**Exhibit10.12**

 

**EXECUTION VERSION**
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**CREDIT AGREEMENT**

** **

** **

**DATED AS OF**

** **

** **

**MAY 12, 2010**

** **

** **

**BETWEEN**

** **

** **

**KOSS CORPORATION**

** **

** **

**AND**

** **

** **

**JPMORGAN CHASE BANK, N.A.**
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**TABLE OF CONTENTS**

** **
| ** **                                                                          | **Page** |
|-------------------------------------------------------------------------------------|----------|
|                                                                                |     |
| ARTICLE I                                                                           |     |
|                                                                                |     |
| Definitions                                                                         |     |
|                                                                                |     |
| SECTION 1.01.  Defined Terms                                                   | 1        |
| SECTION 1.02.  Accounting Terms; GAAP                                          | 21       |
|                                                                                |     |
| ARTICLE II                                                                          |     |
|                                                                                |     |
| The Credits                                                                         |     |
|                                                                                |     |
| SECTION 2.01.  Commitment                                                      | 22       |
| SECTION 2.02.  Loans and Borrowings                                            | 22       |
| SECTION 2.03.  Borrowing Procedures; Requests for Revolving Borrowings         | 22       |
| SECTION 2.04.  Protective Advances                                             | 23       |
| SECTION 2.05.  Letters of Credit                                               | 23       |
| SECTION 2.06.  Funding of Borrowings                                           | 26       |
| SECTION 2.07.  Interest Elections                                              | 26       |
| SECTION 2.08.  Termination of Commitment                                       | 27       |
| SECTION 2.09.  Repayment and Amortization of Loans; Evidence of Debt           | 28       |
| SECTION 2.10.  Prepayment of Loans                                             | 28       |
| SECTION 2.11.  Fees                                                            | 30       |
| SECTION 2.12.  Interest.                                                       | 30       |
| SECTION 2.13.  Alternate Rate of Interest                                      | 31       |
| SECTION 2.14.  Increased Costs                                                 | 31       |
| SECTION 2.15.  Break Funding Payments                                          | 32       |
| SECTION 2.16.  Taxes                                                           | 33       |
| SECTION 2.17.  Payments Generally; Allocation of Proceeds; Sharing of Set-offs | 34       |
| SECTION 2.18.  Indemnity for Returned Payments                                 | 35       |
|                                                                                |     |
| ARTICLE III                                                                         |     |
|                                                                                |     |
| Representations and Warranties                                                      |     |
|                                                                                |     |
| SECTION 3.01.  Organization; Powers                                            | 35       |
| SECTION 3.02.  Authorization; Enforceability                                   | 35       |
| SECTION 3.03.  Governmental Approvals; No Conflicts                            | 36       |
| SECTION 3.04.  Financial Condition; No Material Adverse Change                 | 36       |
| SECTION 3.05.  Properties                                                      | 36       |
| SECTION 3.06.  Litigation and Environmental Matters                            | 36       |
| SECTION 3.07.  Compliance with Laws and Agreements                             | 37       |
| SECTION 3.08.  Investment Company Status                                       | 37       |
| SECTION 3.09.  Taxes                                                           | 37       |

 

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| SECTION 3.10.  ERISA                                                      | 37     |
|--------------------------------------------------------------------------------|--------|
| SECTION 3.11.  Disclosure                                                 | 37     |
| SECTION 3.12.  Material Agreements                                        | 38     |
| SECTION 3.13.  Solvency                                                   | 38     |
| SECTION 3.14.  Insurance                                                  | 38     |
| SECTION 3.15.  Capitalization and Subsidiaries                            | 38     |
| SECTION 3.16.  Security Interest in Collateral                            | 39     |
| SECTION 3.17.  Employment Matters                                         | 39     |
|                                                                           |   |
| ARTICLE IV                                                                     |   |
|                                                                           |   |
| Conditions                                                                     |   |
|                                                                           |   |
| SECTION 4.01.  Effective Date                                             | 39     |
| SECTION 4.02.  Each Credit Event                                          | 41     |
|                                                                           |   |
| ARTICLE V                                                                      |   |
|                                                                           |   |
| Affirmative Covenants                                                          |   |
|                                                                           |   |
| SECTION 5.01.  Financial Statements; Borrowing Base and Other Information | 41     |
| SECTION 5.02.  Notices of Material Events                                 | 43     |
| SECTION 5.03.  Existence; Conduct of Business                             | 44     |
| SECTION 5.04.  Payment of Obligations                                     | 44     |
| SECTION 5.05.  Maintenance of Properties                                  | 44     |
| SECTION 5.06.  Books and Records; Inspection Rights                       | 44     |
| SECTION 5.07.  Compliance with Laws                                       | 44     |
| SECTION 5.08.  Use of Proceeds and Letters of Credit                      | 44     |
| SECTION 5.09.  Insurance                                                  | 45     |
| SECTION 5.10.  Casualty and Condemnation                                  | 45     |
| SECTION 5.11.  Collateral Assessments and Appraisals                      | 45     |
| SECTION 5.12.  Depository Banks                                           | 45     |
| SECTION 5.13.  Additional Collateral; Further Assurances                  | 45     |
| SECTION 5.14.  Dissolution of Koss Classics Ltd.                          | 46     |
|                                                                           |   |
| ARTICLE VI                                                                     |   |
|                                                                           |   |
| Negative Covenants                                                             |   |
|                                                                           |   |
| SECTION 6.01.  Indebtedness                                               | 46     |
| SECTION 6.02.  Liens                                                      | 47     |
| SECTION 6.03.  Fundamental Changes                                        | 48     |
| SECTION 6.04.  Investments, Loans, Advances, Guarantees and Acquisitions  | 48     |
| SECTION 6.05.  Asset Sales                                                | 49     |
| SECTION 6.06.  Sale and Leaseback Transactions                            | 50     |
| SECTION 6.07.  Swap Agreements                                            | 50     |
| SECTION 6.08.  Restricted Payments; Certain Payments of Indebtedness      | 51     |

 

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| SECTION 6.09.  Transactions with Affiliates                               | 51     |
|--------------------------------------------------------------------------------|--------|
| SECTION 6.10.  Restrictive Agreements                                     | 51     |
| SECTION 6.11.  Amendment of Material Documents                            | 52     |
| SECTION 6.12.  Financial Covenants                                        | 52     |
| SECTION 6.13.  ERISA Plans                                                | 52     |
|                                                                           |   |
| ARTICLE VII                                                                    |   |
| Events of Default                                                              |   |
|                                                                           |   |
| ARTICLE VIII                                                                   |   |
|                                                                           |   |
| Miscellaneous                                                                  |   |
|                                                                           |   |
| SECTION 8.01.  Notices                                                    | 55     |
| SECTION 8.02.  Waivers; Amendments                                        | 56     |
| SECTION 8.03.  Expenses; Indemnity; Damage Waiver                         | 57     |
| SECTION 8.04.  Successors and Assigns                                     | 58     |
| SECTION 8.05.  Survival                                                   | 59     |
| SECTION 8.06.  Counterparts; Integration; Effectiveness                   | 60     |
| SECTION 8.07.  Severability                                               | 60     |
| SECTION 8.08.  Right of Setoff                                            | 60     |
| SECTION 8.09.  Governing Law; Jurisdiction; Consent to Service of Process | 60     |
| SECTION 8.10.  WAIVER OF JURY TRIAL                                       | 61     |
| SECTION 8.11.  Headings                                                   | 61     |
| SECTION 8.12.  Confidentiality                                            | 61     |
| SECTION 8.13.  Nonreliance; Violation of Law                              | 62     |
| SECTION 8.14.  USA PATRIOT Act                                            | 62     |
| SECTION 8.15.  Disclosure                                                 | 62     |
| SECTION 8.16.  Interest Rate Limitation                                   | 62     |

 

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This CREDIT AGREEMENT datedas of May 12, 2010 (as it may be amended or modified from time to time,this “Agreement”), is entered into by and between KOSS CORPORATION, a Delawarecorporation (“Borrower”), and JPMORGAN CHASE BANK, N.A (“Lender”).

 

The parties hereto agree asfollows:

 

# ARTICLE I

#  

# Definitions

#  

SECTION 1.01.  Defined Terms.  As used in this Agreement, the followingterms have the meanings specified below:

 

### “Account” has themeaning assigned to such term in the Security Agreement.

###  

### “Account Debtor”means any Person obligated on an Account.

###  

### “Adjusted LIBO Rate”means, with respect to any Eurodollar Borrowing for any Interest Period, aninterest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%)equal to (a) the LIBO Rate for such Interest Period multiplied by (b) theStatutory Reserve Rate.

###  

### “Adjusted One Month LIBORate” means, with respect to a CB Floating Rate Loan for any date, aninterest rate equal to the sum of (a) 2.50% per annum plus (b) therate equal to (i) the interest rate determined by Lender by reference tothe Page to be the rate at approximately 11:00 am London time, on suchdate or, if such date is not a Business Day, on the immediately precedingBusiness Day for dollar deposits with a maturity equal to one month, multipliedby (ii) the Statutory Reserve Rate applicable to dollar deposits in theLondon interbank market with a maturity equal to one month.

###  

### “Affiliate” means,with respect to a specified Person, another Person that directly, or indirectlythrough one or more intermediaries, Controls or is Controlled by or is undercommon Control with the Person specified.

###  

### “Applicable Rate”means, for any day, with respect to any CB Floating Rate Loan or EurodollarRevolving Loan, or with respect to the commitment fees payable hereunder, asthe case may be, the applicable rate per annum set forth below under thecaption “CB Floating Rate Spread”, “Eurodollar Spread” or “Commitment Fee Rate”,as the case may be, based upon Borrower’s Leverage Ratio as of the most recentdetermination date, provided that until the delivery to Lender, pursuantto Section 5.01, of Borrower’s consolidated financial information forBorrower’s fiscal quarter ending September 30, 2010, the “Applicable Rate”shall be the applicable rate per annum set forth below in Category 3:

 

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| **Leverage  Ratio**                                                                   | ** ** | **Revolver  CB Floating Rate  Spread** | ** ** | **Revolver  Eurodollar  Spread** | ** ** | **Commitment Fee  Rate** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|--------------------------|------------|
| Category 1

 

Less than or equal to 1.00 to 1.00                                |       |  0.00                             | %          |  2.00                            | %          |  0.30               | %          |
| Category 2

 

Greater than 1.00 to 1.00 and less then or equal  to 1.50 to 1.00 |       |  0.25                             | %          |  2.25                            | %          |  0.35               | %          |
| Category 3

 

Greater than 1.50 to 1.00 but less than or equal  to 2.00 to 1.00 |       |  0.50                             | %          |  2.50                            | %          |  0.40               | %          |
| Category 4

 

Greater than 2.00 to 1.00                                         |       |  0.75                             | %          |  3.00                            | %          |  0.45               | %          |

 

For purposes of the foregoing,(a) the Applicable Rate shall be determined as of the end of each fiscalquarter of Borrower based upon Borrower’s annual or quarterly consolidatedfinancial statements delivered pursuant to Section 5.01 and (b) eachchange in the Applicable Rate resulting from a change in the Leverage Ratioshall be effective during the period commencing on and including the date ofdelivery to Lender of such consolidated financial statements indicating suchchange and ending on the date immediately preceding the effective date of thenext such change, provided that the Leverage Ratio shall be deemed to bein Category 4 at the option of Lender if Borrower fails to deliver the annualor quarterly consolidated financial statements required to be delivered by itpursuant to Section 5.01, during the period from the expiration of thetime for delivery thereof until such consolidated financial statements aredelivered.

 

### “Approved Fund” hasthe meaning assigned to such term in Section 8.04(b).

###  

### “Availability” means,at any time, an amount equal to (a) the lesser of the Revolving Commitmentand the Borrowing Base *minus* (b) theRevolving Exposure.

###  

### “Available RevolvingCommitment” means, at any time, the Revolving Commitment then in effect *minus* the Revolving Exposure at suchtime.

###  

### “Availability Period”means the period from and including the Effective Date to but excluding theearlier of the Maturity Date and the date of termination of the RevolvingCommitment.

###  

### “Banking Services”means each and any of the following bank services provided to Borrower byLender or any of its Affiliates: (a) commercial credit cards, (b) storedvalue cards and (c) treasury management services (including, withoutlimitation, controlled disbursement, 

 

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###  

### automated clearinghouse transactions, returnitems, overdrafts and interstate depository network services).

###  

### “Banking ServicesObligations” means any and all obligations of Borrower or any Subsidiary,whether absolute or contingent and howsoever and whensoever created, arising,evidenced or acquired (including all renewals, extensions and modificationsthereof and substitutions therefor) in connection with Banking Services.

###  

### “Banking ServicesReserves” means all Reserves which Lender from time to time establishes inits Permitted Discretion for Banking Services then provided or outstanding.

###  

### “Board” means theBoard of Governors of the Federal Reserve System of the United States ofAmerica.

###  

### “Borrower” means KossCorporation, a Delaware corporation.

###  

### “Borrowing” means (a) RevolvingLoans bearing interest by reference to the same rate, made, converted orcontinued on the same date and, in the case of Eurodollar Loans, as to which asingle Interest Period is in effect and (b) a Protective Advance.

###  

### “Borrowing Base”means, at any time, the sum of (a) 80% of Borrower’s Eligible Receivablesat such time, *plus* (b)  60% ofBorrower’s Eligible Finished Goods, valued at the lower of cost or marketvalue, determined on a first-in-first-out basis which represent 12 months ofsupply based on sales from the last 12 months, at such time, *plus* (c) 80% of the CSV ofEligible Life Insurance Policies, *minus* (d) Reserves.

###  

### “Borrowing BaseCertificate” means a certificate, signed and certified as accurate andcomplete by a Financial Officer of Borrower, in substantially the form of Exhibit Aor another form which is acceptable to Lender in its sole discretion.

###  

### “Borrowing Request”means a request by Borrower for a Revolving Borrowing in accordance with Section 2.03.

###  

### “Business Day” meansany day that is not a Saturday, Sunday or other day on which commercial banksin New York City are authorized or required by law to remain closed; providedthat, when used in connection with a Eurodollar Loan, the term “Business Day”shall also exclude any day on which banks are not open for dealings in dollardeposits in the London interbank market.

###  

### “Capital LeaseObligations” of any Person means the obligations of such Person to pay rentor other amounts under any lease of (or other arrangement conveying the rightto use) real or personal property, or a combination thereof, which obligationsare required to be classified and accounted for as capital leases on a balancesheet of such Person under GAAP, and the amount of such obligations shall be thecapitalized amount thereof determined in accordance with GAAP.

###  

### “CB Floating Rate”means the Prime Rate; provided that the CB Floating Rate shall, on anyday, not be less than the Adjusted One Month LIBO Rate.  The CB Floating Rate is 

 

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### a variable rate and any change in the CBFloating Rate due to any change in the Prime Rate or the Adjusted One MonthLIBO Rate is effective from and including the effective date of such change inthe Prime Rate or the Adjusted One Month LIBO Rate, respectively.

###  

### “Change in Control”means (a) the acquisition of ownership, directly or indirectly,beneficially or of record, by any Person or group (within the meaning of theSecurities Exchange Act of 1934 and the rules of the Securities andExchange Commission thereunder as in effect on the date hereof) other than theKoss Family, of Equity Interests representing more than 25% of the aggregateordinary voting power represented by the issued and outstanding EquityInterests of Borrower; (b) occupation of a majority of the seats (otherthan vacant seats) on the board of directors of Borrower by Persons who wereneither (i) nominated by the board of directors of Borrower nor (ii) appointedby directors so nominated; or (c) the acquisition of direct or indirectControl of Borrower by any Person or group other than the Koss Family.

###  

### “Change in Law” means(a) the adoption of any law, rule or regulation after the date ofthis Agreement, (b) any change in any law, rule or regulation or inthe interpretation or application thereof by any Governmental Authority afterthe date of this Agreement or (c) compliance by Lender (or, for purposesof Section 2.14(b), by any lending office of Lender or by Lender’s holdingcompany, if any) with any request, guideline or directive (whether or nothaving the force of law) of any Governmental Authority made or issued after thedate of this Agreement.

###  

### “Code” means theInternal Revenue Code of 1986, as amended from time to time.

###  

### “Collateral” has themeaning set forth in the Security Agreement.

###  

### “Collateral AccessAgreement” has the meaning assigned to such term in the Security Agreement.

###  

### “Collateral Documents”means, collectively, the Security Agreement and any other documents granting aLien upon the Collateral as security for payment of the Secured Obligations.

###  

### “Control” means thepossession, directly or indirectly, of the power to direct or cause thedirection of the management or policies of a Person, whether through theability to exercise voting power, by contract or otherwise.  “Controlling” and “Controlled” have meaningscorrelative thereto.

###  

### “CSV” means, on eachdate of determination, the sum of the amounts, as determined for each EligibleLife Insurance Policy, equal to (a) the lesser of (i) the cashsurrender value of such Eligible Life Insurance Policy or (ii) the maximumprincipal amount of policy loans which could be obtained with respect to suchpolicy *minus* (b) in either case, theoutstanding principal balance of, and all accrued interest on, all Indebtednessincurred by the Borrower with respect to such Eligible Life Insurance Policy.

###  

### “Current Ratio” meansthe relationship, expressed as a numerical ratio, between:

 

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(a)                                  the amount of all assetswhich under GAAP would appear as current assets on the consolidated balancesheet of the Borrower and its Subsidiaries, excluding prepaid expenses whichare not refundable on the date the determination is made; and

 

(b)                                 the amount of allliabilities which under GAAP would appear as current liabilities on suchbalance sheet, including all indebtedness payable on demand or maturing (byreason of specified maturity, fixed prepayments, sinking funds or accruals ofany kind, or otherwise) within 12 months of the relevant statement, includingall lease and rental obligations due in 12 months or less under leases, whetheror not Capital Lease Obligations, including customer’s advances and progressbillings on contracts, and including the Revolving Exposure.

 

### “Default” means anyevent or condition which constitutes an Event of Default or which upon notice,lapse of time or both would, unless cured or waived, become an Event ofDefault.

###  

### “Disclosed Matters”means the actions, suits and proceedings and the environmental mattersdisclosed in Schedule 3.06.

###  

### “Document” has themeaning assigned to such term in the Security Agreement.

###  

### “dollars” or “$”refers to lawful money of the United States of America.

###  

### “EBITDA” means, forany period, Net Income for such period *plus* (a) withoutduplication and to the extent deducted in determining Net Income for suchperiod, the sum of (i) Interest Expense for such period, (ii) incometax expense for such period net of tax refunds, (iii) all amountsattributable to depreciation and amortization expense for such period, (iv) anyextraordinary non-cash charges for such period, (v) any other non-cashcharges for such period (but excluding any non-cash charge in respect of anitem that was included in Net Income in a prior period), and (vi) anylosses, costs and expenses, including without limitation attorney’s fees,incurred by the Borrower in connection with the Fraud (provided, however, thatfor all fiscal years commencing on or after July 1, 2011, the amount ofsuch costs and expenses incurred by the Borrower in connection with the Fraudincluded in the calculation of EBITDA shall not exceed $250,000) *minus* (b) without duplicationand to the extent included in Net Income, (i) any cash payments madeduring such period in respect of non-cash charges described in clause (a)(v) takenin a prior period, (ii) any extraordinary gains and any non-cash items ofincome for such period, all calculated for Borrower and its Subsidiaries on aconsolidated basis in accordance with GAAP, and (iii) any amountsrecovered by the Borrower in connection with the Fraud.

###  

### “Effective Date”means the date on which the conditions specified in Section 4.01 aresatisfied (or waived in accordance with Section 8.02).

###  

### “Eligible Accounts”means, at any time, the Accounts of Borrower which Lender determines in itsPermitted Discretion are eligible as the basis for the extension of RevolvingLoans and the issuance of Letters of Credit hereunder.  Without limiting Lender’s discretion providedherein, Eligible Accounts shall not include any Account:

 

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#### (a)                                  which is notsubject to a first priority perfected security interest in favor of Lender;

####  

#### (b)                                 which issubject to any Lien other than (i) a Lien in favor of Lender and (ii) aPermitted Encumbrance which does not have priority over the Lien in favor ofLender (except with respect to inchoate tax liens for taxes which are not yetdue);

####  

#### (c)                                  with is unpaidmore than 120 days after the date of the original invoice therefor or more than60 days after the original due date, or which has been written off the books ofBorrower or otherwise designated as uncollectible;

####  

#### (d)                                 which is owingby an Account Debtor for which more than 25% of the Accounts owing from suchAccount Debtor and its Affiliates are ineligible, unless such Accounts arebacked by a letter of credit or other credit support acceptable to the Lenderin its sole discretion;

####  

#### (e)                                  [intentionallydeleted]

####  

#### (f)                                    which (i) doesnot arise from the sale of goods or performance of services in the ordinarycourse of business, (ii) is not evidenced by an invoice or otherdocumentation satisfactory to Lender which has been sent to the Account Debtor,(iii) represents a progress billing, (iv) is contingent upon Borrower’scompletion of any further performance, (v) represents a sale on abill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment,cash-on-delivery or any other repurchase or return basis, or (vi) relatesto payments of interest;

####  

#### (g)                                 for which thegoods giving rise to such Account have not been shipped to the Account Debtoror for which the services giving rise to such Account have not been performedby Borrower or, if such Account was invoiced more than once, any duplicativeamount;

####  

#### (h)                                 with respect towhich any check or other instrument of payment has been returned uncollectedfor any reason;

####  

#### (i)                                     which is owedby an Account Debtor which has (i) applied for, suffered, or consented tothe appointment of any receiver, custodian, trustee, or liquidator of itsassets, (ii) has had possession of all or a material part of its propertytaken by any receiver, custodian, trustee or liquidator, (iii) filed, orhad filed against it, any request or petition for liquidation, reorganization,arrangement, adjustment of debts, adjudication as bankrupt, winding-up, orvoluntary or involuntary case under any state or federal bankruptcy laws, (iv) hasadmitted in writing its inability, or is generally unable to, pay its debts asthey become due, (v) become insolvent, or (vi) ceased operation ofits business;

####  

#### (j)                                     which is owedby any Account Debtor which has sold all or a substantially all of its assets;

 

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#### (k)                                  which is owedby an Account Debtor which (i) does not maintain its chief executiveoffice in the U.S. or Canada or (ii) is not organized under applicable lawof the U.S., any state of the U.S., Canada, or any province of Canada unless,in either case, such Account is backed by a Letter of Credit acceptable toLender which is in the possession of, and has been assigned to, Lender;

####  

#### (l)                                     which is owedin any currency other than U.S. dollars;

####  

#### (m)                               which is owedby (i) the government (or any department, agency, public corporation, orinstrumentality thereof) of any country other than the U.S. unless such Accountis backed by a Letter of Credit acceptable to Lender which is in the possessionof Lender, or (ii) the government of the U.S., or any department, agency,public corporation, or instrumentality thereof, in excess of $100,000 in theaggregate, unless the Federal Assignment of Claims Act of 1940, as amended (31U.S.C. § 3727 et seq. and 41 U.S.C. § 15 et seq.), and any other stepsnecessary to perfect the Lien of Lender in such Account have been complied withto Lender’s satisfaction;

####  

#### (n)                                 which is owedby any Affiliate, employee, officer, director, agent or stockholder ofBorrower;

####  

#### (o)                                 which is owedby an Account Debtor or any Affiliate of such Account Debtor to which Borroweris indebted, but only to the extent of such indebtedness or is subject to anysecurity, deposit, progress payment, retainage or other similar advance made byor for the benefit of an Account Debtor, in each case to the extent thereof;

####  

#### (p)                                 which issubject to any counterclaim, deduction, defense, setoff or dispute;

####  

#### (q)                                 which isevidenced by any promissory note, chattel paper, or instrument;

####  

#### (r)                                    which is owedby an Account Debtor located in any jurisdiction which requires filing of a “Noticeof Business Activities Report” or other similar report in order to permitBorrower to seek judicial enforcement in such jurisdiction of payment of suchAccount, unless Borrower has filed such report or qualified to do business insuch jurisdiction;

####  

#### (s)                                  with respect towhich Borrower has made any agreement with the Account Debtor for any reductionthereof, other than discounts and adjustments given in the ordinary course ofbusiness, or any Account which was partially paid and Borrower created a newreceivable for the unpaid portion of such Account;

####  

#### (t)                                    which does notcomply in all material respects with the requirements of all applicable lawsand regulations, whether Federal, state or local, including without limitationthe Federal Consumer Credit Protection Act, the Federal Truth in Lending Actand Regulation Z of the Board;

 

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#### (u)                                 which is forgoods that have been sold under a purchase order or pursuant to the terms of acontract or other agreement or understanding (written or oral) that indicatesor purports that any Person other than Borrower has or has had an ownershipinterest in such goods, or which indicates any party other than Borrower aspayee or remittance party;

####  

#### (v)                                 which wascreated on cash on delivery terms; or

####  

#### (w)                               which Lenderdetermines may not be paid by reason of the Account Debtor’s inability to pay.

####  

In the event that an Accountwhich was previously an Eligible Account ceases to be an Eligible Accounthereunder, Borrower shall notify Lender thereof on and at the time ofsubmission to Lender of the next Borrowing Base Certificate.  In determining the amount of an EligibleAccount, the face amount of an Account may, in Lender’s Permitted Discretion,be reduced by, without duplication, to the extent not reflected in such faceamount, (i) the amount of all accrued and actual discounts, claims,credits or credits pending, promotional program allowances, price adjustments,finance charges or other allowances (including any amount that Borrower may beobligated to rebate to an Account Debtor pursuant to the terms of any agreementor understanding (written or oral)) and (ii) the aggregate amount of allcash received in respect of such Account but not yet applied by Borrower toreduce the amount of such Account. Lender, in its Permitted Discretion, may from time to time adjustadvance rates or categories of ineligible Accounts, or impose additionalreserves, to reflect the results of field audits or other changes in Borrower’sbusiness.

 

### “Eligible Finished Goods”means, Eligible Inventory constituting finished goods to be sold by Borrower inthe ordinary course of business of Borrower.

###  

### “Eligible Inventory”means, at any time, the Inventory of Borrower which Lender determines in itsPermitted Discretion is eligible as the basis for the extension of RevolvingLoans, and the issuance of Letters of Credit hereunder.  Without limiting Lender’s discretion providedherein, Eligible Inventory shall not include any Inventory:

###  

#### (a)                                  which is notsubject to a first priority perfected Lien in favor of Lender;

####  

#### (b)                                 which issubject to any Lien other than (i) a Lien in favor of Lender and (ii) aPermitted Encumbrance which does not have priority over the Lien in favor ofLender;

####  

#### (c)                                  which is, inLender’s opinion, slow moving (including inventory in excess of the last 12 monthsof sales), obsolete, unmerchantable, defective, unfit for sale, not salable atprices approximating at least the cost of such Inventory in the ordinary courseof business or unacceptable due to age, type, category and/or quantity;

####  

#### (d)                                 with respect towhich any covenant, representation, or warranty contained in this Agreement orthe Security Agreement has been breached or is not true and which does notconform to all standards imposed by any Governmental Authority;

 

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####  

#### (e)                                  in which anyPerson other than Borrower shall (i) have any direct or indirectownership, interest or title to such Inventory or (ii) be indicated on anypurchase order or invoice with respect to such Inventory as having orpurporting to have an interest therein;

####  

#### (f)                                    which is notfinished goods or which constitutes work-in-process, raw materials, spare orreplacement parts, subassemblies, packaging and shipping material,manufacturing supplies, samples, prototypes, displays or display items,bill-and-hold goods, goods that are returned or marked for return, repossessedgoods, defective or damaged goods, goods held on consignment, or goods whichare not of a type held for sale in the ordinary course of business;

####  

#### (g)                                 which is notlocated in the U.S. or is in transit with a common carrier from vendors andsuppliers;

####  

#### (h)                                 which islocated in any location leased by Borrower unless the lessor has delivered toLender a Collateral Access Agreement (provided that Borrower shall have aperiod of 30 days after the date of this Agreement to provide a CollateralAccess Agreement for its leased facility located at 4129 North Port WashingtonRoad, Milwaukee, Wisconsin, and this clause (h) shall not cause inventorylocated at such location to be ineligible unless Borrower fails to provide aCollateral Access Agreement for such facility during such 30-day period);

####  

#### (i)                                     which islocated in any third party warehouse or is in the possession of a bailee (otherthan a third party processor) and is not evidenced by a Document;

####  

#### (j)                                     which is beingprocessed offsite at a third party location or outside processor, or is intransit to or from said third party location or outside processor;

####  

#### (k)                                  which is adiscontinued product or component thereof which is the subject of a consignmentby Borrower as consignor;

####  

#### (l)                                     which isperishable;

####  

#### (m)                               which containsor bears any intellectual property rights licensed to Borrower unless Lender issatisfied that it may sell or otherwise dispose of such Inventory without (i) infringingthe rights of such licensor, (ii) violating any contract with suchlicensor, or (iii) incurring any liability with respect to payment ofroyalties other than royalties incurred pursuant to sale of such Inventoryunder the current licensing agreement;

####  

#### (n)                                 which is notreflected in a current perpetual inventory report of Borrower; or

####  

#### (o)                                 for whichreclamation rights have been asserted by the seller.

 

9

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In the event that Inventorywhich was previously Eligible Inventory ceases to be Eligible Inventoryhereunder, Borrower shall notify Lender thereof on and at the time ofsubmission to Lender of the next Borrowing Base Certificate.  Lender, in its Permitted Discretion, may fromtime to time adjust advance rates or categories of ineligible Inventory, orimpose additional reserves, to reflect the results of field audits or otherchanges in Borrower’s business.

 

### “Eligible Life InsurancePolicy” means any life insurance policy (excluding term life insurance or “split-dollar”life insurance policies) owned by the Borrower (a) which is subject to afirst priority perfected Lien in favor of the Lender, (b) which is notsubject to a Lien in favor of any other person, (c) with respect to whichall premiums due have been paid in full, (d) the existence, cash surrendervalue and current premium payment status of which have been certified in themost recent Borrowing Base Certificate and (e) which is otherwiseacceptable to the Lender in its sole discretion.  Any life insurance policy which ceases tomeet any of the foregoing qualifications shall cease to be an Eligible LifeInsurance Policy at such time and the Borrower shall notify the Lender thereofon and at the time of submission to the Lender of the next Borrowing Base Certificate.

###  

### “Environmental Laws”means all laws, rules, regulations, codes, ordinances, orders, decrees,judgments, injunctions, notices or binding agreements issued, promulgated orentered into by any Governmental Authority, relating in any way to the environment,preservation or reclamation of natural resources, the management, release orthreatened release of any Hazardous Material or to health and safety matters.

###  

### “Environmental Liability”means any liability, contingent or otherwise (including any liability fordamages, costs of environmental remediation, fines, penalties or indemnities),of Borrower or any Subsidiary directly or indirectly resulting from or basedupon (a) violation of any Environmental Law, (b) the generation, use,handling, transportation, storage, treatment or disposal of any HazardousMaterials, (c) exposure to any Hazardous Materials, (d) the releaseor threatened release of any Hazardous Materials into the environment or (e) anycontract, agreement or other consensual arrangement pursuant to which liabilityis assumed or imposed with respect to any of the foregoing.

###  

### “Equity Interests”means shares of capital stock, partnership interests, membership interests in alimited liability company, beneficial interests in a trust or other equityownership interests in a Person, and any warrants, options or other rightsentitling the holder thereof to purchase or acquire any such equity interest.

###  

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

###  

### “ERISA Affiliate”means any trade or business (whether or not incorporated) that, together withBorrower, is treated as a single employer under Section 414(b) or (c) ofthe Code or, solely for purposes of Section 302 of ERISA and Section 412of the Code, is treated as a single employer under Section 414 of theCode.

 

10

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###  

### “ERISA Event” means (a) any“reportable event”, as defined in Section 4043 of ERISA or the regulationsissued thereunder with respect to a Plan (other than an event for which the30-day notice period is waived); (b) the existence with respect to anyPlan of an “accumulated funding deficiency” (as defined in Section 412 ofthe Code or Section 302 of ERISA), whether or not waived; (c) thefiling pursuant to Section 412(d) of the Code or Section 303(d) ofERISA of an application for a waiver of the minimum funding standard withrespect to any Plan; (d) the incurrence by Borrower or any of its ERISAAffiliates of any liability under Title IV of ERISA with respect to thetermination of any Plan; (e) the receipt by Borrower or any ERISAAffiliate from the PBGC or a plan administrator of any notice relating to anintention to terminate any Plan or Plans or to appoint a trustee to administerany Plan; (f) the incurrence by Borrower or any of its ERISA Affiliates ofany liability with respect to the withdrawal or partial withdrawal from anyPlan or Multiemployer Plan; or (g) the receipt by Borrower or any ERISAAffiliate of any notice, or the receipt by any Multiemployer Plan from Borroweror any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liabilityor a determination that a Multiemployer Plan is, or is expected to be,insolvent or in reorganization, within the meaning of Title IV of ERISA.

###  

### “Eurodollar”, whenused in reference to any Loan or Borrowing, refers to whether such Loan, or theLoans comprising such Borrowing, are bearing interest at a rate determined byreference to the Adjusted LIBO Rate.

###  

### “Event of Default”has the meaning assigned to such term in Article VII.

###  

### “Excluded Taxes”means, with respect to Lender, or any other recipient of any payment to be madeby or on account of any obligation of Borrower hereunder, (a) income orfranchise taxes imposed on (or measured by) its net income by the United Statesof America, or by the jurisdiction under the laws of which such recipient isorganized or in which its principal office is located or, in the case ofLender, in which its applicable lending office is located, (b) any branchprofits taxes imposed by the United States of America or any similar taximposed by any other jurisdiction in which Borrower is located.

###  

### “Federal Funds EffectiveRate” means, for any day, the weighted average (rounded upwards, ifnecessary, to the next 1/100 of 1%) of the rates on overnight Federal fundstransactions with members of the Federal Reserve System arranged by Federalfunds brokers, as published on the next succeeding Business Day by the FederalReserve Bank of New York, or, if such rate is not so published for any day thatis a Business Day, the average (rounded upwards, if necessary, to the next 1/100of 1%) of the quotations for such day for such transactions received by Lenderfrom three Federal funds brokers of recognized standing selected by it.

###  

### “Financial Officer”means the chief financial officer or principal accounting officer of Borrower.

###  

### “Fraud” means theunauthorized transactions by Sujata Sachdeva, the Borrower’s former VicePresident of Finance, as previously disclosed in Form 8-K Current Reportsfiled with the U.S. Securities and Exchange Commission on December 21 and24, 2009, and January 4, 7, 11, and 20, 2010, and any actions,proceedings, or investigations, whether criminal, civil, or administrative,arising out of or in connection therewith.

 

11

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###  

### “Funding Account”shall mean account number 885127381, maintained by Borrower with Lender.

###  

### “GAAP” meansgenerally accepted accounting principles in the United States of America.

###  

### “Governmental Authority”means the government of the United States of America, any other nation or anypolitical subdivision thereof, whether state or local, and any agency,authority, instrumentality, regulatory body, court, central bank or otherentity exercising executive, legislative, judicial, taxing, regulatory oradministrative powers or functions of or pertaining to government.

###  

### “Guarantee” of or byany Person (the “guarantor”) means any obligation, contingent orotherwise, of the guarantor guaranteeing or having the economic effect ofguaranteeing any Indebtedness or other obligation of any other Person (the “primaryobligor”) in any manner, whether directly or indirectly, and including anyobligation of the guarantor, direct or indirect, (a) to purchase or pay(or advance or supply funds for the purchase or payment of) such Indebtednessor other obligation or to purchase (or to advance or supply funds for thepurchase of) any security for the payment thereof, (b) to purchase orlease property, securities or services for the purpose of assuring the owner ofsuch Indebtedness or other obligation of the payment thereof, (c) tomaintain working capital, equity capital or any other financial statementcondition or liquidity of the primary obligor so as to enable the primaryobligor to pay such Indebtedness or other obligation or (d) as an accountparty in respect of any letter of credit or letter of guaranty issued tosupport such Indebtedness or obligation; provided, that the termGuarantee shall not include endorsements for collection or deposit in theordinary course of business.

###  

### “Hazardous Materials”means all explosive or radioactive substances or wastes and all hazardous ortoxic substances, wastes or other pollutants, including petroleum or petroleumdistillates, asbestos or asbestos containing materials, polychlorinatedbiphenyls, radon gas, infectious or medical wastes and all other substances orwastes of any nature regulated pursuant to any Environmental Law.

###  

### “Indebtedness” of anyPerson means, without duplication, (a) all obligations of such Person forborrowed money or with respect to deposits or advances of any kind, (b) allobligations of such Person evidenced by bonds, debentures, notes or similarinstruments, (c) all obligations of such Person upon which interestcharges are customarily paid, (d) all obligations of such Person underconditional sale or other title retention agreements relating to propertyacquired by such Person, (e) all obligations of such Person in respect ofthe deferred purchase price of property or services (excluding current accountspayable incurred in the ordinary course of business), (f) all Indebtednessof others secured by (or for which the holder of such Indebtedness has anexisting right, contingent or otherwise, to be secured by) any Lien on propertyowned or acquired by such Person, whether or not the Indebtedness securedthereby has been assumed, (g) all Guarantees by such Person ofIndebtedness of others, (h) all Capital Lease Obligations of such Person, (i) allobligations, contingent or otherwise, of such Person as an account party inrespect of letters of credit and letters of guaranty, (j) all obligations,contingent or otherwise, of such Person in respect of bankers’ acceptances, (k) obligationsunder any 

 

12

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###  

### liquidated earn-out and (l) obligationsof such Person to purchase securities or other property arising out of or inconnection with the sale of the same or substantially similar securities orproperty or any other Off-Balance Sheet Liability.  The Indebtedness of any Person shall includethe Indebtedness of any other entity (including any partnership in which suchPerson is a general partner) to the extent such Person is liable therefor as aresult of such Person’s ownership interest in or other relationship with suchentity, except to the extent the terms of such Indebtedness provide that suchPerson is not liable therefor.

###  

### “Indemnified Taxes”means Taxes other than Excluded Taxes.

###  

### “Interest ElectionRequest” means a request by Borrower to convert or continue a RevolvingBorrowing in accordance with Section 2.07.

###  

### “Interest Expense”means, with reference to any period, the interest expense (including thatattributable to Capital Lease Obligations) of Borrower and its Subsidiaries forsuch period with respect to all outstanding Indebtedness of Borrower and its Subsidiaries(including all commissions, discounts and other fees and charges owed withrespect to letters of credit and bankers’ acceptance financing and net costsunder Swap Agreements in respect of interest rates to the extent such net costsare allocable to such period in accordance with GAAP), calculated on aconsolidated basis for Borrower and its Subsidiaries for such period inaccordance with GAAP.

###  

### “Interest Payment Date”means (a) with respect to any CB Floating Rate Loan, the first BusinessDay of each calendar month and the Maturity Date, (b) with respect to anyEurodollar Loan, the last day of the Interest Period applicable to theBorrowing of which such Loan is a part and, in the case of a EurodollarBorrowing with an Interest Period of more than three months’ duration, each dayprior to the last day of such Interest Period that occurs at intervals of threemonths’ duration after the first day of such Interest Period, and (c) theMaturity Date.

###  

### “Interest Period”means (a) with respect to any Eurodollar Borrowing, the period commencingon the date of such Borrowing and ending on the numerically corresponding dayin the calendar month that is one, two or three months thereafter, as Borrowermay elect; provided, that (i) if any Interest Period would end on aday other than a Business Day, such Interest Period shall be extended to thenext succeeding Business Day unless, in the case of a Eurodollar Borrowingonly, such next succeeding Business Day would fall in the next calendar month,in which case such Interest Period shall end on the next preceding Business Dayand (ii) any Interest Period pertaining to a Eurodollar Borrowing thatcommences on the last Business Day of a calendar month (or on a day for whichthere is no numerically corresponding day in the last calendar month of suchInterest Period) shall end on the last Business Day of the last calendar monthof such Interest Period.  For purposeshereof, the date of a Borrowing initially shall be the date on which suchBorrowing is made and, in the case of a Revolving Borrowing, thereafter shallbe the effective date of the most recent conversion or continuation of suchBorrowing.

###  

### “Inventory” has themeaning assigned to such term in the Security Agreement.

 

13

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###  

### “Koss Family” meansJohn Koss, Sr., together with his lineal descendants and any trusts forthe benefit of, and estates of, any of the foregoing individuals.

###  

### “LC Collateral Account”has the meaning assigned to such term in Section 2.05(h).

###  

### “LC Disbursement”means a payment made by Lender pursuant to a Letter of Credit.

###  

### “LC Exposure” means,at any time, the sum of (a) the aggregate undrawn amount of alloutstanding Letters of Credit at such time plus (b) the aggregate amountof all LC Disbursements that have not yet been reimbursed by or on behalf ofBorrower at such time.

###  

### “Lender” meansJPMorgan Chase Bank, N.A.

###  

### “Letter of Credit”means any letter of credit issued pursuant to this Agreement.

###  

### “Letter of CreditSublimit” means $2,000,000.

###  

### “Leverage Ratio”means, on any date, the ratio of (a) Total Indebtedness on such date to (b) EBITDAfor the period of four consecutive fiscal quarters ended on such date (or, ifsuch date is not the last day of a fiscal quarter, ended on the last day of thefiscal quarter most recently ended prior to such date).

###  

### “LIBO Rate” means,with respect to any Eurodollar Borrowing for any Interest Period, the rateappearing on Page 3750 of the Dow Jones Market Service (the “Service”)(or on any successor or substitute page of such Service, or any successorto or substitute for such Service, providing rate quotations comparable tothose currently provided on such page of such Service, as determined byLender from time to time for purposes of providing quotations of interest ratesapplicable to dollar deposits in the London interbank market) (the “Page”)at approximately 11:00 a.m., London time, two Business Days prior to thecommencement of such Interest Period, as the rate for dollar deposits with amaturity comparable to such Interest Period. In the event that such rate is not available at such time for anyreason, then the “LIBO Rate” with respect to such Eurodollar Borrowingfor such Interest Period shall be the rate at which dollar deposits of$5,000,000 and for a maturity comparable to such Interest Period are offered bythe principal London office of Lender in immediately available funds in theLondon interbank market at approximately 11:00 a.m., London time, twoBusiness Days prior to the commencement of such Interest Period.

###  

### “Lien” means, withrespect to any asset, (a) any mortgage, deed of trust, lien, pledge,hypothecation, encumbrance, charge or security interest in, on or of suchasset, (b) the interest of a vendor or a lessor under any conditional saleagreement, capital lease or title retention agreement (or any financing leasehaving substantially the same economic effect as any of the foregoing) relatingto such asset and (c) in the case of securities, any purchase option, callor similar right of a third party with respect to such securities.

###  

### “Loan Documents”means this Agreement, any promissory notes issued pursuant to the Agreement,any Letter of Credit applications, the Collateral Documents, and all other 

 

14

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###  

### agreements, instruments, documents andcertificates identified in Section 4.01 executed and delivered to, or infavor of, Lender and including all other pledges, powers of attorney, consents,assignments, contracts, notices, letter of credit agreements and all otherwritten matter whether heretofore, now or hereafter executed by or on behalf ofBorrower, and delivered to Lender in connection with the Agreement or thetransactions contemplated thereby.  Anyreference in the Agreement or any other Loan Document to a Loan Document shallinclude all appendices, exhibits or schedules thereto, and all amendments,restatements, supplements or other modifications thereto, and shall refer tothe Agreement or such Loan Document as the same may be in effect at any and alltimes such reference becomes operative.

###  

### “Loans” means theloans and advances made by Lender pursuant to this Agreement, includingProtective Advances.

###  

### “Material Adverse Effect”means a material adverse effect on (a) the business, assets, operations,prospects or condition, financial or otherwise, of Borrower and theSubsidiaries taken as a whole, (b) the ability of Borrower to perform anyof its obligations under the Loan Documents, (c) the Collateral, or Lender’sLiens on the Collateral or the priority of such Liens, or (d) the rightsof or benefits available to Lender thereunder.

###  

### “Material Indebtedness”means Indebtedness (other than the Loans and Letters of Credit), or obligationsin respect of one or more Swap Agreements, of any one or more of Borrower andits Subsidiaries in an aggregate principal amount exceeding $250,000.  For purposes of determining MaterialIndebtedness, the “obligations” of Borrower or any Subsidiary in respect of anySwap Agreement at any time shall be the maximum aggregate amount (giving effectto any netting agreements) that Borrower or such Subsidiary would be requiredto pay if such Swap Agreement were terminated at such time.

###  

### “Maturity Date” meansJuly 31, 2013 or any earlier date on which the Revolving Commitment isreduced to zero or otherwise terminated pursuant to the terms hereof.

###  

### “Moody’s” means Moody’sInvestors Service, Inc.

###  

### “Multiemployer Plan”means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

###  

### “Net Income” means,for any period, the consolidated net income (or loss) of Borrower and itsSubsidiaries, determined on a consolidated basis in accordance with GAAP; providedthat there shall be excluded (a) the income (or deficit) of any Personaccrued prior to the date it becomes a Subsidiary or is merged into orconsolidated with Borrower or any of its Subsidiaries, (b) the income (ordeficit) of any Person (other than a Subsidiary) in which Borrower or any ofits Subsidiaries has an ownership interest, except to the extent that any suchincome is actually received by Borrower or such Subsidiary in the form ofdividends or similar distributions and (c) the undistributed earnings ofany Subsidiary to the extent that the declaration or payment of dividends orsimilar distributions by such Subsidiary is not at the time permitted by theterms of any contractual obligation (other than under any Loan Document) orRequirement of Law applicable to such Subsidiary.

 

15

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###  

### “Net Proceeds” means,with respect to any event, (a) the cash proceeds received in respect ofsuch event including (i) any cash received in respect of any non-cashproceeds (including any cash payments received by way of deferred payment ofprincipal pursuant to a note or installment receivable or purchase priceadjustment receivable or otherwise, but excluding any interest payments), butonly as and when received, (ii) in the case of a casualty, insuranceproceeds payable to the Company or to the Lender for the benefit of the Companyand (iii) in the case of a condemnation or similar event, condemnationawards and similar payments payable to the Company or to the Lender for thebenefit of the Company, net of (b) the sum of (i) all reasonable feesand out-of-pocket expenses paid to third parties (other than Affiliates) inconnection with such event, (ii) in the case of a sale, transfer or otherdisposition of an asset (including pursuant to a sale and leaseback transactionor a casualty or a condemnation or similar proceeding), the amount of allpayments required to be made as a result of such event to repay Indebtedness(other than Loans) secured by such asset or otherwise subject to mandatoryprepayment as a result of such event and (iii) the amount of all taxespaid (or reasonably estimated to be payable) and the amount of any reservesestablished to fund contingent liabilities reasonably estimated to be payable,in each case during the year that such event occurred or the next succeedingyear and that are directly attributable to such event (as determined reasonablyand in good faith by a Financial Officer).

###  

### “Obligations” meansall unpaid principal of and accrued and unpaid interest on the Loans, all LCExposure, all accrued and unpaid fees and all expenses, reimbursements,indemnities and other obligations of Borrower or any Subsidiary to Lender orany indemnified party arising under the Loan Documents.  Obligations shall also include (i) allBanking Services Obligations; and (ii) all Swap Obligations owing toLender or its Affiliates.

###  

### “Off-Balance SheetLiability” of a Person means (a) any repurchase obligation orliability of such Person with respect to accounts or notes receivable sold bysuch Person, (b) any indebtedness, liability or obligation under any saleand leaseback transaction which is not a Capital Lease Obligation, or (c) anyindebtedness, liability or obligation under any so-called “synthetic lease”transaction entered into by such Person, or (d) any indebtedness,liability or obligation arising with respect to any other transaction which isthe functional equivalent of or takes the place of borrowing but which does notconstitute a liability on the balance sheets of such Person (other thanoperating leases).

###  

### “Other Taxes” meansany and all present or future stamp or documentary taxes or any other excise orproperty taxes, charges or similar levies arising from any payment madehereunder or from the execution, delivery or enforcement of, or otherwise withrespect to, this Agreement.

###  

### “Participant” has themeaning set forth in Section 8.04.

###  

### “PBGC” means thePension Benefit Guaranty Corporation referred to and defined in ERISA and anysuccessor entity performing similar functions.

###  

### “Permitted Discretion”means a determination made in good faith and in the exercise of reasonable (fromthe perspective of a secured asset-based lender) business judgment.

 

16

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###  

### “Permitted Encumbrances”means:

###  

#### (a)                                  Liens imposedby law for taxes that are not yet due or are being contested in compliance withSection 5.04;

####  

#### (b)                                 carriers’,warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liensimposed by law, arising in the ordinary course of business and securingobligations that are not overdue by more than 30 days or are being contested incompliance with Section 5.04;

####  

#### (c)                                  pledges anddeposits made in the ordinary course of business in compliance with workers’compensation, unemployment insurance and other social security laws orregulations;

####  

#### (d)                                 deposits tosecure the performance of bids, trade contracts, leases, statutory obligations,surety and appeal bonds, performance bonds and other obligations of a likenature, in each case in the ordinary course of business;

####  

#### (e)                                  judgment liensin respect of judgments that do not constitute an Event of Default under clause(k) of Article VII; and

####  

#### (f)                                    easements,zoning restrictions, rights-of-way and similar encumbrances on real propertyimposed by law or arising in the ordinary course of business that do not secureany monetary obligations and do not materially detract from the value of theaffected property or interfere with the ordinary conduct of business ofBorrower or any Subsidiary;

####  

provided that the term “PermittedEncumbrances” shall not include any Lien securing Indebtedness.

 

### “Permitted Investments”means:

###  

#### (a)                                  directobligations of, or obligations the principal of and interest on which areunconditionally guaranteed by, the United States of America (or by any agencythereof to the extent such obligations are backed by the full faith and creditof the United States of America), in each case maturing within one year fromthe date of acquisition thereof;

####  

#### (b)                                 investments incommercial paper maturing within 270 days from the date of acquisition thereofand having, at such date of acquisition, the highest credit rating obtainablefrom S&P or from Moody’s;

####  

#### (c)                                  investments incertificates of deposit, banker’s acceptances and time deposits maturing within180 days from the date of acquisition thereof issued or guaranteed by or placedwith, and money market deposit accounts issued or offered by, any domesticoffice of any commercial bank organized under the laws of the United States ofAmerica or any State thereof which has a combined capital and surplus andundivided profits of not less than $500,000,000;

 

17

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####  

#### (d)                                 fullycollateralized repurchase agreements with a term of not more than 30 days forsecurities described in clause (a) above and entered into with a financialinstitution satisfying the criteria described in clause (c) above;

####  

#### (e)                                  money marketfunds that (i) comply with the criteria set forth in Securities andExchange Commission Rule 2a-7 under the Investment Company Act of 1940, (ii) arerated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets ofat least $5,000,000,000; and

####  

#### (f)                                    any otherinvestment agreed to in writing by the Bank in advance.

####  

### “Person” means anynatural person, corporation, limited liability company, trust, joint venture,association, company, partnership, Governmental Authority or other entity.

###  

### “Plan” means anyemployee pension benefit plan (other than a Multiemployer Plan) subject to theprovisions of Title IV of ERISA or Section 412 of the Code or Section 302of ERISA, and in respect of which Borrower or any ERISA Affiliate is (or, ifsuch plan were terminated, would under Section 4069 of ERISA be deemed tobe) an “employer” as defined in Section 3(5) of ERISA.

###  

### “Prepayment Event”means:

###  

#### (a)                                  any sale,transfer or other disposition (including pursuant to a sale and leasebacktransaction) of any property or asset of the Borrower or any Subsidiary, otherthan transfers or dispositions of cash and Permitted Investments and otherdispositions described in Sections 6.05(a), (c) or (g); or

####  

#### (b)                                 any casualty orother insured damage to, or any taking under power of eminent domain or bycondemnation or similar proceeding of, any property or asset of Borrower or anySubsidiary with a fair value immediately prior to such event equal to orgreater than $500,000; or

####  

#### (c)                                  the issuance byBorrower or any Subsidiary of any Equity Interests, or the receipt by Borrowerof any capital contribution; or

####  

#### (d)                                 the incurrenceby Borrower or any Subsidiary of any Indebtedness, other than Indebtednesspermitted under Section 6.01.

####  

### “Prime Rate” meansthe rate of interest per annum publicly announced from time to time by Lenderas its prime rate; each change in the Prime Rate shall be effective from andincluding the date such change is publicly announced as being effective.

###  

### “Projections” has themeaning assigned to such term in Section 5.01(f).

###  

### “Protective Advance”has the meaning assigned to such term in Section 2.04.

 

18

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###  

### “Related Parties”means, with respect to any specified Person, such Person’s Affiliates and therespective directors, officers, employees, agents and advisors of such Personand such Person’s Affiliates.

###  

### “Report” meansreports prepared by Lender or another Person showing the results of appraisals,field examinations or audits pertaining to Borrower’s assets from informationfurnished by or on behalf of Borrower, after Lender has exercised its rights ofinspection pursuant to this Agreement.

###  

### “Requirement of Law”:  as to any Person, the Certificate ofIncorporation and By-Laws or other organizational or governing documents ofsuch Person, and any law, treaty, rule or regulation or determination ofan arbitrator or a court or other Governmental Authority, in each caseapplicable to or binding upon such Person or any of its property or to whichsuch Person or any of its property is subject.

###  

### “Reserves” means anyand all reserves which Lender deems necessary, in its Permitted Discretion, tomaintain (including, without limitation, an availability reserve, reserves foraccrued and unpaid interest on the Secured Obligations, Banking ServicesReserves, reserves for rent at locations leased by Borrower or any Subsidiaryand for consignee’s, warehousemen’s and bailee’s charges, reserves for dilutionof Accounts, reserves for Inventory shrinkage, reserves for customs charges andshipping charges related to any Inventory in transit, reserves for SwapObligations, reserves for contingent liabilities of Borrower or any Subsidiary,reserves for uninsured losses of Borrower or any Subsidiary, reserves foruninsured, underinsured, un indemnified or under indemnified liabilities orpotential liabilities with respect to any litigation and reserves for taxes,fees, assessments, and other governmental charges) with respect to theCollateral, Borrower or any Subsidiary.

###  

### “Restricted Payment”means any dividend or other distribution (whether in cash, securities or otherproperty) with respect to any Equity Interests in Borrower or any Subsidiary,or any payment (whether in cash, securities or other property), including anysinking fund or similar deposit, on account of the purchase, redemption,retirement, acquisition, cancellation or termination of any such EquityInterests in Borrower or any option, warrant or other right to acquire any suchEquity Interests in Borrower.

###  

### “Revolving Commitment”means the commitment of Lender to make Revolving Loans and issue Letters ofCredit, as such commitment may be reduced from time to time pursuant to Section 2.08.  The initial amount of Lender’s Revolving Commitmentis $8,000,000.

###  

### “Revolving Exposure”means, at any time, the sum of the outstanding principal amount of RevolvingLoans and LC Exposure at such time.

###  

### “Revolving Loan”means a Loan made pursuant to Section 2.01.

###  

### “S&P” meansStandard & Poor’s Ratings Services, a division of The McGraw HillCompanies, Inc.

###  

### “Secured Obligations”means all Obligations, together with all (i) Banking Services Obligationsand (ii) Swap Obligations owing to Lender or its Affiliates.

 

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###  

### “Security Agreement”means that certain Pledge and Security Agreement, dated as of the date hereof,between Borrower and Lender, and any other pledge or security agreement enteredinto, after the date of this Agreement by Borrower (as required by thisAgreement or any other Loan Document), or any other Person, as the same may beamended, restated or otherwise modified from time to time.

###  

### “Statutory Reserve Rate”means a fraction (expressed as a decimal), the numerator of which is the numberone and the denominator of which is the number one minus the aggregate of themaximum reserve percentages (including any marginal, special, emergency orsupplemental reserves) expressed as a decimal established by the Board to whichLender is subject with respect to the Adjusted LIBO Rate, for eurocurrencyfunding (currently referred to as “Eurocurrency Liabilities” in Regulation D ofthe Board).  Such reserve percentagesshall include those imposed pursuant to such Regulation D.  Eurodollar Loans shall be deemed toconstitute eurocurrency funding and to be subject to such reserve requirementswithout benefit of or credit for proration, exemptions or offsets that may beavailable from time to time to Lender under such Regulation D or any comparableregulation.  The Statutory Reserve Rateshall be adjusted automatically on and as of the effective date of any changein any reserve percentage.

###  

### “subsidiary” means,with respect to any Person (the “parent”) at any date, any corporation,limited liability company, partnership, association or other entity theaccounts of which would be consolidated with those of the parent in the parent’sconsolidated financial statements if such financial statements were prepared inaccordance with GAAP as of such date, as well as any other corporation, limitedliability company, partnership, association or other entity (a) of whichsecurities or other ownership interests representing more than 50% of theequity or more than 50% of the ordinary voting power or, in the case of apartnership, more than 50% of the general partnership interests are, as of suchdate, owned, controlled or held, or (b) that is, as of such date,otherwise Controlled, by the parent or one or more subsidiaries of the parentor by the parent and one or more subsidiaries of the parent.

###  

### “Subsidiary” meansany direct or indirect subsidiary of Borrower.

###  

### “Swap Agreement”means any agreement with respect to any swap, forward, future or derivativetransaction or option or similar agreement involving, or settled by referenceto, one or more rates, currencies, commodities, equity or debt instruments orsecurities, or economic, financial or pricing indices or measures of economic,financial or pricing risk or value or any similar transaction or anycombination of these transactions; provided that no phantom stock or similarplan providing for payments only on account of services provided by current orformer directors, officers, employees or consultants of Borrower or theSubsidiaries shall be a Swap Agreement.

###  

### “Swap Obligations” ofa Person means any and all obligations of such Person, whether absolute orcontingent and howsoever and whensoever created, arising, evidenced or acquired(including all renewals, extensions and modifications thereof and substitutionstherefor), under (a) any and all Swap Agreements, and (b) any and allcancellations, buy backs, reversals, terminations or assignments of any SwapAgreement transaction.

 

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###  

### “Tangible Net Worth”means the total of all assets properly appearing on the consolidated balancesheet of the Borrower and its Subsidiaries in accordance with GAAP, less thesum of the following:

###  

#### (a)                                  the book amountof all such assets which would be treated as intangibles under GAAP, including,without limitation, all such items as good will, trademarks, trademark rights,trade names, trade-name rights, brands, copyrights, patents, patent rights,licenses, deferred charges and unamortized debt discount and expense;

####  

#### (b)                                 any write-up inthe book value of any such assets resulting from a revaluation thereofsubsequent to the date of this Agreement;

####  

#### (c)                                  all reserves,including reserves for depreciation, obsolescence, depletion, insurance, andinventory valuation, but excluding contingency reserves not allocated for anyparticular purpose and not deducted from assets;

####  

#### (d)                                 the amount, ifany, at which any shares of stock of the Borrower or any Subsidiary appear onthe asset side of such consolidated balance sheet;

####  

#### (e)                                  all otherliabilities of the Borrower and its Subsidiaries shown on such balance sheet,other than liabilities subordinated to obligations owed to the Bank bysubordination agreements in form and substance satisfactory to the Bank; and

####  

#### (f)                                    all investmentsin foreign affiliates and nonconsolidated domestic affiliates.

####  

### “Taxes” means any andall present or future taxes, levies, imposts, duties, deductions, charges orwithholdings imposed by any Governmental Authority.

###  

### “Total Indebtedness”means, at any date, the aggregate principal amount of all Indebtedness ofBorrower and its Subsidiaries at such date, determined on a consolidated basisin accordance with GAAP.

###  

### “Transactions” meansthe execution, delivery and performance by Borrower of this Agreement, theborrowing of Loans and other credit extensions, the use of the proceeds thereofand the issuance of Letters of Credit hereunder.

###  

### “UCC” means theUniform Commercial Code as in effect from time to time in the State ofWisconsin or any other state the laws of which are required to be applied inconnection with the issue of perfection of security interests.

###  

### “Withdrawal Liability”means liability to a Multiemployer Plan as a result of a complete or partialwithdrawal from such Multiemployer Plan, as such terms are defined in Part Iof Subtitle E of Title IV of ERISA.

###  

SECTION 1.02.  Accounting Terms; GAAP.  Except as otherwise expressly providedherein, all terms of an accounting or financial nature shall be construed inaccordance with GAAP, as in effect from time to time; provided that, ifBorrower notifies Lender that 

 

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Borrowerrequests an amendment to any provision hereof to eliminate the effect of anychange occurring after the date hereof in GAAP or in the application thereof onthe operation of such provision (or if Lender notifies Borrower that Lenderrequest an amendment to any provision hereof for such purpose), regardless ofwhether any such notice is given before or after such change in GAAP or in theapplication thereof, then such provision shall be interpreted on the basis ofGAAP as in effect and applied immediately before such change shall have becomeeffective until such notice shall have been withdrawn or such provision amendedin accordance herewith.

 

# ARTICLE II

#  

# The Credits

#  

SECTION 2.01.  Commitment.  Subject to the terms and conditions set forthherein, Lender agrees to make Revolving Loans to Borrower from time to timeduring the Availability Period in an aggregate principal amount that will notresult in the Revolving Exposure exceeding the lesser of (a) the RevolvingCommitment or (b) the Borrowing Base, subject to Lender’s authority, inits sole discretion, to make Protective Advances pursuant to the terms of Section 2.04,by making immediately available funds available to the account designated byBorrower in writing.  Within theforegoing limits and subject to the terms and conditions set forth herein,Borrower may borrow, prepay and reborrow Revolving Loans.

 

SECTION 2.02.  Loans and Borrowings.  (a)  Any Protective Advance shall bemade in accordance with the procedures set forth in Section 2.04.

 

##### (b)                                 Subject to Section 2.13,each Revolving Borrowing shall be comprised entirely of CB Floating Rate Loansor Eurodollar Loans as Borrower may request in accordance herewith, providedthat all Borrowings made on the Effective Date must be made as CB Floating RateBorrowings.

#####  

##### (c)                                  At thecommencement of each Interest Period for any Eurodollar Revolving Borrowing,such Borrowing shall be in an aggregate amount that is not less than$100,000.  CB Floating Rate RevolvingBorrowings may be in any amount.  Thereshall not at any time be more than a total of 5****EurodollarRevolving Borrowings outstanding.

#####  

##### (d)                                 Notwithstandingany other provision of this Agreement, Borrower shall not be entitled torequest, or to elect to convert or continue, any Borrowing if the InterestPeriod requested with respect thereto would end after the Maturity Date.

#####  

SECTION 2.03.  Borrowing Procedures; Requests forRevolving Borrowings.

 

##### (a)                                  Notices byBorrower to Lender of requests for Revolving Loans other than pursuant to§2.03(a).  To requesta Revolving Borrowing, Borrower shall notify Lender of such request bytelephone (a) in the case of a Eurodollar Borrowing, not later than 10:00 a.m.,Milwaukee time, two Business Days before the date of the proposed Borrowing or (b) inthe case of an CB Floating Rate Borrowing, not later than noon, Milwaukee time,on the date of the proposed Borrowing; provided that any such notice ofan CB Floating Rate Revolving Borrowing to finance the reimbursement of an LCDisbursement as contemplated by Section 

 

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#####  

##### 2.05(e) may be givennot later than 9:00 a.m., Milwaukee time, on the date of the proposedBorrowing.  Each such telephonicBorrowing Request shall be irrevocable and shall be confirmed promptly by handdelivery or facsimile to Lender of a written Borrowing Request in a formapproved by Lender and signed by Borrower. Each such telephonic and written Borrowing Request shall specify thefollowing information in compliance with Section 2.01:

#####  

###### (i)                                     the aggregateamount of the requested Borrowing;

######  

###### (ii)                                  the date ofsuch Borrowing, which shall be a Business Day;

######  

###### (iii)                               whether suchBorrowing is to be an CB Floating Rate Borrowing or a Eurodollar Borrowing; and

######  

###### (iv)                              in the case ofa Eurodollar Borrowing, the initial Interest Period to be applicable thereto,which shall be a period contemplated by the definition of the term “InterestPeriod.”

######  

If no election as to therate of interest applicable to the Revolving Borrowing is specified, then therequested Revolving Borrowing shall be an CB Floating Rate Borrowing.  If no Interest Period is specified with respectto any requested Eurodollar Revolving Borrowing, then Borrower shall be deemedto have selected an Interest Period of one month’s duration.

 

SECTION 2.04.  Protective Advances. Subject to thelimitations set forth below, Lender is authorized by Borrower, from time totime in Lender’s sole discretion (but shall have absolutely no obligation to),to make Loans to Borrower, which Lender, in its Permitted Discretion, deemsnecessary or desirable (i) to preserve or protect the Collateral, or anyportion thereof, (ii) to enhance the likelihood of, or maximize the amountof, repayment of the Loans and other Obligations, or (iii) to pay anyother amount chargeable to or required to be paid by Borrower pursuant to theterms of this Agreement, including payments of principal, interest, LCDisbursements, fees, premiums, reimbursable expenses (including costs, fees,and expenses as described in Section 8.03) and other sums payable underthe Loan Documents (any of such Loans are herein referred to as “ProtectiveAdvances”).  Protective Advances may bemade even if the conditions precedent set forth in Section 4.02 have notbeen satisfied.  The Protective Advancesshall be secured by the Liens in favor of Lender in and to the Collateral andshall constitute Obligations hereunder. All Protective Advances shall be CB Floating Rate Borrowings.  Unless an Event of Default shall haveoccurred and be continuing, Lender shall provide Borrower with three (3) daysprior notice of its intention to make a Protective Advance.

 

SECTION 2.05.  Letters of Credit.  (a) General.  Subject to the terms and conditions set forthherein, Borrower may request the issuance of Letters of Credit for its ownaccount, in a form reasonably acceptable to Lender at any time and from time totime during the Availability Period.  Inthe event of any inconsistency between the terms and conditions of thisAgreement and the terms and conditions of any form of letter of creditapplication or other agreement submitted by Borrower to, or entered into byBorrower with, Lender relating to any Letter of Credit, the terms andconditions of this Agreement shall control.

 

##### (b)                                 Notice ofIssuance, Amendment, Renewal, Extension; Certain Conditions.  To request the issuance of a Letter of Credit(or the amendment, renewal or extension of an 

 

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##### outstanding Letter ofCredit), Borrower shall hand deliver or facsimile (or transmit by electroniccommunication, if arrangements for doing so have been approved by Lender) toLender (prior to 12:00 p.m., Milwaukee time, at least three Business Daysprior to the requested date of issuance, amendment, renewal or extension) anotice requesting the issuance of a Letter of Credit, or identifying the Letterof Credit to be amended, renewed or extended, and specifying the date ofissuance, amendment, renewal or extension (which shall be a Business Day), thedate on which such Letter of Credit is to expire (which shall comply withparagraph (c) of this Section), the amount of such Letter of Credit, thename and address of the beneficiary thereof and such other information as shallbe necessary to prepare, amend, renew or extend such Letter of Credit.  If requested by Lender, Borrower also shallsubmit a letter of credit application on Lender’s standard form in connectionwith any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if(and upon issuance, amendment, renewal or extension of each Letter of CreditBorrower shall be deemed to represent and warrant that), after giving effect tosuch issuance, amendment, renewal or extension (i) the LC Exposure shallnot exceed the Letter of Credit Sublimit and (ii) the total RevolvingExposure shall not exceed the lesser of the total Revolving Commitment and theBorrowing Base.

#####  

##### (c)                                  Expiration Date.  Each Letter of Credit shall expire at orprior to the close of business on the earlier of (i) the date one yearafter the date of the issuance of such Letter of Credit (or, in the case of anyrenewal or extension thereof, one year after such renewal or extension) and (ii) thedate that is five Business Days prior to the Maturity Date; provided, however,that notwithstanding any term herein to the contrary, prior to the MaturityDate a Letter of Credit may be issued or extended with an expiry date extendingbeyond the Maturity Date if, and to the extent that, the Borrower provides cashcollateral to the Lender not later than ten (10) days prior to theMaturity Date in an amount equal to 105% of the maximum amount available to bedrawn under such Letter of Credit.

#####  

##### (d)                                 Reimbursement.  If Lender shall make any LC Disbursement inrespect of a Letter of Credit, Borrower shall reimburse such LC Disbursement bypaying to Lender an amount equal to such LC Disbursement not later than 11:00 a.m.,Milwaukee time, on the date that such LC Disbursement is made, if Borrowershall have received notice of such LC Disbursement prior to 9:00 a.m.,Milwaukee time, on such date, or, if such notice has not been received byBorrower prior to such time on such date, then not later than 11:00 a.m.,Milwaukee time, on (i) the Business Day that Borrower receives suchnotice, if such notice is received prior to 9:00 a.m., Milwaukee time, onthe day of receipt, or (ii) the Business Day immediately following the daythat Borrower receives such notice, if such notice is not received prior tosuch time on the day of receipt; provided that Borrower may, subject tothe conditions to borrowing set forth herein, request in accordance with Section 2.03that such payment be financed with an CB Floating Rate Revolving Borrowing inan equivalent amount and, to the extent so financed, Borrower’s obligation tomake such payment shall be discharged and replaced by the resulting CB FloatingRate Revolving Borrowing.

#####  

##### (e)                                  ObligationsAbsolute.  Borrower’sobligation to reimburse LC Disbursements as provided in paragraph (d) ofthis Section shall be absolute, unconditional and irrevocable, and shallbe performed strictly in accordance with the terms of this Agreement under anyand all circumstances whatsoever and irrespective of (i) any lack ofvalidity or enforceability of any Letter of Credit or this Agreement, or anyterm or provision therein, (ii) any draft or other 

 

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##### document presented under aLetter of Credit proving to be forged, fraudulent or invalid in any respect orany statement therein being untrue or inaccurate in any respect, (iii) paymentby Lender under a Letter of Credit against presentation of a draft or otherdocument that does not comply with the terms of such Letter of Credit, or (iv) anyother event or circumstance whatsoever, whether or not similar to any of theforegoing, that might, but for the provisions of this Section, constitute alegal or equitable discharge of, or provide a right of setoff against, Borrower’sobligations hereunder.  Neither Lendernor any of its Related Parties, shall have any liability or responsibility byreason of or in connection with the issuance or transfer of any Letter ofCredit or any payment or failure to make any payment thereunder (irrespectiveof any of the circumstances referred to in the preceding sentence), or anyerror, omission, interruption, loss or delay in transmission or delivery of anydraft, notice or other communication under or relating to any Letter of Credit(including any document required to make a drawing thereunder), any error ininterpretation of technical terms or any consequence arising from causes beyondthe control of Lender; provided that the foregoing shall not beconstrued to excuse Lender from liability to Borrower to the extent of anydirect damages (as opposed to consequential damages, claims in respect of whichare hereby waived by Borrower to the extent permitted by applicable law)suffered by Borrower that are caused by Lender’s failure to exercise care whendetermining whether drafts and other documents presented under a Letter ofCredit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligenceor willful misconduct on the part of Lender (as finally determined by a courtof competent jurisdiction), Lender shall be deemed to have exercised care ineach such determination.  In furtheranceof the foregoing and without limiting the generality thereof, the parties agreethat, with respect to documents presented which appear on their face to be insubstantial compliance with the terms of a Letter of Credit, Lender may, in itssole discretion, either accept and make payment upon such documents without responsibilityfor further investigation, regardless of any notice or information to thecontrary, or refuse to accept and make payment upon such documents if suchdocuments are not in strict compliance with the terms of such Letter of Credit.

#####  

##### (f)                                    DisbursementProcedures.  Lendershall, promptly following its receipt thereof, examine all documents purportingto represent a demand for payment under a Letter of Credit.  Lender shall promptly notify Borrower bytelephone (confirmed by facsimile) of such demand for payment and whetherLender has made or will make an LC Disbursement thereunder; provided that anyfailure to give or delay in giving such notice shall not relieve Borrower ofits obligation to reimburse Lender with respect to any such LC Disbursement.

#####  

##### (g)                                 InterimInterest.  If Lendershall make any LC Disbursement, then, unless Borrower shall reimburse such LCDisbursement in full on the date such LC Disbursement is made, the unpaidamount thereof shall bear interest, for each day from and including the datesuch LC Disbursement is made to but excluding the date that Borrower reimbursessuch LC Disbursement, at the rate per annum then applicable to CB Floating RateRevolving Loans; provided that, if Borrower fails to reimburse such LCDisbursement when due pursuant to paragraph (e) of this Section, then Section 2.12(d) shallapply.  Interest accrued pursuant to thisparagraph shall be for the account of Lender.

#####  

##### (h)                                 CashCollateralization.  If anyEvent of Default shall occur and be continuing, on the Business Day thatBorrower receives notice from Lender demanding the deposit of cash collateralpursuant to this paragraph, Borrower shall deposit in an account with 

 

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##### Lender, in the name and forthe benefit of Lender (the “LC Collateral Account”), an amount in cashequal to 105% of the LC Exposure as of such date plus accrued and unpaidinterest thereon; provided that the obligation to deposit such cashcollateral shall become effective immediately, and such deposit shall becomeimmediately due and payable, without demand or other notice of any kind, uponthe occurrence of any Event of Default with respect to Borrower described inclause (h) or (i) of Article VII.  Such deposit shall be held by Lender as collateralfor the payment and performance of the Secured Obligations.  Lender shall have exclusive dominion andcontrol, including the exclusive right of withdrawal, over such account andBorrower hereby grants Lender a security interest in the LC Collateral Account.  Other than any interest earned on theinvestment of such deposits, which investments shall be made at the option andsole discretion of Lender and at Borrower’s risk and expense, such depositsshall not bear interest.  Interest orprofits, if any, on such investments shall accumulate in such account.  Moneys in such account shall be applied byLender for LC Disbursements for which it has not been reimbursed and, to theextent not so applied, shall be held for the satisfaction of the reimbursement obligationsof Borrower for the LC Exposure at such time or, if the maturity of the Loanshas been accelerated, be applied to satisfy other Secured Obligations.  If Borrower is required to provide an amountof cash collateral hereunder as a result of the occurrence of an Event ofDefault, such amount (to the extent not applied as aforesaid) shall be returnedto Borrower within three Business Days after all such Defaults have been curedor waived.

#####  

SECTION 2.06.  Funding of Borrowings.  Lender shall make each Loan to be made by ithereunder on the proposed date thereof available to Borrower by promptlycrediting the amounts in immediately available funds, to the Funding Account;provided that CB Floating Rate Revolving Loans made to finance the reimbursementof an LC Disbursement as provided in Section 2.05(e) or a ProtectiveAdvance shall be retained by Lender.

 

SECTION 2.07.  Interest Elections.  (a)  Each Revolving Borrowing initiallyshall bear interest at the rate specified in the applicable Borrowing Requestand, in the case of a Eurodollar Revolving Borrowing, shall have an initialInterest Period as specified in such Borrowing Request.  Thereafter, Borrower may elect to convertsuch Borrowing to a different interest rate or to continue such Borrowing and,in the case of a Eurodollar Revolving Borrowing, may elect Interest Periodstherefor, all as provided in this Section. Borrower may elect different options with respect to different portionsof the affected Borrowing, and the Loans comprising each such portion shall beconsidered a separate Borrowing.  This Section shallnot apply to or Protective Advances, which may not be converted or continued.

 

##### (b)                                 To make anelection pursuant to this Section, Borrower shall notify Lender of suchelection by telephone by the time that a Borrowing Request would be requiredunder Section 2.03 if Borrower were requesting a Revolving Borrowingbearing interest at the rate resulting from such election to be made on theeffective date of such election.  Eachsuch telephonic Interest Election Request shall be irrevocable and shall beconfirmed promptly by hand delivery or facsimile to Lender of a writtenInterest Election Request in a form approved by Lender and signed by Borrower.

#####  

##### (c)                                  Each telephonicand written Interest Election Request shall specify the following informationin compliance with Section 2.02:

 

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###### (i)                                     the Borrowingto which such Interest Election Request applies and, if different options arebeing elected with respect to different portions thereof, the portions thereofto be allocated to each resulting Borrowing (in which case the information tobe specified pursuant to clauses (iii) and (iv) below shall bespecified for each resulting Borrowing);

######  

###### (ii)                                  the effectivedate of the election made pursuant to such Interest Election Request, whichshall be a Business Day;

######  

###### (iii)                               whether theresulting Borrowing is to be an CB Floating Rate Borrowing or a EurodollarBorrowing; and

######  

###### (iv)                              if theresulting Borrowing is a Eurodollar Borrowing, the Interest Period to beapplicable thereto after giving effect to such election, which shall be aperiod contemplated by the definition of the term “Interest Period”.

######  

If any such InterestElection Request requests a Eurodollar Borrowing but does not specify anInterest Period, then Borrower shall be deemed to have selected an InterestPeriod of one month’s duration.

 

##### (d)                                 If Borrowerfails to deliver a timely Interest Election Request with respect to aEurodollar Revolving Borrowing prior to the end of the Interest Periodapplicable thereto, then, unless such Borrowing is repaid as provided herein,at the end of such Interest Period such Borrowing shall be converted to an CBFloating Rate Borrowing.  Notwithstandingany contrary provision hereof, if an Event of Default has occurred and iscontinuing and Lender so notifies Borrower, then, so long as an Event ofDefault is continuing (i) no outstanding Revolving Borrowing may beconverted to or continued as a Eurodollar Borrowing and (ii) unlessrepaid, each Eurodollar Revolving Borrowing shall be converted to an CBFloating Rate Borrowing at the end of the Interest Period applicable thereto.

#####  

SECTION 2.08.  Voluntary Reduction or Termination ofCommitment.  (a)  Unlesspreviously terminated, the Revolving Commitment shall terminate on the MaturityDate.

 

##### (b)                                 Borrower may atany time terminate the Revolving Commitment upon (i) the payment in fullof all outstanding Loans, together with accrued and unpaid interest thereon andon any Letters of Credit, (ii) the cancellation and return of alloutstanding Letters of Credit (or alternatively, with respect to each suchLetter of Credit, the furnishing to Lender of a cash deposit equal to 105% ofthe LC Exposure as of such date), (iii) the payment in full of the accruedand unpaid fees, and (iv) the payment in full of all reimbursable expensesand other Obligations together with accrued and unpaid interest thereon.

#####  

##### (c)                                  Borrower shallnotify Lender of any election to terminate the Revolving Commitment underparagraph (b)  of this Section at least five Business Days prior tothe effective date of such termination, specifying such election and theeffective date thereof.  Each noticedelivered by Borrower pursuant to this Section shall be irrevocable; providedthat a notice of termination of the Revolving Commitment delivered by Borrowermay state that such notice is 

 

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##### conditioned upon theeffectiveness of other credit facilities, in which case such notice may berevoked by Borrower (by notice to Lender on or prior to the specified effectivedate) if such condition is not satisfied. Any termination of the Revolving Commitment shall be permanent.

#####  

##### (d)                                 Borrower maypermanently reduce the Revolving Commitment, upon at least 5 days’ priorwritten notice to Lender, which notice shall specify the amount of thereduction and shall be irrevocable once given. Each reduction shall be in a minimum amount of $500,000, or an incrementof $100,000 in excess thereof.  Borrowermay not reduce the Revolving Commitment to less than $5,000,000.

#####  

SECTION 2.09.  Repayment and Amortization of Loans;Evidence of Debt.  (a) Borrowerhereby unconditionally promises to pay (i) to Lender for its account thethen unpaid principal amount of each Revolving Loan on the Maturity Date, and (ii) toLender the then unpaid amount of each Protective Advance on the earlier of theMaturity Date and demand by Lender.

 

##### (b)                                 Lender shallmaintain in accordance with its usual practice an account or accountsevidencing the indebtedness of Borrower to Lender resulting from each Loan madeby Lender, including the amounts of principal and interest payable and paid toLender from time to time hereunder.

#####  

##### (c)                                  Lender shallmaintain accounts in which it shall record (i) the amount of each Loanmade hereunder, the interest rate applicable thereto and the Interest Periodapplicable thereto, (ii) the amount of any principal or interest due andpayable or to become due and payable from Borrower to Lender hereunder and (iii) theamount of any sum received by Lender hereunder.

#####  

##### (d)                                 The entriesmade in the accounts maintained pursuant to paragraph (c) or (d) ofthis Section shall be primafacie evidence of the existenceand amounts of the obligations recorded therein; provided that thefailure of Lender to maintain such accounts or any error therein shall not inany manner affect the obligation of Borrower to repay the Loans in accordancewith the terms of this Agreement.

#####  

##### (e)                                  Lender mayrequest that Loans made by it be evidenced by a promissory note.  In such event, Borrower shall prepare,execute and deliver to Lender a promissory note payable to the order of Lender(or, if requested by Lender, to Lender and its registered assigns) and in aform approved by Lender.  Thereafter, theLoans evidenced by such promissory note and interest thereon shall at all times(including after assignment pursuant to Section 8.04) be represented byone or more promissory notes in such form payable to the order of the payeenamed therein (or, if such promissory note is a registered note, to such payeeand its registered assigns).

 

SECTION 2.10.  Prepayment of Loans.  (a)  Borrower shall have the right atany time and from time to time to prepay any Borrowing in whole or in part,subject to prior notice in accordance with paragraph (e) of this Section.

 

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#####  

##### (b)                                 In the eventand on such occasion that the Revolving Exposure exceeds the lesser of (a) theRevolving Commitment or (b) the Borrowing Base, Borrower shall prepay theRevolving Loans and LC Exposure in an aggregate amount equal to such excess.

#####  

##### (c)                                  In the eventand on each occasion that any Net Proceeds are received by or on behalf ofBorrower in respect of any Prepayment Event, Borrower shall, immediately aftersuch Net Proceeds are received by Borrower, prepay the Obligations as set forthin Section 2.10(d) below in an aggregate amount equal to 100% of suchNet Proceeds, provided that, in the case of any event described inclause (a) or (b) of the definition of the term “Prepayment Event”,if Borrower shall deliver to Lender a certificate of a Financial Officer to theeffect that Borrower intends to apply the Net Proceeds from such event (or aportion thereof specified in such certificate), within 120 days after receiptof such Net Proceeds, to acquire (or replace or rebuild) real property,equipment or other tangible assets (excluding inventory) to be used in thebusiness of Borrower, and certifying that no Default has occurred and iscontinuing, then no prepayment shall be required pursuant to this paragraph inrespect of the Net Proceeds specified in such certificate; provided thatto the extent of any such Net Proceeds therefrom that have not been so appliedby the end of such 90-day period, at which time a prepayment shall be requiredin an amount equal to such Net Proceeds that have not been so applied; provided,further that Borrower shall not be permitted to make elections to use NetProceeds to acquire (or replace or rebuild) real property, equipment or othertangible assets (excluding inventory) with respect to Net Proceeds in anyfiscal year in an aggregate amount in excess of $100,000.  Notwithstanding the foregoing, in the eventthat any prepayment pursuant to this Section 2.10(c) would causeBorrower to incur liability for breakfunding payments pursuant to Section 2.15,Borrower may defer making such prepayment until the end of the relevantInterest Period *provided*that the funds equal to the amount required to make such prepayment are held inan account of the Borrower with the Lender until such time.

#####  

##### (d)                                 All suchamounts pursuant to Section 2.10(c) (as to any insurance orcondemnation proceeds, to the extent they arise from casualties or losses toEquipment, Fixtures and real property) shall be applied, first to prepayany Protective Advances that may be outstanding, pro rata and second toprepay the Revolving Loans without a corresponding reduction in the RevolvingCommitment and to cash collateralize outstanding LC Exposure.  All such amounts pursuant to Section 2.10(c) (asto any insurance or condemnation proceeds, to the extent they arise fromcasualties or losses to cash or Inventory) shall be applied, first toprepay any Protective Advances that may be outstanding, pro rata, and secondto prepay the Revolving Loans without a corresponding reduction in theRevolving Commitment and to cash collateralize outstanding LC Exposure.  If the precise amount of insurance orcondemnation proceeds allocable to Inventory as compared to Equipment, Fixturesand real property is not otherwise determined, the allocation and applicationof those proceeds shall be determined by Lender, in its Permitted Discretion.

#####  

##### (e)                                  Borrower shallnotify Lender by telephone (confirmed by facsimile) of any prepayment hereunder(i) in the case of prepayment of a Eurodollar Revolving Borrowing, notlater than 10:00 a.m., Milwaukee time, three Business Days before the dateof prepayment, or (ii) in the case of prepayment of an CB Floating RateRevolving Borrowing, not later than 10:00 a.m., Milwaukee time, oneBusiness Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepaymentdate and the principal amount of each Borrowing 

 

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##### or portion thereof to beprepaid; provided that, if a notice of prepayment is given in connectionwith a conditional notice of termination of the Revolving Commitment ascontemplated by Section 2.08, then such notice of prepayment may berevoked if such notice of termination is revoked in accordance with Section 2.08.  Each partial prepayment of any RevolvingBorrowing shall be in an amount that would be permitted in the case of anadvance of a Revolving Borrowing bearing interest at the same rate as providedin Section 2.02.  Prepayments shallbe accompanied by accrued interest to the extent required by Section 2.12.

#####  

SECTION 2.11.  Fees. (a)  Borrower agrees to pay to Lender an commitment fee, whichshall accrue at the Applicable Rate on the average daily amount of theAvailable Revolving Commitment of Lender during the period from and includingthe Effective Date to but excluding the date on which Lender’s RevolvingCommitment terminates.  Accruedcommitment fees shall be payable in arrears on the last day of each calendarmonth and on the date on which the Revolving Commitment terminates, commencingon the first such date to occur after the date hereof.  All commitment fees shall be computed on thebasis of a year of 360 days and shall be payable for the actual number of dayselapsed.

 

##### (b)                                 Borrower agreesto pay to Lender a Letter of Credit fee, which shall accrue at the sameApplicable Rate used to determine the interest rate applicable to EurodollarRevolving Loans on the average daily amount of Lender’s LC Exposure during theperiod from and including the Effective Date to but excluding the later of thedate on which Lender’s Revolving Commitment terminates and the date on whichthe Revolving Lender ceases to have any LC Exposure, as well as Lender’sstandard fees with respect to the issuance, amendment, renewal or extension ofany Letter of Credit or processing of drawings thereunder.  All such fees shall be payable on the date onwhich the Revolving Commitment terminates and any such fees accruing after thedate on which the Revolving Commitment terminates shall be payable ondemand.  Any other fees payable to Lenderpursuant to this paragraph shall be payable within 10 days after demand.

#####  

##### (c)                                  All feespayable hereunder shall be paid on the dates due, in immediately availablefunds, to Lender.  Fees paid shall not berefundable under any circumstances.

#####  

SECTION 2.12.    Interest. (a) The Loanscomprising each CB Floating Rate Borrowing shall bear interest at the CBFloating Rate plus the Applicable Rate.

 

##### (b)                                 The Loanscomprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBORate for the Interest Period in effect for such Borrowing plus the ApplicableRate.

#####  

##### (c)                                  Each ProtectiveAdvance shall bear interest at the CB Floating Rate plus the Applicable Ratefor Revolving Loans plus 2%.

#####  

##### (d)                                 Notwithstandingthe foregoing, during the occurrence and continuance of an Event of Default,Lender may, at its option, by notice to Borrower, declare that (i) allLoans shall bear interest at 2% plus the rate otherwise applicable to suchLoans as provided in the preceding paragraphs of this Section or (ii) inthe case of any other amount outstanding 

 

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##### hereunder, such amount shallaccrue at 2% plus the rate applicable to such fee or other obligation asprovided hereunder.

#####  

##### (e)                                  Accruedinterest on each Loan (for CB Floating Rate Loans, accrued through the last dayof the prior calendar month) shall be payable in arrears on each InterestPayment Date for such Loan and upon termination of the Revolving Commitment; providedthat (i) interest accrued pursuant to paragraph (d) of this Section shallbe payable on demand,****(ii) inthe event of any repayment or prepayment of any Loan (other than a prepaymentof an CB Floating Rate Revolving Loan prior to the end of the AvailabilityPeriod), accrued interest on the principal amount repaid or prepaid shall bepayable on the date of such repayment or prepayment and (iii) in the eventof any conversion of any Eurodollar Loan prior to the end of the currentInterest Period therefor, accrued interest on such Loan shall be payable on theeffective date of such conversion.

#####  

##### (f)                                    All interesthereunder shall be computed on the basis of a year of 360 days, except thatinterest computed by reference to the CB Floating Rate at times when the CBFloating Rate is based on the Prime Rate shall be computed on the basis of ayear of 365 days (or 366 days in a leap year), and in each case shall bepayable for the actual number of days elapsed. The applicable CB Floating Rate, Adjusted LIBO Rate or LIBO Rate shallbe determined by Lender, and such determination shall be conclusive absentmanifest error.

#####  

SECTION 2.13.  Alternate Rate of Interest.  If prior to the commencement of any InterestPeriod for a Eurodollar Borrowing:

 

##### (a)                                  Lenderdetermines (which determination shall be conclusive absent manifest error) thatadequate and reasonable means do not exist for ascertaining the Adjusted LIBORate or the LIBO Rate, as applicable, for such Interest Period; or

#####  

##### (b)                                 Lenderdetermines the Adjusted LIBO Rate or the LIBO Rate, as applicable, for suchInterest Period will not adequately and fairly reflect the cost to Lender ofmaking or maintaining their Loans (or its Loan) included in such Borrowing forsuch Interest Period;

#####  

then Lender shall givenotice thereof to Borrower by telephone or facsimile as promptly as practicablethereafter and, until Lender notifies Borrower that the circumstances givingrise to such notice no longer exist, (i) any Interest Election Requestthat requests the conversion of any Revolving Borrowing to, or continuation ofany Revolving Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) ifany Borrowing Request requests a Eurodollar Revolving Borrowing, such Borrowingshall be made as an CB Floating Rate Borrowing.

 

SECTION 2.14.  Increased Costs.  (a)  If any Change in Law shall:

 

###### (i)                                     impose, modifyor deem applicable any reserve, special deposit or similar requirement againstassets of, deposits with or for the account of, or credit extended by, Lender(except any such reserve requirement reflected in the Adjusted LIBO Rate); or

 

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###### (ii)                                  impose onLender or the London interbank market any other condition affecting thisAgreement or Eurodollar Loans made by such Lender or any Letter of Credit orparticipation therein;

######  

and the result of any of theforegoing shall be to increase the cost to such Lender of making or maintainingany Eurodollar Loan (or of maintaining its obligation to make any such Loan) orto increase the cost to Lender of participating in, issuing or maintaining anyLetter of Credit or to reduce the amount of any sum received or receivable byLender hereunder (whether of principal, interest or otherwise), then Borrowerwill pay to Lender such additional amount or amounts as will compensate Lenderfor such additional costs incurred or reduction suffered.

 

##### (b)                                 If Lenderdetermines that any Change in Law regarding capital requirements has or wouldhave the effect of reducing the rate of return on Lender’s capital or on thecapital of Lender’s holding company, as a consequence of this Agreement or theLoans made by, or Letters of Credit issued by Lender to a level below thatwhich Lender or Lender’s holding company could have achieved but for suchChange in Law (taking into consideration Lender’s policies and the policies ofLender’s holding company with respect to capital adequacy), then from time totime Borrower will pay to Lender such additional amount or amounts as willcompensate Lender or Lender’s holding company for any such reduction suffered.

#####  

##### (c)                                  A certificateof Lender setting forth the amount or amounts necessary to compensate Lender orits holding company, as the case may be, as specified in paragraph (a) or (b) ofthis Section shall be delivered to Borrower and shall be conclusive absentmanifest error.  Borrower shall payLender the amount shown as due on any such certificate within 10 days afterreceipt thereof.

#####  

##### (d)                                 Failure ordelay on the part of Lender to demand compensation pursuant to this Section shallnot constitute a waiver of Lender’s right to demand such compensation; providedthat Borrower shall not be required to compensate a Lender pursuant to this Section forany increased costs or reductions incurred more than 150 days prior to the datethat Lender notifies Borrower of the Change in Law giving rise to suchincreased costs or reductions and of Lender’s intention to claim compensationtherefor; provided further that, if the Change in Law giving rise tosuch increased costs or reductions is retroactive, then the 150-day periodreferred to above shall be extended to include the period of retroactive effectthereof.

#####  

SECTION 2.15.  Break Funding Payments.  In the event of (a) the payment of anyprincipal of any Eurodollar Loan other than on the last day of an InterestPeriod applicable thereto (including as a result of an Event of Default), (b) theconversion of any Eurodollar Loan other than on the last day of the InterestPeriod applicable thereto or (c) the failure to borrow, convert, continueor prepay any Eurodollar Loan on the date specified in any notice deliveredpursuant hereto (regardless of whether such notice may be revoked under Section 2.08(c) andis revoked in accordance therewith), then, in any such event, Borrower shallcompensate Lender for the loss, cost and expense attributable to suchevent.  In the case of a Eurodollar Loan,such loss, cost or expense to Lender shall be deemed to include an amountdetermined by Lender to be the excess, if any, of (i) the amount ofinterest which would have accrued on the principal amount of such Loan had suchevent not occurred, at the Adjusted LIBO Rate that would have been applicableto such Loan, for the period from the date of such event to the last day of thethen 

 

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currentInterest Period therefor (or, in the case of a failure to borrow, convert orcontinue, for the period that would have been the Interest Period for suchLoan), over (ii) the amount of interest which would accrue on suchprincipal amount for such period at the interest rate which Lender would bidwere it to bid, at the commencement of such period, for dollar deposits of acomparable amount and period from other banks in the eurodollar market.  A certificate of Lender setting forth anyamount or amounts that Lender is entitled to receive pursuant to this Section shallbe delivered to Borrower and shall be conclusive absent manifest error.  Borrower shall pay Lender the amount shown asdue on any such certificate within 10 days after receipt thereof.

 

SECTION 2.16.  Taxes. (a)  Any and all payments by or on account of any obligation ofBorrower hereunder shall be made free and clear of and without deduction forany Indemnified Taxes or Other Taxes; provided that if Borrower shall berequired to deduct any Indemnified Taxes or Other Taxes from such payments,then (i) the sum payable shall be increased as necessary so that aftermaking all required deductions (including deductions applicable to additionalsums payable under this Section) Lender (as the case may be) receives an amountequal to the sum it would have received had no such deductions been made, (ii) Borrowershall make such deductions and (iii) Borrower shall pay the full amountdeducted to the relevant Governmental Authority in accordance with applicablelaw.

 

##### (b)                                 In addition,Borrower shall pay any Other Taxes to the relevant Governmental Authority inaccordance with applicable law.

#####  

##### (c)                                  Borrower shallindemnify Lender within 10 days after written demand therefor, for the fullamount of any Indemnified Taxes or Other Taxes paid by Lender on or withrespect to any payment by or on account of any obligation of Borrower hereunder(including Indemnified Taxes or Other Taxes imposed or asserted on orattributable to amounts payable under this Section) and any penalties, interestand reasonable expenses arising therefrom or with respect thereto, whether ornot such Indemnified Taxes or Other Taxes were correctly or legally imposed orasserted by the relevant Governmental Authority.  A certificate as to the amount of suchpayment or liability delivered to Borrower by Lender shall be conclusive absentmanifest error.

#####  

##### (d)                                 As soon aspracticable after any payment of Indemnified Taxes or Other Taxes by Borrowerto a Governmental Authority, Borrower shall deliver to Lender the original or acertified copy of a receipt issued by such Governmental Authority evidencingsuch payment, a copy of the return reporting such payment or other evidence ofsuch payment reasonably satisfactory to Lender.

#####  

##### (e)                                  If Lenderdetermines, in its sole discretion, that it has received a refund of any Taxesor Other Taxes as to which it has been indemnified by Borrower or with respectto which Borrower has paid additional amounts pursuant to this Section 2.16,it shall pay over such refund to Borrower (but only to the extent of indemnitypayments made, or additional amounts paid, by Borrower under this Section 2.16with respect to the Taxes or Other Taxes giving rise to such refund), net ofall out-of-pocket expenses of Lender and without interest (other than anyinterest paid by the relevant Governmental Authority with respect to suchrefund); provided, that Borrower, upon the request of Lender, agrees to repaythe amount paid over to Borrower (plus 

 

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##### any penalties, interest orother charges imposed by the relevant Governmental Authority) to Lender in theevent Lender is required to repay such refund to such Governmental Authority.This Section shall not be construed to require Lender to make availableits tax returns (or any other information relating to its taxes which it deemsconfidential) to Borrower or any other Person.

#####  

SECTION 2.17.  Payments Generally; Allocation ofProceeds; Sharing of Set-offs.  (a) Borrower shall make each payment required to be made by it hereunder (whetherof principal, interest, fees or reimbursement of LC Disbursements, or ofamounts payable under Section 2.14, 2.15 or 2.16, or otherwise) prior to2:00 p.m., Milwaukee time, on the date when due, in immediately availablefunds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretionof Lender, be deemed to have been received on the next succeeding Business Dayfor purposes of calculating interest thereon. All such payments shall be made to Lender by wire transfer to itsaccount number 9008104359, or such other account as may be designated by Lenderin writing from time to time.  If anypayment hereunder shall be due on a day that is not a Business Day, the date forpayment shall be extended to the next succeeding Business Day, and, in the caseof any payment accruing interest, interest thereon shall be payable for theperiod of such extension.  All paymentshereunder shall be made in dollars.

 

##### (b)                                 Any proceeds ofCollateral received by Lender (i) not constituting either (a) aspecific payment of principal, interest, fees or other sum payable under theLoan Documents (which shall be applied as specified by Borrower), or (b) amandatory prepayment (which shall be applied in accordance with Section 2.10)or (ii) after an Event of Default has occurred and is continuing andLender so elects such funds shall be applied ratably first, to pay anyfees, indemnities, or expense reimbursements including amounts then due to Lenderfrom Borrower, second, to pay interest due in respect of the ProtectiveAdvances, third, to pay the principal of the Protective Advances, fourth,to pay interest then due and payable on the Loans (other than the ProtectiveAdvances), fifth, to prepay principal on the Loans (other than theProtective Advances) and unreimbursed LC Disbursements, sixth, to pay anamount to Lender equal to one hundred five percent (105%) of the aggregateundrawn face amount of all outstanding Letters of Credit and the aggregateamount of any unpaid LC Disbursements, to be held as cash collateral for suchObligations, seventh, to payment of any amounts owing with respect toBanking Services and Swap Obligations, and eighth, to the payment of anyother Secured Obligation due to Lender by Borrower, and ninth, toBorrower or such other party as may be legally entitled thereto.Notwithstanding anything to the contrary contained in this Agreement, unless sodirected by Borrower, or unless a Default is in existence, Lender shall not applyany payment which it receives to any Eurodollar Loan, except (a) on theexpiration date of the Interest Period applicable to any such Eurodollar Loanor (b) in the event, and only to the extent, that there are no outstandingCB Floating Rate Loans and, in any such event, Borrower shall pay the breakfunding payment required in accordance with Section 2.15. Lender shallhave the continuing and exclusive right to apply and reverse and reapply anyand all such proceeds and payments to any portion of the Secured Obligations.

#####  

##### (c)                                  At the electionof Lender, all payments of principal, interest, LC Disbursements, fees,premiums, reimbursable expenses (including, without limitation, allreimbursement for fees and expenses pursuant to Section 8.03), and other sumspayable under 

 

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##### the Loan Documents, may bepaid from the proceeds of Borrowings made hereunder whether made following arequest by Borrower pursuant to Section 2.03 or a deemed request asprovided in this Section or, upon the occurrence and continuance of anEvent of Default, may be deducted from any deposit account of Borrowermaintained with Lender.  Borrower herebyirrevocably authorizes (i) Lender to make a Borrowing for the purpose ofpaying each payment of principal, interest and fees as it becomes due hereunderor any other amount due under the Loan Documents and agrees that all suchamounts charged shall constitute Loans (but such a Borrowing may onlyconstitute a Protective Advance if it is to reimburse costs, fees and expensesas described in and in accordance with Section 8.03) and that all suchBorrowings shall be deemed to have been requested pursuant to Sections 2.03 or2.04, as applicable and (ii) upon the occurrence and continuance of an Eventof Default, Lender to charge any deposit account of Borrower maintained withLender for each payment of principal, interest and fees as it becomes duehereunder or any other amount due under the Loan Documents.

#####  

SECTION 2.18.  Indemnity for Returned Payments.  If after receipt of any payment which isapplied to the payment of all or any part of the Obligations, Lender is for anyreason compelled to surrender such payment or proceeds to any Person becausesuch payment or application of proceeds is invalidated, declared fraudulent,set aside, determined to be void or voidable as a preference, impermissiblesetoff, or a diversion of trust funds, or for any other reason, then theObligations or part thereof intended to be satisfied shall be revived and continuedand this Agreement shall continue in full force as if such payment or proceedshad not been received by Lender and Borrower shall be liable to pay toLender.  The provisions of this Section 2.18shall be and remain effective notwithstanding any contrary action which mayhave been taken by Lender in reliance upon such payment or application ofproceeds.  The provisions of this Section 2.18shall survive the termination of this Agreement.

 

# ARTICLE III

#  

# Representations and Warranties

#  

Borrower represents andwarrants to Lender that:

 

SECTION 3.01.  Organization; Powers.  Borrower and each of its Subsidiaries is dulyorganized, validly existing and in good standing under the laws of thejurisdiction of its organization, has all requisite power and authority tocarry on its business as now conducted and is qualified to do business in, andis in good standing in, every jurisdiction where such qualification isrequired.

 

SECTION 3.02.  Authorization; Enforceability.  The Transactions are within Borrower’s corporatepowers and have been duly authorized by all necessary corporate and, ifrequired, stockholder action.  The LoanDocuments have been duly executed and delivered by Borrower and constitute alegal, valid and binding obligation of Borrower, enforceable in accordance withits terms, subject to applicable bankruptcy, insolvency, reorganization,moratorium or other laws affecting creditors’ rights generally and subject togeneral principles of equity, regardless of whether considered in a proceedingin equity or at law.

 

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SECTION 3.03.  Governmental Approvals; No Conflicts.  The Transactions (a) do not require anyconsent or approval of, registration or filing with, or any other action by,any Governmental Authority, except such as have been obtained or made and arein full force and effect and except for filings necessary to perfect Lienscreated pursuant to the Loan Documents, (b) will not violate anyRequirement of Law applicable to Borrower or any of its Subsidiaries, (c) willnot violate or result in a default under any indenture, agreement or otherinstrument binding upon Borrower or any of its Subsidiaries or its assets, orgive rise to a right thereunder to require any payment to be made by Borrower orany of its Subsidiaries, and (d) will not result in the creation orimposition of any Lien on any asset of Borrower or any of its Subsidiaries,except Liens created pursuant to the Loan Documents.

 

SECTION 3.04.  Financial Condition; No Material Adverse Change.  (a)  Borrower has heretofore furnishedto Lender (i) its restated consolidated balance sheet for the fiscal yearended June 30, 2007, (ii) its restated consolidated balance sheet andstatements of income, stockholders equity and cash flows as of and for thefiscal years ended June 30, 2008 and June 30, 2009, and (iii) itsrestated consolidated balance sheet and statements of income, stockholdersequity and cash flows as of and for the fiscal quarter and the portion of thefiscal year ended March 31, 2010, certified by its chief financialofficer.  Such financial statementspresent fairly, in all material respects, the financial position and results ofoperations and cash flows of Borrower and its consolidated Subsidiaries as ofsuch dates and for such periods in accordance with GAAP, subject to year-endaudit adjustments and the absence of footnotes in the case of the statementsreferred to in clause (ii) above.

 

##### (b)                                 No event,change or condition has occurred that has had, or could reasonably be expectedto have, a Material Adverse Effect, since March 31, 2010.

#####  

SECTION 3.05.  Properties.  (a)  As of the date of this Agreement, Schedule3.05 sets forth the address of each parcel of real property that is ownedor leased by Borrower.  Each of suchleases and subleases is valid and enforceable in accordance with its terms andis in full force and effect, and no material default by any party to any suchlease or sublease exists.  Borrower andeach of its Subsidiaries has good and indefeasible title to, or valid leaseholdinterests in, all its real and personal property, free of all Liens other thanthose permitted by Section 6.02.

 

##### (b)                                 Borrower andeach of its Subsidiaries owns, or is licensed to use, all trademarks,tradenames, copyrights, patents and other intellectual property necessary toits business as currently conducted (except where such a failure to own, ormaintain a license to use, could not reasonably be expected to have a MaterialAdverse Effect), and the use thereof by Borrower and its Subsidiaries does notinfringe in any material respect upon the rights of any other Person, and therights of Borrower and its Subsidiaries thereto are not subject to anylicensing agreement or similar arrangement other than licenses granted todistributors in the ordinary course of Borrower’s business.

 

SECTION 3.06.  Litigation and Environmental Matters.  (a) There are no actions, suits orproceedings by or before any arbitrator or Governmental Authority pendingagainst or, to the knowledge of Borrower, threatened against or affectingBorrower or any of its Subsidiaries (i) as to which there is a reasonablepossibility of an adverse determination and that, if adversely 

 

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determined,could reasonably be expected, individually or in the aggregate, to result in aMaterial Adverse Effect (other than the Disclosed Matters) or (ii) thatinvolve this Agreement or the Transactions, except as listed on Schedule3.06.

 

##### (b)                                 Except for theDisclosed Matters (i) neither Borrower nor any of its Subsidiaries hasreceived notice of any claim with respect to any Environmental Liability orknows of any basis for any Environmental Liability and (ii) and exceptwith respect to any other matters that, individually or in the aggregate, couldnot reasonably be expected to result in a Material Adverse Effect, neitherBorrower nor any of its Subsidiaries (1) has failed to comply with anyEnvironmental Law or to obtain, maintain or comply with any permit, license orother approval required under any Environmental Law or (2) has becomesubject to any Environmental Liability.

#####  

##### (c)                                  Since the dateof this Agreement, there has been no change in the status of the DisclosedMatters that, individually or in the aggregate, has resulted in, or materiallyincreased the likelihood of, a Material Adverse Effect.

#####  

SECTION 3.07.  Compliance with Laws and Agreements.  Borrower and each of its Subsidiaries is incompliance with all Requirements of Law applicable to it or its property andall indentures, agreements and other instruments binding upon it or itsproperty, except where the failure to do so, individually or in the aggregate,could not reasonably be expected to result in a Material Adverse Effect.  No Default has occurred and is continuing.

 

SECTION 3.08.  Investment Company Status.  Neither Borrower nor any of its Subsidiariesis an “investment company” as defined in, or subject to regulation under, theInvestment Company Act of 1940.

 

SECTION 3.09.  Taxes. Borrower and each of its Subsidiaries has timely filed or caused to befiled all Tax returns and reports required to have been filed and has paid orcaused to be paid all Taxes required to have been paid by it, except Taxes inan aggregate amount not in excess of $20,000 and Taxes that are being contestedin good faith by appropriate proceedings and for which Borrower or suchSubsidiary, as applicable, has set aside on its books adequate reserves inaccordance with GAAP.  No tax liens havebeen filed and no claims are being asserted with respect to any such taxes.

 

SECTION 3.10.  ERISA. No ERISA Event has occurred or is reasonably expected to occur that,when taken together with all other such ERISA Events for which liability isreasonably expected to occur, could reasonably be expected to result in aMaterial Adverse Effect.

 

SECTION 3.11.  Disclosure.  Borrower has disclosed to Lender allagreements, instruments and corporate or other restrictions to which it or anySubsidiary is subject, and all other matters known to it, that, individually orin the aggregate, could reasonably be expected to result in a Material AdverseEffect.  None of the reports, financialstatements, certificates or other information furnished by or on behalf ofBorrower or any Subsidiary to Lender in connection with the negotiation of thisAgreement or any other Loan Document (as modified or supplemented by otherinformation so furnished) contains any material misstatement of fact or 

 

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omitsto state any material fact necessary to make the statements therein, in thelight of the circumstances under which they were made, not misleading; providedthat, with respect to projected financial information, Borrower represents onlythat such information was prepared in good faith based upon assumptionsbelieved to be reasonable at the time delivered and, if such projectedfinancial information was delivered prior to the Effective Date, as of theEffective Date; provided, further, that to the extent any such information isinaccurate or misleading as a result of the Fraud, Borrower has disclosed suchinaccuracies or misleading facts to Lender and such inaccuracy does not resultin a violation of any other provision of this Agreement.

 

SECTION 3.12.  Material Agreements.  All material agreements and contracts towhich Borrower or any Subsidiary is a party or is bound as of the date of thisAgreement are listed on Schedule 3.12. Neither Borrower nor any Subsidiary is in default in the performance,observance or fulfillment of any of the obligations, covenants or conditionscontained in (i) any material agreement to which it is a party or (ii) anyagreement or instrument evidencing or governing Indebtedness.

 

SECTION 3.13.  Solvency.  (a) Immediately after the consummationof the Transactions to occur on the Effective Date, (i) the fair value ofthe assets of Borrower and its consolidated Subsidiaries, taken as a whole, ata fair valuation, will exceed their debts and liabilities, subordinated,contingent or otherwise, (ii) the present fair saleable value of theproperty of Borrower and its consolidated Subsidiaries, taken as a whole, willbe greater than the amount that will be required to pay the probable liabilityof their debts and other liabilities, subordinated, contingent or otherwise, assuch debts and other liabilities become absolute and matured; (iii) Borrowerand each of its Subsidiaries will be able to pay its debts and liabilities,subordinated, contingent or otherwise, as such debts and liabilities becomeabsolute and matured, and (iv) Borrower and each of its Subsidiaries willnot have unreasonably small capital with which to conduct the business in whichit is engaged as such business is now conducted and is proposed to be conductedafter the Effective Date.

 

(b)                                 Borrower does notintend to, and will not permit any of its Subsidiaries to, and does not believethat it or any of its Subsidiaries will, incur debts beyond its ability to paysuch debts as they mature, taking into account the timing of and amounts ofcash to be received by it or any such Subsidiary and the timing of the amountsof cash to be payable on or in respect of its Indebtedness or the Indebtednessof any such Subsidiary.

 

SECTION 3.14.  Insurance.  Schedule 3.14 sets forth a descriptionof all insurance maintained by or on behalf of Borrower and the Subsidiaries asof the Effective Date.  As of theEffective Date, all premiums in respect of such insurance have been paid.  Borrower believes that the insurancemaintained by or on behalf of Borrower and the Subsidiaries is adequate.

 

SECTION 3.15.  Capitalization and Subsidiaries.  Schedule 3.15 sets forth (a) acorrect and complete list of the name and relationship to Borrower of each andall of Borrower’s Subsidiaries, (b) a true and complete listing of eachclass of each of Borrower’s authorized Equity Interests, of which all of suchissued shares are validly issued, outstanding, fully paid and non-assessable,and (c) the type of entity of Borrower and each of its Subsidiaries.  All of the issued and outstanding EquityInterests owned by Borrower have been (to the extent such 

 

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conceptsare relevant with respect to such ownership interests) duly authorized andissued and is fully paid and non-assessable.

 

SECTION 3.16.  Security Interest in Collateral.  The provisions of this Agreement and theother Loan Documents create legal and valid Liens on all the Collateral infavor of Lender, and such Liens constitute perfected and continuing Liens onthe Collateral, securing the Obligations, enforceable against Borrower and allthird parties, and having priority over all other Liens on the Collateralexcept in the case of (a) Permitted Encumbrances, to the extent any suchPermitted Encumbrances would have priority over the Liens in favor of Lenderpursuant to any applicable law or agreement and (b) Liens perfected onlyby possession (including possession of any certificate of title) to the extentLender has not obtained or does not maintain possession of such Collateral andsuch possession cannot be obtained or restored upon Lender’s request.

 

SECTION 3.17.  Employment Matters.  As of the Effective Date, there are nostrikes, lockouts or slowdowns against Borrower or any Subsidiary pending or,to the knowledge of Borrower, threatened. The hours worked by and payments made to employees of Borrower and theSubsidiaries have not been in violation of the Fair Labor Standards Act or anyother applicable Federal, state, local or foreign law dealing with suchmatters.  All payments due from Borroweror any Subsidiary, or for which any claim may be made against Borrower or anySubsidiary, on account of wages and employee health and welfare insurance andother benefits, have been paid or accrued as a liability on the books ofBorrower or such Subsidiary.

 

# ARTICLE IV

#  

# Conditions

#  

SECTION 4.01.  Effective Date.  The obligations of Lender to make Loans andto issue Letters of Credit hereunder shall not become effective until the dateon which each of the following conditions is satisfied (or waived in accordancewith Section 8.02):

 

##### (a)                                  CreditAgreement and Loan Documents.  Lender (or its counsel) shall have received (i) fromeach party hereto a counterpart of this Agreement signed on behalf of suchparty and (ii) duly executed copies of the Loan Documents and such othercertificates, documents, instruments and agreements as Lender shall reasonablyrequest in connection with the transactions contemplated by this Agreement andthe other Loan Documents, including a written opinion of counsel to Borrower,addressed to Lender in form and substance satisfactory to Lender and itscounsel.

#####  

##### (b)                                 FinancialStatements and Projections.  Lender shall have received (i) consolidatedfinancial statements of Borrower for the 2007 through 2009****fiscalyears prepared by the Borrower (provided that the Borrower shall be permittedto provide a balance sheet only for its 2007 fiscal year), (ii) unauditedinterim consolidated financial statements of Borrower for each fiscal month andquarter ended after the date of the latest applicable financial statementsdelivered pursuant to clause (i) of this paragraph as to which suchfinancial statements are available, and such financial statements shall not, inthe reasonable judgment of Lender, reflect any material adverse change in theconsolidated financial condition of Borrower, as reflected in 

 

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##### the financial statements orprojections furnished to Lender and (iii) satisfactory projections throughJune 30, 2010.

#####  

##### (c)                                  ClosingCertificates; Certified Certificate of Incorporation; Good StandingCertificates.  Lendershall have received (i) a certificate of Borrower, dated the EffectiveDate and executed by an officer of Borrower, which shall (a) certify theresolutions of its Board of Directors, authorizing the execution, delivery andperformance of the Loan Documents, (b) identify by name and title and bearthe signatures of the Financial Officers and any other officers of Borrowerauthorized to sign the Loan Documents, and (c) contain appropriateattachments, including the certificate of incorporation of Borrower certifiedby the Delaware Secretary of State as of a recent date and a true and correctcopy of its by-laws, and (ii) good standing certificates for Borrower fromthe states of Delaware and Wisconsin.

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##### (d)                                 No DefaultCertificate.  Lendershall have received a certificate, signed by the chief financial officer ofBorrower, on the initial Borrowing date (i) stating that no Default hasoccurred and is continuing, (ii) stating that the representations andwarranties contained in Article III are true and correct as of such date,and (iii) certifying any other factual matters as may be reasonablyrequested by Lender.

#####  

##### (e)                                  Fees.  Lender shall have received all fees requiredto be paid, and all expenses for which invoices have been presented (includingthe reasonable fees and expenses of legal counsel), on or before the EffectiveDate.

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##### (f)                                    Lien Searches.  Lender shall have received the results of arecent lien search in each of the jurisdictions where assets of Borrower arelocated, and such search shall reveal no liens on any of the assets of Borrowerexcept for liens permitted by Section 6.02 or discharged on or prior tothe Effective Date pursuant to a pay-off letter or other documentationsatisfactory to Lender.

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##### (g)                                 Pay-Off Letter.  Lender shall have received satisfactorypay-off letters for all existing Indebtedness to be repaid from the proceedsthe initial Borrowing, confirming that all Liens upon any of the property of Borrowerconstituting Collateral will be terminated concurrently with such payment andall letters of credit issued or guaranteed as part of such Indebtedness shallhave been cash collateralized or supported by a Letter of Credit.

#####  

##### (h)                                 Borrowing BaseCertificate.  Lendershall have received a B**o**rrowing BaseCertificate which calculates the Borrowing Base as of March 31, 2010.

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##### (i)                                     Filings,Registrations and Recordings.  Each document (including any UniformCommercial Code financing statement) required by the Collateral Documents orunder law or reasonably requested by Lender to be filed, registered or recordedin order to create in favor of Lender, a perfected Lien on the Collateraldescribed therein, prior and superior in right to any other Person (other thanwith respect to Liens expressly permitted by Section 6.02), shall be inproper form for filing, registration or recordation.

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##### (j)                                     Insurance.  Lender shall have received evidence ofinsurance coverage in form, scope, and substance reasonably satisfactory toLender and otherwise in compliance with the terms of Section 5.09.

 

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##### (k)           Other Documents.  Lender shall have received such otherdocuments as Lender or its counsel may have reasonably requested.

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SECTION 4.02.  Each Credit Event.  The obligation of Lender to make a Loan onthe occasion of any Borrowing, and to issue, amend, renew or extend any Letterof Credit, is subject to the satisfaction of the following conditions:

 

##### (a)           The representations and warranties ofBorrower set forth in this Agreement shall be true and correct on and as of thedate of such Borrowing or the date of issuance, amendment, renewal or extensionof such Letter of Credit, as applicable, except to the extent that any suchrepresentation or warranty relates solely to an earlier date, and if they arenot true and correct Lender shall have determined not to make any make a Loanor not to issue Letters of Credit as a result of the fact that suchrepresentation or warranty is untrue or incorrect.

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##### (b)           At the time of and immediately aftergiving effect to such Borrowing or the issuance, amendment, renewal or extensionof such Letter of Credit, as applicable, no Default shall have occurred and becontinuing and Lender shall have determined not to make such Borrowing or notto issue such Letter of Credit as a result of such Default.

 

##### (c)           After giving effect to any Borrowingor the issuance of any Letter of Credit, Availability is not less than zero.

 

Each Borrowing and eachissuance, amendment, renewal or extension of a Letter of Credit shall be deemedto constitute a representation and warranty by Borrower on the date thereof asto the matters specified in paragraphs (a), (b) and (c) of thisSection.

 

ARTICLEV

 

# Affirmative Covenants

 

Until the RevolvingCommitment has expired or been terminated and the principal of and interest oneach Loan and all fees payable hereunder shall have been paid in full and allLetters of Credit shall have expired or terminated and all LC Disbursementsshall have been reimbursed, Borrower covenants and agrees with Lender that:

 

SECTION 5.01.  Financial Statements; Borrowing Base and OtherInformation.  Borrower will furnishto Lender:

 

##### (a)           within 120 days after the end of eachfiscal year of Borrower, its audited consolidated balance sheet and relatedstatements of operations, stockholders’ equity and cash flows as of the end ofand for such year, setting forth in each case in comparative form the figuresfor the previous fiscal year, all reported on by independent public accountantsacceptable to Lender (without a “going concern” or like qualification orexception and without any qualification or exception as to the scope of suchaudit) to the effect that such consolidated financial statements present fairlyin all material respects the financial condition and results of operations ofBorrower and its consolidated Subsidiaries on a consolidated basis inaccordance with GAAP consistently applied, accompanied by any management letterprepared by said accountants;

 

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##### (b)           within 30 days after the end of eachfiscal quarter of Borrower, its consolidated balance sheet and relatedstatements of operations, stockholders’ equity and cash flows as of the end ofand for such fiscal quarter and the then elapsed portion of the fiscal year,setting forth in each case in comparative form the figures for thecorresponding period or periods of (or, in the case of the balance sheet, as ofthe end of) the previous fiscal year, all certified by one of its FinancialOfficers as presenting fairly in all material respects the financial conditionand results of operations of Borrower and its consolidated Subsidiaries on aconsolidated basis in accordance with GAAP consistently applied, subject tonormal year-end audit adjustments and the absence of footnotes;

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##### (c)           concurrently with any delivery offinancial statements under clause (a) or (b) above, a certificate ofa Financial Officer of Borrower in substantially the form of Exhibit B(i) certifying, in the case of the financial statements delivered underclause (b), as presenting fairly in all material respects the financialcondition and results of operations of Borrower and its consolidatedSubsidiaries on a consolidated basis in accordance with GAAP consistentlyapplied, subject to normal year-end audit adjustments and the absence offootnotes, (ii) certifying as to whether a Default has occurred and, if aDefault has occurred, specifying the details thereof and any action taken orproposed to be taken with respect thereto, (iii) setting forth reasonablydetailed calculations demonstrating compliance with Section 6.12****(iv) stating whether any change in GAAP or in theapplication thereof has occurred since the date of the audited financialstatements referred to in Section 3.04 and, if any such change hasoccurred, specifying the effect of such change on the financial statementsaccompanying such certificate and (v) setting forth any right, title orinterest in registered Patents, Trademarks or Copyrights (each as defined inthe Security Agreement) acquired by the Borrower during such period;

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##### (d)           as soon as available, but in anyevent by the end of each fiscal year of Borrower, a copy of the plan andforecast (including a projected consolidated and consolidating balance sheet,income statement and funds flow statement) of Borrower for each month of suchfiscal year (the “Projections”) in form reasonably satisfactory toLender;

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##### (e)           as soon as available but in any eventwithin 30 days of the end of each calendar month, and at such other times asmay be requested by Lender, as of the period then ended, a Borrowing BaseCertificate and supporting information in connection therewith, together withany additional reports with respect to the Borrowing Base as Lender mayreasonably request, provided, however that Borrowing Base Certificates shallnot be required for any calendar month ending after October 31, 2010provided that (i) the Borrower’s Current Ratio is greater than 1.50 to1.00 (based on the most recent financial statements delivered by the Companypursuant to clause (c) above and (ii) no Event of Default shall haveoccurred and be continuing;

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##### (f)            promptly after the same becomepublicly available, copies of all periodic and other reports, proxy statementsand other materials filed by Borrower or any Subsidiary with the Securities andExchange Commission, or any Governmental Authority succeeding to any or all ofthe functions of said Commission, or with any national securities exchange, ordistributed by Borrower to its shareholders generally, as the case may be;

 

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##### (g)           promptly following any requesttherefor, such other information regarding the operations, business affairs andfinancial condition of Borrower or any Subsidiary, or compliance with the termsof this Agreement, as Lender may reasonably request;

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##### (h)           as soon as available, and in anyevent no later than August 15, 2010, (i) an audited, restated,consolidated balance sheet for the Borrower’s fiscal year ended June 30,2007 and (ii) audited, consolidated balance sheet and statements ofincome, stockholders equity and cash flows as of and for the Borrower’s fiscalyears ended June 30, 2008 and June 30, 2009, reported on by BakerTilly LLP, independent public accountants.

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SECTION 5.02.  Notices of Material Events.  Borrower will furnish to Lender prompt written notice of the following:

 

##### (a)           the occurrence of any Event ofDefault;

#####  

##### (b)           receipt of any notice of anygovernmental investigation or any litigation commenced or threatened againstBorrower or any Subsidiary, other than any existing investigation or litigationreferenced in Schedule 3.06, that (i) seeks damages in excess of $500,000,(ii) seeks injunctive relief, (iii) is asserted or instituted againstany Plan, its fiduciaries or its assets, (iv) alleges criminal misconductby Borrower or any Subsidiary, (v) alleges the violation of any lawregarding, or seeks remedies in connection with, any Environmental Laws; (vi) contestsany tax, fee, assessment, or other governmental charge in excess of $500,000,or (vii) involves any product recall;

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##### (c)           any Lien (other than PermittedEncumbrances) or claim made or asserted against any of the Collateral;

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##### (d)           any loss, damage, or destruction tothe Collateral in the amount of $500,000****or more,whether or not covered by insurance;

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##### (e)           any and all default notices receivedunder or with respect to any leased location or public warehouse whereCollateral is located (which shall be delivered within two Business Days afterreceipt thereof);

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##### (f)            all material amendments to the leasewith respect to Borrower’s leased facility at 4129 North Port Washington Road,Milwaukee, Wisconsin, together with a copy of each such amendment;

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##### (g)           the fact that Borrower or anySubsidiary has entered into a Swap Agreement or an amendment to a SwapAgreement, together with copies of all agreements evidencing such SwapAgreement or amendments thereto (which shall be delivered within two BusinessDays); and

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##### (h)           any other development that resultsin, or could reasonably be expected to result in, a Material Adverse Effect.

#####  

Each notice delivered underthis Section shall be accompanied by a statement of a Financial Officer orother executive officer of Borrower setting forth the details of the event or 

 

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development requiring suchnotice and any action taken or proposed to be taken with respect thereto.

 

SECTION 5.03.  Existence; Conduct of Business.  Borrower will, and will cause each Subsidiaryto, (a) do or cause to be done all things necessary to preserve, renew andkeep in full force and effect its legal existence and the rights,qualifications, licenses, permits, franchises, governmental authorizations,intellectual property rights, licenses and permits material to the conduct ofits business, and maintain all requisite authority to conduct its business ineach jurisdiction in which its business is conducted; provided that theforegoing shall not prohibit any merger, consolidation, liquidation ordissolution permitted under Section 6.03 and (b) carry on and conductits business in substantially the same manner and in substantially the samefields of enterprise as it is presently conducted.

 

SECTION 5.04.  Payment of Obligations.  Borrower will, and will cause each Subsidiaryto, pay or discharge all Material Indebtedness and all other materialliabilities and obligations, including Taxes, before the same shall becomedelinquent or in default, except where (a) the validity or amount thereofis being contested in good faith by appropriate proceedings, (b) Borroweror such Subsidiary has set aside on its books adequate reserves with respectthereto in accordance with GAAP and (c) such liabilities would not resultin aggregate liabilities in excess of $50,000****andnone of the Collateral becomes subject to forfeiture or loss as a result of thecontest.

 

SECTION 5.05.  Maintenance of Properties.  Borrower will, and will cause each Subsidiaryto, keep and maintain all property material to the conduct of its business ingood working order and condition, ordinary wear and tear excepted.

 

SECTION 5.06.  Books and Records; Inspection Rights.  Borrower will, and will cause each Subsidiaryto, (i) keep proper books of record and account in which full, true andcorrect entries are made of all dealings and transactions in relation to itsbusiness and activities and (ii) permit any representatives designated byLender (including employees of Lender, or any consultants, accountants, lawyersand appraisers retained by Lender, upon reasonable prior notice, to visit andinspect its properties, to examine and make extracts from its books andrecords, and to discuss its affairs, finances and condition with its officersand independent accountants, all at such reasonable times and as often asreasonably requested.  Borrower acknowledgethat Lender, after exercising its rights of inspection, may prepare certainReports pertaining to Borrower’s assets for internal use by Lender. Borrowerwill permit Lender to conduct field audit examinations of Borrower’s assets,liabilities, books and records at a frequency not more than once in any 180-dayperiod; provided further that Borrower will permit Lender to conduct suchexaminations at any time and with any reasonable frequency after an Event ofDefault.

 

SECTION 5.07.  Compliance with Laws.  Borrower will, and will cause each Subsidiaryto, comply with all Requirements of Law applicable to it or its property.

 

SECTION 5.08.  Use of Proceeds and Letters of Credit.The proceeds of the Loans will be used, and Letters of Credit will be issued,only for general corporate purposes of Borrower.  No part of the proceeds of any Loan and noLetter of Credit will be used, whether

 

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directlyor indirectly, for any purpose that entails a violation of any of theRegulations of the Board, including Regulations T, U and X.

 

SECTION 5.09.  Insurance.  Borrower will, and will cause each Subsidiaryto, maintain with financially sound and reputable carriers having a financialstrength rating of at least A+ by A.M. Best Company (a) insurance insuch amounts (with no greater risk retention) and against such risks (including(i) loss or damage by fire and loss in transit; (ii) theft, burglary,pilferage, larceny, embezzlement, and other criminal activities; (iii) businessinterruption; (iv) general liability and (v) and such other hazards,as is customarily maintained by companies of established repute engaged in thesame or similar businesses operating in the same or similar locations and (b) allinsurance required pursuant to the Collateral Documents.  Borrower will furnish to Lender, informationin reasonable detail as to the insurance so maintained.

 

SECTION 5.10.  Casualty and Condemnation.  Borrower (a) will furnish to Lenderprompt written notice of any casualty or other insured damage to any material portionof the Collateral or the commencement of any action or proceeding for thetaking of any material portion of the Collateral or interest therein underpower of eminent domain or by condemnation or similar proceeding and (b) willensure that the Net Proceeds of any such event (whether in the form ofinsurance proceeds, condemnation awards or otherwise) are collected and appliedin accordance with the applicable provisions of this Agreement and theCollateral Documents.

 

SECTION 5.11.  Collateral Assessments and Appraisals.  Upon Lender’s request, Borrower, at its solecost and expense, will provide Lender with appraisals or updates thereof of itsInventory and Equipment from an appraiser selected and engaged by Lender, andprepared on a basis satisfactory to Lender, such appraisals and updates toinclude, without limitation, information required by applicable law andregulations; provided, however, that unless an Event of Default has occurredand is continuing, Borrower shall not be required to bear the cost and expenseof such appraisals more than once in any 180-day period.  At any time the Lender may conduct collateralaudits or field examinations at the sole expense of Borrower.  The Lender agrees not to conduct such auditsor examinations more than one (1) time per year unless an Event of Defaultshall have occurred and be continuing.

 

SECTION 5.12.  Depository Banks. Within 120 days ofthe Effective Date, Borrower shall have transitioned its principal accounts toLender and thereafter Borrower will maintain Lender as its principal depositorybank, including for the maintenance of operating, administrative, cashmanagement, collection activity, and other deposit accounts for the conduct ofits business.

 

SECTION 5.13.  Additional Collateral; Further Assurances.  (a)  At Lender’s request, Borrower shallcause each of its domestic Subsidiaries formed or acquired before or after thedate of this Agreement to execute a guaranty of Borrower’s obligations underthis Agreement.

 

##### (b)           Borrower will cause 100% of theissued and outstanding Equity Interests of each of its domestic Subsidiaries tobe subject at all times to a first priority, perfected Lien in favor of Lenderpursuant to the terms and conditions of the Loan Documents or other securitydocuments as Lender shall reasonably request.

 

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##### (c)           Without limiting the foregoing,Borrower will, and will cause each Subsidiary to, execute and deliver, or causeto be executed and delivered, to Lender such documents, agreements andinstruments, and will take or cause to be taken such further actions (includingthe filing and recording of financing statements, fixture filings, mortgages,deeds of trust and other documents and such other actions or deliveries of thetype required by Section 4.01, as applicable), which may be required bylaw or which Lender may, from time to time, reasonably request to carry out theterms and conditions of this Agreement and the other Loan Documents and toensure perfection and priority of the Liens created or intended to be createdby the Collateral Documents, all at the expense of Borrower.

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(d)           If any material assets (including any real property orimprovements thereto or any interest therein) are acquired by Borrower or anySubsidiary after the Effective Date (other than assets constituting Collateralunder the Security Agreement that become subject to the Lien in favor of theSecurity Agreement upon acquisition thereof), Borrower will notify Lender, and,if requested by Lender, Borrower will cause such assets to be subjected to aLien securing the Secured Obligations and will take, and cause its Subsidiaryto take, such actions as shall be necessary or reasonably requested by Lenderto grant and perfect such Liens, including actions described in paragraph (c) ofthis Section, all at the expense of Borrower.

 

SECTION 5.14.  Dissolution of Koss Classics Ltd.

 

On or before June 30,2010, Borrower shall either (a) cause Koss Classics Ltd. to be merged intothe Borrower or (b) cause Koss Classics Ltd. to execute and deliver to theLender a security agreement and guaranty of the Obligations, all on terms andconditions satisfactory to the Lender in its sole discretion.

 

ARTICLEVI

 

# Negative Covenants

 

Until the RevolvingCommitment has expired or terminated and the principal of and interest on eachLoan and all fees, expenses and other amounts payable under any Loan Documenthave been paid in full and all Letters of Credit have expired or terminated andall LC Disbursements shall have been reimbursed, Borrower covenants and agreeswith Lender that:

 

SECTION 6.01.  Indebtedness.  Borrower will not, nor will it permit anySubsidiary to, create, incur or suffer to exist any Indebtedness, except:

 

##### (a)           the Secured Obligations;

#####  

##### (b)           Indebtedness existing on the datehereof and set forth in Schedule 6.01 and any amendments, restatements,modifications, refinancing, or renewals thereof on substantially similar termsand in an aggregate principal amount not to exceed the aggregate principalamount as of the date hereof;

 

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##### (c)           Indebtedness of Borrower to anySubsidiary and of any Subsidiary to Borrower or any other  Subsidiary, provided that (i) Indebtednessof any Subsidiary to Borrower shall be subject to Section 6.04 and (ii) Indebtednessof Borrower to any Subsidiary shall be subordinated to the Secured Obligationson terms reasonably satisfactory to Lender;

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##### (d)           Guarantees by Borrower ofIndebtedness of any Subsidiary and by any Subsidiary of Indebtedness ofBorrower or any other Subsidiary, provided that (i) theIndebtedness so Guaranteed is permitted by this Section 6.01, and (ii) Guaranteesby Borrower of Indebtedness of any Subsidiary shall be subject to Section 6.04;

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##### (e)           Indebtedness of Borrower or anySubsidiary incurred to finance the acquisition, construction or improvement ofany fixed or capital assets (whether or not constituting purchase moneyIndebtedness), including Capital Lease Obligations and any Indebtedness assumedin connection with the acquisition of any such assets or secured by a Lien onany such assets prior to the acquisition thereof, and extensions, renewals andreplacements of any such Indebtedness; provided that (i) suchIndebtedness is incurred prior to or within 90 days after such acquisition orthe completion of such construction or improvement and (ii) the aggregateprincipal amount of Indebtedness permitted by this clause (e) shall notexceed $250,000 at any time outstanding;

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##### (f)            Indebtedness owed to any personproviding workers’ compensation, health, disability or other employee benefitsor property, casualty or liability insurance, pursuant to reimbursement orindemnification obligations to such person, in each case incurred in theordinary course of business; and

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##### (g)           Indebtedness of Borrower or anySubsidiary in respect of performance bonds, bid bonds, appeal bonds, suretybonds and similar obligations, in each case provided in the ordinary course ofbusiness.

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SECTION 6.02.  Liens. Borrower will not, nor will it permit any Subsidiary to, create, incur,assume or permit to exist any Lien on any property or asset now owned orhereafter acquired by it, or assign or sell any income or revenues (includingaccounts receivable) or rights in respect of any thereof, except:

 

##### (a)           Liens created pursuant to any LoanDocument;

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##### (b)           Permitted Encumbrances;

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##### (c)           any Lien on any property or asset ofBorrower or any Subsidiary existing on the date hereof and set forth in Schedule6.02; provided that (i) such Lien shall not apply to any otherproperty or asset of Borrower or Subsidiary and (ii) such Lien shallsecure only those obligations which it secures on the date hereof or anyrenewals thereof in accordance with Section 6.01 above;

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##### (d)           Liens on fixed or capital assetsacquired, constructed or improved by Borrower or any Subsidiary; providedthat (i) such security interests secure Indebtedness permitted by clause (e) ofSection 6.01, (ii) such security interests and the Indebtednesssecured thereby are incurred prior to or within 90 days after such acquisitionor the completion of such 

 

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##### construction or improvement,(iii) the Indebtedness secured thereby does not exceed the cost ofacquiring, constructing or improving such fixed or capital assets and (iv) suchsecurity interests shall not apply to any other property or assets of Borroweror Subsidiary;

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##### (e)           Liens of a collecting bank arising inthe ordinary course of business under Section 4-210 of the UniformCommercial Code in effect in the relevant jurisdiction covering only the itemsbeing collected upon; and

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##### (f)            Liens arising out of sale andleaseback transactions permitted by Section 6.06; and

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##### (g)           Liens granted by a Subsidiary infavor of the in respect of Indebtedness owed by such Subsidiary.

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Notwithstanding theforegoing, none of the Liens permitted pursuant to this Section 6.02 mayat any time attach to Borrower’s (1) Accounts, other than those permittedunder clause (a) of the definition of Permitted Encumbrance and clause (a) aboveand (2) Inventory, other than those permitted under clauses (a) and (b) ofthe definition of Permitted Encumbrance and clause (a) above.

 

SECTION 6.03.  Fundamental Changes.  (a) Borrower will not, nor will itpermit any Subsidiary to, merge into or consolidate with any other Person, orpermit any other Person to merge into or consolidate with it, or liquidate ordissolve, except that, if at the time thereof and immediately after givingeffect thereto no Event of Default shall have occurred and be continuing (i) anySubsidiary of Borrower may merge into Borrower in a transaction in whichBorrower is the surviving corporation, and (ii) any  Subsidiary may liquidate or dissolve ifBorrower determines in good faith that such liquidation or dissolution is inthe best interests of Borrower and is not materially disadvantageous to Lender.

 

##### (b)           Borrower will not, nor will it permitany of its Subsidiaries to, engage in any business other than businesses of thetype conducted by Borrower and its Subsidiaries on the date of execution ofthis Agreement and businesses reasonably related thereto.

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SECTION 6.04.  Investments, Loans, Advances, Guaranteesand Acquisitions.  Borrower will not,nor will it permit any Subsidiary to, purchase, hold or acquire (including pursuantto any merger) any capital stock, evidences of indebtedness or other securities(including any option, warrant or other right to acquire any of the foregoing)of, make or permit to exist any loans or advances to, Guarantee any obligationsof, or make or permit to exist any investment or any other interest in, anyother Person, or purchase or otherwise acquire (in one transaction or a seriesof transactions) any assets of any other Person constituting a business unit(whether through purchase of assets, merger or otherwise), except:

 

##### (a)           Permitted Investments, subject tocontrol agreements in favor of Lender or otherwise subject to a perfectedsecurity interest in favor of Lender;

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##### (b)           investments in existence on the dateof this Agreement and described in Schedule 6.04 and any amendments,restatements, modifications, reinvestments, or renewals 

 

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##### thereof on substantiallysimilar terms and in an aggregate principal amount not to exceed the aggregateprincipal amount on the date hereof;

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##### (c)           investments by Borrower and theSubsidiaries in Equity Interests in their respective Subsidiaries, providedthat (a) any such Equity Interests shall be pledged pursuant to theSecurity Agreement (subject to the limitations applicable to common stock of aForeign Subsidiary referred to in Section 5.13) and (b) the aggregateamount of investments by Borrower in its Subsidiaries (together withoutstanding intercompany loans permitted under clause (b) to the provisoto Section 6.04(d) and outstanding Guarantees permitted under theproviso to Section 6.04(e)) shall not exceed $250,000****atany time outstanding (in each case determined without regard to any write-downsor write-offs);

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##### (d)           loans or advances made by Borrower toany Subsidiary and made by any Subsidiary to Borrower or any other Subsidiary, providedthat (a) any such loans and advances made by Borrower shall be evidencedby a promissory note pledged pursuant to the Security Agreement and (b) theamount of such loans and advances made by Borrower (together with outstandinginvestments permitted under clause (b) to the proviso to Section 6.04(c) andoutstanding Guarantees permitted under the proviso to Section 6.04(e))shall not exceed $250,000****at any timeoutstanding (in each case determined without regard to any write-downs orwrite-offs);

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##### (e)           Guarantees constituting Indebtednesspermitted by Section 6.01, provided that the aggregate principalamount of Indebtedness of Subsidiaries that is Guaranteed by Borrower shall(together with outstanding investments permitted under clause (b) to theproviso to Section 6.04(c) and outstanding intercompany loanspermitted under clause (b) to the proviso to Section 6.04(d)) shallnot exceed $250,000****at any timeoutstanding (in each case determined without regard to any write-downs orwrite-offs);

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##### (f)            loans or advances made by Borrowerto its employees on an arms-length basis in the ordinary course of businessconsistent with past practices for travel and entertainment expenses, relocationcosts and similar purposes up to a maximum of $10,000 to any employee and up toa maximum of $100,000****in theaggregate at any one time outstanding;

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##### (g)           investments in the form of SwapAgreements permitted by Section 6.07;

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##### (h)           investments of any Person existing atthe time such Person becomes a Subsidiary of Borrower or consolidates or mergeswith Borrower or any of the Subsidiaries so long as such investments were not made in contemplation of suchPerson becoming a Subsidiary or of such merger;

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##### (i)            investments received in connectionwith the dispositions of assets permitted by Section 6.05; and

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##### (j)            investments constituting depositsdescribed in clauses (c) and (d) of the definition of the term “PermittedEncumbrances.”

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SECTION 6.05.  Asset Sales.  Borrower will not, nor will it permit anySubsidiary to, sell, transfer, lease or otherwise dispose of any asset,including any Equity Interest owned by 

 

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it,nor will Borrower permit any Subsidiary to issue any additional Equity Interestin such Subsidiary (other than to Borrower or another Subsidiary in compliancewith Section 6.04), except:

 

##### (a)           sales, transfers and dispositions of (i) inventoryin the ordinary course of business and (ii) used, obsolete, worn out orsurplus equipment or property in the ordinary course of business;

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##### (b)           sales, transfers and dispositions toBorrower or any Subsidiary, provided that any such sales, transfers ordispositions involving a Subsidiary shall be made in compliance with Section 6.09;

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##### (c)           sales, transfers and dispositions ofaccounts receivable in connection with the compromise, settlement or collectionthereof;

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##### (d)           sales, transfers and dispositions ofinvestments permitted by clauses (i) and (k) of Section 6.04;

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##### (e)           sale and leaseback transactionspermitted by Section 6.06;

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##### (f)            dispositions resulting from anycasualty or other insured damage to, or any taking under power of eminentdomain or by condemnation or similar proceeding of, any property or asset ofBorrower or any Subsidiary; and

#####  

##### (g)           sales, transfers and otherdispositions of assets (other than Equity Interests in a Subsidiary unless allEquity Interests in such Subsidiary are sold) that are not permitted by anyother paragraph of this Section, provided that the aggregate fair marketvalue of all assets sold, transferred or otherwise disposed of in reliance uponthis paragraph (g) shall not exceed $100,000 during any fiscal year ofBorrower;

#####  

provided that allsales, transfers, leases and other dispositions permitted hereby (other thanthose permitted by paragraphs (b) and (f) above) shall be made forfair value.

 

SECTION 6.06.  Sale and Leaseback Transactions.  Borrower will not, nor will it permit anySubsidiary to, enter into any arrangement, directly or indirectly, whereby itshall sell or transfer any property, real or personal, used or useful in itsbusiness, whether now owned or hereafter acquired, and thereafter rent or leasesuch property or other property that it intends to use for substantially thesame purpose or purposes as the property sold or transferred, except for anysuch sale of any fixed or capital assets by Borrower or any Subsidiary that ismade for cash consideration in an amount not less than the fair value of suchfixed or capital asset and is consummated within 90 days after Borrower or suchSubsidiary acquires or completes the construction of such fixed or capitalasset.

 

SECTION 6.07.  Swap Agreements.  Borrower will not, nor will it permitany  Subsidiary to, enter into any SwapAgreement, except (a) Swap Agreements entered into to hedge or mitigaterisks to which Borrower or any Subsidiary has actual exposure (other than thosein respect of Equity Interests of Borrower or any of its Subsidiaries), and (b) SwapAgreements entered into in order to effectively cap, collar or exchangeinterest rates (from fixed 

 

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tofloating rates, from one floating rate to another floating rate or otherwise)with respect to any interest-bearing liability or investment of Borrower or anySubsidiary.

 

SECTION 6.08.  Restricted Payments; Certain Payments ofIndebtedness.  (a)  Borrowerwill not, nor will it permit any Subsidiary to, declare or make, or agree topay or make, directly or indirectly, any Restricted Payment, or incur anyobligation (contingent or otherwise) to do so, except (i) Borrower maydeclare and pay dividends with respect to its common stock payable solely inadditional shares of its common stock, and, with respect to its preferredstock, payable solely in additional shares of such preferred stock or in sharesof its common stock, (ii) Subsidiaries may declare and pay dividendsratably with respect to their Equity Interests, (iii) Borrower may make Restricted Payments pursuant to and inaccordance with stock option plans or other benefit plans for management oremployees of Borrower and its Subsidiaries and (iv) Borrower may makeRestricted Payments so long as no Event of Default has occurred and iscontinuing and so long as the making of such Restricted Payment would not causean Event of Default.

 

##### (b)           Borrower will not, nor will it permitany Subsidiary to, make or agree to pay or make, directly or indirectly, anypayment or other distribution (whether in cash, securities or other property)of or in respect of principal of or interest on any Indebtedness, or anypayment or other distribution (whether in cash, securities or other property),including any sinking fund or similar deposit, on account of the purchase,redemption, retirement, acquisition, cancellation or termination of anyIndebtedness in excess of $250,000, except (i) payment of Indebtednesscreated under the Loan Documents; (ii) payment of regularly scheduledinterest and principal payments as and when due in respect of any Indebtedness;and (iii) payment of secured Indebtedness that becomes due as a result ofthe voluntary sale or transfer of the property or assets securing suchIndebtedness.

#####  

SECTION 6.09.  Transactions with Affiliates.  Borrower will not, nor will it permit anySubsidiary to, sell, lease or otherwise transfer any property or assets to, orpurchase, lease or otherwise acquire any property or assets from, or otherwiseengage in any other transactions with, any of its Affiliates, except (a) transactionsthat (i) are in the ordinary course of business and (ii) are atprices and on terms and conditions not less favorable to Borrower or suchSubsidiary than could be obtained on an arm’s-length basis from unrelated thirdparties, (b) transactions between Borrower and any other Affiliate, (c) anyinvestment permitted by Sections 6.04(c) or 6.04(d), (d) anyIndebtedness permitted under Section 6.01(c), (e) any RestrictedPayment permitted by Section 6.08, (f) loans or advances to employeespermitted under Section 6.04, (g) the payment of reasonable fees todirectors of Borrower or any Subsidiary who are not employees of Borrower orany Subsidiary, and compensation and employee benefit arrangements paid to, andindemnities provided for the benefit of, directors, officers or employees ofBorrower or its Subsidiaries in the ordinary course of business and (h) anyissuances of securities or other payments, awards or grants in cash, securitiesor otherwise pursuant to, or the funding of, employment agreements, stock optionsand stock ownership plans approved by Borrower’s board of directors

 

SECTION 6.10.  Restrictive Agreements.  Borrower will not, nor will it permit anySubsidiary to, directly or indirectly, enter into, incur or permit to exist anyagreement or other arrangement with a value or potential liabilities in excessof $100,000 that prohibits, 

 

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restrictsor imposes any condition upon (a) the ability of Borrower or any of itsSubsidiaries to create, incur or permit to exist any Lien upon any of itsproperty or assets, or (b) the ability of any Subsidiary to pay dividendsor other distributions with respect to any shares of its capital stock or tomake or repay loans or advances to Borrower or any other Subsidiary or toGuarantee Indebtedness of Borrower or any other Subsidiary; providedthat (i) the foregoing shall not apply to restrictions and conditionsimposed by law or by any Loan Document, (ii) the foregoing shall not applyto restrictions and conditions existing on the date hereof identified on Schedule6.10 (but shall apply to any extension or renewal of, or any amendment ormodification expanding the scope of, any such restriction or condition), (iii) theforegoing shall not apply to customary restrictions and conditions contained inagreements relating to the sale of a Subsidiary pending such sale, providedsuch restrictions and conditions apply only to the Subsidiary that is to besold and such sale is permitted hereunder, (iv) clause (a) of theforegoing shall not apply to restrictions or conditions imposed by anyagreement relating to secured Indebtedness permitted by this Agreement if suchrestrictions or conditions apply only to the property or assets securing suchIndebtedness and (v) clause (a) of the foregoing shall not apply tocustomary provisions in leases and other contracts restricting the assignmentthereof.

 

SECTION 6.11.  Amendment of Material Documents.  Borrower will not, nor will it permit anySubsidiary to, amend, modify or waive any of its rights under its certificateof incorporation, by-laws, operating, management or partnership agreement orother organizational documents, to the extent any such amendment, modificationor waiver would be adverse to Lender.

 

SECTION 6.12.  Financial Covenants.

 

##### (a)           Current Ratio.  Borrower will at all times maintain a CurrentRatio of at least 1.20 to 1.00.

#####  

##### (b)           Minimum Tangible Net Worth.  Borrower will maintain (a) at all timesprior to Lender’s receipt of Borrower’s audited annual financial statements forthe fiscal year ending June 30, 2010 pursuant to Section 5.01(a) hereof,Tangible Net Worth of at least $9,000,000, and (b) at all timesthereafter, Tangible Net Worth of at least 75% of Borrower’s actual TangibleNet Worth calculated as of June 30, 2010, provided, however, that (i) inthe event that 75% of Borrower’s Tangible Net Worth as of June 30, 2010 isless than $8,000,000, Borrower shall be required to maintain Tangible Net Worthof at least $8,000,000 at all times thereafter and (ii) in the event that75% of Borrower’s Tangible Net Worth as of June 30, 2010 is greater than$11,000,000, Borrower shall be required to maintain Tangible Net Worth of atleast $11,000,000 at all times thereafter.

#####  

##### (c)           Leverage Ratio.  Borrower will not permit the Leverage Ratio,determined for any period of four consecutive fiscal quarters ending on thelast day of each fiscal quarter of Borrower, to be less than 2.50 to 1.00.

#####  

SECTION 6.13.  ERISA Plans.

 

Borrower will not, withoutthe prior written consent of the Lender, become party to any Plan.

 

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ARTICLEVII

# Events of Default

#  

If any of the followingevents (“Events of Default”) shall occur:

 

##### (a)           Borrower shall fail to pay anyprincipal of any Loan, any reimbursement obligation in respect of any LCDisbursement, any interest on any loan or any fee or other amount payable underthis Agreement when and as the same shall become due and payable, whether atthe due date thereof or at a date fixed for prepayment thereof or otherwise;

#####  

##### (b)           any representation or warranty madeor deemed made by or on behalf of Borrower or any Subsidiary in or inconnection with this Agreement or any Loan Document or any amendment ormodification thereof or waiver thereunder, or in any report, certificate,financial statement or other document furnished pursuant to or in connectionwith this Agreement or any Loan Document or any amendment or modificationthereof or waiver thereunder, shall prove to have been materially incorrectwhen made or deemed made;

#####  

##### (c)           Borrower shall fail to observe orperform any covenant, condition or agreement contained in Section 5.02(a),5.03 (solely with respect to existence) or 5.08 or in Article VI;

#####  

##### (d)           Borrower shall fail to observe orperform any covenant, condition or agreement contained in this Agreement (otherthan those which constitute a default under another Section of thisArticle), and such failure shall continue unremedied for a period of (i) 5days after the earlier of knowledge of such breach or notice thereof fromLender if such breach relates to terms or provisions of Section 5.01, 5.02(other than Section 5.02(a)), 5.03 through 5.07, 5.09, 5.10 or 5.12 ofthis Agreement or (ii) 15 days after the earlier of knowledge of suchbreach or notice thereof from Lender if such breach relates to terms orprovisions of any other Section of this Agreement;

#####  

##### (e)           Borrower or any Subsidiary shall failto make any payment (whether of principal or interest and regardless of amount)in respect of any Material Indebtedness, when and as the same shall become dueand payable, after giving effect to any period of grace applicable to suchpayment;

#####  

##### (f)            any event or condition occurs thatresults in any Material Indebtedness becoming due prior to its scheduledmaturity or that enables or permits (with or without the giving of notice, thelapse of time or both) the holder or holders of any Material Indebtedness orany trustee or agent on its or their behalf to cause any Material Indebtednessto become due, or to require the prepayment, repurchase, redemption ordefeasance thereof, prior to its scheduled maturity; provided that thisclause (g) shall not apply to secured Indebtedness that becomes due as aresult of the voluntary sale or transfer of the property or assets securingsuch Indebtedness;

#####  

##### (g)           an involuntary proceeding shall becommenced or an involuntary petition shall be filed seeking (i) liquidation,reorganization or other relief in respect of Borrower or any Subsidiary or itsdebts, or of a substantial part of its assets, under any Federal, state orforeign bankruptcy, insolvency, receivership or similar law now or hereafter ineffect or (ii) the appointment of a receiver, trustee, custodian,sequestrator, conservator or similar official for 

 

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##### Borrower or any Subsidiaryor for a substantial part of its assets, and, in any such case, such proceedingor petition shall continue undismissed for 60 days or an order or decreeapproving or ordering any of the foregoing shall be entered;

#####  

##### (h)           Borrower or any Subsidiary shall (i) voluntarilycommence any proceeding or file any petition seeking liquidation,reorganization or other relief under any Federal, state or foreign bankruptcy,insolvency, receivership or similar law now or hereafter in effect, (ii) consentto the institution of, or fail to contest in a timely and appropriate manner,any proceeding or petition described in clause (h) of this Article, (iii) applyfor or consent to the appointment of a receiver, trustee, custodian,sequestrator, conservator or similar official for Borrower or any Subsidiary orfor a substantial part of its assets, (iv) file an answer admitting thematerial allegations of a petition filed against it in any such proceeding, (v) makea general assignment for the benefit of creditors or (vi) take any actionfor the purpose of effecting any of the foregoing;

#####  

##### (i)            Borrower or any Subsidiary shallbecome unable, admit in writing its inability or fail generally to pay itsdebts as they become due;

#####  

##### (j)            one or more judgments for thepayment of money in connection with the Fraud in an aggregate amount in excessof $1,000,000 or any other one or more judgments for the payment of money in anaggregate amount in excess of $250,000****which are notcovered by insurance****shall berendered against Borrower, any Subsidiary or any combination thereof and thesame shall remain undischarged for a period of 30 consecutive days during whichexecution shall not be effectively stayed, or any action shall be legally takenby a judgment creditor to attach or levy upon any assets of Borrower or any Subsidiaryto enforce any such judgment or Borrower or any Subsidiary shall fail within 30days to discharge one or more non-monetary judgments or orders which,individually or in the aggregate, could reasonably be expected to have aMaterial Adverse Effect, which judgments or orders, in any such case, are notstayed on appeal or otherwise being appropriately contested in good faith byproper proceedings diligently pursued;

#####  

##### (k)           an ERISA Event shall have occurredthat, in the opinion of Lender, when taken together with all other ERISA Eventsthat have occurred, could reasonably be expected to result in a MaterialAdverse Effect;

#####  

##### (l)            a Change in Control shall occur;

#####  

##### (m)          the occurrence of any “default”, asdefined in any Loan Document (other than this Agreement) or the breach of anyof the terms or provisions of any Loan Document (other than this Agreement),which default or breach continues beyond any period of grace therein provided;

#####  

##### (n)           any Collateral Document shall for anyreason fail to create a valid and perfected first priority security interest inany Collateral purported to be covered thereby, except as permitted by theterms of any Collateral Document, or any Collateral Document shall fail toremain in full force or effect or any action shall be taken to discontinue orto assert the invalidity or unenforceability of any Collateral Document, orBorrower shall fail to comply with any of the terms or provisions of anyCollateral Document; or

 

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##### (o)           any material provision of any LoanDocument for any reason ceases to be valid, binding and enforceable inaccordance with its terms (or Borrower shall challenge the enforceability ofany Loan Document or shall assert in writing, or engage in any action orinaction based on any such assertion, that any provision of any of the LoanDocuments has ceased to be or otherwise is not valid, binding and enforceablein accordance with its terms); or

#####  

then, and in every suchevent (other than an event with respect to Borrower described in clause (h) or(i) of this Article), and at any time thereafter during the continuance ofsuch event, Lender may, by notice to Borrower, take either or both of thefollowing actions, at the same or different times:  (i) terminate the Revolving Commitment,and thereupon the Revolving Commitment shall terminate immediately, and (ii) declarethe Loans then outstanding to be due and payable in whole (or in part, in whichcase any principal not so declared to be due and payable may thereafter bedeclared to be due and payable), and thereupon the principal of the Loans sodeclared to be due and payable, together with accrued interest thereon and allfees and other obligations of Borrower accrued hereunder, shall become due andpayable immediately, without presentment, demand, protest or other notice ofany kind, all of which are hereby waived by Borrower; and in case of any eventwith respect to Borrower described in clause (h) or (i) of thisArticle, the Revolving Commitment shall automatically terminate and theprincipal of the Loans then outstanding, together with accrued interest thereonand all fees and other obligations of Borrower accrued hereunder, shallautomatically become due and payable, without presentment, demand, protest orother notice of any kind, all of which are hereby waived by Borrower.  Upon the occurrence and the continuance of anEvent of Default, Lender may increase the rate of interest applicable to theLoans and other Obligations as set forth in this Agreement and exercise any rightsand remedies provided to Lender under the Loan Documents or at law or equity,including all remedies provided under the UCC.

 

ARTICLEVIII

 

# Miscellaneous

#  

SECTION 8.01.  Notices.  (a) Except in the case of notices andother communications expressly permitted to be given by telephone (and subjectto paragraph (b) below), all notices and other communications provided forherein shall be in writing and shall be delivered by hand or overnight courierservice, mailed by certified or registered mail or sent by facsimile, asfollows:

 

###### (i)                                     if to Borrowerat:

######  

KossCorporation4129 North Port Washington RoadMilwaukee, Wisconsin 53212Attention:  David D. SmithFacsimile No.:  (414) 964-8615

 

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###### (ii)                                  if to Lender,to JPMorgan Chase Bank, N.A. at:

######  

111East Wisconsin AvenueMilwaukee, Wisconsin 53201Attention:  Mark P. BrussFacsimile No.:  (414) 977-6788

 

All such notices and othercommunications (i) sent by hand or overnight courier service, or mailed bycertified or registered mail, shall be deemed to have been given when receivedor (ii) sent by facsimile shall be deemed to have been given when sent, providedthat if not given during normal business hours for the recipient, shall bedeemed to have been given at the opening of business on the next Business Dayfor the recipient.

 

##### (b)           Notices and other communications toLender hereunder may be delivered or furnished by electronic communications(including e-mail and internet or intranet websites) pursuant to proceduresapproved by Lender; provided that the foregoing shall not apply tonotices pursuant to Article II or to compliance and no Event of Defaultcertificates delivered pursuant to Section 5.01(d) unless otherwiseagreed by Lender.  Lender or Borrowermay, in its discretion, agree to accept notices and other communications to ithereunder by electronic communications pursuant to procedures approved by it; providedthat approval of such procedures may be limited to particular notices orcommunications. All such notices and other communications (i) sent to ane-mail address shall be deemed received upon the sender’s receipt of anacknowledgement from the intended recipient (such as by the “return receiptrequested” function, as available, return e-mail or other writtenacknowledgement), provided that if not given during the normal businesshours of the recipient, such notice or communication shall be deemed to havebeen given at the opening of business on the next Business Day for therecipient, and (ii) posted to an Internet or intranet website shall bedeemed received upon the deemed receipt by the intended recipient at its e-mailaddress as described in the foregoing clause (b)(i) of notification thatsuch notice or communication is available and identifying the website addresstherefor.

#####  

##### (c)           Any party hereto may change itsaddress or facsimile number for notices and other communications hereunder bynotice to the other parties hereto.

#####  

SECTION 8.02.  Waivers; Amendments.  (a)  No failure or delay by Lender in exercisingany right or power hereunder or under any other Loan Document shall operate asa waiver thereof, nor shall any single or partial exercise of any such right orpower, or any abandonment or discontinuance of steps to enforce such a right orpower, preclude any other or further exercise thereof or the exercise of anyother right or power.  The rights andremedies of Lender hereunder and under any other Loan Document are cumulativeand are not exclusive of any rights or remedies that they would otherwisehave.  No waiver of any provision of anyLoan Document or consent to any departure by Borrower therefrom shall in anyevent be effective unless the same shall be permitted by paragraph (b) ofthis Section, and then such waiver or consent shall be effective only in thespecific instance and for the purpose for which given.  Without limiting the generality of theforegoing, the making of a Loan or issuance of a Letter of Credit shall not beconstrued as a waiver of any Event of Default, regardless of whether Lender mayhave had notice or knowledge of such Event of Default at the time.

 

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##### (b)           Neither this Agreement nor any otherLoan Document nor any provision hereof or thereof may be waived, amended ormodified except pursuant to an agreement or agreements in writing entered intoby Borrower and Lender.

#####  

SECTION 8.03.  Expenses; Indemnity; Damage Waiver.  (a)  Borrower shall pay (i) allreasonable out-of-pocket expenses incurred by Lender and its Affiliates,including the reasonable fees, charges and disbursements of counsel for Lender(whether outside counsel or the allocated costs of its internal legaldepartment), in connection with the credit facilities provided for herein, thepreparation and administration of the Loan Documents or any amendments,modifications or waivers of the provisions of the Loan Documents (whether ornot the transactions contemplated hereby or thereby shall be consummated), (ii) allreasonable out-of-pocket expenses incurred by Lender in connection with theissuance, amendment, renewal or extension of any Letter of Credit or any demandfor payment thereunder and (iii) all out-of-pocket expenses incurred byLender,  including the fees, charges anddisbursements of any counsel for Lender (whether outside counsel or theallocated costs of its internal legal department), in connection with theenforcement, collection or protection of its rights in connection with the LoanDocuments, including its rights under this Section, or in connection with theLoans made or Letters of Credit issued hereunder, including all suchout-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans orLetters of Credit. Expenses being reimbursed by Borrower under this Section include,without limiting the generality of the foregoing, (i) subject to Section 5.11,costs and expenses incurred in connection with appraisals and insurancereviews; (ii) subject to Sections 5.06 and 5.11 (as applicable), fieldexaminations and the preparation of Reports based on the fees charged by athird party retained by Lender or the internally allocated fees for each Personemployed by Lender with respect to each field examination; taxes, fees andother charges for lien searches, (iii) filing financing statementsand continuations, and other actions to perfect, protect, and continue Lender’sLiens; (iv) and sums paid or incurred to take any action required ofBorrower under the Loan Documents that Borrower fails to pay or take.  All of the foregoing costs and expenses maybe charged to Borrower as Revolving Loans or to another deposit account, all asdescribed in Section 2.17(c).

 

##### (b)           Borrower shall indemnify Lender, andeach Related Party of Lender (each such Person being called an “Indemnitee”)against, and hold each Indemnitee harmless from, any and all losses, claims,damages, penalties, liabilities and related expenses, including the fees,charges and disbursements of any counsel for any Indemnitee, incurred by orasserted against any Indemnitee arising out of, in connection with, or as aresult of (i) the execution or delivery of the Loan Documents or anyagreement or instrument contemplated thereby, the performance by the partieshereto of their respective obligations thereunder or the consummation of theTransactions or any other transactions contemplated hereby, (ii) any Loanor Letter of Credit or the use of the proceeds therefrom (including any refusalby Lender to honor a demand for payment under a Letter of Credit if thedocuments presented in connection with such demand do not strictly comply withthe terms of such Letter of Credit), (iii) any actual or alleged presenceor release of Hazardous Materials on or from any property owned or operated byBorrower or any of its Subsidiaries, or any Environmental Liability related inany way to Borrower or any of its Subsidiaries, or (iv) any actual orprospective claim, litigation, investigation or proceeding relating to any ofthe foregoing, whether based on contract, tort or any other theory andregardless of whether any Indemnitee is a party thereto; provided thatsuch indemnity shall not, 

 

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##### as to any Indemnitee, beavailable to the extent that such losses, claims, damages, penalties, liabilitiesor related expenses are determined by a court of competent jurisdiction byfinal and nonappealable judgment to have resulted from the gross negligence orwillful misconduct of such Indemnitee.

#####  

##### (c)           The relationship between Borrower onthe one hand and Lender on the other hand shall be solely that of debtor andcreditor.  Lender (i) shall not haveany fiduciary responsibilities to Borrower or (ii) does not undertake anyresponsibility to Borrower to review or inform Borrower of any matter in connectionwith any phase of Borrower’s business or operations.  To the extent permitted by applicable law,Borrower shall not assert, and hereby waives, any claim against any Indemnitee,on any theory of liability, for special, indirect, consequential or punitivedamages (as opposed to direct or actual damages) arising out of, in connectionwith, or as a result of, this Agreement or any agreement or instrumentcontemplated hereby, the Transactions, any Loan or Letter of Credit or the useof the proceeds thereof.

#####  

##### (d)           All amounts due under this Section shallbe payable promptly after written demand therefor.

#####  

SECTION 8.04.  Successors and Assigns.  (a)  The provisions of this Agreementshall be binding upon and inure to the benefit of the parties hereto and theirrespective successors and assigns permitted hereby, except that Borrower maynot assign or otherwise transfer any of its rights or obligations hereunderwithout the prior written consent of Lender (and any attempted assignment ortransfer by Borrower without such consent shall be null and void).  Nothing in this Agreement, expressed orimplied, shall be construed to confer upon any Person (other than the partieshereto, their respective successors and assigns permitted hereby and, to theextent expressly contemplated hereby, the Related Parties of each of Lender)any legal or equitable right, remedy or claim under or by reason of thisAgreement.

 

##### (b)           Lender may assign to one or moreassignees all or a portion of its rights and obligations under this Agreement(including all or a portion of its Revolving Commitment and the Loans at thetime owing to it); provided that, except in the case of an assignment toan Affiliate of Lender or an Approved Fund, Borrower must give its priorwritten consent to such assignment (which consent shall not be unreasonablywithheld); and providedfurther that any consent of Borrowerotherwise required under this paragraph shall not be required if an Event ofDefault under clause (h) or (i) of Article VII has occurred andis continuing.  Subject to notificationof an assignment, the assignee shall be a party hereto and, to the extent ofthe interest assigned, have the rights and obligations of Lender under thisAgreement, and Lender shall, to the extent of the interest assigned, bereleased from its obligations under this Agreement (and, in the case of anassignment covering all of Lender’s rights and obligations under thisAgreement, Lender shall cease to be a party hereto but shall continue to beentitled to the benefits of Sections 2.14, 2.15, 2.16 and 8.03).  Borrower hereby agrees to execute anyamendment and/or any other document that may be necessary to effectuate such anassignment, including an amendment to this Agreement to provide for multiplelenders and an administrative agent to act on behalf of such lenders.  Any assignment or transfer by Lender ofrights or obligations under this Agreement that does not comply with thisparagraph shall be treated for purposes of this Agreement as a sale by Lenderof a participation in such rights and obligations in accordance with paragraph (c) ofthis Section.

 

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For the purposes of this Section 8.04(b),the term “Approved Fund” has the following meaning:

 

“Approved Fund” meansany Person (other than a natural person) that is engaged in making, purchasing,holding or investing in bank loans and similar extensions of credit in theordinary course of its business and that is administered or managed by (a) Lender,(b) an Affiliate of Lender or (c) an entity or an Affiliate of anentity that administers or manages Lender.

 

##### (c)           Lender may, without the consent ofBorrower, sell participations to one or more banks or other entities (a “Participant”)in all or a portion of Lender’s rights and obligations under this Agreement(including all or a portion of its Revolving Commitment and the Loans owing toit); provided that (i) Lender’s obligations under this Agreementshall remain unchanged, (ii) Lender shall remain solely responsible to theother parties hereto for the performance of such obligations and (iii) Borrowershall continue to deal solely and directly with Lender in connection withLender’s rights and obligations under this Agreement.   Subject to paragraph (d) of thisSection, Borrower agrees that each Participant shall be entitled to thebenefits of Sections 2.14, 2.15 and 2.16 to the same extent as if it wereLender and had acquired its interest by assignment pursuant to paragraph (b) ofthis Section.

#####  

##### (d)           A Participant shall not be entitledto receive any greater payment under Section 2.14 or 2.15 than Lenderwould have been entitled to receive with respect to the participation sold tosuch Participant, unless the sale of the participation to such Participant ismade with Borrower’s prior written consent.

#####  

##### (e)           Lender may at any time pledge orassign a security interest in all or any portion of its rights under thisAgreement to secure obligations of Lender, including any pledge or assignmentto secure obligations to a Federal Reserve Lender, and this Section shallnot apply to any such pledge or assignment of a security interest; providedthat no such pledge or assignment of a security interest shall release Lenderfrom any of its obligations hereunder or substitute any such pledgee or assigneefor Lender as a party hereto.

#####  

SECTION 8.05.  Survival.  All covenants, agreements, representationsand warranties made by Borrower in the Loan Documents and in the certificatesor other instruments  delivered inconnection with or pursuant to this Agreement or any other Loan Document shallbe considered to have been relied upon by the other parties hereto and shallsurvive the execution and delivery of the Loan Documents and the making of anyLoans and issuance of any Letters of Credit, regardless of any investigationmade by any such other party or on its behalf and notwithstanding that Lendermay have had notice or knowledge of any Event of Default or incorrectrepresentation or warranty at the time any credit is extended hereunder, andshall continue in full force and effect as long as the principal of or anyaccrued interest on any Loan or any fee or any other amount payable under thisAgreement is outstanding and unpaid or any Letter of Credit is outstanding andso long as the Revolving Commitment has not expired or terminated.  The provisions of Sections 2.14, 2.15, 2.16and Article VIII shall survive and remain in full force and effectregardless of the consummation of the transactions contemplated hereby, therepayment of the Loans, the expiration or termination of the Letters of Creditand the Revolving Commitment or the termination of this Agreement or anyprovision hereof.

 

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SECTION 8.06.  Counterparts; Integration; Effectiveness.  This Agreement may be executed incounterparts (and by different parties hereto on different counterparts), eachof which shall constitute an original, but all of which when taken togethershall constitute a single contract.  ThisAgreement, the other Loan Documents and any separate letter agreements withrespect to fees payable to Lender constitute the entire contract among theparties relating to the subject matter hereof and supersede any and allprevious agreements and understandings, oral or written, relating to thesubject matter hereof.  Except asprovided in Section 4.01, this Agreement shall become effective when itshall have been executed by Lender and when Lender shall have receivedcounterparts hereof which, when taken together, bear the signatures of each ofthe other parties hereto, and thereafter shall be binding upon and inure to thebenefit of the parties hereto and their respective successors and assigns.  Delivery of an executed counterpart of asignature page of this Agreement by facsimile shall be effective asdelivery of a manually executed counterpart of this Agreement.

 

SECTION 8.07.  Severability.  Any provision of any Loan Document held to beinvalid, illegal or unenforceable in any jurisdiction shall, as to suchjurisdiction, be ineffective to the extent of such invalidity, illegality orunenforceability without affecting the validity, legality and enforceability ofthe remaining provisions thereof; and the invalidity of a particular provisionin a particular jurisdiction shall not invalidate such provision in any otherjurisdiction.

 

SECTION 8.08.  Right of Setoff.  If an Event of Default shall have occurredand be continuing, Lender and each of its Affiliates is hereby authorized atany time and from time to time, to the fullest extent permitted by law, to setoff and apply any and all deposits (general or special, time or demand,provisional or final) at any time held and other obligations at any time owingby such Lender or Affiliate to or for the credit or the account of Borroweragainst any of and all the Secured Obligations held by such Lender,irrespective of whether or not such Lender shall have made any demand under theLoan Documents and although such obligations may be unmatured.  The rights of each Lender under this Section arein addition to other rights and remedies (including other rights of setoff)which such Lender may have.

 

SECTION 8.09.  Governing Law; Jurisdiction; Consent toService of Process.  (a)  TheLoan Documents shall be governed by and construed in accordance with theinternal laws of the State of Wisconsin, but giving effect to federal lawsapplicable to national banks.

 

##### (b)           Borrower hereby irrevocably andunconditionally submits, for itself and its property, to the nonexclusivejurisdiction of any U.S. Federal or Wisconsin State court sitting in Milwaukee,Wisconsin in any action or proceeding arising out of or relating to any LoanDocuments, or for recognition or enforcement of any judgment, and each of theparties hereto hereby irrevocably and unconditionally agrees that all claims inrespect of any such action or proceeding may be heard and determined in suchWisconsin State or, to the extent permitted by law, in such Federal court.  Each of the parties hereto agrees that a finaljudgment in any such action or proceeding shall be conclusive and may beenforced in other jurisdictions by suit on the judgment or in any other mannerprovided by law.  Nothing in thisAgreement or any other Loan Document shall affect any right that Lender mayotherwise have to bring any action or proceeding relating to this Agreement orany other Loan Document against Borrower or its properties in the courts of anyjurisdiction.

 

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##### (c)           Borrower hereby irrevocably andunconditionally waives, to the fullest extent it may legally and effectively doso, any objection which it may now or hereafter have to the laying of venue ofany suit, action or proceeding arising out of or relating to this Agreement orany other Loan Document in any court referred to in paragraph (b) of thisSection.  Each of the parties heretohereby irrevocably waives, to the fullest extent permitted by law, the defenseof an inconvenient forum to the maintenance of such action or proceeding in anysuch court.

#####  

##### (d)           Each party to this Agreementirrevocably consents to service of process in the manner provided for noticesin Section 8.01.  Nothing in thisAgreement or any other Loan Document will affect the right of any party to thisAgreement to serve process in any other manner permitted by law.

#####  

SECTION 8.10.  WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THEFULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO ATRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF ORRELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONSCONTEMPLATED THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHERTHEORY).  EACH PARTY HERETO (a) CERTIFIESTHAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OFLITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (b) ACKNOWLEDGES THATIT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENTBY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

SECTION 8.11.  Headings.  Article and Section headings andthe Table of Contents used herein are for convenience of reference only, arenot part of this Agreement and shall not affect the construction of, or betaken into consideration in interpreting, this Agreement.

 

SECTION 8.12.  Confidentiality.  Lender agrees to maintain the confidentialityof the Information (as defined below), except that Information may be disclosed(a) to its and its Affiliates’ directors, officers, employees and agents,including accountants, legal counsel and other advisors (it being understoodthat the Persons to whom such disclosure is made will be informed of theconfidential nature of such Information and instructed to keep such Informationconfidential), (b) to the extent requested by any regulatory authority, (c) tothe extent required by applicable laws or regulations or by any subpoena orsimilar legal process, (d) to any other party to this Agreement, (e) inconnection with the exercise of any remedies hereunder or any suit, action orproceeding relating to this Agreement or any other Loan Document or theenforcement of rights hereunder or thereunder, (f) subject to an agreementcontaining provisions substantially the same as those of this Section, to (i) anyassignee of or Participant in, or any prospective assignee of or Participantin, any of its rights or obligations under this Agreement or (ii) anyactual or prospective counterparty (or its advisors) to any swap or derivativetransaction relating to Borrower and its obligations, (g) with the consentof Borrower or (h) to the extent such Information (i) becomespublicly available other than as a result of a breach of this Section or (ii) becomesavailable to Lender on a non-confidential basis from a source other thanBorrower.  For the purposes of thisSection, “Information” means all information received from Borrower or 

 

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anythird party subject to confidentiality restrictions relating to Borrower or itsbusiness, other than any such information that is available to Lender on anon-confidential basis prior to disclosure by Borrower or such third parties; providedthat, in the case of information received from Borrower or any such thirdparties after the date hereof, such information is clearly identified at thetime of delivery as confidential.  AnyPerson required to maintain the confidentiality of Information as provided inthis Section shall be considered to have complied with its obligation todo so if such Person has exercised the same degree of care to maintain theconfidentiality of such Information as such Person would accord to its ownconfidential information.

 

SECTION 8.13.  Nonreliance; Violation of Law.  Lender hereby represents that it is notrelying on or looking to any margin stock for the repayment of the Borrowingsprovided for herein.  Anything containedin this Agreement to the contrary notwithstanding, Lender shall not beobligated to extend credit to Borrower in violation of any limitation orprohibition provided by any applicable statute or regulation.

 

SECTION 8.14.  USA PATRIOT Act.  Lender is subject to the requirements of theUSA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26,2001)) (the “Act”) and hereby notifies Borrower that pursuant to therequirements of the Act, it is required to obtain, verify and recordinformation that identifies Borrower, which information includes the name andaddress of Borrower and other information that will allow such Lender toidentify Borrower in accordance with the Act.

 

SECTION 8.15.  Disclosure.  Borrower hereby acknowledges and agrees thatLender and/or its Affiliates from time to time may hold investments in, makeother loans to or have other relationships with Borrower and its Affiliates.

 

SECTION 8.16.  Interest Rate Limitation.  Notwithstanding anything herein to thecontrary, if at any time the interest rate applicable to any Loan, togetherwith all fees, charges and other amounts which are treated as interest on suchLoan under applicable law (collectively the “Charges”), shall exceed themaximum lawful rate (the “Maximum Rate”) which may be contracted for,charged, taken, received or reserved by Lender holding such Loan in accordancewith applicable law, the rate of interest payable in respect of such Loanhereunder, together with all Charges payable in respect thereof, shall belimited to the Maximum Rate and, to the extent lawful, the interest and Chargesthat would have been payable in respect of such Loan but were not payable as aresult of the operation of this Section shall be cumulated and theinterest and Charges payable to such Lender in respect of other Loans orperiods shall be increased (but not above the Maximum Rate therefor) until suchcumulated amount, together with interest thereon at the Federal Funds EffectiveRate to the date of repayment, shall have been received by Lender.

 

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IN WITNESS WHEREOF, theparties hereto have caused this Agreement to be duly executed by theirrespective authorized officers as of the day and year first above written.

 
|       | **KOSS CORPORATION**          |
|------------|-------------------------------|
|       |                          |   |
|       | By:                           |   |
|       | Name:                         |   |
|       | Title:                        |   |
|       |                          |   |
|       |                          |   |
|       | **JPMORGAN CHASE BANK, N.A.** |
|       |                          |   |
|       | By:                           |   |
|       | Name:                         |   |
| ** ** | **Title:**                    | ** ** |

 

[SignaturePage to Credit Agreement]

 

----

 

 

**EXHIBITA**

 

**BORROWING BASE CERTIFICATE**

** **

**[Form attached]**

 

ExhibitA

 

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**EXHIBITB**

 

COMPLIANCECERTIFICATE

 

To:          JPMorgan Chase Bank, N.A.

 

This Compliance Certificateis furnished pursuant to that certain Credit Agreement dated as of May 12,2010 (as amended, modified, renewed or extended from time to time, the “Agreement”)between Koss Corporation, a Delaware corporation (the “Borrower”), and JPMorganChase Bank, N.A., as Lender.  Unlessotherwise defined herein, capitalized terms used in this Compliance Certificatehave the meanings ascribed thereto in the Agreement.

 

THE UNDERSIGNED HEREBYCERTIFIES THAT:

 

1.             I am the dulyelected                                        of Borrower;

 

2.             I have reviewed theterms of the Agreement and I have made, or have caused to be made under mysupervision, a detailed review of the transactions and conditions of Borrowerand its Subsidiaries during the accounting period covered by the attachedfinancial statements [**for quarterly financialstatements add:** and such financial statements present fairly in allmaterial respects the financial condition and results of operations of Borrowerand its consolidated Subsidiaries on a consolidated basis in accordance withGAAP consistently applied, subject to normal year-end audit adjustments and theabsence of footnotes];

 

3.             The examinationsdescribed in paragraph 2 did not disclose, except as set forth below, and Ihave no knowledge of (i) the existence of any condition or event whichconstitutes a Default during or at the end of the accounting period covered bythe attached financial statements or as of the date of this Certificate or (ii) anychange in GAAP or in the application thereof that has occurred since the dateof the audited financial statements referred to in Section 3.04 of theAgreement;

 

4.             I hereby certify,in my capacity as                            ,that the Borrower has not changed (i) its name, (ii) its chiefexecutive office, (iii) principal place of business, (iv) the type ofentity it is or (v) its state of incorporation or organization withouthaving given the Lender the notice required by the Security Agreement;

 

5.             Schedule Iattached hereto sets forth financial data and computations evidencing Borrower’scompliance with certain covenants of the Agreement, all of which data andcomputations are true, complete and correct; and

 

6.             Schedule IIhereto sets forth the computations necessary to determine the Applicable Ratecommencing on the Business Day this certificate is delivered.

 

Described below are theexceptions, if any, to paragraph 3 by listing, in detail, the (i) natureof the condition or event, the period during which it has existed and theaction which Borrower has taken, is taking, or proposes to take with respect toeach such condition or event or (i) the change in GAAP or the applicationthereof and the effect of such change on the attached financial statements:

 

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7.             Except as set forthon Schedule III hereto, the Borrower has not acquired any additionalright, title or interest in any registered Patents, Trademarks or Copyrights.

 

The foregoingcertifications, together with the computations set forth in Schedule I andSchedule II hereto, the information set forth on Schedule III hereto, and thefinancial statements delivered with this Certificate in support hereof, aremade and delivered this              day of                                       .

 
|   | KOSS CORPORATION |
|--------|------------------|
|   |             |
|   |             |
|   | By:              |   |
|   | Name:            |   |
|   | Title:           |   |

 

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