**Exhibit 10.21**

 

**LOAN AGREEMENT**

 

**BETWEEN**

 

**KOSS CORPORATION,**

**a Delaware corporation**

 

**AND**

 

**HARRIS N.A.,**

**a national banking association**

 

**FEBRUARY 16, 2009**

 

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TABLE OF CONTENTS

 
| Section 1 DEFINITIONS                                            | 1                                                              |
|-----------------------------------------------------------------------|----------------------------------------------------------------|
| 1.1                                                                   | Defined Terms                                                  | 1 |
| 1.2                                                                   | Accounting Terms                                               | 10 |
| 1.3                                                                   | Other Terms Defined in UCC                                     | 10 |
| 1.4                                                                   | Other Interpretive Provisions                                  | 10 |
| Section 2 COMMITMENT OF THE BANK; BORROWING PROCEDURES; PAYMENTS | 11                                                             |
| 2.1                                                                   | Commitments                                                    | 11 |
| 2.2                                                                   | Borrowing Procedures                                           | 12 |
| 2.3                                                                   | Loan Account                                                   | 15 |
| 2.4                                                                   | Discretionary Disbursements                                    | 15 |
| 2.5                                                                   | Notes                                                          | 15 |
| 2.6                                                                   | Revolving Loan Principal Payments                              | 15 |
| 2.7                                                                   | Taxes                                                          | 16 |
| 2.8                                                                   | Compliance with Bank Regulatory  Requirements; Increased Costs | 17 |
| Section 3 INTEREST RATE, FEES AND EXPENSES                       | 17                                                             |
| 3.1                                                                   | Interest Rates                                                 | 17 |
| 3.2                                                                   | Default Rate                                                   | 17 |
| 3.3                                                                   | Interest Payment Dates                                         | 17 |
| 3.4                                                                   | Computations                                                   | 18 |
| 3.5                                                                   | Letter of Credit Fees                                          | 18 |
| 3.6                                                                   | Non-Use Fee                                                    | 18 |
| 3.7                                                                   | Costs, Fees and Expenses                                       | 18 |
| Section 4 CONDITIONS OF BORROWING                                | 19                                                             |
| 4.1                                                                   | Loan Documents                                                 | 19 |
| 4.2                                                                   | Event of Default                                               | 20 |
| 4.3                                                                   | Banking Relationship                                           | 20 |
| 4.4                                                                   | Reimbursement of Expenses                                      | 20 |
| 4.5                                                                   | Material Adverse Effect                                        | 20 |
| 4.6                                                                   | Litigation                                                     | 20 |
| 4.7                                                                   | Representations and Warranties                                 | 20 |
| Section 5 REPRESENTATIONS AND WARRANTIES                         | 20                                                             |
| 5.1                                                                   | Borrower Organization and Name                                 | 20 |
| 5.2                                                                   | Authorization                                                  | 21 |
| 5.3                                                                   | Validity and Binding Nature                                    | 21 |
| 5.4                                                                   | Ownership of Properties; Liens                                 | 21 |
| 5.5                                                                   | Equity Ownership                                               | 21 |
| 5.6                                                                   | Intellectual Property                                          | 21 |
| 5.7                                                                   | Financial Statements                                           | 21 |
| 5.8                                                                   | Litigation and Contingent Liabilities                          | 21 |
| 5.9                                                                   | Event of Default                                               | 22 |
| 5.10                                                                  | Adverse Circumstances                                          | 22 |
| 5.11                                                                  | Environmental Laws and Hazardous Substances                    | 22 |
| 5.12                                                                  | Solvency, etc.                                                 | 22 |
| 5.13                                                                  | ERISA Obligations                                              | 22 |
| 5.14                                                                  | Labor Relations                                                | 23 |

 

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| 5.15                                 | Lending Relationship                                                      | 23 |
|--------------------------------------|---------------------------------------------------------------------------|----|
| 5.16                                 | Business Loan                                                             | 23 |
| 5.17                                 | Taxes                                                                     | 23 |
| 5.18                                 | Compliance with Regulation U                                              | 23 |
| 5.19                                 | Governmental Regulation                                                   | 23 |
| 5.20                                 | Place of Business                                                         | 24 |
| 5.21                                 | Complete Information                                                      | 24 |
| Section 6 AFFIRMATIVE COVENANTS | 24                                                                        |
| 6.1                                  | Borrower Existence                                                        | 24 |
| 6.2                                  | Compliance With Laws                                                      | 24 |
| 6.3                                  | Payment of Taxes and Liabilities                                          | 25 |
| 6.4                                  | Maintain Property                                                         | 25 |
| 6.5                                  | Maintain Insurance                                                        | 25 |
| 6.6                                  | ERISA Liabilities; Employee Plans                                         | 25 |
| 6.7                                  | Intellectual Property                                                     | 26 |
| 6.8                                  | Notice of Proceedings                                                     | 26 |
| 6.9                                  | Notice of Event of Default or Material  Adverse Effect                    | 26 |
| 6.10                                 | Environmental Matters                                                     | 26 |
| 6.11                                 | Further Assurances                                                        | 27 |
| 6.12                                 | Banking Relationship                                                      | 27 |
| 6.13                                 | Financial Statements and Books and Records                                | 27 |
| 6.14                                 | Reporting Requirements                                                    | 27 |
| 6.15                                 | Use of Proceeds                                                           | 28 |
| 6.16                                 | Other Reports                                                             | 28 |
| Section 7 NEGATIVE COVENANTS    | 28                                                                        |
| 7.1                                  | Debt                                                                      | 28 |
| 7.2                                  | Encumbrances                                                              | 28 |
| 7.3                                  | Transfer; Merger; Sales                                                   | 29 |
| 7.4                                  | Investments, Acquisitions, Loans and  Advances                            | 29 |
| 7.5                                  | Intentionally Omitted                                                     | 29 |
| 7.6                                  | Transactions with Affiliates                                              | 29 |
| 7.7                                  | Unconditional Purchase Obligations                                        | 29 |
| 7.8                                  | Cancellation of Debt                                                      | 29 |
| 7.9                                  | Inconsistent Agreements                                                   | 30 |
| 7.10                                 | Use of Proceeds                                                           | 30 |
| 7.11                                 | Business Activities; Change of Legal Status  and Organizational Documents | 30 |
| Section 8 FINANCIAL COVENANTS   | 30                                                                        |
| 8.1                                  | Tangible Net Worth                                                        | 30 |
| 8.2                                  | Liabilities to Tangible Net Worth                                         | 30 |
| 8.3                                  | Interest Coverage Ratio                                                   | 30 |
| Section 9 EVENTS OF DEFAULT     | 30                                                                        |
| 9.1                                  | Nonpayment of Obligations                                                 | 30 |
| 9.2                                  | Misrepresentation                                                         | 31 |
| 9.3                                  | Nonperformance                                                            | 31 |
| 9.4                                  | Default under Loan Documents                                              | 31 |
| 9.5                                  | Default under Other Debt                                                  | 31 |

 

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| 9.6                           | Other Material Obligations                             | 31 |
|-------------------------------|--------------------------------------------------------|----|
| 9.7                           | Bankruptcy, Insolvency, etc.                           | 31 |
| 9.8                           | Judgments                                              | 32 |
| 9.9                           | Change in Control                                      | 32 |
| 9.10                          | Material Adverse Effect                                | 32 |
| Section 10 REMEDIES      | 32                                                     |
| 10.1                          | Rights and Remedies                                    | 32 |
| 10.2                          | No Waiver                                              | 32 |
| Section 11 MISCELLANEOUS | 33                                                     |
| 11.1                          | Entire Agreement                                       | 33 |
| 11.2                          | Amendments                                             | 33 |
| 11.3                          | Waiver of Defenses                                     | 33 |
| 11.4                          | Forum Selection and Consent to Jurisdiction            | 33 |
| 11.5                          | Waiver of Jury Trial                                   | 34 |
| 11.6                          | Assignability                                          | 34 |
| 11.7                          | Confidentiality                                        | 34 |
| 11.8                          | Binding Effect                                         | 35 |
| 11.9                          | Governing Law                                          | 35 |
| 11.10                         | Enforceability                                         | 35 |
| 11.11                         | Survival of Borrower Representations                   | 35 |
| 11.12                         | Extensions of Bank’s Commitment                   | 35 |
| 11.13                         | Time of Essence                                        | 36 |
| 11.14                         | Counterparts; Facsimile Signatures                     | 36 |
| 11.15                         | Notices                                                | 36 |
| 11.16                         | Release of Claims Against Bank                         | 37 |
| 11.17                         | Costs, Fees and Expenses                               | 37 |
| 11.18                         | Indemnification                                        | 38 |
| 11.19                         | Revival and Reinstatement of Obligations               | 39 |
| 11.20                         | Customer Identification — USA PATRIOT Act  Notice | 39 |

 

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LOAN AGREEMENT

 

This LOANAGREEMENT dated as of February 16, 2009 (the “Agreement”), isexecuted by and between KOSS CORPORATION, a Delaware corporation (the “Borrower”)which has its chief executive office located at 4129North Port Washington Avenue, Milwaukee, Wisconsin 53212, and HARRISN.A., a national banking association (the “Bank”), whose address is 111West Monroe Street, Chicago, Illinois 60603.

 

RECITALS:

 

The Borrowerdesires to borrow funds and obtain other financial accommodations from theBank.

 

Pursuant tothe Borrower’s request, the Bank is willing to extend such financialaccommodations to the Borrower under the terms and conditions set forth herein.

 

NOW THEREFORE,in consideration of the premises, and the mutual covenants and agreements setforth herein, the Borrower agrees to borrow from the Bank, and the Bank agreesto lend to the Borrower, subject to and upon the following terms andconditions:

 

AGREEMENTS:

 

# **Section 1**                                             DEFINITIONS.

#  

## 1.1                                 Defined Terms.  For the purposes of this Agreement, thefollowing capitalized words and phrases shall have the meanings set forthbelow.

##  

“Affiliate”of any person or entity shall mean (a) any other person or entity which,directly or indirectly, controls or is controlled by or is under common controlwith such person or entity, (b) any officer or director of such entity,and (c) with respect to the Bank, any entity administered or managed bythe Bank, or an Affiliate or investment advisor thereof and which is engaged inmaking, purchasing, holding or otherwise investing in commercial loans.  A person or entity shall be deemed to be “controlledby” any other person or entity if such person or entity possesses, directly orindirectly, power to direct or cause the direction of the management andpolicies of such person or entity whether by contract, ownership of votingsecurities, membership interests or otherwise.

 

“ApplicableInterest Rate” shall mean, as to the Revolving Loans, a per annum rate ofinterest equal to the Prime Rate (and with respect to each LIBOR Loan, suchLIBOR Rate for the applicable Interest Period).

 

“ApplicableL/C Fee” shall mean, one and one quarter percent (1.25%).

 

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“ApplicableNon-Use Fee” shall mean 0.15% per annum.

 

“BankProduct Agreements” shall mean those certain agreements entered into fromtime to time by the Borrower or any Subsidiary with the Bank or any Affiliateof the Bank concerning Bank Products.

 

“BankProduct Obligations” shall mean all obligations, liabilities, contingent reimbursementobligations, fees, and expenses owing by the Borrower or any Subsidiary to theBank or any Affiliate of the Bank pursuant to or evidenced by the Bank ProductAgreements and irrespective of whether for the payment of money, whether director indirect, absolute or contingent, due or to become due, now existing orhereafter arising.

 

“BankProducts” shall mean any service or facility extended to the Borrower orany Subsidiary by the Bank or any Affiliate of the Bank, including but notlimited to:  (a) credit cards, (b) creditcard processing services, (c) debit cards, (d) purchase cards, (e) ACHTransactions, (f) cash management, including controlled disbursement,accounts or services, or (g) Hedging Agreements.

 

“BankruptcyCode” shall mean the United States Bankruptcy Code, as now existing orhereafter amended.

 

“BusinessDay” shall mean any day other than a Saturday, Sunday or a legal holiday onwhich banks are authorized or required to be closed for the conduct ofcommercial banking business in Chicago, Illinois.

 

“CapitalLease” shall mean a lease of any interest in any kind of property or asset,whether real, personal or mixed, or tangible or intangible, by a lessee thatis, or should be, in accordance with Financial Accounting Standards Board StatementNo. 13, as amended from time to time, or, if such statement is not then ineffect, such statement of GAAP as may be applicable, recorded as a “capitallease” on the financial statements of the lessee prepared in accordance withGAAP.

 

“Capital Securities”shall mean all shares, interests, participations or other equivalents (howeverdesignated, whether voting or non-voting) of capital, whether now outstandingor issued or acquired after the date hereof, including common shares, preferredshares, membership interests in a limited liability company, limited or generalpartnership interests in a partnership or any other equivalent of suchownership interest.

 

“CapitalizedLease Obligations” shall mean all rental obligations as lessee under aCapital Lease which are or will be required to be capitalized on the books ofthe lessee.

 

“Change inControl” “Change in Control” shall mean the occurrence of any of thefollowing events: (a) the Control Group ceases to collectively own,directly or indirectly, legally and beneficially, at least 51% of theoutstanding Capital Securities of the Borrower having voting rights in theelection of directors under normal circumstances or (b) a majority of themembers of the Board of Directors of the Borrower shall cease to be ContinuingMembers.

 

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“ConfidentialInformation” shall mean all information provided by the Borrower or any ofits Affiliates to the Bank including, without limitation, any and all financialinformation prepared on a pro forma basis, but excluding all information thatis available to the Bank on a non-confidential basis prior to disclosure by theBorrower or any of its Affiliates or from any other natural or legal person onbehalf of the Borrower.

 

“ContinuingMember” shall mean a member of the Board of Directors of the Borrower whoeither (i) was member of the Borrower’s Board of Directors on the daybefore the date hereof and has been such continuously thereafter or (ii) becamea member of such Board of Directors on or after the date hereof and whoseelection or nomination for election was approved by a vote of the majority ofthe Continuing Members then members of the Borrower’s Board of Directors.

 

“Control Group” shallmean (a) the Current Ownership; (b) spouses (including survivingspouses), lineal descendants and spouses (including surviving spouses) oflineal descendents of Current Ownership; (c) the estates or legalrepresentatives of the natural or legal persons named in clauses (a) or(b); (d) any trust, custodianship or other fiduciary arrangement inrespect of which one or more members of Current Ownership (i) are theprincipal beneficiaries and (ii) constitute a majority of the trustees,custodians or other fiduciaries with voting power over such trust,custodianship or other fiduciary arrangement; and (e) a voting trust, amajority of whose trustee(s) is (are) member(s) of the CurrentOwnership, if a majority of the holders of voting trust certificates aremembers of the Current Ownership.  Forpurposes of this definition, “lineal descendents” shall include adopted personswho are twelve years of age or under at the time of adoption.

 

“Current Ownership”shall mean the Person or Persons who, as of the date of this Agreement,collectively own and control, directly or indirectly, legally and beneficially,at least 50% of the outstanding Capital Securities of the Borrower havingvoting rights in the election of directors in normal circumstances.

 

“Debt”shall mean, as to any Person, without duplication, (a) all indebtedness ofsuch Person; (b) all borrowed money of such Person (including principal,interest, fees and charges), whether or not evidenced by bonds, debentures,notes or similar instruments; (c) all obligations to pay the deferred purchaseprice of property or services; (d) all obligations, contingent orotherwise, with respect to the maximum face amount of all letters of credit(whether or not drawn), bankers’ acceptances and similar obligations issued forthe account of such Person, and all unpaid drawings in respect of bankers’acceptances and similar obligations; (e) all indebtedness secured by anyLien on any property owned by such Person, whether or not such indebtedness hasbeen assumed by such Person (provided, however, if such Person has not assumedor otherwise become liable in respect of such indebtedness, such indebtednessshall be deemed to be in an amount equal to the fair market value of theproperty subject to such Lien at the time of determination); (f) theaggregate amount of all Capitalized Lease Obligations of such Person; (g) allContingent Liabilities of such Person, whether or not reflected on its balancesheet; (h) all Hedging Obligations of such Person; (i) all Debt ofany partnership of which such Person is a general partner; and (j) allmonetary obligations of such Person under (i) a so-called synthetic,off-balance sheet or tax retention lease, or (ii) an agreement for the useor possession of property creating obligations that do not appear on thebalance sheet of such Person but 

 

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which, upon the insolvency or bankruptcy of such Person, would becharacterized as the indebtedness of such Person (without regard to accountingtreatment).  Notwithstanding the foregoing,Debt shall not include trade payables and accrued expenses incurred by suchPerson in accordance with customary practices and in the ordinary course ofbusiness of such Person.

 

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

 

“Depreciation”shall mean the total amounts added to depreciation, amortization, obsolescence,valuation and other proper reserves, as reflected on the Borrower’s financialstatements and determined in accordance with GAAP.

 

“EBITDA”shall mean, for any period, (a) the sum for such period of: (i) NetIncome, plus (ii) Interest Charges, plus (iii) federaland state income taxes, plus (iv) Depreciation, plus (v) non-cashmanagement compensation expense, plus (vi) all other non-cashcharges, minus (b) income or loss attributable to equity in anySubsidiary, in each case to the extent included in determining Net Income forsuch period.

 

“Employee Plan” includes any pension, stock bonus, employeestock ownership plan, retirement, profit sharing, deferred compensation, stockoption, bonus or other incentive plan, whether qualified or nonqualified, orany disability, medical, dental or other health plan, life insurance or otherdeath benefit plan, vacation benefit plan, severance plan or other employeebenefit plan or arrangement, including, without limitation, those pension,profit-sharing and retirement plans of the Borrower described from time to timein the financial statements of the Borrower and any pension plan, welfare plan,Defined Benefit Pension Plans (as defined in ERISA) or any multi-employer plan,maintained or administered by the Borrower or to which the Borrower is a partyor may have any liability or by which the Borrower is bound.

 

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

 

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

 

“Event ofDefault” shall mean any of the events or conditions which are set forth in Section 9hereof.

 

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

 

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Accounting Standards Board (or agencies with similar functions ofcomparable stature and authority within the U.S. accounting profession), whichare applicable to the circumstances as of the date of determination, provided,however, that interim financial statements or reports shall be deemed in compliancewith GAAP despite the absence of footnotes and fiscal year-end adjustments asrequired by GAAP.

 

“HazardousSubstances” shall mean (a) any petroleum or petroleum products,radioactive materials, asbestos in any form that is or could become friable, ureaformaldehyde foam insulation, dielectric fluid containing levels ofpolychlorinated biphenyls, radon gas and mold; (b) any chemicals,materials, pollutant or substances defined as or included in the definition of “hazardoussubstances”, “hazardous waste”, “hazardous materials”, “extremely hazardoussubstances”, “restricted hazardous waste”, “toxic substances”, “toxicpollutants”, “contaminants”, “pollutants” or words of similar import, under anyapplicable Environmental Law; and (c) any other chemical, material orsubstance, the exposure to, or release of which is prohibited, limited orregulated by any governmental authority or for which any duty or standard ofcare is imposed pursuant to, any Environmental Law.

 

“HedgingAgreements” shall mean any interest rate, currency or commodity swapagreement, cap agreement or collar agreement, and any other agreement orarrangement designed to protect against fluctuations in interest rates,currency exchange rates or commodity prices.

 

“HedgingObligation” shall mean any liability under any Hedging Agreement.

 

“IndemnifiedParty” and “Indemnified Parties” shall mean, respectively, each ofthe Bank and any parent corporations, Affiliate or Subsidiary of the Bank, andeach of their respective officers, directors, employees, attorneys and agents,and all of such parties and entities.

 

“IntellectualProperty” shall mean the collective reference to all rights, priorities andprivileges relating to intellectual property, whether arising under UnitedStates, multinational or foreign laws or otherwise, including copyrights,patents, service marks and trademarks, and all registrations and applicationsfor registration therefor and all licensees thereof, trade names, domain names,technology, know-how and processes, and all rights to sue at law or in equityfor any infringement or other impairment thereof, including the right toreceive all proceeds and damages therefrom.

 

“InterestCharges” shall mean, for any period, the sum of:  (a) all interest, charges and relatedexpenses payable with respect to that fiscal period to a lender in connectionwith borrowed money or the deferred purchase price of assets that are treatedas interest in accordance with GAAP, plus (b) the portion ofCapitalized Lease Obligations with respect to that fiscal period that should betreated as interest in accordance with GAAP.

 

“InterestPeriod” shall mean successive one, two or three month periods, beginningand ending on the dates specified in the Revolving Note.

 

“Letter ofCredit” and “Letters of Credit” shall mean, respectively, a letterof credit and all such letters of credit issued by the Bank, in its solediscretion, upon the execution and 

 

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delivery by the Borrower and the acceptance by the Bank of a MasterLetter of Credit Agreement and a Letter of Credit Application, as set forth in Section 2.1(b) ofthis Agreement.

 

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

 

“Letter ofCredit Commitment” shall mean, at any time, an amount equal to theRevolving Loan Commitment minus the aggregate amount of all RevolvingLoans outstanding.

 

“Letter ofCredit Maturity Date” shall mean December 31, 2010.

 

“Letter ofCredit Obligations” shall mean, at any time, an amount equal to theaggregate of the original face amounts of all Letters of Credit minus the sumof (i) the amount of any reductions in the original face amount of anyLetter of Credit which did not result from a draw thereunder, (ii) theamount of any payments made by the Bank with respect to any draws made under aLetter of Credit for which the Borrower has reimbursed the Bank, (iii) theamount of any payments made by the Bank with respect to any draws made under aLetter of Credit which have been converted to a Revolving Loan as set forth in Section 2.1(b),and (iv) the portion of any issued but expired Letter of Credit which hasnot been drawn by the beneficiary thereunder. For purposes of determining the outstanding Letter of Credit Obligationsat any time, the Bank’s acceptance of a draft drawn on the Bank pursuant to aLetter of Credit shall constitute a draw on the applicable Letter of Credit atthe time of such acceptance.

 

“Letter ofCredit Sublimit” shall mean, at any time, an amount equal to Ten MillionDollars ($10,000,000).

 

“Liabilities”shall mean at all times all liabilities of the Borrower that would be shown assuch on a balance sheet of the Borrower prepared in accordance with GAAP.

 

“LIBOR Loan”or “LIBOR Loans” shall mean that portion, and collectively thoseportions, of the aggregate outstanding principal balance of the Loans that bearinterest at the LIBOR Rate.

 

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

 

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“Loan Documents”shall mean each of the agreements, documents, instruments and certificates setforth in Section 4.1 hereof, and any and all such otherinstruments, documents, certificates and agreements from time to time executedand delivered by the Borrower or any of its Subsidiaries for the benefit of theBank pursuant to any of the foregoing, and all amendments, restatements,supplements and other modifications thereto.

 

“Loans” shall mean,collectively, all Revolving Loans made by the Bank to the Borrower and allLetter of Credit Obligations under and pursuant to this Agreement.

 

“LIBOR Rate” shallmean a per annum rate of interest equal to LIBOR for the relevant InterestPeriod, plus one and one quarter percent (1.25%), which LIBOR Rate shallremain fixed during such Interest Period.

 

“Master Letter of CreditAgreement” shall mean, at any time, with respect to the issuance of Lettersof Credit, a Master Letter of Credit Agreement in the form being used by theBank at such time.

 

“Material Adverse Effect”shall mean (a) a material adverse change in, or a material adverse effectupon, the assets, business, properties, prospects, condition (financial orotherwise) or results of operations of the Borrower taken as a whole, (b) amaterial impairment of the ability of the Borrower to perform any of theObligations under any of the Loan Documents, or (c) a material adverseeffect on (i) the legality, validity, binding effect or enforceabilityagainst the Borrower of any of the Loan Documents, (ii) under any LoanDocument, or (iii) the rights or remedies of the Bank under any LoanDocument.

 

“Net Income” shallmean, with respect to the Borrower and its Subsidiaries for any period, theconsolidated net income (or loss) of the Borrower and its Subsidiaries for suchperiod as determined in accordance with GAAP, excluding any gains from thedisposition of assets, any extraordinary gains and any gains from discontinuedoperations.

 

“Non-Excluded Taxes”shall mean income, stamp or other taxes, levies, imposts, duties, charges,fees, deductions or withholdings, now or hereafter imposed, levied, collected,withheld or assessed by any governmental authority, excluding net income taxesand franchise taxes (imposed in lieu of net income taxes) imposed on the Bankas a result of a present or former connection between the Bank and thejurisdiction of the governmental authority imposing such tax or any politicalsubdivision or taxing authority thereof or therein (other than any suchconnection arising solely from the Bank having executed, delivered or performedits obligations or received a payment under, or enforced, this Agreement or anyother Loan Document).

 

“Non-Use Fee” shallhave the meaning set forth in Section 3.6 hereto.

 

“Obligations” shallmean the Loans, all interest accrued thereon (including interest which would bepayable as post-petition in connection with any bankruptcy or similarproceeding, whether or not permitted as a claim thereunder), any fees due theBank hereunder, any expenses incurred by the Bank hereunder and any and allother liabilities and obligations of the Borrower to the Bank whether underthis Agreement, under any other Loan Document or under any other document orinstrument executed and delivered to the Bank by the Borrower, including,without 

 

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limitation, all obligationsof the Borrower with respect to any and loans or other extensions of the creditby the Bank to the Borrower, any reimbursement obligations of the Borrower inrespect of Letters of Credit and surety bonds, all Hedging Obligations of theBorrower which are owed to the Bank or any Affiliate of the Bank, all BankProduct Obligations of the Borrower and all obligations of the Borrower underany guaranties in respect of obligations owed by any other party to the Bank,all in each case howsoever created, arising or evidenced, whether direct orindirect, absolute or contingent, now or hereafter existing, or due or tobecome due, together with any and all renewals or extensions thereof.

 

“Obligor” shall meanthe Borrower, any accommodation endorser, third party pledgor, or any otherparty liable with respect to the Obligations.

 

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

 

“Permitted Liens”shall mean (a) liens for taxes, assessments or other governmental chargesnot at the time delinquent or thereafter payable without penalty or beingcontested in good faith by appropriate proceedings and, in each case, for whichit maintains adequate reserves in accordance with GAAP and in respect of whichno lien has been filed; (c) liens and security interests granted from timeto time in favor of the Bank; (d) purchase money liens on equipmentsecuring Liabilities permitted under Section 7.1 of this Agreement;and (e) liens arising in the ordinary course of business (such as (i) liensof carriers, warehousemen, mechanics and materialmen and other similar liensimposed by law, and (ii) liens in the form of deposits or pledges incurredin connection with worker’s compensation, unemployment compensation and othertypes of social security (excluding liens arising under ERISA) or in connectionwith surety bonds, bids, performance bonds and similar obligations) for sumsnot overdue or being contested in good faith by appropriate proceedings and notinvolving any advances or borrowed money or the deferred purchase price ofproperty or services, which do not in the aggregate materially detract from thevalue of the property or assets of the Borrower or materially impair the usethereof in the operation of the Borrower’s business and, in each case, forwhich it maintains adequate reserves in accordance with GAAP and in respect ofwhich no lien has been filed.

 

“Person” shall meansan individual, partnership, corporation, limited liability company,association, trust, unincorporated organization or any other entity ororganization, including a government or agency or political subdivisionthereof.

 

“Prime Loan” or “PrimeLoans” shall mean that portion, and collectively, those portions of theaggregate outstanding principal balance of the Loans that bear interest at thePrime Rate.

 

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

 

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“Revolving Interest Rate”shall mean the Borrower’s from time to time option of (i) the Prime-BasedRate, or (ii) the LIBOR Rate.

 

“Revolving Loan” and “RevolvingLoans” shall mean, respectively, each direct advance and the aggregate ofall such direct advances made by the Bank to the Borrower under and pursuant tothis Agreement, as set forth in Section 2.2(a) of thisAgreement.

 

“Revolving LoanAvailability” shall mean, at any time, an amount equal to the RevolvingLoan Commitment minus the Letter of Credit Obligations.

 

“Revolving LoanCommitment” shall mean Ten Million and 00/100 Dollars ($10,000,000.00),which amount may be reduced from time to time in increments of One Million and00/100 Dollars ($1,000,000.00) at the request of the Borrower with five (5) days’written notice to Bank.

 

“Revolving Loan Exposure”shall mean, at any time, an amount equal to the aggregate principal balance ofall Revolving Loans outstanding at any time plus the Letter of CreditObligations.

 

“Revolving Loan MaturityDate” means January 29, 2010, unless extended by Bank pursuant to anymodification, extension or renewal note executed by Borrower and accepted byBank in its sole and absolute discretion in substitution for the RevolvingNote.

 

“Revolving Note”shall mean a revolving note in the form attached as Exhibit Ahereto, dated as of the date hereof, in the amount of the Revolving LoanCommitment and maturing on the Revolving Loan Maturity Date, duly executed bythe Borrower and payable to the order of the Bank, together with any and allrenewal, extension, modification or replacement notes executed by the Borrowerand delivered to the Bank and given in substitution therefor.

 

“Subsidiary” and “Subsidiaries”shall mean each and all such corporations, partnerships, limited partnerships,limited liability companies, limited liability partnerships, joint ventures orother entities of which or in which the Borrower owns, directly or indirectly,such number of outstanding Capital Securities as have more than fifty percent(50.00%) of the ordinary voting power for the election of directors or othermanagers of such corporation, partnership, limited liability company or otherentity.

 

“Tangible Net Worth”shall mean, at any time the same is to be determined, the total shareholdersequity (including capital stock, additional paid-in capital and retainedearnings after deducting treasury stock) which would appear on the balancesheet of the Borrower determined in accordance with generally acceptedaccounting principles, less the sum of (a) all notes receivable fromofficers and employees of the Borrower, (b) the aggregate book value ofall assets which would be classified as intangible assets under GAAP,including, without limitation, goodwill, patents, trademarks, trade names,copyrights, franchises and deferred charges (including, without limitation,unamortized debt discount and expense, organization costs and deferred researchand development expense) and similar assets, and (c) the write-up ofassets above cost.

 

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

 

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

 

“Voidable Transfer”shall have the meaning set forth in Section 11.18 hereof.

 

## 1.2           Accounting Terms.  Any accounting terms used in this Agreementwhich are not specifically defined herein shall have the meanings customarilygiven them in accordance with GAAP. Calculations and determinations of financial and accounting terms usedand not otherwise specifically defined hereunder and the preparation offinancial statements to be furnished to the Bank pursuant hereto shall be madeand prepared, both as to classification of items and as to amount, inaccordance with sound accounting practices and GAAP as used in the preparationof the financial statements of the Borrower on the date of this Agreement.  If any changes in accounting principles orpractices from those used in the preparation of the financial statements arehereafter occasioned by the promulgation of rules, regulations, pronouncementsand opinions by or required by the Financial Accounting Standards Board or theAmerican Institute of Certified Public Accountants (or any successor thereto oragencies with similar functions), which results in a material change in themethod of accounting in the financial statements required to be furnished tothe Bank hereunder or in the calculation of financial covenants, standards orterms contained in this Agreement, the parties hereto agree to enter into goodfaith negotiations to amend such provisions so as equitably to reflect suchchanges to the end that the criteria for evaluating the financial condition andperformance of the Borrower will be the same after such changes as they werebefore such changes; and if the parties fail to agree on the amendment of suchprovisions, the Borrower will furnish financial statements in accordance withsuch changes, but shall provide calculations, which are reviewed and certifiedby the Borrower’s accountants, for all financial covenants, shall perform allfinancial covenants and shall otherwise observe all financial standards andterms in accordance with applicable accounting principles and practices ineffect immediately prior to such changes. Calculations with respect tofinancial covenants required to be stated in accordance with applicableaccounting principles and practices in effect immediately prior to such changesshall be reviewed and certified by the Borrower’s accountants.

##  

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

##  

## 1.4           Other Interpretive Provisions.

##  

### (a)           The meanings of defined terms areequally applicable to the singular and plural forms of the defined terms.  Whenever the context so requires, the neutergender includes the masculine and feminine, the single number includes theplural, and vice versa, and in particular the word “Borrower” shall be soconstrued.

###  

### (b)           Section and Schedule referencesare to this Agreement unless otherwise specified.  The words “hereof”, “herein” and “hereunder”and words of similar import 

 

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###  

### when used in this Agreementshall refer to this Agreement as a whole and not to any particular provision ofthis Agreement.

###  

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

###  

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

###  

### (e)           Unless otherwise expressly providedherein, (i) references to agreements (including this Agreement and theother Loan Documents) and other contractual instruments shall be deemed toinclude all subsequent amendments, restatements, supplements and othermodifications thereto, but only to the extent such amendments, restatements,supplements and other modifications are not prohibited by the terms of any LoanDocument, and (ii) references to any statute or regulation shall beconstrued as including all statutory and regulatory provisions amending,replacing, supplementing or interpreting such statute or regulation.

###  

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

###  

### (g)           This Agreement and the other LoanDocuments may use several different limitations, tests or measurements toregulate the same or similar matters. All such limitations, tests and measurements are cumulative and eachshall be performed in accordance with its terms.

###  

# **Section 2**                                             COMMITMENT OF THE BANK; BORROWING PROCEDURES; PAYMENTS

# ** **

## 2.1           Commitments.  Subject to the terms and conditions of thisAgreement and the other Loan Documents, and in reliance upon therepresentations and warranties of the Borrower set forth herein and in theother Loan Documents:

##  

### (a)           Revolving Loan Commitment.  The Bank agrees to make such Revolving Loansat such times as the Borrower may from time to time request until, but notincluding, the Revolving Loan Termination Date, and in such amounts as the Borrowermay from time to time request, provided, however, that the Revolving LoanExposure shall not exceed the Revolving Loan Commitment.  Revolving Loans made by the Bank may berepaid and, subject to the terms and conditions hereof, borrowed again up to,but not including the Revolving Loan Termination Date.  The Revolving Loans shall be used by theBorrower for working capital, to refinance existing indebtedness, stockrepurchase and general corporate purposes.

###  

### (b)           Letter of Credit Commitment.  Upon the execution and delivery by theBorrower, and the acceptance by the Bank, in its sole and absolute discretion,of the 

 

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###  

### Master Letter of CreditAgreement and a Letter of Credit Application, the Bank agrees to issue for theaccount of Borrower from time to time up to, but not including, the RevolvingLoan Termination Date, such Letters of Credit in the standard form of the Bankand otherwise in form and substance acceptable to the Bank, provided that (i) theLetter of Credit Obligations may not at any time exceed the Letter of CreditSublimit, and (ii) no Letter of Credit shall have an expiration date laterthan the earlier of (1) one year from its date of issuance, and (2) theLetter of Credit Maturity Date.  Theamount of any payments made by the Bank with respect to draws made by abeneficiary under a Letter of Credit for which the Borrower has failed toreimburse the Bank upon the earlier of (i) the Bank’s demand forrepayment, or (ii) one (1) day from the date of such payment to suchbeneficiary by the Bank, shall be deemed to have been converted to a RevolvingLoan as of the date such payment was made by the Bank to such beneficiary.  Upon the occurrence of an Event of a Defaultand at the option of the Bank, all Letter of Credit Obligations shall beconverted to Revolving Loans consisting of Prime Loans, all without demand,presentment, protest or notice of any kind, all of which are hereby waived bythe Borrower.  To the extent theprovisions of the Master Letter of Credit Agreement differ from, or areinconsistent with, the terms of this Agreement, the provisions of thisAgreement shall govern.

###  

## 2.2           Borrowing Procedures.

##  

### (a)           Borrowing Procedures.  Each Revolving Loan may be advanced either as aPrime Loan or a LIBOR Loan, provided, however, that at any time, the Borrowermay identify no more than six (6) Revolving Loans which may be LIBORLoans.  EachLoan shall be made available to the Borrower upon any written, verbal,electronic, telephonic or facsimile loan request which the Bank in good faithbelieves to emanate from a properly authorized representative of the Borrower,whether or not that is in fact the case. Each such request shall be effective upon receipt by the Bank, shall beirrevocable, and shall specify the date, amount and type of borrowing and, inthe case of a LIBOR Loan, the initial Interest Period therefor.  The Borrowers shall select Interest Periodsso as not to require a payment or prepayment of any LIBOR Loan during anInterest Period for such LIBOR Loan.  Thefinal Interest Period must be such that its expiration occurs on or before thematurity or termination date of such Loan. A request for a Prime Loan must be received by the Bank no later than11:00 a.m. Chicago, Illinois time, on the day it is to be funded.  A request for a LIBOR Loan must be (i) receivedby the Bank no later than 11:00 a.m. Chicago, Illinois time, three daysbefore the day it is to be funded, and (ii) in an amount equal to OneHundred Thousand and 00/100 Dollars ($100,000.00) or a higher integral multipleof One Hundred Thousand and 00/100 Dollars ($100,000.00).  The proceeds of each Loan shall be madeavailable at the office of the Bank by credit to the account of a Borrower orby other means requested by the Borrowers and acceptable to the Bank.  The Borrower hereby irrevocably confirms,ratifies and approves all such advances by the Bank and does hereby indemnifythe Bank against losses and expenses (including court costs, attorneys’ andparalegals’ fees) and shall hold the Bank harmless with respect thereto.

###  

### (b)           LIBOR Conversion and ContinuationProcedures.  Each LIBOR Loan shallautomatically renew for the Interest Period specified in the initial requestreceived 

 

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### by the Bank pursuant to Section 2.2(a),at the then current LIBOR Rate unless the Borrower, pursuant to a subsequentwritten notice received by the Bank, shall elect a different Interest Period orthe conversion of all or a portion of such LIBOR Loan to a Prime Loan.  Each Interest Period occurring after theinitial Interest Period with respect to any LIBOR Loan shall commence on thesame day of each applicable month as the first day of the initial InterestPeriod.  Whenever the last day of any InterestPeriod with respect to any LIBOR Loan would otherwise occur on a day other thana Business Day, the last day of such Interest Period shall be extended to occuron the next succeeding Business Day. Whenever an Interest Period with respect to any LIBOR Loan wouldotherwise end on a day of a month for which there is no numericallycorresponding day in the calendar month, such Interest Period shall end on thelast day of such calendar month, unless such day is not a Business Day, inwhich event such Interest Period shall be extended to end on the next BusinessDay.  Upon receipt by the Bank of suchsubsequent notice, the Borrower may, subject to the terms and conditions ofthis Agreement, elect, as of the last day of the applicable Interest Period, tocontinue any LIBOR Loan having an Interest Period expiring on such day for adifferent Interest Period, or to convert any such LIBOR Loan to a PrimeLoan.  Such notice shall, in the case ofa conversion to a Prime Loan, be given before 11:00 a.m., Chicago time, onthe proposed date of such conversion, and in the case of conversion to a LIBORLoan having a different Interest Period, be given before 11:00 a.m.,Chicago time, at least three Business Days prior to the proposed date of suchconversion, specifying: (i) the proposed date of conversion; (ii) theaggregate amount of Loans to be converted; (iii) the type of Loansresulting from the proposed conversion; and (iv) the duration of therequested Interest Period.  The Borrowermay not elect a LIBOR Rate, and an Interest Period for a LIBOR Loan shall notautomatically renew, with respect to any principal amount which is scheduled tobe repaid before the last day of the applicable Interest Period, and any suchamounts shall bear interest at the Applicable Interest Rate for Prime Loansuntil repaid.

###  

### (c)           LIBOR Loan Prepayments.  Notwithstanding anything to the contrarycontained herein, the principal balance of any LIBOR Loan may not be prepaid inwhole or in part at any time, unless such prepayment is accompanied by theapplicable LIBOR Loan breakage fees as set forth below.  If, for any reason, a LIBOR Loan is paidprior to the last Business Day of any Interest Period, whether voluntary,involuntary, by reason of acceleration or otherwise, each such prepayment of aLIBOR Loan will be accompanied by the amount of accrued interest on the amountprepaid, plus the greater of (x) $250 and (y) the amount, if any, bywhich (i) the additional interest which would have been payable during theInterest Period on the LIBOR Loan prepaid had it not been prepaid, exceeds (ii) theinterest which would have been recoverable by the Bank by placing the amountprepaid on deposit in the domestic certificate of deposit market, theeurodollar deposit market, or other appropriate money market selected by theBank, for a period starting on the date on which it was prepaid and ending onthe last day of the Interest Period for such LIBOR Loan.  The amount of any such loss or expensepayable by the Borrowers to the Bank under this section shall be determined inthe Bank’s sole discretion based upon the assumption that the Bank funded itsloan commitment for LIBOR Loans in the London Interbank Eurodollar market andusing any reasonable 

 

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### attribution or averaging methodswhich the Bank deems appropriate and practical, provided, however, that theBank is not obligated to accept a deposit in the London Interbank Eurodollarmarket in order to charge interest on a LIBOR Loan at the LIBOR Rate.

###  

### (d)           LIBOR Unavailability.  If the Bank determines in good faith (whichdetermination shall be conclusive, absent manifest error) prior to thecommencement of any Interest Period that (i) the making or maintenance ofany LIBOR Loan would violate any applicable law, rule, regulation or directive,whether or not having the force of law, (ii) United States dollar depositsin the principal amount, and for periods equal to the Interest Period forfunding any LIBOR Loan are not available in the London Interbank Eurodollarmarket in the ordinary course of business, (iii) by reason ofcircumstances affecting the London Interbank Eurodollar market, adequate andfair means do not exist for ascertaining the LIBOR Rate to be applicable to therelevant LIBOR Loan, or (iv) the LIBOR Rate does not accurately reflectthe cost to the Bank of a LIBOR Loan, the Bank shall promptly notify theBorrowers thereof and, so long as the foregoing conditions continue, none ofthe Loans may be advanced as a LIBOR Loan thereafter.  In addition, at the Borrowers’ option, eachexisting LIBOR Loan shall be immediately (i) converted to a Prime Loan onthe last Business Day of the then existing Interest Period, or (ii) dueand payable on the last Business Day of the then existing Interest Period,without further demand, presentment, protest or notice of any kind, all ofwhich are hereby waived by the Borrowers.

###  

### (e)           Regulatory Change.  In addition, if, after the date hereof, aRegulatory Change shall, in the reasonable determination of the Bank, make itunlawful for the Bank to make or maintain the LIBOR Loans, then the Bank shallpromptly notify the Borrowers and none of the Loans may be advanced as a LIBORLoan thereafter.  In addition, at theBorrowers’ option, each existing LIBOR Loan shall be immediately (i) convertedto a Prime Loan on the last Business Day of the then existing Interest Periodor on such earlier date as required by law, or (ii) due and payable on thelast Business Day of the then existing Interest Period or on such earlier dateas required by law, all without further demand, presentment, protest or noticeof any kind, all of which are hereby waived by the Borrowers.

###  

### (f)            LIBOR Indemnity.  If any Regulatory Change, or compliance bythe Bank or any Person controlling the Bank with any request or directive ofany governmental authority, central bank or comparable agency (whether or nothaving the force of law) shall (a) impose, modify or deem applicable anyassessment, reserve, special deposit or similar requirement against assets heldby, or deposits in or for the account of or loans by, or any other acquisitionof funds or disbursements by, the Bank; (b) subject the Bank or any LIBORLoan to any tax, duty, charge, stamp tax or fee or change the basis of taxationof payments to the Bank of principal or interest due from the Borrowers to theBank hereunder (other than a change in the taxation of the overall net incomeof the Bank); or (c) impose on the Bank any other condition regarding suchLIBOR Loan or the Bank’s funding thereof, and the Bank shall determine (whichdetermination shall be conclusive, absent manifest error) that the result ofthe foregoing is to increase the cost to, or to impose a cost on, the Bank orsuch controlling Person of making or maintaining such 

 

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###  

### LIBOR Loan or to reduce theamount of principal or interest received by the Bank hereunder, then theBorrowers shall pay to the Bank or such controlling Person, on demand, suchadditional amounts as the Bank shall, from time to time, determine are sufficientto compensate and indemnify the Bank for such increased cost or reduced amount.

###  

## 2.3           Loan Account.  The Bank shall maintain a loan account (the “LoanAccount”) on its books in which shall be recorded (i) all disbursementsand advances made by the Bank to Borrower pursuant to this Agreement, (ii) allpayments made by Borrower on all such Loans and advances and (iii) allother appropriate debits and credits as provided in this Agreement, including,without limitation, all interest, fees, charges and expenses.  All entries in the Loan Account shall be madein accordance with the Bank’s customary accounting practices as in effect fromtime to time.  All amounts recorded inthe Loan Account shall be, absent manifest error, prima facie evidence of (i) theprincipal amount of the Loans advanced hereunder and the amount of all Letterof Credit Obligations, (ii) any accrued and unpaid interest owing on theLoans, and (iii) all amounts repaid on the Loans or the Letter of CreditObligations; provided, however, the failure to record any such amount or anyerror in recording such amounts shall not limit or otherwise affect theobligations of the Borrower under this Agreement to repay the principal amountof the Loans, together with all interest accruing thereon.  The Borrower hereby authorizes and directsthe Bank, at the Bank’s option, to (a) debit the amount of the then dueObligations to any ordinary deposit account of Borrower, or (b) make a Revolving Loan hereunder to pay the amountof the Obligations, however, the Bank may, in its sole and absolute discretion,elect to bill the Borrower the amount of any then due Obligations in which casethe amount shall be immediately due and payable with interest thereon asprovided herein.  Not less than ten (10) daysafter the last day of each month, the Bank shall render to the Borrower astatement setting forth the balance of the Loan Account, including principal,interest, expenses and fees.

##  

## 2.4           Discretionary Disbursements.  The Bank, in its sole and absolutediscretion, may immediately upon notice to the Borrower, disburse any or allproceeds of the Loans made or available to the Borrower pursuant to thisAgreement to pay any fees, costs, expenses or other amounts required to be paidby the Borrower hereunder and not so paid. All monies so disbursed shall be a part of the Obligations, payable bythe Borrowers on demand from the Bank.

##  

## 2.5           Notes.  The Revolving Loans and the Letter of CreditObligations may be, at the Bank’s sole option, evidenced by the RevolvingNotes.

##  

## 2.6           Revolving Loan Principal Payments.

##  

### (a)           All Revolving Loans hereunder shallbe repaid by the Borrower on the Revolving Loan Termination Date.

###  

### (b)           In the event the Revolving LoanExposure exceeds the Revolving Loan Commitment, the Borrower shall, withoutnotice or demand of any kind, immediately make such repayments of the RevolvingLoans or take such other actions as are satisfactory to the Bank as shall benecessary to eliminate such excess.

 

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###  

### (c)                                  The Borrower may from time to time prepay the RevolvingLoans which are Prime Loans, in whole or in part, without any prepaymentpenalty whatsoever, provided that any prepayment of the entire principalbalance of the Prime Loans shall include accrued interest on such Prime Loansto the date of such prepayment.  Anyprepayment of any LIBOR Loan shall be subject to Section 2.2(c).

###  

### (d)                                 Due Date Extensions. If any payment to be made by the Borrower hereunder shall become due ona day other than a Business Day, such payment shall be made on the nextsucceeding Business Day and such extension of time shall be included incomputing any interest in respect of such payment.

###  

### (e)                                  Collection of Funds. All payments made by the Borrower hereunder or under any of the LoanDocuments shall be made without setoff, counterclaim, or other defense.  To the extent permitted by applicable law,all payments hereunder or under any of the Loan Documents (including anypayment of principal, interest, or fees) to, or for the benefit, of any Personshall be made by the Borrower free and clear of, and without deduction orwithholding for, or account of, any taxes now or hereinafter imposed by anytaxing authority.  The final payment dueunder any of the Loans must be made by wire transfer or other immediatelyavailable funds.

###  

## 2.7                                 Taxes.

##  

### (a)                                  All payments made by the Borrowers under this Agreementshall be made free and clear of, and without deduction or withholding for or onaccount of, any present or future income, stamp or other taxes, levies,imposts, duties, charges, fees, deductions or withholdings, now or hereafterimposed, levied, collected, withheld or assessed by any governmental authority,excluding net income taxes and franchise taxes (imposed in lieu of net incometaxes) imposed on the Bank as a result of a present or former connectionbetween the Bank and the jurisdiction of the governmental authority imposingsuch tax or any political subdivision or taxing authority thereof or therein(other than any such connection arising solely from the Bank having executed,delivered or performed its obligations or received a payment under, orenforced, this Agreement or any other Loan Document).  If any such non-excluded taxes, levies,imposts, duties, charges, fees, deductions or withholdings (collectively, “Non-ExcludedTaxes”) or Other Taxes are required to be withheld from any amounts payable tothe Bank hereunder, the amounts so payable to the Bank shall be increased tothe extent necessary to yield to the Bank (after payment of all Non-ExcludedTaxes and Other Taxes) interest or any such other amounts payable hereunder atthe rates or in the amounts specified in this Agreement, provided, however,that the Borrowers shall not be required to increase any such amounts payableto the Bank with respect to any Non-Excluded Taxes that are attributable to theBank’s failure to comply with the requirements of subsection 2.7 (c).

###  

### (b)                                 The Borrower shall pay any Other Taxes to the relevantgovernmental authority in accordance with applicable law.

###  

### (c)                                  At the request of the Borrower and at the Borrower’s solecost, the Bank shall take reasonable steps to (i) contest its liabilityfor any Non-Excluded Taxes or Other 

 

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### Taxes that have not been paid,or (ii) seek a refund of any Non-Excluded Taxes or Other Taxes that havebeen paid.

###  

### (d)                                 Whenever any Non-Excluded Taxes or Other Taxes are payableby the Borrower, as promptly as possible thereafter the Borrower shall send tothe Bank a certified copy of an original official receipt received by theBorrower showing payment thereof.  If theBorrower fails to pay any Non-Excluded Taxes or Other Taxes when due to theappropriate taxing authority or fails to remit to the Bank the requiredreceipts or other required documentary evidence or if any governmentalauthority seeks to collect a Non-Excluded Tax or Other Tax directly from theBank for any other reason, the Borrower shall indemnify the Bank on anafter-tax basis for any incremental taxes, interest or penalties that maybecome payable by the Bank.

###  

### (e)                                  The agreements in this Section 2.7 shall survive thesatisfaction and payment of the Obligations and the termination of thisAgreement.

###  

## 2.8                                 Compliance with Bank Regulatory Requirements; IncreasedCosts.  If the Bank shall reasonably determine thatany Regulatory Change, or compliance by the Bank or any Person controlling theBank with any request or directive (whether or not having the force of law) ofany governmental authority, central bank or comparable agency has or would havethe effect of reducing the rate of return on the Bank’s or such controllingPerson’s capital as a consequence of the Bank’s obligations hereunder or underany Letter of Credit to a level below that which the Bank or such controllingPerson could have achieved but for such Regulatory Change or compliance (takinginto consideration the Bank’s or such controlling Person’s policies withrespect to capital adequacy) by an amount deemed by the Bank or suchcontrolling Person to be material or would otherwise reduce the amount of anysum received or receivable by the Bank under this Agreement or under any Notewith respect thereto, then from time to time, upon demand by the Bank (whichdemand shall be accompanied by a statement setting forth the basis for suchdemand and a calculation of the amount thereof in reasonable detail), theBorrowers shall pay directly to the Bank or such controlling Person suchadditional amount as will compensate the Bank for such increased cost or suchreduction, so long as such amounts have accrued on or after the day which isninety days (90) days prior to the date on which the Bank first made demandtherefor.

##  

# **Section 3**                                             INTEREST RATE, FEES AND EXPENSES.

# ** **

## 3.1                                 Interest Rates.  Except as otherwise provided in Section 3.2,all Loans shall bear interest at a rate per annum equal to the ApplicableInterest Rate from time to time in effect.

##  

## 3.2                                 Default Rate.  After the occurrence and during thecontinuation of an Event of Default, interest on the outstanding principalbalance of the Loans, at the option of the Bank, may accrue at the Default Rateand shall be payable upon demand from the Bank.

##  

## 3.3                                 Interest Payment Dates.  Accrued and unpaid interest on the unpaidprincipal balance of all Loans which are Prime Loans, shall be due and payablemonthly, in arrears, commencing on November 30, 2008, andcontinuing on the last day of each calendar month thereafter and on the Revolving Loan Maturity Date.  Accrued and unpaid interest on the unpaid 

 

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## principalbalance of all Loans outstanding from time to time which are LIBOR Loans shallbe payable on the last Business Day of each Interest Period (provided, however,that for Interest Periods of more than three months, accrued interest shallalso be paid on the date which is three months from the first day of suchInterest Period) and on the Revolving Loan Maturity Date.

##  

## 3.4                                 Computations.  Except as otherwise set forth herein, allinterest and fees shall be calculated on the basis of a year consisting of 360days and shall be paid for the actual number of days elapsed.  Principal payments submitted in funds notimmediately available shall continue to bear interest until collected.

##  

## 3.5                                 Letter of Credit Fees.  All Letters of Credit shall bear suchapplication, issuance, renewal, negotiation and other fees and charges, andbear such interest as charged by the Bank. In addition to the foregoing, each standby Letters of Credit issuedunder and pursuant to this Agreement shall bear an annual issuance fee equal tothe Applicable L/C Fee multiplied by the face amount of such Letter of Credit,payable by the Borrower prior to the issuance by the Bank of such Letter ofCredit and annually thereafter, until (i) such Letter of Credit hasexpired or has been returned to the Bank, or (ii) the Bank has paid thebeneficiary thereunder the full face amount of such Letter of Credit.

##  

## 3.6                                 Non-Use Fee.  The Borrower agrees to pay to the Bank anon-use fee equal to the Applicable Non-Use Fee multiplied by the total of (a) theRevolving Loan Commitment, minus (b) the daily average of the RevolvingLoan Exposure, which non-use fee shall be (x) calculated on the basis of ayear consisting of 360 days, (y) paid for the actual number of days elapsed,and (z) payable quarterly in arrears on the last day of each March, June, September andDecember, and on the Revolving Loan Termination Date.

##  

## 3.7                                 Costs, Fees and Expenses.  The Borrower shall pay or reimburse the Bankfor all reasonable costs, fees and expenses incurred by the Bank or for whichthe Bank becomes obligated in connection with, (a) the negotiation,preparation and consummation of this Agreement, the other Loan Documents andall other documents provided for herein or delivered or to be deliveredhereunder or in connection herewith (including any amendment, supplement orwaiver to any Loan Document); (b) during any workout, restructuring ornegotiations in respect thereof, reasonable consultants’ fees, (c) any andall stamp and other taxes payable in connection with this Agreement or theother Loan Documents, UCC search fees, filing fees and other costs and expensesin connection with the execution and delivery of this Agreement and the otherLoan Documents, (d) all inspections or audits by the Bank (or by the Bank’sagents), provided, however, that so long as no Event of Default or UnmaturedEvent of Default exists, the Borrower shall not be required to reimburse theBank for inspections or audits more frequently than once each fiscal year.  That portion of the Obligations consisting ofcosts, expenses or advances to be reimbursed by the Borrower to the Bankpursuant to this Agreement or the other Loan Documents which are not paid on orprior to the date hereof shall be payable by the Borrower to the Bank withinten (10) Business Days of notice thereof. In addition, if at any time or times hereafter the Bank: (x) employscounsel for advice or other representation (i) with respect to thisAgreement or the other Loan Documents, (ii) to represent the Bank in anylitigation, contest, dispute, suit or proceeding or to commence, defend, orintervene or to take any other action in or with respect to any litigation,contest, dispute, suit, or proceeding (whether instituted by the Bank, theBorrower, or any other Person) in any way or respect relating to thisAgreement, the 

 

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##  

## otherLoan Documents or the Borrower’s business or affairs, or (iii) to enforceany rights of the Bank against a Borrower or any other Person that may beobligated to the Bank by virtue of this Agreement or the other Loan Documents;and/or (c) attempts to or enforces any of the Bank’s rights or remediesunder the Agreement or the other Loan Documents, the costs and expensesincurred by the Bank in any manner or way with respect to the foregoing, shallbe part of the Obligations, payable by the Borrowers to the Bank on demand.

##  

# **Section 4**                                             CONDITIONS OF BORROWING.

# ** **

Notwithstanding any otherprovision of this Agreement, the Bank shall not be required to disburse, makeor continue all or any portion of the Loans, if any of the following conditionsshall have occurred.

 

## 4.1                                 Loan Documents.  The Borrower shall have failed to execute anddeliver to the Bank any of the following Loan Documents, all of which must besatisfactory to the Bank and the Bank’s counsel in form, substance andexecution:

##  

### (a)                                  Loan Agreement.  Two copies of this Agreement duly executed bythe Borrower.

###  

### (b)                                 Revolving Note.  A Revolving Note duly executed by theBorrower, in the form attached as Exhibit A hereto.

###  

### (c)                                  Search Results; Lien Terminations.  Copies of UCCsearch reports dated such a date as is reasonably acceptable to the Bank,listing all effective financing statements which name the Borrower and any ofits Subsidiaries, under their present names and any previous names, as debtors,together with (i) copies of such financing statements, (ii) payoffletters evidencing repayment in full of all existing indebtedness to be repaidwith the Loans, the termination of all agreements relating thereto and therelease of all liens granted in connection therewith, with UCC or otherappropriate termination statements and documents effective to evidence theforegoing (other than Permitted Liens), and (iii) such other UCC terminationstatements as the Bank may reasonably request.

###  

### (d)                                 Secretary’s Certificate.  Certified copies of (i) theorganizational documents of the Borrower, (ii) good standing certificatesin the state of organization of the Borrower and in each other state requestedby the Bank, (iii) resolutions of the of the Borrower approving andauthorizing the execution, delivery and performance of the Loan Documents andthe transactions contemplated thereby, and (iv) signature and incumbencycertificates of the authorized signers for the Borrower executing any of theLoan Documents, it being understood that the Bank may conclusively rely on eachsuch certificate until formally advised by a like certificate of any changestherein), all certified by its secretary or an assistant secretary (or similarofficer) as being in full force and effect without modification.

###  

### (e)                                  Insurance.  Standard certificates of insurance whichinclude the dollar amount of the coverage on the items located at each ofBorrower’s locations.

 

19

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###  

### (f)                                    Financial Statements.  Audited consolidated financial statements forthe Borrower and its Subsidiaries for the fiscal years ending June 30,2008, June 30, 2007; and June 30, 2006; projected income statements,balance sheets and cash flow statements of the Borrower and its Subsidiariesprepared by the Borrower.

###  

### (g)                                 Additional Documents.  Such other certificates, financialstatements, schedules, resolutions, opinions of counsel, notes and otherdocuments which are provided for hereunder or which the Bank shall require.

###  

## 4.2                                 Event of Default.  Any Event of Default or Unmatured Event ofDefault shall have occurred and be continuing or the Borrower shall nototherwise be in full compliance with the terms and conditions of thisAgreement.

##  

## 4.3                                 Banking Relationship.  The Borrower shall have failed to establishand maintain the Bank as its primary bank of account and depository for allfinancial services, including all receipts, disbursements, cash management andrelated services within 90 days from the date of this Agreement.

##  

## 4.4                                 Reimbursement of Expenses.  The Borrower shall have failed to reimbursethe Bank for all expenses for which it has agreed to reimburse the Bankpursuant to Section 11.17 hereto for which invoices have beenpresented to the Borrower.

##  

## 4.5                                 Material Adverse Effect.  The occurrence of any event having a MaterialAdverse Effect upon the Borrower.

##  

## 4.6                                 Litigation.  Any litigation or governmental proceedingshall have been instituted against the Borrower or any of its officers orshareholders having a Materially Adverse Effect upon the Borrower.

##  

## 4.7                                 Representations and Warranties.  Any representationor warranty of the Borrower contained herein or in any Loan Document shall beuntrue or incorrect in any material respect as of the date of any Loan asthough made on such date, except to the extent such representation or warrantyexpressly relates to an earlier date.

##  

# **Section 5**                                             REPRESENTATIONS AND WARRANTIES.

# ** **

To induce the Bank to makethe Loans, the Borrower makes the following representations and warranties tothe Bank, each of which shall survive the execution and delivery of thisAgreement.  Such representations andwarranties shall be true as of the date of this Agreement and as of the date ofany Loan.

 

## 5.1                                 Borrower Organization and Name.  The Borrower andeach Subsidiary, if any, is duly organized, existing and in good standing, withfull and adequate power to carry on and conduct its business as presentlyconducted.  The Borrower and each Subsidiary,if any, is duly licensed or qualified in all foreign jurisdictions wherein thenature of its activities requires such qualification or licensing.  The exact legal name of the Borrower is asset forth in the first paragraph of this Agreement.

 

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##  

## 5.2                                 Authorization.  The Borrower has full right, power andauthority to enter into this Agreement, to make the borrowings and execute anddeliver the Loan Documents as provided herein and to perform all of its dutiesand obligations under this Agreement and the other Loan Documents.  The execution and delivery of this Agreementand the other Loan Documents will not, nor will the observance or performanceof any of the matters and things herein or therein set forth, violate orcontravene any provision of law or of the Borrower’s organizational documents,nor require any consent, approval, authorization, or filings with, notice to orother act by or in respect of, any governmental authority or any other party(other than any consent or approval which has been obtained and is in fullforce and effect).  All necessary andappropriate action has been taken on the part of the Borrower to authorize theexecution and delivery of this Agreement and the Loan Documents.

##  

## 5.3                                 Validity and Binding Nature.  This Agreement and the other Loan Documentsare the legal, valid and binding obligations of the Borrower, enforceableagainst the Borrower in accordance with their terms, subject to bankruptcy,insolvency and similar laws affecting the enforceability of creditors’ rightsgenerally and to general principles of equity.

##  

## 5.4                                 Ownership of Properties; Liens.  The Borrower ownsor has other rights in all of its properties and assets, real and personal,tangible and intangible, of any nature whatsoever (including patents,trademarks, trade names, service marks and copyrights), free and clear of allliens, charges and claims (including infringement claims with respect topatents, trademarks, service marks, copyrights and the like), other thanPermitted Liens.

##  

## 5.5                                 Equity Ownership.  All issued and outstanding Capital Securitiesof the Borrower and each of its Subsidiaries are duly authorized and validlyissued, fully paid, non-assessable, and such securities were issued incompliance with all applicable state and federal laws concerning the issuanceof securities.

##  

## 5.6                                 Intellectual Property.  The Borrower owns and possesses or has alicense or other right to use all Intellectual Property as are materiallynecessary for the conduct of the businesses of the Borrower, without anyinfringement upon rights of others which could reasonably be expected to have aMaterial Adverse Effect upon the Borrower, and no material claim has beenasserted and is pending challenging or questioning the use of any IntellectualProperty or the validity or effectiveness of any Intellectual Property nor doesthe Borrower know of any valid basis for any such claim.

##  

## 5.7                                 Financial Statements.  All financial statements submitted to theBank by the Borrower have been prepared in accordance with sound accountingpractices and GAAP on a basis, except as otherwise noted therein, consistentwith the previous fiscal year and present fairly the financial condition of theBorrower and the results of the operations for the Borrower as of such date andfor the periods indicated.  Since thedate of the most recent financial statement submitted by the Borrower to theBank, there has been no change in the financial condition or in the assets orliabilities of the Borrower having a Material Adverse Effect on the Borrower.

##  

## 5.8                                 Litigation and Contingent Liabilities.  There is nolitigation, arbitration proceeding, demand, charge, claim, petition orgovernmental investigation or proceeding 

 

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##  

## pending,or to the knowledge of the Borrower, threatened, against the Borrower, which,if adversely determined, might reasonably be expected to have a MaterialAdverse Effect upon the Borrower.  Otherthan any liability incident to such litigation or proceedings, the Borrower hasno material guarantee obligations, contingent liabilities, liabilities fortaxes, or any long-term leases or unusual forward or long-term commitments,including any interest rate or foreign currency swap or exchange transaction orother obligation in respect of derivatives, that are not fully-reflected orfully reserved for in the most recent financial statements delivered to theBank or otherwise disclosed in writing to the Bank.

##  

## 5.9                                 Event of Default.  No Event of Default or Unmatured Event ofDefault exists or would result from the incurrence by the Borrower of any ofthe Obligations hereunder or under any of the other Loan Document, and theBorrower is not in default (without regard to grace or cure periods) under anyother contract or agreement to which it is a party that would have a MaterialAdverse Effect.

##  

## 5.10                           Adverse Circumstances.  No condition, circumstance, event, agreement,document, instrument, restriction, litigation or proceeding (or threatenedlitigation or proceeding or basis therefor) exists which (a) would have aMaterial Adverse Effect upon the Borrower, or (b) would constitute anEvent of Default or an Unmatured Event of Default.

##  

## 5.11                           Environmental Laws and Hazardous Substances.  The Borrower hasnot generated, used, stored, treated, transported, manufactured, handled,produced or disposed of any Hazardous Substances, on or off any of the premisesof the Borrower (whether or not owned by it) in any manner which at any timeviolates any Environmental Law or any license, permit, certificate, approval orsimilar authorization thereunder. There has been no investigation, proceeding,complaint, order, directive, claim, citation or notice by any governmentalauthority or any other party, nor is any pending or, to the best of theBorrower’s knowledge, threatened. The Borrower has no material liability,contingent or otherwise, in connection with any violation of any EnvironmentalLaw.

##  

## 5.12                           Solvency, etc.  As of the date hereof, and immediately priorto and after giving effect to the Borrower undertaking any Obligationhereunder, (a) the fair value of the Borrower’s assets is greater than theamount of its liabilities (including disputed, contingent and unliquidatedliabilities) as such value is established and liabilities evaluated as requiredunder the Section 548 of the United States Bankruptcy Code, (b) thepresent fair saleable value of the Borrower’s assets is not less than theamount that will be required to pay the probable liability on its debts as theybecome absolute and matured, (c) the Borrower is able to realize upon itsassets and pay its debts and other liabilities (including disputed, contingentand unliquidated liabilities) as they mature in the normal course of business, (d) theBorrower does not intend to, and does not believe that it will, incur debts orliabilities beyond its ability to pay as such debts and liabilities mature, and(e) the Borrower is not engaged in business or a transaction, and is notabout to engage in business or a transaction, for which its property wouldconstitute unreasonably small capital.

##  

## 5.13                           ERISA Obligations. All Employee Plans of the Borrower meet the minimum funding standards ofSection 302 of ERISA and 412 of the Internal Revenue Code whereapplicable, and each such Employee Plan that is intended to be qualified withinthe meaning of Section 401 of the Internal Revenue Code of 1986 isqualified.  No withdrawal liability hasbeen 

 

22

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##  

## incurred under any such Employee Plans and no “ReportableEvent” or “Prohibited Transaction” (as such terms are defined in ERISA), hasoccurred with respect to any such Employee Plans, unless approved by theappropriate governmental agencies.  TheBorrower has promptly paid and discharged all obligations and liabilitiesarising under the Employee Retirement Income Security Act of 1974 (“ERISA”) ofa character which if unpaid or unperformed might result in the imposition of alien against any of its properties or assets.

##  

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

##  

## 5.15                           Lending Relationship.  The relationship hereby created between theBorrower and the Bank is and has been conducted on an open and arm’s lengthbasis in which no fiduciary relationship exists and that the Borrower has notrelied and is not relying on any such fiduciary relationship in executing thisAgreement and in consummating the Loans. The Bank represents that it will receive any promissory note payable toits order as evidence of a bank loan.

##  

## 5.16                           Business Loan.  The Loans, including interest rate, fees andcharges as contemplated hereby, (i) are extensions of credit to a businessentity within the purview of 815 ILCS 205/4(1)(c), as amended from time totime, (ii) are an exempted transaction under the Truth In Lending Act, 12U.S.C. 1601 etseq., as amended from time to time, and (iii) donot, and when disbursed shall not, violate the provisions of the Illinois usury laws, any consumer credit laws or the usury laws ofany state which may have jurisdiction over this transaction, the Borrower orany property securing the Loans.

##  

## 5.17                           Taxes.  The Borrower has timely filed all tax returnsand reports required by law to have been filed by it and has paid all taxes,governmental charges and assessments due and payable with respect to suchreturns, except any such taxes or charges which are being diligently contestedin good faith by appropriate proceedings and for which adequate reserves inaccordance with GAAP shall have been set aside on its books, are insuredagainst or bonded over to the satisfaction of the Bank and the contesting ofsuch payment does not create a lien on property of the Borrower which is not aPermitted Lien or that could not otherwise be reasonably expected to have amaterial Adverse Effect.  There is no controversyor objection pending or threatened in respect of any tax returns of theBorrower.  The Borrower has made adequatereserves on its books and records in accordance with GAAP for all taxes thathave accrued but which are not yet due and payable.

##  

## 5.18                           Compliance with Regulation U.  No portion of the proceeds of the Loans shallbe used by the Borrower, or any Affiliates of the Borrower, either directly orindirectly, for the purpose of purchasing or carrying any margin stock, withinthe meaning of Regulation U as adopted by the Board of Governors of the FederalReserve System or any successor thereto.

##  

## 5.19                           Governmental Regulation.  The Borrower and the Subsidiaries are not, orafter giving effect to any loan, will not be, subject to regulation under thePublic Utility Holding 

 

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##  

## CompanyAct of 1935, the Federal Power Act, the ICC Termination Act of 1995 or theInvestment Company Act of 1940 or to any federal or state statute or regulationlimiting its ability to incur indebtedness for borrowed money.

##  

## 5.20                           Place of Business.  The principal place of business and books andrecords of the Borrower is set forth in the preamble to this Agreement and theBorrower shall promptly notify the Bank of any change in such location.

##  

## 5.21                           Complete Information.  This Agreement and all financial statementsand other materials and information furnished by the Borrower to the Bank inconnection with this Agreement, and all written information hereafter furnishedby or on behalf of the Borrower to the Bank in connection herewith will be,true and accurate in every material respect on the date as of which suchinformation is dated or certified, and none of such information is or will beincomplete by omitting to state any material fact necessary to make suchinformation not misleading in light of the circumstances under which made (itbeing recognized by the Bank that any projections and forecasts provided by theBorrower are based on good faith estimates and assumptions believed by theBorrower to be reasonable as of the date of the applicable projections orassumptions and that actual results during the period or periods covered by anysuch projections and forecasts may differ from projected or forecastedresults).

##  

# **Section 6**                                             AFFIRMATIVE COVENANTS.

# ** **

## 6.1                                 Borrower**Existence.  The Borrower shallat all times preserve and maintain its (a) existence and good standing inthe jurisdiction of its organization, and (b) qualification to do businessand good standing in each jurisdiction where the nature of its business makessuch qualification necessary (other than such jurisdictions in which thefailure to be qualified or in good standing could not reasonably be expected tohave a Material Adverse Effect), and shall at all times continue as a goingconcern in the business which the Borrower is presently conducting.

##  

## 6.2                                 Compliance With Laws.  The Borrower shall use the proceeds of theLoans to refinance existing indebtedness, for the issuance of Letters of Creditas set forth herein, for working capital and other general corporate orbusiness purposes not in contravention of any requirements of law and not inviolation of this Agreement, and shall comply, and cause any Subsidiary tocomply, in all respects, including the conduct of its business and operationsand the use of its properties and assets, with all applicable laws, rules,regulations, decrees, orders, judgments, licenses and permits, except wherefailure to comply could not reasonably be expected to have a Material Adverse Effect.  In addition, and without limiting theforegoing sentence, the Borrower shall (a) ensure, and cause eachSubsidiary to ensure, that no person who owns a controlling interest in orotherwise controls the Borrower or any Subsidiary is or shall be listed on theSpecially Designated Nationals and Blocked Person List or other similar listsmaintained by the Office of Foreign Assets Control (“OFAC”), the Department ofthe Treasury or included in any Executive Orders, (b) not use or permitthe use of the proceeds of the Loans to violate any of the foreign assetcontrol regulations of OFAC or any enabling statute or Executive Order relatingthereto, and (c) comply, and cause each Subsidiary to comply, with allapplicable Bank Secrecy Act laws and regulations, as amended.

 

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## 6.3           Payment of Taxes and Liabilities.  The Borrower shall pay, and cause anySubsidiary to pay, and discharge, before penalties accrue thereon, all propertyand other taxes, and all governmental charges or levies against it, as well asclaims of any kind which, if unpaid, could become a lien on any of itsproperty; provided that the foregoing shall not require the Borrower or anySubsidiary to pay any such tax or charge so long as it shall contest thevalidity thereof in good faith by appropriate proceedings and shall set asideon its books adequate reserves with respect thereto in accordance with GAAP.

##  

## 6.4           Maintain Property.  The Borrower shall at all times maintain,preserve and keep its plant, properties and equipment in good repair, workingorder and condition, normal wear and tear excepted, and shall from time to timemake all needful and proper repairs, renewals, replacements, and additionsthereto so that at all times the efficiency thereof shall be fully preservedand maintained.  The Borrower shallpermit the Bank to examine and inspect such plant, properties and equipment atall reasonable times.

##  

## 6.5           Maintain Insurance.  The Borrower shall at all times maintain, andcause any Subsidiary to maintain, with insurance companies reasonablyacceptable to the Bank, such insurance coverage as may be required by any lawor governmental regulation or court decree or order applicable to it and suchother insurance, to such extent and against such hazards and liabilities,including employers’, public and professional liability risks, as iscustomarily maintained by companies similarly situated, and shall have insuredamounts no less than, and deductibles no higher than, are reasonably acceptableto the Bank.  The Borrower shall furnishto the Bank a certificate setting forth in reasonable detail the nature andextent of all insurance maintained by the Borrower, which shall be reasonablyacceptable in all respects to the Bank.

##  

In the event the Borrowereither fails to provide the Bank with evidence of the insurance coveragerequired by this Section or at any time hereafter shall fail to obtain ormaintain any of the policies of insurance required above, or to pay any premiumin whole or in part relating thereto, then the Bank, without waiving orreleasing any obligation or default by the Borrower hereunder, may at any time(but shall be under no obligation to so act), obtain and maintain such policiesof insurance and pay such premiums and take any other action with respectthereto, which the Bank deems advisable. This insurance coverage (a) may, but need not, protect the Borrower’sinterests in such property, and (b) may not pay any claim made by, oragainst, the Borrower in connection with such property.  The Borrower may later cancel any suchinsurance purchased by the Bank, but only after providing the Bank withevidence that the Borrower has obtained the insurance coverage required by thisSection.  If the Bank purchases suchinsurance, the Borrower will be responsible for the costs of that insurance,including interest and any other charges that may be imposed with the placementof the insurance, until the effective date of the cancellation or expiration ofthe insurance.  The costs of theinsurance may be added to the principal amount of the Loans owing hereunder.  The costs of the insurance may be more thanthe cost of the insurance the Borrower may be able to obtain on its own.

 

## 6.6           ERISA Liabilities; Employee Plans.  The Borrower shall (i) keepin full force and effect any and all Employee Plans which are presently inexistence or may, from time to time, come into existence under ERISA, and notwithdraw from any such Employee Plans, unless such withdrawal can be effectedor such Employee Plans can be terminated without liability to the Borrower; (ii) makecontributions to all of such Employee Plans in a timely manner and in a 

 

25

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## sufficient amount to comply with the standards of ERISA;including the minimum funding standards of ERISA; (iii) comply with allmaterial requirements of ERISA which relate to such Employee Plans; (iv) notifythe Bank immediately upon receipt by the Borrower of any notice concerning theimposition of any withdrawal liability or of the institution of any proceedingor other action which may result in the termination of any such Employee Plansor the appointment of a trustee to administer such Employee Plans; (v) promptlyadvise the Bank of the occurrence of any “Reportable Event” or “ProhibitedTransaction” (as such terms are defined in ERISA), with respect to any suchEmployee Plans; and (vi) amend any Employee Plan that is intended to bequalified within the meaning of Section 401 of the Internal Revenue Codeof 1986 to the extent necessary to keep the Employee Plan qualified, and tocause the Employee Plan to be administered and operated in a manner that doesnot cause the Employee Plan to lose its qualified status.

##  

## 6.7           Intellectual Property.  The Borrower shall maintain, preserve andrenew all Intellectual Property that is materially necessary for the conduct ofits business as and where the same is currently located as heretofore or ashereafter conducted by it.

##  

## 6.8           Notice of Proceedings.  The Borrower, promptly upon becoming aware,shall give written notice to the Bank of any litigation, arbitration orgovernmental investigation or proceeding not previously disclosed by theBorrower to the Bank which has been instituted or, to the knowledge of theBorrower, is threatened against the Borrower or any of its Subsidiaries or towhich any of its respective properties is subject which might reasonably beexpected to have a Material Adverse Effect or cause an Event of Default or anUnmatured Event of Default.

##  

## 6.9           Notice of Event of Default orMaterial Adverse Effect.  TheBorrower shall, immediately after the commencement thereof, give notice to theBank in writing of the occurrence of any Event of Default or any UnmaturedEvent of Default, or the occurrence of any condition or event having a MaterialAdverse Effect on the Borrower.

##  

## 6.10         Environmental Matters.  The Borrower will comply in all materialrespects with all Environmental Laws and will obtain all licenses, permits,certificates, approvals and similar authorizations thereunder. The Borrowershall immediately notify the Bank upon becoming aware of any suchinvestigation, proceeding, complaint, order, directive, claim, citation ornotice, and shall take prompt and appropriate actions to respond thereto, withrespect to any non-compliance with, or violation of, the requirements of anyEnvironmental Law by the Borrower or the release, spill or discharge,threatened or actual, of any Hazardous Material or the generation, use,storage, treatment, transportation, manufacture, handling, production ordisposal of any Hazardous Material or any other environmental, health or safetymatter, which affects the Borrower or its business, operations or assets or anyproperties at which the Borrower has transported, stored or disposed of anyHazardous Substances.  The Borroweragrees to allow the Bank or its agent reasonable access to the properties ofthe Borrower and any Subsidiaries to confirm compliance with all EnvironmentalLaws, and the Borrower shall, following determination by the Bank that there isnon-compliance, or any condition which requires any action by or on behalf ofthe Borrower in order to avoid any non-compliance, with any Environmental Law,at the Borrower’s sole expense, cause an independent environmental engineeracceptable to the Bank to conduct such tests of the relevant site as arereasonably 

 

26

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## appropriate,and prepare and deliver a report setting forth the result of such tests, aproposed plan for remediation and an estimate of the costs thereof.

##  

## 6.11                           Further Assurances. The Borrower shall take, and cause anySubsidiary to take, such actions as are necessary or as the Bank may reasonablyrequest from time to time to ensure that the Obligations under the LoanDocuments are secured by substantially all of the assets of the Borrower andits Subsidiaries, in each case as the Bank may determine, including (a) theexecution and delivery of security agreements, pledge agreements, mortgages,deeds of trust, financing statements and other documents, and the filing orrecording of any of the foregoing, and (b) the delivery of certificatedsecurities and other collateral with respect to which perfection is obtained bypossession.

##  

## 6.12                          Banking Relationship.  The Borrower covenants and agrees, at alltimes during the term of this Agreement, to utilize the Bank as its primarybank of account and depository for all financial services, including allreceipts, disbursements, cash management and related services.

##  

## 6.13                          Financial Statements and Books and Records.  The Borrower shallmake no change with respect to its accounting principles without giving priornotification to the Bank.  All financialstatements delivered to the Bank will accurately reflect the financialcondition of the Borrower.  The Bankshall have the right at all times during business hours to inspect the booksand records of the Borrower and make extracts therefrom.

##  

## 6.14                          Reporting Requirements.  The Borrower shall at all times maintain astandard and modern system of accounting, on the accrual basis of accountingand in all respects in accordance with GAAP, and shall furnish to the Bank orits authorized representatives such information regarding the business affairs,operations and financial condition of the Borrower as the Bank shall require,including:

##  

### (a)           CPA Financial Statements.  Promptly when available, and in any event,within 120 days after the close of each fiscal year, a copy of the auditedfinancial statements of the Borrower and any Subsidiaries for such fiscalperiod, including consolidated (and consolidating if required by the Bank)balance sheet, statement of income and retained earnings, statement of cashflows for the fiscal period then ended and such other information (includingnonfinancial information) as the Bank may request, in reasonable detail, preparedand certified without adverse reference to going concern value and withoutqualification by an independent certified public account of recognizedstanding, selected by the Borrower and reasonably acceptable to the Bank.

###  

### (b)           Management Financial Statements.  Promptly when available, and in any event,within 45 days after the close of each fiscal quarter, a copy of the financialstatements of the Borrower and any Subsidiaries for such fiscal period,including consolidated (and consolidating if required by the Bank) balancesheet, statement of income and retained earnings, statement of cash flows forthe fiscal period then ended and such other information (including nonfinancialinformation) as the Bank may request, in reasonable detail, prepared and certifiedas accurate by the Borrower’s treasurer or chief financial officer.

 

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### (c)           Covenant Compliance Certificates.  Contemporaneously with the furnishing of thefinancial statements pursuant to this Section, a duly completed compliancecertificate in the form attached as Exhibit C hereto, dated thedate of such financial statements and certified as true and correct by anappropriate officer of the Borrower, containing a computation of each of thefinancial covenants set forth in Section 8 and stating that theBorrower has not become aware of any Event of Default or Unmatured Event ofDefault that has occurred and is continuing or, if there is any such Event ofDefault or Unmatured Event of Default describing it and the steps, if any,being taken to cure it.

###  

## 6.15                          Use of Proceeds.  The proceeds of all of the Loans, advancesand/or extensions of credit made by the Bank to or for the benefit of theBorrower and/or its Subsidiaries pursuant to this Loan Agreement and/or theLoan Documents will be used by the Borrower exclusively to refinance existingindebtedness, for the issuance of Letters of Credit as set forth herein, forworking capital and other general corporate or business purposes.

##  

## 6.16                          Other Reports.  Within such period of time as the Bank mayspecify, the Borrower shall deliver to the Bank such other schedules andreports as the Bank may require.

##  

# **Section 7**                                             NEGATIVE COVENANTS.

# ** **

## 7.1                                Debt.  The Borrower shall not, either directly orindirectly, create, assume, incur or have outstanding any Debt or Liabilities(including purchase money indebtedness), or become liable, whether as endorser,guarantor, surety or otherwise, for any debt or obligation of another, except:

##  

### (a)           the Obligations under this Agreementand the other Loan Documents or any other indebtedness from time to time owingto the Bank;

###  

### (b)           obligations of the Borrower fortaxes, assessments, municipal or other governmental charges;

###  

### (c)           obligations of the Borrower foraccounts payable, other than for money borrowed, incurred in the ordinarycourse of business;

###  

### (d)           endorsement for collection or depositof commercial paper received in the ordinary course of business; and

###  

### (e)           purchase money indebtedness securedby the assets of the Borrower purchased with the proceeds of such purchasemoney indebtedness in an aggregate amount not to exceed $1,000,000.

###  

## 7.2                                Encumbrances.  The Borrower shall not, either directly orindirectly, create, assume, incur or suffer or permit to exist any lien,security interest or charge of any kind or character upon any asset of theBorrower or its Subsidiaries, whether owned at the date hereof or hereafteracquired, except for Permitted Liens.

 

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## 7.3                                Transfer; Merger; Sales.  The Borrower shall not, whether in onetransaction or a series of related transactions, (a) be a party to anymerger or consolidation, or purchase or otherwise acquire all or substantiallyall of the assets or any Capital Securities of any class of, or any partnershipor joint venture interest in, any other entity, except for (i) any suchmerger, consolidation, sale, transfer, conveyance, lease or assignment of or byany Subsidiary into the Borrower or into any other domestic Subsidiary; (ii) anysuch purchase or other acquisition by the Borrower or any domestic Subsidiaryof the assets or equity interests of any Subsidiary, (b) sell, transfer,convey or lease all or any substantial part of its assets or Capital Securities(including the sale of Capital Securities of any Subsidiary), except for salesof Inventory in the ordinary course of business, or (c) sell or assign,with or without recourse, any receivables.

##  

## 7.4                                Investments, Acquisitions, Loans and Advances.  The Borrower shallnot directly or indirectly make, retain, or have outstanding any investments(whether through purchase of stock or obligations or otherwise) in, or loans oradvances to, any other person or entity, or acquire all or any substantial partof the assets or business of any other person or entity or division thereof;provided, however, that the foregoing shall not apply to nor operate toprevent:

##  

### (a)           investments in direct obligations ofthe United States of America or of any agency or instrumentality thereof whoseobligations constitute full faith and credit obligations of the United Statesof America, provided that any such obligations shall mature within one year ofthe date of issuance thereof;

###  

### (b)           investments in commercial paper ratedat least P-1 by Moody’s Investors Service, Inc., and at least A-1 byStandard & Poor’s Ratings Services Group maturing within one year ofthe date of issuance thereof; or

###  

### (c)           investments in certificates ofdeposit issued by the Bank or by any United States commercial bank havingcapital and surplus of not less than $100,000,000 which have a maturity of oneyear or less.

###  

## 7.5                                This section has been intentionally omitted.

##  

## 7.6                                Transactions with Affiliates.  The Borrower shall not, directly orindirectly, enter into or permit to exist any transaction with any of itsAffiliates or with any director, officer or employee of the Borrower other thantransactions in the ordinary course of, and pursuant to the reasonablerequirements of, the business of the Borrower and upon fair and reasonableterms which are fully disclosed to the Bank and are no less favorable to theBorrower than would be obtained in a comparable arm’s length transaction with aparty that is not an Affiliate of the Borrower.

##  

## 7.7                                Unconditional Purchase Obligations.  The Borrower shallnot and shall not permit any Subsidiary to enter into or be a party to anycontract for the purchase of materials, supplies or other property or servicesif such contract requires that payment be made by it regardless of whetherdelivery is ever made of such materials, supplies or other property orservices.

##  

## 7.8                                Cancellation of Debt.  The Borrower shall not, and not permit anySubsidiary to, cancel any claim or debt owing to it, except for reasonableconsideration or in the ordinary 

 

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## courseof business or otherwise consistent with Borrower’s historical practices withregard to its accounts receivable.

##  

## 7.9                                Inconsistent Agreements.  The Borrower shall not and shall not permitany Subsidiary to enter into any agreement containing any provision which would(a) be violated or breached by any borrowing by the Borrower hereunder orby the performance by the Borrower or any Subsidiary of any of its Obligationshereunder or under any other Loan Document, or (b) prohibit the Borroweror any Subsidiary from granting to the Bank a lien on any of its assets.

##  

## 7.10                          Use of Proceeds.  Neither the Borrower nor any of itsSubsidiaries or Affiliates shall use any portion of the proceeds of the Loans,either directly or indirectly, for the purpose of purchasing any securitiesunderwritten by an the Bank or any of its Affiliates.

##  

## 7.11                          Business Activities; Change of Legal Status andOrganizational Documents.  The Borrower shall not and shall not permitany Subsidiary to (a) engage in any line of business other than thebusinesses engaged in on the date hereof and businesses reasonably relatedthereto, (b) change its name, its type of organization, its jurisdictionof organization or other legal structure, or (c) permit its charter, bylawsor other organizational documents to be amended or modified in any way whichcould reasonably be expected to materially adversely affect the interests ofthe Bank.

##  

# **Section 8**                                             FINANCIAL COVENANTS.

# ** **

## 8.1                                Tangible Net Worth.  As of the end of their fiscal quarter ending December 31,2008 and each of their subsequent fiscal quarters, the Borrower and itsSubsidiaries shall maintain consolidated Tangible Net Worth in an amount notless than Ten Million and 00/100 Dollars ($10,000,000.00).

##  

## 8.2                                Liabilities to Tangible Net Worth.  As of the end oftheir fiscal quarter ending December 31, 2008 and each of their subsequentfiscal quarters, the Borrower and its Subsidiaries shall maintain a ratio of (i) consolidatedLiabilities to (ii) consolidated Tangible Net Worth which shall not exceed1.50 to 1.00.

##  

## 8.3                                Interest Coverage Ratio.  As of the end of their fiscal quarter ending December 31,2008 and each of their subsequent fiscal quarters, the Borrower and itsSubsidiaries shall maintain a ratio of consolidated EBITDA to consolidatedInterest Charges of not less than 2.00 to 1.00.

##  

# **Section 9**                                             EVENTS OF DEFAULT.

# ** **

The Borrower, without noticeor demand of any kind, shall be in default under this Agreement upon theoccurrence of any of the following events (each an “Event of Default”).

 

## 9.1                                Nonpayment of Obligations.  Any amount due and owing on any of theObligations, whether by its terms or as otherwise provided herein, is not paidwithin 5 days of the date upon which it is due.

 

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## 9.2                                Misrepresentation.  Any oral or written warranty, representation,certificate or statement of any Obligor in this Agreement, the other LoanDocuments or any other agreement with the Bank shall be false in any materialrespect when made or at any time thereafter, or if any financial data or anyother information now or hereafter furnished to the Bank by or on behalf of anyObligor shall prove to be false, inaccurate or misleading in any materialrespect.

##  

## 9.3                                Nonperformance.

##  

### (a)           Any failure to perform or default inthe performance of any covenant, condition or agreement contained in Sections6.1, 6.5, 6.7, 6.14, 7.1, 7.2, 7.3, 7.4, 7.5, 7.10, 8.1, 8.2 or 8.3 of thisAgreement; or

###  

### (b)           Any failure to perform or default inthe performance of any covenant, condition or agreement contained in thisAgreement, in the other Loan Documents or any other agreement with the Bankwhich covenant, condition or agreement is not specifically referenced in Section 9.3(a) hereof,which failure to perform or default in performance is not remedied within 5days after the date on which such failure to perform or default shall haveoccurred.

###  

## 9.4                                Default under Loan Documents.  A default beyond any grace or cure periodunder any of the other Loan Documents, all of which covenants, conditions andagreements contained therein are hereby incorporated in this Agreement byexpress reference, shall be and constitute an Event of Default under thisAgreement and any other of the Obligations.

##  

## 9.5                                Default under Other Debt.  Any default by any Obligor in the payment ofany indebtedness for any other obligation beyond any period of grace providedwith respect thereto or in the performance of any other term, condition orcovenant contained in any agreement (including any capital or operating leaseor any agreement in connection with the deferred purchase price of property)under which any such obligation is created, the effect of such default is tocause or permit the holder of such obligation (or the other party to such otheragreement) to cause such obligation to become due prior to its stated maturityor terminate such other agreement and could reasonably be expected to result ina Material Adverse Effect.

##  

## 9.6                                Other Material Obligations.  Any default in the payment when due, or inthe performance or observance of, any material obligation of, or conditionagreed to by, any Obligor with respect to any material purchase or lease ofgoods or services where such default, singly or in the aggregate with all othersuch defaults, might reasonably be expected to have a Material Adverse Effect,which default has not been remedied within 5 days after the date on which suchdefault shall have occurred.

##  

## 9.7                                Bankruptcy, Insolvency, etc.  Any Obligor becomes insolvent or generallyfails to pay, or admits in writing its inability or refusal to pay, debts asthey become due; or any Obligor applies for, consents to, or acquiesces in theappointment of a trustee, receiver or other custodian for such Obligor or anyproperty thereof, or makes a general assignment for the benefit of creditors;or, in the absence of such application, consent or acquiescence, a trustee,receiver or other custodian is appointed for any Obligor or for a substantialpart of the property of any thereof and is not discharged within ninety (90)days; or any bankruptcy, reorganization, debt 

 

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## arrangement,or other case or proceeding under any bankruptcy or insolvency law, or anydissolution or liquidation proceeding, is commenced in respect of any Obligor,and if such case or proceeding is not commenced by such Obligor, it isconsented to or acquiesced in by such Obligor, or remains undismissed forninety (90) days; or any Obligor takes any action to authorize, or infurtherance of, any of the foregoing.

##  

## 9.8                                Judgments.  The entry of any final judgment, decree,levy, attachment, garnishment or other process, or the filing of any lienagainst any Obligor which (a) is not fully covered by insurance, and suchjudgment or other process shall not have been, within thirty (30) days from theentry thereof, (i) bonded over to the satisfaction of the Bank andappealed, (ii) vacated, or (iii) discharged and (b) couldreasonably be expected to result in a Material Adverse Effect.

##  

## 9.9                                Change in Control.  The occurrence of any Change in Control.

##  

## 9.10                          Material Adverse Effect.  The occurrence of any event which has aMaterial Adverse Effect on the Borrower.

##  

# **Section 10**                                      REMEDIES.

# ** **

## 10.1                          Rights and Remedies.  Upon the occurrence of an Event of Default,the Bank shall have all rights, powers and remedies set forth in the LoanDocuments, in any written agreement or instrument (other than this Agreement orthe Loan Documents) relating to any of the Obligations or any securityherefore, as a secured party under the UCC or as otherwise provided at law orin equity.  Without limiting thegenerality of the foregoing, the Bank may, at its option upon the occurrence ofan Event of Default, declare its commitments to the Borrower to be terminatedand all Obligations to be immediately due and payable, provided, however, thatupon the occurrence of an Event of Default under Sections 9.6, 9.7,9.8 or 9.10, all commitments of the Bank to the Borrower shallimmediately terminate and all Obligations shall be automatically due andpayable, all without demand, notice or further action of any kind required onthe part of the Bank. The Borrower hereby waives any and all presentment,demand, notice of dishonor, protest, and all other notices and demands inconnection with the enforcement of Bank’s rights under the Loan Documents, andhereby consents to, and waives notice of release, with or withoutconsideration, of any Borrower or of any collateral for the Loans,notwithstanding anything contained herein or in the Loan Documents to thecontrary.

##  

## 10.2                          No Waiver.  No Event of Default shall be waived by theBank except in writing.  No failure ordelay on the part of the Bank in exercising any right, power or remedyhereunder shall operate as a waiver of the exercise of the same or any otherright at any other time; nor shall any single or partial exercise of any suchright, power or remedy preclude any other or further exercise thereof or theexercise of any other right, power or remedy hereunder.  There shall be no obligation on the part ofthe Bank to exercise any remedy available to the Bank in any order.  The remedies provided for herein arecumulative and not exclusive of any remedies provided at law or in equity.  The Borrower agrees that in the event thatthe Borrower fails to perform, observe or discharge any of its Obligations orliabilities under this Agreement or any other agreements with the Bank, noremedy of law will provide adequate relief to the Bank, and further 

 

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## agreesthat the Bank shall be entitled to temporary and permanent injunctive relief inany such case without the necessity of proving actual damages.

##  

# **Section 11**                                      MISCELLANEOUS.

# ** **

## 11.1                          Entire Agreement.  This Agreement and the other Loan Documents (i) constitutethe entire agreement between the parties with respect to the subject matterhereof and thereof; and (ii) are the final expression of the intentions ofthe Borrower and the Bank.  No promises,either expressed or implied, exist between the Borrower and the Bank, unlesscontained herein or therein.  ThisAgreement, together with the other Loan Documents, supersedes all negotiations,representations, warranties, commitments, term sheets, discussions,negotiations, offers or contracts (of any kind or nature, whether oral orwritten) prior to or contemporaneous with the execution hereof with respect toany matter, directly or indirectly related to the terms of this Agreement andthe other Loan Documents.  This Agreementand the other Loan Documents are the result of negotiations among the Bank, theBorrower and the other parties thereto, and have been reviewed (or have had theopportunity to be reviewed) by counsel to all such parties, and are theproducts of all parties.  Accordingly,this Agreement and the other Loan Documents shall not be construed morestrictly against the Bank merely because of the Bank’s involvement in theirpreparation.

##  

## 11.2                          Amendments.  No amendment, modification or waiver of, orconsent with respect to, any provision of this Agreement or the other LoanDocuments shall in any event be effective unless the same shall be in writingand acknowledged by the Bank, and then any such amendment, modification, waiveror consent shall be effective only in the specific instance and for the specificpurpose for which given.

##  

## 11.3                          Waiver of Defenses.  THE BORROWER, ON BEHALF OF ITSELF OF ANY OFTHE OBLIGATIONS, WAIVES EVERY PRESENT AND FUTURE DEFENSE, CAUSE OF ACTION,COUNTERCLAIM OR SETOFF WHICH THE BORROWER MAY NOW HAVE OR HEREAFTER MAY HAVETO ANY ACTION BY THE BANK IN ENFORCING THIS AGREEMENT.  PROVIDED THE BANK ACTS IN GOOD FAITH, THEBORROWER RATIFIES AND CONFIRMS WHATEVER THE BANK MAY DO PURSUANT TO THETERMS OF THIS AGREEMENT.  THIS PROVISIONIS A MATERIAL INDUCEMENT FOR THE BANK GRANTING ANY FINANCIAL ACCOMMODATION TOTHE BORROWER.

##  

## 11.4                          Forum Selection and Consent to Jurisdiction.  ANY LITIGATIONBASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT ORANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THECOURTS OF THE STATE OF ILLINOIS OR IN THEUNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OROPERATE TO PRECLUDE THE BANK FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION INANY OTHER JURISDICTION.  THE BORROWERHEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OFTHE STATE OF ILLINOIS SITTING IN THE COUNTY OF COOKANDOF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTHABOVE.  THE 

 

33

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## BORROWERFURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL,POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS.  THE BORROWER HEREBYEXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANYOBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANYSUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THATANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

##  

## 11.5         Waiverof Jury Trial.  THE BANK AND THEBORROWER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITHCOUNSEL, EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY, ANYRIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANYRIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT, ANY OF THEOTHER OBLIGATIONS, THE COLLATERAL, OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENTDELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITHOR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTIONWITH ANY OF THE FOREGOING, OR ANY COURSE OF CONDUCT OR COURSE OF DEALING INWHICH THE BANK AND THE BORROWER ARE ADVERSE PARTIES, AND EACH AGREES THAT ANYSUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE AJURY.  THIS PROVISION IS A MATERIALINDUCEMENT FOR THE BANK GRANTING ANY FINANCIAL ACCOMMODATION TO THE BORROWER.

##  

## 11.6         Assignability.  The Bank may at any time assign the Bank’srights in this Agreement, the other Loan Documents, the Obligations, or anypart thereof and transfer the Bank’s rights in any or all collateral for theLoans, and the Bank thereafter shall be relieved from all liability withrespect to such collateral.  In addition,the Bank may at any time sell one or more participations in the Loans.  The Borrower may not sell or assign this Agreement,or any other agreement with the Bank or any portion thereof, either voluntarilyor by operation of law, without the prior written consent of the Bank.  This Agreement shall be binding upon the Bankand the Borrower and their respective legal representatives and successors.  All references herein to the Borrower shallbe deemed to include any successors, whether immediate or remote.  In the case of a joint venture orpartnership, the term “Borrower” shall be deemed to include all joint venturersor partners thereof, who shall be jointly and severally liable hereunder.

##  

## 11.7         Confidentiality.  The Bank agrees to use commerciallyreasonable efforts (equivalent to the efforts the Bank applies to maintain theconfidentiality of its own confidential information) to maintain asconfidential all Confidential Information, except that the Bank may discloseConfidential Information (a) to persons employed or engaged by the Bank inevaluating, approving, structuring or administering the Loans; (b) to anyassignee or participant or potential assignee or participant that has agreed tocomply with the covenant contained in this Section 11.7 (and anysuch assignee or participant or potential assignee or participant may disclosesuch information to persons employed or engaged by them as described in clause (a) above);(c) as required or requested by any federal or state regulatory authorityor examiner, or any insurance industry association, or as reasonably believedby the Bank to be compelled by any court decree, 

 

34

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## subpoenaor legal or administrative order or process; (d) as, on the advice of theBank’s counsel, is required by law; (e) in connection with the exercise ofany right or remedy under the Loan Documents or in connection with anylitigation to which the Bank is a party; (f) to any nationally recognizedrating agency that requires access to information about the Bank’s investmentportfolio in connection with ratings issued with respect to the Bank; (g) withthe prior written consent of Borrower; or (h) that ceases to beconfidential through no fault of the Bank, it being understood that the personsto whom disclosure of Confidential Information is made will first be informedof the confidential nature of such information and instructed to keep suchinformation confidential.  The Bank agreesthat it shall be responsible for the breach of any of the terms hereof by anythird party to whom the Bank discloses Confidential Information pursuant tothis Section 11.7.

##  

## 11.8         BindingEffect.  This Agreement shall becomeeffective upon execution by the Borrower and the Bank.  If this Agreement is not dated or containsany blanks when executed by the Borrower, the Bank is hereby authorized,without notice to the Borrower, to date this Agreement as of the date when itwas executed by the Borrower, and to complete any such blanks according to theterms upon which this Agreement is executed.

##  

## 11.9         GoverningLaw.  This Agreement and the otherLoan Documents shall be delivered and accepted in and shall be deemed to becontracts made under and governed by the internal laws of the State of Illinois (but giving effect to federal laws applicable to nationalbanks) applicable to contracts made and to be performed entirely within suchstate, without regard to conflict of laws principles.

##  

## 11.10       Enforceability.  Wherever possible, each provision of thisAgreement shall be interpreted in such manner as to be effective and validunder applicable law, but if any provision of this Agreement shall beprohibited by, unenforceable or invalid under any jurisdiction, such provisionshall as to such jurisdiction, be severable and be ineffective to the extent ofsuch prohibition or invalidity, without invalidating the remaining provisionsof this Agreement or affecting the validity or enforceability of such provisionin any other jurisdiction.

##  

## 11.11       Survival of Borrower Representations.  All covenants, agreements, representationsand warranties made by the Borrower herein shall, notwithstanding anyinvestigation by the Bank, be deemed material and relied upon by the Bank andshall survive the making and execution of this Agreement and the other LoanDocuments, and shall be deemed to be continuing representations and warrantiesuntil such time as the Borrower has fulfilled all of its Obligations to theBank, and the Bank has been indefeasibly paid in full in cash.  The Bank, in extending financialaccommodations to the Borrower, is expressly acting and relying on theaforesaid representations and warranties.

##  

## 11.12       Extensionsof Bank’s Commitment.  This Agreementshall govern the terms of (i) any extensions or renewals of the Bank’scommitment hereunder, and (ii) any replacement note executed by theBorrower and accepted by the Bank in its sole and absolute discretion insubstitution for any note evidencing a Loan.

 

35

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## 11.13                     Time of Essence.  Time is of the essence in making payments ofall amounts due the Bank under this Agreement and in the performance andobservance by the Borrower of each covenant, agreement, provision and term ofthis Agreement.

##  

## 11.14                     Counterparts; Facsimile Signatures.  This Agreement maybe executed in any number of counterparts and by the different parties heretoon separate counterparts and each such counterpart shall be deemed to be anoriginal, but all such counterparts shall together constitute but one and thesame Agreement.  Receipt of an executedsignature page to this Agreement by facsimile or other electronictransmission shall constitute effective delivery thereof. Electronic records ofexecuted Loan Documents maintained by the Bank shall be deemed to be originalsthereof.

##  

## 11.15                     Notices.  Except as otherwise provided herein, theBorrower waives all notices and demands in connection with the enforcement ofthe Bank’s rights hereunder.  Allnotices, requests, demands and other communications provided for hereundershall be in writing (including, without limitation, notice by telecopy) andaddressed to the Borrower or the Bank at the address or telecopier number shownfor each party, respectively, below or, as to each party, at such other addressas shall be designated by such party in a written notice to each other partycomplying as to delivery with the terms of this subsection.

##  

Ifto the Bank, to:

 

HarrisN.A.

111West Monroe Street

Chicago,Illinois  60603

Attention:James Hess, Senior Vice President

Telephone:     (312) 461-5026

Facsimile:      (312)461-6190

 

witha copy to:

 

JanetA. Stiven, Esq.

DykemaGossett PLLC

10South Wacker Drive

Suite 2300

Chicago,Illinois  60606

Telephone:(312) 627-2153

Facsimile:(866) 547-9401

 

ifto the Borrower, to:

 

KOSSCorporation

4129North Port Washington Avenue

Milwaukee,Wisconsin  53212

Telephone:  [·]

Facsimile:  [·]

 

36

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witha copy to:

 

JohnE. Garda

K&LGates LLP

1717Main Street

Suite 2800

Dallas,TX 75043

Telephone:  (214) 939-5563

Facsimile:  (214) 939-5849

 

All notices addressed as aboveshall be deemed to have been properly given (i) if given by facsimile, when such facsimile is transmitted to the facsimile number specified in this Section and aconfirmation of such facsimile hasbeen received by the sender; (ii) if mailed by certified or registeredmail, return receipt requested, postage prepaid, on the fifth (5th) day following the day such notice is deposited in any post officestation or letter box; or (iii) if served in person or sent by recognizedovernight courier, when delivered at the addresses specified in thisSection.  No notice to or demand on theBorrower in any case shall entitle the Borrower to any other or further noticeor demand in similar or other circumstances.

 

## 11.16                     Release of Claims Against Bank.  In consideration ofthe Bank making the Loans, the Borrower and all other Obligors do each herebyrelease and discharge the Bank of and from any and all claims, harm, injury,and damage of any and every kind, known or unknown, legal or equitable, whichany Obligor may have against the Bank from the date of their respective firstcontact with the Bank until the date of this Agreement including any claimarising from any reports (environmental reports, surveys, appraisals, etc.)prepared by any parties hired or recommended by the Bank.  The Borrower and all other Obligors confirmto Bank that they have reviewed the effect of this release with competent legalcounsel of their choice, or have been afforded the opportunity to do so, priorto execution of this Agreement and the Loan Documents and do each acknowledgeand agree that the Bank is relying upon this release in extending the Loans tothe Borrower.

##  

## 11.17                     Costs, Fees and Expenses.  The Borrower shall pay or reimburse the Bankfor all reasonable costs, fees and expenses incurred by the Bank or for whichthe Bank becomes obligated in connection with the negotiation, preparation, duediligence, consummation, collection of the Obligations or enforcement of thisAgreement, the other Loan Documents and all other documents provided for hereinor delivered or to be delivered hereunder or in connection herewith (includingany amendment, supplement or waiver to any Loan Document), or during anyworkout, restructuring or negotiations in respect thereof, including, withoutlimitation, reasonable consultants’ fees and attorneys’ fees and time chargesof counsel to the Bank, which shall also include attorneys’ fees and timecharges of attorneys who may be employees of the Bank or any Affiliate of theBank, plus costs and expenses of such attorneys or of the Bank; search fees,costs and expenses; and all taxes payable in connection with this Agreement orthe other Loan Documents, whether or not the transaction contemplated herebyshall be consummated.  In furtherance ofthe foregoing, the Borrower shall pay any and all stamp and other taxes, UCCsearch fees, filing fees and other costs and expenses in connection with theexecution and delivery of this Agreement and the other Loan Documents to bedelivered 

 

37

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## hereunder,and agrees to save and hold the Bank harmless from and against any and allliabilities with respect to or resulting from any delay in paying or omissionto pay such costs and expenses.  Thatportion of the Obligations consisting of costs, expenses or advances to bereimbursed by the Borrower to the Bank pursuant to this Agreement or the otherLoan Documents which are not paid on or prior to the date hereof shall bepayable by the Borrower to the Bank on demand. If at any time or times hereafter the Bank: (a) employs counsel foradvice or other representation (i) with respect to this Agreement or theother Loan Documents, (ii) to represent the Bank in any litigation,contest, dispute, suit or proceeding or to commence, defend, or intervene or totake any other action in or with respect to any litigation, contest, dispute,suit, or proceeding (whether instituted by the Bank, the Borrower, or any otherparty) in any way or respect relating to this Agreement, the other LoanDocuments or the Borrower’s business or affairs, or (iii) to enforce anyrights of the Bank against the Borrower or any other party that may beobligated to the Bank by virtue of this Agreement or the other Loan Documents; (b) takesany action to protect, collect, sell, liquidate, or otherwise dispose of anycollateral for the Loans; and/or (c) attempts to or enforces any of theBank’s rights or remedies under this Agreement or the other Loan Documents, thecosts and expenses incurred by the Bank in any manner or way with respect tothe foregoing, shall be part of the Obligations, payable by the Borrower to theBank on demand.

##  

## 11.18       Indemnification.  The Borrower agrees to defend (with counselsatisfactory to the Bank), protect, indemnify, exonerate and hold harmless eachIndemnified Party from and against any and all liabilities, obligations,losses, damages, penalties, actions, judgments, suits, claims, costs, expensesand distributions of any kind or nature (including, without limitation, thedisbursements and the reasonable fees of counsel for each Indemnified Partythereto, which shall also include, without limitation, reasonable attorneys’fees and time charges of attorneys who may be employees of any IndemnifiedParty), which may be imposed on, incurred by, or asserted against, anyIndemnified Party (whether direct, indirect or consequential and whether basedon any federal, state or local laws or regulations, including, withoutlimitation, securities laws, Environmental Laws, commercial laws andregulations, under common law or in equity, or based on contract or otherwise)in any manner relating to or arising out of this Agreement or any of the LoanDocuments, or any act, event or transaction related or attendant thereto, thepreparation, execution and delivery of this Agreement and the Loan Documents,including the making or issuance and management of the Loans, the use orintended use of the proceeds of the Loans, the enforcement of the Bank’s rightsand remedies under this Agreement, the other Loan Documents, any otherinstruments and documents delivered hereunder, or under any other agreementbetween the Borrower and the Bank; provided, however, that the Borrower shallnot have any obligations hereunder to any Indemnified Party with respect tomatters determined by a court of competent jurisdiction by final andnonappealable judgment to have been****causedby or resulting from the willful misconduct or gross negligence of suchIndemnified Party.  To the extent thatthe undertaking to indemnify set forth in the preceding sentence may beunenforceable because it violates any law or public policy, the Borrower shallsatisfy such undertaking to the maximum extent permitted by applicablelaw.  Any liability, obligation, loss,damage, penalty, cost or expense covered by this indemnity shall be paid toeach Indemnified Party on demand, and failing prompt payment, together withinterest thereon at the Default Rate from the date incurred by each IndemnifiedParty until paid by the Borrower, shall be added to the Obligations of the Borrower.  The provisions of this Section 11.17shall survive the satisfaction and payment of the other Obligations and thetermination of this Agreement.

 

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## 11.19       Revival and Reinstatement ofObligations.  If the incurrence orpayment of the Obligations by any Obligor or the transfer to the Bank of anyproperty should for any reason subsequently be declared to be void or voidableunder any state or federal law relating to creditors’ rights, including provisionsof the Bankruptcy Code relating to fraudulent conveyances, preferences, orother voidable or recoverable payments of money or transfers of property(collectively, a “Voidable Transfer”), and if the Bank is required to repay orrestore, in whole or in part, any such Voidable Transfer, or elects to do soupon the reasonable advice of its counsel, then, as to any such VoidableTransfer, or the amount thereof that the Bank is required or elects to repay orrestore, and as to all reasonable costs, expenses, and attorneys fees of theBank, the Obligations shall automatically shall be revived, reinstated, andrestored and shall exist as though such Voidable Transfer had never been made.

##  

## 11.20       Customer Identification — USA PATRIOTAct Notice.  The Bank hereby notifiesthe Borrower that pursuant to the requirements of the USA PATRIOT Act (TitleIII of Pub. L. 107-56, signed into law October 26, 2001) (the “Act”), andthe Bank’s policies and practices, the Bank is required to obtain, verify andrecord certain information and documentation that identifies the Borrower,which information includes the name and address of the Borrower and such otherinformation that will allow the Bank to identify the Borrower in accordancewith the Act.

##  

### **[SIGNATURE PAGE TO FOLLOW]**

 

39

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IN WITNESS WHEREOF, theBorrower and the Bank have executed this Loan Agreement as of the date firstabove written.

 

 
|       | **Borrower:**                                     |   |
|------------|---------------------------------------------------|--------|
|       | ** **                                        |   |
|       | **KOSS  CORPORATION**, a Delaware  corporation    |
|       | ** **                                        |   |
|       | ** **                                        |   |
|       | By:                                               |   |
|       |                                              |   |
|       | Name:                                             |   |
|       |                                              |   |
|       | Title:                                            |   |
|       | ** **                                        |   |
| ** ** | Agreed and accepted:                              |
|       |                                              |   |
|       | **Bank:**                                         |   |
|       | ** **                                        |   |
|       | **HARRIS  N.A.**, a national banking  association |
|       | ** **                                        |
|       | ** **                                        |
|       | By:                                               |   |
|       |                                              |   |
|       | Name:                                             |   |
|       |                                              |   |
|       | Title:                                            |   |
|            |                                                   |        |  |

 

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**EXHIBIT A**

 

**FORM OFREVOLVING NOTE**

 

See attached.

 

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**EXHIBIT B**

 

INTENTIONALLY DELETED

 

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**EXHIBIT C**

 

**COVENANTCOMPLIANCE CERTIFICATE**

 

See attached.

 

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