Document:

exv10w2

 

GUARANTEE

     FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, and in connection with
that certain funding agreement (the “Funding Agreement”), entered into by and between Principal
Life Insurance Company, an Iowa insurance company (“Principal Life”), and Principal Life Income
Fundings Trust 2007-87, a New York common law trust (the “Trust”), relating to the notes (the
“Notes”) issued by the Trust, Principal Financial Group, Inc., a Delaware corporation and the
indirect parent company of Principal Life (the “Guarantor”), hereby furnishes to the Trust its full
and unconditional guarantee of the Guaranteed Amounts (as hereinafter defined) as follows:

1. Guarantee.

          (a) The Guarantor hereby fully, irrevocably, absolutely and unconditionally guarantees, as a
guarantee of payment and not merely as a guarantee of collection, immediate payment when due to the
Trust any payments required to be made by Principal Life to the Trust under the Funding Agreement
which shall become due and payable regardless of whether such payment is due at maturity, on an
interest payment date or as a result of redemption or otherwise (the “Scheduled Payments”) but
shall be unpaid by Principal Life (the “Guaranteed Amounts”). Notwithstanding anything to the
contrary contained herein, in no event shall the Guaranteed Amounts exceed the Deposit (as defined
in the Funding Agreement) of the Funding Agreement, plus accrued but unpaid interest and any other
amounts due and owing under the Funding Agreement, less any amounts paid by Principal Life to the
Trust.

          (b) In the event that Principal Life fails to make a Scheduled Payment in full when due (the
“Payment Notice Date”), then the Trust or Citibank, N.A., as indenture trustee for the benefit of
the holders of the Notes (the “Indenture Trustee”), pursuant to the indenture (the “Indenture”)
between the Trust and the Indenture Trustee, may present the Guarantor with notice (each, a
“Payment Notice”) of such failure in writing on or after the Payment Notice Date. The Payment
Notice shall identify (1) the Funding Agreement, (2) the Trust, (3) the Payment Notice Date and (4)
the amount of the Scheduled Payments not paid by Principal Life to the Trust as of the Payment
Notice Date. Upon receipt of such Payment Notice, the Guarantor will immediately pay the
Guaranteed Amounts pursuant to Section 7.

          (c) In the event that, after receipt of a Payment Notice from the Trust, the Guarantor fails
to make immediate payment to the Trust or the Indenture Trustee of the Guaranteed Amounts, then
the Trust and the Indenture Trustee may enforce the obligations of the Guarantor under this
Guarantee, including by immediately bringing suit directly against the Guarantor (without first
bringing suit against Principal Life) for the Guaranteed Amounts not paid to the Trust as of the
Payment Notice Date.

          (d) This Guarantee is an unsecured, unsubordinated and contingent obligation of the Guarantor
and ranks equally with all other unsecured and unsubordinated obligations of the Guarantor.

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     2. Termination. This Guarantee is a continuing and irrevocable guarantee of the
Guaranteed Amounts now or hereafter existing and shall terminate and be of no further force and
effect with respect to the Funding Agreement and the Notes upon the full payment of the Scheduled
Payments or upon the earlier extinguishment of the obligations of Principal Life under the Funding
Agreement.

     3. Amendments. Subject to the trust agreement relating to the Trust and the Indenture, no
provision of this Guarantee may be waived, amended, supplemented or modified, except by a written
instrument executed by the Trust and the Guarantor.

     4. Assignment; Governing Law. This Guarantee shall inure to the benefit of the Trust and its
successors, assigns and pledgees. This Guarantee shall be governed by, and construed in accordance
with, the laws of the State of New York without regard to conflict of law principles.

     5. Notices. All notices given pursuant to this Guarantee shall be in writing, and shall
either be delivered, mailed or telecopied to the locations listed below or at such other address or
to the attention of such other persons as such party shall have designated for such purpose in a
written notice complying as to delivery with the terms of this Section 5. Each such notice shall
be effective (i) if given by telecopy, when transmitted to the applicable number so specified in
this Section 5 (such notice shall also be sent by mail, with first class postage prepaid), (ii) if
given by mail, three days after deposit in the mails with first class postage prepaid, or (iii) if
given by any other means, when actually delivered at such address.

If to the Guarantor:

Principal Financial Group, Inc.

711 High Street

Des Moines, Iowa 50392

Attention: General Counsel

Telephone: (515) 247-5111

Facsimile: (515) 248-3011

With a copy to:

Principal Life Insurance Company

711 High Street

Des Moines, Iowa 50392

Attention: Jim Fifield

Telephone: (515) 248-9196

Facsimile: (866) 496-6527

If to the Trust:

Principal Life Income Fundings Trust (followed by the number of the Trust specified in this Guarantee)

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c/o U.S. Bank Trust National Association

100 Wall Street, 16th Floor

New York, New York 10005

Attention: Thomas E. Tabor

Telephone: (212) 361-6184

Facsimile: (212) 809-5459

With a copy to:

Citibank, N.A.

Citibank Agency and Trust

388 Greenwich Street, 14th Floor

New York, New York 10013

Attention: Nancy Forte

Telephone: (212) 816-5685

Facsimile: (212) 816-5527

     6. Representations and Warranties. The Guarantor represents and warrants that: (i) it is duly
organized and in good standing under the laws of the jurisdiction of its organization and has full
capacity and right to make and perform this Guarantee, and all necessary authority has been
obtained; (ii) this Guarantee constitutes a legal, valid and binding obligation of the Guarantor
enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency and similar
laws affecting creditors’ rights and general principles of equity, regardless of whether
enforcement is sought in a proceeding in equity or at law; (iii) the making and performance of this
Guarantee does not and will not violate the provisions of any applicable law, regulation or order,
and does not and will not result in the breach of, or constitute a default under, any material
agreement, instrument or document to which it is a party or by which it or any of its property may
be bound or affected, except to the extent disclosed in the registration statement registering the
issuance of this Guarantee and the Funding Agreement, as amended, supplemented or modified from
time to time (the “Registration Statement”), and to the extent that any such violation, breach or
default does not result in a material adverse effect on the Guarantor; and (iv) all consents,
approvals, licenses and authorizations of, and filings and registrations with, any governmental
authority required under applicable law and regulations for the making and performance of this
Guarantee have been obtained or made and are in full force and effect, except to the extent
disclosed in the Registration Statement and to the extent that the failure to acquire any such
consent, approval, license, authorization, filing or registration does not result in a material
adverse effect on the Guarantor.

     7. Notice of, and Consent to, Security Interest. The Trust hereby notifies the Guarantor that
it has granted to the Indenture Trustee, on behalf of the holders of the Notes, a security interest
in the Collateral (as defined in the Indenture), including, but not limited to, any and all payment
to be made by the Guarantor to the Trust under this Guarantee. The Trust hereby notifies the
Guarantor that it has collaterally assigned to the Indenture Trustee, for the benefit of the
holders of the Notes, this Guarantee. The Guarantor, by executing this Guarantee, hereby (i)
affirms that it has made or simultaneously will make changes to its books and records to reflect
such security interest and collateral assignment, (ii) consents to the security interest

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granted, and collateral assignment made, by the Trust to the Indenture Trustee of this
Guarantee, (iii) agrees to make all payments due under this Guarantee to the Collection Account (as
defined in the Indenture) or any other account designated in writing to the Guarantor by the
Indenture Trustee and (iv) agrees to comply with all orders of the Indenture Trustee with respect
to this Guarantee without any further consent from the Trust.

     8. WAIVER OF JURY TRIAL; FINAL AGREEMENT. TO THE EXTENT ALLOWED BY APPLICABLE LAW, THE
GUARANTOR WAIVES TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING ON OR ARISING
OUT OF THIS GUARANTEE. THIS GUARANTEE REPRESENTS THE FINAL AGREEMENT BETWEEN THE GUARANTOR AND THE
TRUST AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS AMONG SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.

	 	 	 
	PRINCIPAL FINANCIAL GROUP, INC.
	 
	 	 
	By:

	 	/s/ Elizabeth D. Swanson
	 

	 	 
	 
	 	 
	Name:

	 	Elizabeth D. Swanson
	 
	 	 
	Title:

	 	Counsel
	 
	 	 
	Date:

	 	The Effective Date (as defined in the Funding Agreement)

Acknowledged and Agreed:

	 	 	 
	 
	 	 
	 
	 	 
	THE PRINCIPAL LIFE INCOME FUNDINGS

TRUST DESIGNATED IN THIS GUARANTEE
	 
	 	 
	By:

	 	U.S. Bank Trust National Association,

not in its individual capacity, but solely in its

capacity as trustee
	 
	 	 
	By:

	 	Bankers Trust Company, N.A.,

under Limited Power of Attorney, dated March 2, 2007
	 
	 	 
	By:

	 	/s/ Craig A. Dana
	 

	 	 
	 
	 	 
	Name:

	 	Craig A. Dana
	 
	 	 
	Title:

	 	 Vice President
	 
	 	 
	Date:

	 	The Effective Date (as defined in the Funding Agreement)

4exv10w1

 

Exhibit 10.1

REVOLVING CREDIT AGREEMENT

Dated as of August 29, 2007

     Zareba Systems, Inc., a Minnesota corporation (“Systems”) and Zareba Security, Inc., a
Minnesota corporation (“Security”) (Systems and Security are individually and collectively referred
to herein as the “Borrower”), and JPMorgan Chase Bank, N.A., a national banking association (the
“Lender”), hereby agree as follows:

ARTICLE I.

Definitions

          Section 1.1. Definitions. For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:

     (a) the terms defined in this Article have the meanings assigned to them in this
Article, and include the plural as well as the singular; and

     (b) all accounting terms not otherwise defined herein have the meanings assigned to
them in accordance with GAAP.

“Accounts” means all of the Borrower’s accounts, as such term is defined in the UCC,
including without limitation the aggregate unpaid obligations of customers and other account
debtors to the Borrower arising out of the sale or lease of goods or rendition of services
by the Borrower on an open account or deferred payment basis.

“Advance” has the meaning given in Section 2.1.

“Affiliate” or “Affiliates” means any Person controlled by, controlling or under common
control with the Borrower including (without limitation) any Subsidiary of the Borrower.
For purposes of this definition, “control,” when used with respect to any specified Person,
means direct or indirect ownership of ten percent (10%) or more of any class of voting stock
of the controlled Person, or the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by contract or
otherwise.

“Agreement” means this Revolving Credit Agreement, as amended, supplemented or restated from
time to time.

“Applicable Margin” means the percentages set forth below, calculated based on the Cash Flow
Leverage Ratio for the most recently ended period of four consecutive fiscal quarters:

 

 

	 	 	 	 	 	 	 	 	 
	 	 	Applicable Margin
	 	 	LIBOR	 	Base Rate
	Cash Flow Leverage Ratio:	 	Advances	 	Advances:
	Less than 2.00 to 1.00:
	 	 	1.5	%	 	 	-1.000	%
	 
	 	 	 	 	 	 	 	 
	Greater than or equal to 2.00 to 1.00 but less
than 2.50 to 1.00:
	 	 	1.75	%	 	 	-.750	%
	 
	 	 	 	 	 	 	 	 
	Greater than or equal to 2.50 to 1.00 but less
than or equal to 3.00 to 1.00:
	 	 	2.00	%	 	 	-.500	%
	 
	 	 	 	 	 	 	 	 
	Greater than 3.00 to 1.00:
	 	 	2.50	%	 	 	0	%

Notwithstanding the foregoing, the Applicable Margin shall initially be 1.75% for LIBOR
Advances and -.75% for Base Rate Advances until and including September 30, 2007.
Commencing September 30, 2007, the Applicable Margin shall be adjusted once each fiscal
quarter effective as of the date 45 days after the end of each fiscal quarter based on the
Cash Flow Leverage Ratio for the period of four consecutive fiscal quarters as reported in
the quarterly or annual financial statements delivered by such times, as certified by the
Borrower’s financial officer. In the event that such financial statements are not delivered
as required by Section 5.1(a) or 5.1(b), the Applicable Margin shall be the
percentage in effect for the preceding quarter set forth above until such time as such
financial statements are delivered, after which time the Applicable Margin shall be
readjusted retroactive to the 45th day following the previous quarter end to the
rate applicable to the Cash Flow Leverage Ratio applicable to such statements.

“Banking Day” means any day (other than a Saturday, Sunday or legal holiday in the State of
Minnesota) on which national banks are permitted to be open in Minneapolis, Minnesota and
New York, New York and, with respect to LIBOR Advances, a day on which dealings in Dollars
may be carried on by the Lender in the interbank Eurodollar market.

“Banking Services” shall mean each and any of the following bank services provided to
Borrower by Lender or any of its affiliates: (a) commercial credit cards, (b) stored value
cards, and (c) treasury management services (including, without limitation, controlled
disbursement, automated clearinghouse transactions, return items, overdrafts and interstate
depository network services).

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

“Base Rate” means with respect to any date the greater of (a) the Prime Rate, or (b) the
Federal Funds Effective Rate (each determined each Banking Day and applicable from

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and including such Banking Day to, but not including, the next following Banking Day) plus
0.50%.

“Base Rate Advance” means an Advance designated as such in a notice of borrowing under
Section 2.1 or a notice of continuation or conversion under Section 2.1.

“Borrowing Base” means, at any time the lesser of:

     (a) the Maximum Line; or

     (b) the sum of: (i) 80% of Eligible Accounts, plus (ii) 50% of Eligible Inventory.

The amount of the Borrowing Base shall be determined monthly from the most recent Borrowing
Base Certificate and supporting reports delivered to the Lender pursuant to Section 5.1(d).

“Capital Expenditures” shall mean any amount debited to the fixed asset account on the
Borrower’s balance sheet in respect of: (a) the acquisition (including, without limitation,
acquisition by entry into a Capitalized Lease), construction, improvement, replacement or
betterment of land, buildings, machinery, equipment or of any other fixed assets or
capitalized leaseholds; and (b) to the extent related to and not included in (a) above,
materials, contract labor and direct labor (excluding expenditures charged to repairs or
maintenance in accordance with GAAP).

“Capitalized Lease” shall mean any lease which, in accordance with GAAP, is capitalized on
the books of the lessee.

“Cash Flow Leverage Ratio” means on any date of any determination, the fraction, expressed
as a ratio, of (a) domestic Interest-bearing Indebtedness on such date to (b) domestic
EBITDA for the twelve consecutive months ended on such date of determination.

“Collateral” means all of the Borrower’s personal property, including without limitation,
all Accounts, chattel paper (including, without limitation, electronic chattel paper and
tangible chattel paper), commercial tort claims, Controlled Property deposit accounts,
documents, Equipment, fixtures, General Intangibles, goods, instruments, Inventory,
Investment Property, letter-of-credit rights, letters of credit, patents, patent rights,
copyrights, trademarks, trade names, goodwill, royalty rights, franchise rights, license
rights, software and payment intangibles; together with (i) all substitutions and
replacements for and products of any of the foregoing; (ii) proceeds of any and all of the
foregoing (whether cash or non-cash, and including Insurance Proceeds); (iii) in the case of
all tangible goods, all accessions; (iv) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection with any tangible
goods; (v) all warehouse receipts, bills of lading and other documents of title now or
hereafter covering such goods; (vi) all collateral subject to the lien of any Security
Document; (vii) any money, or other assets of the Borrower, that now or hereafter come

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into the possession, custody or control of the Lender; (viii) all supporting obligations;
and (ix) all sums on deposit in the Special Account.

“Commitment” means the Lender’s commitment to make Advances to or for the Borrower’s account
pursuant to Article II.

“Controlled Property” shall mean property of every kind and description in which Borrower
has or may acquire any interest, now or hereafter at any time in the possession or control
of the Secured Party, for any reason and all dividends and distributions on or other rights
in connection with such property.

“Debt Service Coverage Ratio” means, for any period, the ratio of (i) the sum of (A)
domestic EBITDA, minus (B) unfinanced domestic Capital Expenditures, minus
(C) domestic dividends, distributions, repurchases of capital stock, stock options or
warrants, minus (D) cash advances or investments in Subsidiaries or Affiliates
permitted pursuant to Section 6.4(d) of this Agreement minus (E) domestic taxes to
(ii) the sum of (A) domestic Interest Expense, plus (B) principal payments on any
domestic Indebtedness, computed and calculated in all cases in accordance with GAAP on a
rolling four quarter basis for the four quarter period ending as of the Measurement Date.

“Default” means an event that with the giving of notice or the passage of time or both would
constitute an Event of Default.

“Default Period” means any period of time beginning on the day on which an Event of Default
has occurred and ending on the date the Lender notifies the Borrower in writing that such
Event of Default has been cured or waived.

“Default Rate” means, in the case of each LIBOR Advance, two percent (2.00%) in excess of
the rate applicable before it became due for the duration of the Interest Period(s) then in
effect, and for Based Rate Advances and LIBOR Advances after the expiration of existing
Interest Period, two percent (2.00%) in excess of the Base Rate plus the Applicable Margin
for Based Rate Advances in effect from time to time.

“EBITDA” means for any period of determination, the Net Income for such period plus, to the
extent deducted from revenues in determining Net Income, (i) Interest Expense paid or
accrued, (ii) expenses for taxes paid or accrued, (iii) depreciation, (iv) non cash losses
incurred as a result of currency exchange rates, (v) amortization, (vi) non-cash
compensation expenses recorded pursuant to FAS 123(R), and (vii) extraordinary non cash
losses incurred other than in the ordinary course of business, minus (i) to the extent
included in Net Income for such period, extraordinary non cash gains realized other than in
the ordinary course of business and non cash gains as a result of currency exchange rates,
all as determined in accordance with GAAP.

“Eligible Accounts” means all unpaid Accounts, net of any credits and rebates, except the
following shall not in any event be deemed Eligible Accounts:

     (a) That portion of Accounts (other than Accounts owed by to Tractor Supply Company)
unpaid one hundred twenty (120) days or more after the invoice date or, for

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any such Account with payment terms as set forth on the applicable purchase order or
invoice (so long as such payment terms do not exceed ninety (90) days past the invoice date
(the “Due Date”) that portion of such Account which is unpaid after the later of (i) thirty
(30) days after the stated Due Date or (ii) one hundred twenty (120) days after the invoice
date;

     (b) With respect to Accounts owed by Tractor Supply Company, that portion of such
Accounts which are unpaid after the later of (i) for such Accounts with a stated Due Date,
thirty (30) days after the stated Due Date or (ii) one hundred twenty (120) days after the
invoice date (notwithstanding the foregoing, “Eligible Accounts” shall be deemed to include
up to $500,000 of Accounts owed by Tractor Supply Company with a stated Due Date and which
are unpaid more than thirty (30) but less than sixty (60) days after the stated Due Date).

     (c) That portion of Accounts that is disputed or subject to a claim of offset or a
contra account;

     (d) That portion of Accounts not yet earned by the final delivery of goods or rendition
of services (i.e., deferred revenue or unearned revenue), as applicable, by the Borrower to
the customer;

     (e) Accounts owed by any unit of government, whether foreign or domestic (provided,
however, that there shall be included in Eligible Accounts that portion of Accounts owed by
such units of government for which the Borrower has provided evidence satisfactory to the
Lender that (A) the Lender has a first priority perfected security interest and (B) such
Accounts may be enforced by the Lender directly against such unit of government under all
applicable laws);

     (f) Accounts owed by an account debtor not a resident of or located outside the United
States of America which are not (A) backed by a bank letter of credit naming the Lender as
beneficiary or assigned to the Lender, in the Lender’s possession and acceptable to the
Lender in all respects, in its sole discretion, (B) covered by a foreign receivables
insurance policy acceptable to the Lender in its sole discretion;

     (g) Accounts owed by an account debtor that is insolvent, the subject of bankruptcy
proceedings or has gone out of business;

     (h) Accounts owed by a shareholder, Subsidiary, Affiliate, officer or employee of the
Borrower;

     (i) Accounts not subject to a duly perfected security interest in the Lender’s favor or
which are subject to any lien, security interest or claim in favor of any Person other than
the Lender including without limitation any payment or performance bond;

     (j) That portion of Accounts that has been restructured, extended, amended or modified;

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     (k) That portion of Accounts that constitutes advertising, finance charges, service
charges or sales or excise taxes;

     (l) Accounts owed by Tractor Supply Company to the extent that the Accounts owed by
Tractor Supply Company exceed fifty-five percent (55%) of the aggregate of all Accounts;

     (m) Accounts owed by an account debtor, regardless of whether otherwise eligible, if
twenty percent (20%) or more of the total amount due under Accounts from such debtor is
ineligible under clauses (a), (b) (c) or (j) above unless the Lender in its discretion has
determined that the Accounts owed by such account debtor may be eligible; and

     (n) Accounts, or portions thereof, otherwise deemed ineligible by the Lender in its
commercially reasonable discretion.

“Eligible Inventory” means all Inventory of the Borrower, at the lower of cost or market
value as determined in accordance with GAAP; provided, however, that the following shall not
in any event be deemed Eligible Inventory:

     (a) Inventory that is: in-transit, located at any warehouse, job site or other premises
not approved by the Lender in writing; located outside of the states, or localities, as
applicable, in which the Lender has filed financing statements to perfect a first priority
security interest in such Inventory; on consignment from any Person; on consignment to any
Person or subject to any bailment unless such consignee or bailee has executed an agreement
with the Lender;

     (b) Supplies, packaging, maintenance, parts or sample Inventory;

     (c) Work-in-process Inventory;

     (d) Inventory that is damaged, obsolete, slow moving, or not currently saleable;

     (e) Inventory that the Borrower has returned, has attempted to return, is in the
process of returning or intends to return to the vendor thereof;

     (f) Inventory that is perishable;

     (g) Inventory distributed or sold by the Borrower pursuant to a license, permit, or
agreement unless the Lender has determined that the Lender will have the absolute right to
utilize such license, permit, or agreement, as the case may be, in order to exercise its
rights and remedies against such Inventory (including any Inventory with respect to which a
prepaid deposit has been received);

     (h) Inventory that is subject to a lien, claim, or security interest in favor of any
Person other than the Lender;

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     (i) Inventory that is located outside of the United States of America; and

     (j) Inventory otherwise deemed ineligible by the Lender in its commercially reasonable
discretion.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“Environmental Laws” has the meaning specified in Section 4.12.

“Equipment” means all of the Borrower’s equipment, as such term is defined in the UCC,
whether now owned or hereafter acquired, including but not limited to all present and future
machinery, vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office
and recordkeeping equipment, parts, tools, supplies, and including specifically (without
limitation) the goods described in any equipment schedule or list herewith or hereafter
furnished to the Lender by the Borrower.

“Event of Default” has the meaning specified in Section 7.1.

“Federal Funds Effective Rate” means for any day, an interest rate per annum equal to the
weighted average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such day by the
Federal Reserve Bank of New York, or, if such rate is not so published for any day which is
a Banking Day, the average of the quotations for such day on such transactions received by
the Lender from three Federal funds brokers of recognized standing selected by the Lender.
In the case of a day which is not a Banking Day, the Federal Funds Effective Rate for such
day shall be the Federal Funds Effective Rate for the preceding Banking Day.

“Funding Date” has the meaning given in Section 2.1.

“GAAP” means generally accepted accounting principles at the time in the United States.

“General Intangibles” means all of the Borrower’s general intangibles, as such term is
defined in the UCC, whether now owned or hereafter acquired, including (without limitation)
all present and future patents, patent applications, copyrights, trademarks, trade names,
trade secrets, customer or supplier lists and contracts, manuals, operating instructions,
permits, franchises, the right to use the Borrower’s name, and the goodwill of the
Borrower’s business.

“Guarantee” means any obligation, contingent or otherwise, of any Person guaranteeing or
having the economic effect of guaranteeing any Indebtedness of any other Person (the
“primary obligor”) in any manner, whether directly or otherwise: (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or
to advance or supply funds for the purchase of) any direct or indirect security therefor,
(b) to purchase property, securities, or services for the purpose of assuring the owner of
such Indebtedness of the payment of such Indebtedness, (c) to maintain working capital,
equity capital, or other financial statement condition of the primary obligor so as to
enable the primary obligor to pay such Indebtedness or otherwise

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to protect the owner thereof against loss in respect thereof or (d) entered into for the
purpose of assuring in any manner the owner of such Indebtedness of the payment of such
Indebtedness or to protect the owner against loss in respect thereof provided, that the term
“Guarantee” shall not include endorsements for collection or deposit, in the ordinary course
of business.

“Hazardous Substances” has the meaning given in Section 4.12.

“Indebtedness” means with respect to any Person at any time, without duplication: (a) all
obligations of such Person for borrowed money, (b) all obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid (other than accounts payable on normal
payment terms to suppliers incurred in the ordinary course of business), (d) all obligations
of such Person under conditional sale or other title retention agreements relating to
property purchased by such Person, (e) all obligations of such Person issued or assumed as
the deferred purchase price of the property or services (other than accounts payable on
normal payment terms to suppliers incurred in the ordinary course of business), (f) all
obligations of others secured by any lien on property owned or acquired by such Person,
whether or not the obligation secured thereby has been assumed, (g) all Capitalized Lease
obligations of such Person, (h) all Guarantees by such Person of Indebtedness of others, and
(i) all unsecured obligations of the Subsidiaries of such Person, calculated on a
consolidated basis.

“Insurance Proceeds” shall mean all proceeds of any and all insurance policies payable to
Borrower with respect to any Collateral, or on behalf of any Collateral, whether or not such
policies are issued to or owned by Borrower.

“Interest Bearing Debt” shall mean, at any date of determination, the outstanding principal
balance of all interest bearing Debt of the Borrower.

“Interest Expense” means for any period of determination, the aggregate amount, without
duplication, of interest paid, accrued or scheduled to be paid in respect of any
Indebtedness of the Borrower, including (a) all but the principal component of payments in
respect of conditional sale contracts, Capitalized Leases and other title retention
agreements, (b) commissions, discounts and other fees and charges with respect to letters of
credit and bankers’ acceptance financings and (c) net costs under interest rate protection
agreements, in each case determined in accordance with GAAP.

“Interest Period” means with respect to any LIBOR Advance, the period commencing on the date
of such Borrowing and ending on the numerically corresponding day in the calendar month that
is one, two, three or six months thereafter, as the Borrower may elect, provided, that (i)
if any Interest Period would end on a day other than a Banking Day, such Interest Period
shall be extended to the next succeeding Banking Day unless such next succeeding Banking Day
would fall in the next calendar month, in which case such Interest Period shall end on the
next preceding Banking Day and (ii) any Interest Period that commences on the last Banking
Day of a calendar month (or on a day for which there is no numerically corresponding day in
the last calendar month of such

- 8 -

 

Interest Period) shall end on the last Banking Day of the last calendar month of such
Interest Period. For purposes hereof, the date of a LIBOR Advance initially shall be the
date on which such LIBOR Advance is made and, thereafter shall be the effective date of the
most recent conversion or continuation of such LIBOR Advance.

“Inventory” means all of the Borrower’s inventory, as such term is defined in the UCC,
whether now owned or hereafter acquired, whether consisting of whole goods, finished goods,
raw materials, spare parts or components, supplies or materials, whether acquired, held or
furnished for sale, for lease or under service contracts or for manufacture or processing,
and wherever located.

“Investment” shall mean the acquisition, purchase, making or holding of any stock or other
security, any loan, advance, contribution to capital, extension of credit (except for trade
and customer accounts receivable for inventory sold or services rendered in the ordinary
course of business and payable in accordance with customary trade terms), any acquisitions
of real or personal property (other than real and personal property acquired in the ordinary
course of business) and any purchase or commitment or option to purchase stock or other debt
or equity securities of, or any interest in, another Person or any integral part of any
business or the assets comprising such business or part thereof.

“Investment Property” means all of the Borrower’s investment property, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but not limited to
all securities, security entitlements, securities accounts, commodity contracts, commodity
accounts, stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.

“L/C Amount” means the sum of (i) the aggregate face amount of any issued and outstanding
Letters of Credit and (ii) the unpaid amount of the Obligation of Reimbursement.

“L/C Application” means an application and agreement for letters of credit in a form
acceptable to the Issuer and the Lender.

“Letter of Credit” has the meaning specified in Section 2.2.

“Landlord Waiver” means a landlord waiver executed by owner of the Premises subject to the
Lease and any other Premises leased to the Borrower in form and substance acceptable to the
Lender in its discretion.

“Leases” collectively means (i) the Lease Agreement dated January 4, 2002, between Plymouth
Properties Realty Corp., as Lessor, and the Borrower, as Lessee, pursuant to which the
Premises owned by the Lessor and located at 13705 26th Avenue North, Plymouth,
Minnesota 55441, are leased to the Borrower, as amended by that certain Amendment of Lease
Agreement dated April 30, 2004, and (ii) any other lease hereafter entered into by the
Borrower with respect to any of the Premises, as the same may be hereafter amended,
supplemented or restated from time to time.

- 9 -

 

“LIBOR” means, with respect to any LIBOR Advance for any Interest Period, an interest rate
per annum (rounded upward, if necessary, to the next 1/16th of 1%) equal to (a) the rate
appearing on Page 3750 of the Dow Jones Market Service (or on any successor or substitute
page of such Service, or any successor to or substitute for such Service, providing rate
quotations comparable to those currently provided on such page of such Service, as
determined by the Lender from time to time for purposes of providing quotations of interest
rates applicable to dollar deposits in the London interbank market) at approximately 11:00
a.m., London time, two Banking Days prior to the commencement of such Interest Period, as
the rate for dollar deposits with a maturity comparable to such Interest Period multiplied
by (b) a fraction (expressed as a decimal), the numerator of which is the number one and the
denominator of which is the number one minus the aggregate of the maximum reserve
percentages (including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board of Governors of the Federal Reserve System to which
the Lender is subject eurocurrency funding (currently referred to as “Eurocurrency
Liabilities” in Regulation D of the Board). Such reserve percentages shall include those
imposed pursuant to such Regulation D. LIBOR Advances shall be deemed to constitute
eurocurrency funding and to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets that may be available from time to time under
such Regulation D or any comparable regulation. The statutory reserve rate described in
this clause (b) shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage. In the event that such rate is not available at such time
for any reason, then the “LIBOR” with respect to such LIBOR Advance for such Interest Period
shall be the rate at which dollar deposits in the approximate amount of principal
outstanding on such date and for a maturity comparable to such Interest Period are offered
by the principal London office of the Lender in immediately available funds in the London
interbank market at approximately 11:00 a.m., London time, two Banking Days prior to the
commencement of such Interest Period.

“Loan Documents” means this Agreement, the Note, the Subordination Agreements, the Capital
Maintenance Agreements, the Assignment, the Security Documents, the Landlord Waiver, and any
other document from time to time executed in connection herewith or related hereto, as the
same may be amended, supplemented or restated from time to time.

“LIBOR Advance” means an Advance designated as such in a notice of borrowing under Section
2.1 or a notice of continuation or conversion under Section 2.1.

“Loan Documents” means this Agreement, the Note, the Guaranty, the Security Documents, the
Landlord Waiver, the Sweep Agreement, and any other document from time to time executed in
connection herewith or related hereto, as the same may be amended, supplemented or restated
from time to time.

“Material Adverse Effect” means any of the following:

     (a) a material adverse effect on the business, operations, results of operations,
prospects, assets, liabilities or financial condition of the Borrower;

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     (b) a material adverse effect on the ability of the Borrower to perform its obligations
under the Loan Documents;

     (c) a material adverse effect on the ability of the Lender to enforce the Obligations
or to realize the intended benefits of the Security Documents, including a material adverse
effect on the validity or enforceability of any Loan Document or of any rights against any
guarantor, or on the status, existence, perfection, priority (subject to Permitted Liens) or
enforceability of any lien securing payment or performance of the Obligations; or

     (d) any claim against the Borrower or threat of litigation which if determined
adversely to the Borrower would cause the Borrower to be liable to pay an amount exceeding
$500,000 or would be an event described in clauses (i), (ii) and (iii) above.

“Maturity Date” means August 29, 2010.

“Maximum Line” means $6,000,000, unless said amount is reduced pursuant to Section 2.6, in
which event it means the amount to which said amount is reduced, or unless said amount is
increased pursuant to Section 2.17, in which event it means the amount to which said amount
is increased.

“Maximum Line Increase Notice” shall have the meaning assigned thereto in Section 2.17
hereof.

“Maximum Line Offered Increase Amount” shall have the meaning assigned thereto in Section
2.17

“Measurement Date” means the last day of each fiscal quarter of the Borrower’s fiscal year.

“Negative Pledge Agreement” means the Negative Pledge Agreement of even date herewith
executed by the Borrower in favor of the Lender, and recorded against the real property
described therein, as the same may hereafter be amended, supplemented or restated from time
to time.

“Net Income” shall mean, for any period, the Borrower’s net income for such period
determined in accordance with GAAP.

“Note” means the Revolving Note.

“Obligation of Reimbursement” has the meaning given in Section 2.3(a).

“Obligations” means the Note, all Banking Services Liabilities, all Rate Protection
Obligations, the Obligation of Reimbursement and each and every other debt, liability and
obligation of every type and description which the Borrower may now or at any time hereafter
owe to the Lender, whether such debt, liability or obligation now exists or is hereafter
created or incurred, whether it arises in a transaction involving the Lender, alone or in a
transaction involving other creditors of the Borrower, and whether it is

- 11 -

 

direct or indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, or sole, joint, several or joint and several, and including
specifically, but not limited to, all indebtedness of the Borrower arising under this
Agreement, the Note, any L/C Application completed by the Borrower or any other loan or
credit agreement between the Borrower and the Lender, whether now in effect or hereafter
entered into.

“Permitted Liens” has the meaning given in Section 6.1.

“Person” means any individual, corporation, partnership, joint venture, limited liability
company, association, joint-stock company, trust, unincorporated organization or government
or any agency or political subdivision thereof.

“Plan” means an employee benefit plan or other plan maintained for the Borrower’s employees
and covered by Title IV of ERISA.

“Premises” means all premises where the Borrower conducts its business and has any rights of
possession, including without limitation the premises owned and subject to the Lease and all
other premises described in Exhibit E attached hereto.

“Rate Protection Agreement” shall mean any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate futures contract, interest rate
options contract, currency exchange agreement or similar agreement or arrangement between
the Borrower and the counter-party (the “Rate Protection Provider”) designed to protect the
Borrower against fluctuations in interest.

“Rate Protection Obligations” shall mean the liabilities, Indebtedness, and obligations of
the Borrower, if any, to the Rate Protection Provider under any Rate Protection Agreement.

“Real Property” means the real property owned by the Borrower and located at 906 Fifth
Avenue East, Ellendale, Minnesota, 56026.

“Reportable Event” has the meaning assigned to that term in Title IV of ERISA.

“Revolving Credit Facility” means the revolving credit facility being made available to the
Borrower by the Lender pursuant to Article II.

“Revolving Note” means the Revolving Note of even date herewith executed by the Borrower and
payable to the order of the Lender in the original principal amount of $6,000,000.00, in
substantially the form of Exhibit A hereto, and any note or notes issued in
substitution therefor, as the same may hereafter be amended, supplemented or restated from
time to time.

“Security Agreement” means the Security Agreement of even date herewith executed by each
Borrower in favor of the Lender, as the same may hereafter be amended, supplemented or
restated from time to time

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“Security Documents” means any document delivered to the Lender from time to time to secure
the Obligations including, without limitation, the Security Agreement, the Guarantor
Security Agreement, the Stock Pledge Agreement and the Negative Pledge Agreement as the same
may hereafter be amended, supplemented or restated from time to time.

“Security Interest” means the security interests and/or liens granted by the Borrower to the
Lender pursuant to the Security Documents.

“Special Account” means a specified cash collateral account maintained by a financial
institution acceptable to the Lender in connection with Letters of Credit, as contemplated
by Section 2.4.

“Stock Pledge Agreement” means the Stock Pledge Agreement to be executed by the Borrower in
favor of the Lender with respect to the stock of Zareba Systems of Canada, Ltd., an Ontario
corporation owned by the Borrower, as the same may hereafter be amended, supplemented or
restated from time to time.

“Subsidiary” means Security, the entities described on Schedule 4.4 attached hereto, and any
other corporation or limited liability company of which more than fifty percent (50%) of the
outstanding shares of capital stock or membership interests having general voting power
under ordinary circumstances to elect a majority of the board of directors or governors, as
the case may be of such corporation or limited liability company, as the case may be,
irrespective of whether or not at the time stock or membership interests of any other class
or classes shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by the Borrower
and one or more other Subsidiaries, or by one or more other Subsidiaries.

“Sweep Agreement” means that certain End of Day Investment and Loan Sweep Service Terms, and
all applicable “Account Documentation,” and any applicable “Authorization Form,” (as those
terms are defined in said End of Day Investment and Loan Sweep Service Terms) and any
documents related to the foregoing, as any and all of the foregoing may be amended,
supplemented or restated from time to time.

“Tax Expense” as of any date means state and federal income taxes recorded by the Borrower
for the year to date period ending on such date.

“Termination Date” means the earliest of (i) the Maturity Date, (ii) the date the Borrower
terminates the Revolving Credit Facility, or (iii) the date the Lender demands payment of
the Obligations after an Event of Default pursuant to Section 7.2.

“UCC” means the Uniform Commercial Code as in effect from time to time in the state
designated in Section 8.13 as the state whose laws shall govern this Agreement, or in any
other state whose laws are held to govern this Agreement or any portion hereof.

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          Section 1.2. Cross References. All references in this Agreement to Articles, Sections
and subsections, shall be to Articles, Sections and subsections of this Agreement unless otherwise
explicitly specified.

ARTICLE II.

Amount and Terms of the Revolving Credit Facility

          Section 2.1. Advances. The Lender agrees, on the terms and subject to the conditions
herein set forth, to make advances to the Borrower (each an “Advance” and collectively, the
“Advances”) from time to time from the date all of the conditions set forth in Section 3.1 are
satisfied (the “Funding Date”) to the Termination Date, on the terms and subject to the conditions
herein set forth. The Lender shall have no obligation to make an Advance if, after giving effect
to such requested Advance, the sum of the outstanding and unpaid Advances under this Section or
otherwise would exceed the Borrowing Base less the L/C Amount. The Borrower’s obligation to pay
the Advances shall be evidenced by the Note and shall be secured by the Collateral. Within the
limits set forth in this Section, the Borrower may borrow, prepay pursuant to Section 2.10 and
re-borrow. The principal balance of the Note, together with unpaid accrued interest, shall be due
and payable in full on the Termination Date.

     (a) Advance Options. The Advances shall be constituted of LIBOR Advances and
Base Rate Advances, as shall be selected by the Borrower, except as otherwise provided
herein. Any combination of types of Advances may be outstanding at the same time, except
that the total number of outstanding LIBOR Advances shall not exceed 4 at any one time.
Each LIBOR Advance shall be in a minimum amount of $100,000 or in an integral multiple of
$100,000 above such amount.

     (b) Borrowing Procedures for Advances. Any request by the Borrower for
Advances shall be either in writing (including, without limitation, e-mail or facsimile), or
by telephone promptly confirmed in writing, and must be given so as to be received by the
Lender not later than:

     (i) 11:00 a.m., Minneapolis time, on the date of the requested Advance, if the
Advance shall be comprised of Base Rate Advances; or

     (ii) 11:00 a.m., Minneapolis time, three Banking Days prior to the date of the
requested Advance, if the Advance shall be comprised of, or shall include, LIBOR
Advances;

Each request for an Advance shall specify (1) the borrowing date, which shall be a Banking
Day, (2) the amount of such Advance and the type or types of Advances comprising such
Advance, and (3) if such Advance shall include LIBOR Advances, the initial Interest Periods
for such LIBOR Advances.

Notwithstanding the foregoing, Advances may also be made pursuant to the terms of the Sweep
Agreement.

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     (c) Continuation or Conversion of Advances. The Borrower may elect to (i)
continue any outstanding LIBOR Advance from one Interest Period into a subsequent Interest
Period to begin on the last day of the earlier Interest Period, or (ii) convert any
outstanding LIBOR Advance into a Base Rate Advance (on the last day of an Interest Period
only) or convert any outstanding Base Rate Advance into a LIBOR Advance (on any Banking
Day), by giving the Lender notice in writing, or by telephone promptly confirmed in writing,
given so as to be received by the Lender not later than:

     (iii) 11:00 a.m., Minneapolis time, on the date of the requested continuation
or conversion, if the continuing or converted Advance shall be a Base Rate Advance;
or

     (iv) 11:00 a.m., Minneapolis time, three Banking Days prior to the date of the
requested continuation or conversion, if the continuing or converted Advance shall
be a LIBOR Advance.

Each notice of continuation or conversion of an Advance shall specify (i) the effective date
of the continuation or conversion date (which shall be a Banking Day), (ii) the amount and
the type or types of Advances following such continuation or conversion (subject to the
limitation on amount set forth in Section 2.2), and (iii) for continuation as, or
conversion into, LIBOR Advances, the Interest Periods for such Advances. Absent timely
notice of continuation or conversion, following expiration of an Interest Period unless the
LIBOR Advance is paid in full, the principal amount of any LIBOR Advance shall continue as a
Base Rate Advance. No Advance shall be continued as, or converted into, a LIBOR Advance if
the shortest Interest Period for such Advance may not transpire prior to the Maturity Date
or if a Default or Event of Default shall exist.

          Section 2.2. Letters of Credit.

     (a) The Lender agrees, on the terms and subject to the conditions herein set forth, to
issue, from the Funding Date to the Termination Date, one or more irrevocable standby or
documentary letters of credit (each, a “Letter of Credit”) for the Borrower’s account in
form and substance satisfactory to the Lender. The Lender shall have no obligation to cause
to issue any Letter of Credit if the face amount of the Letter of Credit to be issued, would
exceed the lesser of:

     (i) $1,000,000 less the L/C Amount, or

     (ii) the Borrowing Base less the sum of all outstanding and unpaid Advances and
the L/C Amount.

Each Letter of Credit, if any, shall be issued pursuant to a separate L/C Application
entered into by the Borrower for the benefit of the Lender, completed in a manner
satisfactory to the Lender. The terms and conditions set forth in each such L/C Application
shall supplement the terms and conditions hereof, but if the terms of any such L/C
Application and the terms of this Agreement are inconsistent, the terms hereof shall
control.

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     (b) No Letter of Credit shall be issued with an expiry date later than the Termination
Date in effect as of the date of issuance.

     (c) Any request for the issuance of a Letter of Credit under this Section 2.2 shall be
deemed to be a representation by the Borrower that the conditions set forth in Section 3.2
have been satisfied as of the date of the request.

          Section 2.3. Payment of Amounts Drawn Under Letters of Credit; Obligation of
Reimbursement. The Borrower agrees to pay to the Lender all amounts required to be paid under
all L/C Applications, when and as required to be paid thereby, and the amounts designated below,
when and as designated:

     (a) The Borrower hereby agrees to pay the Lender on the day a draft is honored under
any Letter of Credit a sum equal to all amounts drawn under such Letter of Credit plus any
and all reasonable charges and expenses that the Lender may pay or incur relative to such
draw and the applicable L/C Application, plus interest on all such amounts, charges and
expenses as set forth below (the Borrower’s obligation to pay all such amounts is herein
referred to as the “Obligation of Reimbursement”).

     (b) Whenever a draft is submitted under a Letter of Credit, the Lender shall make an
Advance in the amount of the Obligation of Reimbursement and shall apply the proceeds of
such Advance thereto. Such Advance shall be repayable in accordance with and be treated in
all other respects as an Advance hereunder.

     (c) If a draft is submitted under a Letter of Credit when the Borrower is unable,
because a Default Period then exists or for any other reason, to obtain an Advance to pay
the Obligation of Reimbursement, the Borrower shall pay to the Lender on demand and in
immediately available funds, the amount of the Obligation of Reimbursement together with
interest, accrued from the date of the draft until payment in full at the Default Rate.
Notwithstanding the Borrower’s inability to obtain an Advance for any reason, the Lender is
irrevocably authorized, in its sole discretion, to make an Advance in an amount sufficient
to discharge the Obligation of Reimbursement and all accrued but unpaid interest thereon.

     (d) The Borrower’s obligation to pay any Advance made under this Section 2.3, shall be
evidenced by the Note and shall bear interest as provided in Section 2.6.

     (e) The Borrower’s obligation to reimburse the Lender for any amount paid by the Lender
upon any drawing under any Letter of Credit shall be performed strictly in accordance with
the terms of this Agreement and the applicable L/C Application under any and all
circumstances whatsoever and irrespective of (A) any lack of validity or enforceability of
any Letter of Credit, any L/C Application or this Agreement, or any term or provision
therein, (B) any draft or other document presented under a Letter of Credit proving to be
forged, fraudulent, or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (C) payment by the Lender under a Letter of Credit against
presentation of a draft or other document that does not comply with the terms of such Letter
of Credit, or (D) any other event or circumstance whatsoever,

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whether or not similar to any of the foregoing, that might, but for the provisions of
this Section 2.3(e), constitute a legal or equitable discharge of, or provide a right of
setoff against, the Borrower’s obligations hereunder. The Lender shall not have any
liability or responsibility by reason of or in connection with the issuance or transfer of
any Letter of Credit or any payment or failure to make any payment thereunder (irrespective
of any of the circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or other
communication under or relating to any Letter of Credit (including any document required to
make a drawing thereunder), any error in interpretation of technical terms or any
consequence arising from causes beyond the control of the Lender; provided that the
foregoing shall not be construed to excuse the Lender from liability to the Borrower to the
extent of any direct damages (as opposed to consequential damages, claims in respect of
which are hereby, waived by the Borrower to the extent permitted by applicable law) suffered
by the Borrower that are caused by the Lender’s failure to exercise care when determining
whether drafts and other documents presented under a Letter of Credit comply with the terms
thereof. The parties hereto expressly agree that, in the absence of gross negligence or
willful misconduct on the part of the Lender (as finally determined by a court of competent
jurisdiction), the Lender shall be deemed to have exercised care in each such determination.
In furtherance of the foregoing, and without limiting the generality thereof, the parties
hereto expressly agree that, with respect to documents presented which appear on their face
to be in substantial compliance with the terms of the Letter of Credit, the Lender may, in
its sole discretion, and in the absence of gross negligence or willful misconduct on the
part of the Lender, either accept and make payment upon such documents without
responsibility for further investigation or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such Letter of
Credit.

     (f) The Borrower hereby indemnifies and holds harmless the Lender from and against any
and all claims and damages, losses, liabilities, costs or expenses which the Lender may
incur (or which may be claimed against the Lender by any Person whatsoever), regardless of
whether caused in whole or in part by the negligence of any of the indemnified parties, in
connection with the execution and delivery of any Letter of Credit or transfer of or payment
or failure to pay under any Letter of Credit; provided that the Borrower shall not
be required to indemnify any party seeking indemnification for any claims, damages, losses,
liabilities, costs or expenses to the extent, but only to the extent, caused by (i) the
willful misconduct or gross negligence of the party seeking indemnification, or (ii) by the
failure by the party seeking indemnification to pay under any Letter of Credit after the
presentation to it of a request required to be paid under applicable law.

          Section 2.4. Special Account. If the Credit Facility is terminated for any reason
whatsoever while any Letter of Credit is outstanding, the Borrower shall thereupon pay the Lender
in immediately available funds for deposit in the Special Account an amount equal to the L/C
Amount. The Special Account shall be an interest bearing account maintained for the Lender by any
financial institution acceptable to the Lender. Any interest earned on amounts deposited in the
Special Account shall be credited to the Special Account. Amounts on deposit in the Special Account
may be applied by the Lender at any time or from time to time to the

- 17 -

 

Obligations in the Lender’s sole discretion, and shall not be subject to withdrawal by the
Borrower so long as the Lender maintains a security interest therein. The Lender agrees to transfer
any balance in the Special Account to the Borrower at such time as the Lender is required to
release its security interest in the Special Account under applicable law.

          Section 2.5. Obligations Absolute. The Borrower’s obligations arising under Section
2.3 shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with
the terms of Section 2.3, under all circumstances whatsoever, including (without limitation) the
following circumstances:

     (a) any lack of validity or enforceability of any Letter of Credit or any other
agreement or instrument relating to any Letter of Credit (collectively the “Related
Documents”);

     (b) any amendment or waiver of or any consent to departure from all or any of the
Related Documents;

     (c) the existence of any claim, setoff, defense or other right which the Borrower may
have at any time, against any beneficiary or any transferee of any Letter of Credit (or any
persons or entities for whom any such beneficiary or any such transferee may be acting), or
other person or entity, whether in connection with this Agreement, the transactions
contemplated herein or in the Related Documents or any unrelated transactions;

     (d) any statement or any other document presented under any Letter of Credit proving to
be forged, fraudulent, invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect whatsoever;

     (e) payment by or on behalf of the Issuer or the Lender under any Letter of Credit
against presentation of a draft or certificate which does not strictly comply with the terms
of such Letter of Credit; or

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

          Section 2.6. Interest; Default Interest; Participations; Usury; Late Charges.
Interest on Base Rate Advances shall be due and payable in arrears on the first day of each month
and on the Termination Date. Interest on LIBOR Advances shall payable on the last day of the
applicable Interest Period and on the Termination Date.

     (a) Note. Except as set forth in subsections (b) and (d) below, the outstanding
principal amount of each LIBOR Advance shall bear interest prior to maturity at a rate per
equal to LIBOR in effect for such Interest Period for such LIBOR Advance plus the Applicable
Margin for LIBOR Advances, and the unpaid principal balance of each Base Rate Advance shall
bear interest prior to maturity at the Base Rate plus the Applicable Margin for Base Rate
Advances. The Lender’s internal records of applicable interest rates shall be determinative
in the absence of manifest error.

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     (b) Default Interest Rate. At any time during any Default Period, in the Lender’s sole
discretion and without waiving any of its other rights and remedies, the principal amount
outstanding from time to time on the Note shall bear interest at the Default Rate, effective
for any portion of that Default Period designated by the Lender from time to time during
that Default Period.

     (c) Participations. If any Person shall acquire a participation in the Advances under
this Agreement, the Borrower shall be obligated to the Lender to pay the full amount of all
interest calculated under, along with all other fees, charges and other amounts due under
this Agreement, regardless if such Person elects to accept interest with respect to its
participation at a lower rate than the Floating Rate, or otherwise elects to accept less
than its prorata share of such fees, charges and other amounts due under this Agreement.

     (d) Usury. In any event no rate change shall be put into effect which would result in
a rate greater than the highest rate permitted by law. Notwithstanding anything to the
contrary contained in any Loan Document, all agreements which either now are or which shall
become agreements between the Borrower and the Lender are hereby limited so that in no
contingency or event whatsoever shall the total liability for payments in the nature of
interest, additional interest and other charges exceed the applicable limits imposed by any
applicable usury laws. If any payments in the nature of interest, additional interest and
other charges made under any Loan Document are held to be in excess of the limits imposed by
any applicable usury laws, it is agreed that any such amount held to be in excess shall be
considered payment of principal hereunder, and the indebtedness evidenced hereby shall be
reduced by such amount so that the total liability for payments in the nature of interest,
additional interest and other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrower and the Lender. This
provision shall never be superseded or waived and shall control every other provision of the
Loan Documents and all agreements between the Borrower and the Lender, or their successors
and assigns.

     (e) Late Charges. If any installment of principal or interest on the Note is not paid
within the later of (i) fifteen (15) days of the due date thereof, or (ii) five (5) days
following Borrower’s receipt of late notice from Lender, the Borrower shall pay to the
Lender a late charge equal to five percent (5.00%) of the amount of such installment.

          Section 2.7. Fees.

     (a) Letter of Credit Fees. The Borrower will pay to the Lender letter of credit fees
with respect to each Letter of Credit equal to an amount, calculated on the basis of the
face amount of each Letter of Credit, in each case with a period from and including the date
of issuance of such Letter of Credit to and including the date of expiration or termination
thereof at a per annum rate equal to the Applicable Margin for LIBOR Advances (as determined
by reference to the table set forth in the definition of “Applicable Margin,” without regard
to any limits set forth in any other portion of such definition) per annum, such accrued
fees to be due and payable quarterly in arrears on the last Banking Day of each month and on
the Termination Date. Upon the occurrence of

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an Event of Default, the letter of credit fee payable pursuant to the preceding
sentence shall be increased by two percent (2.00%) per annum. The Borrower shall also pay
to the Lender an up front fee of .0125% of the face amount of the applicable Letter of
Credit in advance upon issuance and renewal of each Letter of Credit. All fees hereunder
shall be computed on the basis of a year of 360 days and paid for the actual number of days
elapsed.

     (b) Letter of Credit Administrative Fees. The Borrower agrees to pay to the Lender, on
written demand, the administrative fees charged by the Lender in connection with the
honoring of drafts under any Letter of Credit, amendments thereto, transfers thereof and all
other activity with respect to the Letters of Credit at the then current rates published by
the Lender for such services rendered on behalf of customers of the Lender generally.

     (c) Audit Fees. The Borrower hereby agrees to pay the Lender, on demand, reasonable
audit fees in connection with audits or inspections conducted by the Lender of any
Collateral or the Borrower’s operations or business, at the rates established from time to
time by the Lender as its audit fees together with all actual out-of-pocket costs and
expenses incurred in conducting such audits or inspections; provided, that so long as no
Default Period has occurred, the Lender shall not conduct more than one (1) audit during any
twelve (12) month period.

          Section 2.8. Computation of Interest and Fees. Interest shall be payable in arrears
on the first day of each calendar month and on the Termination Date.

          Section 2.9. Capital Adequacy; Increased Costs and Reduced Return. If any Related
Lender determines at any time that its Return has been reduced as a result of any Rule Change, such
Related Lender may require the Borrower to pay it the amount necessary to restore its Return to
what it would have been had there been no Rule Change. For purposes of this Section:

     (a) “Capital Adequacy Rule” means any law, rule, regulation, guideline, directive,
requirement or request regarding capital adequacy, or the interpretation or administration
thereof by any governmental or regulatory authority, central bank or comparable agency,
whether or not having the force of law, that applies to any Related Lender. Such rules
include rules requiring financial institutions to maintain total capital in amounts based
upon percentages of outstanding loans, binding loan commitments and letters of credit.

     (b) “L/C Rule” means any law, rule, regulation, guideline, directive, requirement or
request regarding letters of credit, or the interpretation or administration thereof by any
governmental or regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such rules include rules
imposing taxes, duties or other similar charges, or mandating reserves, special deposits or
similar requirements against assets of, deposits with or for the account of, or credit
extended by any Related Lender, on letters of credit.

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     (c) “Return”, for any period, means the return as determined by such Related Lender on
the Advances based upon its total capital requirements and a reasonable attribution formula
that takes account of the Capital Adequacy Rules then in effect. Return may be calculated
for each calendar quarter and for the shorter period between the end of a calendar quarter
and the date of termination in whole of this Agreement.

     (d) “Rule Change” means any change in any Capital Adequacy Rule or L/C Rule occurring
after the date of this Agreement, but the term does not include any changes in applicable
requirements that at the Closing Date are scheduled to take place under the existing Capital
Adequacy Rules or L/C Rules or any increases in the capital that any Related Lender is
required to maintain to the extent that the increases are required due to a regulatory
authority’s assessment of the financial condition of such Related Lender.

     (e) “Related Lender” includes (but is not limited to) the Lender, any parent
corporation of the Lender and any assignee of any interest of the Lender hereunder and any
participant in the loans made hereunder.

     (f) Certificates of any Related Lender sent to the Borrower from time to time claiming
compensation under this Section, stating the reason therefor and setting forth in reasonable
detail the calculation of the additional amount or amounts to be paid to the Related Lender
hereunder to restore its Return shall be conclusive absent manifest error. In determining
such amounts, the Related Lender may use any reasonable averaging and attribution methods.

          Section 2.10. Voluntary Prepayment; Reduction of the Maximum Line; Termination of the
Revolving Credit Facility by the Borrower. Except as otherwise provided herein, the Borrower
may prepay the Advances in whole at any time or from time to time in part. The Borrower may
terminate the Revolving Credit Facility or reduce the Maximum Line at any time if it (i) gives the
Lender at least 30 days’ prior written notice. Any reduction in the Maximum Line must be in an
amount not less than $1,000,000.00 or an integral multiple thereof. If the Borrower reduces the
Maximum Line to zero, all Obligations shall be immediately due and payable. Upon termination of
the Revolving Credit Facility and payment and performance of all Obligations, the Lender shall
release or terminate the Security Interest and the Security Documents to which the Borrower is
entitled by law. All payment described in this section is subject to the provisions of Section
2.18. Notwithstanding the foregoing, the Maximum Line may not be reduced to an amount below the
L/C Amount and the Revolving Credit Facility may not be terminated if Letters of Credit are
outstanding, unless the Borrower and the Lender otherwise reasonably agree in writing.

          Section 2.11. Mandatory Prepayment. Without notice or demand, if the sum of the
outstanding principal balance of the Advances plus the L/C amount shall at any time exceed the
Borrowing Base, then, in any such case, the Borrower shall (i) first, immediately prepay the
Advances to the extent necessary to eliminate such excess, and (ii) if prepayment in full of the
Advances is insufficient to eliminate such excess, the Borrower shall pay to the Lender in
immediately available funds for deposit in the Special Account an amount equal to the remaining
excess. Any payment received by the Lender under this Section or under Section 2.12 may be

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applied to the Obligations, in such order and in such amounts as the Lender, in its
discretion, may from time to time determine.

          Section 2.12. Payment. Notwithstanding anything to the contrary contained herein or
in the Note, the Borrower shall make payments of interest on and principal of the Note and all
payment to the Lender with respect to the payment of other fees, costs and expenses payable under
any of the Loan Documents in immediately available funds to the Lender at its address set forth
herein without setoff or counterclaim. The Borrower authorizes the Lender to charge from time to
time against the Borrower’s account with the Lender any such payments when due and the Lender will
use its reasonable efforts to notify the Borrower of such charges. Notwithstanding anything to the
contrary in Section 2.1, the Borrower hereby authorizes the Lender, in its discretion at any time
or from time to time without the Borrower’s request and even if the conditions set forth in Section
3.2 would not be satisfied, to make an Advance in an amount equal to the portion of the Obligations
from time to time due and payable and unpaid for a period of time greater than five (5) days. Each
payment received by the Lender may be applied to the Obligations in such order of application as
the Lender, in its sole and absolute discretion, may elect.

          Section 2.13. Payment on Non-Banking Days. Subject to the definition of the term
“Interest Period,” whenever any payment to be made hereunder shall be stated to be due on a day
which is not a Banking Day, such payment may be made on the next succeeding Banking Day, and such
extension of time shall in such case be included in the computation of interest on the Advances or
the fees hereunder, as the case may be.

          Section 2.14. Use of Proceeds. The Borrower shall use the proceeds of the Note to
refinance certain existing indebtedness of the Borrower and for general corporate and ordinary
working capital purposes.

          Section 2.15. Liability Records. The Lender may maintain from time to time, at its
discretion, liability records as to the Obligations. All entries made on any such record shall be
presumed correct until the Borrower establishes the contrary. Upon the Lender’s demand, the
Borrower will admit and certify in writing the exact principal balance of the Obligations that the
Borrower then asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower gives the Lender
specific written notice of exception within thirty (30) days after receipt.

          Section 2.16. Set-off. Upon the occurrence of an Event of Default or at any time
thereafter, the Lender shall have the right to set-off any and all amounts due under the Note by
the Borrower to the Lender against any indebtedness or obligation of the Lender to the Borrower.

          Section 2.17. Increase in Maximum Line.

     (a) In the event the Borrower wishes to increase the Maximum Line at any time when no
Default or Event of Default has occurred and is continuing (or would result from such
increase) it shall notify the Lender in writing of the amount (the “Maximum Line Offered
Increase Amount”) as such proposed increase (such notice a “Maximum Line Increase Notice”)
in an amount equal to $500,000 or a whole multiple of $500,000

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in excess thereof. The Maximum Line Increase Notice shall specify the proposed Maximum
Line Offered Increase Amount and the proposed effective date, and shall be accompanied by a
certificate executed by one or more duly authorized officers of the Borrower stating that no
Default or Event of Default has occurred and is continuing (or would result from such
increase). The Maximum Line Offered Increase Amount shall constitute an offer to the Lender
to increase the amount of the Maximum Line.

     (b) If the Lender accepts the offer to increase the Maximum Line, it shall execute a
Maximum Line Increase Supplement with the Borrower substantially in the form of Exhibit E
whereupon the Lender shall be bound by and entitled to the benefits of this Agreement with
respect to the full amount of the Maximum Line as so increased. The Lender shall not have
any obligation, express or implied, to increase the amount of the Maximum Line. Only the
consent of the Lender, as evidenced by the execution by the Lender of the Maximum Line
Increase Supplement, shall be required for an increase in the amount of the Maximum Line
pursuant to this Section 2.17.

     (c) Notwithstanding anything to the contrary in this Section 2.17, (i) the Lender shall
not have any obligation to increase the Maximum Line unless it agrees to do so in its sole
discretion and (ii) in no event shall any transaction effected pursuant to this Section 2.17
cause the Maximum Line to exceed $7,500,000.

     (d) The Lender shall have received, on or prior to the effective date of any such
increase in the Maximum Line, (i) certified copies of resolutions of the board of directors
of the Borrower authorizing the Borrower to borrow the Maximum Line Offered Increase Amount,
(ii) a Revolving Note duly executed by the Borrower and properly reflecting the increase in
the Maximum Line and (iii) any other documents or instruments as may be requested by the
Lender.

          2.18. Funding Losses. The Borrower shall compensate the Lender, upon its
written request, for all losses, expenses and liabilities (including any interest paid by the
Lender to lenders of funds borrowed by it to make or carry LIBOR Advances to the extent not
recovered by the Lender in connection with the re-employment of such funds and including loss of
anticipated profits) which the Lender may sustain: by reason of any action or failure to act by the
Borrower, a funding of a LIBOR Advance does not occur on the date specified therefor in the
Borrower’s request or notice as to such Advance under Section 2.1. In the event of (a) the
payment of any principal of any LIBOR Advance other than on the last day of an Interest Period
applicable thereto (including as a result of an Event of Default), (b) the conversion of any LIBOR
Advance other than on the last day of the Interest Period applicable thereto, or (c) the failure by
Borrower to borrow, convert, continue or prepay any LIBOR Advance on the date specified in any
notice delivered pursuant hereto, then, in any such event, the Borrower shall compensate the Lender
for the loss, cost and expense attributable to such event. In the case of a LIBOR Advance, such
loss, cost or expense to the Lender shall be deemed to include the amount determined by the Lender
to be the excess, if any, of (i) the amount of interest which would have accrued on the principal
amount of such LIBOR Advance had such event not occurred, at the LIBOR plus the Applicable Margin
that would have been applicable to such LIBOR Advance, for the period from the date of such event
to the last day of the then current Interest Period therefor (or, in the case of a failure to
borrow, convert or continue, for the period that would have

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been the Interest Period for such LIBOR Advance), over (ii) the amount of interest which would
accrue on such principal amount for such period at the interest rate which the Lender would bid
were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and
period from other banks in the eurodollar market. A certificate of the Lender setting forth any
amount or amounts that the Lender is entitled to receive pursuant to this Section shall be
delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay
the Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

ARTICLE III.

Conditions of Lending

          Section 3.1. Conditions Precedent to the Initial Advance. The Lender’s obligation to
make the initial Advance shall be subject to the condition precedent that the Lender shall have
received all of the following, each in form and substance satisfactory to the Lender:

     (a) This Agreement, properly executed by the Borrower.

     (b) The Note, properly executed by the Borrower.

     (c) The other Loan Documents, properly executed by the parties thereto.

     (d) An executed borrowing base certificate and an executed compliance certificate.

     (e) A true and correct copy the Leases together with a Landlord’s Waiver executed by
the Landlord under each such Lease.

     (f) Stock Certificates evidencing the shares pledged under the Stock Pledge Agreement,
together with duly executed Stock Powers.

     (g) An owner’s and encumbrancer’s report with respect to the real property described in
the Negative Pledge Agreement, dated as of the date of closing, together with evidence that
the Negative Pledge Agreement has been properly recorded against such real property and that
there are no liens or encumbrances recorded against such real property which are prior to
the Negative Pledge Agreement.

     (h) Current searches of appropriate filing offices showing that (i) no state or federal
tax liens have been filed and remain in effect against the Borrower, (ii) no financing
statements or assignments of patents, trademarks or copyrights have been filed and remain in
effect against the Borrower except those financing statements and assignments of patents,
trademarks or copyrights relating to Permitted Liens or to liens held by Persons who have
agreed in writing that upon receipt of proceeds of the Note or of any other payments in
connection with the acquisition documents, they will deliver UCC releases and/or
terminations and releases of such assignments of patents, trademarks or copyrights
satisfactory to the Lender, and (iii) the Lender has duly filed all financing statements
necessary to perfect the Security Interest, to the extent the Security Interest is capable
of being perfected by filing.

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     (i) A certificate of the Borrower’s Secretary or Assistant Secretary certifying as to
(i) the resolutions of the directors and, if required, shareholders of the Borrower
authorizing the execution, delivery and performance of the Loan Documents, (ii) the Articles
of Incorporation and Bylaws of the Borrower and (iii) the signatures of the officers or
agents of the Borrower authorized to execute and deliver the Loan Documents, and other
instruments, agreements and certificates, including, with respect to the Borrower, Advance
requests.

     (j) Current certificates issued by the Secretaries of State of Minnesota certifying
that each Borrower are in compliance with all applicable organizational and/or registration
requirements of the States of Minnesota.

     (k) Evidence that each Borrower are duly licensed or qualified to transact business in
all jurisdictions where the failure to be so licensed would have a Material Adverse Effect
on the Borrower, as the case may be.

     (l) Payoff letter(s) from all appropriate lenders.

     (m) An opinion of counsel to the Borrower addressed to the Lender, addressed to the
Lender.

     (n) Certificates of insurance, with all hazard insurance containing a lender’s loss
payable endorsement in the Lender’s favor and with all liability insurance naming the Lender
as an additional insured.

     (o) Projected balance sheets, statements of cash flow and income statements for the
remainder of the Borrower’s current fiscal year, each in reasonable detail, representing the
Borrower’s good faith projections and certified by the Borrower’s chief financial officer as
being the most accurate projections available and identical to the projections used by the
Borrower for internal planning purposes, together with such supporting schedules and
information as the Lender may in its discretion require.

     (p) Payment of the fees and commissions due through the date of the initial Advance
under Section 2.3 and expenses incurred by the Lender through such date and required to be
paid by the Borrower under Section 8.6, including all legal expenses incurred through the
date of this Agreement.

     (q) Such other documents as the Lender may reasonably require.

          Section 3.2. Conditions Precedent to All Advances. The Lender’s obligation to make
each Advance shall be subject to the further conditions precedent that on such date:

     (a) the representations and warranties contained in Article IV are correct on and as of
the date of such Advance as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date;

     (b) no event has occurred and is continuing, or would result from such Advance, which
constitutes a Default or an Event of Default; and

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     (c) the Borrower shall have delivered to the Lender the Borrowing Base Certificate
required in connection with such Advances as set forth in Section 5.1(d).

ARTICLE IV.

Representations and Warranties

The Borrower represents and warrants to the Lender as follows:

          Section 4.1. Existence and Power; Name; Chief Executive Office; Organizational
Identification Number. The Borrower is a corporation, duly organized, validly existing and in
good standing under the laws of the State of Minnesota and is duly licensed or qualified to
transact business in the State of Minnesota and in all other jurisdictions where the failure to be
so licensed or qualified would have a Material Adverse Effect on the Borrower. The Borrower has
all requisite power and authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations under, the Loan
Documents to which it is a party. During its existence, the Borrower has done business solely
under the names set forth in Schedule 4.1. The Borrower’s chief executive office and principal
place of business is located at the address set forth in Schedule 4.1, and all of the Borrower’s
records relating to its business or the Collateral are kept at that location. System’s
organizational identification number is X-49 and its tax identification number is 41-0832194.
Security’s organizational number is 1811885-3 and its tax identification number is 20-4780492.

          Section 4.2. Authorization of Borrowing; No Conflict as to Law or Agreements. The
execution, delivery and performance by the Borrower of the Loan Documents and the borrowings from
time to time hereunder have been duly authorized by all necessary company action and do not and
will not (i) require any consent or approval of the Borrower’s shareholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing with, or notice to,
any governmental department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or any third party, except such authorization, consent, approval, registration,
declaration, filing or notice as has been obtained, accomplished or given prior to the date hereof
and which would not have a Material Adverse Effect; (iii) violate any provision of any law, rule or
regulation (including, without limitation, Regulation X of the Board of Governors of the Federal
Reserve System) or of any order, writ, injunction or decree presently in effect having
applicability to the Borrower or of the Borrower’s articles of incorporation or bylaws; (iv) result
in a material breach of or constitute a default under any indenture or loan or credit agreement or
any other material agreement, lease or instrument to which the Borrower is a party or by which it
or its properties may be bound or affected; or (v) result in, or require, the creation or
imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with respect to any of the
properties now owned or hereafter acquired by the Borrower.

          Section 4.3. Legal Agreements. This Agreement constitutes and, upon due execution by
the Borrower, the other Loan Documents will constitute the legal, valid and binding obligations of
the Borrower, enforceable against the Borrower in accordance with their respective terms (subject,
as to enforceability, to limitations resulting from bankruptcy, insolvency and other similar laws
affecting creditors’ rights generally).

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          Section 4.4. Subsidiaries. Except as set forth in Schedule 4.4, the Borrower has no
Subsidiaries.

          Section 4.5. Financial Condition; No Adverse Change. The Borrower has heretofore
furnished to the Lender audited financial statements for its fiscal year ended June 30, 2006, and
unaudited financial statements for the Borrower’s fiscal year ended June 30, 2007, and those
statements fairly present the Borrower’s financial condition on the dates thereof and the results
of its operations and cash flows for the periods then ended and, with respect to the audited
financial statements, were prepared in accordance with GAAP. Since the date of the most recent
financial statements, there has been no material adverse change in the Borrower’s business,
properties or condition (financial or otherwise) which would have a Material Adverse Effect on the
Borrower.

          Section 4.6. Litigation. Except as set forth on Schedule 4.6, there are no actions,
suits or proceedings pending or, to the Borrower’s knowledge, threatened against or affecting
either Borrower or any of their Affiliates, or the properties of the Borrower or any of their
Affiliates or to the transactions contemplated hereby before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to either Borrower or any of their Affiliates, would have a Material Adverse Effect on
either Borrower or any of their Affiliates.

          Section 4.7. Regulation U. The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any
Advance will be used to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.

          Section 4.8. Taxes. Except as set forth on Schedule 4.8, each Borrower and their
Affiliates have paid or caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them. Each Borrower and their Affiliates have filed
all federal, state and local tax returns which to the knowledge of the officers of the Borrower are
required to be filed, and each Borrower and their Affiliates have paid or caused to be paid to the
respective taxing authorities all taxes as shown on said returns or on any assessment received by
any of them to the extent such taxes have become due.

          Section 4.9. Titles and Liens. The Borrower has good and absolute title to all
Collateral described in the collateral reports provided to the Lender and all other Collateral,
properties and assets reflected in the latest financial statements referred to in Section 4.5 and
all proceeds thereof, free and clear of all mortgages, security interests, liens and encumbrances,
except for Permitted Liens. No financing statement naming the Borrower as debtor is on file in any
office except to perfect only Permitted Liens.

          Section 4.10. Plans. Except as disclosed to the Lender in writing prior to the date
hereof, neither the Borrower nor any of its Affiliates maintains or has maintained any Plan.
Neither the Borrower nor any Affiliate has received any notice or has any knowledge to the effect
that it is not in full compliance with any of the requirements of ERISA. No Reportable

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Event or other fact or circumstance which may have an adverse effect on the Plan’s tax
qualified status exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:

     (a) Any accumulated funding deficiency within the meaning of ERISA; or

     (b) Any liability or knows of any fact or circumstances which could result in any
liability to the Pension Benefit Guaranty Corporation, the Internal Revenue Service, the
Department of Labor or any participant in connection with any Plan (other than accrued
benefits which or which may become payable to participants or beneficiaries of any such
Plan).

          Section 4.11. Default. Each Borrower is in compliance with all provisions of all
agreements, instruments, decrees and orders to which it is a party or by which it or its property
is bound or affected, the breach or default of which could have a Material Adverse Effect on the
Borrower.

          Section 4.12. Environmental Matters.

     (a) Definitions. As used in this Agreement, the following terms shall have the
following meanings:

     (i) “Environmental Law” means any federal, state, local or other governmental
statute, regulation, law or ordinance dealing with the protection of human health
and the environment.

     (ii) “Hazardous Substances” means pollutants, contaminants, hazardous
substances, hazardous wastes, petroleum and fractions thereof, and all other
chemicals, wastes, substances and materials listed in, regulated by or identified in
any Environmental Law.

     (b) To the Borrower’s best knowledge, there are not present in, on or under the
Premises any Hazardous Substances in such form or quantity as to create any liability or
obligation for either the Borrower or the Lender under common law of any jurisdiction or
under any Environmental Law, and no Hazardous Substances have ever been stored, buried,
spilled, leaked, discharged, emitted or released in, on or under the Premises in such a way
as to create any such liability.

     (c) To the Borrower’s best knowledge and except as set forth on Schedule 4.12 attached
hereto, the Borrower has not disposed of Hazardous Substances in such a manner as to create
any liability under any Environmental Law.

     (d) To the Borrower’s best knowledge and except as set forth on Schedule 4.12 attached
hereto, there are not and there never have been any requests, claims, notices,
investigations, demands, administrative proceedings, hearings or litigation, relating in any
way to the Premises, or the Borrower alleging liability under, violation of, or
noncompliance with any Environmental Law or any license, permit or other authorization
issued pursuant thereto. To the Borrower’s best knowledge, no such matter is threatened or
impending.

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     (e) To the Borrower’s best knowledge and except as set forth on Schedule 4.12 attached
hereto, the Borrower’s business is and has in the past always been conducted in accordance
with all Environmental Laws and all licenses, permits and other authorizations required
pursuant to any Environmental Law and necessary for the lawful and efficient operation of
such businesses are in the Borrower’s possession and are in full force and effect. No
permit required under any Environmental Law is scheduled to expire within twelve (12) months
and there is no threat that any such permit will be withdrawn, terminated, limited or
materially changed.

     (f) To the Borrower’s best knowledge, the Premises are not and never have been listed
on the National Priorities List, the Comprehensive Environmental Response, Compensation and
Liability Information System or any similar federal, state or local list, schedule, log,
inventory or database.

     (g) The Borrower has delivered to Lender all environmental assessments, audits,
reports, permits, licenses and other documents describing or relating in any way to the
Premises or Borrower’s business.

          Section 4.13. Submissions to Lender. All financial and other information provided to
the Lender by or on behalf of the Borrower in connection with the Borrower’s request for the
Revolving Credit Facility contemplated hereby is true and correct in all material respects and, as
to projections, valuations or proforma financial statements, present a good faith opinion as to
such projections, valuations and proforma condition and results.

          Section 4.14. Financing Statements. The Borrower has authorized the Lender to file
financing statements sufficient when filed to perfect the Security Interest and the other security
interests created by the Security Documents. When such financing statements are filed in the
offices noted therein, the Lender will have a valid and perfected first priority security interest
in all Collateral and all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other collateral covered
by the Security Documents is or will become a fixture on real estate, unless a sufficient fixture
filing is in effect with respect thereto.

          Section 4.15. Rights to Payment. Each right to payment and each instrument, document,
chattel paper and other agreement constituting or evidencing Collateral or other collateral covered
by the Security Documents is (or, in the case of all future Collateral or such other collateral,
will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to
no defense, setoff or counterclaim, of the account debtor or other obligor named therein or in the
Borrower’s records pertaining thereto as being obligated to pay such obligation.

          Section 4.16. Financial Solvency. Both before and after giving effect to the
transactions contemplated in the Loan Documents, neither Borrower nor any of their respective
Affiliates:

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     (a) was or will be insolvent, as that term is used and defined in Section 101(32) of
the United States Bankruptcy Code and Section 2 of the Uniform Fraudulent Transfer Act;

     (b) has unreasonably small capital or is engaged or about to engage in a business or a
transaction for which any remaining assets of such Borrower or any such Affiliate are
unreasonably small;

     (c) by executing, delivering or performing its obligations under the Loan Documents or
other documents to which it or he is a party or by taking any action with respect thereto,
intends to, nor believes that it or he will, incur debts beyond its or his ability to pay
them as they mature;

     (d) by executing, delivering or performing its or his obligations under the Loan
Documents or other documents to which it or he is a party or by taking any action with
respect thereto, intends to hinder, delay or defraud either its or his present or future
creditors; and

     (e) at this time contemplates filing a petition in bankruptcy or for an arrangement or
reorganization or similar proceeding under any law any jurisdiction, nor, to the best
knowledge of the Borrower, is the subject of any actual, pending or threatened bankruptcy,
insolvency or similar proceedings under any law of any jurisdiction.

          Section 4.17. Licenses, Etc. Except as set forth on Schedule 4.17, the Borrower has
and possesses adequate licenses, certificates, permits, franchises, patents, copyrights, trademarks
and trade names, or rights thereto, to own and operate its business as presently conducted.

          Section 4.18. Compliance with Loans. The Borrower is in compliance with all
applicable loans, rules and regulations.

ARTICLE V.

Borrower’s Affirmative Covenants

So long as the Obligations shall remain unpaid, or the Revolving Credit Facility shall remain
outstanding, the Borrower will comply with the following requirements, unless the Lender shall
otherwise consent in writing:

          Section 5.1. Reporting Requirements. The Borrower will deliver, or cause to be
delivered, to the Lender each of the following, in writing, which shall be in form and detail
acceptable to the Lender:

     (a) as soon as available, and in any event within ninety (90) days after the end of
each fiscal year of the Borrower, the Borrower’s full scope audited financial statements
prepared by independent certified public accountants selected by the Borrower and acceptable
to the Lender which annual financial statements shall include the Borrower’s balance sheet
as at the end of such fiscal year and the related statements of

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the Borrower’s income, retained earnings and cash flows for the fiscal year then ended,
prepared on a consolidated basis to include any Affiliates, all in reasonable detail along
with internally prepared consolidating financial statements and prepared in accordance with
GAAP, together with, upon request by Lender, copies of all management letters, if any,
prepared by such accountants;

     (b) as soon as available and in any event within forty-five (45) days after the end of
each fiscal quarter, an unaudited/internal balance sheet and statements of income, cash flow
and retained earnings of the Borrower as at the end of and for such month and for the year
to date period then ended, prepared on a consolidating and consolidated basis to include any
Affiliates, in reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, that are complete and correct in all
respects and fairly present the financial condition of the Borrower at the dates of such
statements and the results of its operations for the period ended on such date; and
accompanied by a compliance certificate executed by an officer of the Borrower,
substantially in the form of Exhibit B hereto (“Compliance Certificate”) stating (i)
that such financial statements are complete and correct in all respects and fairly present
the financial condition of the Borrower at the dates of such statements and the results of
its operations for the period ended on such date, (ii) whether or not such officer has
knowledge of the occurrence of any Default or Event of Default hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the facts with respect
thereto, and (iii) all relevant facts in reasonable detail to evidence, and the computations
as to, whether or not the Borrower is in compliance with the requirements set forth in
Section 5.12;

     (c) no more than (30) days prior to the beginning of each fiscal year of the Borrower,
the projected balance sheets, income statements and statements of cash flow for each month
of such year, in reasonable detail, representing the Borrower’s good faith projections and
certified by an officer of the Borrower as being the most accurate projections available and
identical to the projections used by the Borrower for internal planning purposes, together
with supporting schedules (including underlying assumptions) and information as the Lender
may in its discretion require;

     (d) as soon as available and in any event within thirty (30) days after the end of each
calendar month, a Borrowing Base Certificate, substantially in the form of Exhibit C
hereto, showing the relevant information for the Borrower as of the end of business on the
last business day of the then most recent month of the Borrower’s fiscal year;

     (e) immediately after the commencement thereof, notice of all litigation and of all
proceedings before any governmental or regulatory agency affecting the Borrower or the
Affiliate of the type described in Section 4.12 or which seek a monetary recovery against
the Borrower or the Affiliate in excess of $500,000;

     (f) as promptly as practicable (but in any event not later than five business days)
after an officer of the Borrower obtains knowledge of the occurrence of any breach, default
or event of default under any Loan Document or any event which constitutes a

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Default or Event of Default hereunder, notice of such occurrence, together with a
detailed statement by a responsible officer of the Borrower of the steps being taken by the
Borrower to cure the effect of such breach, default or event;

     (g) as soon as possible and in any event within thirty (30) days after the Borrower
knows or has reason to know that any Reportable Event with respect to any Plan has occurred,
the statement of an officer of the Borrower setting forth details as to such Reportable
Event and the action which the Borrower proposes to take with respect thereto, together with
a copy of the notice of such Reportable Event to the Pension Benefit Guaranty Corporation;

     (h) as soon as possible, and in any event within ten (10) days after the Borrower fails
to make any quarterly contribution required with respect to any Plan under Section 412(m) of
the Internal Revenue Code of 1986, as amended, the statement of the Borrower’s chief
financial officer setting forth details as to such failure and the action which the Borrower
proposes to take with respect thereto, together with a copy of any notice of such failure
required to be provided to the Pension Benefit Guaranty Corporation;

     (i) promptly upon knowledge thereof, notice of any loss of or material damage to any
Collateral or other collateral covered by any Loan Document or of any substantial adverse
change in any Collateral or such other collateral or the prospect of payment thereof;

     (j) promptly upon knowledge thereof, notice of the Borrower’s violation of any law,
rule or regulation, the non-compliance with which could have a Material Adverse Effect; and

     (k) from time to time, with reasonable promptness, such other material, reports,
records or information as the Lender may reasonably request.

          Section 5.2. Books and Records; Inspection and Examination. The Borrower will keep
accurate books of record and account for itself pertaining to the Collateral and pertaining to the
Borrower’s business and financial condition and such other matters as the Lender may from time to
time request in which true and complete entries will be made in accordance with GAAP and, upon the
Lender’s request and reasonable notice, will permit any officer, employee, attorney or accountant
for the Lender to audit, review, make extracts from or copy any and all corporate and financial
books and records of the Borrower at all times during ordinary business hours, to send and discuss
with account debtors and other obligors requests for verification of amounts owed to the Borrower,
and to discuss the Borrower’s affairs with any of its directors, officers, employees or agents.
The Borrower will permit the Lender, or its employees, accountants, attorneys or agents, to examine
and inspect any Collateral, other collateral covered by the Security Documents or any other
property of the Borrower at any time during ordinary business hours.

          Section 5.3. Account Verification. The Lender may at any time and from time to time
send or require the Borrower to send requests for verification of accounts or notices of

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assignment to account debtors and other obligors. During any Default Period and in the course
of any audit being conducted by the Lender, whether or not such audit is being conducted during a
Default Period, the Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.

          Section 5.4. Compliance with Laws.

     (a) The Borrower will (i) comply with the requirements of applicable laws and
regulations, the non-compliance with which would have a Material Adverse Effect on the
Borrower and (ii) use and keep the Collateral, and require that others use and keep the
Collateral, only for lawful purposes, without violation of any federal, state or local law,
statute or ordinance.

     (b) Without limiting the foregoing undertakings, the Borrower specifically agrees that
it will comply with all applicable Environmental Laws and obtain and comply with all
permits, licenses and similar approvals required by any Environmental Laws, and will not
generate, use, transport, treat, store or dispose of any Hazardous Substances in such a
manner as to create any material liability or material obligation under the common law of
any jurisdiction or any Environmental Law.

          Section 5.5. Payment of Taxes and Other Claims. The Borrower will pay or discharge,
when due, (a) all taxes, assessments and governmental charges levied or imposed upon it or upon its
income or profits, upon any properties belonging to it (including, without limitation, the
Collateral) or upon or against the creation, perfection or continuance of the Security Interest,
prior to the date on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien or charge upon any properties of the Borrower; provided, that
the Borrower shall not be required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate proceedings and for which
proper reserves have been made.

          Section 5.6. Maintenance of Properties.

     (a) The Borrower will keep and maintain the Collateral, the other collateral covered by
the Loan Documents and all of its other properties necessary or useful in its business in
good condition, repair and working order (normal wear and tear excepted) and will from time
to time replace or repair any worn, defective or broken parts; provided, however, that
nothing in this Section shall prevent the Borrower from discontinuing the operation and
maintenance of any of its properties if such discontinuance is desirable in the conduct of
the Borrower’s business and not disadvantageous in any material respect to the Lender.

     (b) The Borrower will defend the Collateral against all claims or demands of all
persons (other than the Lender) claiming the Collateral or any interest therein.

     (c) The Borrower will keep all Collateral and other collateral covered by the Loan
Documents free and clear of all security interests, liens and encumbrances except Permitted
Liens.

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          Section 5.7. Insurance. The Borrower will obtain and at all times maintain insurance
with insurers believed by the Borrower to be responsible and reputable, in such amounts and against
such risks as may from time to time be required by the Lender, but in all events in such amounts
and against such risks as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates. Without limiting the
generality of the foregoing, the Borrower will at all times maintain business interruption
insurance including coverage for force majeure and keep all tangible Collateral insured against
risks of fire (including so-called extended coverage), theft, collision (for Collateral consisting
of motor vehicles) and such other risks and in such amounts as the Lender may reasonably request,
with any loss payable to the Lender to the extent of its interest, and all policies of such
insurance shall contain a lender’s loss payable endorsement for the Lender’s benefit acceptable to
the Lender. All policies of liability insurance required hereunder shall name the Lender as an
additional insured.

          Section 5.8. Preservation of Existence. The Borrower will preserve and maintain its
existence and all of its rights, privileges and franchises necessary or desirable in the normal
conduct of its business and shall conduct its business in an orderly, efficient and regular manner.

          Section 5.9. Delivery of Instruments, etc. Upon request by the Lender, the Borrower
will promptly deliver to the Lender in pledge all instruments, documents and chattel papers
constituting Collateral, duly endorsed or assigned by the Borrower.

          Section 5.10. New Subsidiaries. In the event that the Borrower directly or indirectly
acquires or forms a Person that shall become a domestic Subsidiary, cause such subsidiary to
execute and deliver a guarantee and a guarantor security agreement in the form and substance
acceptable to the Lender and deliver such certificates of authority and other documents,
instruments and agreements as the Lender may reasonably require. In the event that the Borrower
directly or indirectly acquires or forms a Person that shall become a foreign Subsidiary, the
Borrower shall pledge all of the stock or other equity interest of such Subsidiary to the Lender
provided, however, that if in the reasonable judgment of the Borrower, the pledge of such stock or
equity interests shall cause adverse tax consequences because such Subsidiary is not a United
States Person, the Borrower shall pledge sixty-five percent (65%) of the capital stock or equity
interests of such Subsidiary to the Lender.

          Section 5.11. Performance by the Lender. If the Borrower at any time fails to perform
or observe any of the foregoing covenants contained in this Article V or elsewhere herein, and if
such failure shall continue for a period of ten (10) calendar days after the Lender gives the
Borrower written notice thereof (or in the case of the agreements contained in Sections 5.5 and
5.7, immediately upon the occurrence of such failure, without notice or lapse of time), the Lender
may, but need not, perform or observe such covenant on behalf and in the name, place and stead of
the Borrower (or, at the Lender’s option, in the Lender’s name) and may, but need not, take any and
all other actions which the Lender may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of security interests, liens
or encumbrances, the performance of obligations owed to account debtors or other obligors, the
procurement and maintenance of insurance, the execution of assignments, security agreements and
financing statements, and the endorsement of

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instruments); and the Borrower shall thereupon pay to the Lender on demand the amount of all
monies expended and all costs and expenses (including reasonable attorneys’ fees and legal
expenses) incurred by the Lender in connection with or as a result of the performance or observance
of such agreements or the taking of such action by the Lender, together with interest thereon from
the date expended or incurred at the Default Rate under the Note. To facilitate the Lender’s
performance or observance of such covenants of the Borrower, the Borrower hereby irrevocably
appoints the Lender, or the Lender’s delegate, acting alone, as the Borrower’s attorney in fact
(which appointment is coupled with an interest) with the right (but not the duty) from time to time
to create, prepare, complete, execute, deliver, endorse or file in the name and on behalf of the
Borrower any and all instruments, documents, assignments, security agreements, financing
statements, applications for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section.

          Section 5.12. Minimum Debt Service Coverage Ratio. The Borrower will maintain its
Debt Service Coverage Ratio, determined as of each Measurement Date, at or above 1.25 to 1.00.

          Section 5.13. Bank Accounts. The Borrower shall, as soon as reasonably practicable
but in any event no later than October 31, 2007, cause all of the Borrower’s primary bank accounts
and operating accounts with all banks other than the Lender (including Wells Fargo Bank) to be
closed, and the Borrower shall thereafter maintain all of its primary bank accounts and operating
accounts exclusively with the Lender.

          Section 5.14. Wisconsin Department of Natural Resources. The Borrower agrees to
provide the Lender with copies of all communications by and between the Borrower and the Wisconsin
Department Natural Resources with respect to the site which the Wisconsin Department of Natural
Resources has identified the Borrower as a “responsible party” as described in the Borrower’s 10-Q
filed March 31, 2007. In addition to such communications, the Borrower shall also provide the
Lender with copies of such other documents, materials and information related to such environmental
matter as the Lender may reasonably request.

          Section 5.15. Stock Pledge Agreement. The Borrower shall execute and deliver the
Stock Pledge Agreement to the Lender within thirty (30) days of the date hereof.

          Section 5.16. Landlord Waiver. The Borrower shall deliver to the Lender the Landlord
Wavier within thirty (30) days of the date hereof.

ARTICLE VI.

Negative Covenants

So long as the Obligations shall remain unpaid, or the Revolving Credit Facility shall remain
outstanding, the Borrower agrees that, without the Lender’s prior written consent:

          Section 6.1. Liens. The Borrower will not create, incur or suffer to exist any
mortgage, deed of trust, pledge, lien, security interest, assignment or transfer upon or of any of
its assets (including, without limitation, the Real Property), now owned or hereafter acquired, to

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secure any indebtedness; excluding, however, from the operation of the foregoing, the
following (collectively, “Permitted Liens”):

     (a) in the case of any of the Borrower’s property which is not Collateral or other
collateral described in the Security Documents, covenants, restrictions, rights, easements
and minor irregularities in title which do not materially interfere with the Borrower’s
business or operations as presently conducted;

     (b) mortgages, deeds of trust, pledges, liens, security interests and assignments in
existence on the date hereof and listed in Schedule 6.1, securing indebtedness for borrowed
money permitted under Section 6.2;

     (c) the Security Interest and liens and security interests created by the Security
Documents;

     (d) purchase money security interests or Capitalized Leases relating to the acquisition
of machinery and equipment of the Borrower not exceeding the lesser of cost or fair market
value thereof and so long as no Default Period is then in existence and none would exist
immediately after such acquisition and so long as the aggregate purchase price of all such
machinery and equipment financed with purchase money security interests or Capitalized
Leases shall not exceed $250,000 per calendar year;

     (e) liens for taxes or assessments or other governmental charges not yet due or being
contested in good faith pursuant to Section 5.5;

     (f) materialmen’s, merchants’, carriers’, workmen’s, repairmen’s, or other like liens
arising in the ordinary course of business which secure amounts not overdue for a period of
more than 60 days or which are being contested in good faith by appropriate proceedings and
for which proper reserves have been made; and

     (g) pledges or deposits to secure obligations under worker’s compensation laws,
unemployment insurance and social security laws, or to secure the performance of bids,
tenders, contracts (other than for the repayment of borrowed money) or leases or to secure
statutory obligations or surety or appeal bonds, or to secure indemnity, performance or
other similar bonds, in any case in the ordinary course of business.

Notwithstanding the foregoing, if the Borrower desires to borrow against the Real Property (a
“Third Party Borrowing”) and to grant a third party lender a mortgage on the Real Property in
connection with such Third Party Borrowing (the “Third Party Mortgage”), the Lender agrees that it
shall not unreasonably withhold its consent to a release of the Negative Pledge Agreement, to the
encumbrance of the Real Property in connection with such third party borrowing, and to the
incurrence of such third party debt (the “Third Party Debt”) so long as (i) no Default Period
exists or would otherwise exist as a result of any of the foregoing, (ii) the Borrower would
continue to be in pro forma compliance with the Debt Service Coverage Ratio calculated for the
trailing twelve (12) month period ending immediately prior to the date on which the Borrower
proposes to incur such Third Party Debt assuming for purposes of such pro forma calculation, that
the principal and interest payments due and payable in connection with the Third Party Debt are
included in the calculation of such Debt Service Coverage Ratio and (iii) the Borrower’s

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projections show that the Borrower will be in compliance with the Debt Service Coverage Ratio
calculated for the twelve (12) month period commencing on the Date on which the Borrower proposes
to incur such Third Party Debt assuming for purposes of such projections, that the principal and
interest payments due and payable in connection with the Third Party Debt are included in the
calculation of such Debt Service Coverage Ratio.

          Section 6.2. Indebtedness. The Borrower will not incur, create, assume or permit to
exist any indebtedness or liability on account of deposits or advances or any indebtedness for
borrowed money or letters of credit issued on the Borrower’s behalf, or any other indebtedness or
liability evidenced by notes, bonds, debentures or similar obligations, except:

     (a) indebtedness arising hereunder;

     (b) indebtedness of the Borrower in existence on the date hereof and listed in Schedule
6.2;

     (c) indebtedness (including the balance sheet amount of Capitalized Lease obligations)
relating to liens permitted in accordance with Section 6.1; and

     (d) the Third Party Debt.

          Section 6.3. Guaranties. The Borrower will not assume, guarantee, endorse or
otherwise become directly or contingently liable in connection with any obligations of any other
Person, except:

     (a) the endorsement of negotiable instruments by the Borrower for deposit or collection
or similar transactions in the ordinary course of business; and

     (b) guaranties of indebtedness of Subsidiaries and Affiliates at any time not exceeding
$100,000 in the aggregate.

          Section 6.4. Investments. The Borrower will not purchase or hold beneficially any
stock or other securities or evidences of indebtedness of, make or permit to exist any loans or
advances to, or make any Investment or acquire any interest whatsoever in, any other Person,
including specifically but without limitation any partnership or joint venture, except:

     (a) Investments in direct obligations of the United States of America or any agency or
instrumentality thereof whose obligations constitute full faith and credit obligations of
the United States of America having a maturity of one year or less, commercial paper issued
by U.S. corporations rated “A-1” or “A-2” by Standard & Poors Corporation or “P-1” or “P-2”
by Moody’s Investors Service or certificates of deposit or bankers’ acceptances having a
maturity of one year or less issued by members of the Federal Reserve System having deposits
in excess of $100,000,000 (which certificates of deposit or bankers’ acceptances are fully
insured by the Federal Deposit Insurance Corporation);

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     (b) travel advances or loans to the Borrower’s officers and employees not exceeding at
any one time an aggregate of $25,000;

     (c) trade receivables owed to the Borrower by foreign Subsidiaries in the ordinary
course of business and non-cash allocation of corporate expenses to foreign Subsidiaries;
and

     (d) investment and advances or intercompany loans (other than items allowed in clause
(c) of this Section 6.4 at any time not exceeding $100,000 in the aggregate.

          Section 6.5. Dividends. So long as no Default Period exists or would exist as a
result thereof, the Borrower may declare or pay dividends or make payments on account of the
purchase, redemption, or other retirement of any of its capital stock, or stock options or
warrants.

          Section 6.6. Sale or Transfer of Assets; Suspension of Business Operations. The
Borrower will not sell, lease, assign, transfer or otherwise dispose of (i) the stock or membership
interests of any Subsidiary, (ii) all or a substantial part of its assets, or (iii) any Collateral
or any interest therein (whether in one transaction or in a series of transactions) to any other
Person other than the sale of Inventory or obsolete, worn or damaged equipment in the ordinary
course of business (provided such equipment is replaced with equipment of equal or greater value)
and will not liquidate, dissolve or suspend business operations provided, however, that nothing in
this Section shall prevent the Borrower from discontinuing the operation and maintenance of any of
its properties if such discontinuance is desirable in the conduct of the Borrower’s business and
not disadvantageous in any material respect to the Lender (including the dissolution of Zareba
Systems of Canada, Ltd.). The Borrower will not in any manner transfer any property without prior
or present receipt of full and adequate consideration.

          Section 6.7. Consolidation and Merger; Asset Acquisitions. The Borrower will not
consolidate with or merge into any Person, or permit any other Person to merge into it, or acquire
(in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially
all the assets of any other Person provided, however, that so long as no Default Period exists or
would occur or exist as a result of such transaction, Borrower may (i) acquire the stock or assets
of another Person so long as the aggregate consideration paid or to be paid by the Borrower in
connection with such acquisition is less than $500,000, or (ii) merge with any other Person so long
as the Borrower is the surviving entity in such merger and the aggregate consideration paid by the
Borrower in connection with any such merger is less than $500,000. As a further condition to any
such acquisition or merger, the Borrower and such Person shall execute and deliver to the Lender
any and all documents, instruments and agreements as the Lender may reasonably require.

          Section 6.8. Sale and Leaseback. The Borrower will not enter into any arrangement,
directly or indirectly, with any other Person whereby the Borrower shall sell or transfer any real
or personal property, whether now owned or hereafter acquired, and then or thereafter rent or lease
as lessee such property or any part thereof or any other property which the Borrower intends to use
for substantially the same purpose or purposes as the property being sold or transferred.

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          Section 6.9. Restrictions on Nature of Business. The Borrower will not engage in any
line of business materially different from that presently engaged in by the Borrower and will not
purchase, lease or otherwise acquire assets not related to its business.

          Section 6.10. Accounting. The Borrower will not adopt any material change in
accounting principles other than as required or permitted by GAAP. The Borrower will not adopt,
permit or consent to any change in its fiscal year, provided that, so long as no Default Period
then exists or would occur or exist as a result thereof, the Borrower may, at any time prior to
December 31, 2008, change the Borrower’s fiscal year so long as the Borrower provides the Lender
with at least thirty (30) days prior written notice of such change.

          Section 6.11. Discounts, etc. Other than in the ordinary course of business, the
Borrower will not, during any Default Period, grant any discount, credit or allowance to any
customer of the Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate any obligation of any
account debtor or other obligor of the Borrower.

          Section 6.12. Defined Benefit Pension Plans. The Borrower will not adopt, create,
assume or become a party to any defined benefit pension plan, unless disclosed to the Lender
pursuant to Section 4.10.

          Section 6.13. Other Defaults. The Borrower will not permit any material breach or
default or event of default to occur under any note, loan agreement, indenture, lease, mortgage,
contract for deed, security agreement or other contractual obligation binding upon the Borrower.

          Section 6.14. Place of Business; Name. The Borrower will not transfer its chief
executive office or principal place of business, or move, relocate, close or sell any business
location. The Borrower will not permit any tangible Collateral or any records pertaining to the
Collateral to be located in any state or area in which, in the event of such location, a financing
statement covering such Collateral would be required to be, but has not in fact been, filed in
order to perfect the Security Interest. The Borrower will not change its name.

          Section 6.15. Organizational Documents; Status. The Borrower will not amend its
articles of incorporation or bylaws or change its tax status as a C corporation.

ARTICLE VII.

Events of Default, Rights and Remedies

          Section 7.1. Events of Default. “Event of Default,” wherever used herein, means any
one of the following events:

     (a) Default in the payment of any of the Obligations when they become due and payable;

     (b) Failure to pay when due any amount specified in Section 2.3 relating to the
Borrower’s Obligation of Reimbursement, or failure to pay immediately when due or

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upon termination of the Credit Facility any amounts required to be paid for deposit in
the Special Account under Section 2.4 or;

     (c) Default in the payment of any fees, commissions, costs or expenses required to be
paid by the Borrower under this Agreement;

     (d) Default in the performance, or breach, of any covenant or agreement of the Borrower
contained in any section of Article II, Section 5.1(d), 5.4, 5.5, 5.7, 5.8, 5.12, or any
section of Article VI in this Agreement;

     (e) Default in the performance, or breach, of any other covenant or agreement contained
in this Agreement (so long as such default does not otherwise constitute an Event of Default
under any of the other provisions of this Section 7.1) and such default shall continue for
thirty (30) calendar days after notice thereof to the Borrower by the Lender;

     (f) The Borrower shall be or become insolvent, or admit in writing its, his or her
inability to pay its debts as they mature, or make an assignment for the benefit of
creditors; or the Borrower shall apply for or consent to the appointment of any receiver,
trustee, or similar officer for it or for all or any substantial part of its property; or
such receiver, trustee or similar officer shall be appointed without the application or
consent of the Borrower and such appointment is not discharged within sixty (60) days; or
the Borrower shall institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to it, him or her under the laws of any
jurisdiction; or any such proceeding shall be instituted (by petition, application or
otherwise) against the Borrower; or any judgment, writ, warrant of attachment or execution
or similar process shall be issued or levied against a substantial part of the property of
the Borrower;

     (g) A petition shall be filed by or against the Borrower under the United States
Bankruptcy Code naming the Borrower as debtor which petition shall not be discharged within
sixty (60) days after the filing thereof;

     (h) Any change shall occur in the condition (financial or otherwise), business or
property of the Borrower that has a Material Adverse Effect;

     (i) Any representation or warranty made by the Borrower in this Agreement, or by the
Borrower (or any of its officers) in any agreement, certificate, instrument or financial
statement or other statement contemplated by or made or delivered pursuant to or in
connection with this Agreement or any such representation or warranty shall prove to have
been incorrect in any material respect when deemed to be effective;

     (j) The rendering against the Borrower of a final judgment, decree or order for the
payment of money in excess of $25,000 and the continuance of such judgment, decree or order
unsatisfied and in effect for any period of thirty (30) consecutive days without a stay of
execution;

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     (k) A payment default under any Indebtedness with an outstanding principal balance in
excess of $250,000 of the Borrower owed to any Person other than the Lender, or under any
indenture or other instrument under which any such evidence of Indebtedness has been issued
or by which it is governed, or under any lease of any of the Premises, and the expiration of
the applicable period of grace, if any, specified in such evidence of Indebtedness,
indenture, other instrument or lease;

     (l) Any Reportable Event, which the Lender determines in good faith might constitute
grounds for the termination of any Plan or for the appointment by the appropriate United
States District Court of a trustee to administer any Plan, shall have occurred and be
continuing thirty (30) days after written notice to such effect shall have been given to the
Borrower by the Lender; or a trustee shall have been appointed by an appropriate United
States District Court to administer any Plan; or the Pension Benefit Guaranty Corporation
shall have instituted proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or the Borrower shall have filed for a distress termination of any Plan
under Title IV of ERISA; or the Borrower shall have failed to make any quarterly
contribution required with respect to any Plan under Section 412(m) of the Internal Revenue
Code of 1986, as amended, which the Lender determines in good faith may by itself, or in
combination with any such failures that the Lender may determine are likely to occur in the
future, result in the imposition of a lien on the Borrower’s assets in favor of the Plan;

     (m) An event of default shall occur under any of the other Loan Documents or under any
other security agreement, mortgage, deed of trust, assignment or other instrument or
agreement securing any obligations of the Borrower hereunder or under any note;

     (n) The Borrower to the Lender shall liquidate, dissolve, terminate or suspend its
business operations or otherwise fail to operate its business in the ordinary course, or
sell all or substantially all of its assets, without the Lender’s prior written consent;

     (o) The Borrower shall fail to pay, withhold, collect or remit any tax or tax
deficiency when assessed or due (other than any tax deficiency which is being contested in
good faith and by proper proceedings and for which it shall have set aside on its books
adequate reserves therefor) or notice of any state or federal tax liens shall be filed or
issued;

     (p) Failure to pay any amount owed by the Borrower to the Lender other than any
indebtedness arising hereunder within the later of (i) fifteen (15) days of the due date
thereof, or (ii) five (5) days following Borrower’s receipt of late notice from Lender;

     (q) Any event or circumstance with respect to the Borrower shall occur such that the
Lender shall believe in good faith that the prospect of payment of all or any part of the
Obligations or the performance by the Borrower under the Loan Documents is impaired;

- 41 -

 

     (r) Any breach, default or event of default by or attributable to any Affiliate under
any agreement between such Affiliate and the Lender;

          Section 7.2. Rights and Remedies. During any Default Period, the Lender may exercise
any or all of the following rights and remedies:

     (a) the Lender may, by notice to the Borrower, declare the Revolving Credit Facility to
be terminated, whereupon the same shall forthwith terminate;

     (b) the Lender may, by notice to the Borrower, declare the Obligations to be forthwith
due and payable, whereupon all Obligations shall become and be forthwith due and payable,
without presentment, notice of dishonor, protest or further notice of any kind, all of which
the Borrower hereby expressly waives;

     (c) the Lender may, without notice to the Borrower and without further action, apply
any and all money owing by the Lender to the Borrower to the payment of the Obligations;

     (d) the Lender may make demand upon the Borrower and, forthwith upon such demand, the
Borrower will pay to the Lender in immediately available funds for deposit in the Special
Account pursuant to Section 2.4 an amount equal to the aggregate maximum amount available to
be drawn under all Letters of Credit then outstanding, assuming compliance with all
conditions for drawing thereunder;

     (e) the Lender may exercise and enforce any and all rights and remedies available upon
default to a secured party under the UCC, including, without limitation, the right to take
possession of Collateral, or any evidence thereof, proceeding without judicial process or by
judicial process (without a prior hearing or notice thereof, which the Borrower hereby
expressly waives) and the right to sell, lease or otherwise dispose of any or all of the
Collateral, and, in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be designated by the Lender
which is reasonably convenient to both parties;

     (f) the Lender may exercise and enforce its rights and remedies under the Loan
Documents; and

     (g) the Lender may exercise any other rights and remedies available to it by law or
agreement.

Notwithstanding the foregoing, upon the occurrence of an Event of Default described in
subsections (e) or (f) of Section 7.1, the Obligations shall be immediately due and payable
automatically without presentment, demand, protest or notice of any kind.

          Section 7.3. Certain Notices. If notice to the Borrower of any intended disposition
of Collateral or any other intended action is required by law in a particular instance, such notice
shall be deemed commercially reasonable if given (in the manner specified in Section 8.3) at least
ten (10) calendar days before the date of intended disposition or other action.

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ARTICLE VIII.

Miscellaneous

          Section 8.1. No Waiver; Cumulative Remedies. No failure or delay by the Lender in
exercising any right, power or remedy under the Loan Documents shall operate as a waiver thereof;
nor shall any single or partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy under the Loan
Documents. The remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.

          Section 8.2. Amendments, Etc. No amendment, modification, termination or waiver of
any provision of any Loan Document or consent to any departure by the Borrower therefrom or any
release of a Security Interest shall be effective unless the same shall be in writing and signed by
the Lender, and then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice to or demand on the Borrower in any case shall
entitle the Borrower to any other or further notice or demand in similar or other circumstances.

          Section 8.3. Addresses for Notices, Etc. Except as otherwise expressly provided
herein, all notices, requests, demands and other communications provided for under the Loan
Documents shall be in writing and shall be (a) personally delivered, (b) sent by first class United
States mail, (c) sent by overnight courier of national reputation, (d) transmitted by facsimile, or
(e) sent by email, in each case addressed, faxed or emailed to the party to whom notice is being
given at its address, facsimile number or email address as set forth below:

If to the Borrower:

Zareba Systems, Inc.

13705 26th Avenue N.

Suite 102

Minneapolis, MN 55441

Facsimile No.: (763) 509-7450

Email Address: jeffreym@zarebasystems.com

Attention: Jeffrey Mathiesen

Zareba Security, Inc.

c/o Zareba Systems, Inc.

13705 26th Avenue N.

Suite 102

Minneapolis, MN 55441

Facsimile No.: (763) 509-7450

Email Address: jeffreym@zarebasystems.com

Attention: Jeffrey Mathiesen

- 43 -

 

If to the Lender:

JPMorgan Chase Bank, N.A.

225 South Sixth Street

Suite 2500

Minneapolis, MN 55402

Facsimile No.: (612) 333-9194

Email Address: jay.a.isaman@chase.com

Attention: Mr. Jay A. Isaman

With copies to (which shall not be deemed to be notice):

Winthrop & Weinstine, P.A.

225 South Sixth Street, Suite 3500

Minneapolis, MN 55402-4629

Facsimile No.: (612) 604-6800

Email Address: dmoran@winthrop.com

Attention: David E. Moran, Esq.

or, as to each party, at such other address or facsimile number as may hereafter be designated by
such party in a written notice to the other party complying as to delivery with the terms of this
Section. All such notices, requests, demands and other communications shall be deemed to have been
given on (a) the date received if personally delivered, (b) when deposited in the mail if delivered
by mail, (c) the date sent if sent by overnight courier, or (d) the date of transmission if
delivered by facsimile, except that notices or requests to the Lender pursuant to any of the
provisions of Article II shall not be effective until received by the Lender.

          Section 8.4. Further Assurances. The Borrower will from time to time authorize,
execute, deliver and/or endorse any and all instruments, documents, conveyances, assignments,
security agreements, financing statements and other agreements and writings that the Lender may
reasonably request in order to promptly correct any defect or error that may be discovered in any
Loan Document or in the execution, acknowledgement or recordation thereof. Promptly upon request
by the Lender, the Borrower also shall do, execute, acknowledge, deliver, record, re-record, file,
re-file, register and re-register, any and all deeds, conveyances, mortgages, deeds of trust, trust
deeds, assignments, estoppel certificates, financing statements and continuations thereof, notices
of assignment, transfers, certificates, assurances and other instruments as the Lender may
reasonably require from time to time in order: (A) to carry out more effectively the purposes of
the Loan Documents; (B) to perfect and maintain the validity, effectiveness and priority of any
security interests intended to be created by the Loan Documents; and (C) to better assure, convey,
grant, assign, transfer, preserve, protect and confirm unto the Lender the rights granted now or
hereafter intended to be granted to the Lender under any Loan Document or under any other
instrument executed in connection with any Loan Document or that the Borrower may be or become
bound to convey, mortgage or assign to the Lender in order to carry out the intention or facilitate
the performance of the provisions of any Loan Documents.

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          Section 8.5. Collateral. Neither this Agreement nor the Security Agreement
contemplates a sale of accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency. The Lender’s duty
of care with respect to Collateral in its possession (as imposed by law) shall be deemed fulfilled
if it exercises reasonable care in physically keeping such Collateral, or in the case of Collateral
in the custody or possession of a bailee or other third person, exercises reasonable care in the
selection of the bailee or other third person, and the Lender need not otherwise preserve, protect,
insure or care for any Collateral. The Lender shall not be obligated to preserve any rights the
Borrower may have against prior parties, to realize on the Collateral at all or in any particular
manner or order or to apply any cash proceeds of the Collateral in any particular order of
application.

          Section 8.6. Costs and Expenses. The Borrower agrees to pay on demand all costs and
expenses, including (without limitation) reasonable attorneys’ fees, incurred by the Lender in
connection with the Obligations, this Agreement, the other Loan Documents and any other document or
agreement related hereto or thereto, and the transactions contemplated hereby, including without
limitation all such costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and enforcement of the
Obligations and all such documents and agreements and the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest.

          Section 8.7. Indemnity. In addition to the payment of expenses pursuant to Section
8.6, the Borrower agrees to indemnify, defend and hold harmless the Lender, and any of its
participants, parent corporations, subsidiary corporations, affiliated corporations, successor
corporations, and all present and future officers, directors, employees, attorneys and agents of
the foregoing (the “Indemnitees”) from and against any of the following (collectively, “Indemnified
Liabilities”):

     (a) any and all transfer taxes, documentary taxes, assessments or charges made by any
governmental authority by reason of the execution and delivery of the Loan Documents or the
making of the Advances;

     (b) any claims, loss or damage to which any Indemnitee may be subjected if any
representation or warranty contained in Section 4.12 proves to be incorrect in any respect
or as a result of any violation of the covenant contained in Section 5.4(b) unless the
Lender has participated in management after foreclosure and, as a result, loses any
otherwise available exemption under federal or state environmental laws, rules or
regulations; and

     (c) any and all other liabilities, losses, damages, penalties, judgments, suits,
claims, costs and expenses of any kind or nature whatsoever (including, without limitation,
the reasonable fees and disbursements of counsel) in connection with the foregoing and any
other investigative, administrative or judicial proceedings, whether or not such Indemnitee
shall be designated a party thereto, which may be imposed on, incurred by or asserted
against any such Indemnitee, in any manner related to or arising out of or in connection
with the making of the Advances and the Loan Documents or the use or intended use of the
proceeds of the Note.

- 45 -

 

If any investigative, judicial or administrative proceeding arising from any of the foregoing is
brought against any Indemnitee, upon such Indemnitee’s request, the Borrower, or counsel designated
by the Borrower and satisfactory to the Indemnitee, will resist and defend such action, suit or
proceeding to the extent and in the manner directed by the Indemnitee, at the Borrower’s sole costs
and expense. Each Indemnitee will use its best efforts to cooperate in the defense of any such
action, suit or proceeding. If the foregoing undertaking to indemnify, defend and hold harmless
may be held to be unenforceable because it violates any law or public policy, the Borrower shall
nevertheless make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law. The Borrower’s obligation under
this Section shall survive the termination of this Agreement and the discharge of the Borrower’s
other obligations hereunder.

          Section 8.8. Participants. The Lender and its participants, if any, are not partners
or joint venturers, and the Lender shall not have any liability or responsibility for any
obligation, act or omission of any of its participants. All rights and powers specifically
conferred upon the Lender may be transferred or delegated to any of the Lender’s participants,
successors or assigns.

          Section 8.9. Execution in Counterparts. This Agreement and other Loan Documents may
be executed in any number of counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which counterparts, taken together, shall constitute but one
and the same instrument.

          Section 8.10. Binding Effect; Assignment; Complete Agreement; Exchanging Information.
The Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lender
and their respective successors and assigns, except that the Borrower shall not have the right to
assign its rights thereunder or any interest therein without the Lender’s prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and integrated agreement
of the parties on the subject matter hereof and supersedes all prior agreements, written or oral,
on the subject matter hereof. Without limiting the Lender’s right to share information regarding
the Borrower and its Affiliates with the Lender’s participants, accountants, lawyers and other
advisors, the Lender and all direct and indirect subsidiaries of the Lender may exchange any and
all information they may have in their possession regarding the Borrower and its Affiliates, and
the Borrower waives any right of confidentiality it may have with respect to such exchange of such
information.

          Section 8.11. Severability of Provisions. Any provision of this Agreement which is
prohibited or unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.

          Section 8.12. Headings. Article and Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this Agreement for any
other purpose.

          Section 8.13. Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. The Loan
Documents shall be governed by and construed in accordance with the substantive laws (other than
conflict laws) of the State of Minnesota. This Agreement shall be governed by and

- 46 -

 

construed in accordance with the substantive laws (other than conflict laws) of the State of
Minnesota. The parties hereto hereby (i) consents to the personal jurisdiction of the state and
federal courts located in the State of Minnesota in connection with any controversy related to this
Agreement; (ii) waives any argument that venue in any such forum is not convenient, (iii) agrees
that any litigation initiated by the Lender or the Borrower in connection with this Agreement or
the other Loan Documents shall be venued in either the District Court of Hennepin County,
Minnesota, or the United States District Court, District of Minnesota, Fourth Division; and (iv)
agrees that a final judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.

     Section 8.14. U.S.A. Patriot Act Notification. The following notification is provided
to Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318:

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government
fight the funding of terrorism and money laundering activities, Federal law requires all
financial institutions to obtain, verify, and record information that identifies each Person
that opens an account, including any deposit account, treasury management account, loan,
other extension of credit, or other financial services product. What this means for
Borrower: When Borrower opens an account, if Borrower is an individual Bank will ask for
Borrower’s name, taxpayer identification number, residential address, date of birth, and
other information that will allow Bank to identify Borrower, and if Borrower is not an
individual Bank will ask for Borrower’s name, taxpayer identification number, business
address, and other information that will allow Bank to identify Borrower. Bank may also ask,
if Borrower is an individual to see Borrower’s driver’s license or other identifying
documents, and if Borrower is not an individual to see Borrower’s legal organizational
documents or other identifying documents.

          Section 8.15. Joint and Several Liability.

     (a) Notwithstanding anything to the contrary contained herein, all Obligations of each
Borrower hereunder shall be joint and several obligations of the Borrower.

     (b) Notwithstanding any provisions of this Agreement to the contrary, it is intended
that the joint and several nature of the Obligations of Borrower and the liens and security
interests granted by Borrower to secure the Obligations, not constitute a “Fraudulent
Conveyance” (as defined below). Consequently, Lender and Borrower agree that if the
Obligations of a Borrower, or any liens or security interests granted by such Borrower
securing the Obligations would, but for the application of this sentence, constitute a
Fraudulent Conveyance, the Obligations of such Borrower and the liens and security interests
securing such Obligations shall be valid and enforceable only to the maximum extent that
would not cause such Obligations or such lien or security interest to constitute a
Fraudulent Conveyance, and the Obligations of such Borrower and this Agreement shall
automatically be deemed to have been amended accordingly. For

- 47 -

 

purposes hereof, “Fraudulent Conveyance” means a fraudulent conveyance under Section
548 of Chapter 11 of Title II of the United States Code (11 U.S.C. § 101, et seq.), as
amended (the “Bankruptcy Code”) or a fraudulent conveyance or fraudulent transfer under the
applicable provisions of any fraudulent conveyance or fraudulent transfer law or similar law
of any state, nation or other governmental unit, as in effect from time to time.

     (c) Each Borrower assumes responsibility for keeping itself informed of the financial
condition of the each other Borrower, and any and all endorsers and/or guarantors of any
instrument or document evidencing all or any part of such other Borrower’s Obligations and
of all other circumstances bearing upon the risk of nonpayment by such other Borrower of its
Obligations and each Borrower agrees that Lender shall not have any duty to advise such
Borrower of information known to Lender regarding such condition or any such circumstances
or to undertake any investigation not a part of its regular business routine. If Lender, in
its sole discretion, undertakes at any time or from time to time to provide any such
information to a Borrower, Lender shall not be under any obligation to update any such
information or to provide any such information to such Borrower on any subsequent occasion.

     (d) Lender is hereby authorized, without notice or demand and without affecting the
liability of a Borrower hereunder, to, at any time and from time to time, (i) renew, extend,
accelerate or otherwise change the time for payment of, or other terms relating to a
Borrower’s Obligations or otherwise modify, amend or change the terms of any promissory note
or other agreement, document or instrument now or hereafter executed by a Borrower and
delivered to Lender (so long as at least one Borrower agrees to any such change); (ii)
accept partial payments on a Borrower’s Obligations; (iii) take and hold security or
collateral for the payment of a Borrower’s Obligations hereunder or for the payment of any
guaranties of a Borrower’s Obligations or other obligations of a Borrower and exchange,
enforce, waive and release any such security or collateral; (iv) apply such security or
collateral and direct the order or manner of sale thereof as Lender, in its sole discretion,
may determine; and (v) settle, release, compromise, collect or otherwise liquidate a
Borrower’s Obligations and any security or collateral therefor in any manner, without
affecting or impairing the obligations of the other Borrower. Lender shall have the
exclusive right to determine the time and manner of application of any payments or credits,
whether received from a Borrower or any other source, and such determination shall be
binding on such Borrower. All such payments and credits may be applied, reversed and
reapplied, in whole or in part, to any of a Borrower’s Obligations as Lender shall determine
in its sole discretion without affecting the validity or enforceability of the Liabilities
of the other Borrower.

     (e) Each Borrower hereby agrees that, except as hereinafter provided, its obligations
hereunder shall be unconditional, irrespective of (i) the absence of any attempt to collect
a Borrower’s Obligations from any Borrower or any guarantor or other action to enforce the
same; (ii) the waiver or consent by Lender with respect to any provision of any instrument
evidencing Borrower’s Obligations, or any part thereof, or any other agreement heretofore,
now or hereafter executed by a Borrower and delivered to Lender; (iii) failure by Lender to
take any steps to perfect and maintain its security

- 48 -

 

interest in, or to preserve its rights to, any security or collateral for Borrower’s
Obligations; (iv) the institution of any proceeding under the Bankruptcy Code, or any
similar proceeding, by or against a Borrower or Lender’s election in any such proceeding of
the application of Section 1111(b)(2) of the Bankruptcy Code; (v) any borrowing or grant of
a security interest by any Borrower as debtor-in-possession, under Section 364 of the
Bankruptcy Code; (vi) the disallowance, under Section 502 of the Bankruptcy Code, of all or
any portion of Lender’s claim(s) for repayment of any of Borrower’s Obligations; or (vii)
any other circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor.

     (f) No payment made by or for the account of a Borrower including, without limitations,
(i) a payment made by such Borrower on behalf of another Borrower’s Obligations or (ii) a
payment made by any other person under any guaranty, shall entitle such Borrower, by
subrogation or otherwise, to any payment from such other Borrower or from or out of such
other Borrower’s property and such Borrower shall not exercise any right or remedy against
such other Borrower or any property of such other Borrower by reason of any performance of
such Borrower of its joint and several obligations hereunder.

[Remainder of page intentionally left blank.]

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Signature page to Revolving Credit Agreement 

by and between

Zareba Systems, Inc. and 

JPMorgan Chase Bank, N.A.

     IN WITNESS WHEREOF, the parties hereto have caused this Revolving Credit to be executed by
their respective officers thereunto duly authorized as of the date first above written.

	 	 	 	 	 
	 	ZAREBA SYSTEMS, INC.

 	 
	 	By:  	/s/ Jeffrey Mathiesen
 	 
	 	 	Jeffrey Mathiesen 	 
	 	 	Its:  Chief Financial Officer 	 
	 
	 	ZAREBA SECURITY, INC.

 	 
	 	By:  	/s/ Jeffrey Mathiesen
 	 
	 	 	Jeffrey Mathiesen 	 
	 	 	Its:  Chief Financial Officer 	 
	 
	 	JPMORGAN CHASE BANK, N.A.

 	 
	 	By:  	/s/ Jay A. Isaman
 	 
	 	 	Jay A. Isaman 	 
	 	 	Its:  Vice President 	 
	 

 

Table of Exhibits and Schedules

	 	 	 	 	 
	 

	 	Exhibit A
	 	Form of Revolving Note
	 
	 	 	 	 
	 

	 	Exhibit B
	 	Compliance Certificate
	 
	 	 	 	 
	 

	 	Exhibit C
	 	Borrowing Base Certificate
	 
	 	 	 	 
	 

	 	Exhibit D
	 	Premises
	 
	 	 	 	 
	 

	 	Exhibit E
	 	Maximum Line Increase Supplement

 

	 	 	 
	Schedule 4.1

	 	Trade Names, Chief Executive Office, Principal Place of
Business, and Locations of Collateral
	 
	 	 
	Schedule 4.4

	 	Subsidiaries
	 
	 	 
	Schedule 4.6

	 	Litigation
	 
	 	 
	Schedule 4.8

	 	Taxes
	 
	 	 
	Schedule 4.12

	 	Environmental Matters
	 
	 	 
	Schedule 4.17

	 	Licenses, Etc.
	 
	 	 
	Schedule 5.13

	 	Bank Accounts
	 
	 	 
	Schedule 6.1

	 	Permitted Liens
	 
	 	 
	Schedule 6.2

	 	Permitted Indebtedness and Guaranties

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