished, the following to the Lender:

      


      (a) as soon as possible
and in any event within thirty days after Borrower knows or has reason to
know that any Reportable Event with respect to such Pension Plan has occurred,
the statement of the President or Chief Financial Officer of Borrower setting
forth the details of such Reportable Event and the action , if any, Borrower
proposes to take with respect thereto; and

       

      (b) promptly after the
filing thereof with the Secretary of Labor, the Pension Benefit Guaranty
Corporation or the Internal Revenue Service, copies of reports (including,
without limitation, notices of Reportable Events and annual reports in the
Form 5500 Series) filed with respect to each Pension Plan if the Lender has
specifically requested copies of such reports.

       

      5.11   Environmental
Compliance

      


      (a) Comply with all
Environmental Laws, except  where the failure to comply would not be
reasonably expected to have a Material Adverse Effect.

       

      (b) Not suffer, cause or
permit any material Disposal of Hazardous Substances at any property owned,
leased or operated by it except in compliance with applicable Environmental Laws
or except where such Disposal would not be reasonably expected to have a
Material Adverse Effect.

       

      (c) Promptly notify the
Lender in the event of the Disposal of any Hazardous Substance in violation of
any Environmental Law at any property owned, leased or operated by Borrower, or
in the event of any Release, or threatened Release, of a Hazardous Substance in
violation of any Environmental Law from any such property, except where
such  Disposal, Release or threatened Release would not be reasonably
expected to have a Material Adverse Effect.

       

      (d) Deliver promptly to
the Lender (i) copies of any documents received from the United States
Environmental Protection Agency or any state, county or municipal environmental
or health agency concerning a violation or alleged violation by Borrower of any
Environmental Law; and (ii) copies of any non-routine documents submitted
by Borrower to the United States Environmental Protection Agency or any state,
county or municipal environmental or health agency concerning the operations of
Borrower..


      
        
           


        

        
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      5.12   Examinations. Borrower shall at all
reasonable times and from time to time permit the Lender or its agents during
Borrower’s regular business hours to inspect the Collateral and to examine and
make extracts from, or copies of, any of Borrower’s books, ledgers, reports,
correspondence, and other records.  The Lender shall have the right, in
connection with any collateral examination or after the occurrence and during
the continuation of any Event of Default, to verify the Collateral in any manner
and through any means that the Lender considers appropriate.  Borrower
agrees to furnish all assistance and information, and perform any acts, which
the Lender may reasonably require in connection therewith.

      


      5.13   Future
Subsidiaries.

      


      (a) Borrower shall cause
to be furnished to Lender, at such time as any entity becomes a Domestic
Subsidiary of the Borrower after the date of this Agreement, an executed
guaranty and security agreement from any such Domestic Subsidiary, in each case, in form
reasonably acceptable to the Lender.  The Borrower will provide the Lender
with prompt written notice of the incorporation or organization of any such
Subsidiary.

       

      (b) With respect to the
creation or acquisition of a first-tier Foreign Subsidiary of Borrower or a
Domestic Subsidiary, Borrower shall deliver to Lender, all of the share
certificates (or other evidence of equity) owned by Borrower or such Domestic
Subsidiary  pursuant to the terms of a pledge agreement executed by
the appropriate party; provided that no Person shall be required to deliver or
pledge more than sixty-five percent (65%) of the outstanding voting shares or
other voting ownership interest of any Foreign Subsidiary.

       

      5.14   Other
Acts. Execute and
deliver, or cause to be executed and delivered, to the Lender all further
documents and perform all other acts and things which the Lender deems necessary
or appropriate to protect or perfect any security interests in any property
directly or indirectly securing payment of any Indebtedness of Borrower to the
Lender.

      


      ARTICLE
VI.   NEGATIVE
COVENANTS

       

      During
the term of this Agreement and so long thereafter as any of the Indebtedness of
Borrower to the Lender, including any Indebtedness for fees and expenses, shall
remain unpaid, Borrower, without the prior written consent of the Lender, will
not:

      


      6.1    Sale of
Assets.
  Convey, sell, transfer, lease, or sell and lease back any
portion of its property, assets or business except for (i)  the sale
of Inventory in the ordinary course of business , (ii) assets sold, leased.
transferred  or otherwise disposed of for full and adequate
consideration in the reasonable judgment of Borrower which Borrower has
determined to be worn out or obsolete or not useful in the ordinary course of
its business, and (iii) assets sold, leased,  transferred or otherwise
disposed of in the ordinary course of business provided that Borrower receives
full and adequate consideration in the reasonable judgment of Borrower in
exchange for such assets  sold leased transferred or disposed of
..

      


      6.2    Change
Name. 
Change the jurisdiction of formation of Borrower or the name of Borrower
without:


      
        
           


        

        
          25

          
            

          

        

        
           


        

      

      


      (a) giving the Lender
prior notice of such intent to change name;

       

      (b) providing to the
Lender, promptly upon the filing thereof, copies of all name change
documentation; and

       

      (c) executing and
delivering to the Lender, upon the Lender’s request, such other and further
documentation as the Lender may reasonably request to maintain the perfection of
the Security Interests or appropriately document the Credit.

      


      6.3    Minimum
Tangible Net Worth. Permit Borrower’s
Tangible Net Worth to be less than (i) $19,000,000 as of December 31, 2010 and
(ii) as of the end of each Fiscal Year of the Borrower thereafter, an amount
equal to the minimum Tangible Net Worth required as of the end of the
immediately preceding Fiscal Year plus 50% of the Net Income for such Fiscal
Year.

      


      6.4    Current
Ratio. Permit the Current Ratio of the Borrower to be less than 1.30 to
1.00 as of June 30, 2010 and as of the end of each fiscal quarter
thereafter.

      


      6.5    New
Locations.
Establish any new Inventory locations or transfer any equipment to a new
location if such equipment or Inventory has a value exceeding $250,000 in the
aggregate (when taken together with the value of equipment and Inventory at all
other new locations), without first providing to the Lender thirty
(30) days prior written notice of such impending action, and executing and
delivering to the Lender a satisfactory landlord waiver, if requested by the
Lender, and appropriate Financing Statements regarding each such location for
which the Lender does not have a landlord waiver or has not obtained Financing
Statements.

      


      6.6    Notice of
Event of Default.
Provide to the Lender written notice of the occurrence of any Event of
Default under this Agreement, within 5 Business Days after Borrower becomes
aware of such an Event of Default.

      


      ARTICLE
VII.   EVENTS OF
DEFAULT

       

      7.1    Events of
Default.  The occurrence of any one or more of the following events
shall constitute an event of default (individually, “Event of Default”, or,
collectively, “Events of Default”):

      


      (a) Nonpayment. 
Nonpayment when due whether by acceleration or otherwise of principal of, or
interest on, the Revolving Note, any fee, cost, expense or premium provided for
hereunder or under any other Loan Document or any other Indebtedness owing
hereunder.

       

      (b) Negative
Covenants.  Default by the Borrower in the observance of any of the
covenants or agreements contained in Article VI of this
Agreement.


      
        
           


        

        
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      (c) Other
Covenants.  Default by the Borrower in the observance of any of the
covenants or agreements contained in this Agreement, other than in
Article VI or Section 5.1, which is not remedied within thirty (30)
days after notice thereof by the Lender to the Borrower.

       

      (d) Voluntary
Insolvency Proceedings.  If Borrower (i) shall file a petition
or request for liquidation, reorganization, arrangement, adjudication as a
bankrupt, relief as a debtor or other relief under the bankruptcy, insolvency or
similar laws of the United States of America or any state or territory thereof,
now or hereafter in effect; (ii) shall make a general assignment for the
benefit of creditors; (iii) shall consent to the appointment of a receiver
or trustee for Borrower or any of Borrower’s assets including, without
limitation, the appointment of or taking possession by a “custodian” as defined
in the federal Bankruptcy Code; (iv) shall make any, or send notice of any
intended, bulk sale; or (v) shall execute a consent to any other type of
insolvency proceeding (under the federal Bankruptcy Code or otherwise) or any
formal or informal proceeding for the dissolution or liquidation of, or
settlement of claims against or winding up of affairs of, Borrower.

       

      (e) Involuntary
Insolvency Proceedings.  The appointment of a receiver, trustee,
custodian or officer performing similar functions for Borrower or any of
Borrower’s assets including, without limitation, the appointment of or taking
possession by a “custodian” as defined in the federal Bankruptcy Code; or the
filing against Borrower of a request or petition for liquidation,
reorganization, arrangement, adjudication as a bankrupt or other relief under
the bankruptcy, insolvency or similar laws of the United States of America or
any state or territory thereof, now or hereafter in effect; or the institution
against Borrower of any other type of insolvency proceeding (under the federal
Bankruptcy Code or otherwise) or of any formal or informal proceeding for the
dissolution or liquidation of, settlement of claims against or winding up of
affairs of Borrower, and the failure to have such appointment vacated or such
petition or proceeding dismissed within 60 days after such appointment, filing
or institution.

       

      (f) Representations. 
If any certificate, written statement, representation, warranty or financial
statement furnished by or on behalf of Borrower pursuant to or in connection
with this Agreement, or any Loan Document (including, without limitation,
representations and warranties contained herein) or as an inducement to the
Lender to enter into this Agreement or any other lending agreement with Borrower
shall prove to have been false in any material respect at the time as of which
the facts therein set forth were certified, or to have omitted any substantial
contingent or unliquidated liability or claim against Borrower.

       

      (g) Other
Indebtedness and Agreements.  Nonpayment by Borrower of any
Indebtedness owing by Borrower when due, which singly or in the aggregate total
$250,000 or more, including, whether such Indebtedness shall become due by
scheduled maturity, by required prepayment, by acceleration, by demand or
otherwise, or failure to perform any material term, covenant or agreement on its
part to be performed under any agreement or instrument (other than this
Agreement) evidencing or securing or relating to any Indebtedness owing by
Borrower, involving singly or in the aggregate $250,000 or more, including
without limitation, any Collateral Document when required to be performed if the
effect of such failure is to permit the holder to accelerate the maturity of
such Indebtedness.


      
        
           


        

        
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      (h) Judgments. 
If any judgment or judgments in excess of $100,000 for any one such judgment or
all judgments in the aggregate (other than any judgment for which it is fully
insured) against Borrower remains unpaid, unstayed on appeal, undischarged,
unbonded or undismissed for a period of 30 days.

       

      (i) Pension
Default.  Any of the following shall occur and shall have or would
be reasonably expected to have a Material Adverse Effect: Any Reportable Event,
which the Lender reasonably determines constitutes grounds for the termination
of any Pension Plan by the Pension Benefit Guaranty Corporation or for the
appointment by an appropriate United States district court of a trustee to
administer any such Pension Plan, shall have occurred and continued 30 days
after written notice thereof to the Borrower by the Lender; or the Pension
Benefit Guaranty Corporation shall institute proceedings to terminate any such
Pension Plan or to appoint a trustee to administer any such Pension Plan; or a
trustee shall be appointed by an appropriate United States district court to
administer any such Pension Plan; or any such Pension Plan shall be terminated;
or Borrower withdraws from a Pension Plan in a complete withdrawal or a partial
withdrawal; or the Borrower shall fail to pay to any Pension Plan any
contribution which it is obligated to pay under the terms of such plan or any
agreement, or which is required to meet statutory minimum funding
standards.

       

      (j) Change of
Control.  If there occurs a Change in Control.

       

      (k) Non-perfection
or Loss of Priority.  If at any time, any of the Collateral
Documents shall cease to be in effect, or if any security interest in favor of
the Lender in any of the collateral shall cease to be enforceable or cease to
have a first-priority Lien position (subject to Permitted Encumbrances), or if
title to any material collateral is not satisfactory to the Lender by reason of
any unpermitted Lien or title condition and the Lender reasonably determines
that such defect in title could impair the Lender’s ability to collect the
Obligations, and any of the foregoing conditions continues for more than 20 days
after notice thereof from the Lender to the Borrower.

       

      7.2    Effects of an Event of
Default.

      


      (a) Upon the happening of
one or more Events of Default (except a default under either Section 7.1(d)
or 7.1(e) hereof), the Lender may declare any commitments of Lender to lend
money to the Borrower (“Lender’s Obligations”) to be canceled and the principal
of the Revolving Note then outstanding to be immediately due and payable,
together with all interest thereon and fees and expenses accruing under this
Agreement and under any Loan Document.  Upon such declaration, the Lender’s
Obligations shall be immediately canceled and the Loans evidenced by the
Revolving Note shall become immediately due and payable without presentation,
demand or further notice of any kind to the Borrower.

       

      (b) Upon the happening of
one or more Events of Default under Section 7.1(d) or 7.1(e) hereof, the
Lender’s Obligations shall be canceled immediately, automatically and without
notice, and the Revolving Note shall become immediately due and payable without
presentation, demand or notice of any kind to Borrower.


      
        
           


        

        
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      ARTICLE
VIII.   EXPENSES

       

      8.1    Expenses.
The Borrower shall reimburse the Lender for any out-of pocket expenses,
including reasonable counsel fees and expenses, incident to the negotiation,
documentation and administration of this Agreement, including any amendments
thereto, and the documents in connection herewith and for preservation of any of
the Lender’s rights under, or enforcement of any provision of, this Agreement,
the Revolving Note, the Collateral Documents, the Loan Documents or any
documents executed in connection therewith.

      


      8.2    Indemnification. Borrower shall indemnify and
hold harmless the Lender and each of their directors, officers, employees,
agents and advisors (each an “Indemnified Party”) from and against any and all
claims, damages, liabilities and reasonable fees, expenses and disbursements of
counsel, demands, losses, costs, fines or liabilities of whatever kind or
nature, including, without limitation, arising from personal injury or property
damage, in any way related to any environmental condition on, above, within, in
the vicinity of, related to or affected by property owned or leased by the
Borrower or in connection with or arising out of any investigation, litigation
or proceeding arising out of, related to or in connection with this Agreement or
the Loans or any taxes, liabilities, claims or damages relating to the
collateral under the Collateral Documents or the liens of the Lender therein
(other than litigation between Borrower and the Lender in which Borrower is the
prevailing party), whether or not an Indemnified Party is a party to such
investigation, litigation or proceeding except to the extent such claim, damage,
loss, liability or expense is found in a final judgment by a court of competent
jurisdiction to have resulted primarily from such Indemnified Party’s own gross
negligence or willful misconduct.  In addition to, and without limiting the
generality of, the foregoing, Borrower agrees to reimburse and indemnify all
Indemnified Parties on demand for any reasonable fees and expenses of counsel
which may be incurred in any action, claim or proceeding between Borrower, any
Subsidiary or any Affiliate of the Borrower and an Indemnified Party in which
such Indemnified Party is successful.  The obligations of Borrower under
this indemnity shall survive any expiration or termination hereof, and shall
apply each to any and all such claims, expenses, demands, losses, costs, fines
or liabilities of whatever kind or nature, notwithstanding the discharge of the
Security Interests, or the payment of the Indebtedness hereunder or under the
Loan Documents.  Borrower agrees not to institute or participate in any
proceeding seeking to establish a position contrary to the terms of this
indemnification.

      


      ARTICLE
IX.   MISCELLANEOUS

       

      9.1    Amendments
and Waivers.  This Agreement is intended by the parties as the
final, complete and exclusive statement of the transactions evidenced by this
Agreement.  All prior or contemporaneous promises, agreements and
understandings, whether oral or written, are deemed to be superceded by this
Agreement, and no party is relying on any promise, agreement or understanding
not set forth in this Agreement.  No modification, rescission, waiver,
release or amendment of any provision of this Agreement shall be made except by
a written agreement subscribed by any authorized officers of the Borrower and
the Lender.


      
        
           


        

        
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      9.2    Delays
and Omissions. No
course of dealing and no delay or omission by the Lender in exercising any right
or remedy hereunder or with respect to any Indebtedness of Borrower shall
operate as a waiver thereof or of any other right or remedy, and no single or
partial exercise thereof shall preclude any other or further exercise thereof or
the exercise of any other right or remedy.  The Lender may remedy any
default by Borrower hereunder or with respect to any other Person, firm or
corporation in any reasonable manner without waiving the default remedied and
without waiving any other prior or subsequent default by Borrower and shall be
reimbursed for its expenses in so remedying such default.  All rights and
remedies of the Lender hereunder are cumulative.

      


      9.3    Assignments.

      


      (a) The Borrower shall
not assign or otherwise transfer any of Borrower’s rights pursuant to this
Agreement without the prior written consent of the Lender, and any such
assignment or other transfer without such prior written consent shall be
void.

       

      (b) The Lender may sell,
assign or participate all or a portion of its rights and obligations under this
Agreement to an Affiliate of the Lender or, with the Borrower’s consent to any
other Person, which consent shall not be unreasonably withheld; provided,
however, the consent of the Borrower shall not be required if, at the time of
such assignment, an Incipient Default or an Event of Default is in
existence.

       

      (c) The Lender may at any
time pledge or assign all or any portion of its rights under the Loan Documents
to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the
Federal Reserve Act, 12 U.S.C. Section 341.  No such pledge or
assignment or enforcement thereof shall release the Lender from its obligations
under any of the Loan Documents.

       

      9.4    Successors
and Assigns.
Borrower and Lender as used herein shall include the legal
representatives, successors and assigns of those parties.

      


      9.5    Notices. 
Any notice or demand to be given hereunder shall be in writing, unless
otherwise expressly provided herein and shall be deemed to have been given or
made when delivered by hand or facsimile, and one (1) business day after being
delivered to a courier for express delivery, to the address below, or three (3)
business days after being deposited in an official depository maintained by the
United States Post Office for the collection of mail, registered or certified
mail, postage prepaid and addressed as follows:

        

      
        
          
            
              	
                      To
      the Borrower

                    	
                      -

                    	
                      Mod-Pac
      Corp.

                    
	 
      	 
      	
                      1801
      Elmwood Avenue

                    
	 
      	 
      	
                      Buffalo,
      New York 14207

                    
	 
      	 
      	
                      Attention:
      Daniel J. Geary,

                    
	 
      	 
      	
                      Vice
      President of
Finance

                    


            

          

        

      


      
        
           


        

        
          30

          
            

          

        

        
           


        

      

      


      
        
          	
                  With
      a copy to

                	
                  -

                	
                  Hodgson
      Russ, LLP

                
	
                  (which
      shall not

                	 
      	
                  28
      Church Street

                
	
                  constitute
      notice)

                	 
      	
                  Buffalo,
      New York

                
	 
      	 
      	
                  Attention:
      Victoria Saxon, Esq.

                
	 
      	 
      	 
      
	
                  To
      the Lender

                	
                  -

                	
                  Manufacturers
      and Traders Trust Company

                
	 
      	 
      	
                  One
      Fountain Plaza

                
	 
      	 
      	
                  Buffalo,
      New York  14203

                
	 
      	 
      	
                  Attn:  Michael
      Prendergast, Vice President

                
	 
      	 
      	 
      
	
                  With
      a copy to

                	
                  -

                	
                  Lippes
      Mathias Wexler Friedman LLP

                
	
                  (which
      shall not

                	 
      	
                  665
      Main St., Suite 300

                
	
                  constitute
      notice)

                	 
      	
                  Buffalo,
      New York 14203

                
	 
      	 
      	
                  Attn:  Brian
      J. Bocketti, Esq.

                


        

      

      


      9.6    Governing
Law. This
Agreement, the transactions described herein and the obligations of the Lender
and the Borrower shall be construed under, and governed by, the internal laws of
the State of New York without regard to principles of conflicts of
laws.

      


      9.7    Counterparts.  This Agreement may be
executed in any number of counterparts and by the Lender and the Borrower on
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
Agreement.

      


      9.8    Titles.  Titles to the sections
of this Agreement are solely for the convenience of the Lender and the Borrower,
and are not an aid in the interpretation of this Agreement or any part
thereof.

      


      9.9    Inconsistent
Provisions.  The terms of this Agreement and any related agreements,
instruments or other documents shall be cumulative except to the extent that
they are specifically inconsistent with each other, in which case the terms of
this Agreement shall prevail.

      


      9.10   Course of
Dealing. 
Without limitation of the foregoing, the Lender shall have the right, but
not the obligation, at all times to enforce the provisions of this Agreement and
all other documents executed in connection herewith in strict accordance with
their terms, notwithstanding any course of dealing or performance by the Lender
in refraining from so doing at any time and notwithstanding any custom in the
banking trade.  Any delay or failure by the Lender at any time or times in
enforcing its rights under such provisions in strict accordance with their terms
shall not be construed as having created a course of dealing or performance
modifying or waiving the specific provisions of this Agreement.

      


      9.11   USA
Patriot Act. 
The Lender hereby notifies the Borrower that pursuant to the requirements
of the USA Patriot Act (Title III of Pub. L. 107-56), the Lender
is required to obtain, verify and record information that identifies the
Borrower, which information includes the name and address of the Borrower and
other information that will allow the Lender to identify the Borrower in
accordance with the USA Patriot Act.


      
        
           


        

        
          31

          
            

          

        

        
           


        

      

      


      9.12   CONSENT
TO JURISDICTION. 
EACH OF THE BORROWER AND THE LENDER, AGREE THAT ANY ACTION OR PROCEEDING
TO ENFORCE OR ARISING OUT OF THIS AGREEMENT MAY BE COMMENCED IN THE SUPREME
COURT OF NEW YORK IN ERIE COUNTY, OR IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF NEW YORK SITTING IN ERIE COUNTY, NEW YORK.  BORROWER
WAIVES PERSONAL SERVICE OF PROCESS AND AGREES THAT A SUMMONS AND COMPLAINT
COMMENCING AN ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE PROPERLY SERVED
AND SHALL CONFER PERSONAL JURISDICTION IF SERVED BY REGISTERED OR CERTIFIED MAIL
TO THE BORROWER, AT THE ADDRESS SET FORTH AT THE BEGINNING OF THIS AGREEMENT, OR
AS PROVIDED BY THE LAWS OF THE STATE OF NEW YORK OR THE UNITED
STATES.

      


      9.13   JURY
TRIAL WAIVER.EACH
OF THE BORROWER AND THE LENDER, HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY
WAIVE ANY RIGHT TO TRIAL BY JURY THEY MAY HAVE IN ANY ACTION OR PROCEEDING, IN
LAW OR IN EQUITY, IN CONNECTION WITH THIS AGREEMENT OR ANY LOAN DOCUMENT OR THE
TRANSACTIONS RELATED HERETO.  BORROWER REPRESENTS AND WARRANTS THAT NEITHER
ANY REPRESENTATIVE OF THE LENDER NOR THE LENDER HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT ANY LENDER WILL NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THIS JURY TRIAL WAIVER.  BORROWER ACKNOWLEDGES THAT THE LENDER HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE PROVISIONS OF
THIS SECTION.

      


      [Signature
Page To Follow]


      
        
           


        

        
          32

          
            

          

        

        
           


        

      

      


      IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be signed by their duly authorized
officers all as of the 9th day of June, 2010.

      


      
        
          
            
              
                
                  
                    
                      
                        	 
      	
                                MANUFACTURERS
      AND TRADERS TRUST
COMPANY

                              
	 
      	 
      	 
      
	 
      	
                                By: 

                              	
                                /s/ Michael Prendergast

                              
	 
      	 
      	
                                Name:  Michael
      Prendergast

                              
	 
      	 
      	
                                Title:    Vice
      President

                              
	 
      	 
      	 
      
	 
      	
                                MOD-PAC
      CORP.

                              
	 
      	 
      	 
      
	 
      	
                                By:

                              	
                                /s/ Daniel J. Geary

                              
	 
      	 
      	
                                Name:  Daniel
      J. Geary

                              
	 
      	 
      	
                                Title:    Vice
      President of
Finance

                              


                      

                    

                  

                

              

            

          

        

      


      
        
           


        

        
          33

          
            

          

        

        
           


        

      

      


      EXHIBIT
A

       

      REVOLVING
CREDIT NOTE

        


      
        	
                $3,000,000.00

              	
                Buffalo,
      New York

              


      

      June
9, 2010      

      


      FOR VALUE RECEIVED, the
undersigned, MOD-PAC CORP.,
a New York corporation (“Borrower”) hereby
unconditionally promises to pay, on or before June 9, 2013, to the order of
MANUFACTURERS AND TRADERS TRUST
COMPANY (“Lender”) at Lender’s office at One Fountain Plaza, Buffalo, New
York 14203, or at the holder’s option, at such other place as may be
designated by the holder, in lawful money of the United States of America, a
principal sum equal to the lesser of THREE MILLION AND 00/100 DOLLARS
($3,000,000.00) or the aggregate unpaid principal amount of all Revolving
Loans made by Lender to the Borrower from time to time under a Revolving Credit
Agreement, dated of even date herewith, between the Borrower and the Lender, as
the same may from time to time be amended, supplemented or otherwise modified
(“Revolving Credit Agreement”) as evidenced by the inscriptions made on the
schedule attached hereto, or any continuation thereof (“Schedule”).  The
Borrower further promise to pay interest on the unpaid principal amount hereof
from time to time at the rates and on the dates determined in accordance with
the Revolving Credit Agreement.  All capitalized terms used herein and not
otherwise defined herein shall have the meanings specified in the Revolving
Credit Agreement.

      


      The Lender and each holder of this Note
are authorized to inscribe on the Schedule the type of Revolving Loan, the date
of the making of each Revolving Loan, the amount of each Revolving Loan, all
payments on account of principal and the aggregate outstanding principal balance
of this Note from time to time unpaid.  Each entry set forth on the
Schedule shall be prima facie evidence of the facts so set forth.  No
failure by the Lender or any holder of this Note to make, and no error in
making, any inscriptions on the Schedule shall affect Borrower’s obligation to
repay the full principal amount loaned to or for the account of the Borrower, or
the Borrower’s obligation to pay interest thereon at the agreed upon
rate.

      


      If any payment on this Note becomes due
and payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day, and the Borrower will pay interest
thereon at the then applicable rate until the date of actual receipt of such
installment by the holder of this Note.

      


      No failure by the holder to exercise,
and no delay in exercising, any right or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the holder of any
right or powers hereunder preclude any other or further exercise thereof or the
exercise of any other right or power.  The rights and remedies of the
holder as herein specified are cumulative and not exclusive of any other rights
or remedies which the holder may otherwise have.


      
        
           


        

        
          34

          
            

          

        

        
           


        

      

      


      No modification, rescission, waiver,
release or amendment of any provision of this Note shall be made except by a
written agreement subscribed by duly authorized officer of the Borrower and the
holder hereof.

      


      Borrower waives diligence, presentment,
protest and demand, and also notice of protest, demand, dishonor and nonpayment
of this Note.

      


      This Note evidences a borrowing under
the Revolving Credit Agreement to which reference is hereby made with respect to
collateral, interest rate options and periods, mandatory and voluntary
prepayments, and rights of acceleration of the principal hereof on the
occurrence of certain events.

      


      Borrower agrees to pay on demand all
reasonable costs and expenses incurred by the holder in enforcing this Note or
in collecting the indebtedness evidenced hereby, including, without limitation,
if the holder retains counsel for any such purpose, reasonable attorneys’ fees
and expenses.

      


      This Note shall be construed under, and
governed by, the internal laws of the State of New York without regard to
principles of conflicts of laws.

      


      
        
          	 
      	
                  MOD-PAC
      CORP.

                
	 
      	 
      	 
      
	 
      	
                  By: 

                	
                    

                
	 
      	 
      	
                  Name:  Daniel
      J. Geary

                
	 
      	 
      	
                  Title:    Vice
      President of Finance

                


        

      


      
        
           


        

        
          35

          
            

          

        

        
           


        

      


      SCHEDULE

       

      LOANS AND PAYMENTS OF
PRINCIPAL

       

      
        
          
            	
                    TYPE OF

                    LOAN

                  	 
      	
                    DATE LOAN

                    MADE

                  	 
      	
                    AMOUNT OF LOAN

                  	 
      	
                    AMOUNT OF

                    PRINCIPAL

                    PAID OR

                    PREPAID

                  	 
      	
                    AGGREGATE

                    UNPAID

                    PRINCIPAL

                    BALANCE 

                  	 
      	
                    NOTATION

                    MADE BY AND

                    DATE

                  
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      


          

        

      


      
        
           


        

        
           


          
            

          

        

        
           


        

      



    EXHIBIT
B


     

    REQUEST
CERTIFICATE


     

    Revolving
Credit

     

    The undersigned as Borrower hereby
certifies to Manufacturers and Traders Trust Company in accordance with the
terms of the Revolving Credit Agreement between Mod-Pac Corp. and Manufacturers
and Traders Trust Company dated as of June__, 2010, as may be amended from time
to time, that:

    


    The undersigned requests or has
requested a Revolving Loan which will be a

    


    Libor Loan in the amount of
$_____________

    


    The
proposed loan is to be made on ____________, ____ .

    


    WITNESS the signature of the
undersigned authorized signatory of the Borrower this ____ day of _____________,
____.

    


    
      	 
      	
              MOD-PAC
      CORP.

            
	 
      	 
      	 
      
	 
      	
              By:

            	
                  

            
	 
      	 
      	
              (Title)    
      

            


    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    EXHIBIT
C

    


    COMPLIANCE
CERTIFICATE

    


    The undersigned as Borrower hereby
certifies to Manufacturers and Traders Trust Company (the "Lender"), in
accordance with the terms of the Revolving Credit Agreement between Mod-Pac
Corp. and the Lender, dated as of June 9, 2010, as may be amended from time to
time (“Agreement”), that:

    


    1.           Capitalized
terms not defined herein shall have the meanings set forth in the
Agreement.

    


    2.           The
Borrower has complied in all material respects with all the terms, covenants and
conditions to be performed or observed by it contained in the Agreement and the
Loan Documents, and there exists no Event of Default or Incipient Default under
the Agreement.

    


    3.           The
representations and warranties contained in the Agreement, in any Loan Document
to which Borrower is a party and in any certificate, document or financial or
other statement furnished at any time thereunder are true, correct and complete
in all material respects with the same effect as though such representations and
warranties had been made on the date hereof, except to the extent that any such
representation and warranty relates solely to an earlier date (in which case
such representation and warranty shall be true, correct and complete on and as
of such earlier date).

    


    4.           Attached
hereto are the calculations required to establish compliance with the provisions
of Section 6.3 and 6.4.

    


    WITNESS the signature of the
undersigned authorized signatory of the Borrower this ____ day of _____________,
____.

    


    
      	 
      	
              MOD-PAC
      CORP.

            
	 
      	 
      	 
      
	 
      	
              By:

            	
                  

            
	 
      	 
      	
              (Title)    
      

            


    

     

    
      
         


      

      
        1

        
          

        

      

      
         


      

    

    


    Schedule
1

    Pension
Plans

    


    NONE

     

    
      
        
           


        

        
          2

          
            

          

        

        
           


        

      



    Schedule
4.3

    Permitted
Encumbrances

    


    Liens of
carriers, warehousemen, artisans, bailees, mechanics and materialmen incurred in
the ordinary course of business securing sums not overdue; (b) liens incurred in
the ordinary course of business in connection with workmen’s compensation,
unemployment insurance or other forms of governmental insurance or benefits,
relating to employees, securing sums (i) not overdue or (ii) being diligently
contested in good faith provided that adequate reserves with respect thereto are
maintained on the books and records of Borrower in conformity with generally
accepted accounting principles; (c) liens for taxes (i) not yet due or (ii)
being diligently contested in good faith by appropriate proceedings, provided
that adequate reserves with respect thereto are maintained on the books of
Borrower and (d) any judgment lien with respect to any judgment that does not
constitute an Event of Default under Section 7.1 (h)

    


    Those
security interests, perfected by the financing statements described in the UCC
Memorandum dated June 4, 2010, attached as Exhibit B to the General Security
Agreement, between Borrower and Lender, dated of even date
herewith.

    


    Key Bank
National Association – certificate of deposit securing Borrower’s reimbursement
obligation relating to existing letters of credit issued by KeyBank National
Association,  to be replaced with letters of credit issued by Lender
following the execution and delivery of this Agreement.

    


    Purchase
Money Security Interests


    
      
         


      

      
        1

        
          

        

      

      
         


      

    

    


    Schedule
4.4

    Material
Litigation

    


    NONE

    


    
      
        
           


        

        
          2

          
            

          

        

        
           


        

      

    

     

    Schedule 4.8

    Notices
of Assessments

    


    NONE

     

    
      
        
           


        

        
          1

          
            

          

        

        
           


        

      

    

    


    Schedule
4.9

    Subsidiaries
and Affiliates

    


    1803-1807
Elmwood Avenue LLC, a New York limited liability company



    
      
         


      

      
        1