EX-10.1





Exhibit
10.1

AMENDED AND RESTATED REVOLVING CREDIT




AND




SECURITY AGREEMENT




NATIONAL CITY BUSINESS CREDIT, INC.




(AS LENDER AND AS AGENT)




WITH




SPARTON CORPORATION, SPARTON ELECTRONICS FLORIDA, INC.,

SPARTRONICS, INC., SPARTON MEDICAL SYSTEMS, INC., SPARTRONICS

VIETNAM CO., LTD., SPARTON TECHNOLOGY, INC. and SPARTON OF CANADA,

LIMITED




(BORROWERS)




AUGUST 14, 2009




 









 





TABLE OF CONTENTS




	 	 	 	 	 
	 
	I. DEFINITIONS
	 	 	2	 
	 
	1.1. Accounting Terms
	 	 	2	 
	1.2. General Terms
	 	 	2	 
	1.3. Uniform Commercial Code Terms
	 	 	23	 
	1.4. Certain Matters of Construction
	 	 	23	 
	 
	II. ADVANCES, PAYMENTS
	 	 	24	 
	 
	2.1. Revolving Advances
	 	 	24	 
	2.2. Procedure for Revolving Advances Borrowing
	 	 	25	 
	2.3. Disbursement of Advance Proceeds
	 	 	27	 
	2.4. Intentionally Omitted
	 	 	27	 
	2.5. Maximum Advances
	 	 	28	 
	2.6. Repayment of Advances
	 	 	28	 
	2.7. Repayment of Excess Advances
	 	 	28	 
	2.8. Statement of Account
	 	 	28	 
	2.9. Letters of Credit
	 	 	29	 
	2.10. Issuance of Letters of Credit
	 	 	29	 
	2.11. Requirements For Issuance of Letters of Credit
	 	 	30	 
	2.12. Disbursements, Reimbursement
	 	 	30	 
	2.13. Repayment of Participation Advances
	 	 	31	 
	2.14. Documentation
	 	 	32	 
	2.15. Determination to Honor Drawing Request
	 	 	32	 
	2.16. Nature of Participation and Reimbursement Obligations
	 	 	32	 
	2.17. Indemnity
	 	 	34	 
	2.18. Liability for Acts and Omissions
	 	 	34	 






i









 






	 	 	 	 	 
	2.19. Additional Payments
	 	 	35	 
	2.20. Manner of Borrowing and Payment
	 	 	35	 
	2.21. Mandatory Prepayments
	 	 	37	 
	2.22. Use of Proceeds
	 	 	37	 
	2.23. Defaulting Lender
	 	 	37	 
	 
	III. INTEREST AND FEES
	 	 	38	 
	 
	3.1. Interest
	 	 	38	 
	3.2. Letter of Credit Fees
	 	 	39	 
	3.3. Closing Fee and Facility Fee
	 	 	39	 
	3.4. Collateral Evaluation Fee and Collateral Monitoring Fee
	 	 	40	 
	3.5. Computation of Interest and Fees
	 	 	40	 
	3.6. Maximum Charges
	 	 	40	 
	3.7. Increased Costs
	 	 	41	 
	3.8. Basis For Determining Interest Rate Inadequate or Unfair
	 	 	41	 
	3.9. Capital Adequacy
	 	 	42	 
	3.10. Gross Up for Taxes
	 	 	43	 
	3.11. Withholding Tax Exemption
	 	 	43	 
	 
	IV. COLLATERAL: GENERAL TERMS
	 	 	44	 
	 
	4.1. Security Interest in the Collateral
	 	 	44	 
	4.2. Perfection of Security Interest
	 	 	44	 
	4.3. Disposition of Collateral
	 	 	45	 
	4.4. Preservation of Collateral
	 	 	45	 
	4.5. Ownership of Collateral
	 	 	45	 
	4.6. Defense of Agent’s and Lenders’ Interests
	 	 	46	 
	4.7. Books and Records
	 	 	46	 






ii









 






	 	 	 	 	 
	4.8. Financial Disclosure
	 	 	47	 
	4.9. Compliance with Laws
	 	 	47	 
	4.10. Inspection of Premises
	 	 	47	 
	4.11. Insurance
	 	 	47	 
	4.12. Failure to Pay Insurance
	 	 	48	 
	4.13. Payment of Taxes
	 	 	48	 
	4.14. Payment of Leasehold Obligations
	 	 	49	 
	4.15. Receivables
	 	 	49	 
	4.16. Inventory
	 	 	51	 
	4.17. Maintenance of Equipment
	 	 	51	 
	4.18. Exculpation of Liability
	 	 	51	 
	4.19. Environmental Matters
	 	 	51	 
	4.20. Financing Statements
	 	 	54	 
	 
	V. REPRESENTATIONS AND WARRANTIES
	 	 	54	 
	 
	5.1. Authority
	 	 	54	 
	5.2. Formation and Qualification
	 	 	54	 
	5.3. Survival of Representations and Warranties
	 	 	55	 
	5.4. Tax Returns
	 	 	55	 
	5.5. Financial Statements
	 	 	55	 
	5.6. Entity Names
	 	 	56	 
	5.7. O.S.H.A. and Environmental Compliance
	 	 	56	 
	5.8. Solvency; No Litigation, Violation, Indebtedness or Default
	 	 	56	 
	5.9. Patents, Trademarks, Copyrights and Licenses
	 	 	58	 
	5.10. Licenses and Permits
	 	 	58	 
	5.11. Default of Indebtedness
	 	 	58	 






iii









 






	 	 	 	 	 
	5.12. No Default
	 	 	58	 
	5.13. No Burdensome Restrictions
	 	 	58	 
	5.14. No Labor Disputes
	 	 	59	 
	5.15. Margin Regulations
	 	 	59	 
	5.16. Investment Company Act
	 	 	59	 
	5.17. Disclosure
	 	 	59	 
	5.18. [Intentionally Omitted]
	 	 	59	 
	5.19. Swaps
	 	 	59	 
	5.20. Conflicting Agreements
	 	 	59	 
	5.21. Application of Certain Laws and Regulations
	 	 	59	 
	5.22. Business and Property of Borrowers
	 	 	60	 
	5.23. Section 20 Subsidiaries
	 	 	60	 
	5.24. Anti-Terrorism Laws
	 	 	60	 
	5.25. Trading with the Enemy
	 	 	61	 
	5.26. Federal Securities Laws
	 	 	61	 
	 
	VI. AFFIRMATIVE COVENANTS
	 	 	61	 
	 
	6.1. Payment of Fees
	 	 	61	 
	6.2. Conduct of Business and Maintenance of Existence and Assets
	 	 	61	 
	6.3. Violations
	 	 	61	 
	6.4. Government Receivables
	 	 	61	 
	6.5. Financial Covenants
	 	 	61	 
	6.6. Execution of Supplemental Instruments
	 	 	62	 
	6.7. Payment of Indebtedness
	 	 	62	 
	6.8. Standards of Financial Statements
	 	 	62	 
	 
	VII. NEGATIVE COVENANTS
	 	 	63	 






iv









 






	 	 	 	 	 
	7.1. Merger, Consolidation, Acquisition and Sale of Assets
	 	 	63	 
	7.2. Creation of Liens
	 	 	63	 
	7.3. Guarantees
	 	 	63	 
	7.4. Investments
	 	 	63	 
	7.5. Loans
	 	 	63	 
	7.6. Capital Expenditures
	 	 	64	 
	7.7. Dividends
	 	 	64	 
	7.8. Indebtedness
	 	 	64	 
	7.9. Nature of Business
	 	 	64	 
	7.10. Transactions with Affiliates
	 	 	64	 
	7.11. Leases
	 	 	64	 
	7.12. Subsidiaries
	 	 	64	 
	7.13. Fiscal Year and Accounting Changes
	 	 	64	 
	7.14. Pledge of Credit
	 	 	65	 
	7.15. Amendment of Articles of Incorporation, By-Laws
	 	 	65	 
	7.16. Compliance with ERISA
	 	 	65	 
	7.17. Prepayment of Indebtedness
	 	 	65	 
	7.18. Anti-Terrorism Laws
	 	 	65	 
	7.19. Membership/Partnership Interests
	 	 	66	 
	7.20. Trading with the Enemy Act
	 	 	66	 
	 
	VIII. CONDITIONS PRECEDENT
	 	 	66	 
	 
	8.1. Conditions to Initial Advances
	 	 	66	 
	8.2. Conditions to Each Advance
	 	 	69	 
	 
	IX. INFORMATION AS TO BORROWERS
	 	 	70	 
	 
	9.1. Disclosure of Material Matters
	 	 	70	 






v









 






	 	 	 	 	 
	9.2. Schedules
	 	 	70	 
	9.3. Environmental Reports
	 	 	70	 
	9.4. Litigation
	 	 	71	 
	9.5. Material Occurrences
	 	 	71	 
	9.6. Government Receivables
	 	 	71	 
	9.7. Annual Financial Statements
	 	 	71	 
	9.8. Quarterly Financial Statements
	 	 	72	 
	9.9. Monthly Financial Statements
	 	 	72	 
	9.10. Other Reports
	 	 	72	 
	9.11. Additional Information
	 	 	72	 
	9.12. Projected Operating Budget
	 	 	72	 
	9.13. Variances From Operating Budget
	 	 	73	 
	9.14. Notice of Suits, Adverse Events
	 	 	73	 
	9.15. ERISA Notices and Requests
	 	 	73	 
	9.16. Additional Documents
	 	 	74	 
	 
	X. EVENTS OF DEFAULT
	 	 	74	 
	 
	10.1. Nonpayment
	 	 	74	 
	10.2. Breach of Representation
	 	 	74	 
	10.3. Financial Information
	 	 	74	 
	10.4. Judicial Actions
	 	 	74	 
	10.5. Noncompliance
	 	 	74	 
	10.6. Judgments
	 	 	74	 
	10.7. Bankruptcy
	 	 	74	 
	10.8. Inability to Pay
	 	 	75	 
	10.9. Affiliate Bankruptcy
	 	 	75	 






vi









 






	 	 	 	 	 
	10.10. Material Adverse Effect
	 	 	75	 
	10.11. Lien Priority
	 	 	75	 
	10.12. [Intentionally Omitted]
	 	 	75	 
	10.13. Cross Default
	 	 	75	 
	10.14. [Intentionally Omitted];
	 	 	75	 
	10.15. Change of Control
	 	 	75	 
	10.16. Invalidity
	 	 	75	 
	10.17. Licenses
	 	 	75	 
	10.18. Seizures
	 	 	76	 
	10.19. Operations
	 	 	76	 
	10.20. Pension Plans
	 	 	76	 
	 
	XI. LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT
	 	 	76	 
	 
	11.1. Rights and Remedies
	 	 	76	 
	11.2. Agent’s Discretion
	 	 	78	 
	11.3. Setoff
	 	 	78	 
	11.4. Rights and Remedies not Exclusive
	 	 	78	 
	11.5. Allocation of Payments After Event of Default
	 	 	78	 
	 
	XII. WAIVERS AND JUDICIAL PROCEEDINGS
	 	 	79	 
	 
	12.1. Waiver of Notice
	 	 	79	 
	12.2. Delay
	 	 	80	 
	12.3. Jury Waiver
	 	 	80	 
	 
	XIII. EFFECTIVE DATE AND TERMINATION
	 	 	80	 
	 
	13.1. Term
	 	 	80	 
	13.2. Termination
	 	 	80	 
	 
	XIV. REGARDING AGENT
	 	 	81	 






vii









 






	 	 	 	 	 
	14.1. Appointment
	 	 	81	 
	14.2. Nature of Duties
	 	 	81	 
	14.3. Lack of Reliance on Agent and Resignation
	 	 	82	 
	14.4. Certain Rights of Agent
	 	 	82	 
	14.5. Reliance
	 	 	82	 
	14.6. Notice of Default
	 	 	83	 
	14.7. Indemnification
	 	 	83	 
	14.8. Agent in its Individual Capacity
	 	 	83	 
	14.9. Delivery of Documents
	 	 	83	 
	14.10. Borrowers’ Undertaking to Agent
	 	 	83	 
	14.11. No Reliance on Agent’s Customer Identification Program
	 	 	84	 
	14.12. Other Agreements
	 	 	84	 
	 
	XV. BORROWING AGENCY
	 	 	84	 
	 
	15.1. Borrowing Agency Provisions
	 	 	84	 
	15.2. Waiver of Subrogation
	 	 	85	 
	 
	XVI. MISCELLANEOUS
	 	 	85	 
	 
	16.1. Governing Law
	 	 	85	 
	16.2. Entire Understanding
	 	 	86	 
	16.3. Successors and Assigns; Participations; New Lenders
	 	 	88	 
	16.4. Application of Payments
	 	 	90	 
	16.5. Indemnity
	 	 	90	 
	16.6. Notice
	 	 	91	 
	16.7. Survival
	 	 	93	 
	16.8. Severability
	 	 	93	 
	16.9. Expenses
	 	 	93	 






viii









 






	 	 	 	 	 
	16.10. Injunctive Relief
	 	 	93	 
	16.11. Consequential Damages
	 	 	93	 
	16.12. Captions
	 	 	93	 
	16.13. Counterparts; Facsimile Signatures
	 	 	93	 
	16.14. Construction
	 	 	94	 
	16.15. Confidentiality; Sharing Information
	 	 	94	 
	16.16. Publicity
	 	 	94	 
	16.17. Certifications From Banks and Participants; US PATRIOT Act
	 	 	94	 






ix









 





LIST OF EXHIBITS AND SCHEDULES




	 	 	 
	Exhibits	 	 
	Exhibit 1.2

	 	Borrowing Base Certificate
	Exhibit 2.1(a)

	 	Revolving Credit Note
	Exhibit 5.5(b)

	 	Financial Projections
	Exhibit 8.1(k)

	 	Financial Condition Certificate
	Exhibit 16.3

	 	Commitment Transfer Supplement






	 	 	 
	Schedules	 	 
	Schedule 1.2

	 	Permitted Encumbrances
	Schedule 4.5

	 	Equipment and Inventory Locations
	Schedule 4.15(c)

	 	Chief Executive Offices
	Schedule 4.15(h)

	 	Deposit and Investment Accounts
	Schedule 4.19

	 	Real Property
	Schedule 5.1

	 	Consents
	Schedule 5.2(a)

	 	States of Qualification and Good Standing
	Schedule 5.2(b)

	 	Subsidiaries
	Schedule 5.4

	 	Federal Tax Identification Number
	Schedule 5.6

	 	Prior Names
	Schedule 5.8(b)

	 	Litigation
	Schedule 5.7

	 	OSHA and Environmental Compliance
	Schedule 5.8(d)

	 	Plans
	Schedule 5.9

	 	Intellectual Property, Source Code Escrow Agreements
	Schedule 5.10

	 	Licenses and Permits
	Schedule 5.14

	 	Labor Disputes
	Schedule 7.8

	 	Existing Indebtedness







x









 








AMENDED AND RESTATED REVOLVING CREDIT

AND

SECURITY AGREEMENT




     Amended and Restated Revolving Credit and Security Agreement dated as of August 14, 2009 among
SPARTON CORPORATION, an Ohio corporation (“Sparton”), SPARTON ELECTRONICS FLORIDA, INC., a Florida
corporation (“Sparton Florida”), SPARTRONICS, INC., a Michigan corporation (“Spartronics”),
SPARTON MEDICAL SYSTEMS, INC., a Michigan corporation (“Sparton Medical”), SPARTRONICS VIETNAM CO.,
LTD., a corporation organized under the laws of Vietnam (“Sparton Vietnam”), SPARTON TECHNOLOGY,
INC., a New Mexico corporation (“Sparton Technology”), and SPARTON OF CANADA, LIMITED, an Ontario
corporation (“Sparton Canada”) (Sparton, Sparton Florida, Spartronics, Sparton Medical, Sparton
Vietnam, Sparton Technology, and Sparton Canada, each a “Borrower”, and collectively “Borrowers”),
the financial institutions which are now or which hereafter become a party hereto (collectively,
the “Lenders” and individually a “Lender”) and NATIONAL CITY BUSINESS CREDIT, INC. (“NCBC”), as
agent for Lenders (NCBC, in such capacity, the “Agent”).



     The Promissory Note and Promissory Note Covenant Exhibit, as amended, each dated as of January
22, 2008, as amended by Master Amendment to Loan Documents (Sparton Corporation — Line of Credit)
dated as of April 21, 2008 and effective as of March 31, 2008 (the “First Sparton Master
Amendment”), by Second Master Amendment to Loan Documents (Sparton Corporation — Line of Credit)
dated as of July 31, 2008 and effective as of June 30, 2008, by Third Master Amendment to Loan
Documents (Sparton Corporation — Line of Credit) dated as of November 12, 2008, and by Fourth
Master Amendment to Loan Documents (Sparton Corporation — Line of Credit) dated as of January 20,
2009, and by Modification Agreement dated as of June 15, 2009, by and between Sparton and National
City Bank, which evidence a line of credit loan made available to Sparton in the original principal
amount of $20,000,000 (collectively, the “Sparton Note”), together with all related loan and
security documents, including without limitation, the Amended and Restated Security Agreement dated
as of April 21, 2008 and effective as of March 31, 2008 (the “Original Security Agreement”), and
those Commercial Security Guaranty agreements each dated as of January 22, 2008, as amended by the
First Master Amendment, executed by Sparton Medical, Sparton Technology, Spartronics, Sparton
Florida and Sparton Canada (the “Sparton Guaranties”), have been assigned, effective as of the
Closing Date, to Agent in its capacity as either a Lender hereunder or as Agent hereunder. The
Promissory Note dated May 30, 2006 and Promissory Note Covenant Exhibit dated August 1, 2007, as
amended by Master Amendment to Loan Documents (Sparton Medical Systems — Term Loan) dated as of
April 21, 2008 and effective as of March 31, 2008 (the “First Sparton Medical Master Amendment”),
by Second Master Amendment to Loan Documents (Sparton Medical Systems — Term Loan) dated as of
July 31, 2008 and effective as of June 30, 2008, and by Third Master Amendment to Loan Documents
(Sparton Medical Systems — Term Loan)_dated as of November 12, 2008, which evidences a term loan
made available to Sparton Medical in the original principal amount of $10,000,000 (collectively,
the “Sparton Medical Note”), together with all related loan and security documents, including
without limitation those Commercial Security Guaranty agreements each dated May 30, 2006, as
amended by the First Sparton Medical Master Amendment, executed by Sparton, Sparton Technology,
Sparton Florida



1









 







and Sparton Canada and the Guaranty of Spartronics dated April 21, 2008 (collectively, the
“Sparton Medical Guaranties”), have been assigned, effective as of the Closing Date, to Agent in
its capacity as either a Lender hereunder or as Agent hereunder. This Amended and Restated
Revolving Credit and Security Agreement amends and restates the Sparton Note, the Sparton Medical
Note, and the Original Security Agreement in their entirety. The other loan documents assigned
together with the Sparton Note and the Sparton Medical Note have been amended or restated as of the
Closing Date, but all grants of security therein remain in full force and effect and survive the
amendment and restatement and the Sparton Guaranties and the Sparton Medical Guaranties remain in
full force and effect and guaranty all of the Obligations.



     IN CONSIDERATION of the mutual covenants and undertakings herein contained, Borrowers, Lenders
and Agent hereby agree as follows:



     I. DEFINITIONS.



     1.1. Accounting Terms.
As used in this Agreement, the Other Documents or any certificate, report or other document
made or delivered pursuant to this Agreement, accounting terms not defined in Section 1.2 or
elsewhere in this Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP; provided, however, whenever
such accounting terms are used for the purposes of determining compliance with financial covenants
in this Agreement, such accounting terms shall be defined in accordance with GAAP as applied in
preparation of the audited financial statements of Borrowers for the fiscal year ended June 30,
2008.



     1.2. General Terms.
For purposes of this Agreement the following terms shall have the following meanings:



     “Accountants” shall have the meaning set forth in Section 9.7 hereof.



     “Advance Rates” shall mean, collectively, the Receivables Advance Rate and the Inventory
Advance Rate.



     “Advances” shall mean and include the Revolving Advances and Letters of Credit.



     “Affiliate” of any Person shall mean (a) any Person which, directly or indirectly, is in
control of, is controlled by, or is under common control with such Person, or (b) any Person who is
a director, managing member, general partner or officer (i) of such Person, (ii) of any Subsidiary
of such Person or (iii) of any Person described in clause (a) above. For purposes of this
definition, control of a Person shall mean the power, direct or indirect, (x) to vote 5% or more of
the Equity Interests having ordinary voting power for the election of directors of such Person or
other Persons performing similar functions for any such Person, or (y) to direct or cause the
direction of the management and policies of such Person whether by ownership of Equity Interests,
contract or otherwise.



     “Agent” shall have the meaning set forth in the preamble to this Agreement and shall include
its successors and assigns.



     “Agent Advances” shall have the meaning set forth in Section 16.2(b) hereof.



2









 





     “Agreement” shall mean this Amended and Restated Revolving Credit and Security Agreement, as
the same may be amended, restated, supplemented or otherwise modified from time to time.



     “Alternate Base Rate” shall mean, for any day, a rate per annum equal to the higher of (i) the
Base Rate in effect on such day, (ii) the Federal Funds Open Rate in effect on such day plus 1/2 of
1% and (iii) the Daily LIBOR Rate plus 1%. For purposes of this definition, “Daily LIBOR Rate”
shall mean, for any day, the rate per annum determined by Agent by dividing (x) the Published Rate
by (y) a number equal to 1.00 minus the percentage prescribed by the Federal Reserve for
determining the maximum reserve requirements with respect to any eurocurrency funding by banks on
such day. For the purposes of this definition, “Published Rate” shall mean the rate of interest
published each Business Day in The Wall Street Journal “Money Rates” listing under the caption
“London Interbank Offered Rates” for a one month period (or, if no such rate is published therein
for any reason, then the Published Rate shall be the eurodollar rate for a one month period as
published in another publication determined by Agent). In no event, however, shall the Alternate
Base Rate be less than 3.00% for purposes of this Agreement.



     “Anti-Terrorism Laws” shall mean any Applicable Laws relating to terrorism or money
laundering, including Executive Order No. 13224, the USA PATRIOT Act, the Applicable Laws
comprising or implementing the Bank Secrecy Act, and the Applicable Laws administered by the United
States Treasury Department’s Office of Foreign Asset Control (as any of the foregoing Applicable
Laws may from time to time be amended, renewed, extended, or replaced).



     “Applicable Law” shall mean all laws, rules and regulations applicable to the Person, conduct,
transaction, covenant, Other Document or contract in question, including all applicable common law
and equitable principles; all provisions of all applicable state, federal and foreign
constitutions, statutes, rules, regulations, treaties, directives and orders of any Governmental
Body, and all orders, judgments and decrees of all courts and arbitrators.



     “Applicable Margin” for Revolving Advances shall mean, as of the Closing Date, the applicable
percentage specified below:



	 	 	 	 	 
	APPLICABLE MARGINS FOR	 	APPLICABLE MARGINS FOR
	DOMESTIC RATE LOANS	 	EURODOLLAR RATE LOANS
	4.00%

	 	 	5.00%	






     Thereafter, effective as of the first Business Day following receipt by Agent of the annual
financial statements of Borrowers on a Consolidated Basis for the fiscal year ending June 30, 2010
required under Section 9.7, and thereafter upon receipt of the quarterly financial statements of
Borrowers on a Consolidated Basis required under Section 9.8 for the previous fiscal quarter (each
day of such delivery, an “Adjustment Date”), the Applicable Margin for each type of Advance shall
be adjusted, if necessary, to the applicable percent per annum set forth in the pricing table set
forth below corresponding to the Fixed Charge Coverage Ratio for the trailing twelve month period
ending on the last day of the most recently completed fiscal quarter prior to



3









 




the applicable Adjustment Date and maintained for two consecutive quarters (each such period,
a “Calculation Period”):




	 	 	 	 	 	 	 	 	 
	 	 	APPLICABLE MARGINS	 	APPLICABLE MARGINS
	FIXED CHARGE	 	FOR DOMESTIC RATE	 	FOR EURODOLLAR RATE
	COVERAGE RATIO	 	LOANS	 	LOANS
	Less than or equal to 1.15 to
1.00

	 	 	4.0	%	 	 	5.0	%
	Greater than to 1.15 to 1.00
but less than or equal to
1.50:1.00

	 	 	3.75	%	 	 	4.75	%
	Greater than 1.50 to 1.00

	 	 	3.5	%	 	 	4.5	%






     If the Borrowers shall fail to deliver the financial statements, certificates and/or other
information required under Sections 9.7 or 9.8 by the dates required pursuant to such sections,
each Applicable Margin shall be conclusively presumed to equal the highest Applicable Margin
specified in the pricing table set forth above until the date of delivery of such financial
statements, certificates and/or other information, at which time the rate will be adjusted based
upon the Fixed Charge Coverage Ratio for two consecutive quarters reflected in such statements.



     If, as a result of any restatement of, or other adjustment to, the financial statements of
Borrowers on a Consolidated Basis or for any other reason, the Agent determines that (a) the Fixed
Charge Coverage Ratio as previously calculated as of any applicable date was inaccurate, and (b) a
proper calculation of the Fixed Charge Coverage Ratio would have resulted in different pricing for
any period, then (i) if the proper calculation of the Fixed Charge Coverage Ratio would have
resulted in higher pricing for such period, the Borrowers shall automatically and retroactively be
delegated to pay to the Agent, promptly upon demand by the Agent, an amount equal to the excess of
the amount of interest that should have been paid for such period over the amount of interest
actually paid for such period; and (ii) if the proper calculation of the Fixed Charge Coverage
Ratio would have resulted in lower pricing for such period, Lenders shall repay excess interest to
the Borrowers.



     “Authority” shall have the meaning set forth in Section 4.19(d).



     “Base Rate” shall mean the base commercial lending rate of NCB as publicly announced to be in
effect from time to time, such rate to be adjusted automatically, without notice, on the effective
date of any change in such rate. This rate of interest is determined from time to time by NCB as a
means of pricing some loans to its customers and is neither tied to any external rate of interest
or index nor does it necessarily reflect the lowest rate of interest actually charged by NCB to any
particular class or category of customers of NCB.



     “Blocked Accounts” shall have the meaning set forth in Section 4.15(h).



     “Blocked Account Bank” shall have the meaning set forth in Section 4.15(h).



4









 





     “Blocked Person” shall have the meaning set forth in Section 5.24(b) hereof.



     “Borrower” or “Borrowers” shall have the meaning set forth in the preamble to this Agreement
and shall extend to all permitted successors and assigns of such Persons.



     “Borrowers on a Consolidated Basis” shall mean the consolidation in accordance with GAAP of
the accounts or other items of the Borrowers and their respective Subsidiaries.



     “Borrowers’ Account” shall have the meaning set forth in Section 2.8.



     “Borrowing Agent” shall mean Sparton Corporation.



     “Borrowing Base Availability Block” shall means $2,000,000, provided, that the Borrowing Base
Availability Block will be reduced to zero at such time (i) the Borrowers have delivered to the
Agent the consolidated audited financial statements for the fiscal year ending June 30, 2010, which
audited financial statements comply with Section 9.7 hereof and are otherwise satisfactory to the
Agent in its sole discretion, (ii) the Borrowers have delivered to the Agent evidence satisfactory
to Agent that the Fixed Charge Coverage Ratio has been equal to or greater than 1.15:1.00 on a
trailing twelve month basis as of the end of the immediately preceding four fiscal quarters, and
(iii) at the time of such reduction of the Borrowing Base Availability Block there is Undrawn
Availability of not less than $4,000,000.



     “Borrowing Base Certificate” shall mean a certificate in substantially the form of Exhibit 1.2
duly executed by the President, Chief Financial Officer, Director of Treasury, or Corporate
Controller of the Borrowing Agent (each an “Authorized Agent") and delivered to the Agent,
appropriately completed, by which such officer shall certify to Agent the Formula Amount and
calculation thereof as of the date of such certificate.



     “Business Day” shall mean any day other than Saturday or Sunday or a legal holiday on which
commercial banks are authorized or required by law to be closed for business in Brunswick, New
Jersey and, if the applicable Business Day relates to any Eurodollar Rate Loans, such day must also
be a day on which dealings are carried on in the London interbank market.



     “Capital Expenditures” shall mean expenditures made or liabilities incurred for the
acquisition of any fixed assets or improvements, replacements, substitutions or additions thereto
which have a useful life of more than one year, including the total principal portion of
Capitalized Lease Obligations, which, in accordance with GAAP, would be classified as capital
expenditures.



     “Capitalized Lease Obligation” shall mean any Indebtedness of any Borrower represented by
obligations under a lease that is required to be capitalized for financial reporting purposes in
accordance with GAAP.



     “CERCLA” shall mean the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, 42 U.S.C. §§9601 et seq.



     “Change of Control” shall mean (a) the acquisition of direct or indirect control of any
Borrower by any Person or group; (b) occupation of a majority of the seats (other than vacant



5









 







seats) on the board of directors of Sparton by Persons who were neither (i) nominated by the
board of directors of Sparton nor (ii) appointed by directors so nominated; or (c) any merger or
consolidation of or with any Borrower or sale of all or substantially all of the property or assets
or Equity Interests of any Borrower except with or to another Borrower that is an entity organized
under the laws of any state in the United States. For purposes of this definition, “control of
Borrower” shall mean the power, direct or indirect (x) to vote 50% or more of the Equity Interests
having ordinary voting power for the election of directors (or the individuals performing similar
functions) of any Borrower or (y) to direct or cause the direction of the management and policies
of any Borrower by contract or otherwise.



     “Charges” shall mean all taxes, charges, fees, imposts, levies or other assessments, including
all net income, gross income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation and property taxes, custom duties,
fees, assessments, liens, claims and charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts, imposed by any taxing or other authority,
domestic or foreign (including the Pension Benefit Guaranty Corporation or any environmental agency
or superfund), upon the Collateral, any Borrower or any of its Affiliates.



     “Closing Date” shall mean the date of this Agreement or such other date as may be agreed to by
the parties hereto.



     “Code” shall mean the Internal Revenue Code of 1986, as the same may be amended or
supplemented from time to time, and any successor statute of similar import, and the rules and
regulations thereunder, as from time to time in effect.



     “Collateral” shall mean and include:



          (a) all Receivables;




          (b) all Equipment;




          (c) all General Intangibles;




          (d) all Inventory;




          (e) all Investment Property;




          (f) all Real Property;




          (g) all Subsidiary Stock;




          (h) the Leasehold Interests;




          (i) all of each Borrower’s right, title and interest in and to, whether now owned or hereafter
acquired and wherever located, (i) its respective goods and other property including, but not
limited to, all merchandise returned or rejected by Customers, relating to or securing any of the
Receivables; (ii) all of each Borrower’s rights as a consignor, a consignee, an




6









 




unpaid vendor, mechanic, artisan, or other lienor, including stoppage in transit, setoff,
detinue, replevin, reclamation and repurchase; (iii) all additional amounts due to any Borrower
from any Customer relating to the Receivables; (iv) other property, including warranty claims,
relating to any goods securing the Obligations; (v) all of each Borrower’s contract rights, rights
of payment which have been earned under a contract right, instruments (including promissory notes),
documents, chattel paper (including electronic chattel paper), warehouse receipts, deposit
accounts, letters of credit and money; (vi) all commercial tort claims (whether now existing or
hereafter arising); (vii) if and when obtained by any Borrower, all real and personal property of
third parties in which such Borrower has been granted a lien or security interest as security for
the payment or enforcement of Receivables; (viii) all letter of credit rights (whether or not the
respective letter of credit is evidenced by a writing); (ix) all supporting obligations; and (x)
any other goods, personal property or real property now owned or hereafter acquired in which any
Borrower has expressly granted a security interest or may in the future grant a security interest
to Agent hereunder, or in any amendment or supplement hereto or thereto, or under any other
agreement between Agent and any Borrower;




          (j) all of each Borrower’s ledger sheets, ledger cards, files, correspondence, records, books
of account, business papers, computers, computer software (owned by any Borrower or in which it has
an interest), computer programs, tapes, disks and documents relating to (a), (b), (c), (d), (e),
(f), (g), (h) or (i) of this Paragraph; and




          (k) all proceeds and products of (a), (b), (c), (d), (e), (f), (g), (h), (i) and (j) in
whatever form, including, but not limited to: cash, deposit accounts (whether or not comprised
solely of proceeds), certificates of deposit, insurance proceeds (including hazard, flood and
credit insurance), negotiable instruments and other instruments for the payment of money, chattel
paper, security agreements, documents, eminent domain proceeds, condemnation proceeds and tort
claim proceeds.




     “Commitment Percentage” of any Lender shall mean the percentage set forth below such Lender’s
name on the signature page hereof as same may be adjusted upon any assignment by a Lender pursuant
to Section 16.3(c) or (d) hereof.



     “Commitment Transfer Supplement” shall mean a document in the form of Exhibit 16.3 hereto,
properly completed and otherwise in form and substance satisfactory to Agent by which the
Purchasing Lender purchases and assumes a portion of the obligation of Lenders to make Advances
under this Agreement.



     “Compliance Certificate” shall mean a compliance certificate to be signed by the Chief
Executive Officer, President or Chief Financial Officer of Borrowing Agent, which shall state that,
based on an examination sufficient to permit such officer to make an informed statement, no Default
or Event of Default exists, or if such is not the case, specifying such Default or Event of
Default, its nature, when it occurred, whether it is continuing and the steps being taken by
Borrowers with respect to such default and, such certificate shall have appended thereto
calculations which set forth Borrowers’ compliance with the requirements or restrictions imposed by
Sections 6.5, 7.4, 7.5, 7.6, 7.7, 7.8, 7.10 and 7.11.



7









 





     “Consents” shall mean all filings and all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Bodies and other third parties, domestic
or foreign, necessary to carry on any Borrower’s business or necessary (including to avoid a
conflict or breach under any agreement, instrument, other document, license, permit or other
authorization) for the execution, delivery or performance of this Agreement or the Other Documents,
including any Consents required under all applicable federal, state or other Applicable Law.



     “Consigned Inventory” shall mean Inventory of any Borrower that is in the possession of
another Person on a consignment, sale or return, or other basis that does not constitute a final
sale and acceptance of such Inventory.



     “Controlled Group” shall mean, at any time, each Borrower and all members of a controlled
group of corporations and all trades or businesses (whether or not incorporated) under common
control and all other entities which, together with any Borrower, are treated as a single employer
under Section 414 of the Code.



     “Customer” shall mean and include the account debtor with respect to any Receivable and/or the
prospective purchaser of goods, services or both with respect to any contract or contract right,
and/or any party who enters into or proposes to enter into any contract or other arrangement with
any Borrower, pursuant to which such Borrower is to deliver any personal property or perform any
services.



     “Customs” shall have the meaning set forth in Section 2.11(b) hereof.



     “Default” shall mean an event, circumstance or condition which, with the giving of notice or
passage of time or both, would constitute an Event of Default.



     “Default Rate” shall have the meaning set forth in Section 3.1 hereof.



     “Defaulting Lender” shall have the meaning set forth in Section 2.24(a) hereof.



     “Depository Accounts” shall have the meaning set forth in Section 4.15(h).



     “Designated Lender” shall have the meaning set forth in Section 16.2(b) hereof.



     “Documents” shall have the meaning set forth in Section 8.1(c) hereof.



     “Dollar” and the sign “$” shall mean lawful money of the United States of America.



     “Domestic Rate Loan” shall mean any Advance that bears interest based upon the Alternate Base
Rate.



     “Drawing Date” shall have the meaning set forth in Section 2.12(b) hereof.



     “Early Termination Date” shall have the meaning set forth in Section 13.1 hereof.



8









 





     “Earnings Before Interest and Taxes” shall mean for any period the sum of (i) net income (or
loss) of Borrowers on a Consolidated Basis for such period (excluding extraordinary gains, plus
(ii) all interest expense of Borrowers on a Consolidated Basis for such period, plus (iii) all
charges against income of Borrowers on a Consolidated Basis for such period for federal, state and
local taxes.



     “EBITDA” shall mean for any period the sum of (i) Earnings Before Interest and Taxes for such
period plus (ii) depreciation expenses for such period, plus (iii) amortization expenses for such
period, plus (iv) cash and non-cash restructuring charges of up to $1,850,000 in fiscal year 2010
and $0 thereafter, plus (v) cash and non-cash idled plant costs of up to $2,000,000 in fiscal year
2010 and in an amount approved in writing by Agent in its sole discretion thereafter, plus (vi)
non-cash pension expense as required under FAS 87-88, plus (vii) any other non-cash items
identified and mutually agreed to by the Borrowing Agent and Agent.



     “Eligible Inventory” shall mean and include Inventory, excluding work in process, with respect
to each Borrower, valued at the lower of cost or market value, determined on a first-in-first-out
basis, which is not, in Agent’s opinion, obsolete, slow moving or unmerchantable and which Agent,
in its sole discretion, shall not deem ineligible Inventory, based on such considerations as Agent
may from time to time deem appropriate including whether the Inventory is subject to a perfected,
first priority security interest in favor of Agent and no other Lien (other than a Permitted
Encumbrance). In addition, Inventory shall not be Eligible Inventory if it (i) does not conform to
all standards imposed by any Governmental Body which has regulatory authority over such goods or
the use or sale thereof, (ii) is in transit, (iii) is located outside the continental United States
(including Canada and Vietnam) or at a location that is not otherwise in compliance with this
Agreement, (iv) constitutes Consigned Inventory, (v) is the subject of an Intellectual Property
Claim; (vi) is subject to a License Agreement or other agreement that limits, conditions or
restricts any Borrower’s or Agent’s right to sell or otherwise dispose of such Inventory, unless
Agent is a party to a Licensor/Agent Agreement with the Licensor under such License Agreement;
(vii) or is situated at a location not owned by a Borrower unless the owner or occupier of such
location has executed in favor of Agent a Lien Waiver Agreement; or (viii) is related to production
for the United States of America (unless otherwise agreed in writing by Agent in its sole
discretion).



     “Eligible Receivables” shall mean and include with respect to each Borrower, each Receivable
of such Borrower arising in the Ordinary Course of Business and which Agent, in its sole credit
judgment, shall deem to be an Eligible Receivable, based on such considerations as Agent may from
time to time deem appropriate. A Receivable shall not be deemed eligible unless such Receivable is
subject to Agent’s first priority perfected security interest and no other Lien (other than
Permitted Encumbrances), and is evidenced by an invoice or other documentary evidence satisfactory
to Agent. In addition, no Receivable shall be an Eligible Receivable if:



          (a) it arises out of a sale made by any Borrower to an Affiliate of any Borrower or to a
Person controlled by an Affiliate of any Borrower;




          (b) it is due or unpaid more than (i) ninety (90) days after the original invoice date or (ii)
sixty (60) days after the original due date;




9









 








          (c) fifty percent (50%) or more of the Receivables from such Customer are not deemed Eligible
Receivables hereunder. Such percentage may, in Agent’s sole discretion, be increased or decreased
from time to time;




          (d) any covenant, representation or warranty contained in this Agreement with respect to such
Receivable has been breached;




          (e) the Customer shall (i) apply for, suffer, or consent to the appointment of, or the taking
of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property or call a meeting of its creditors, (ii) admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations of its present business,
(iii) make a general assignment for the benefit of creditors, (iv) commence a voluntary case under
any state or federal bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a bankrupt
or insolvent, (vi) file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vii) acquiesce to, or fail to have dismissed, any petition which is filed
against it in any involuntary case under such bankruptcy laws, or (viii) take any action for the
purpose of effecting any of the foregoing;




          (f) the sale is to a Customer outside the continental United States of America, or Canada (for
clarity, if the underlying contract and related invoices are with a continental United States
domiciled entity then that sale will not be treated as a sale outside the continental United
States) unless (i) the sale is on letter of credit, guaranty or acceptance terms, in each case
acceptable to Agent in its sole discretion or (ii) otherwise agreed in writing by Agent in its sole
discretion;




          (g) the sale to the Customer is on a bill-and-hold, guaranteed sale, sale-and-return, sale on
approval, consignment or any other repurchase or return basis or is evidenced by chattel paper;




          (h) Agent believes, in its Permitted Discretion, that collection of such Receivable is
insecure or that such Receivable may not be paid by reason of the Customer’s financial inability to
pay;




          (i) the Customer is the United States of America, any state or any department, agency or
instrumentality of any of them, unless the applicable Borrower assigns its right to payment of such
Receivable to Agent pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C.
Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 15 et seq.) or has otherwise complied with other
applicable statutes or ordinances;




          (j) the goods giving rise to such Receivable have not been delivered to and accepted by the
Customer or the services giving rise to such Receivable have not been performed by the applicable
Borrower and accepted by the Customer or the Receivable otherwise does not represent a final sale;




          (k) the Receivables of the Customer exceed a credit limit determined by Agent, in its
Permitted Discretion, to the extent such Receivable exceeds such limit;




10









 








          (l) the Receivable is subject to any offset, deduction, defense, dispute, or counterclaim, the
Customer is also a creditor or supplier of a Borrower or the Receivable is contingent in any
respect or for any reason;




          (m) the applicable Borrower has made any agreement with any Customer for any deduction
therefrom, except for discounts or allowances made in the Ordinary Course of Business for prompt
payment, all of which discounts or allowances are reflected in the calculation of the face value of
each respective invoice related thereto;




          (n) any return, rejection or repossession of the merchandise has occurred or the rendition of
services has been disputed;




          (o) such Receivable is not payable to a Borrower; or




          (p) such Receivable is not otherwise satisfactory to Agent as determined in good faith by
Agent in the exercise of its discretion in a reasonable manner.




     “Environmental Complaint” shall have the meaning set forth in Section 4.19(d) hereof.



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



     “Equipment” shall mean and include as to each Borrower all of such Borrower’s goods (other
than Inventory) whether now owned or hereafter acquired and wherever located including all
equipment, machinery, apparatus, motor vehicles, fittings, furniture, furnishings, fixtures, parts,
accessories and all replacements and substitutions therefor or accessions thereto.



     “Equity Interests” of any Person shall mean any and all shares, rights to purchase, options,
warrants, general, limited or limited liability partnership interests, member interests,
participation or other equivalents of or interest in (regardless of how designated) equity of such
Person, whether voting or nonvoting, including common stock, preferred stock, convertible
securities or any other “equity security” (as such term is defined in Rule 3a11-1 of the General
Rules and Regulations promulgated by the SEC under the Exchange Act).



     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time
to time and the rules and regulations promulgated thereunder.



     “Eurodollar Rate” shall mean for any Eurodollar Rate Loan for the then current Interest Period
relating thereto the greater of (a) the interest rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by Agent by dividing (i) the rate which appears on the
Bloomberg Page BBAM1 (or on such other substitute Bloomberg page that displays rates at which US
dollar deposits are offered by leading banks in the London interbank deposit market), or the rate
which is quoted by another source selected by Agent which has been approved by the British Bankers’
Association as an authorized information vendor for the



11









 







purpose of displaying rates at which US dollar deposits are offered by leading banks in the
London interbank deposit market (an “Alternative Source”), at approximately 11:00 a.m., London time
two (2) Business Days prior to the first day of such Interest Period (or if there shall at any
time, for any reason, no longer exist a Bloomberg Page BBAM1 (or any substitute page) or any
Alternate Source, a comparable replacement rate determined by the Agent at such time (which
determination shall be conclusive absent manifest error)) for an amount comparable to such
Eurodollar Rate Loan and having a borrowing date and a maturity comparable to such Interest Period
by (ii) a number equal to 1.00 minus the Reserve Percentage, and (b) two percent (2%).



     The Eurodollar Rate shall be adjusted with respect to any Eurodollar Rate Loan that is
outstanding on the effective date of any change in the Reserve Percentage as of such effective
date. The Agent shall give prompt notice to the Borrowing Agent of the Eurodollar Rate as
determined or adjusted in accordance herewith, which determination shall be conclusive absent
manifest error. For avoidance of doubt, in no event, however, shall the Eurodollar Rate be less
than 2.00% for purposes of this Agreement.



     “Eurodollar Rate Loan” shall mean an Advance at any time that bears interest based on the
Eurodollar Rate.



     “Event of Default” shall have the meaning set forth in Article X hereof.



     “Exchange Act” shall have the mean the Securities Exchange Act of 1934, as amended.



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



     “Federal Funds Effective Rate” for any day shall mean the rate per annum (based on a year of
360 days and actual days elapsed and rounded upward to the nearest 1/100 of 1%) announced by the
Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of
the rates on overnight federal funds transactions arranged by federal funds brokers on the previous
trading day, as computed and announced by such Federal Reserve Bank (or any successor) in
substantially the same manner as such Federal Reserve Bank computes and announces the weighted
average it refers to as the “Federal Funds Effective Rate” as of the date of this Agreement;
provided, if such Federal Reserve Bank (or its successor) does not announce such rate on any day,
the “Federal Funds Effective Rate” for such day shall be the Federal Funds Effective Rate for the
last day on which such rate was announced.



     “Federal Funds Open Rate” for any day shall mean the rate per annum (based on a year of 360
days and actual days elapsed) which is the daily federal funds open rate as quoted by ICAP North
America, Inc. (or any successor) as set forth on the Bloomberg Screen BTMM for that day opposite
the caption “OPEN” (or on such other substitute Bloomberg Screen that displays such rate), or as
set forth on such other recognized electronic source used for the purpose of displaying such rate
as selected by PNC (an “Alternate Source”) (or if such rate for such day does not appear on the
Bloomberg Screen BTMM (or any substitute screen) or on any Alternate Source, or if there shall at
any time, for any reason, no longer exist a Bloomberg



12









 







Screen BTMM (or any substitute screen) or any Alternate Source, a comparable replacement rate
determined by the NCB at such time (which determination shall be conclusive absent manifest error);
provided however, that if such day is not a Business Day, the Federal Funds Open Rate for such day
shall be the “open” rate on the immediately preceding Business Day. If and when the Federal Funds
Open Rate changes, the rate of interest with respect to any advance to which the Federal Funds Open
Rate applies will change automatically without notice to the Borrowers, effective on the date of
any such change.



     “Fixed Charge Coverage Ratio” shall mean and include, with respect to any fiscal period, the
ratio of (a) EBITDA, minus Unfinanced Capital Expenditures made during such period, minus cash
taxes paid during such period, minus all stock repurchases during such period, minus all cash
contributions and payments with respect to pension obligations during such period to (b) all Senior
Debt Payments during such period.



     “Foreign Subsidiary” of any Person, shall mean any Subsidiary of such Person that is not
organized or incorporated in the United States or any State or territory thereof.



     “Formula Amount” shall have the meaning set forth in Section 2.1(a).



     “GAAP” shall mean generally accepted accounting principles in the United States of America in
effect from time to time.



     “General Intangibles” shall mean and include as to each Borrower all of such Borrower’s
general intangibles, whether now owned or hereafter acquired, including all payment intangibles,
all choses in action, causes of action, corporate or other business records, inventions, designs,
patents, patent applications, equipment formulations, manufacturing procedures, quality control
procedures, trademarks, trademark applications, service marks, trade secrets, goodwill, copyrights,
design rights, software, computer information, source codes, codes, records and updates,
registrations, licenses, franchises, customer lists, tax refunds, tax refund claims, computer
programs, all claims under guaranties, security interests or other security held by or granted to
such Borrower to secure payment of any of the Receivables by a Customer (other than to the extent
covered by Receivables) all rights of indemnification and all other intangible property of every
kind and nature (other than Receivables).



     “Governmental Acts” shall have the meaning set forth in Section 2.17.



     “Governmental Body” shall mean any nation or government, any state or other political
subdivision thereof or any entity, authority, agency, division or department exercising the
legislative, judicial, regulatory or administrative functions of or pertaining to a government.



     “Hazardous Discharge” shall have the meaning set forth in Section 4.19(d) hereof.



     “Hazardous Substance” shall mean, without limitation, any flammable explosives, radon,
radioactive materials, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls,
petroleum and petroleum products, methane, hazardous materials, Hazardous Wastes, hazardous or
Toxic Substances or related materials as defined in CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA, Articles 15



13









 







and 27 of the New York State Environmental Conservation Law or any other applicable
Environmental Law and in the regulations adopted pursuant thereto.



     “Hazardous Wastes” shall mean all waste materials subject to regulation under CERCLA, RCRA or
applicable state law, and any other applicable Federal and state laws now in force or hereafter
enacted relating to hazardous waste disposal.



     “Hedge Liabilities” shall have the meaning provided in the definition of “Lender-Provided
Interest Rate Hedge”.



     “Indebtedness” of a Person at a particular date shall mean all obligations of such Person
which in accordance with GAAP would be classified upon a balance sheet as liabilities (except
capital stock and surplus earned or otherwise) and in any event, without limitation by reason of
enumeration, shall include all indebtedness, debt and other similar monetary obligations of such
Person whether direct or guaranteed, and all premiums, if any, due at the required prepayment dates
of such indebtedness, and all indebtedness secured by a Lien on assets owned by such Person,
whether or not such indebtedness actually shall have been created, assumed or incurred by such
Person. Any indebtedness of such Person resulting from the acquisition by such Person of any
assets subject to any Lien shall be deemed, for the purposes hereof, to be the equivalent of the
creation, assumption and incurring of the indebtedness secured thereby, whether or not actually so
created, assumed or incurred.



     “Ineligible Security” shall mean any security which may not be underwritten or dealt in by
member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C.
Section 24, Seventh), as amended.



     “Intellectual Property” shall mean property constituting under any Applicable Law a patent,
patent application, copyright, trademark, service mark, trade name, mask work, trade secret or
license or other right to use any of the foregoing.



     “Intellectual Property Claim” shall mean the assertion by any Person of a claim (whether
asserted in writing, by action, suit or proceeding or otherwise) that any Borrower’s ownership,
use, marketing, sale or distribution of any Inventory, Equipment, Intellectual Property or other
property or asset is violative of any ownership of or right to use any Intellectual Property of
such Person.



     “Interest Period” shall mean the period provided for any Eurodollar Rate Loan pursuant to
Section 2.2(b).



     “Interest Rate Hedge” shall mean an interest rate exchange, collar, cap, swap, adjustable
strike cap, adjustable strike corridor or similar agreements entered into by any Borrower or its
Subsidiaries in order to provide protection to, or minimize the impact upon, such Borrower and/or
its Subsidiaries of increasing floating rates of interest applicable to Indebtedness.



     “Inventory” shall mean and include as to each Borrower all of such Borrower’s now owned or
hereafter acquired goods, merchandise and other personal property, wherever located, to be
furnished under any consignment arrangement, contract of service or held for sale or lease, all raw
materials, work in process, finished goods and materials and supplies of any kind, nature



14









 







or description which are or might be used or consumed in such Borrower’s business or used in
selling or furnishing such goods, merchandise and other personal property, and all documents of
title or other documents representing them.



     “Inventory Advance Rate” shall have the meaning set forth in Section 2.1(a)(y)(ii) hereof.



     “Investment Property” shall mean and include as to each Borrower, all of such Borrower’s now
owned or hereafter acquired securities (whether certificated or uncertificated), securities
entitlements, securities accounts, commodities contracts and commodities accounts.



     “Issuer” shall mean NCB or any Person who issues a Letter of Credit and/or accepts a draft
pursuant to the terms hereof.



     “Leasehold Interests” shall mean all of each Borrower’s right, title and interest in and to
the premises located at 425 N. Martingale Road, Suite 2050, Schaumburg, Illinois 60173.



     “Lender” and “Lenders” shall have the meaning ascribed to such term in the preamble to this
Agreement and shall include each Person which becomes a transferee, successor or assign of any
Lender.



     “Lender-Provided Interest Rate Hedge” shall mean an Interest Rate Hedge which is provided by
any Lender and with respect to which the Agent confirms meets the following requirements: such
Interest Rate Hedge (i) is documented in a standard International Swap Dealer Association
Agreement, (ii) provides for the method of calculating the reimbursable amount of the provider’s
credit exposure in a reasonable and customary manner, and (iii) is entered into for hedging (rather
than speculative) purposes. The liabilities of any Borrower to the provider of any Lender-Provided
Interest Rate Hedge (the “Hedge Liabilities”) shall be “Obligations” hereunder and otherwise
treated as Obligations for purposes of each of the Other Documents. The Liens securing the Hedge
Liabilities shall be pari passu with the Liens securing all other Obligations under this Agreement
and the Other Documents.



     “Letter of Credit Fees” shall have the meaning set forth in Section 3.2.



     “Letter of Credit Borrowing” shall have the meaning set forth in Section 2.12(d).



     “Letter of Credit Sublimit” shall mean $2,000,000.



     “Letters of Credit” shall have the meaning set forth in Section 2.9.



     “License Agreement” shall mean any agreement between any Borrower and a Licensor pursuant to
which such Borrower is authorized to use any Intellectual Property in connection with the
manufacturing, marketing, sale or other distribution of any Inventory of such Borrower or otherwise
in connection with such Borrower’s business operations.



     “Licensor” shall mean any Person from whom any Borrower obtains the right to use (whether on
an exclusive or non-exclusive basis) any Intellectual Property in connection with



15









 







such Borrower’s manufacture, marketing, sale or other distribution of any Inventory or
otherwise in connection with such Borrower’s business operations.



     “Licensor/Agent Agreement” shall mean an agreement between Agent and a Licensor, in form and
content satisfactory to Agent, by which Agent is given the unqualified right, vis-a-vis such
Licensor, to enforce Agent’s Liens with respect to and to dispose of any Borrower’s Inventory with
the benefit of any Intellectual Property applicable thereto, irrespective of such Borrower’s
default under any License Agreement with such Licensor.



     “Lien” shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, security
interest, lien (whether statutory or otherwise), Charge, claim or encumbrance, or preference,
priority or other security agreement or preferential arrangement held or asserted in respect of any
asset of any kind or nature whatsoever including any conditional sale or other title retention
agreement, any lease having substantially the same economic effect as any of the foregoing, and the
filing of, or agreement to give, any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction.



     “Lien Waiver Agreement” shall mean an agreement which is executed in favor of Agent by a
Person who owns or occupies premises at which any Collateral may be located from time to time and
by which such Person shall waive any Lien that such Person may ever have with respect to any of the
Collateral and shall authorize Agent from time to time to enter upon the premises to inspect or
remove the Collateral from such premises or to use such premises to store or dispose of such
Inventory.



     “Material Adverse Effect” shall mean a material adverse effect on (a) the condition (financial
or otherwise), results of operations, assets, business, properties or prospects of the Borrowers on
a Consolidated Basis, (b) the Borrowers’ ability on a Consolidated Basis to duly and punctually pay
or perform the Obligations in accordance with the terms thereof, (c) the value of the Collateral,
or Agent’s Liens on the Collateral or the priority of any such Lien or (d) the practical
realization of the benefits of Agent’s and each Lender’s rights and remedies under this Agreement
and the Other Documents.



     “Maximum Face Amount” shall mean, with respect to any outstanding Letter of Credit, the face
amount of such Letter of Credit including all automatic increases provided for in such Letter of
Credit, whether or not any such automatic increase has become effective.



     “Maximum Revolving Advance Amount” shall mean $20,000,000.



     “Maximum Undrawn Amount” shall mean with respect to any outstanding Letter of Credit, the
amount of such Letter of Credit that is or may become available to be drawn, including all
automatic increases provided for in such Letter of Credit, whether or not any such automatic
increase has become effective.



     “Modified Commitment Transfer Supplement” shall have the meaning set forth in Section 16.3(d).



     “Mortgage” shall mean, collectively, the mortgages on the Real Property granted by certain of
the Borrowers to NCB to secure the Obligations, and further together with all



16









 







extensions, renewals, amendments, supplements, modifications, substitutions and replacements
thereto and thereof.



     “Multiemployer Plan” shall mean a “multiemployer plan” as defined in Sections 3(37) and
4001(a)(3) of ERISA.



     “Multiple Employer Plan” shall mean a Plan which has two or more contributing sponsors
(including any Borrower or any member of the Controlled Group) at least two of whom are not under
common control, as such a plan is described in Section 4064 of ERISA.



     “NCB” shall mean National City Bank, a national banking association, and shall extend to its
successors and assigns.



     “Note” shall mean the Revolving Credit Note.



     “Obligations” shall mean and include any and all loans, advances, debts, liabilities,
obligations, covenants and duties owing by any Borrower to Lenders or Agent or to any other direct
or indirect subsidiary or affiliate of Agent or any Lender (including NCB, National City Commercial
Capital Company, LLC, and each other member of the PNC group of companies [for whom Agent is also
acting as agent) of any kind or nature, present or future (including any interest or other amounts
accruing thereon after maturity, or after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding relating to any Borrower, whether
or not a claim for post-filing or post-petition interest or other amounts is allowed in such
proceeding), whether or not evidenced by any note, guaranty or other instrument, whether arising
under any agreement, instrument or document, (including this Agreement and the Other Documents)
whether or not for the payment of money, whether arising by reason of an extension of credit,
opening of a letter of credit, loan, equipment lease or guarantee, under any interest or currency
swap, future, option or other similar agreement, or in any other manner, whether arising out of
overdrafts or deposit or other accounts or electronic funds transfers (whether through automated
clearing houses or otherwise) or out of the Agent’s or any Lenders non-receipt of or inability to
collect funds or otherwise not being made whole in connection with depository transfer check or
other similar arrangements, whether direct or indirect (including those acquired by assignment or
participation), absolute or contingent, joint or several, due or to become due, now existing or
hereafter arising, contractual or tortious, liquidated or unliquidated, regardless of how such
indebtedness or liabilities arise or by what agreement or instrument they may be evidenced or
whether evidenced by any agreement or instrument, including, but not limited to, any and all of any
Borrower’s Indebtedness and/or liabilities under this Agreement, the Other Documents or under any
other agreement between Agent or Lenders and any Borrower and any amendments, extensions, renewals
or increases and all costs and expenses of Agent and any Lender incurred in the documentation,
negotiation, modification, enforcement, collection or otherwise in connection with any of the
foregoing, including but not limited to reasonable attorneys’ fees and expenses and all obligations
of any Borrower to Agent or Lenders to perform acts or refrain from taking any action. Without
limitation, Obligations include Borrowers’ obligations with respect to the following three letters
of credit, which are Letters of Credit under this Agreement: (1) letter credit No. SCL012618, as
amended; (2) letter of credit No. SCL008349, as amended; and (3) letter of credit No. SCL015651.



17









 





     “Ordinary Course of Business” shall mean with respect to any Borrower, the ordinary course of
such Borrower’s business as conducted on the Closing Date.



     “Other Documents” shall mean the Mortgage, the Note, the Questionnaire, any Lender-Provided
Interest Rate Hedge and any and all other agreements, instruments and documents, including
guaranties, pledges, powers of attorney, consents, interest or currency swap agreements or other
similar agreements and all other writings heretofore, now or hereafter executed by any Borrower
and/or delivered to Agent or any Lender in respect of the transactions contemplated by this
Agreement.



     “Out-of-Formula Loans” shall have the meaning set forth in Section 16.2(b).



     “Overadvance Threshold Amount” shall have the meaning set forth in Section 16.2(b) hereof.



     “Parent” of any Person shall mean a corporation or other entity owning, directly or indirectly
at least 50% of the shares of stock or other ownership interests having ordinary voting power to
elect a majority of the directors of the Person, or other Persons performing similar functions for
any such Person.



     “Participant” shall mean each Person who shall be granted the right by any Lender to
participate in any of the Advances and who shall have entered into a participation agreement in
form and substance satisfactory to such Lender.



     “Participation Advance” shall have the meaning set forth in Section 2.12(d).



     “Participation Commitment” shall mean each Lender’s obligation to buy a participation of the
Letters of Credit issued hereunder.



     “Payee” shall have the meaning set forth in Section 3.10.



     “Payment Office” shall mean 1965 East 6th Street, Cleveland, Ohio 44114;
thereafter, such other office of Agent, if any, which it may designate by notice to Borrowing Agent
and to each Lender to be the Payment Office.



     “PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A
of Title IV of ERISA or any successor.



     “Pension Benefit Plan” shall mean at any time any employee pension benefit plan (including a
Multiple Employer Plan, but not a Multiemployer Plan) which is covered by Title IV of ERISA or is
subject to the minimum funding standards under Section 412 of the Code and either (i) is maintained
by any member of the Controlled Group for employees of any member of the Controlled Group; or (ii)
has at any time within the preceding five years been maintained by any entity which was at such
time a member of the Controlled Group for employees of any entity which was at such time a member
of the Controlled Group.



     “Permitted Discretion” means a determination made in the exercise of Agent’s business judgment
from the perspective of a prudent, secured, asset-based lender.



18









 





     “Permitted Encumbrances” shall mean:



          (a) Liens in favor of Agent for the benefit of Agent and Lenders;




          (b) Liens for taxes, assessments or other governmental charges not delinquent or being
Properly Contested;




          (c) Liens disclosed in the financial statements referred to in Section 5.5, the existence of
which Agent has consented to in writing;




          (d) deposits or pledges to secure obligations under worker’s compensation, social security or
similar laws, or under unemployment insurance;




          (e) deposits or pledges to secure bids, tenders, contracts (other than contracts for the
payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of
like nature arising in the Ordinary Course of Business;




          (f) Liens arising by virtue of the rendition, entry or issuance against any Borrower or any
Subsidiary, or any property of any Borrower or any Subsidiary, of any judgment, writ, order, or
decree for so long as each such Lien (x) is in existence for less than 20 consecutive days after it
first arises or is being Properly Contested and (y) is at all times junior in priority to any Liens
in favor of Agent;




          (g) mechanics’, workers’, materialmen’s or other like Liens arising in the Ordinary Course of
Business with respect to obligations which are not due or which are being Properly Contested;




          (h) Liens placed upon fixed assets hereafter acquired to secure a portion of the purchase
price thereof, provided that (x) any such lien shall not encumber any other property of any
Borrower and (y) the aggregate amount of Indebtedness secured by such Liens incurred as a result of
such purchases during any fiscal year shall not exceed the amount provided for in Section 7.6;




          (i) other Liens incidental to the conduct of any Borrower’s business or the ownership of its
property and assets which were not incurred in connection with the borrowing of money or the
obtaining of advances or credit, and which do not in the aggregate materially detract from Agent’s
or Lenders’ rights in and to the Collateral or the value of any Borrower’s property or assets or
which do not materially impair the use thereof in the operation of any Borrower’s business; and




          (j) Liens disclosed on Schedule 1.2; provided that such Liens shall secure only those
obligations which they secure on the Closing Date and shall not subsequently apply to any other
property or assets of any Borrower.




     “Person” shall mean any individual, sole proprietorship, partnership, corporation, business
trust, joint stock company, trust, unincorporated organization, association, limited liability
company, limited liability partnership, institution, public benefit corporation, joint




19











 




venture, entity or Governmental Body (whether federal, state, county, city, municipal or otherwise,
including any instrumentality, division, agency, body or department thereof).




     “Plan” shall mean any employee benefit plan within the meaning of Section 3(3) of ERISA
(including a Pension Benefit Plan), maintained for employees of any Borrower or any member of the
Controlled Group or any such Plan to which any Borrower or any member of the Controlled Group is
required to contribute on behalf of any of its employees.



     “Pro Forma Financial Statements” shall have the meaning set forth in Section 5.5(b) hereof.



     “Properly Contested” shall mean, in the case of any Indebtedness or Lien, as applicable, of
any Person (including any taxes) that is not paid as and when due or payable by reason of such
Person’s bona fide dispute concerning its liability to pay same or concerning the amount thereof,
(i) such Indebtedness or Lien, as applicable, is being properly contested in good faith by
appropriate proceedings promptly instituted and diligently conducted; (ii) such Person has
established appropriate reserves as shall be required in conformity with GAAP; (iii) the
non-payment of such Indebtedness will not have a Material Adverse Effect and will not result in the
forfeiture of any assets of such Person; (iv) no Lien is imposed upon any of such Person’s assets
with respect to such Indebtedness unless such Lien is at all times junior and subordinate in
priority to the Liens in favor of the Agent (except only with respect to property taxes that have
priority as a matter of applicable state law) and enforcement of such Lien is stayed during the
period prior to the final resolution or disposition of such dispute; (v) if such Indebtedness or
Lien, as applicable, results from, or is determined by the entry, rendition or issuance against a
Person or any of its assets of a judgment, writ, order or decree, enforcement of such judgment,
writ, order or decree is stayed pending a timely appeal or other judicial review; and (vi) if such
contest is abandoned, settled or determined adversely (in whole or in part) to such Person, such
Person forthwith pays such Indebtedness and all penalties, interest and other amounts due in
connection therewith.



     “Projections” shall have the meaning set forth in Section 5.5(b) hereof.



     “Purchasing CLO” shall have the meaning set forth in Section 16.3(d) hereof.



     “Purchasing Lender” shall have the meaning set forth in Section 16.3(c) hereof.



     “Questionnaire” shall mean the Documentation Information Questionnaire and the responses
thereto provided by Borrowers and delivered to Agent.



     “RCRA” shall mean the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq., as
same may be amended from time to time.



     “Real Property” shall mean all of each Borrower’s right, title and interest in and to the
owned and leased premises identified on Schedule 4.19 hereto or which is hereafter owned or leased
by any Borrower.



     “Receivables” shall mean and include, as to each Borrower, all of such Borrower’s accounts,
contract rights, instruments (including those evidencing indebtedness owed to such



20









 







Borrower by its Affiliates), documents, chattel paper (including electronic chattel paper),
general intangibles relating to accounts, drafts and acceptances, credit card receivables and all
other forms of obligations owing to such Borrower arising out of or in connection with the sale or
lease of Inventory or the rendition of services, all supporting obligations, guarantees and other
security therefor, whether secured or unsecured, now existing or hereafter created, and whether or
not specifically sold or assigned to Agent hereunder.



     “Receivables Advance Rate” shall have the meaning set forth in Section 2.1(a)(y)(i) hereof.



     “Register” shall have the meaning set forth in Section 16.3(e).



     “Reimbursement Obligation” shall have the meaning set forth in Section 2.12(b)hereof.



     “Release” shall have the meaning set forth in Section 5.7(c)(i) hereof.



     “Reportable Event” shall mean a reportable event described in Section 4043(c) of ERISA or the
regulations promulgated thereunder.



     “Required Lenders” shall mean Lenders holding at least 51% of the Advances and, if no Advances
are outstanding, shall mean Lenders holding 51% of the Commitment Percentages; provided, however,
if there are fewer than three (3) Lenders, Required Lenders shall mean all Lenders.



     “Reserve Percentage” shall mean as of any day the maximum percentage in effect on such day as
prescribed by the Board of Governors of the Federal Reserve System (or any successor) for
determining the reserve requirements (including supplemental, marginal and emergency reserve
requirements) with respect to eurocurrency funding (currently referred to as “Eurocurrency
Liabilities”).



     “Revolving Advances” shall mean Advances made other than Letters of Credit.



     “Revolving Credit Note” shall mean the amended and restated promissory note referred to in
Section 2.1(a) hereof.



     “Revolving Interest Rate” shall mean an interest rate per annum equal to (a) the sum of the
Alternate Base Rate plus the Applicable Margin with respect to Domestic Rate Loans and (b) the sum
of the Eurodollar Rate plus the Applicable Margin with respect to Eurodollar Rate Loans.



     “SEC” shall mean the Securities and Exchange Commission or any successor thereto.



     “Section 20 Subsidiary” shall mean the Subsidiary of the bank holding company controlling PNC,
which Subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in
certain Ineligible Securities.



     “Securities Act” shall mean the Securities Act of 1933, as amended.



21









 





     “Senior Debt Payments” shall mean and include all cash actually expended by any Borrower to
make (a) interest payments on any Advances hereunder, plus (b) payments for all fees, commissions
and charges set forth herein and with respect to any Advances, plus (c) capitalized lease payments,
plus (d) payments with respect to any other Indebtedness for borrowed money, including all payments
with respect to the two following promissory notes: (1) $3,750,000 Secured Promissory Note, dated
May 31, 2006, payable to D. Wood Holdings, LLC and (2) $3,750,000 Secured Promissory Note, dated
May 31, 2006, payable to H. Waldman Holdings, LLC.



     “Settlement Date” shall mean the Closing Date and thereafter Wednesday or Thursday of each
week or more frequently if Agent deems appropriate unless such day is not a Business Day in which
case it shall be the next succeeding Business Day.



     “Subsidiary” of any Person shall mean a corporation or other entity of whose Equity Interests
having ordinary voting power (other than Equity Interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such corporation, or other
Persons performing similar functions for such entity, are owned, directly or indirectly, by such
Person.



     “Subsidiary Stock” shall mean all of the issued and outstanding Equity Interests of any
Subsidiary owned by any Borrower (not to exceed 65% of the Equity Interests of any Foreign
Subsidiary).



     “Term” shall have the meaning set forth in Section 13.1 hereof.



     “Termination Event” shall mean (i) a Reportable Event with respect to any Plan or
Multiemployer Plan; (ii) the withdrawal of any Borrower or any member of the Controlled Group from
a Plan or Multiemployer Plan during a plan year in which such entity was a “substantial employer”
as defined in Section 4001(a)(2) of ERISA; (iii) the providing of notice of intent to terminate a
Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the institution by the
PBGC of proceedings to terminate a Plan or Multiemployer Plan; (v) any event or condition (a) which
might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of
a trustee to administer, any Plan or Multiemployer Plan, or (b) that may result in termination of a
Multiemployer Plan pursuant to Section 4041A of ERISA; or (vi) the partial or complete withdrawal
within the meaning of Sections 4203 and 4205 of ERISA, of any Borrower or any member of the
Controlled Group from a Multiemployer Plan.



     “Toxic Substance” shall mean and include any material present on the Real Property or the
Leasehold Interests which has been shown to have significant adverse effect on human health or
which is subject to regulation under the Toxic Substances Control Act (TSCA), 15 U.S.C. §§ 2601 et
seq., applicable state law, or any other applicable Federal or state laws now in force or hereafter
enacted relating to toxic substances. “Toxic Substance” includes but is not limited to asbestos,
polychlorinated biphenyls (PCBs) and lead-based paints.



     “Trading with the Enemy Act” shall mean the foreign assets control regulations of the United
States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any enabling legislation
or executive order relating thereto.



22









 





     “Transferee” shall have the meaning set forth in Section 16.3(d) hereof.



     “Undrawn Availability” at a particular date shall mean an amount equal to (a) the lesser of
(i) the Formula Amount or (ii) the Maximum Revolving Advance Amount, minus (b) the sum of (i) the
outstanding amount of Advances plus (ii) all amounts due and owing to any Borrower’s trade
creditors which are outstanding 60 days beyond normal trade terms, plus (iii) fees and expenses for
which Borrowers are liable but which have not been paid or charged to Borrowers’ Account.



     “Unfinanced Capital Expenditures” shall mean all Capital Expenditures of Borrower other than
those made utilizing financing provided by Lenders, the applicable seller or third party lenders,
provided, that Capital Expenditures made by a Borrower utilizing Revolving Advances shall be deemed
Unfinanced Capital Expenditures.



     “Uniform Commercial Code” shall have the meaning set forth in Section 1.3 hereof.



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



     “Week” shall mean the time period commencing with the opening of business on a Wednesday and
ending on the end of business the following Tuesday.



     1.3. Uniform Commercial Code Terms. All terms used herein and defined in the Uniform
Commercial Code as adopted in the State of New York from time to time (the “Uniform Commercial
Code”) shall have the meaning given therein unless otherwise defined herein. Without limiting the
foregoing, the terms “accounts”, “chattel paper”, “commercial tort claims”, “instruments”, “general
intangibles”, “goods”, “payment intangibles”, “proceeds”, “supporting obligations”, “securities”,
“investment property”, “documents”, “deposit accounts”, “software”, “letter of credit rights”,
“inventory”, “equipment” and “fixtures”, as and when used in the description of Collateral shall
have the meanings given to such terms in Articles 8 or 9 of the Uniform Commercial Code. To the
extent the definition of any category or type of collateral is expanded by any amendment,
modification or revision to the Uniform Commercial Code, such expanded definition will apply
automatically as of the date of such amendment, modification or revision.



     1.4. Certain Matters of Construction. The terms “herein”, “hereof” and “hereunder” and
other words of similar import refer to this Agreement as a whole and not to any particular section,
paragraph or subdivision. All references herein to Articles, Sections, Exhibits and Schedules
shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this
Agreement. Any pronoun used shall be deemed to cover all genders. Wherever appropriate in the
context, terms used herein in the singular also include the plural and vice versa. All references
to statutes and related regulations shall include any amendments of same and any successor statutes
and regulations. Unless otherwise provided, all references to any instruments or agreements to
which Agent is a party, including references to any of the Other Documents, shall include any and
all modifications or amendments thereto and any and all extensions or renewals thereof. All
references herein to the time of day shall mean the time in New York, New



23









 







York. Unless otherwise provided, all financial calculations shall be performed with Inventory
valued on a first-in, first-out basis. Whenever the words “including” or “include” shall be used,
such words shall be understood to mean “including, without limitation” or “include, without
limitation”. A Default or Event of Default shall be deemed to exist at all times during the period
commencing on the date that such Default or Event of Default occurs to the date on which such
Default or Event of Default is waived in writing pursuant to this Agreement or, in the case of a
Default, is cured within any period of cure expressly provided for in this Agreement; and an Event
of Default shall “continue” or be “continuing” until such Event of Default has been waived in
writing by the Required Lenders. Any Lien referred to in this Agreement or any of the Other
Documents as having been created in favor of Agent, any agreement entered into by Agent pursuant to
this Agreement or any of the Other Documents, any payment made by or to or funds received by Agent
pursuant to or as contemplated by this Agreement or any of the Other Documents, or any act taken or
omitted to be taken by Agent, shall, unless otherwise expressly provided, be created, entered into,
made or received, or taken or omitted, for the benefit or account of Agent and Lenders. Wherever
the phrase “to the best of Borrowers’ knowledge” or words of similar import relating to the
knowledge or the awareness of any Borrower are used in this Agreement or Other Documents, such
phrase shall mean and refer to (i) the actual knowledge of a senior officer of any Borrower or (ii)
the knowledge that a senior officer would have obtained if he had engaged in good faith and
diligent performance of his duties, including the making of such reasonably specific inquiries as
may be necessary of the employees or agents of such Borrower and a good faith attempt to ascertain
the existence or accuracy of the matter to which such phrase relates. All covenants hereunder
shall be given independent effect so that if a particular action or condition is not permitted by
any of such covenants, the fact that it would be permitted by an exception to, or otherwise within
the limitations of, another covenant shall not avoid the occurrence of a default if such action is
taken or condition exists. In addition, all representations and warranties hereunder shall be
given independent effect so that if a particular representation or warranty proves to be incorrect
or is breached, the fact that another representation or warranty concerning the same or similar
subject matter is correct or is not breached will not affect the incorrectness of a breach of a
representation or warranty hereunder.



     II. ADVANCES, PAYMENTS.



     2.1. Revolving Advances.



          (a) Amount of Revolving Advances. Subject to the terms and conditions set forth in this
Agreement including Section 2.1(b), each Lender, severally and not jointly, will make Revolving
Advances to Borrowers in aggregate amounts outstanding at any time equal to such Lender’s
Commitment Percentage of the lesser of (x) the Maximum Revolving Advance Amount less the aggregate
Maximum Undrawn Amount of all outstanding Letters of Credit or (y) an amount equal to the sum of:




               (i) up to 85%, subject to the provisions of Section 2.1(b) hereof (“Receivables Advance
Rate”), of Eligible Receivables (other than those owed to Sparton of Canada, Limited), plus



               (ii) up to the lesser of (A) 60%, subject to the provisions of Section 2.1(b) hereof, of the
value of the Eligible Inventory (other than Inventory owned by Sparton of



24









 







Canada, Limited) (“Inventory Advance Rate” and together with the Receivables Advance Rate,
collectively, the “Advance Rates”), (B) 85% of the appraised net orderly liquidation value of
Eligible Inventory (as evidenced by an Inventory appraisal satisfactory to Agent in its sole
discretion exercised in good faith) or (C) $12,000,000 in the aggregate at any one time, minus



               (iii) the Borrowing Base Availability Block, minus



               (iv) the aggregate Maximum Undrawn Amount of all outstanding Letters of Credit, minus



               (v) such reserves as Agent may reasonably deem proper and necessary from time to time. For
clarity, if a Reserve arises in connection with a monetary obligation owed by Borrowers, then that
Reserve will be reduced as the monetary obligation is paid by Borrowers.



     The amount derived from (A) the sum of Sections 2.1(a)(y)(i) and (ii), minus (B) the sum of
Sections 2.1 (a)(y)(iii), (iv) and (v) at any time and from time to time shall be referred to as
the “Formula Amount”. The Revolving Advances shall be evidenced by one or more secured amended and
restated promissory notes (collectively, the “Revolving Credit Note”) substantially in the form
attached hereto as Exhibit 2.1(a).



          (b) Discretionary Rights. The Advance Rates may be increased or decreased by Agent at any
time and from time to time in the exercise of its Permitted Discretion. Each Borrower consents to
any such increases or decreases and acknowledges that decreasing the Advance Rates or increasing or
imposing reserves may limit or restrict Advances requested by Borrowing Agent. The rights of Agent
under this subsection are subject to the provisions of Section 16.2(b).




     2.2. Procedure for Revolving Advances Borrowing.



          (a) Borrowing Agent on behalf of any Borrower may notify Agent prior to 11:00 a.m. on a
Business Day of a Borrower’s request to incur, on that day, a Revolving Advance hereunder. Should
any amount required to be paid as interest hereunder, or as fees or other charges under this
Agreement or any other agreement with Agent or Lenders, or with respect to any other Obligation,
become due, same shall be deemed a request for a Revolving Advance maintained as a Domestic Rate
Loan as of the date such payment is due, in the amount required to pay in full such interest, fee,
charge or Obligation under this Agreement or any other agreement with Agent or Lenders, and such
request shall be irrevocable.




          (b) Notwithstanding the provisions of subsection (a) above, in the event any Borrower desires
to obtain a Eurodollar Rate Loan, Borrowing Agent shall give Agent written notice by no later than
10:00 a.m. on the day which is three (3) Business Days prior to the date such Eurodollar Rate Loan
is to be borrowed, specifying (i) the date of the proposed borrowing (which shall be a Business
Day), (ii) the type of borrowing and the amount on the date of such Advance to be borrowed, which
amount shall be in an aggregate principal amount that is not less than $1,000,000 and integral
multiples of $500,000 in excess thereof, and (iii) the duration of the first Interest Period
therefor. Interest Periods for Eurodollar Rate Loans shall be for one, two or three months;
provided, if an Interest Period would end on a day that is not a Business Day, it




25









 







shall end on the next succeeding Business Day unless such day falls in the next succeeding
calendar month in which case the Interest Period shall end on the next preceding Business Day. No
Eurodollar Rate Loan shall be made available to any Borrower during the continuance of a Default or
an Event of Default. After giving effect to each requested Eurodollar Rate Loan, including those
which are converted from a Domestic Rate Loan under Section 2.2(d), there shall not be outstanding
more than three Eurodollar Rate Loans, in the aggregate.




          (c) Each Interest Period of a Eurodollar Rate Loan shall commence on the date such Eurodollar
Rate Loan is made and shall end on such date as Borrowing Agent may elect as set forth in
subsection (b)(iii) above provided that the exact length of each Interest Period shall be
determined in accordance with the practice of the interbank market for offshore Dollar deposits and
no Interest Period shall end after the last day of the Term.




     Borrowing Agent shall elect the initial Interest Period applicable to a Eurodollar Rate Loan
by its notice of borrowing given to Agent pursuant to Section 2.2(b) or by its notice of conversion
given to Agent pursuant to Section 2.2(d), as the case may be. Borrowing Agent shall elect the
duration of each succeeding Interest Period by giving irrevocable written notice to Agent of such
duration not later than 10:00 a.m. on the day which is three (3) Business Days prior to the last
day of the then current Interest Period applicable to such Eurodollar Rate Loan. If Agent does not
receive timely notice of the Interest Period elected by Borrowing Agent, Borrowing Agent shall be
deemed to have elected to convert to a Domestic Rate Loan subject to Section 2.2(d) hereinbelow.



          (d) Provided that no Event of Default shall have occurred and be continuing, Borrowing Agent
may, on the last Business Day of the then current Interest Period applicable to any outstanding
Eurodollar Rate Loan, or on any Business Day with respect to Domestic Rate Loans, convert any such
loan into a loan of another type in the same aggregate principal amount provided that any
conversion of a Eurodollar Rate Loan shall be made only on the last Business Day of the then
current Interest Period applicable to such Eurodollar Rate Loan. If Borrowing Agent desires to
convert a loan, Borrowing Agent shall give Agent written notice by no later than 10:00 a.m. (i) on
the day which is three (3) Business Days’ prior to the date on which such conversion is to occur
with respect to a conversion from a Domestic Rate Loan to a Eurodollar Rate Loan, or (ii) on the
day which is one (1) Business Day prior to the date on which such conversion is to occur with
respect to a conversion from a Eurodollar Rate Loan to a Domestic Rate Loan, specifying, in each
case, the date of such conversion, the loans to be converted and if the conversion is from a
Domestic Rate Loan to any other type of loan, the duration of the first Interest Period therefor.




          (e) At its option and upon written notice given prior to 10:00 a.m. (New York time) at least
three (3) Business Days’ prior to the date of such prepayment, any Borrower may prepay the
Eurodollar Rate Loans in whole at any time or in part from time to time with accrued interest on
the principal being prepaid to the date of such repayment. Such Borrower shall specify the date of
prepayment of Advances which are Eurodollar Rate Loans and the amount of such prepayment. In the
event that any prepayment of a Eurodollar Rate Loan is required or permitted on a date other than
the last Business Day of the then current Interest Period with respect thereto, such Borrower shall
indemnify Agent and Lenders therefor in accordance with Section 2.2(f) hereof.




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          (f) Each Borrower shall indemnify Agent and Lenders and hold Agent and Lenders harmless from
and against any and all losses or expenses that Agent and Lenders may sustain or incur as a
consequence of any prepayment, conversion of or any default by any Borrower in the payment of the
principal of or interest on any Eurodollar Rate Loan or failure by any Borrower to complete a
borrowing of, a prepayment of or conversion of or to a Eurodollar Rate Loan after notice thereof
has been given, including, but not limited to, any interest payable by Agent or Lenders to lenders
of funds obtained by it in order to make or maintain its Eurodollar Rate Loans hereunder. A
certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by
Agent or any Lender to Borrowing Agent shall be conclusive absent manifest error.




          (g) Notwithstanding any other provision hereof, if any Applicable Law, or any change therein
or in the interpretation or application thereof, shall make it unlawful for any Lender (for
purposes of this subsection (g), the term “Lender” shall include any Lender and the office or
branch where any Lender or any corporation or bank controlling such Lender makes or maintains any
Eurodollar Rate Loans) to make or maintain its Eurodollar Rate Loans, the obligation of Lenders to
make Eurodollar Rate Loans hereunder shall forthwith be cancelled and Borrowers shall, if any
affected Eurodollar Rate Loans are then outstanding, promptly upon request from Agent, either pay
all such affected Eurodollar Rate Loans or convert such affected Eurodollar Rate Loans into loans
of another type. If any such payment or conversion of any Eurodollar Rate Loan is made on a day
that is not the last day of the Interest Period applicable to such Eurodollar Rate Loan, Borrowers
shall pay Agent, upon Agent’s request, such amount or amounts as may be necessary to compensate
Lenders for any loss or expense sustained or incurred by Lenders in respect of such Eurodollar Rate
Loan as a result of such payment or conversion, including (but not limited to) any interest or
other amounts payable by Lenders to lenders of funds obtained by Lenders in order to make or
maintain such Eurodollar Rate Loan. A certificate as to any additional amounts payable pursuant to
the foregoing sentence submitted by Lenders to Borrowing Agent shall be conclusive absent manifest
error.




     2.3. Disbursement of Advance Proceeds. All Advances shall be disbursed from whichever
office or other place Agent may designate from time to time and, together with any and all other
Obligations of Borrowers to Agent or Lenders, shall be charged to Borrowers’ Account on Agent’s
books. During the Term, Borrowers may use the Revolving Advances by borrowing, prepaying and
reborrowing, all in accordance with the terms and conditions hereof. The proceeds of each
Revolving Advance requested by Borrowing Agent on behalf of any Borrower or deemed to have been
requested by any Borrower under Section 2.2(a) hereof shall, with respect to requested Revolving
Advances to the extent Lenders make such Revolving Advances, be made available to the applicable
Borrower on the day so requested by way of credit to such Borrower’s operating account at NCB, or
such other bank as Borrowing Agent may designate following notification to Agent, in immediately
available federal funds or other immediately available funds or, with respect to Revolving Advances
deemed to have been requested by any Borrower, be disbursed to Agent to be applied to the
outstanding Obligations giving rise to such deemed request.



     2.4. Intentionally Omitted.



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     2.5. Maximum Advances. The aggregate balance of Revolving Advances outstanding at any time
shall not exceed the lesser of (a) the Maximum Revolving Advance Amount less the aggregate Maximum
Undrawn Amount of all issued and outstanding Letters of Credit or (b) the Formula Amount.



     2.6. Repayment of Advances.



          (a) The Revolving Advances shall be due and payable in full on the last day of the Term
subject to earlier prepayment as herein provided.




          (b) Each Borrower recognizes that the amounts evidenced by checks, notes, drafts or any other
items of payment relating to and/or proceeds of Collateral may not be collectible by Agent on the
date received. In consideration of Agent’s agreement to conditionally credit Borrowers’ Account as
of the Business Day on which Agent receives those items of payment, each Borrower agrees that, in
computing the charges under this Agreement, all items of payment shall be deemed applied by Agent
on account of the Obligations one (1) Business Day after (i) the Business Day Agent receives such
payments via wire transfer or electronic depository check or (ii) in the case of payments received
by Agent in any other form, the Business Day such payment constitutes good funds in Agent’s
account. Agent is not, however, required to credit Borrowers’ Account for the amount of any item
of payment which is unsatisfactory to Agent and Agent may charge Borrowers’ Account for the amount
of any item of payment which is returned to Agent unpaid.




          (c) All payments of principal, interest and other amounts payable hereunder, or under any of
the Other Documents shall be made to Agent at the Payment Office not later than 1:00 P.M. (New York
time) on the due date therefor in lawful money of the United States of America in federal funds or
other funds immediately available to Agent. Agent shall have the right to effectuate payment on
any and all Obligations due and owing hereunder by charging Borrowers’ Account or by making
Advances as provided in Section 2.2 hereof.




          (d) Borrowers shall pay principal, interest, and all other amounts payable hereunder, or under
any related agreement, without any deduction whatsoever, including, but not limited to, any
deduction for any setoff or counterclaim.




     2.7. Repayment of Excess Advances. The aggregate balance of Advances outstanding at any
time in excess of the maximum amount of Advances permitted hereunder shall be immediately due and
payable without the necessity of any demand, at the Payment Office, whether or not a Default or
Event of Default has occurred.



     2.8. Statement of Account. Agent shall maintain, in accordance with its customary
procedures, a loan account (“Borrowers’ Account”) in the name of Borrowers in which shall be
recorded the date and amount of each Advance made by Agent and the date and amount of each payment
in respect thereof; provided, however, the failure by Agent to record the date and amount of any
Advance shall not adversely affect Agent or any Lender. Each month, Agent shall send to Borrowing
Agent a statement showing the accounting for the Advances made, payments made or credited in
respect thereof, and other transactions between Agent and Borrowers during such month. The monthly
statements shall be deemed correct and binding



28









 







upon Borrowers in the absence of manifest error and shall constitute an account stated between
Lenders and Borrowers unless Agent receives a written statement of Borrowers’ specific exceptions
thereto within thirty (30) days after such statement is received by Borrowing Agent. The records
of Agent with respect to the loan account shall be conclusive evidence absent manifest error of the
amounts of Advances and other charges thereto and of payments applicable thereto.



     2.9. Letters of Credit. Subject to the terms and conditions hereof, Agent shall cause NCB
to issue standby letters of credit (“Letters of Credit”) for the account of any Borrower; provided,
however, that Agent will not be required to cause to be issued any Letters of Credit to the extent
that the issuance thereof would then cause the sum of (i) the outstanding Revolving Advances plus
(ii) the Maximum Undrawn Amount of all outstanding Letters of Credit to exceed the lesser of (x)
the Maximum Revolving Advance Amount or (y) the Formula Amount. The Maximum Undrawn Amount of
outstanding Letters of Credit shall not exceed in the aggregate at any time the Letter of Credit
Sublimit. All disbursements or payments related to Letters of Credit shall be deemed to be
Domestic Rate Loans consisting of Revolving Advances and shall bear interest at the Revolving
Interest Rate for Domestic Rate Loans; Letters of Credit that have not been drawn upon shall not
bear interest.



     2.10. Issuance of Letters of Credit.



          (a) Borrowing Agent, on behalf of Borrowers, may request Agent to cause the issuance of a
Letter of Credit by delivering to Agent at the Payment Office, prior to 10:00 a.m. (New York time),
at least five (5) Business Days’ prior to the proposed date of issuance, Agent’s form of Letter of
Credit Application (the “Letter of Credit Application”) completed to the satisfaction of Agent;
and, such other certificates, documents and other papers and information as Agent may reasonably
request. Borrowing Agent, on behalf of Borrowers, also has the right to give instructions and make
agreements with respect to any application, any applicable letter of credit and security agreement,
any applicable letter of credit reimbursement agreement and/or any other applicable agreement, any
letter of credit and the disposition of documents, disposition of any unutilized funds, and to
agree with Agent upon any amendment, extension or renewal of any Letter of Credit.




          (b) Each Letter of Credit shall, among other things, (i) provide for the payment of sight
drafts, other written demands for payment, or acceptances of usance drafts when presented for honor
thereunder in accordance with the terms thereof and when accompanied by the documents described
therein and (ii) have an expiry date not later than twenty-four (24) months after such Letter of
Credit’s date of issuance and in no event later than the last day of the Term. Each standby Letter
of Credit shall be subject either to the Uniform Customs and Practice for Documentary Credits as
most recently published by the International Chamber of Commerce at the time a Letter of Credit is
issued (the “UCP”) or the International Standby Practices (ISP98-International Chamber of Commerce
Publication Number 590) (the “ISP98 Rules”)), and any subsequent revision thereof at the time a
standby Letter of Credit is issued, as determined by Agent, and each trade Letter of Credit shall
be subject to the UCP.




          (c) Agent shall use its reasonable efforts to notify Lenders of the request by Borrowing Agent
for a Letter of Credit hereunder.




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     2.11. Requirements For Issuance of Letters of Credit.



          (a) Borrowing Agent shall authorize and direct any Issuer to name the applicable Borrower as
the “Applicant” or “Account Party” of each Letter of Credit. If Agent is not the Issuer of any
Letter of Credit, Borrowing Agent shall authorize and direct the Issuer to deliver to Agent all
instruments, documents, and other writings and property received by the Issuer pursuant to the
Letter of Credit and to accept and rely upon Agent’s instructions and agreements with respect to
all matters arising in connection with the Letter of Credit and the application therefor.




          (b) In connection with all Letters of Credit issued or caused to be issued by Agent under this
Agreement, each Borrower hereby appoints Agent and Issuer, or their designee, as its attorney, with
full power and authority if an Event of Default shall have occurred, (i) to sign and/or endorse
such Borrower’s name upon any warehouse or other receipts, letter of credit applications and
acceptances, (ii) to sign such Borrower’s name on bills of lading; (iii) to clear Inventory through
the United States of America Customs Department (“Customs”) in the name of such Borrower or Agent
or Agent’s designee, and to sign and deliver to Customs officials powers of attorney in the name of
such Borrower for such purpose; and (iv) to complete in such Borrower’s name or Agent’s or
Issuer’s, or in the name of Agent’s or Issuer’s designee, any order, sale or transaction, obtain
the necessary documents in connection therewith, and collect the proceeds thereof. Neither Issuer,
Agent nor their respective attorneys will be liable for any acts or omissions nor for any error of
judgment or mistakes of fact or law, except for Agent’s or its attorney’s willful misconduct or
gross negligence. This power, being coupled with an interest, is irrevocable as long as any
Letters of Credit remain outstanding.




     2.12. Disbursements, Reimbursement.



          (a) Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to,
and hereby irrevocably and unconditionally agrees to, purchase from Agent a participation in such
Letter of Credit and each drawing thereunder in an amount equal to such Lender’s Commitment
Percentage of the Maximum Face Amount of such Letter of Credit and the amount of such drawing,
respectively.




          (b) In the event of any request for a drawing under a Letter of Credit by the beneficiary or
transferee thereof, Agent will promptly notify Borrowing Agent. Provided that Borrowing Agent
shall have received such notice, the Borrowers shall reimburse (such obligation to reimburse Agent
shall sometimes be referred to as a “Reimbursement Obligation”) Agent prior to 12:00 Noon, New York
time on each date that an amount is paid by Agent under any Letter of Credit (each such date, a
“Drawing Date”) in an amount equal to the amount so paid by Agent. In the event Borrowers fail to
reimburse Agent for the full amount of any drawing under any Letter of Credit by 12:00 Noon, New
York time, on the Drawing Date, Agent will promptly notify each Lender thereof, and Borrowers shall
be deemed to have requested that a Revolving Advance maintained as a Domestic Rate Loan be made by
the Lenders to be disbursed on the Drawing Date under such Letter of Credit, subject to the amount
of the unutilized portion of the lesser of Maximum Revolving Advance Amount or the Formula Amount
and subject to Section 8.2 hereof. Any notice given by Agent pursuant to this Section




30









 







2.12(b) may be oral if immediately confirmed in writing; provided that the lack of such an
immediate confirmation shall not affect the conclusiveness or binding effect of such notice.




          (c) Each Lender shall upon any notice pursuant to Section 2.12(b) make available to Agent an
amount in immediately available funds equal to its Commitment Percentage of the amount of the
drawing, whereupon the participating Lenders shall (subject to Section 2.12(d)) each be deemed to
have made a Revolving Advance maintained as a Domestic Rate Loan to Borrowers in that amount. If
any Lender so notified fails to make available to Agent the amount of such Lender’s Commitment
Percentage of such amount by no later than 2:00 p.m., New York time on the Drawing Date, then
interest shall accrue on such Lender’s obligation to make such payment, from the Drawing Date to
the date on which such Lender makes such payment (i) at a rate per annum equal to the Federal Funds
Effective Rate during the first three days following the Drawing Date and (ii) at a rate per annum
equal to the rate applicable to Revolving Advances maintained as a Domestic Rate Loan on and after
the fourth day following the Drawing Date. Agent will promptly give notice of the occurrence of
the Drawing Date, but failure of Agent to give any such notice on the Drawing Date or in sufficient
time to enable any Lender to effect such payment on such date shall not relieve such Lender from
its obligation under this Section 2.12(c), provided that such Lender shall not be obligated to pay
interest as provided in Section 2.12(c) (i) and (ii) until and commencing from the date of receipt
of notice from Agent of a drawing.




          (d) With respect to any unreimbursed drawing that is not converted into a Revolving Advance
maintained as a Domestic Rate Loan to Borrowers in whole or in part as contemplated by Section
2.12(b), because of Borrowers’ failure to satisfy the conditions set forth in Section 8.2 (other
than any notice requirements) or for any other reason, Borrowers shall be deemed to have incurred
from Agent a borrowing (each a “Letter of Credit Borrowing”) in the amount of such drawing. Such
Letter of Credit Borrowing shall be due and payable on demand (together with interest) and shall
bear interest at the rate per annum applicable to a Revolving Advance maintained as a Domestic Rate
Loan. Each Lender’s payment to Agent pursuant to Section 2.12(c) shall be deemed to be a payment
in respect of its participation in such Letter of Credit Borrowing and shall constitute a
“Participation Advance” from such Lender in satisfaction of its Participation Commitment under this
Section 2.12.




          (e) Each Lender’s Participation Commitment shall continue until the last to occur of any of
the following events: (x) Agent ceases to be obligated to issue or cause to be issued Letters of
Credit hereunder; (y) no Letter of Credit issued or created hereunder remains outstanding and
uncancelled and (z) all Persons (other than the Borrowers) have been fully reimbursed for all
payments made under or relating to Letters of Credit.




     2.13. Repayment of Participation Advances.



          (a) Upon (and only upon) receipt by Agent for its account of immediately available funds from
Borrowers (i) in reimbursement of any payment made by the Issuer or Agent under the Letter of
Credit with respect to which any Lender has made a Participation Advance to Agent, or (ii) in
payment of interest on such a payment made by Agent under such a Letter of Credit, Agent will pay
to each Lender, in the same funds as those received by Agent, the amount of such Lender’s
Commitment Percentage of such funds, except Agent shall retain




31









 







the amount of the Commitment Percentage of such funds of any Lender that did not make a
Participation Advance in respect of such payment by Agent.




          (b) If Agent is required at any time to return to any Borrower, or to a trustee, receiver,
liquidator, custodian, or any official in any insolvency proceeding, any portion of the payments
made by Borrowers to Agent pursuant to Section 2.13(a) in reimbursement of a payment made under the
Letter of Credit or interest or fee thereon, each Lender shall, on demand of Agent, forthwith
return to Agent the amount of its Commitment Percentage of any amounts so returned by Agent plus
interest at the Federal Funds Effective Rate.




     2.14. Documentation. Each Borrower agrees to be bound by the terms of the Letter of Credit
Application and by Agent’s interpretations of any Letter of Credit issued on behalf of such
Borrower and by Agent’s written regulations and customary practices relating to letters of credit,
though Agent’s interpretations may be different from such Borrower’s own. In the event of a
conflict between the Letter of Credit Application and this Agreement, this Agreement shall govern.
It is understood and agreed that, except in the case of gross negligence or willful misconduct (as
determined by a court of competent jurisdiction in a final non-appealable judgment), Agent and
Issuer shall not be liable for any error, negligence and/or mistakes, whether of omission or
commission, in following the Borrowing Agent’s or any Borrower’s instructions or those contained in
the Letters of Credit or any modifications, amendments or supplements thereto.



     2.15. Determination to Honor Drawing Request. In determining whether to honor any request
for drawing under any Letter of Credit by the beneficiary thereof, Issuer and Agent shall be
responsible only to determine that the documents and certificates required to be delivered under
such Letter of Credit have been delivered and that they comply on their face with the requirements
of such Letter of Credit and that any other drawing condition appearing on the face of such Letter
of Credit has been satisfied in the manner so set forth.



     2.16. Nature of Participation and Reimbursement Obligations. Each Lender’s obligation in
accordance with this Agreement to make the Revolving Advances or Participation Advances as a result
of a drawing under a Letter of Credit, and the obligations of Borrowers to reimburse Agent upon a
draw under a Letter of Credit, shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Section 2.16 under all circumstances,
including the following circumstances:



               (i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have
against Agent, any Borrower or any other Person for any reason whatsoever;



               (ii) the failure of any Borrower or any other Person to comply, in connection with a Letter of
Credit Borrowing, with the conditions set forth in this Agreement for the making of a Revolving
Advance, it being acknowledged that such conditions are not required for the making of a Letter of
Credit Borrowing and the obligation of the Lenders to make Participation Advances under Section
2.12;



               (iii) any lack of validity or enforceability of any Letter of Credit;



32









 





               (iv) any claim of breach of warranty that might be made by Borrower or any Lender against the
beneficiary of a Letter of Credit, or the existence of any claim, set-off, recoupment,
counterclaim, cross-claim, defense or other right which any Borrower or any Lender may have at any
time against a beneficiary, any successor beneficiary or any transferee of any Letter of Credit or
the proceeds thereof (or any Persons for whom any such transferee may be acting), Agent or any
Lender or any other Person, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any underlying transaction between any
Borrower or any Subsidiaries of such Borrower and the beneficiary for which any Letter of Credit
was procured);



               (v) the lack of power or authority of any signer of (or any defect in or forgery of any
signature or endorsement on) or the form of or lack of validity, sufficiency, accuracy,
enforceability or genuineness of any draft, demand, instrument, certificate or other document
presented under or in connection with any Letter of Credit, or any fraud or alleged fraud in
connection with any Letter of Credit, or the transport of any property or provisions of services
relating to a Letter of Credit, in each case even if Issuer or Agent or any of their respective
Affiliates has been notified thereof;



               (vi) payment by Agent or Issuer under any Letter of Credit against presentation of a demand,
draft or certificate or other document which does not comply with the terms of such Letter of
Credit;



               (vii) the solvency of, or any acts or omissions by, any beneficiary of any Letter of Credit,
or any other Person having a role in any transaction or obligation relating to a Letter of Credit,
or the existence, nature, quality, quantity, condition, value or other characteristic of any
property or services relating to a Letter of Credit;



               (viii) any failure by the Agent, Issuer or any of Agent’s Affiliates to issue or cause to be
issued any Letter of Credit in the form requested by Borrowing Agent, unless the Agent has received
written notice from Borrowing Agent of such failure within three (3) Business Days after the Agent
shall have furnished Borrowing Agent a copy of such Letter of Credit and such error is material and
no drawing has been made thereon prior to receipt of such notice;



               (ix) any Material Adverse Effect on any Borrower;



               (x) any breach of this Agreement or any Other Document by any party thereto;



               (xi) the occurrence or continuance of an insolvency proceeding with respect to any Borrower;



               (xii) the fact that a Default or Event of Default shall have occurred and be continuing;



               (xiii) the fact that the Term shall have expired or this Agreement or the Obligations
hereunder shall have been terminated; and



33









 





               (xiv) any other circumstance or happening whatsoever, whether or not similar to any of the
foregoing.



     2.17. Indemnity. In addition to amounts payable as provided in Section 16.5, each Borrower
hereby agrees to protect, indemnify, pay and save harmless Issuer, Agent and any of Agent’s
Affiliates that have issued a Letter of Credit from and against any and all claims, demands,
liabilities, damages, taxes, penalties, interest, judgments, losses, costs, charges and expenses
(including reasonable fees, expenses and disbursements of counsel and allocated costs of internal
counsel) which Issuer, Agent or any of Agent’s Affiliates may incur or be subject to as a
consequence, direct or indirect, of the issuance of any Letter of Credit, other than as a result of
(A) the gross negligence or willful misconduct of the Agent or Issuer as determined by a final and
non-appealable judgment of a court of competent jurisdiction or (b) the wrongful dishonor by the
Issuer, Agent or any of Agent’s Affiliates of a proper demand for payment made under any Letter of
Credit, except if such dishonor resulted from any act or omission, whether rightful or wrongful, of
any present or future de jure or de facto Governmental Body (all such acts or omissions herein
called “Governmental Acts”).



     2.18. Liability for Acts and Omissions. As between Borrowers and Agent and Lenders, each
Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the
respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the
respective foregoing, Issuer and Agent shall not be responsible for: (i) the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in
connection with the application for an issuance of any such Letter of Credit, even if it should in
fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged
(even if Agent shall have been notified thereof); (ii) the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit
or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) the failure of the beneficiary of any such Letter
of Credit, or any other party to which such Letter of Credit may be transferred, to comply fully
with any conditions required in order to draw upon such Letter of Credit or any other claim of any
Borrower against any beneficiary of such Letter of Credit, or any such transferee, or any dispute
between or among any Borrower and any beneficiary of any Letter of Credit or any such transferee;
(iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by
mail, cable, facsimile, telex or otherwise, whether or not they be in cipher; (v) errors in
interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any such Letter of Credit or of the proceeds
thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond
the control of Issuer or Agent, including any governmental acts, and none of the above shall affect
or impair, or prevent the vesting of, any of Agent’s rights or powers hereunder. Nothing in the
preceding sentence shall relieve Issuer or Agent from liability for Issuer’s or Agent’s gross
negligence or willful misconduct (as determined by a court of competent jurisdiction in a final
non-appealable judgment) in connection with actions or omissions described in such clauses (i)
through (viii) of such sentence. In no event shall Issuer, Agent or Agent’s Affiliates be liable
to any Borrower for any indirect, consequential, incidental, punitive, exemplary or special damages
or expenses (including without limitation attorneys’ fees), or for any damages resulting from any
change in the value of any property relating to a Letter of Credit.



34









 





     Without limiting the generality of the foregoing, Issuer, Agent and each of its Affiliates (i)
may rely on any oral or other communication believed in good faith by Issuer, Agent or such
Affiliate to have been authorized or given by or on behalf of the applicant for a Letter of Credit,
(ii) may honor any presentation if the documents presented appear on their face substantially to
comply with the terms and conditions of the relevant Letter of Credit; (iii) may honor a previously
dishonored presentation under a Letter of Credit, whether such dishonor was pursuant to a court
order, to settle or compromise any claim of wrongful dishonor, or otherwise, and shall be entitled
to reimbursement to the same extent as if such presentation had initially been honored, together
with any interest paid by Agent or its Affiliates; (iv) may honor any drawing that is payable upon
presentation of a statement advising negotiation or payment, upon receipt of such statement (even
if such statement indicates that a draft or other document is being delivered separately), and
shall not be liable for any failure of any such draft or other document to arrive, or to conform in
any way with the relevant Letter of Credit; (v) may pay any paying or negotiating bank claiming
that it rightfully honored under the laws or practices of the place where such bank is located; and
(vi) may settle or adjust any claim or demand made on Agent or its Affiliate in any way related to
any order issued at the applicant’s request to an air carrier, a letter of guarantee or of
indemnity issued to a carrier or any similar document (each an “Order”) and honor any drawing in
connection with any Letter of Credit that is the subject of such Order, notwithstanding that any
drafts or other documents presented in connection with such Letter of Credit fail to conform in any
way with such Letter of Credit.



     In furtherance and extension and not in limitation of the specific provisions set forth above,
any action taken or omitted by Issuer or Agent under or in connection with the Letters of Credit
issued by it or any documents and certificates delivered thereunder, if taken or omitted in good
faith and without gross negligence (as determined by a court of competent jurisdiction in a final
non-appealable judgment), shall not put Issuer or Agent under any resulting liability to any
Borrower or any Lender.



     2.19. Additional Payments. Any sums expended by Agent or any Lender due to any Borrower’s
failure to perform or comply with its obligations under this Agreement or any Other Document
including any Borrower’s obligations under Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may
be charged to Borrowers’ Account as a Revolving Advance and added to the Obligations.



     2.20. Manner of Borrowing and Payment.



          (a) Each borrowing of Revolving Advances shall be advanced according to the applicable
Commitment Percentages of Lenders.




          (b) Each payment (including each prepayment) by any Borrower on account of the principal of
and interest on the Revolving Advances, shall be applied to the Revolving Advances pro rata
according to the applicable Commitment Percentages of Lenders. Except as expressly provided
herein, all payments (including prepayments) to be made by any Borrower on account of principal,
interest and fees shall be made without set off or counterclaim and shall be made to Agent on
behalf of the Lenders to the Payment Office, in each case on or prior to 1:00 P.M., New York time,
in Dollars and in immediately available funds.




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          (c) (i) Notwithstanding anything to the contrary contained in Sections 2.20(a) and (b) hereof,
commencing with the first Business Day following the Closing Date, each borrowing of Revolving
Advances shall be advanced by Agent and each payment by any Borrower on account of Revolving
Advances shall be applied first to those Revolving Advances advanced by Agent. On or before 1:00
P.M., New York time, on each Settlement Date commencing with the first Settlement Date following
the Closing Date, Agent and Lenders shall make certain payments as follows: (I) if the aggregate
amount of new Revolving Advances made by Agent during the preceding Week (if any) exceeds the
aggregate amount of repayments applied to outstanding Revolving Advances during such preceding
Week, then each Lender shall provide Agent with funds in an amount equal to its applicable
Commitment Percentage of the difference between (w) such Revolving Advances and (x) such repayments
and (II) if the aggregate amount of repayments applied to outstanding Revolving Advances during
such Week exceeds the aggregate amount of new Revolving Advances made during such Week, then Agent
shall provide each Lender with funds in an amount equal to its applicable Commitment Percentage of
the difference between (y) such repayments and (z) such Revolving Advances.




               (ii) Each Lender shall be entitled to earn interest at the applicable Revolving Interest Rate
on outstanding Advances which it has funded.



               (iii) Promptly following each Settlement Date, Agent shall submit to each Lender a certificate
with respect to payments received and Advances made during the Week immediately preceding such
Settlement Date. Such certificate of Agent shall be conclusive in the absence of manifest error.



          (d) If any Lender or Participant (a “benefited Lender”) shall at any time receive any payment
of all or part of its Advances, or interest thereon, or receive any Collateral in respect thereof
(whether voluntarily or involuntarily or by set-off) in a greater proportion than any such payment
to and Collateral received by any other Lender, if any, in respect of such other Lender’s Advances,
or interest thereon, and such greater proportionate payment or receipt of Collateral is not
expressly permitted hereunder, such benefited Lender shall purchase for cash from the other Lenders
a participation in such portion of each such other Lender’s Advances, or shall provide such other
Lender with the benefits of any such Collateral, or the proceeds thereof, as shall be necessary to
cause such benefited Lender to share the excess payment or benefits of such Collateral or proceeds
ratably with each of the other Lenders; provided, however, that if all or any portion of such
excess payment or benefits is thereafter recovered from such benefited Lender, such purchase shall
be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but
without interest. Each Lender so purchasing a portion of another Lender’s Advances may exercise
all rights of payment (including rights of set-off) with respect to such portion as fully as if
such Lender were the direct holder of such portion.




          (e) Unless Agent shall have been notified by telephone, confirmed in writing, by any Lender
that such Lender will not make the amount which would constitute its applicable Commitment
Percentage of the Advances available to Agent, Agent may (but shall not be obligated to) assume
that such Lender shall make such amount available to Agent on the next Settlement Date and, in
reliance upon such assumption, make available to Borrowers a corresponding amount. Agent will
promptly notify Borrowing Agent of its receipt of any such notice from a Lender. If such amount is
made available to Agent on a date after such next




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Settlement Date, such Lender shall pay to Agent on demand an amount equal to the product of
(i) the daily average Federal Funds Rate (computed on the basis of a year of 360 days) during such
period as quoted by Agent, times (ii) such amount, times (iii) the number of days from and
including such Settlement Date to the date on which such amount becomes immediately available to
Agent. A certificate of Agent submitted to any Lender with respect to any amounts owing under this
paragraph (e) shall be conclusive, in the absence of manifest error. If such amount is not in fact
made available to Agent by such Lender within three (3) Business Days after such Settlement Date,
Agent shall be entitled to recover such an amount, with interest thereon at the rate per annum then
applicable to such Revolving Advances hereunder, on demand from Borrowers; provided, however, that
Agent’s right to such recovery shall not prejudice or otherwise adversely affect Borrowers’ rights
(if any) against such Lender.




     2.21. Mandatory Prepayments. Subject to Section 4.3 hereof, when any Borrower sells or otherwise
disposes of any Collateral other than Inventory in the Ordinary Course of Business, Borrowers shall
repay the Advances in an amount equal to the net proceeds of such sale (i.e., gross proceeds less
the reasonable costs of such sales or other dispositions), such repayments to be made promptly but
in no event more than one (1) Business Day following receipt of such net proceeds, and until the
date of payment, such proceeds shall be held in trust for Agent. The foregoing shall not be deemed
to be implied consent to any such sale otherwise prohibited by the terms and conditions hereof.
Such repayments shall be applied to the remaining Advances in such order as Agent may determine,
subject to Borrowers’ ability to reborrow Revolving Advances in accordance with the terms hereof.



     2.22. Use of Proceeds.



          (a) Borrowers shall apply the proceeds of Advances to (i) pay fees and expenses relating to
this transaction, and (iii) provide for their working capital needs and reimburse drawings under
Letters of Credit.




          (b) Without limiting the generality of Section 2.22(a) above, neither the Borrowers nor any
other Person which may in the future become party to this Agreement or the Other Documents as a
Borrower, intends to use nor shall they use any portion of the proceeds of the Advances, directly
or indirectly, for any purpose in violation of the Trading with the Enemy Act.




     2.23. Defaulting Lender.



          (a) Notwithstanding anything to the contrary contained herein, in the event any Lender (x) has
refused (which refusal constitutes a breach by such Lender of its obligations under this Agreement)
to make available its portion of any Advance or (y) notifies either Agent or Borrowing Agent that
it does not intend to make available its portion of any Advance (if the actual refusal would
constitute a breach by such Lender of its obligations under this Agreement) (each, a “Lender
Default”), all rights and obligations hereunder of such Lender (a “Defaulting Lender”) as to which
a Lender Default is in effect and of the other parties hereto shall be modified to the extent of
the express provisions of this Section 2.23 while such Lender Default remains in effect.




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          (b) Advances shall be incurred pro rata from Lenders (the “Non-Defaulting Lenders”) which are
not Defaulting Lenders based on their respective Commitment Percentages, and no Commitment
Percentage of any Lender or any pro rata share of any Advances required to be advanced by any
Lender shall be increased as a result of such Lender Default. Amounts received in respect of
principal of any type of Advances shall be applied to reduce the applicable Advances of each Lender
(other than any Defaulting Lender) pro rata based on the aggregate of the outstanding Advances of
that type of all Lenders at the time of such application; provided, that, Agent shall not
be obligated to transfer to a Defaulting Lender any payments received by Agent for the Defaulting
Lender’s benefit, nor shall a Defaulting Lender be entitled to the sharing of any payments
hereunder (including any principal, interest or fees). Amounts payable to a Defaulting Lender
shall instead be paid to or retained by Agent. Agent may hold and, in its discretion, re-lend to a
Borrower the amount of such payments received or retained by it for the account of such Defaulting
Lender.




          (c) A Defaulting Lender shall not be entitled to give instructions to Agent or to approve,
disapprove, consent to or vote on any matters relating to this Agreement and the Other Documents.
All amendments, waivers and other modifications of this Agreement and the Other Documents may be
made without regard to a Defaulting Lender and, for purposes of the definition of “Required
Lenders”, a Defaulting Lender shall be deemed not to be a Lender and not to have either Advances
outstanding or a Commitment Percentage.




          (d) Other than as expressly set forth in this Section 2.23, the rights and obligations of a
Defaulting Lender (including the obligation to indemnify Agent) and the other parties hereto shall
remain unchanged. Nothing in this Section 2.23 shall be deemed to release any Defaulting Lender
from its obligations under this Agreement and the Other Documents, shall alter such obligations,
shall operate as a waiver of any default by such Defaulting Lender hereunder, or shall prejudice
any rights which any Borrower, Agent or any Lender may have against any Defaulting Lender as a
result of any default by such Defaulting Lender hereunder.




          (e) In the event a Defaulting Lender retroactively cures to the satisfaction of Agent the
breach which caused a Lender to become a Defaulting Lender, such Defaulting Lender shall no longer
be a Defaulting Lender and shall be treated as a Lender under this Agreement.




     III. INTEREST AND FEES.



     3.1. Interest. Interest on Advances shall be payable in arrears on the first day of each
month with respect to Domestic Rate Loans and, with respect to Eurodollar Rate Loans, at the end of
each Interest Period. Interest charges shall be computed on the actual principal amount of
Advances outstanding during the month at a rate per annum equal to with respect to Revolving
Advances, the applicable Revolving Interest Rate. Whenever, subsequent to the date of this
Agreement, the Alternate Base Rate is increased or decreased, the Revolving Interest Rate for
Domestic Rate Loans shall be similarly changed without notice or demand of any kind by an amount
equal to the amount of such change in the Alternate Base Rate during the time such change or
changes remain in effect. The Eurodollar Rate shall be adjusted with respect to Eurodollar Rate
Loans without notice or demand of any kind on the effective date of any change in the Reserve
Percentage as of such effective date. Upon and after the occurrence of an Event of Default, and
during the continuation thereof, at the option of Agent or at the direction of



38









 







Required Lenders, the Obligations shall bear interest at the applicable Revolving Interest Rate
plus two (2%) percent per annum (the “Default Rate”).



     3.2. Letter of Credit Fees.



          (a) Borrowers shall pay (x) to Agent, for the ratable benefit of Lenders, fees for each Letter
of Credit for the period from and excluding the date of issuance of same to and including the date
of expiration or termination, equal to the average daily face amount of each outstanding Letter of
Credit multiplied by the Applicable Margin for Eurodollar Rate Loans per annum, such fees to be
calculated on the basis of a 360-day year for the actual number of days elapsed and to be payable
quarterly in arrears on the first day of each quarter and on the last day of the Term, and (y) to
the Issuer, a fronting fee of one quarter of one percent (0.25%) per annum, together with any and
all administrative, issuance, amendment, payment and negotiation charges with respect to Letters of
Credit and all fees and expenses as agreed upon by the Issuer and the Borrowing Agent in connection
with any Letter of Credit, including in connection with the opening, amendment or renewal of any
such Letter of Credit and any acceptances created thereunder and shall reimburse Agent for any and
all fees and expenses, if any, paid by Agent to the Issuer (all of the foregoing fees, the “Letter
of Credit Fees”). All such charges shall be deemed earned in full on the date when the same are
due and payable hereunder and shall not be subject to rebate or pro-ration upon the termination of
this Agreement for any reason. Any such charge in effect at the time of a particular transaction
shall be the charge for that transaction, notwithstanding any subsequent change in the Issuer’s
prevailing charges for that type of transaction. All Letter of Credit Fees payable hereunder shall
be deemed earned in full on the date when the same are due and payable hereunder and shall not be
subject to rebate or pro-ration upon the termination of this Agreement for any reason. Upon and
after the occurrence of an Event of Default, and during the continuation thereof, at the option of
Agent or at the direction of Required Lenders, the Letter of Credit Fees described in clause (x) of
this Section 3.2(a) shall be increased by an additional two percent (2%) per annum.




     At Agent’s request after an Event of Default or Default has occurred, Borrowers will cause
cash to be deposited and maintained in an account with Agent, as cash collateral, in an amount
equal to one hundred and five percent (105%) of the Maximum Undrawn Amount of all outstanding
Letters of Credit, and each Borrower hereby irrevocably authorizes Agent, in its discretion, on
such Borrower’s behalf and in such Borrower’s name, to open such an account and to make and
maintain deposits therein, or in an account opened by such Borrower, in the amounts required to be
made by such Borrower, out of the proceeds of Receivables or other Collateral or out of any other
funds of such Borrower coming into any Lender’s possession at any time. Agent will invest such
cash collateral (less applicable reserves) in such short-term money-market items as to which Agent
and such Borrower mutually agree and the net return on such investments shall be credited to such
account and constitute additional cash collateral. No Borrower may withdraw amounts credited to
any such account except upon the occurrence of all of the following: (x) payment and performance in
full of all Obligations, (y) expiration of all Letters of Credit and (z) termination of this
Agreement.



     3.3. Closing Fee and Facility Fee.



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          (a) Closing Fee. Upon the execution of this Agreement, Borrowers shall pay to Agent for
the ratable benefit of Lenders a closing fee of $250,000 less that portion of the commitment fee of
$125,000 heretofore paid by Borrowers to Agent remaining after application of such fee to out of
pocket expenses.




          (b) Facility Fee. For any calendar quarter during the Term, (i) if the average daily
unpaid balance of the Revolving Advances and undrawn amount of any outstanding Letters of Credit
for each day of such calendar quarter does not equal the Maximum Revolving Advance Amount but is
greater than or equal to 25% of the Maximum Revolving Advance Amount, then Borrowers shall pay to
Agent for the ratable benefit of Lenders a fee at a rate equal to .50% per annum on the amount by
which the Maximum Revolving Advance Amount exceeds such average daily unpaid balance, or (ii) if
the average daily unpaid balance of the Revolving Advances and undrawn amount of any outstanding
Letters of Credit for each day of such calendar quarter does not equal the Maximum Revolving
Advance Amount but is less than 25% of the Maximum Revolving Advance Amount, then Borrowers shall
pay to Agent for the ratable benefit of Lenders a fee at a rate equal to 1.00% per annum on the
amount by which the Maximum Revolving Advance Amount exceeds such average daily unpaid balance,
Such fee shall be payable to Agent in arrears on the first day of each calendar quarter with
respect to the previous calendar quarter.




     3.4. Collateral Evaluation Fee and Collateral Monitoring Fee.



          (a) Collateral Evaluation Fee. Borrowers shall pay Agent a collateral evaluation fee equal
to $3,000 per month commencing on the first day of the month following the Closing Date and on the
first day of each month thereafter during the Term. The collateral evaluation fee shall be deemed
earned in full on the date when same is due and payable hereunder and shall not be subject to
rebate or proration upon termination of this Agreement for any reason.




          (b) Collateral Monitoring Fee. Borrowers shall pay to Agent on the first day of each month
following any month in which Agent performs any collateral monitoring — namely any field
examination, collateral analysis or other business analysis, the need for which is to be determined
by Agent and which monitoring is undertaken by Agent or for Agent’s benefit — a collateral
monitoring fee in an amount equal to $850 per day for each person employed to perform such
monitoring, plus all costs and disbursements incurred by Agent in the performance of such
examination or analysis. But if no Default or Event of Default has occurred, Borrowers are only
obligated to pay for four field examinations per 12-month period.




     3.5. Computation of Interest and Fees. Interest and fees hereunder shall be computed on
the basis of a year of 360 days and for the actual number of days elapsed. If any payment to be
made hereunder becomes due and payable on a day other than a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and interest thereon shall be payable at the
Revolving Interest Rate for Domestic Rate Loans during such extension.



     3.6. Maximum Charges. In no event whatsoever shall interest and other charges charged
hereunder exceed the highest rate permissible under law. In the event interest and other charges as
computed hereunder would otherwise exceed the highest rate permitted under law,



40









 







such excess amount shall be first applied to any unpaid principal balance owed by Borrowers, and if
the then remaining excess amount is greater than the previously unpaid principal balance, Lenders
shall promptly refund such excess amount to Borrowers and the provisions hereof shall be deemed
amended to provide for such permissible rate.



     3.7. Increased Costs. In the event that any Applicable Law, or any change therein or in
the interpretation or application thereof, or compliance by any Lender (for purposes of this
Section 3.7, the term “Lender” shall include Agent or any Lender and any corporation or bank
controlling Agent or any Lender) and the office or branch where Agent or any Lender (as so defined)
makes or maintains any Eurodollar Rate Loans with any request or directive (whether or not having
the force of law) from any central bank or other financial, monetary or other authority, shall:



          (a) subject Agent or any Lender to any tax of any kind whatsoever with respect to this
Agreement or any Other Document or change the basis of taxation of payments to Agent or any Lender
of principal, fees, interest or any other amount payable hereunder or under any Other Documents
(except for changes in the rate of tax on the overall net income of Agent or any Lender by any
taxing jurisdiction);




          (b) impose, modify or hold applicable any reserve, special deposit, assessment or similar
requirement against assets held by, or deposits in or for the account of, advances or loans by, or
other credit extended by, any office of Agent or any Lender, including pursuant to Regulation D of
the Board of Governors of the Federal Reserve System; or




          (c) impose on Agent or any Lender or the London interbank Eurodollar market any other
condition with respect to this Agreement or any Other Document;



and the result of any of the foregoing is to increase the cost to Agent or any Lender of making,
renewing or maintaining its Advances hereunder by an amount that Agent or such Lender deems to be
material or to reduce the amount of any payment (whether of principal, interest or otherwise) in
respect of any of the Advances by an amount that Agent or such Lender deems to be material, then,
in any case Borrowers shall promptly pay Agent or such Lender, upon its demand, such additional
amount as will compensate Agent or such Lender for such additional cost or such reduction, as the
case may be , provided that the foregoing shall not apply to increased costs which are reflected in
the Eurodollar Rate, as the case may be. Agent or such Lender shall certify the amount of such
additional cost or reduced amount to Borrowing Agent, and such certification shall be conclusive
absent manifest error.




     3.8. Basis For Determining Interest Rate Inadequate or Unfair. In the event that Agent or
any Lender shall have determined that:



          (a) reasonable means do not exist for ascertaining the Eurodollar Rate for any Interest
Period; or




          (b) Dollar deposits in the relevant amount and for the relevant maturity are not available in
the London interbank Eurodollar market, with respect to an outstanding Eurodollar Rate Loan, a
proposed Eurodollar Rate Loan, or a proposed conversion of a Domestic Rate Loan into a Eurodollar
Rate Loan,




41









 








     then Agent shall give Borrowing Agent prompt written or telephonic notice of such
determination. If such notice is given, (i) any such requested Eurodollar Rate Loan shall be made
as a Domestic Rate Loan, unless Borrowing Agent shall notify Agent no later than 10:00 a.m. (New
York City time) two (2) Business Days prior to the date of such proposed borrowing, that its
request for such borrowing shall be cancelled or made as an unaffected type of Eurodollar Rate
Loan, (ii) any Domestic Rate Loan or Eurodollar Rate Loan which was to have been converted to an
affected type of Eurodollar Rate Loan shall be continued as or converted into a Domestic Rate Loan,
or, if Borrowing Agent shall notify Agent, no later than 10:00 a.m. (New York City time) two (2)
Business Days prior to the proposed conversion, shall be maintained as an unaffected type of
Eurodollar Rate Loan, and (iii) any outstanding affected Eurodollar Rate Loans shall be converted
into a Domestic Rate Loan, or, if Borrowing Agent shall notify Agent, no later than 10:00 a.m. (New
York City time) two (2) Business Days prior to the last Business Day of the then current Interest
Period applicable to such affected Eurodollar Rate Loan, shall be converted into an unaffected type
of Eurodollar Rate Loan, on the last Business Day of the then current Interest Period for such
affected Eurodollar Rate Loans. Until such notice has been withdrawn, Lenders shall have no
obligation to make an affected type of Eurodollar Rate Loan or maintain outstanding affected
Eurodollar Rate Loans and no Borrower shall have the right to convert a Domestic Rate Loan or an
unaffected type of Eurodollar Rate Loan into an affected type of Eurodollar Rate Loan.



     3.9. Capital Adequacy.



          (a) In the event that Agent or any Lender shall have determined that any Applicable Law or
guideline regarding capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any Governmental Body, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Agent or any Lender (for purposes of
this Section 3.9, the term “Lender” shall include Agent or any Lender and any corporation or bank
controlling Agent or any Lender) and the office or branch where Agent or any Lender (as so defined)
makes or maintains any Eurodollar Rate Loans with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on Agent or any Lender’s
capital as a consequence of its obligations hereunder to a level below that which Agent or such
Lender could have achieved but for such adoption, change or compliance (taking into consideration
Agent’s and each Lender’s policies with respect to capital adequacy) by an amount deemed by Agent
or any Lender to be material, then, from time to time, Borrowers shall pay upon demand to Agent or
such Lender such additional amount or amounts as will compensate Agent or such Lender for such
reduction. In determining such amount or amounts, Agent or such Lender may use any reasonable
averaging or attribution methods. The protection of this Section 3.9 shall be available to Agent
and each Lender regardless of any possible contention of invalidity or inapplicability with respect
to the Applicable Law or condition.




          (b) A certificate of Agent or such Lender setting forth such amount or amounts as shall be
necessary to compensate Agent or such Lender with respect to Section 3.9(a) hereof when delivered
to Borrowing Agent shall be conclusive absent manifest error.




42









 








     3.10. Gross Up for Taxes. If any Borrower shall be required by Applicable Law to withhold
or deduct any taxes from or in respect of any sum payable under this Agreement or any of the Other
Documents to Agent, or any Lender, assignee of any Lender, or Participant (each, individually, a
“Payee” and collectively, the “Payees”), (a) the sum payable to such Payee or Payees, as the case
may be, shall be increased as may be necessary so that, after making all required withholding or
deductions, the applicable Payee or Payees receives an amount equal to the sum it would have
received had no such withholding or deductions been made (the “Gross-Up Payment”), (b) such
Borrower shall make such withholding or deductions, and (c) such Borrower shall pay the full amount
withheld or deducted to the relevant taxation authority or other authority in accordance with
Applicable Law. Notwithstanding the foregoing, no Borrower shall be obligated to make any portion
of the Gross-Up Payment that is attributable to any withholding or deductions that would not have
been paid or claimed had the applicable Payee or Payees properly claimed a complete exemption with
respect thereto pursuant to Section 3.11 hereof.



     3.11. Withholding Tax Exemption.



          (a) Each Payee that is not incorporated under the Laws of the United States of America or a
state thereof (and, upon the written request of Agent, each other Payee) agrees that it will
deliver to Borrowing Agent and Agent two (2) duly completed appropriate valid Withholding
Certificates (as defined under §1.1441-1(c)(16) of the Income Tax Regulations (“Regulations”))
certifying its status (i.e., U.S. or foreign person) and, if appropriate, making a claim of
reduced, or exemption from, U.S. withholding tax on the basis of an income tax treaty or an
exemption provided by the Code. The term “Withholding Certificate” means a Form W-9; a Form
W-8BEN; a Form W-8ECI; a Form W-8IMY and the related statements and certifications as required
under §1.1441-1(e)(2) and/or (3) of the Regulations; a statement described in §1.871-14(c)(2)(v) of
the Regulations; or any other certificates under the Code or Regulations that certify or establish
the status of a payee or beneficial owner as a U.S. or foreign person.




          (b) Each Payee required to deliver to Borrowing Agent and Agent a valid Withholding
Certificate pursuant to Section 3.11(a) hereof shall deliver such valid Withholding Certificate as
follows: (A) each Payee which is a party hereto on the Closing Date shall deliver such valid
Withholding Certificate at least five (5) Business Days prior to the first date on which any
interest or fees are payable by any Borrower hereunder for the account of such Payee; (B) each
Payee shall deliver such valid Withholding Certificate at least five (5) Business Days before the
effective date of such assignment or participation (unless Agent in its sole discretion shall
permit such Payee to deliver such Withholding Certificate less than five (5) Business Days before
such date in which case it shall be due on the date specified by Agent). Each Payee which so
delivers a valid Withholding Certificate further undertakes to deliver to Borrowing Agent and Agent
two (2) additional copies of such Withholding Certificate (or a successor form) on or before the
date that such Withholding Certificate expires or becomes obsolete or after the occurrence of any
event requiring a change in the most recent Withholding Certificate so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably requested by Borrowing
Agent or Agent.




43









 








          (c) Notwithstanding the submission of a Withholding Certificate claiming a reduced rate of or
exemption from U.S. withholding tax required under Section 3.11(b) hereof, Agent shall be entitled
to withhold United States federal income taxes at the full 30% withholding rate if in its
reasonable judgment it is required to do so under the due diligence requirements imposed upon a
withholding agent under §1.1441-7(b) of the Regulations. Further, Agent is indemnified under
§1.1461-1(e) of the Regulations against any claims and demands of any Payee for the amount of any
tax it deducts and withholds in accordance with regulations under §1441 of the Code.




     IV. COLLATERAL: GENERAL TERMS



     4.1. Security Interest in the Collateral. To secure the prompt payment and performance of
the Obligations, each Borrower hereby assigns, pledges and grants to Agent for its benefit and for
the ratable benefit of each Lender (and each other holder of any of the Obligations) a continuing
security interest in and to and Lien on all of its Collateral, whether now owned or existing or
hereafter acquired or arising and wheresoever located. Each Borrower shall mark its books and
records as may be necessary or appropriate to evidence, protect and perfect Agent’s security
interest and shall cause its financial statements to reflect such security interest. Each Borrower
shall promptly provide Agent with written notice of all commercial tort claims, such notice to
contain the case title together with the applicable court and a brief description of the claim(s).
Upon delivery of each such notice, such Borrower shall be deemed to hereby grant to Agent a
security interest and lien in and to such commercial tort claims and all proceeds thereof.



     4.2. Perfection of Security Interest. Each Borrower shall take all action that may be
necessary or desirable, or that Agent may request, so as at all times to maintain the validity,
perfection, enforceability and priority of Agent’s security interest in and Lien on the Collateral
or to enable Agent to protect, exercise or enforce its rights hereunder and in the Collateral,
including, but not limited to, (i) immediately discharging all Liens other than Permitted
Encumbrances, (ii) obtaining Lien Waiver Agreements, (iii) delivering to Agent, endorsed or
accompanied by such instruments of assignment as Agent may specify, and stamping or marking, in
such manner as Agent may specify, any and all chattel paper, instruments, letters of credits and
advices thereof and documents evidencing or forming a part of the Collateral, (iv) entering into
warehousing, lockbox and other custodial arrangements satisfactory to Agent, and (v) executing and
delivering financing statements, control agreements, instruments of pledge, mortgages, notices and
assignments, in each case in form and substance satisfactory to Agent, relating to the creation,
validity, perfection, maintenance or continuation of Agent’s security interest and Lien under the
Uniform Commercial Code or other Applicable Law. By its signature hereto, each Borrower hereby
authorizes Agent to file against such Borrower, one or more financing, continuation or amendment
statements pursuant to the Uniform Commercial Code in form and substance satisfactory to Agent
(which statements may have a description of collateral that states “all assets” or other similar
language). All charges, expenses and fees Agent may incur in doing any of the foregoing, and any
local taxes relating thereto, shall be charged to Borrowers’ Account as a Revolving Advance of a
Domestic Rate Loan and added to the Obligations, or, at Agent’s option, shall be paid to Agent for
its benefit and for the ratable benefit of Lenders immediately upon demand.



44









 





     4.3. Disposition of Collateral. Each Borrower will safeguard and protect all Collateral
for Agent’s general account and make no disposition thereof whether by sale, lease or otherwise
except (a) the sale of Inventory in the Ordinary Course of Business before an Event of Default
occurs, (b) the disposition or transfer of obsolete and worn-out Equipment in the Ordinary Course
of Business during any fiscal year having an aggregate fair market value of not more than $250,000
(plus, during fiscal year 2010, an additional $350,000 of equipment in connection with closing the
London, Ontario and Jackson, Michigan operations), and only to the extent that (i) the proceeds of
any such disposition are used to acquire replacement Equipment which is subject to Agent’s first
priority security interest or (ii) the proceeds of which are remitted to Agent to be applied
pursuant to Section 2.21, and (c) the sale of any Real Property so long as (x) no Event of Default
or Default then exists, (y) the gross cash sale proceeds for such Real Property are equal to or
greater than fifty percent (50%) of the appraised value of such Real Property, and Agent has
received evidence of compliance with this condition in form and substance satisfactory to Agent in
its sole discretion, and (z) 100% of the net proceeds (net of customary expenses and charges, and
net of transfer, property and capital gains taxes due) of which are remitted to Agent to be applied
pursuant to Section 2.21, provided, that if there are no Revolving Advances outstanding at the time
of any sale of Real Property, the net proceeds shall be invested by and on behalf of the applicable
Borrower in a National City investment account.



     4.4. Preservation of Collateral. In addition to the rights and remedies set forth in
Section 11.1 hereof, Agent: (a) may at any time take such steps as Agent deems necessary to protect
Agent’s interest in and to preserve the Collateral, including the hiring of such security guards or
the placing of other security protection measures as Agent may deem appropriate; (b) may employ and
maintain at any of any Borrower’s premises a custodian who shall have full authority to do all acts
necessary to protect Agent’s interests in the Collateral; (c) may lease warehouse facilities to
which Agent may move all or part of the Collateral; (d) may use any Borrower’s owned or leased
lifts, hoists, trucks and other facilities or equipment for handling or removing the Collateral;
and (e) shall have, and is hereby granted, a right of ingress and egress to the places where the
Collateral is located, and may proceed over and through any of Borrower’s owned or leased property.
Each Borrower shall cooperate fully with all of Agent’s efforts to preserve the Collateral and
will take such actions to preserve the Collateral as Agent may direct. All of Agent’s expenses of
preserving the Collateral, including any expenses relating to the bonding of a custodian, shall be
charged to Borrowers’ Account as a Revolving Advance maintained as a Domestic Rate Loan and added
to the Obligations.



     4.5. Ownership of Collateral.



          (a) With respect to the Collateral, at the time the Collateral becomes subject to Agent’s
security interest: (i) each Borrower shall be the sole owner of and fully authorized and able to
sell, transfer, pledge and/or grant a first priority security interest in each and every item of
its respective Collateral to Agent; and, except for Permitted Encumbrances the Collateral shall be
free and clear of all Liens and encumbrances whatsoever; (ii) each document and agreement executed
by each Borrower or delivered to Agent or any Lender in connection with this Agreement shall be
true and correct in all respects; (iii) all signatures and endorsements of each Borrower that
appear on such documents and agreements shall be genuine and each Borrower shall have full capacity
to execute same; and (iv) each Borrower’s Equipment and Inventory shall be located as set forth on
Schedule 4.5 and shall not be removed from such




45









 







location(s) without the prior written consent of Agent except with respect to the sale of
Inventory in the Ordinary Course of Business and Equipment to the extent permitted in Section 4.3
hereof.




          (b) (i) There is no location at which any Borrower has any Inventory (except for Inventory in
transit) other than those locations listed on Schedule 4.5; (ii) Schedule 4.5 hereto contains a
correct and complete list, as of the Closing Date, of the legal names and addresses of each
warehouse at which Inventory of any Borrower is stored; none of the receipts received by any
Borrower from any warehouse states that the goods covered thereby are to be delivered to bearer or
to the order of a named Person or to a named Person and such named Person’s assigns; (iii)
Schedule 4.5 hereto sets forth a correct and complete list as of the Closing Date of (A) each place
of business of each Borrower and (B) the chief executive office of each Borrower; and (iv) Schedule
4.5 hereto sets forth a correct and complete list as of the Closing Date of the location, by state
and street address, of all Real Property owned or leased by each Borrower, together with the names
and addresses of any landlords.




     4.6. Defense of Agent’s and Lenders’ Interests. Until (a) payment and performance in full
of all of the Obligations and (b) termination of this Agreement, Agent’s interests in the
Collateral shall continue in full force and effect. During such period no Borrower shall, without
Agent’s prior written consent, pledge, sell (except Inventory in the Ordinary Course of Business
and Equipment and Real Property to the extent permitted in Section 4.3 hereof), assign, transfer,
create or suffer to exist a Lien upon or encumber or allow or suffer to be encumbered in any way
except for Permitted Encumbrances, any part of the Collateral. Each Borrower shall defend Agent’s
interests in the Collateral against any and all Persons whatsoever. At any time following demand
by Agent for payment of all Obligations, Agent shall have the right to take possession of the
indicia of the Collateral and the Collateral in whatever physical form contained, including:
labels, stationery, documents, instruments and advertising materials. If Agent exercises this
right to take possession of the Collateral, Borrowers shall, upon demand, assemble it in the best
manner possible and make it available to Agent at a place reasonably convenient to Agent. In
addition, with respect to all Collateral, Agent and Lenders shall be entitled to all of the rights
and remedies set forth herein and further provided by the Uniform Commercial Code or other
Applicable Law. Each Borrower shall, and Agent may, at its option, after an Event of Default or
Default instruct all suppliers, carriers, forwarders, warehousers or others receiving or holding
cash, checks, Inventory, documents or instruments in which Agent holds a security interest to
deliver same to Agent and/or subject to Agent’s order and if they shall come into any Borrower’s
possession, they, and each of them, shall be held by such Borrower in trust as Agent’s trustee, and
such Borrower will immediately deliver them to Agent in their original form together with any
necessary endorsement.



     4.7. Books and Records. Each Borrower shall (a) keep proper books of record and account in
which full, true and correct entries will be made of all dealings or transactions of or in relation
to its business and affairs; (b) set up on its books accruals with respect to all taxes,
assessments, charges, levies and claims; and (c) on a reasonably current basis set up on its books,
from its earnings, allowances against doubtful Receivables, advances and investments and all other
proper accruals (including by reason of enumeration, accruals for premiums, if any, due on required
payments and accruals for depreciation, obsolescence, or amortization of properties), which should
be set aside from such earnings in connection with its business. All determinations pursuant to
this subsection shall be made in accordance with, or as required by, GAAP



46









 







consistently applied in the opinion of such independent public accountant as shall then be
regularly engaged by Borrowers.



     4.8. Financial Disclosure. Each Borrower hereby irrevocably authorizes and directs all
accountants and auditors employed by such Borrower at any time during the Term to exhibit and
deliver to Agent and each Lender copies of any of such Borrower’s financial statements, trial
balances or other accounting records of any sort in the accountant’s or auditor’s possession, and
to disclose to Agent and each Lender any information such accountants may have concerning such
Borrower’s financial status and business operations. Each Borrower hereby authorizes all
Governmental Bodies to furnish to Agent and each Lender copies of reports or examinations relating
to such Borrower, whether made by such Borrower or otherwise; however, Agent and each Lender will
attempt to obtain such information or materials directly from such Borrower prior to obtaining such
information or materials from such accountants or Governmental Bodies.



     4.9. Compliance with Laws. Each Borrower shall comply in all material respects with all
Applicable Laws with respect to the Collateral or any part thereof or to the operation of such
Borrower’s business the non-compliance with which could reasonably be expected to have a Material
Adverse Effect. The Collateral at all times shall be maintained in accordance with the
requirements of all insurance carriers which provide insurance with respect to the Collateral so
that such insurance shall remain in full force and effect.



     4.10. Inspection of Premises. At all reasonable times Agent and each Lender shall have
full access to and the right to audit, check, inspect and make abstracts and copies from each
Borrower’s books, records, audits, correspondence and all other papers relating to the Collateral
and the operation of each Borrower’s business. Agent, any Lender and their agents may enter upon
any premises of any Borrower at any time during business hours and at any other reasonable time,
and from time to time, for the purpose of inspecting the Collateral and any and all records
pertaining thereto and the operation of such Borrower’s business. The Agent and Lenders shall have
the right to conduct such audits, appraisals and field examinations at such times as the Agent and
Lenders deem necessary and audits, appraisals and field examinations shall be at the Borrowers’
expense. But if no Default or Event of Default has occurred, Borrowers are only obligated to pay
for four field examinations and two appraisals per 12-month period.



     4.11. Insurance. The assets and properties of each Borrower at all times shall be
maintained in accordance with the requirements of all insurance carriers which provide insurance
with respect to the assets and properties of such Borrower so that such insurance shall remain in
full force and effect. Each Borrower shall bear the full risk of any loss of any nature whatsoever
with respect to the Collateral. At each Borrower’s own cost and expense in amounts and with
carriers acceptable to Agent, each Borrower shall (a) keep all its insurable properties and
properties in which such Borrower has an interest insured against the hazards of fire, flood,
sprinkler leakage, those hazards covered by extended coverage insurance and such other hazards, and
for such amounts, as is customary in the case of companies engaged in businesses similar to such
Borrower’s including business interruption insurance; (b) maintain a bond in such amounts as is
customary in the case of companies engaged in businesses similar to such Borrower insuring against
larceny, embezzlement or other criminal misappropriation of insured’s officers and employees who
may either singly or jointly with others at any time have access to the assets



47









 







or funds of such Borrower either directly or through authority to draw upon such funds or to direct
generally the disposition of such assets; (c) maintain public and product liability insurance
against claims for personal injury, death or property damage suffered by others; (d) maintain all
such worker’s compensation or similar insurance as may be required under the laws of any state or
jurisdiction in which such Borrower is engaged in business; and (e) furnish Agent with (i) copies
of all policies and evidence of the maintenance of such policies by the renewal thereof at least
thirty (30) days before any expiration date, and (ii) appropriate loss payable endorsements in form
and substance satisfactory to Agent, naming Agent as a co-insured and loss payee as its interests
may appear with respect to all insurance coverage referred to in clauses (a), and (c) above, and
providing (A) that all proceeds thereunder shall be payable to Agent, (B) no such insurance shall
be affected by any act or neglect of the insured or owner of the property described in such policy,
and (C) that such policy and loss payable clauses may not be cancelled, amended or terminated
unless at least thirty (30) days’ prior written notice is given to Agent. In the event of any loss
thereunder, the carriers named therein hereby are directed by Agent and the applicable Borrower to
make payment for such loss to Agent and not to such Borrower and Agent jointly. If any insurance
losses are paid by check, draft or other instrument payable to any Borrower and Agent jointly,
Agent may endorse such Borrower’s name thereon and do such other things as Agent may deem advisable
to reduce the same to cash. Upon the occurrence of an Event of Default, Agent is hereby authorized
to adjust and compromise claims under insurance coverage referred to in clauses (a) and (b) above.
All loss recoveries received by Agent or Borrowers upon any such insurance will be applied to the
Obligations, in such order as Agent in its sole discretion shall determine. Any surplus shall be
paid by Agent to Borrowers or applied as may be otherwise required by law. Any deficiency thereon
shall be paid by Borrowers to Agent, on demand. If no Event of Default has occurred, Borrowers may
reborrow insurance proceeds that have been applied to the Obligations in an amount of up to
$500,000 per fiscal year to rebuild or replace damaged assets on terms and conditions satisfactory
to Agent in its Permitted Discretion.



     4.12. Failure to Pay Insurance. If any Borrower fails to obtain insurance as hereinabove
provided, or to keep the same in force, Agent, if Agent so elects, may obtain such insurance and
pay the premium therefor on behalf of such Borrower, and charge Borrowers’ Account therefor as a
Revolving Advance of a Domestic Rate Loan and such expenses so paid shall be part of the
Obligations.



     4.13. Payment of Taxes. Each Borrower will pay, when due, all taxes, assessments and other
Charges lawfully levied or assessed upon such Borrower or any of the Collateral including real and
personal property taxes, assessments and charges and all franchise, income, employment, social
security benefits, withholding, and sales taxes. If any tax by any Governmental Body is or may be
imposed on or as a result of any transaction between any Borrower and Agent or any Lender which
Agent or any Lender may be required to withhold or pay or if any taxes, assessments, or other
Charges remain unpaid after the date fixed for their payment, or if any claim shall be made which,
in Agent’s or any Lender’s opinion, may possibly create a valid Lien on the Collateral, Agent may
without notice to Borrowers pay the taxes, assessments or other Charges and each Borrower hereby
indemnifies and holds Agent and each Lender harmless in respect thereof. The amount of any payment
by Agent under this Section 4.13 shall be charged to Borrowers’ Account as a Revolving Advance
maintained as a Domestic Rate Loan and added to the Obligations and, until Borrowers shall furnish
Agent with an



48









 







indemnity therefor (or supply Agent with evidence satisfactory to Agent that due provision for the
payment thereof has been made), Agent may hold without interest any balance standing to Borrowers’
credit and Agent shall retain its security interest in and Lien on any and all Collateral held by
Agent.



     4.14. Payment of Leasehold Obligations. Each Borrower shall at all times pay, when and as
due, its rental obligations under all leases under which it is a tenant, and shall otherwise
comply, in all material respects, with all other terms of such leases and keep them in full force
and effect and, at Agent’s request will provide evidence of having done so.



     4.15. Receivables.



          (a) Nature of Receivables. Each of the Receivables shall be a bona fide and valid account
representing a bona fide indebtedness incurred by the Customer therein named, for a fixed sum as
set forth in the invoice relating thereto (provided immaterial or unintentional invoice errors
shall not be deemed to be a breach hereof) with respect to an absolute sale or lease and delivery
of goods upon stated terms of a Borrower, or work, labor or services theretofore rendered by a
Borrower as of the date each Receivable is created. Same shall be due and owing in accordance with
the applicable Borrower’s standard terms of sale without dispute, setoff or counterclaim except as
may be stated on the accounts receivable schedules delivered by Borrowers to Agent.




          (b) Solvency of Customers. Each Customer, to the best of each Borrower’s knowledge, as of
the date each Receivable is created, is and will be solvent and able to pay all Receivables on
which the Customer is obligated in full when due or with respect to such Customers of any Borrower
who are not solvent such Borrower has set up on its books and in its financial records bad debt
reserves adequate to cover such Receivables.




          (c) Location of Borrowers. Each Borrower’s chief executive office is located at the
locations set forth on Schedule 4.15(c). Until written notice is given to Agent by Borrowing Agent
of any other office at which any Borrower keeps its records pertaining to Receivables, all such
records shall be kept at such executive office.




          (d) Collection of Receivables. Until any Borrower’s authority to do so is terminated by
Agent (which notice Agent may give at any time following the occurrence of an Event of Default or a
Default or when Agent in its sole discretion deems it to be in Lenders’ best interest to do so),
each Borrower will, at such Borrower’s sole cost and expense, but on Agent’s behalf and for Agent’s
account, collect as Agent’s property and in trust for Agent all amounts received on Receivables,
and shall not commingle such collections with any Borrower’s funds or use the same except to pay
Obligations. Each Borrower shall deposit in the Blocked Account or, upon request by Agent, deliver
to Agent, in original form and on the date of receipt thereof, all checks, drafts, notes, money
orders, acceptances, cash and other evidences of Indebtedness.




          (e) Notification of Assignment of Receivables. At any time Agent shall have the right to
send notice of the assignment of, and Agent’s security interest in and Lien on, the Receivables to
any and all Customers or any third party holding or otherwise concerned with any of the Collateral.
Thereafter, Agent shall have the sole right to collect the Receivables, take




49









 







possession of the Collateral, or both. Agent’s actual collection expenses, including, but not
limited to, stationery and postage, telephone and telegraph, secretarial and clerical expenses and
the salaries of any collection personnel used for collection, may be charged to Borrowers’ Account
and added to the Obligations.




          (f) Power of Agent to Act on Borrowers’ Behalf. Agent shall have the right to receive,
endorse, assign and/or deliver in the name of Agent or any Borrower any and all checks, drafts and
other instruments for the payment of money relating to the Receivables, and each Borrower hereby
waives notice of presentment, protest and non-payment of any instrument so endorsed. Without
limiting Agent’s or Lenders’ rights under the Uniform Commercial Code, each Borrower hereby
constitutes Agent or Agent’s designee as such Borrower’s attorney with power (i) to endorse such
Borrower’s name upon any notes, acceptances, checks, drafts, money orders or other evidences of
payment or Collateral; (ii) to sign such Borrower’s name on any invoice or bill of lading relating
to any of the Receivables, drafts against Customers, assignments and verifications of Receivables;
(iii) to send verifications of Receivables to any Customer; (iv) to sign such Borrower’s name on
all financing statements or any other documents or instruments deemed necessary or appropriate by
Agent to preserve, protect, or perfect Agent’s interest in the Collateral and to file same; (v) to
demand payment of the Receivables; (vi) to enforce payment of the Receivables by legal proceedings
or otherwise; (vii) to exercise all of such Borrower’s rights and remedies with respect to the
collection of the Receivables and any other Collateral; (viii) to settle, adjust, compromise,
extend or renew the Receivables; (ix) to settle, adjust or compromise any legal proceedings brought
to collect Receivables; (x) to prepare, file and sign such Borrower’s name on a proof of claim in
bankruptcy or similar document against any Customer; (xi) to prepare, file and sign such Borrower’s
name on any notice of Lien, assignment or satisfaction of Lien or similar document in connection
with the Receivables; and (xii) to do all other acts and things necessary to carry out this
Agreement; provided that Agent may only use the attorney-in-fact powers granted under this Section
with respect to acts listed in (v), (vi), (vii), (viii), and (ix) after an Event of Default or
Default has occurred. All acts of said attorney or designee are hereby ratified and approved, and
said attorney or designee shall not be liable for any acts of omission or commission nor for any
error of judgment or mistake of fact or of law, unless done maliciously or with gross (not mere)
negligence (as determined by a court of competent jurisdiction in a final non-appealable judgment);
this power being coupled with an interest is irrevocable while any of the Obligations remain
unpaid. Agent shall have the right at any time to change the address for delivery of mail
addressed to any Borrower to such address as Agent may designate and to receive, open and dispose
of all mail addressed to any Borrower.




          (g) No Liability. Neither Agent nor any Lender shall, under any circumstances or in any
event whatsoever, have any liability for any error or omission or delay of any kind occurring in
the settlement, collection or payment of any of the Receivables or any instrument received in
payment thereof, or for any damage resulting therefrom. After an Event of Default or Default has
occurred, Agent may, without notice or consent from any Borrower, sue upon or otherwise collect,
extend the time of payment of, compromise or settle for cash, credit or upon any terms any of the
Receivables or any other securities, instruments or insurance applicable thereto and/or release any
obligor thereof. Agent is authorized and empowered to accept the return of the goods represented
by any of the Receivables, without notice to or consent by any Borrower, all without discharging or
in any way affecting any Borrower’s liability hereunder.




50









 








          (h) Establishment of a Lockbox Account, Dominion Account. All proceeds of Collateral shall
be deposited by Borrowers into either (i) a lockbox account, dominion account or such other
“blocked account” (“Blocked Accounts”) established at a bank or banks (each such bank, a “Blocked
Account Bank”) pursuant to an arrangement with such Blocked Account Bank as may be selected by
Borrowing Agent and be acceptable to Agent or (ii) depository accounts (“Depository Accounts”)
established at the Agent for the deposit of such proceeds. Each applicable Borrower, Agent and
each Blocked Account Bank shall enter into a deposit account control agreement in form and
substance satisfactory to Agent directing such Blocked Account Bank to transfer such funds so
deposited to Agent, either to any account maintained by Agent at said Blocked Account Bank or by
wire transfer to appropriate account(s) of Agent. All funds deposited in such Blocked Accounts
shall immediately become the property of Agent and Borrowing Agent shall obtain the agreement by
such Blocked Account Bank to waive any offset rights against the funds so deposited. Unless Agent
has the right to hold funds deposited into the Blocked Account, if no Advances are outstanding then
Agent will remit amounts deposited into the Blocked Account to Borrowing Agent in accordance with
Agent’s standard practices. Neither Agent nor any Lender assumes any responsibility for such
blocked account arrangement, including any claim of accord and satisfaction or release with respect
to deposits accepted by any Blocked Account Bank thereunder. All deposit accounts and investment
accounts of each Borrower and its Subsidiaries are set forth on Schedule 4.15(h).




          (i) Adjustments. No Borrower will, without Agent’s consent, compromise or adjust any
Receivables (or extend the time for payment thereof) or accept any returns of merchandise or grant
any additional discounts, allowances or credits thereon except for those compromises, adjustments,
returns, discounts, credits and allowances as have been heretofore customary in the business of
such Borrower.




     4.16. Inventory. To the extent Inventory held for sale or lease has been produced by any
Borrower, it has been and will be produced by such Borrower in accordance with the Federal Fair
Labor Standards Act of 1938, as amended, and all rules, regulations and orders thereunder.



     4.17. Maintenance of Equipment. The Equipment shall be maintained in good operating
condition and repair (reasonable wear and tear excepted) and all necessary replacements of and
repairs thereto shall be made so that the value and operating efficiency of the Equipment shall be
maintained and preserved. No Borrower shall use or operate the Equipment in violation of any law,
statute, ordinance, code, rule or regulation. Each Borrower shall have the right to sell Equipment
to the extent set forth in Section 4.3 hereof.



     4.18. Exculpation of Liability. Nothing herein contained shall be construed to constitute
Agent or any Lender as any Borrower’s agent for any purpose whatsoever, nor shall Agent or any
Lender be responsible or liable for any shortage, discrepancy, damage, loss or destruction of any
part of the Collateral wherever the same may be located and regardless of the cause thereof.
Neither Agent nor any Lender, whether by anything herein or in any assignment or otherwise, assume
any of any Borrower’s obligations under any contract or agreement assigned to Agent or such Lender,
and neither Agent nor any Lender shall be responsible in any way for the performance by any
Borrower of any of the terms and conditions thereof.



     4.19. Environmental Matters.



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          (a) Borrowers shall ensure that the Real Property and all operations and businesses conducted
thereon remains in compliance with all Environmental Laws and they shall not place or permit to be
placed any Hazardous Substances on any Real Property except as permitted by Applicable Law or
appropriate governmental authorities.




          (b) Borrowers shall establish and maintain a system to assure and monitor continued compliance
with all applicable Environmental Laws which system shall include periodic reviews of such
compliance.




          (c) Borrowers shall (i) employ in connection with the use of the Real Property appropriate
technology necessary to maintain compliance with any applicable Environmental Laws and (ii) dispose
of any and all Hazardous Waste generated at the Real Property only at facilities and with carriers
that maintain valid permits under RCRA and any other applicable Environmental Laws. Borrowers
shall use their best efforts to obtain certificates of disposal, such as hazardous waste manifest
receipts, from all treatment, transport, storage or disposal facilities or operators employed by
Borrowers in connection with the transport or disposal of any Hazardous Waste generated at the Real
Property.




          (d) In the event any Borrower obtains, gives or receives notice of any Release or threat of
Release of a reportable quantity of any Hazardous Substances at the Real Property (any such event
being hereinafter referred to as a “Hazardous Discharge”) or receives any notice of violation,
request for information or notification that it is potentially responsible for investigation or
cleanup of environmental conditions at the Real Property, demand letter or complaint, order,
citation, or other written notice with regard to any Hazardous Discharge or violation of
Environmental Laws affecting the Real Property or any Borrower’s interest therein (any of the
foregoing is referred to herein as an “Environmental Complaint”) from any Person, including any
state agency responsible in whole or in part for environmental matters in the state in which the
Real Property is located or the United States Environmental Protection Agency (any such person or
entity hereinafter the “Authority”), then Borrowing Agent shall, within five (5) Business Days,
give written notice of same to Agent detailing facts and circumstances of which any Borrower is
aware giving rise to the Hazardous Discharge or Environmental Complaint. Such information is to be
provided to allow Agent to protect its security interest in and Lien on the Real Property and the
Collateral and is not intended to create nor shall it create any obligation upon Agent or any
Lender with respect thereto.




          (e) Borrowing Agent shall promptly forward to Agent copies of any request for information,
notification of potential liability, demand letter relating to potential responsibility with
respect to the investigation or cleanup of Hazardous Substances at any other site owned, operated
or used by any Borrower to dispose of Hazardous Substances and shall continue to forward copies of
correspondence between any Borrower and the Authority regarding such claims to Agent until the
claim is settled. Borrowing Agent shall promptly forward to Agent copies of all documents and
reports concerning a Hazardous Discharge at the Real Property that any Borrower is required to file
under any Environmental Laws. Such information is to be provided solely to allow Agent to protect
Agent’s security interest in and Lien on the Real Property and the Collateral.




52









 








          (f) Borrowers shall respond promptly to any Hazardous Discharge or Environmental Complaint and
take all necessary action in order to safeguard the health of any Person and to avoid subjecting
the Collateral or Real Property to any Lien. If any Borrower shall fail to respond promptly to any
Hazardous Discharge or Environmental Complaint or any Borrower shall fail to comply with any of the
requirements of any Environmental Laws, Agent on behalf of Lenders may, but without the obligation
to do so, for the sole purpose of protecting Agent’s interest in the Collateral: (A) give such
notices or (B) enter onto the Real Property (or authorize third parties to enter onto the Real
Property) and take such actions as Agent (or such third parties as directed by Agent) deem
reasonably necessary or advisable, to clean up, remove, mitigate or otherwise deal with any such
Hazardous Discharge or Environmental Complaint. All reasonable costs and expenses incurred by
Agent and Lenders (or such third parties) in the exercise of any such rights, including any sums
paid in connection with any judicial or administrative investigation or proceedings, fines and
penalties, together with interest thereon from the date expended at the Default Rate for Domestic
Rate Loans constituting Revolving Advances shall be paid upon demand by Borrowers, and until paid
shall be added to and become a part of the Obligations secured by the Liens created by the terms of
this Agreement or any other agreement between Agent, any Lender and any Borrower.




          (g) Promptly upon the written request of Agent from time to time in Agent’s Permitted
Discretion, Borrowers shall provide Agent, at Borrowers’ expense, with an environmental site
assessment or environmental audit report prepared by an environmental engineering firm acceptable
in the reasonable opinion of Agent, to assess with a reasonable degree of certainty the existence
of a Hazardous Discharge and the potential costs in connection with abatement, cleanup and removal
of any Hazardous Substances found on, under, at or within the Real Property. Any report or
investigation of such Hazardous Discharge proposed and acceptable to an appropriate Authority that
is charged to oversee the clean-up of such Hazardous Discharge shall be acceptable to Agent. If
such estimates, individually or in the aggregate, exceed $100,000, Agent shall have the right to
require Borrowers to post a bond, letter of credit or other security reasonably satisfactory to
Agent to secure payment of these costs and expenses.




          (h) Borrowers shall defend and indemnify Agent and Lenders and hold Agent, Lenders and their
respective employees, agents, directors and officers harmless from and against all loss, liability,
damage and expense, claims, costs, fines and penalties, including attorney’s fees, suffered or
incurred by Agent or Lenders under or on account of any Environmental Laws, including the assertion
of any Lien thereunder, with respect to any Hazardous Discharge, the presence of any Hazardous
Substances affecting the Real Property, whether or not the same originates or emerges from the Real
Property or any contiguous real estate, including any loss of value of the Real Property as a
result of the foregoing except to the extent such loss, liability, damage and expense is
attributable to any Hazardous Discharge resulting from actions on the part of Agent or any Lender.
Borrowers’ obligations under this Section 4.19 shall arise upon the discovery of the presence of
any Hazardous Substances at the Real Property, whether or not any federal, state, or local
environmental agency has taken or threatened any action in connection with the presence of any
Hazardous Substances. Borrowers’ obligation and the indemnifications hereunder shall survive the
termination of this Agreement.




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          (i) For purposes of Section 4.19 and 5.7, all references to Real Property shall be deemed to
include all of each Borrower’s right, title and interest in and to its owned and leased premises.




     4.20. Financing Statements. Except as respects the financing statements filed by Agent and
the financing statements described on Schedule 1.2, no financing statement covering any of the
Collateral or any proceeds thereof is on file in any public office.



     V. REPRESENTATIONS AND WARRANTIES.



     Each Borrower represents and warrants as follows:



     5.1. Authority. Each Borrower has full power, authority and legal right to enter into this
Agreement and the Other Documents and to perform all its respective Obligations hereunder and
thereunder. This Agreement and the Other Documents have been duly executed and delivered by each
Borrower, and this Agreement and the Other Documents constitute the legal, valid and binding
obligation of such Borrower enforceable in accordance with their terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency, moratorium or similar laws
affecting creditors’ rights generally. The execution, delivery and performance of this Agreement
and of the Other Documents (a) are within such Borrower’s corporate powers, have been duly
authorized by all necessary corporate action, are not in contravention of law or the terms of such
Borrower’s by-laws, certificate of incorporation or other applicable documents relating to such
Borrower’s formation or to the conduct of such Borrower’s business or of any material agreement or
undertaking to which such Borrower is a party or by which such Borrower is bound, (b) will not
conflict with or violate any law or regulation, or any judgment, order or decree of any
Governmental Body, (c) will not require the Consent of any Governmental Body or any other Person,
except those Consents set forth on Schedule 5.1 hereto, all of which will have been duly obtained,
made or compiled prior to the Closing Date and which are in full force and effect and (d) will not
conflict with, nor result in any breach in any of the provisions of or constitute a default under
or result in the creation of any Lien except Permitted Encumbrances upon any asset of such Borrower
under the provisions of any agreement, charter document, instrument, by-law or other instrument to
which such Borrower is a party or by which it or its property is a party or by which it may be
bound.



     5.2. Formation and Qualification.



          (a) Each Borrower is duly incorporated and in good standing under the laws of the state or
country listed on Schedule 5.2(a) and is qualified to do business and is in good standing in the
states and countries listed on Schedule 5.2(a) which constitute all states and countries in which
qualification and good standing are necessary for such Borrower to conduct its business and own its
property and where the failure to so qualify could reasonably be expected to have a Material
Adverse Effect on such Borrower. Each Borrower has delivered to Agent true and complete copies of
its certificate of incorporation and by-laws and will promptly notify Agent of any amendment or
changes thereto.




          (b) The only Subsidiaries of each Borrower are listed on Schedule 5.2(b).




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     5.3. Survival of Representations and Warranties. All representations and warranties of
such Borrower contained in this Agreement and the Other Documents shall be true at the time of such
Borrower’s execution of this Agreement and the Other Documents, and shall survive the execution,
delivery and acceptance thereof by the parties thereto and the closing of the transactions
described therein or related thereto.



     5.4. Tax Returns. Each Borrower’s federal tax identification number is set forth on
Schedule 5.4. Each Borrower has filed all federal, state and local tax returns and other reports
each is required by law to file and has paid all taxes, assessments, fees and other governmental
charges that are due and payable. Federal tax returns of each Borrower have been examined and
reported upon by the appropriate taxing authority or closed by applicable statute and satisfied for
all fiscal years prior to and including the fiscal year ending June 30, 2005. The provision for
taxes on the books of each Borrower is adequate for all years not closed by applicable statutes,
and for its current fiscal year, and no Borrower has any knowledge of any deficiency or additional
assessment in connection therewith (including state and local taxes) not provided for on its books.



     5.5. Financial Statements.



          (a) Reserved.




          (b) The twelve-month cash flow projections of Borrowers on a Consolidated Basis and their
projected balance sheets as of the Closing Date, copies of which are annexed hereto as Exhibit
5.5(b) (the “Projections”) were prepared by the Chief Financial Officer of Sparton, are based on
underlying assumptions which provide a reasonable basis for the projections contained therein and
reflect Borrowers’ judgment based on present circumstances of the most likely set of conditions and
course of action for the projected period. The cash flow Projections together with the Pro Forma
Balance Sheet, are referred to as the “Pro Forma Financial Statements”.




          (c) The consolidated and consolidating balance sheets of Borrowers, their Subsidiaries and
such other Persons described therein (including the accounts of all Subsidiaries for the respective
periods during which a subsidiary relationship existed) as of June 30, 2008, and the related
statements of income, changes in stockholder’s equity, and changes in cash flow for the period
ended on such date, all accompanied by reports thereon containing opinions without qualification by
independent certified public accountants, copies of which have been delivered to Agent, have been
prepared in accordance with GAAP, consistently applied (except for changes in application in which
such accountants concur) and present fairly the financial position of Borrowers and their
Subsidiaries at such date and the results of their operations for such period. Since June 30, 2008
there has been no change in the condition, financial or otherwise, of Borrowers or their
Subsidiaries as shown on the consolidated balance sheet as of such date and no change in the
aggregate value of machinery, equipment and Real Property owned by Borrowers and their respective
Subsidiaries, except (x) changes in the Ordinary Course of Business, none of which individually or
in the aggregate has been materially adverse and (y) changes disclosed in Borrowers’ March 31, 2009
financial statements, copies of which have been provided to Agent, and the Projections.




55









 








     5.6. Entity Names. Except with respect to Sparton Medical as disclosed in its articles of
incorporation, no Borrower has been known by any other corporate name in the past five years and
does not sell Inventory under any other name except as set forth on Schedule 5.6, nor has any
Borrower been the surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person during the preceding five (5) years.



     5.7. O.S.H.A. and Environmental Compliance.



          (a) Except as disclosed on Schedule 5.7, each Borrower has duly complied with, and its
facilities, business, assets, property, leaseholds, Real Property and Equipment are in compliance
in all material respects with, the provisions of the Federal Occupational Safety and Health Act,
the Environmental Protection Act, RCRA and all other Environmental Laws; there have been no
outstanding citations, notices or orders of non-compliance issued to any Borrower or relating to
its business, assets, property, leaseholds or Equipment under any such laws, rules or regulations.




          (b) Each Borrower has been issued all required federal, state and local licenses, certificates
or permits relating to all applicable Environmental Laws.




          (c) Except as disclosed on Schedule 5.7, (i) there are no visible signs of releases, spills,
discharges, leaks or disposal (collectively referred to as “Releases”) of Hazardous Substances at,
upon, under or within any Real Property or any premises leased by any Borrower; (ii) to the best of
Borrowers’ knowledge, there are no underground storage tanks or polychlorinated biphenyls on the
Real Property or any premises leased by any Borrower; (iii) to the best of Borrowers’ knowledge,
neither the Real Property nor any premises leased by any Borrower has ever been used as a
treatment, storage or disposal facility of Hazardous Waste; and (iv) to the best of Borrowers’
knowledge, no Hazardous Substances are present on the Real Property or any premises leased by any
Borrower, excepting such quantities as are handled in accordance with all applicable manufacturer’s
instructions and governmental regulations and in proper storage containers and as are necessary for
the operation of the commercial business of any Borrower or of its tenants.




     5.8. Solvency; No Litigation, Violation, Indebtedness or Default.



          (a) Each of Sparton, Sparton Florida, Sparton Medical, and Sparton Technology is solvent, able
to pay its debts as they mature, has capital sufficient to carry on its business and all businesses
in which it is about to engage, and (i) as of the Closing Date, the fair present saleable value of
its assets, calculated on a going concern basis, is in excess of the amount of its liabilities and
(ii) subsequent to the Closing Date, the fair saleable value of its assets (calculated on a going
concern basis) will be in excess of the amount of its liabilities. Each of Sparton Canada,
Spartronics and Sparton Vietnam is able to pay its debts as they mature, has capital sufficient to
carry on its business and all businesses in which it is about to engage, and (i) as of the Closing
Date, the fair present saleable value of its assets, calculated on a going concern basis, is in
excess of the amount of its non-intercompany liabilities and (ii) subsequent to the Closing Date,
the fair saleable value of its assets (calculated on a going concern basis) will be in excess of
the amount of its non-intercompany liabilities.




56









 








          (b) Except as disclosed in Schedule 5.8(b), no Borrower has (i) any pending or threatened
litigation, arbitration, actions or proceedings which involve the possibility of having a Material
Adverse Effect, and (ii) any liabilities or indebtedness for borrowed money other than the
Obligations.




          (c) No Borrower is in violation of any applicable statute, law, rule, regulation or ordinance
in any respect which could reasonably be expected to have a Material Adverse Effect, nor is any
Borrower in violation of any order of any court, Governmental Body or arbitration board or
tribunal.




          (d) No Borrower nor any member of the Controlled Group maintains or contributes to any Plan
other than (i) as of the Closing Date, those listed on Schedule 5.8(d) hereto and (ii) thereafter,
as permitted under this Agreement. (i) No Plan has incurred any “accumulated funding deficiency,”
as defined in Section 302(a)(2) of ERISA and Section 412(a) of the Code, whether or not waived, and
each Borrower and each member of the Controlled Group has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of each Plan; (ii) each Plan which is intended
to be a qualified plan under Section 401(a) of the Code as currently in effect has been determined
by the Internal Revenue Service to be qualified under Section 401(a) of the Code and the trust
related thereto is exempt from federal income tax under Section 501(a) of the Code; (iii) neither
any Borrower nor any member of the Controlled Group has incurred any liability to the PBGC other
than for the payment of premiums, and there are no premium payments which have become due which are
unpaid; (iv) no Plan has been terminated by the plan administrator thereof nor by the PBGC, and
there is no occurrence which would cause the PBGC to institute proceedings under Title IV of ERISA
to terminate any Plan; (v) at this time, the current value of the assets of each Plan in the
aggregate is approximately $5,000,000 less than the present value of the accrued benefits and other
liabilities of such Plan (as disclosed in Borrowers’ financial statements delivered to Agent) and
neither any Borrower nor any member of the Controlled Group knows of any facts or circumstances
which would materially change the value of such assets and accrued benefits and other liabilities;
(vi) neither any Borrower nor any member of the Controlled Group has breached any of the
responsibilities, obligations or duties imposed on it by ERISA with respect to any Plan; (vii)
neither any Borrower nor any member of a Controlled Group has incurred any liability for any excise
tax arising under Section 4972 or 4980B of the Code, and no fact exists which could give rise to
any such liability; (viii) neither any Borrower nor any member of the Controlled Group nor any
fiduciary of, nor any trustee to, any Plan, has engaged in a “prohibited transaction” described in
Section 406 of the ERISA or Section 4975 of the Code nor taken any action which would constitute or
result in a Termination Event with respect to any such Plan which is subject to ERISA; (ix) each
Borrower and each member of the Controlled Group has made all contributions due and payable with
respect to each Plan; (x) there exists no event described in Section 4043(b) of ERISA, for which
the thirty (30) day notice period has not been waived; (xi) neither any Borrower nor any member of
the Controlled Group has any fiduciary responsibility for investments with respect to any plan
existing for the benefit of persons other than employees or former employees of any Borrower and
any member of the Controlled Group; (xii) neither any Borrower nor any member of the Controlled
Group maintains or contributes to any Plan which provides health, accident or life insurance
benefits to former employees, their spouses or dependents, other than in accordance with Section
4980B of the Code; (xiii) neither any Borrower nor any member of the Controlled Group has
withdrawn, completely or partially, from




57









 







any Multiemployer Plan so as to incur liability under the Multiemployer Pension Plan
Amendments Act of 1980 and there exists no fact which would reasonably be expected to result in any
such liability; and (xiv) no Plan fiduciary (as defined in Section 3(21) of ERISA) has any
liability for breach of fiduciary duty or for any failure in connection with the administration or
investment of the assets of a Plan.




     5.9. Patents, Trademarks, Copyrights and Licenses. All patents, patent applications,
trademarks, trademark applications, service marks, service mark applications, copyrights, copyright
applications, design rights, tradenames, assumed names, trade secrets and licenses owned or
utilized by any Borrower are set forth on Schedule 5.9, are valid and have been duly registered or
filed with all appropriate Governmental Bodies and constitute all of the intellectual property
rights which are necessary for the operation of its business; there is no objection to or pending
challenge to the validity of any such patent, trademark, copyright, design rights, tradename, trade
secret or license and no Borrower is aware of any grounds for any challenge, except as set forth in
Schedule 5.9 hereto. Each patent, patent application, patent license, trademark, trademark
application, trademark license, service mark, service mark application, service mark license,
design rights, copyright, copyright application and copyright license owned or held by any Borrower
and all trade secrets used by any Borrower consist of original material or property developed by
such Borrower or was lawfully acquired by such Borrower from the proper and lawful owner thereof.
Each of such items has been maintained so as to preserve the value thereof from the date of
creation or acquisition thereof. With respect to all software used by any Borrower, such Borrower
is in possession of all source and object codes related to each piece of software or is the
beneficiary of a source code escrow agreement, each such source code escrow agreement being listed
on Schedule 5.9 hereto.



     5.10. Licenses and Permits. Except as set forth in Schedule 5.10, each Borrower (a) is in
compliance with and (b) has procured and is now in possession of, all material licenses or permits
required by any applicable federal, state, provincial or local law, rule or regulation for the
operation of its business in each jurisdiction wherein it is now conducting or proposes to conduct
business and where the failure to procure such licenses or permits could have a Material Adverse
Effect.



     5.11. Default of Indebtedness. No Borrower is in default in the payment of the principal
of or interest on any Indebtedness or under any instrument or agreement under or subject to which
any Indebtedness has been issued and no event has occurred under the provisions of any such
instrument or agreement which with or without the lapse of time or the giving of notice, or both,
constitutes or would constitute an event of default thereunder.



     5.12. No Default. No Borrower is in default in the payment or performance of any of its
contractual obligations and no Default has occurred.



     5.13. No Burdensome Restrictions. No Borrower is party to any contract or agreement the
performance of which could have a Material Adverse Effect. Each Borrower has heretofore made
available to Agent true and complete copies of all material contracts to which it is a party or to
which it or any of its properties is subject. No Borrower has agreed or consented to cause or
permit in the future (upon the happening of a contingency or otherwise) any of its property,



58









 







whether now owned or hereafter acquired, to be subject to a Lien which is not a Permitted
Encumbrance.



     5.14. No Labor Disputes. No Borrower is involved in any labor dispute; there are no
strikes or walkouts or union organization of any Borrower’s employees threatened or in existence
and no labor contract is scheduled to expire during the Term other than as set forth on Schedule
5.14 hereto.



     5.15. Margin Regulations. No Borrower is engaged, nor will it engage, principally or as
one of its important activities, in the business of extending credit for the purpose of
“purchasing” or “carrying” any “margin stock” within the respective meanings of each of the quoted
terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from
time to time hereafter in effect. No part of the proceeds of any Advance will be used for
“purchasing” or “carrying” “margin stock” as defined in Regulation U of such Board of Governors.



     5.16. Investment Company Act. No Borrower is an “investment company” registered or
required to be registered under the Investment Company Act of 1940, as amended, nor is it
controlled by such a company.



     5.17. Disclosure. No representation or warranty made by any Borrower in this Agreement or
in any financial statement, report, certificate or any other document furnished in connection
herewith or therewith contains any untrue statement of fact or omits to state any fact necessary to
make the statements herein or therein not misleading. There is no fact known to any Borrower or
which reasonably should be known to such Borrower which such Borrower has not disclosed to Agent in
writing with respect to the transactions contemplated by this Agreement which could reasonably be
expected to have a Material Adverse Effect.



     5.18. [Intentionally Omitted].



     5.19. Swaps. No Borrower is a party to, nor will it be a party to, any swap agreement
whereby such Borrower has agreed or will agree to swap interest rates or currencies unless same
provides that damages upon termination following an event of default thereunder are payable on an
unlimited “two-way basis” without regard to fault on the part of either party.



     5.20. Conflicting Agreements. No provision of any mortgage, indenture, contract,
agreement, judgment, decree or order binding on any Borrower or affecting the Collateral conflicts
with, or requires any Consent which has not already been obtained to, or would in any way prevent
the execution, delivery or performance of, the terms of this Agreement or the Other Documents.



     5.21. Application of Certain Laws and Regulations. Neither any Borrower nor any Affiliate
of any Borrower is subject to any law, statute, rule or regulation which regulates the incurrence
of any Indebtedness, including laws, statutes, rules or regulations relative to common or
interstate carriers or to the sale of electricity, gas, steam, water, telephone, telegraph or other
public utility services.



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     5.22. Business and Property of Borrowers. Upon and after the Closing Date, Borrowers do
not propose to engage in any business other than the provision of design and electronic
manufacturing services, including a complete range of engineering, pre-manufacturing and
post-manufacturing services, and activities necessary to conduct the foregoing. On the Closing
Date, each Borrower will own all the property and possess all of the rights and Consents necessary
for the conduct of the business of such Borrower.



     5.23. Section 20 Subsidiaries. Borrowers do not intend to use and shall not use any
portion of the proceeds of the Advances, directly or indirectly, to purchase during the
underwriting period, or for 30 days thereafter, Ineligible Securities being underwritten by a
Section 20 Subsidiary.



     5.24. Anti-Terrorism Laws.



          (a) General. Neither any Borrower nor any Affiliate of any Borrower is in violation of any
Anti-Terrorism Law or engages in or conspires to engage in any transaction that evades or avoids,
or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set
forth in any Anti-Terrorism Law.




          (b) Executive Order No. 13224. Neither any Borrower nor any Affiliate of any Borrower or
their respective agents acting or benefiting in any capacity in connection with the Advances or
other transactions hereunder, is any of the following (each a “Blocked Person”):




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



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



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



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



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



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



     Neither any Borrower nor to the knowledge of any Borrower, any of its agents acting in any
capacity in connection with the Advances or other transactions hereunder (i) conducts any business
or engages in making or receiving any contribution of funds, goods or services to or for the
benefit of any Blocked Person, or (ii) deals in, or otherwise engages in any transaction



60









 







relating to, any property or interests in property blocked pursuant to the Executive Order
No. 13224.



     5.25. Trading with the Enemy. No Borrower has engaged, nor does it intend to engage, in
any business or activity prohibited by the Trading with the Enemy Act.



     5.26. Federal Securities Laws. Neither any Borrower nor any of its Subsidiaries has filed
a registration statement that has not yet become effective under the Securities Act.



     VI. AFFIRMATIVE COVENANTS.



     Each Borrower shall, until payment in full of the Obligations and termination of this
Agreement:



     6.1. Payment of Fees. Pay to Agent on demand all usual and customary fees and expenses
which Agent incurs in connection with (a) the forwarding of Advance proceeds and (b) the
establishment and maintenance of any Blocked Accounts or Depository Accounts as provided for in
Section 4.15(h). Agent may, without making demand, charge Borrowers’ Account for all such fees and
expenses.



     6.2. Conduct of Business and Maintenance of Existence and Assets. (a) Conduct continuously
and operate actively its business according to good business practices and maintain all of its
properties useful or necessary in its business in good working order and condition (reasonable wear
and tear excepted and except as may be disposed of in accordance with the terms of this Agreement),
including all licenses, patents, copyrights, design rights, tradenames, trade secrets and
trademarks and take all actions necessary to enforce and protect the validity of any intellectual
property right or other right included in the Collateral; (b) keep in full force and effect its
existence and comply in all material respects with the laws and regulations governing the conduct
of its business where the failure to do so could reasonably be expected to have a Material Adverse
Effect; and (c) make all such reports and pay all such franchise and other taxes and license fees
and do all such other acts and things as may be lawfully required to maintain its rights, licenses,
leases, powers and franchises under the laws of the United States or any political subdivision
thereof where the failure to do so could reasonably be expected to have a Material Adverse Effect.



     6.3. Violations. Promptly notify Agent in writing of any violation of any law, statute,
regulation or ordinance of any Governmental Body, or of any agency thereof, applicable to any
Borrower which could reasonably be expected to have a Material Adverse Effect.



     6.4. Government Receivables. Take all steps necessary to protect Agent’s interest in the
Collateral under the Federal Assignment of Claims Act, the Uniform Commercial Code and all other
applicable state or local statutes or ordinances and deliver to Agent appropriately endorsed, any
instrument or chattel paper connected with any Receivable arising out of contracts between any
Borrower and the United States, any state or any department, agency or instrumentality of any of
them.



     6.5. Financial Covenants.



61









 





          (a) [Intentionally Omitted.]




          (b) [Intentionally Omitted.]




          (c) Minimum EBITDA Borrowers must cause their consolidated cumulative EBITDA to be not
less than the amounts indicated during the periods indicated as measured at the end of each such
period:




	 	 	 	 	 
	Period	 	Minimum EBITDA	 
	July 1, 2009 through September 30, 2009
	 	$	800,000	 
	July 1, 2009 through December 31, 2009
	 	$	3,600,000	 
	July 1, 2009 through March 31, 2010
	 	$	4,700,000	 
	July 1, 2009 through June 30, 2010
	 	$	6,850,000	 






          (d)  [Intentionally Omitted.]




          (e) Fixed Charge Coverage Ratio. Cause to be maintained as of the end of each fiscal
quarter, beginning on September 30, 2010, a Fixed Charge Coverage Ratio of not less than 1.15 to
1.0. The Fixed Charge Coverage Ratio is calculated as of the last day of each fiscal quarter for
the period equal to the four consecutive fiscal quarters then ending.




     6.6. Execution of Supplemental Instruments. Execute and deliver to Agent from time to
time, upon demand, such supplemental agreements, statements, assignments and transfers, or
instructions or documents relating to the Collateral, and such other instruments as Agent may
request, in order that the full intent of this Agreement may be carried into effect.



     6.7. Payment of Indebtedness. Pay, discharge or otherwise satisfy at or before maturity
(subject, where applicable, to specified grace periods and, in the case of the trade payables, to
normal payment practices) all its obligations and liabilities of whatever nature, except when the
failure to do so could not reasonably be expected to have a Material Adverse Effect or when the
amount or validity thereof is currently being contested in good faith by appropriate proceedings
and each Borrower shall have provided for such reserves as Agent may reasonably deem proper and
necessary, subject at all times to any applicable subordination arrangement in favor of Lenders.



     6.8. Standards of Financial Statements. Cause all financial statements referred to in
Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12 and 9.13 as to which GAAP is applicable to be complete and
correct in all material respects (subject, in the case of interim financial statements, to normal
year-end audit adjustments) and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein (except as concurred in by such
reporting accountants or officer, as the case may be, and disclosed therein).



62









 





     VII. NEGATIVE COVENANTS.



     No Borrower shall, until satisfaction in full of the Obligations and termination of this
Agreement:



     7.1. Merger, Consolidation, Acquisition and Sale of Assets.



          (a) Enter into any merger, consolidation or other reorganization with or into any other Person
or acquire all or a substantial portion of the assets or Equity Interests of any Person or permit
any other Person to consolidate with or merge with it except with or to another Borrower that is an
entity organized under the laws of any state in the United States.




          (b) Sell, lease, transfer or otherwise dispose of any of its properties or assets, except (i)
dispositions of Inventory, Equipment, and Real Property to the extent expressly permitted by
Section 4.3, (ii) sales or dispositions of assets by one Borrower to another Borrower in the
Ordinary Course of Business not exceeding $500,000 in book value per calendar year, and (iii) any
other sales or dispositions expressly permitted by this Agreement.




     7.2. Creation of Liens. Create or suffer to exist any Lien or transfer upon or against any
of its property or assets now owned or hereafter acquired, except Permitted Encumbrances.



     7.3. Guarantees. Become liable upon the obligations or liabilities of any Person by
assumption, endorsement or guaranty thereof or otherwise (other than to Lenders) except (i) the
endorsement of checks in the Ordinary Course of Business and (ii) guarantees by a Borrower of
another Borrower’s Indebtedness if that Indebtedness is allowed under this Agreement.



     7.4. Investments. Purchase or acquire obligations or Equity Interests of, or any other
interest in, any Person, except (a) obligations issued or guaranteed by the United States of
America or any agency thereof, (b) commercial paper with maturities of not more than 180 days and a
published rating of not less than A-1 or P-1 (or the equivalent rating), (c) certificates of time
deposit and bankers’ acceptances having maturities of not more than 180 days and repurchase
agreements backed by United States government securities of a commercial bank if (i) such bank has
a combined capital and surplus of at least $500,000,000, or (ii) its debt obligations, or those of
a holding company of which it is a Subsidiary, are rated not less than A (or the equivalent rating)
by a nationally recognized investment rating agency, (d) U.S. money market funds that invest solely
in obligations issued or guaranteed by the United States of America or an agency thereof, and (e)
purchases of Sparton Corporation’s common stock of not more than $1,500,000 in any twelve month
period if each of the following conditions are met: (i) no Event of Default or Default then
exists, (ii) the Borrowing Base Availability Block has been satisfactorily released and reduced to
$0, (iii) Borrowers can demonstrate a proforma Fixed Charge Covenant Ratio of at least 1.25 to 1.00
immediately prior to and after the effect of any stock repurchase, and (iv) the Borrowers can
demonstrate a proforma Undrawn Availability of greater than $4,000,000 immediately prior to and
after the effect of any stock repurchase.



     7.5. Loans. Make advances, loans or extensions of credit to any Person, including any
Parent, Subsidiary or Affiliate except (i) with respect to the extension of commercial trade credit
in connection with the sale of Inventory in the Ordinary Course of Business and (ii) loans or




63











 




extensions of credit by one Borrower to another Borrower in the Ordinary Course of Business not
exceeding $750,000 in the aggregate at any one time outstanding.




     7.6. Capital Expenditures. Contract for, purchase or make any expenditure or commitments
for Capital Expenditures in any fiscal year in an aggregate amount for all Borrowers in excess of
$2,500,000.



     7.7. Dividends. Declare, pay or make any dividend or distribution on any shares of the
common stock or preferred stock of any Borrower (other than dividends or distributions payable in
its stock, or split-ups or reclassifications of its stock or dividends and distributions by a
Borrower to Sparton) or apply any of its funds, property or assets to the purchase, redemption or
other retirement of any common or preferred stock, or of any options to purchase or acquire any
such shares of common or preferred stock of any Borrower except as permitted under Section 7.4.



     7.8. Indebtedness. Create, incur, assume or suffer to exist any Indebtedness (exclusive of
trade debt) except in respect of (i) Indebtedness to Lenders; (ii) Indebtedness incurred for
Capital Expenditures permitted under Section 7.6 hereof; (iii) Indebtedness described on Schedule
7.8 hereto.



     7.9. Nature of Business. Substantially change the nature of the business in which it is
presently engaged, nor except as specifically permitted hereby purchase or invest, directly or
indirectly, in any assets or property other than in the Ordinary Course of Business for assets or
property which are useful in, necessary for and are to be used in its business as presently
conducted.



     7.10. Transactions with Affiliates. Directly or indirectly, purchase, acquire or lease any
property from, or sell, transfer or lease any property to, or otherwise enter into any transaction
or deal with, any Affiliate (including Spartronics Vietnam Co., Ltd), except transactions disclosed
to the Agent, which are in the Ordinary Course of Business, on an arm’s-length basis on terms and
conditions no less favorable than terms and conditions which would have been obtainable from a
Person other than an Affiliate.



     7.11. Leases. Enter as lessee into any lease arrangement for real or personal property
(unless capitalized and permitted under Section 7.6 hereof) if after giving effect thereto,
aggregate annual rental payments for all leased property would exceed $4,500,000 in any one fiscal
year in the aggregate for all Borrowers.



     7.12. Subsidiaries.



          (a) Form any Subsidiary.




          (b) Enter into any partnership, joint venture or similar arrangement.




     7.13. Fiscal Year and Accounting Changes. Change its fiscal year from June 30 or make any
significant change (i) in accounting treatment and reporting practices except as required by GAAP
or (ii) in tax reporting treatment except as required by law.



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     7.14. Pledge of Credit. Now or hereafter pledge Agent’s or any Lender’s credit on any
purchases or for any purpose whatsoever or use any portion of any Advance in or for any business
other than such Borrower’s business as conducted on the date of this Agreement.



     7.15. Amendment of Articles of Incorporation, By-Laws. Amend, modify or waive any term or
provision of its Articles of Incorporation or By-Laws except (i) as required by law or (ii)
immaterial amendments to its Articles of Incorporation or By-Laws upon five Business Days’ prior
written notice to Agent.



     7.16. Compliance with ERISA. (i) (x) Maintain, or permit any member of the Controlled
Group to maintain, or (y) become obligated to contribute, or permit any member of the Controlled
Group to become obligated to contribute, to any Plan, other than those Plans disclosed on Schedule
5.8(d) or any other Plan for which Agent has provided its prior written consent, (ii) engage, or
permit any member of the Controlled Group to engage, in any non-exempt “prohibited transaction”, as
that term is defined in section 406 of ERISA and Section 4975 of the Code, (iii) incur, or permit
any member of the Controlled Group to incur, any “accumulated funding deficiency”, as that term is
defined in Section 302 of ERISA or Section 412 of the Code, (iv) terminate, or permit any member of
the Controlled Group to terminate, any Plan where such event could result in any liability of any
Borrower or any member of the Controlled Group or the imposition of a lien on the property of any
Borrower or any member of the Controlled Group pursuant to Section 4068 of ERISA, (v) assume, or
permit any member of the Controlled Group to assume, any obligation to contribute to any
Multiemployer Plan not disclosed on Schedule 5.8(d), (vi) incur, or permit any member of the
Controlled Group to incur, any withdrawal liability to any Multiemployer Plan; (vii) fail promptly
to notify Agent of the occurrence of any Termination Event, (viii) fail to comply, or permit a
member of the Controlled Group to fail to comply, with the requirements of ERISA or the Code or
other Applicable Laws in respect of any Plan, (ix) fail to meet, or permit any member of the
Controlled Group to fail to meet, all minimum funding requirements under ERISA or the Code or
postpone or delay or allow any member of the Controlled Group to postpone or delay any funding
requirement with respect of any Plan.



     7.17. Prepayment of Indebtedness. At any time, directly or indirectly, prepay any
Indebtedness (other than to Lenders), or repurchase, redeem, retire(except at maturity) or
otherwise acquire any Indebtedness of any Borrower.



     7.18. Anti-Terrorism Laws. No Borrower shall, until satisfaction in full of the
Obligations and termination of this Agreement, nor shall it permit any Affiliate or agent to:



          (a) Conduct any business or engage in any transaction or dealing with any Blocked Person,
including the making or receiving any contribution of funds, goods or services to or for the
benefit of any Blocked Person.




          (b) Deal in, or otherwise engage in any transaction relating to, any property or interests in
property blocked pursuant to the Executive Order No. 13224.




          (c) Engage in or conspire to engage in any transaction that evades or avoids, or has the
purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth



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in the Executive Order No. 13224, the USA PATRIOT Act or any other Anti-Terrorism Law.
Borrower shall deliver to Lenders any certification or other evidence requested from time to time
by any Lender in its sole discretion, confirming Borrower’s compliance with this Section.




     7.19. Membership/Partnership Interests. Elect to treat or permit any of its Subsidiaries
to (x) treat its limited liability company membership interests or partnership interests, as the
case may be, as securities as contemplated by the definition of “security” in Section 8-102(15) and
by Section 8-103 of Article 8 of Uniform Commercial Code or (y) certificate its limited liability
company membership interests or partnership interests, as the case may be.



     7.20. Trading with the Enemy Act. Engage in any business or activity in violation of the
Trading with the Enemy Act.



     VIII. CONDITIONS PRECEDENT.



     8.1. Conditions to Initial Advances. The agreement of Lenders to make the initial Advances
requested to be made on the Closing Date is subject to the satisfaction, or waiver by Agent,
immediately prior to or concurrently with the making of such Advances, of the following conditions
precedent:



          (a) Note. Agent shall have received the Note duly executed and delivered by an authorized
officer of each Borrower;




          (b) Filings, Registrations and Recordings. Each document (including any Uniform Commercial
Code financing statement) required by this Agreement, any related agreement or under law or
reasonably requested by the Agent to be filed, registered or recorded in order to create, in favor
of Agent, a perfected security interest in or lien upon the Collateral shall have been properly
filed, registered or recorded in each jurisdiction in which the filing, registration or recordation
thereof is so required or requested, and Agent shall have received an acknowledgment copy, or
other evidence satisfactory to it, of each such filing, registration or recordation and
satisfactory evidence of the payment of any necessary fee, tax or expense relating thereto;




          (c) Corporate Proceedings of Borrowers. Agent shall have received a copy of the
resolutions in form and substance reasonably satisfactory to Agent, of the Board of Directors of
each Borrower authorizing (i) the execution, delivery and performance of this Agreement, the Note,
the Mortgage, any related agreements (collectively the “Documents”) and (ii) the granting by each
Borrower of the security interests in and liens upon the Collateral in each case certified by the
Secretary or an Assistant Secretary of each Borrower as of the Closing Date; and, such certificate
shall state that the resolutions thereby certified have not been amended, modified, revoked or
rescinded as of the date of such certificate;




          (d) Incumbency Certificates of Borrowers. Agent shall have received a certificate of the
Secretary or an Assistant Secretary of each Borrower, dated the Closing Date, as to the incumbency
and signature of the officers of each Borrower executing this Agreement, the Other Documents, any
certificate or other documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;




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          (e) Intentionally Omitted.




          (f) Certificates. Agent shall have received a copy of the Articles or Certificate of
Incorporation of each Borrower, and all amendments thereto, certified by the Secretary of State or
other appropriate official of its jurisdiction of incorporation together with copies of the By-Laws
of each Borrower and all agreements of each Borrower’s shareholders certified as accurate and
complete by the Secretary of each Borrower;




          (g) Intentionally Omitted.




          (h) Good Standing Certificates. Agent shall have received good standing certificates for
each Borrower dated not more than 15 days prior to the Closing Date, issued by the Secretary of
State or other appropriate official of each Borrower’s jurisdiction of incorporation and each
jurisdiction where the conduct of each Borrower’s business activities or the ownership of its
properties necessitates qualification;




          (i) Legal Opinion. Agent shall have received the executed legal opinion of Varnum LLP in
form and substance satisfactory to Agent which shall cover such matters incident to the
transactions contemplated by this Agreement, the Note, the Other Documents, and related agreements
as Agent may reasonably require and each Borrower hereby authorizes and directs such counsel to
deliver such opinions to Agent and Lenders;




          (j) No Litigation. (i) No litigation, investigation or proceeding before or by any
arbitrator or Governmental Body shall be continuing or threatened against any Borrower or against
the officers or directors of any Borrower (A) in connection with this Agreement, the Other
Documents or any of the transactions contemplated thereby and which, in the reasonable opinion of
Agent, is deemed material or (B) which could, in the reasonable opinion of Agent, have a Material
Adverse Effect; and (ii) no injunction, writ, restraining order or other order of any nature
materially adverse to any Borrower or the conduct of its business shall have been issued by any
Governmental Body;




          (k) Financial Condition Certificates. Agent shall have received an executed Financial
Condition Certificate in the form of Exhibit 8.1(k).




          (l) Collateral Examination. Agent shall have completed Collateral examinations and
received appraisals, the results of which shall be satisfactory in form and substance to Lenders,
of the Receivables, Inventory, General Intangibles, Real Property, Leasehold Interest and Equipment
of each Borrower and all books and records in connection therewith;




          (m) Fees. Agent shall have received all fees payable to Agent and Lenders on or prior to
the Closing Date hereunder, including pursuant to Article III hereof;




          (n) [Intentionally Omitted];


          (o) [Intentionally Omitted];


          (p) [Intentionally Omitted];




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          (q) Insurance. Agent shall have received in form and substance satisfactory to Agent,
certified copies of Borrowers’ casualty insurance policies, together with loss payable endorsements
on Agent’s standard form of loss payee endorsement naming Agent as loss payee, and certified copies
of Borrowers’ liability insurance policies, together with endorsements naming Agent as a
co-insured;




          (r) Title Insurance Commitments. Agent shall have received title insurance commitments
with respect to the Real Property showing that the Mortgage will create a valid Lien on the Real
Property with only such exceptions that are acceptable to Agent in its sole discretion;




          (s) Environmental Reports. Agent shall have received all environmental studies and reports
prepared by independent environmental engineering firms with respect to all Real Property owned or
leased by any Borrower;




          (t) Payment Instructions. Agent shall have received written instructions from Borrowing
Agent directing the application of proceeds of the initial Advances made pursuant to this
Agreement;




          (u) Blocked Accounts. Agent shall have received duly executed agreements establishing the
Blocked Accounts or Depository Accounts with financial institutions acceptable to Agent for the
collection or servicing of the Receivables and proceeds of the Collateral;




          (v) Consents. Agent shall have received any and all Consents necessary to permit the
effectuation of the transactions contemplated by this Agreement and the Other Documents; and, Agent
shall have received such Consents and waivers of such third parties as might assert claims with
respect to the Collateral, as Agent and its counsel shall deem necessary;




          (w) No Adverse Material Change. (i) since June 30, 2008, except as disclosed in Borrowers’
March 31, 2009 financial statements, copies of which have been provided to Agent, and the
Projections, there shall not have occurred any event, condition or state of facts which could
reasonably be expected to have a Material Adverse Effect and (ii) no representations made or
information supplied to Agent or Lenders shall have been proven to be inaccurate or misleading in
any material respect;




          (x) Leasehold Agreements. Agent shall have received landlord, mortgagee or warehouseman
agreements satisfactory to Agent with respect to all premises leased by Borrowers at which
Inventory and books and records are located;




          (y) Mortgage and Title Commitments. Agent shall have received in form and substance
satisfactory to Agent (i) the executed Mortgage covering the Real Property and (ii) the title
commitments referred to in subsection (r) above;




          (z) [Intentionally Omitted].




          (aa) Other Documents. Agent shall have received the executed Other Documents, all in form
and substance satisfactory to Agent;




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          (bb) [Intentionally Omitted];




          (cc) Contract Review. Agent shall have reviewed all material contracts of Borrowers
including leases, union contracts, labor contracts, vendor supply contracts, license agreements and
distributorship agreements and such contracts and agreements shall be satisfactory in all respects
to Agent;




          (dd) Closing Certificate. Agent shall have received a closing certificate signed by the
Chief Financial Officer of each Borrower dated as of the date hereof, stating that (i) all
representations and warranties set forth in this Agreement and the Other Documents are true and
correct on and as of such date, (ii) Borrowers are on such date in compliance with all the terms
and provisions set forth in this Agreement and the Other Documents and (iii) on such date no
Default or Event of Default has occurred or is continuing;




          (ee) Borrowing Base. Agent shall have received evidence from Borrowers that the aggregate
amount of Eligible Receivables and Eligible Inventory is sufficient in value and amount to support
Advances in the amount requested by Borrowers on the Closing Date;




          (ff) Undrawn Availability. After giving effect to the initial Advances hereunder,
Borrowers shall have Undrawn Availability of at least $5,000,000; and




          (gg) Compliance with Laws. Agent shall be reasonably satisfied that each Borrower is in
compliance with all pertinent federal, state, local or territorial regulations, including those
with respect to the Federal Occupational Safety and Health Act, the Environmental Protection Act,
ERISA and the Trading with the Enemy Act.




          (hh) Other. All corporate and other proceedings, and all documents, instruments and other
legal matters in connection with the Transactions shall be satisfactory in form and substance to
Agent and its counsel.




     8.2. Conditions to Each Advance. The agreement of Lenders to make any Advance requested to
be made on any date (including the initial Advance), is subject to the satisfaction of the
following conditions precedent as of the date such Advance is made:



          (a) Representations and Warranties. Each of the representations and warranties made by any
Borrower in or pursuant to this Agreement, the Other Documents and any related agreements to which
it is a party, and each of the representations and warranties contained in any certificate,
document or financial or other statement furnished at any time under or in connection with this
Agreement, the Other Documents or any related agreement shall be true and correct in all material
respects on and as of such date as if made on and as of such date;




          (b) No Default. No Event of Default or Default shall have occurred and be continuing on
such date, or would exist after giving effect to the Advances requested to be made, on such date;
provided, however that Agent, in its sole discretion, may continue to make Advances notwithstanding
the existence of an Event of Default or Default and that any Advances so made shall not be deemed a
waiver of any such Event of Default or Default; and




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          (c) Maximum Advances. In the case of any type of Advance requested to be made, after
giving effect thereto, the aggregate amount of such type of Advance shall not exceed the maximum
amount of such type of Advance permitted under this Agreement.




     Each request for an Advance by any Borrower hereunder shall constitute a representation and
warranty by each Borrower as of the date of such Advance that the conditions contained in this
subsection shall have been satisfied.



     IX. INFORMATION AS TO BORROWERS.



     Each Borrower shall, or (except with respect to Section 9.11) shall cause Borrowing Agent on
its behalf to, until satisfaction in full of the Obligations and the termination of this Agreement:



     9.1. Disclosure of Material Matters. Immediately upon learning thereof, report to Agent
all matters materially affecting the value, enforceability or collectibility of any portion of the
Collateral, including any Borrower’s reclamation or repossession of, or the return to any Borrower
of, a material amount of goods or claims or disputes asserted by any Customer or other obligor.



     9.2. Schedules. Deliver, or cause Borrowing Agent to deliver, to Agent on or before the
fifteenth (15th) day of each month as and for the prior month (a) accounts receivable agings
inclusive of reconciliations to the general ledger, (b) accounts payable schedules inclusive of
reconciliations to the general ledger, (c) Inventory reports and (d) a Borrowing Base Certificate
in form and substance satisfactory to Agent (which shall be calculated as of the last day of the
prior month and which shall not be binding upon Agent or restrictive of Agent’s rights under this
Agreement). In addition, the Borrowers will deliver, or cause the Borrowing Agent to deliver, to
the Lender on Thursday of each week an interim Borrowing Base Certificate (which shall not be
binding upon the Lender or restrictive of the Lender’s rights under this Agreement) as of the
closing of business on the preceding Sunday and reflecting all activity (sales, collections,
credits, etc.) impacting the Receivables of the Borrowers for all Business Days since the
preparation of the immediately prior interim Borrowing Base Certificate. In addition, each
Borrower will deliver to Agent at such intervals as Agent may require: (i) confirmatory assignment
schedules, (ii) copies of Customer’s invoices, (iii) evidence of shipment or delivery, and
(iv) such further schedules, documents and/or information regarding the Collateral as Agent may
require including trial balances and test verifications. Agent shall have the right to confirm and
verify all Receivables by any manner and through any medium it considers advisable and do whatever
it may deem reasonably necessary to protect its interests hereunder. The items to be provided
under this Section are to be in form satisfactory to Agent and executed by each Borrower and
delivered to Agent from time to time solely for Agent’s convenience in maintaining records of the
Collateral, and any Borrower’s failure to deliver any of such items to Agent shall not affect,
terminate, modify or otherwise limit Agent’s Lien with respect to the Collateral.



     9.3. Environmental Reports. Furnish Agent, concurrently with the delivery of the financial
statements referred to in Sections 9.7 and 9.8, with a Compliance Certificate signed by an
Authorized Agent stating, to the best of his knowledge, that each Borrower is in compliance in all
material respects with all federal, state and local Environmental Laws. To the extent any



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Borrower is not in compliance with the foregoing laws, the certificate shall set forth with
specificity all areas of non-compliance and the proposed action such Borrower will implement in
order to achieve full compliance.




     9.4. Litigation. Promptly notify Agent in writing of any claim, litigation, suit or
administrative proceeding affecting any Borrower, whether or not the claim is covered by insurance,
and of any litigation, suit or administrative proceeding, which in any such case affects the
Collateral or which could reasonably be expected to have a Material Adverse Effect.



     9.5. Material Occurrences. Promptly notify Agent in writing upon the occurrence of (a) any
Event of Default or Default; (b) any event, development or circumstance whereby any financial
statements or other reports furnished to Agent fail in any material respect to present fairly, in
accordance with GAAP consistently applied, the financial condition or operating results of any
Borrower as of the date of such statements; (c) any accumulated retirement plan funding deficiency
which, if such deficiency continued for two plan years and was not corrected as provided in Section
4971 of the Code, could subject any Borrower to a tax imposed by Section 4971 of the Code; (d) each
and every default by any Borrower which might result in the acceleration of the maturity of any
Indebtedness, including the names and addresses of the holders of such Indebtedness with respect to
which there is a default existing or with respect to which the maturity has been or could be
accelerated, and the amount of such Indebtedness; and (e) any other development in the business or
affairs of any Borrower which could reasonably be expected to have a Material Adverse Effect; in
each case describing the nature thereof and the action Borrowers propose to take with respect
thereto.



     9.6. Government Receivables. Notify Agent immediately if any of its Receivables arise out
of contracts between any Borrower and the United States, any state, or any department, agency or
instrumentality of any of them.



     9.7. Annual Financial Statements. Furnish Agent and Lenders within 120 days after the end
of each fiscal year of Borrowers, financial statements of Borrowers on a consolidated basis
including, but not limited to, statements of income and stockholders’ equity and cash flow from the
beginning of the current fiscal year to the end of such fiscal year and the balance sheet as at the
end of such fiscal year, and on a consolidating basis (by the following lines of business:
electronics, medical, government and corporate) a statement of income from the beginning of the
current fiscal year to the end of the fiscal year, all prepared in accordance with GAAP applied on
a basis consistent with prior practices, and in reasonable detail and, except in the case of
consolidating statements, reported upon without qualification by an independent certified public
accounting firm selected by Borrowers and satisfactory to Agent (the “Accountants”). The report of
the Accountants shall be accompanied by a statement of the Accountants certifying that (i) they
have caused this Agreement to be reviewed, (ii) in making the examination upon which such report
was based either no information came to their attention which to their knowledge constituted an
Event of Default or a Default under this Agreement or any related agreement or, if such information
came to their attention, specifying any such Default or Event of Default, its nature, when it
occurred and whether it is continuing, and such report shall contain or have appended thereto
calculations which set forth Borrowers’ compliance with the requirements or restrictions imposed by
Sections 6.5, 7.4, 7.5, 7.6, 7.7, 7.8 and 7.11 hereof. In addition, the reports shall be
accompanied by a Compliance Certificate.



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     9.8. Quarterly Financial Statements. Furnish Agent and Lenders within 45 days after the
end of each fiscal quarter, an unaudited balance sheet of Borrowers on a consolidated basis and
unaudited statements of income and stockholders’ equity and cash flow of Borrowers on a
consolidated basis, and an unaudited statement of income on a consolidating basis (by the following
business lines: electronics, medical, government and corporate), reflecting results of operations
from the beginning of the fiscal year to the end of such quarter and for such quarter, prepared on
a basis consistent with prior practices and complete and correct in all material respects, subject
to normal and recurring year end adjustments that individually and in the aggregate are not
material to Borrowers’ business. The reports shall be accompanied by a Compliance Certificate.



     9.9. Monthly Financial Statements. Furnish Agent and Lenders within thirty (30) days after
the end of each month, an unaudited balance sheet of Borrowers on a consolidated basis and
unaudited statements of income and stockholders’ equity and cash flow of Borrowers on a
consolidated basis, and an unaudited statement of income on a consolidating basis (by the following
business lines: electronics, medical, government and corporate), reflecting results of operations
from the beginning of the fiscal year to the end of such month and for such month, prepared on a
basis consistent with prior practices and complete and correct in all material respects, subject to
normal and recurring year end adjustments that individually and in the aggregate are not material
to Borrowers’ business. The reports shall be accompanied by a Compliance Certificate.



     9.10. Other Reports. Furnish Agent as soon as available, but in any event within ten (10)
days after the issuance thereof, with copies of such financial statements, reports and returns as
each Borrower shall send to its stockholders.



     9.11. Additional Information. Furnish Agent with such additional information as Agent
shall reasonably request in order to enable Agent to determine whether the terms, covenants,
provisions and conditions of this Agreement and the Note have been complied with by Borrowers
including, without the necessity of any request by Agent, (a) copies of all environmental audits
and reviews, (b) at least thirty (30) days prior thereto, notice of any Borrower’s opening of any
new office or place of business or any Borrower’s closing of any existing office or place of
business, and (c) promptly upon any Borrower’s learning thereof, notice of any labor dispute to
which any Borrower may become a party, any strikes or walkouts relating to any of its plants or
other facilities, and the expiration of any labor contract to which any Borrower is a party or by
which any Borrower is bound.



     9.12. Projected Operating Budget. Furnish Agent and Lenders, no later than the first day
of each Borrower’s fiscal years commencing with fiscal year beginning July 1, 2010, a month by
month projected operating budget and cash flow of Borrowers on a consolidated basis for such fiscal
year (including an income statement for each month and a balance sheet as at the end of the last
month in each fiscal quarter), and on a consolidating basis (by the following business lines:
electronics, medical, government and corporate) an income statement for such fiscal year (including
an income statement for each month), such projections to be accompanied by a certificate signed by
the Chief Executive Officer, President or Chief Financial Officer of each Borrower to the effect
that such projections have been prepared on the basis of sound financial planning practice
consistent with past budgets and financial statements and that such



72









 




officer has no reason to question the reasonableness of any material assumptions on which such
projections were prepared.




     9.13. Variances From Operating Budget. Furnish Agent, concurrently with the delivery of
the financial statements referred to in Section 9.7 and each quarterly and monthly report, a
written report summarizing all material variances from budgets submitted by Borrowers pursuant to
Section 9.12 and a discussion and analysis by management with respect to such variances.



     9.14. Notice of Suits, Adverse Events. Furnish Agent with prompt written notice of (i) any
lapse or other termination of any Consent issued to any Borrower by any Governmental Body or any
other Person that is material to the operation of any Borrower’s business, (ii) any refusal by any
Governmental Body or any other Person to renew or extend any such Consent; and (iii) copies of any
periodic or special reports filed by any Borrower with any Governmental Body or Person, if such
reports indicate any material change in the business, operations, affairs or condition of any
Borrower, or if copies thereof are requested by Lender, and (iv) copies of any material notices and
other communications from any Governmental Body or Person which specifically relate to any
Borrower.



     9.15. ERISA Notices and Requests. Furnish Agent with immediate written notice in the event
that (i) any Borrower or any member of the Controlled Group knows or has reason to know that a
Termination Event has occurred, together with a written statement describing such Termination Event
and the action, if any, which such Borrower or any member of the Controlled Group has taken, is
taking, or proposes to take with respect thereto and, when known, any action taken or threatened by
the Internal Revenue Service, Department of Labor or PBGC with respect thereto, (ii) any Borrower
or any member of the Controlled Group knows or has reason to know that a prohibited transaction (as
defined in Sections 406 of ERISA and 4975 of the Code) has occurred together with a written
statement describing such transaction and the action which such Borrower or any member of the
Controlled Group has taken, is taking or proposes to take with respect thereto, (iii) a funding
waiver request has been filed with respect to any Plan together with all communications received by
any Borrower or any member of the Controlled Group with respect to such request, (iv) any increase
in the benefits of any existing Plan or the establishment of any new Plan or the commencement of
contributions to any Plan to which any Borrower or any member of the Controlled Group was not
previously contributing shall occur, (v) any Borrower or any member of the Controlled Group shall
receive from the PBGC a notice of intention to terminate a Plan or to have a trustee appointed to
administer a Plan, together with copies of each such notice, (vi) any Borrower or any member of the
Controlled Group shall receive any favorable or unfavorable determination letter from the Internal
Revenue Service regarding the qualification of a Plan under Section 401(a) of the Code, together
with copies of each such letter; (vii) any Borrower or any member of the Controlled Group shall
receive a notice regarding the imposition of withdrawal liability, together with copies of each
such notice; (viii) any Borrower or any member of the Controlled Group shall fail to make a
required installment or any other required payment under Section 412 of the Code on or before the
due date for such installment or payment; or (ix) any Borrower or any member of the Controlled
Group knows that (a) a Multiemployer Plan has been terminated, (b) the administrator or plan
sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the PBGC has
instituted or will institute proceedings under Section 4042 of ERISA to terminate a Multiemployer
Plan.



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     9.16. Additional Documents. Execute and deliver to Agent, upon request, such documents and
agreements as Agent may, from time to time, reasonably request to carry out the purposes, terms or
conditions of this Agreement.



     X. EVENTS OF DEFAULT.



     The occurrence of any one or more of the following events shall constitute an “Event of
Default”:



     10.1. Nonpayment. Failure by any Borrower to pay any principal or interest on the
Obligations when due, whether at maturity or by reason of acceleration pursuant to the terms of
this Agreement or by notice of intention to prepay, or by required prepayment or failure to pay any
other liabilities or make any other payment, fee or charge provided for herein when due or in any
Other Document;



     10.2. Breach of Representation. Any representation or warranty made or deemed made by any
Borrower in this Agreement, any Other Document or any related agreement or in any certificate,
document or financial or other statement furnished at any time in connection herewith or therewith
shall prove to have been misleading in any material respect on the date when made or deemed to have
been made;



     10.3. Financial Information. Failure by any Borrower to (i)(x) furnish financial
information when due, or (y) if no due date is specified, within 5 days of when requested, or (ii)
permit the inspection of its books or records in accordance with this Agreement;



     10.4. Judicial Actions. Issuance of a notice of Lien, levy, assessment, injunction or
attachment involving $10,000 or more against any Borrower’s Inventory or Receivables or against a
material portion of any Borrower’s other property;



     10.5. Noncompliance. Except as otherwise provided for in Sections 10.1, 10.3 and 10.5(ii),
(i) failure or neglect of any Borrower to perform, keep or observe any term, provision, condition,
covenant herein contained, or contained in any Other Document or any other agreement or
arrangement, now or hereafter entered into between any Borrower and Agent or any Lender, or (ii)
failure or neglect of any Borrower to perform, keep or observe any term, provision, condition or
covenant, contained in Sections 4.6, 4.7, 4.9, 4.17, 6.1, 6.3, 6.4, 6.6, 9.3, 9.4, 9.6, or 9.16
hereof which is not cured within 15 days from the occurrence of such failure or neglect;



     10.6. Judgments. Any judgment or judgments are rendered against any Borrower for an
aggregate amount in excess of $250,000 or against all Borrowers for an aggregate amount in excess
of $250,000 and (i) enforcement proceedings shall have been commenced by a creditor upon such
judgment, (ii) there shall be any period of thirty (30) consecutive days during which a stay of
enforcement of such judgment, by reason of a pending appeal or otherwise, shall not be in effect,
and an appropriate Reserve shall not be in place or (iii) any such judgment results in the creation
of a Lien upon any of the Collateral (other than a Permitted Encumbrance);



     10.7. Bankruptcy. Any Borrower shall (i) apply for, consent to or suffer the appointment
of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar



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fiduciary of itself or of all or a substantial part of its property, (ii) make a general assignment
for the benefit of creditors, (iii) commence a voluntary case under any state or federal bankruptcy
laws (as now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a
petition seeking to take advantage of any other law providing for the relief of debtors, (vi)
acquiesce to, or fail to have dismissed, within 60 days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (vii) take any action for the purpose of effecting
any of the foregoing;




     10.8. Inability to Pay. Any Borrower shall admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present business;



     10.9. Affiliate Bankruptcy. Any Affiliate or any Subsidiary of any Borrower shall (i)
apply for, consent to or suffer the appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or similar fiduciary of itself or of all or a substantial part of
its property, (ii) admit in writing its inability, or be generally unable, to pay its debts as they
become due or cease operations of its present business, (iii) make a general assignment for the
benefit of creditors, (iv) commence a voluntary case under any state or federal bankruptcy laws (as
now or hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a petition
seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesce to,
or fail to have dismissed, within 60 days, any petition filed against it in any involuntary case
under such bankruptcy laws, or (viii) take any action for the purpose of effecting any of the
foregoing;



     10.10. Material Adverse Effect. Any change in any Borrower’s results of operations or
condition (financial or otherwise) which in Agent’s opinion (as determined in its Permitted
Discretion) has a Material Adverse Effect;



     10.11. Lien Priority. Any Lien created hereunder or provided for hereby or under any
related agreement for any reason ceases to be or is not a valid and perfected Lien having a first
priority interest;



     10.12. [Intentionally Omitted];



     10.13. Cross Default. A default of the obligations of any Borrower under any other
agreement to which it is a party shall occur which, in Agent’s opinion (as determined in its
Permitted Discretion), adversely affects its condition, affairs or prospects (financial or
otherwise) which default is not cured within any applicable grace period;



     10.14. [Intentionally Omitted];



     10.15. Change of Control. Any Change of Control shall occur;



     10.16. Invalidity. Any material provision of this Agreement or any Other Document shall,
for any reason, cease to be valid and binding on Borrower, or any Borrower shall so claim in
writing to Agent or any Lender;



     10.17. Licenses. (i) Any Governmental Body shall (A) revoke, terminate, suspend or
adversely modify any license, permit, patent trademark or tradename of any Borrower, or (B)
commence proceedings to suspend, revoke, terminate or adversely modify any such license,



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permit, trademark, tradename or patent and such proceedings shall not be dismissed or discharged
within sixty (60) days, or (C) schedule or conduct a hearing on the renewal of any license, permit,
trademark, tradename or patent necessary for the continuation of any Borrower’s business and the
staff of such Governmental Body issues a report recommending the termination, revocation,
suspension or material, adverse modification of such license, permit, trademark, tradename or
patent and any such action could reasonably be expected to have a Material Adverse Effect; (ii) any
agreement which is necessary or material to the operation of any Borrower’s business shall be
revoked or terminated and not replaced by a substitute acceptable to Agent within thirty (30) days
after the date of such revocation or termination, and such revocation or termination and
non-replacement would reasonably be expected to have a Material Adverse Effect;




     10.18. Seizures. Any portion of the Collateral shall be seized or taken by a Governmental
Body, or any Borrower or the title and rights of any Borrower or any Original Owner which is the
owner of any material portion of the Collateral shall have become the subject matter of claim,
litigation, suit or other proceeding which might, in the opinion of Agent (as determined in its
Permitted Discretion), upon final determination, result in impairment or loss of the security
provided by this Agreement or the Other Documents;



     10.19. Operations. The operations of any Borrower’s manufacturing facility are interrupted
at any time for more than 72 hours during any period of 5 consecutive days, unless such Borrower
shall (i) be entitled to receive for such period of interruption, proceeds of business interruption
insurance sufficient to assure that its per diem cash needs during such period is at least equal to
its average per diem cash needs for the consecutive three month period immediately preceding the
initial date of interruption and (ii) receive such proceeds in the amount described in clause (i)
preceding not later than thirty (30) days following the initial date of any such interruption;
provided, however, that notwithstanding the provisions of clauses (i) and (ii) of this section, an
Event of Default shall be deemed to have occurred if such Borrower shall be receiving the proceeds
of business interruption insurance for a period of thirty (30) consecutive days in connection with
a plant or group of assets from which Borrowers derived, directly or indirectly, 10% or more of
their revenues in the prior fiscal year (calculated after giving effect to Borrowers’ movement of
production from the affected plant or assets to another plant or other assets); or



     10.20. Pension Plans. An event or condition specified in Sections 7.16 or 9.15 hereof
shall occur or exist with respect to any Plan and, as a result of such event or condition, together
with all other such events or conditions, any Borrower or any member of the Controlled Group shall
incur, or in the opinion of Agent be reasonably likely to incur, a liability to a Plan or the PBGC
(or both) which, in the reasonable judgment of Agent, would have a Material Adverse Effect.



     XI. LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT.



     11.1. Rights and Remedies.



          (a) Upon the occurrence of (i) an Event of Default pursuant to Section 10.7 all Obligations
shall be immediately due and payable and this Agreement and the obligation of




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Lenders to make Advances shall be deemed terminated; and, (ii) any of the other Events of
Default and at any time thereafter (such default not having previously been cured), at the option
of Required Lenders all Obligations shall be immediately due and payable and Lenders shall have the
right to terminate this Agreement and to terminate the obligation of Lenders to make Advances and
(iii) a filing of a petition against any Borrower in any involuntary case under any state or
federal bankruptcy laws, the obligation of Lenders to make Advances hereunder shall be terminated
other than as may be required by an appropriate order of the bankruptcy court having jurisdiction
over such Borrower. Upon the occurrence of any Event of Default, Agent shall have the right to
exercise any and all rights and remedies provided for herein, under the Other Documents, under the
Uniform Commercial Code and at law or equity generally, including the right to foreclose the
security interests granted herein and to realize upon any Collateral by any available judicial
procedure and/or to take possession of and sell any or all of the Collateral with or without
judicial process. Agent may enter any of any Borrower’s premises or other premises without legal
process and without incurring liability to any Borrower therefor, and Agent may thereupon, or at
any time thereafter, in its discretion without notice or demand, take the Collateral and remove the
same to such place as Agent may deem advisable and Agent may require Borrowers to make the
Collateral available to Agent at a convenient place. With or without having the Collateral at the
time or place of sale, Agent may sell the Collateral, or any part thereof, at public or private
sale, at any time or place, in one or more sales, at such price or prices, and upon such terms,
either for cash, credit or future delivery, as Agent may elect. Except as to that part of the
Collateral which is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Agent shall give Borrowers reasonable notification of such
sale or sales, it being agreed that in all events written notice mailed to Borrowing Agent at least
ten (10) days prior to such sale or sales is reasonable notification. At any public sale Agent or
any Lender may bid for and become the purchaser, and Agent, any Lender or any other purchaser at
any such sale thereafter shall hold the Collateral sold absolutely free from any claim or right of
whatsoever kind, including any equity of redemption and all such claims, rights and equities are
hereby expressly waived and released by each Borrower. In connection with the exercise of the
foregoing remedies, including the sale of Inventory, Agent is granted a perpetual nonrevocable,
royalty free, nonexclusive license and Agent is granted permission to use all of each Borrower’s
(a) trademarks, trade styles, trade names, patents, patent applications, copyrights, service marks,
licenses, franchises and other proprietary rights which are used or useful in connection with
Inventory for the purpose of marketing, advertising for sale and selling or otherwise disposing of
such Inventory and (b) Equipment for the purpose of completing the manufacture of unfinished goods.
The cash proceeds realized from the sale of any Collateral shall be applied to the Obligations in
the order set forth in Section 11.5 hereof. Noncash proceeds will only be applied to the
Obligations as they are converted into cash. If any deficiency shall arise, Borrowers shall remain
liable to Agent and Lenders therefor.




          (b) To the extent that Applicable Law imposes duties on the Agent to exercise remedies in a
commercially reasonable manner, each Borrower acknowledges and agrees that it is not commercially
unreasonable for the Agent (i) to fail to incur expenses reasonably deemed significant by the Agent
to prepare Collateral for disposition or otherwise to complete raw material or work in process into
finished goods or other finished products for disposition, (ii) to fail to obtain third party
consents for access to Collateral to be disposed of, or to obtain or, if not required by other law,
to fail to obtain governmental or third party consents for the collection or



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disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection
remedies against Customers or other Persons obligated on Collateral or to remove Liens on or any
adverse claims against Collateral, (iv) to exercise collection remedies against Customers and other
Persons obligated on Collateral directly or through the use of collection agencies and other
collection specialists, (v) to advertise dispositions of Collateral through publications or media
of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact
other Persons, whether or not in the same business as any Borrower, for expressions of interest in
acquiring all or any portion of such Collateral, (vii) to hire one or more professional auctioneers
to assist in the disposition of Collateral, whether or not the Collateral is of a specialized
nature, (viii) to dispose of Collateral by utilizing internet sites that provide for the auction of
assets of the types included in the Collateral or that have the reasonable capacity of doing so, or
that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail
markets, (x) to disclaim disposition warranties, such as title, possession or quiet enjoyment, (xi)
to purchase insurance or credit enhancements to insure the Agent against risks of loss, collection
or disposition of Collateral or to provide to the Agent a guaranteed return from the collection or
disposition of Collateral, or (xii) to the extent deemed appropriate by the Agent, to obtain the
services of other brokers, investment bankers, consultants and other professionals to assist the
Agent in the collection or disposition of any of the Collateral. Each Borrower acknowledges that
the purpose of this Section 11.1(b) is to provide non-exhaustive indications of what actions or
omissions by the Agent would not be commercially unreasonable in the Agent’s exercise of remedies
against the Collateral and that other actions or omissions by the Agent shall not be deemed
commercially unreasonable solely on account of not being indicated in this Section 11.1(b).
Without limitation upon the foregoing, nothing contained in this Section 11.1(b) shall be construed
to grant any rights to any Borrower or to impose any duties on Agent that would not have been
granted or imposed by this Agreement or by Applicable Law in the absence of this Section 11.1(b).




     11.2. Agent’s Discretion. Agent shall have the right in its sole discretion to determine
which rights, Liens, security interests or remedies Agent may at any time pursue, relinquish,
subordinate, or modify or to take any other action with respect thereto and such determination will
not in any way modify or affect any of Agent’s or Lenders’ rights hereunder.



     11.3. Setoff. Subject to Section 14.12, in addition to any other rights which Agent or any
Lender may have under Applicable Law, upon the occurrence of an Event of Default hereunder, Agent
and such Lender shall have a right, immediately and without notice of any kind, to apply any
Borrower’s property held by Agent and such Lender to reduce the Obligations.



     11.4. Rights and Remedies not Exclusive. The enumeration of the foregoing rights and
remedies is not intended to be exhaustive and the exercise of any rights or remedy shall not
preclude the exercise of any other right or remedies provided for herein or otherwise provided by
law, all of which shall be cumulative and not alternative.



     11.5. Allocation of Payments After Event of Default. Notwithstanding any other provisions
of this Agreement to the contrary, after the occurrence and during the continuance of an Event of
Default, all amounts collected or received by the Agent on account of the



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Obligations or any other amounts outstanding under any of the Other Documents or in respect of the
Collateral may, at Agent’s discretion, be paid over or delivered as follows:




     FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including reasonable
attorneys’ fees) of the Agent in connection with enforcing its rights and the rights of the Lenders
under this Agreement and the Other Documents and any protective advances made by the Agent with
respect to the Collateral under or pursuant to the terms of this Agreement;



     SECOND, to payment of any fees owed to the Agent;



     THIRD, to the payment of all reasonable out-of-pocket costs and expenses (including reasonable
attorneys’ fees) of each of the Lenders to the extent owing to such Lender pursuant to the terms of
this Agreement;



     FOURTH, to the payment of all of the Obligations consisting of accrued fees and interest;



     FIFTH, to the payment of the outstanding principal amount of the Obligations (including the
payment or cash collateralization of any outstanding Letters of Credit);



     SIXTH, to all other Obligations and other obligations which shall have become due and payable
under the Other Documents or otherwise and not repaid pursuant to clauses “FIRST” through “FIFTH”
above; and



     SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully entitled to receive
such surplus.



     In carrying out the foregoing, (i) amounts received shall be applied in the numerical order
provided until exhausted prior to application to the next succeeding category; (ii) each of the
Lenders shall receive (so long as it is not a Defaulting Lender) an amount equal to its pro rata
share (based on the proportion that the then outstanding Advances held by such Lender bears to the
aggregate then outstanding Advances) of amounts available to be applied pursuant to clauses
“FOURTH”, “FIFTH” and “SIXTH” above; and (iii) to the extent that any amounts available for
distribution pursuant to clause “FIFTH” above are attributable to the issued but undrawn amount of
outstanding Letters of Credit, such amounts shall be held by the Agent in a cash collateral account
and applied (A) first, to reimburse the Issuer from time to time for any drawings under such
Letters of Credit and (B) then, following the expiration of all Letters of Credit, to all other
obligations of the types described in clauses “FIFTH” and “SIXTH” above in the manner provided in
this Section 11.5.



     XII. WAIVERS AND JUDICIAL PROCEEDINGS.



     12.1. Waiver of Notice. Each Borrower hereby waives notice of non-payment of any of the
Receivables, demand, presentment, protest and notice thereof with respect to any and all
instruments, notice of acceptance hereof, notice of loans or advances made, credit extended,
Collateral received or delivered, or any other action taken in reliance hereon, and all other
demands and notices of any description, except such as are expressly provided for herein.



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     12.2. Delay. No delay or omission on Agent’s or any Lender’s part in exercising any right,
remedy or option shall operate as a waiver of such or any other right, remedy or option or of any
Default or Event of Default.



     12.3. Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY
WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY
HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO
THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.



     XIII. EFFECTIVE DATE AND TERMINATION.



     13.1. Term. This Agreement, which shall inure to the benefit of and shall be binding upon
the respective successors and permitted assigns of each Borrower, Agent and each Lender, shall
become effective on the date hereof and shall continue in full force and effect until August 13,
2012 (the “Term”) unless sooner terminated as herein provided. Borrowers may terminate this
Agreement at any time upon ninety (90) days’ prior written notice upon payment in full of the
Obligations. In the event the Obligations are prepaid in full prior to the last day of the Term
(the date of such prepayment hereinafter referred to as the “Early Termination Date”), Borrowers
shall pay to Agent for the benefit of Lenders an early termination fee in an amount equal to (y)
$600,000 if the Early Termination Date occurs on or after the Closing Date to and including the
date immediately preceding the first anniversary of the Closing Date, and (z) $400,000 if the Early
Termination Date occurs on or after the first anniversary of the Closing Date to and including the
date immediately preceding the third anniversary of the Closing Date, provided, that no early
termination fee will be due and payable in the event the Borrowers refinance the Obligations during
this period through NCBC or any of its Affiliates.



     13.2. Termination. The termination of the Agreement shall not affect any Borrower’s,
Agent’s or any Lender’s rights, or any of the Obligations having their inception prior to the
effective date of such termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into, rights or interests created or Obligations have been fully and
indefeasibly paid, disposed of, concluded or liquidated. The security interests, Liens and rights
granted to Agent and Lenders hereunder and the financing statements filed hereunder shall continue
in full force and effect, notwithstanding the termination of this Agreement or the fact that
Borrowers’ Account may from time to time be temporarily in a zero or credit position, until all of
the Obligations of each Borrower have been indefeasibly paid and performed in full after



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the termination of this Agreement or each Borrower has furnished Agent and Lenders with an
indemnification satisfactory to Agent and Lenders with respect thereto. Accordingly, each Borrower
waives any rights which it may have under the Uniform Commercial Code to demand the filing of
termination statements with respect to the Collateral, and Agent shall not be required to send such
termination statements to each Borrower, or to file them with any filing office, unless and until
this Agreement shall have been terminated in accordance with its terms and all Obligations have
been indefeasibly paid in full in immediately available funds. All representations, warranties,
covenants, waivers and agreements contained herein shall survive termination hereof until all
Obligations are indefeasibly paid and performed in full.




     XIV. REGARDING AGENT.



     14.1. Appointment. Each Lender hereby designates NCBC to act as Agent for such Lender
under this Agreement and the Other Documents. Each Lender hereby irrevocably authorizes Agent to
take such action on its behalf under the provisions of this Agreement and the Other Documents and
to exercise such powers and to perform such duties hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and thereof and such other powers as are
reasonably incidental thereto and Agent shall hold all Collateral, payments of principal and
interest, fees (except the fees set forth in Sections 3.3(a) and 3.4) charges and collections
(without giving effect to any collection days) received pursuant to this Agreement, for the ratable
benefit of Lenders. Agent may perform any of its duties hereunder by or through its agents or
employees. As to any matters not expressly provided for by this Agreement (including collection of
the Note) Agent shall not be required to exercise any discretion or take any action, but shall be
required to act or to refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Lenders, and such instructions shall be binding;
provided, however, that Agent shall not be required to take any action which exposes Agent to
liability or which is contrary to this Agreement or the Other Documents or Applicable Law unless
Agent is furnished with an indemnification reasonably satisfactory to Agent with respect thereto.



     14.2. Nature of Duties. Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and the Other Documents. Neither Agent nor any of its
officers, directors, employees or agents shall be (i) liable for any action taken or omitted by
them as such hereunder or in connection herewith, unless caused by their gross (not mere)
negligence or willful misconduct (as determined by a court of competent jurisdiction in a final
non-appealable judgment), or (ii) responsible in any manner for any recitals, statements,
representations or warranties made by any Borrower or any officer thereof contained in this
Agreement, or in any of the Other Documents or in any certificate, report, statement or other
document referred to or provided for in, or received by Agent under or in connection with, this
Agreement or any of the Other Documents or for the value, validity, effectiveness, genuineness, due
execution, enforceability or sufficiency of this Agreement, or any of the Other Documents or for
any failure of any Borrower to perform its obligations hereunder. Agent shall not be under any
obligation to any Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any of the Other Documents, or to
inspect the properties, books or records of any Borrower. The duties of Agent as respects the
Advances to Borrowers shall be mechanical and administrative in nature; Agent shall not have by
reason of this Agreement a fiduciary relationship in respect of any Lender; and



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nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to
impose upon Agent any obligations in respect of this Agreement except as expressly set forth
herein.




     14.3. Lack of Reliance on Agent and Resignation. Independently and without reliance upon
Agent or any other Lender, each Lender has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of each Borrower in connection with the making
and the continuance of the Advances hereunder and the taking or not taking of any action in
connection herewith, and (ii) its own appraisal of the creditworthiness of each Borrower. Agent
shall have no duty or responsibility, either initially or on a continuing basis, to provide any
Lender with any credit or other information with respect thereto, whether coming into its
possession before making of the Advances or at any time or times thereafter except as shall be
provided by any Borrower pursuant to the terms hereof. Agent shall not be responsible to any
Lender for any recitals, statements, information, representations or warranties herein or in any
agreement, document, certificate or a statement delivered in connection with or for the execution,
effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this
Agreement or any Other Document, or of the financial condition of any Borrower, or be required to
make any inquiry concerning either the performance or observance of any of the terms, provisions or
conditions of this Agreement, the Note, the Other Documents or the financial condition of any
Borrower, or the existence of any Event of Default or any Default.



     Agent may resign on sixty (60) days’ written notice to each of Lenders and Borrowing Agent and
upon such resignation, the Required Lenders will promptly designate a successor Agent reasonably
satisfactory to Borrowers.



     Any such successor Agent shall succeed to the rights, powers and duties of Agent, and the term
“Agent” shall mean such successor agent effective upon its appointment, and the former Agent’s
rights, powers and duties as Agent shall be terminated, without any other or further act or deed on
the part of such former Agent. After any Agent’s resignation as Agent, the provisions of this
Article XIV shall inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.



     14.4. Certain Rights of Agent. If Agent shall request instructions from Lenders with
respect to any act or action (including failure to act) in connection with this Agreement or any
Other Document, Agent shall be entitled to refrain from such act or taking such action unless and
until Agent shall have received instructions from the Required Lenders; and Agent shall not incur
liability to any Person by reason of so refraining. Without limiting the foregoing, Lenders shall
not have any right of action whatsoever against Agent as a result of its acting or refraining from
acting hereunder in accordance with the instructions of the Required Lenders.



     14.5. Reliance. Agent shall be entitled to rely, and shall be fully protected in relying,
upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier
message, cablegram, order or other document or telephone message believed by it to be genuine and
correct and to have been signed, sent or made by the proper person or entity, and, with respect to
all legal matters pertaining to this Agreement and the Other Documents and its duties hereunder,
upon advice of counsel selected by it. Agent may employ agents and attorneys-in-



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fact and shall not be liable for the default or misconduct of any such agents or attorneys-in-fact
selected by Agent with reasonable care.




     14.6. Notice of Default. Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder or under the Other Documents, unless Agent
has received notice from a Lender or Borrowing Agent referring to this Agreement or the Other
Documents, describing such Default or Event of Default and stating that such notice is a “notice of
default”. In the event that Agent receives such a notice, Agent shall give notice thereof to
Lenders. Agent shall take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders; provided, that, unless and until Agent shall have
received such directions, Agent may (but shall not be obligated to) take such action, or refrain
from taking such action, with respect to such Default or Event of Default as it shall deem
advisable in the best interests of Lenders.



     14.7. Indemnification. To the extent Agent is not reimbursed and indemnified by Borrowers,
each Lender will reimburse and indemnify Agent in proportion to its respective portion of the
Advances (or, if no Advances are outstanding, according to its Commitment Percentage), from and
against any and all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against Agent in performing its duties hereunder, or in any way relating to
or arising out of this Agreement or any Other Document; provided that, Lenders shall not be liable
for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from Agent’s gross (not mere) negligence or
willful misconduct (as determined by a court of competent jurisdiction in a final non-appealable
judgment).



     14.8. Agent in its Individual Capacity. With respect to the obligation of Agent to lend
under this Agreement, the Advances made by it shall have the same rights and powers hereunder as
any other Lender and as if it were not performing the duties as Agent specified herein; and the
term “Lender” or any similar term shall, unless the context clearly otherwise indicates, include
Agent in its individual capacity as a Lender. Agent may engage in business with any Borrower as if
it were not performing the duties specified herein, and may accept fees and other consideration
from any Borrower for services in connection with this Agreement or otherwise without having to
account for the same to Lenders.



     14.9. Delivery of Documents. To the extent Agent receives financial statements required
under this Agreement or Borrowing Base Certificates from any Borrower pursuant to the terms of this
Agreement which any Borrower is not obligated to deliver to each Lender, Agent will promptly
furnish such documents and information to Lenders.



     14.10. Borrowers’ Undertaking to Agent. Without prejudice to their respective obligations to
Lenders under the other provisions of this Agreement, each Borrower hereby undertakes with Agent to
pay to Agent from time to time on demand all amounts from time to time due and payable by it for
the account of Agent or Lenders or any of them pursuant to this Agreement to the extent not already
paid. Any payment made pursuant to any such demand shall pro tanto satisfy the relevant Borrower’s
obligations to make payments for the account of Lenders or the relevant one or more of them
pursuant to this Agreement.



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     14.11. No Reliance on Agent’s Customer Identification Program. Each Lender acknowledges and agrees
that neither such Lender, nor any of its Affiliates, participants or assignees, may rely on the
Agent to carry out such Lender’s, Affiliate’s, participant’s or assignee’s customer identification
program, or other obligations required or imposed under or pursuant to the USA PATRIOT Act or the
regulations thereunder, including the regulations contained in 31 CFR 103.121 (as hereafter amended
or replaced, the “CIP Regulations”), or any other Anti-Terrorism Law, including any programs
involving any of the following items relating to or in connection with any Borrower, its Affiliates
or its agents, this Agreement, the Other Documents or the transactions hereunder or contemplated
hereby: (1) any identity verification procedures, (2) any record-keeping, (3) comparisons with
government lists, (4) customer notices or (5) other procedures required under the CIP Regulations
or such other laws.



     14.12. Other Agreements. Each of the Lenders agrees that it shall not, without the express
consent of Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the
request of Agent, set off against the Obligations, any amounts owing by such Lender to any Borrower
or any deposit accounts of any Borrower now or hereafter maintained with such Lender. Anything in
this Agreement to the contrary notwithstanding, each of the Lenders further agrees that it shall
not, unless specifically requested to do so by Agent, take any action to protect or enforce its
rights arising out of this Agreement or the Other Documents, it being the intent of Lenders that
any such action to protect or enforce rights under this Agreement and the Other Documents shall be
taken in concert and at the direction or with the consent of Agent or Required Lenders.



     XV. BORROWING AGENCY.



     15.1. Borrowing Agency Provisions.



          (a) Each Borrower hereby irrevocably designates Borrowing Agent to be its attorney and agent
and in such capacity to borrow, sign and endorse notes, and execute and deliver all instruments,
documents, writings and further assurances now or hereafter required hereunder, on behalf of such
Borrower or Borrowers, and hereby authorizes Agent to pay over or credit all loan proceeds
hereunder in accordance with the request of Borrowing Agent.




          (b) The handling of this credit facility as a co-borrowing facility with a borrowing agent in
the manner set forth in this Agreement is solely as an accommodation to Borrowers and at their
request. Neither Agent nor any Lender shall incur liability to Borrowers as a result thereof. To
induce Agent and Lenders to do so and in consideration thereof, each Borrower hereby indemnifies
Agent and each Lender and holds Agent and each Lender harmless from and against any and all
liabilities, expenses, losses, damages and claims of damage or injury asserted against Agent or any
Lender by any Person arising from or incurred by reason of the handling of the financing
arrangements of Borrowers as provided herein, reliance by Agent or any Lender on any request or
instruction from Borrowing Agent or any other action taken by Agent or any Lender with respect to
this Section 15.1 except due to willful misconduct or gross (not mere) negligence by the
indemnified party (as determined by a court of competent jurisdiction in a final and non-appealable
judgment).




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          (c) All Obligations shall be joint and several, and each Borrower shall make payment upon the
maturity of the Obligations by acceleration or otherwise, and such obligation and liability on the
part of each Borrower shall in no way be affected by any extensions, renewals and forbearance
granted to Agent or any Lender to any Borrower, failure of Agent or any Lender to give any Borrower
notice of borrowing or any other notice, any failure of Agent or any Lender to pursue or preserve
its rights against any Borrower, the release by Agent or any Lender of any Collateral now or
thereafter acquired from any Borrower, and such agreement by each Borrower to pay upon any notice
issued pursuant thereto is unconditional and unaffected by prior recourse by Agent or any Lender to
the other Borrowers or any Collateral for such Borrower’s Obligations or the lack thereof. Each
Borrower waives all suretyship defenses.




     15.2. Waiver of Subrogation. Each Borrower expressly waives any and all rights of
subrogation, reimbursement, indemnity, exoneration, contribution of any other claim which such
Borrower may now or hereafter have against the other Borrowers or other Person directly or
contingently liable for the Obligations hereunder, or against or with respect to the other
Borrowers’ property (including, without limitation, any property which is Collateral for the
Obligations), arising from the existence or performance of this Agreement, until termination of
this Agreement and repayment in full of the Obligations.



     XVI. MISCELLANEOUS.



     16.1. Governing Law. This Agreement shall be governed by and construed in accordance with
the laws of the State of Michigan applied to contracts to be performed wholly within the State of
Michigan. Any judicial proceeding brought by or against any Borrower with respect to any of the
Obligations, this Agreement, the Other Documents or any related agreement may be brought in any
court of competent jurisdiction in the State of Michigan, United States of America, and, by
execution and delivery of this Agreement, each Borrower accepts for itself and in connection with
its properties, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid
courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this
Agreement. Each Borrower hereby waives personal service of any and all process upon it and
consents that all such service of process may be made by registered mail (return receipt requested)
directed to Borrowing Agent at its address set forth in Section 16.6 and service so made shall be
deemed completed five (5) days after the same shall have been so deposited in the mails of the
United States of America, or, at the Agent’s option, by service upon Borrowing Agent which each
Borrower irrevocably appoints as such Borrower’s Agent for the purpose of accepting service within
the State of Michigan. Nothing herein shall affect the right to serve process in any manner
permitted by law or shall limit the right of Agent or any Lender to bring proceedings against any
Borrower in the courts of any other jurisdiction. Each Borrower waives any objection to
jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on
lack of jurisdiction or venue or based upon forum non conveniens. Each Borrower waives the right
to remove any judicial proceeding brought against such Borrower in any state court to any federal
court. Any judicial proceeding by any Borrower against Agent or any Lender involving, directly or
indirectly, any matter or claim in any way arising out of, related to or connected with this
Agreement or any related agreement, shall be brought only in a federal or state court located in
the County of Oakland or a federal court located in Detroit, Michigan.



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     16.2. Entire Understanding.



          (a) This Agreement and the documents executed concurrently herewith contain the entire
understanding between each Borrower, Agent and each Lender and supersedes all prior agreements and
understandings, if any, relating to the subject matter hereof. Any promises, representations,
warranties or guarantees not herein contained and hereinafter made shall have no force and effect
unless in writing, signed by each Borrower’s, Agent’s and each Lender’s respective officers.
Neither this Agreement nor any portion or provisions hereof may be changed, modified, amended,
waived, supplemented, discharged, cancelled or terminated orally or by any course of dealing, or in
any manner other than by an agreement in writing, signed by the party to be charged. Each Borrower
acknowledges that it has been advised by counsel in connection with the execution of this Agreement
and Other Documents and is not relying upon oral representations or statements inconsistent with
the terms and provisions of this Agreement.




          (b) The Required Lenders, Agent with the consent in writing of the Required Lenders, and
Borrowers may, subject to the provisions of this Section 16.2 (b), from time to time enter into
written supplemental agreements to this Agreement or the Other Documents executed by Borrowers, for
the purpose of adding or deleting any provisions or otherwise changing, varying or waiving in any
manner the rights of Lenders, Agent or Borrowers thereunder or the conditions, provisions or terms
thereof or waiving any Event of Default thereunder, but only to the extent specified in such
written agreements; provided, however, that no such supplemental agreement shall, without the
consent of all Lenders:




               (i) increase the Commitment Percentage, the maximum dollar commitment of any Lender or the
Maximum Revolving Advance Amount.



               (ii) extend the maturity of any Note or the due date for any amount payable hereunder, or
decrease the rate of interest or reduce any fee payable by Borrowers to Lenders pursuant to this
Agreement.



               (iii) alter the definition of the term Required Lenders or alter, amend or modify this Section
16.2(b).



               (iv) release any Collateral during any calendar year (other than in accordance with the
provisions of this Agreement) having an aggregate value in excess of $250,000.



               (v) change the rights and duties of Agent.



               (vi) permit any Revolving Advance to be made if after giving effect thereto the total of
Revolving Advances outstanding hereunder would exceed the Formula Amount for more than sixty (60)
consecutive Business Days or exceed one hundred and ten percent (110%) of the Formula Amount.



               (vii) increase the Advance Rates above the Advance Rates in effect on the Closing Date.



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               (viii) release any guarantor.



     Any such supplemental agreement shall apply equally to each Lender and shall be binding upon
Borrowers, Lenders and Agent and all future holders of the Obligations. In the case of any waiver,
Borrowers, Agent and Lenders shall be restored to their former positions and rights, and any Event
of Default waived shall be deemed to be cured and not continuing, but no waiver of a specific Event
of Default shall extend to any subsequent Event of Default (whether or not the subsequent Event of
Default is the same as the Event of Default which was waived), or impair any right consequent
thereon.



     In the event that Agent requests the consent of a Lender pursuant to this Section 16.2 and
such consent is denied, then NCBC may, at its option, require such Lender to assign its interest in
the Advances to NCBC or to another Lender or to any other Person designated by the Agent (the
“Designated Lender”), for a price equal to (i) the then outstanding principal amount thereof plus
(ii) accrued and unpaid interest and fees due such Lender, which interest and fees shall be paid
when collected from Borrowers. In the event PNC elects to require any Lender to assign its
interest to PNC or to the Designated Lender, PNC will so notify such Lender in writing within forty
five (45) days following such Lender’s denial, and such Lender will assign its interest to PNC or
the Designated Lender no later than five (5) days following receipt of such notice pursuant to a
Commitment Transfer Supplement executed by such Lender, PNC or the Designated Lender, as
appropriate, and Agent.



     Notwithstanding (a) the existence of a Default or an Event of Default, (b) that any of the
other applicable conditions precedent set forth in Section 8.2 hereof have not been satisfied or
(c) any other provision of this Agreement, Agent may at its discretion and without the consent of
the Required Lenders, voluntarily permit the sum of the outstanding Revolving Advances and the
Maximum Undrawn Amount at any time to exceed an amount equal to the sum of (i)] the Formula Amount
minus (ii) the amount of minimum Undrawn Availability required by Section 6.5(f) hereof at such
time (such sum, the “Overadvance Threshold Amount”)] by up to ten percent (10%) of the Formula
Amount for up to sixty (60) consecutive Business Days (the “Out-of-Formula Loans”); provided, that,
such outstanding Advances do not exceed the Maximum Revolving Advance Amount. If Agent is willing
in its sole and absolute discretion to make such Out-of-Formula Loans, such Out-of-Formula Loans
shall be payable on demand and shall bear interest at the Default Rate for Revolving Advances
consisting of Domestic Rate Loans; provided that, if Lenders do make Out-of-Formula Loans, neither
Agent nor Lenders shall be deemed thereby to have changed the limits of Section 2.1(a). For
purposes of this paragraph, the discretion granted to Agent hereunder shall not preclude
involuntary overadvances that may result from time to time due to the fact that the Formula Amount
was unintentionally exceeded for any reason, including, but not limited to, Collateral previously
deemed to be either “Eligible Receivables” or “Eligible Inventory”, as applicable, becomes
ineligible, collections of Receivables applied to reduce outstanding Revolving Advances are
thereafter returned for insufficient funds or overadvances are made to protect or preserve the
Collateral. In the event Agent involuntarily permits the outstanding Revolving Advances to exceed
the Formula Amount by more than ten percent (10%), Agent shall use its efforts to have Borrowers
decrease such excess in as expeditious a manner as is practicable under the circumstances and not
inconsistent with the reason for such excess. Revolving Advances made after Agent has determined
the



87









 




existence of involuntary overadvances shall be deemed to be involuntary overadvances and shall
be decreased in accordance with the preceding sentence.




     In addition to (and not in substitution of) the discretionary Revolving Advances permitted
above in this Section 16.2, the Agent is hereby authorized by Borrowers and the Lenders, from time
to time in the Agent’s sole discretion, (A) after the occurrence and during the continuation of a
Default or an Event of Default, or (B) at any time that any of the other applicable conditions
precedent set forth in Section 8.2 hereof have not been satisfied, to make Revolving Advances to
Borrowers on behalf of the Lenders which the Agent, in its reasonable business judgment, deems
necessary or desirable (a) to preserve or protect the Collateral, or any portion thereof, (b) to
enhance the likelihood of, or maximize the amount of, repayment of the Advances and other
Obligations, or (c) to pay any other amount chargeable to Borrowers pursuant to the terms of this
Agreement; provided, that at any time after giving effect to any such Revolving Advances the
outstanding Revolving Advances do not exceed one hundred and ten percent (110%) of the Formula
Amount.



     16.3. Successors and Assigns; Participations; New Lenders.



          (a) This Agreement shall be binding upon and inure to the benefit of Borrowers, Agent, each
Lender, all future holders of the Obligations and their respective successors and permitted
assigns, except that no Borrower may assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of Agent and each Lender.




          (b) Each Borrower acknowledges that in the regular course of commercial banking business one
or more Lenders may at any time and from time to time sell participating interests in the Advances
to other financial institutions (each such transferee or purchaser of a participating interest, a
“Participant”). Each Lender shall use good faith efforts to notify the Borrowing Agent of all
sales to all Participants. Each Participant may exercise all rights of payment (including rights
of set-off) with respect to the portion of such Advances held by it or other Obligations payable
hereunder as fully as if such Participant were the direct holder thereof provided that Borrowers
shall not be required to pay to any Participant more than the amount which it would have been
required to pay to Lender which granted an interest in its Advances or other Obligations payable
hereunder to such Participant had such Lender retained such interest in the Advances hereunder or
other Obligations payable hereunder and in no event shall Borrowers be required to pay any such
amount arising from the same circumstances and with respect to the same Advances or other
Obligations payable hereunder to both such Lender and such Participant. Each Borrower hereby
grants to any Participant a continuing security interest in any deposits, moneys or other property
actually or constructively held by such Participant as security for the Participant’s interest in
the Advances.




          (c) Any Lender, with the consent of Agent which shall not be unreasonably withheld or delayed,
may sell, assign or transfer all or any part of its rights and obligations under or relating to
Revolving Advances under this Agreement and the Other Documents to one or more additional banks or
financial institutions and one or more additional banks or financial institutions may commit to
make Advances hereunder (each a “Purchasing Lender”), in minimum amounts of not less than
$1,000,000, pursuant to a Commitment Transfer Supplement, executed by a Purchasing Lender, the
transferor Lender, and Agent and delivered to Agent for



88









 






recording. Upon such execution, delivery, acceptance and recording, from and after the
transfer effective date determined pursuant to such Commitment Transfer Supplement, (i) Purchasing
Lender thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer
Supplement, have the rights and obligations of a Lender thereunder with a Commitment Percentage as
set forth therein, and (ii) the transferor Lender thereunder shall, to the extent provided in such
Commitment Transfer Supplement, be released from its obligations under this Agreement, the
Commitment Transfer Supplement creating a novation for that purpose. Such Commitment Transfer
Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary
to reflect the addition of such Purchasing Lender and the resulting adjustment of the Commitment
Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights
and obligations of such transferor Lender under this Agreement and the Other Documents. Each
Borrower hereby consents to the addition of such Purchasing Lender and the resulting adjustment of
the Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion
of the rights and obligations of such transferor Lender under this Agreement and the Other
Documents. Borrowers shall execute and deliver such further documents and do such further acts and
things in order to effectuate the foregoing. Before an Event of Default, each selling Lender shall
give the Borrowing Agent five days’ written notice before selling or assigning all or any part of
its rights and obligations under or relating to Revolving Advances.




          (d) Any Lender, with the consent of Agent which shall not be unreasonably withheld or delayed,
may directly or indirectly sell, assign or transfer all or any portion of its rights and
obligations under or relating to Revolving Advances under this Agreement and the Other Documents to
an entity, whether a corporation, partnership, trust, limited liability company or other entity
that (i) is engaged in making, purchasing, holding or otherwise investing in bank loans and similar
extensions of credit in the ordinary course of its business and (ii) is administered, serviced or
managed by the assigning Lender or an Affiliate of such Lender (a “Purchasing CLO” and together
with each Participant and Purchasing Lender, each a “Transferee” and collectively the
“Transferees”), pursuant to a Commitment Transfer Supplement modified as appropriate to reflect the
interest being assigned (“Modified Commitment Transfer Supplement”), executed by any intermediate
purchaser, the Purchasing CLO, the transferor Lender, and Agent as appropriate and delivered to
Agent for recording. Upon such execution and delivery, from and after the transfer effective date
determined pursuant to such Modified Commitment Transfer Supplement, (i) Purchasing CLO thereunder
shall be a party hereto and, to the extent provided in such Modified Commitment Transfer
Supplement, have the rights and obligations of a Lender thereunder and (ii) the transferor Lender
thereunder shall, to the extent provided in such Modified Commitment Transfer Supplement, be
released from its obligations under this Agreement, the Modified Commitment Transfer Supplement
creating a novation for that purpose. Such Modified Commitment Transfer Supplement shall be deemed
to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of
such Purchasing CLO. Each Borrower hereby consents to the addition of such Purchasing CLO.
Borrowers shall execute and deliver such further documents and do such further acts and things in
order to effectuate the foregoing.




          (e) Agent shall maintain at its address a copy of each Commitment Transfer Supplement and
Modified Commitment Transfer Supplement delivered to it and a register (the “Register”) for the
recordation of the names and addresses of each Lender and the outstanding



89









 






principal, accrued and unpaid interest and other fees due hereunder. The entries in the
Register shall be conclusive, in the absence of manifest error, and each Borrower, Agent and
Lenders may treat each Person whose name is recorded in the Register as the owner of the Advance
recorded therein for the purposes of this Agreement. The Register shall be available for
inspection by Borrowing Agent or any Lender at any reasonable time and from time to time upon
reasonable prior notice. Agent shall receive a fee in the amount of $3,500 payable by the
applicable Purchasing Lender and/or Purchasing CLO upon the effective date of each transfer or
assignment (other than to an intermediate purchaser) to such Purchasing Lender and/or Purchasing
CLO.




          (f) Each Borrower authorizes each Lender to disclose to any Transferee and any prospective
Transferee any and all financial information in such Lender’s possession concerning such Borrower
which has been delivered to such Lender by or on behalf of such Borrower pursuant to this Agreement
or in connection with such Lender’s credit evaluation of such Borrower.




     16.4. Application of Payments. Agent shall have the continuing and exclusive right to
apply or reverse and re-apply any payment and any and all proceeds of Collateral to any portion of
the Obligations. To the extent that any Borrower makes a payment or Agent or any Lender receives
any payment or proceeds of the Collateral for any Borrower’s benefit, which are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a
trustee, debtor in possession, receiver, custodian or any other party under any bankruptcy law,
common law or equitable cause, then, to such extent, the Obligations or part thereof intended to be
satisfied shall be revived and continue as if such payment or proceeds had not been received by
Agent or such Lender.



     16.5. Indemnity. Each Borrower shall indemnify Agent, each Lender and each of their
respective officers, directors, Affiliates, attorneys, employees and agents from and against any
and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and disbursements of any kind or nature whatsoever (including fees and disbursements of
counsel) which may be imposed on, incurred by, or asserted against Agent or any Lender in any
claim, litigation, proceeding or investigation instituted or conducted by any Governmental Body or
instrumentality or any other Person with respect to any aspect of, or any transaction contemplated
by, or referred to in, or any matter related to, this Agreement or the Other Documents, whether or
not Agent or any Lender is a party thereto, except to the extent that any of the foregoing arises
out of the willful misconduct or gross negligence of the party being indemnified (as determined by
a court of competent jurisdiction in a final and non-appealable judgment). Without limiting the
generality of the foregoing, this indemnity shall extend to any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever (including fees and disbursements of counsel) asserted against or incurred by any
of the indemnitees described above in this Section 16.5 by any Person under any Environmental Laws
or similar laws by reason of any Borrower’s or any other Person’s failure to comply with laws
applicable to solid or hazardous waste materials, including Hazardous Substances and Hazardous
Waste, or other Toxic Substances. Additionally, if any taxes (excluding taxes imposed upon or
measured solely by the net income of Agent and Lenders, but including any intangibles taxes, stamp
tax, recording tax or franchise tax) shall be payable by Agent, Lenders or Borrowers on account of
the execution or delivery of this Agreement, or the execution, delivery, issuance or recording of
any of the Other Documents, or



90









 




the creation or repayment of any of the Obligations hereunder, by reason of any Applicable Law now
or hereafter in effect, Borrowers will pay (or will promptly reimburse Agent and Lenders for
payment of) all such taxes, including interest and penalties thereon, and will indemnify and hold
the indemnitees described above in this Section 16.5 harmless from and against all liability in
connection therewith.




     16.6. Notice. Any notice or request hereunder may be given to Borrowing Agent or any
Borrower or to Agent or any Lender at their respective addresses set forth below or at such other
address as may hereafter be specified in a notice designated as a notice of change of address under
this Section. Any notice, request, demand, direction or other communication (for purposes of this
Section 16.6 only, a “Notice”) to be given to or made upon any party hereto under any provision of
this Loan Agreement shall be given or made by telephone or in writing (which includes by means of
electronic transmission (i.e., “e-mail”) or facsimile transmission or by setting forth such Notice
on a site on the World Wide Web (a “Website Posting”) if Notice of such Website Posting (including
the information necessary to access such site) has previously been delivered to the applicable
parties hereto by another means set forth in this Section 16.6) in accordance with this Section
16.6. Any such Notice must be delivered to the applicable parties hereto at the addresses and
numbers set forth under their respective names on Section 16.6 hereof or in accordance with any
subsequent unrevoked Notice from any such party that is given in accordance with this Section 16.6.
Any Notice shall be effective:



          (a) In the case of hand-delivery, when delivered;




          (b) If given by mail, four days after such Notice is deposited with the United States Postal
Service, with first-class postage prepaid, return receipt requested;




          (c) In the case of a telephonic Notice, when a party is contacted by telephone, if delivery of
such telephonic Notice is confirmed no later than the next Business Day by hand delivery, a
facsimile or electronic transmission, a Website Posting or an overnight courier delivery of a
confirmatory Notice (received at or before noon on such next Business Day);




          (d) In the case of a facsimile transmission, when sent to the applicable party’s facsimile
machine’s telephone number, if the party sending such Notice receives confirmation of the delivery
thereof from its own facsimile machine;




          (e) In the case of electronic transmission, when actually received;




          (f) In the case of a Website Posting, upon delivery of a Notice of such posting (including the
information necessary to access such site) by another means set forth in this Section 16.6; and




          (g) If given by any other means (including by overnight courier), when actually received.




     Any Lender giving a Notice to Borrowing Agent or any Borrower shall concurrently send a copy
thereof to the Agent, and the Agent shall promptly notify the other Lenders of its receipt of such
Notice.



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	 	(A)
	 	If to Agent or NCB at:
	 
	 	 	 	 
	 

	 	 	 	National City Business Credit, Inc.
	 

	 	 	 	1965 East 6th Street, 4th Floor
	 

	 	 	 	Locator: 01-3049
	 

	 	 	 	Cleveland, Ohio 44114
	 

	 	 	 	Attention:     Roger F. Reeder
	 

	 	 	 	Telephone:    (216) 222-8719
	 

	 	 	 	Facsimile:     (216) 222-9555
	 
	 	 	 	 
	 

	 	 	 	with a copy to:
	 
	 	 	 	 
	 

	 	 	 	PNC Business Credit
	 

	 	 	 	1965 East 6th Street, 4th Floor
	 

	 	 	 	Locator: 01-3049
	 

	 	 	 	Cleveland, Ohio 44114
	 

	 	 	 	Attention:       Brian Rujawitz
	 

	 	 	 	Telephone:     (216) 222-8780
	 

	 	 	 	Facsimile:       (216) 222-8155
	 
	 	 	 	 
	 

	 	 	 	with an additional copy to:
	 
	 	 	 	 
	 

	 	 	 	Dickinson Wright PLLC
	 

	 	 	 	500 Woodward Avenue, Suite 4000
	 

	 	 	 	Detroit, MI 48226
	 

	 	 	 	Attention:       Theodore B. Sylwestrzak
	 

	 	 	 	Telephone:     (313) 223-3036
	 

	 	 	 	Facsimile:       (313) 223-3598
	 
	 	 	 	 
	 

	 	(B)
	 	If to a Lender other than Agent, as specified on the signature pages hereof.
	 
	 	 	 	 
	 

	 	(C)
	 	If to Borrowing Agent or any Borrower:
	 
	 	 	 	 
	 

	 	 	 	Sparton Corporation
	 

	 	 	 	425 N. Martingale Road, Suite 2050
	 

	 	 	 	Schaumburg, Illinois 60173
	 

	 	 	 	Attention:       Gregory A. Slome
	 

	 	 	 	Telephone:     (847) 762-5812
	 

	 	 	 	Facsimile:       (847) 762-5820
	 
	 	 	 	 
	 

	 	 	 	with a copy to:
	 
	 	 	 	 
	 

	 	 	 	Sparton Corporation
	 

	 	 	 	425 N. Martingale Road, Suite 2050
	 

	 	 	 	Schaumburg, Illinois 60173
	 

	 	 	 	Attention: Joseph S. Lerczak






92









 






	 	 	 	 	 
	 

	 	 	 	Telephone: (847) 762-5816
	 

	 	 	 	Facsimile: (847) 762-5820






     16.7. Survival. The obligations of Borrowers under Sections 2.2(f), 3.7, 3.8, 3.9,
4.19(h), and 16.5 and the obligations of Lenders under Section 14.7, shall survive termination of
this Agreement and the Other Documents and payment in full of the Obligations.



     16.8. Severability. If any part of this Agreement is contrary to, prohibited by, or deemed
invalid under Applicable Laws, such provision shall be inapplicable and deemed omitted to the
extent so contrary, prohibited or invalid, but the remainder hereof shall not be invalidated
thereby and shall be given effect so far as possible.



     16.9. Expenses. All costs and expenses including reasonable attorneys’ fees (including the
allocated costs of in house counsel) and disbursements incurred by Agent on its behalf or on behalf
of Lenders (a) in all efforts made to enforce payment of any Obligation or effect collection of any
Collateral, or (b) in connection with the entering into, modification, amendment, administration
and enforcement of this Agreement or any consents or waivers hereunder and all related agreements,
documents and instruments, or (c) in instituting, maintaining, preserving, enforcing and
foreclosing on Agent’s security interest in or Lien on any of the Collateral, or maintaining,
preserving or enforcing any of Agent’s or any Lender’s rights hereunder and under all related
agreements, documents and instruments, whether through judicial proceedings or otherwise, or (d) in
defending or prosecuting any actions or proceedings arising out of or relating to Agent’s or any
Lender’s transactions with any Borrower, or (e) in connection with any advice given to Agent or any
Lender with respect to its rights and obligations under this Agreement and all related agreements,
documents and instruments, may be charged to Borrowers’ Account and shall be part of the
Obligations.



     16.10. Injunctive Relief. Each Borrower recognizes that, in the event any Borrower fails
to perform, observe or discharge any of its obligations or liabilities under this Agreement, or
threatens to fail to perform, observe or discharge such obligations or liabilities, any remedy at
law may prove to be inadequate relief to Lenders; therefore, Agent, if Agent so requests, shall be
entitled to temporary and permanent injunctive relief in any such case without the necessity of
proving that actual damages are not an adequate remedy.



     16.11. Consequential Damages. Neither Agent nor any Lender, nor any agent or attorney for
any of them, shall be liable to any Borrower (or any Affiliate of any such Person) for indirect,
punitive, exemplary or consequential damages arising from any breach of contract, tort or other
wrong relating to the establishment, administration or collection of the Obligations or as a result
of any transaction contemplated under this Agreement or any Other Document.



     16.12. Captions. The captions at various places in this Agreement are intended for
convenience only and do not constitute and shall not be interpreted as part of this Agreement.



     16.13. Counterparts; Facsimile Signatures. This Agreement may be executed in any number of
and by different parties hereto on separate counterparts, all of which, when so executed, shall be
deemed an original, but all such counterparts shall constitute one and the same



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agreement. Any signature delivered by a party by facsimile transmission shall be deemed to be an
original signature hereto.




     16.14. Construction. The parties acknowledge that each party and its counsel have reviewed
this Agreement and that the normal rule of construction to the effect that any ambiguities are to
be resolved against the drafting party shall not be employed in the interpretation of this
Agreement or any amendments, schedules or exhibits thereto.



     16.15. Confidentiality; Sharing Information. Agent, each Lender and each Transferee shall
hold all non-public information obtained by Agent, such Lender or such Transferee pursuant to the
requirements of this Agreement in accordance with Agent’s, such Lender’s and such Transferee’s
customary procedures for handling confidential information of this nature; provided, however,
Agent, each Lender and each Transferee may disclose such confidential information (a) to its
examiners, Affiliates, outside auditors, counsel and other professional advisors, (b) to Agent, any
Lender or to any prospective Transferees, and (c) as required or requested by any Governmental Body
or representative thereof or pursuant to legal process; provided, further that (i) unless
specifically prohibited by Applicable Law, Agent, each Lender and each Transferee shall use its
reasonable best efforts prior to disclosure thereof, to notify the applicable Borrower of the
applicable request for disclosure of such non-public information (A) by a Governmental Body or
representative thereof (other than any such request in connection with an examination of the
financial condition of a Lender or a Transferee by such Governmental Body) or (B) pursuant to legal
process and (ii) in no event shall Agent, any Lender or any Transferee be obligated to return any
materials furnished by any Borrower other than those documents and instruments in possession of
Agent or any Lender in order to perfect its Lien on the Collateral once the Obligations have been
paid in full and this Agreement has been terminated. Each Borrower acknowledges that from time to
time financial advisory, investment banking and other services may be offered or provided to such
Borrower or one or more of its Affiliates (in connection with this Agreement or otherwise) by any
Lender or by one or more Subsidiaries or Affiliates of such Lender and each Borrower hereby
authorizes each Lender to share any information delivered to such Lender by such Borrower and its
Subsidiaries pursuant to this Agreement, or in connection with the decision of such Lender to enter
into this Agreement, to any such Subsidiary or Affiliate of such Lender, it being understood that
any such Subsidiary or Affiliate of any Lender receiving such information shall be bound by the
provisions of this Section 16.15 as if it were a Lender hereunder. Such authorization shall
survive the repayment of the other Obligations and the termination of this Agreement.



     16.16. Publicity. Each Borrower and each Lender hereby authorizes Agent to make
appropriate announcements of the financial arrangement entered into among Borrowers, Agent and
Lenders, including announcements which are commonly known as tombstones, in such publications and
to such selected parties as Agent shall in its sole and absolute discretion deem appropriate.



     16.17. Certifications From Banks and Participants; US PATRIOT Act. Each Lender or assignee
or participant of a Lender that is not incorporated under the Laws of the United States of America
or a state thereof (and is not excepted from the certification requirement contained in Section 313
of the USA PATRIOT Act and the applicable regulations because it is both (i) an affiliate of a
depository institution or foreign bank that maintains a physical presence in the



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United States or foreign country, and (ii) subject to supervision by a banking authority regulating
such affiliated depository institution or foreign bank) shall deliver to the Agent the
certification, or, if applicable, recertification, certifying that such Lender is not a “shell” and
certifying to other matters as required by Section 313 of the USA PATRIOT Act and the applicable
regulations: (1) within 10 days after the Closing Date, and (2) as such other times as are required
under the USA PATRIOT Act.




[Remainder of Page Intentionally Left Blank]




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     Each of the parties has signed this Agreement as of the day and year first above written.



	 	 	 	 	 
	 	SPARTON CORPORATION

 	 
	 	By:  	/s/ Gregory A. Slome	 
	 	 	Gregory A. Slome, 	 
	 	 	Senior Vice President and Chief Financial Officer 	 
	 
	 	SPARTON ELECTRONICS FLORIDA, INC.

 	 
	 	By:  	/s/ Gregory A. Slome	 
	 	 	Gregory A. Slome, Treasurer and Secretary 	 
	 	 	 	 
	 
	 	SPARTRONICS, INC.

 	 
	 	By:  	/s/ Gregory A. Slome	 
	 	 	Gregory A. Slome, Treasurer and Secretary 	 
	 	 	 	 
	 
	 	SPARTON MEDICAL SYSTEMS, INC.

 	 
	 	By:  	/s/ Gregory A. Slome	 
	 	 	Gregory A. Slome, Treasurer and Secretary 	 
	 	 	 	 
	 
	 	SPARTRONICS VIETNAM CO., LTD.

 	 
	 	By:  	/s/
Cary
B. Wood	 
	 	 	Cary B. Wood, General Director 	 
	 	 	 	 
	 
	 	SPARTON TECHNOLOGY, INC.

 	 
	 	By:  	/s/
Gregory A. Slome	 
	 	 	Gregory A. Slome, Treasurer and Secretary 	 
	 	 	 	 
	 
	 	SPARTON OF CANADA, LIMITED

 	 
	 	By:  	/s/
Cary B. Wood	 
	 	 	Cary B. Wood, President 	 
	 	 	 	 
	 



Signature Page to Revolving Credit Agreement





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	 	NATIONAL CITY BUSINESS CREDIT, INC.,

as Lender and as Agent

 	 
	 	By:  	/s/
Ben Pugliesi	 
	 	 	Ben Pugliesi, Vice President 	 

	 
	 	 	     755 West Big Beaver Road


     Troy, Michigan  48084



     Commitment Percentage:  100% 	 
	 



Signature Page to Revolving Credit Agreement




DETROIT 37890-3 1122606v9 8/12/2009





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