Document:

Exhibit 10.21

 

LOAN AGREEMENT

 

BETWEEN

 

KOSS CORPORATION,

a Delaware corporation

 

AND

 

HARRIS N.A., 

a national banking association

 

FEBRUARY 16, 2009

 

 

TABLE OF CONTENTS

 

	
  Section 1 DEFINITIONS

  	
  1

  
	
  1.1

  	
  Defined Terms

  	
  1

  
	
  1.2

  	
  Accounting Terms

  	
  10

  
	
  1.3

  	
  Other Terms Defined in UCC

  	
  10

  
	
  1.4

  	
  Other Interpretive Provisions

  	
  10

  
	
  Section 2 COMMITMENT OF THE BANK; BORROWING PROCEDURES; PAYMENTS

  	
  11

  
	
  2.1

  	
  Commitments

  	
  11

  
	
  2.2

  	
  Borrowing Procedures

  	
  12

  
	
  2.3

  	
  Loan Account

  	
  15

  
	
  2.4

  	
  Discretionary Disbursements

  	
  15

  
	
  2.5

  	
  Notes

  	
  15

  
	
  2.6

  	
  Revolving Loan Principal Payments

  	
  15

  
	
  2.7

  	
  Taxes

  	
  16

  
	
  2.8

  	
  Compliance with Bank Regulatory
  Requirements; Increased Costs

  	
  17

  
	
  Section 3 INTEREST RATE, FEES AND EXPENSES

  	
  17

  
	
  3.1

  	
  Interest Rates

  	
  17

  
	
  3.2

  	
  Default Rate

  	
  17

  
	
  3.3

  	
  Interest Payment Dates

  	
  17

  
	
  3.4

  	
  Computations

  	
  18

  
	
  3.5

  	
  Letter of Credit Fees

  	
  18

  
	
  3.6

  	
  Non-Use Fee

  	
  18

  
	
  3.7

  	
  Costs, Fees and Expenses

  	
  18

  
	
  Section 4 CONDITIONS OF BORROWING

  	
  19

  
	
  4.1

  	
  Loan Documents

  	
  19

  
	
  4.2

  	
  Event of Default

  	
  20

  
	
  4.3

  	
  Banking Relationship

  	
  20

  
	
  4.4

  	
  Reimbursement of Expenses

  	
  20

  
	
  4.5

  	
  Material Adverse Effect

  	
  20

  
	
  4.6

  	
  Litigation

  	
  20

  
	
  4.7

  	
  Representations and Warranties

  	
  20

  
	
  Section 5 REPRESENTATIONS AND WARRANTIES

  	
  20

  
	
  5.1

  	
  Borrower Organization and Name

  	
  20

  
	
  5.2

  	
  Authorization

  	
  21

  
	
  5.3

  	
  Validity and Binding Nature

  	
  21

  
	
  5.4

  	
  Ownership of Properties; Liens

  	
  21

  
	
  5.5

  	
  Equity Ownership

  	
  21

  
	
  5.6

  	
  Intellectual Property

  	
  21

  
	
  5.7

  	
  Financial Statements

  	
  21

  
	
  5.8

  	
  Litigation and Contingent Liabilities

  	
  21

  
	
  5.9

  	
  Event of Default

  	
  22

  
	
  5.10

  	
  Adverse Circumstances

  	
  22

  
	
  5.11

  	
  Environmental Laws and Hazardous Substances

  	
  22

  
	
  5.12

  	
  Solvency, etc.

  	
  22

  
	
  5.13

  	
  ERISA Obligations

  	
  22

  
	
  5.14

  	
  Labor Relations

  	
  23

  

 

 

	
  5.15

  	
  Lending Relationship

  	
  23

  
	
  5.16

  	
  Business Loan

  	
  23

  
	
  5.17

  	
  Taxes

  	
  23

  
	
  5.18

  	
  Compliance with Regulation U

  	
  23

  
	
  5.19

  	
  Governmental Regulation

  	
  23

  
	
  5.20

  	
  Place of Business

  	
  24

  
	
  5.21

  	
  Complete Information

  	
  24

  
	
  Section 6 AFFIRMATIVE COVENANTS

  	
  24

  
	
  6.1

  	
  Borrower Existence

  	
  24

  
	
  6.2

  	
  Compliance With Laws

  	
  24

  
	
  6.3

  	
  Payment of Taxes and Liabilities

  	
  25

  
	
  6.4

  	
  Maintain Property

  	
  25

  
	
  6.5

  	
  Maintain Insurance

  	
  25

  
	
  6.6

  	
  ERISA Liabilities; Employee Plans

  	
  25

  
	
  6.7

  	
  Intellectual Property

  	
  26

  
	
  6.8

  	
  Notice of Proceedings

  	
  26

  
	
  6.9

  	
  Notice of Event of Default or Material
  Adverse Effect

  	
  26

  
	
  6.10

  	
  Environmental Matters

  	
  26

  
	
  6.11

  	
  Further Assurances

  	
  27

  
	
  6.12

  	
  Banking Relationship

  	
  27

  
	
  6.13

  	
  Financial Statements and Books and Records

  	
  27

  
	
  6.14

  	
  Reporting Requirements

  	
  27

  
	
  6.15

  	
  Use of Proceeds

  	
  28

  
	
  6.16

  	
  Other Reports

  	
  28

  
	
  Section 7 NEGATIVE COVENANTS

  	
  28

  
	
  7.1

  	
  Debt

  	
  28

  
	
  7.2

  	
  Encumbrances

  	
  28

  
	
  7.3

  	
  Transfer; Merger; Sales

  	
  29

  
	
  7.4

  	
  Investments, Acquisitions, Loans and
  Advances

  	
  29

  
	
  7.5

  	
  Intentionally Omitted

  	
  29

  
	
  7.6

  	
  Transactions with Affiliates

  	
  29

  
	
  7.7

  	
  Unconditional Purchase Obligations

  	
  29

  
	
  7.8

  	
  Cancellation of Debt

  	
  29

  
	
  7.9

  	
  Inconsistent Agreements

  	
  30

  
	
  7.10

  	
  Use of Proceeds

  	
  30

  
	
  7.11

  	
  Business Activities; Change of Legal Status
  and Organizational Documents

  	
  30

  
	
  Section 8 FINANCIAL COVENANTS

  	
  30

  
	
  8.1

  	
  Tangible Net Worth

  	
  30

  
	
  8.2

  	
  Liabilities to Tangible Net Worth

  	
  30

  
	
  8.3

  	
  Interest Coverage Ratio

  	
  30

  
	
  Section 9 EVENTS OF DEFAULT

  	
  30

  
	
  9.1

  	
  Nonpayment of Obligations

  	
  30

  
	
  9.2

  	
  Misrepresentation

  	
  31

  
	
  9.3

  	
  Nonperformance

  	
  31

  
	
  9.4

  	
  Default under Loan Documents

  	
  31

  
	
  9.5

  	
  Default under Other Debt

  	
  31

  

 

ii

 

	
  9.6

  	
  Other Material Obligations

  	
  31

  
	
  9.7

  	
  Bankruptcy, Insolvency, etc.

  	
  31

  
	
  9.8

  	
  Judgments

  	
  32

  
	
  9.9

  	
  Change in Control

  	
  32

  
	
  9.10

  	
  Material Adverse Effect

  	
  32

  
	
  Section 10 REMEDIES

  	
  32

  
	
  10.1

  	
  Rights and Remedies

  	
  32

  
	
  10.2

  	
  No Waiver

  	
  32

  
	
  Section 11 MISCELLANEOUS

  	
  33

  
	
  11.1

  	
  Entire Agreement

  	
  33

  
	
  11.2

  	
  Amendments

  	
  33

  
	
  11.3

  	
  Waiver of Defenses

  	
  33

  
	
  11.4

  	
  Forum Selection and Consent to Jurisdiction

  	
  33

  
	
  11.5

  	
  Waiver of Jury Trial

  	
  34

  
	
  11.6

  	
  Assignability

  	
  34

  
	
  11.7

  	
  Confidentiality

  	
  34

  
	
  11.8

  	
  Binding Effect

  	
  35

  
	
  11.9

  	
  Governing Law

  	
  35

  
	
  11.10

  	
  Enforceability

  	
  35

  
	
  11.11

  	
  Survival of Borrower Representations

  	
  35

  
	
  11.12

  	
  Extensions of Bank’s Commitment

  	
  35

  
	
  11.13

  	
  Time of Essence

  	
  36

  
	
  11.14

  	
  Counterparts; Facsimile Signatures

  	
  36

  
	
  11.15

  	
  Notices

  	
  36

  
	
  11.16

  	
  Release of Claims Against Bank

  	
  37

  
	
  11.17

  	
  Costs, Fees and Expenses

  	
  37

  
	
  11.18

  	
  Indemnification

  	
  38

  
	
  11.19

  	
  Revival and Reinstatement of Obligations

  	
  39

  
	
  11.20

  	
  Customer Identification — USA PATRIOT Act
  Notice

  	
  39

  

 

iii

 

LOAN AGREEMENT

 

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

 

RECITALS:

 

The Borrower
desires to borrow funds and obtain other financial accommodations from the
Bank.

 

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

 

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

 

AGREEMENTS:

 

Section 1                                             DEFINITIONS.

 

1.1                                 Defined Terms.  For the purposes of this Agreement, the
following capitalized words and phrases shall have the meanings set forth
below.

 

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

 

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

 

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

 

 

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

 

“Bank
Product Agreements” shall mean those certain agreements entered into from
time to time by the Borrower or any Subsidiary with the Bank or any Affiliate
of the Bank concerning Bank Products.

 

“Bank
Product Obligations” shall mean all obligations, liabilities, contingent reimbursement
obligations, fees, and expenses owing by the Borrower or any Subsidiary to the
Bank or any Affiliate of the Bank pursuant to or evidenced by the Bank Product
Agreements and irrespective of whether for the payment of money, whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising.

 

“Bank
Products” shall mean any service or facility extended to the Borrower or
any Subsidiary by the Bank or any Affiliate of the Bank, including but not
limited to:  (a) credit cards, (b) credit
card processing services, (c) debit cards, (d) purchase cards, (e) ACH
Transactions, (f) cash management, including controlled disbursement,
accounts or services, or (g) Hedging Agreements.

 

“Bankruptcy
Code” shall mean the United States Bankruptcy Code, as now existing or
hereafter amended.

 

“Business
Day” shall mean any day other than a Saturday, Sunday or a legal holiday on
which banks are authorized or required to be closed for the conduct of
commercial banking business in Chicago, Illinois.

 

“Capital
Lease” shall mean a lease of any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible, by a lessee that
is, or should be, in accordance with Financial Accounting Standards Board Statement
No. 13, as amended from time to time, or, if such statement is not then in
effect, such statement of GAAP as may be applicable, recorded as a “capital
lease” on the financial statements of the lessee prepared in accordance with
GAAP.

 

“Capital Securities”
shall mean all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of capital, whether now outstanding
or issued or acquired after the date hereof, including common shares, preferred
shares, membership interests in a limited liability company, limited or general
partnership interests in a partnership or any other equivalent of such
ownership interest.

 

“Capitalized
Lease Obligations” shall mean all rental obligations as lessee under a
Capital Lease which are or will be required to be capitalized on the books of
the lessee.

 

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

 

2

 

“Confidential
Information” shall mean all information provided by the Borrower or any of
its Affiliates to the Bank including, without limitation, any and all financial
information prepared on a pro forma basis, but excluding all information that
is available to the Bank on a non-confidential basis prior to disclosure by the
Borrower or any of its Affiliates or from any other natural or legal person on
behalf of the Borrower.

 

“Continuing
Member” shall mean a member of the Board of Directors of the Borrower who
either (i) was member of the Borrower’s Board of Directors on the day
before the date hereof and has been such continuously thereafter or (ii) became
a member of such Board of Directors on or after the date hereof and whose
election or nomination for election was approved by a vote of the majority of
the Continuing Members then members of the Borrower’s Board of Directors.

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

4

 

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

 

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

 

“Hedging
Agreements” shall mean any interest rate, currency or commodity swap
agreement, cap agreement or collar agreement, and any other agreement or
arrangement designed to protect against fluctuations in interest rates,
currency exchange rates or commodity prices.

 

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

 

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

 

“Intellectual
Property” shall mean the collective reference to all rights, priorities and
privileges relating to intellectual property, whether arising under United
States, multinational or foreign laws or otherwise, including copyrights,
patents, service marks and trademarks, and all registrations and applications
for registration therefor and all licensees thereof, trade names, domain names,
technology, know-how and processes, and all rights to sue at law or in equity
for any infringement or other impairment thereof, including the right to
receive all proceeds and damages therefrom.

 

“Interest
Charges” shall mean, for any period, the sum of:  (a) all interest, charges and related
expenses payable with respect to that fiscal period to a lender in connection
with borrowed money or the deferred purchase price of assets that are treated
as interest in accordance with GAAP, plus (b) the portion of
Capitalized Lease Obligations with respect to that fiscal period that should be
treated as interest in accordance with GAAP.

 

“Interest
Period” shall mean successive one, two or three month periods, beginning
and ending on the dates specified in the Revolving Note.

 

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

 

5

 

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

 

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

 

“Letter of
Credit Commitment” shall mean, at any time, an amount equal to the
Revolving Loan Commitment minus the aggregate amount of all Revolving
Loans outstanding.

 

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

 

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

 

“Letter of
Credit Sublimit” shall mean, at any time, an amount equal to Ten Million
Dollars ($10,000,000).

 

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

 

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

 

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

 

6

 

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

 

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

 

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

 

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

 

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

 

“Net Income” shall
mean, with respect to the Borrower and its Subsidiaries for any period, the
consolidated net income (or loss) of the Borrower and its Subsidiaries for such
period as determined in accordance with GAAP, excluding any gains from the
disposition of assets, any extraordinary gains and any gains from discontinued
operations.

 

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

 

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

 

“Obligations” shall
mean the Loans, all interest accrued thereon (including interest which would be
payable as post-petition in connection with any bankruptcy or similar
proceeding, whether or not permitted as a claim thereunder), any fees due the
Bank hereunder, any expenses incurred by the Bank hereunder and any and all
other liabilities and obligations of the Borrower to the Bank whether under
this Agreement, under any other Loan Document or under any other document or
instrument executed and delivered to the Bank by the Borrower, including,
without 

 

7

 

limitation, all obligations
of the Borrower with respect to any and loans or other extensions of the credit
by the Bank to the Borrower, any reimbursement obligations of the Borrower in
respect of Letters of Credit and surety bonds, all Hedging Obligations of the
Borrower which are owed to the Bank or any Affiliate of the Bank, all Bank
Product Obligations of the Borrower and all obligations of the Borrower under
any guaranties in respect of obligations owed by any other party to the Bank,
all in each case howsoever created, arising or evidenced, whether direct or
indirect, absolute or contingent, now or hereafter existing, or due or to
become due, together with any and all renewals or extensions thereof.

 

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

 

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

 

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

 

“Person” shall means
an individual, partnership, corporation, limited liability company,
association, trust, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision
thereof.

 

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

 

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

 

8

 

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

 

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

 

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

 

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

 

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

 

“Revolving Loan Maturity
Date” means January 29, 2010, unless extended by Bank pursuant to any
modification, extension or renewal note executed by Borrower and accepted by
Bank in its sole and absolute discretion in substitution for the Revolving
Note.

 

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

 

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

 

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

 

9

 

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

 

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

 

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

 

1.2           Accounting Terms.  Any accounting terms used in this Agreement
which are not specifically defined herein shall have the meanings customarily
given them in accordance with GAAP. 
Calculations and determinations of financial and accounting terms used
and not otherwise specifically defined hereunder and the preparation of
financial statements to be furnished to the Bank pursuant hereto shall be made
and prepared, both as to classification of items and as to amount, in
accordance with sound accounting practices and GAAP as used in the preparation
of the financial statements of the Borrower on the date of this Agreement.  If any changes in accounting principles or
practices from those used in the preparation of the financial statements are
hereafter occasioned by the promulgation of rules, regulations, pronouncements
and opinions by or required by the Financial Accounting Standards Board or the
American Institute of Certified Public Accountants (or any successor thereto or
agencies with similar functions), which results in a material change in the
method of accounting in the financial statements required to be furnished to
the Bank hereunder or in the calculation of financial covenants, standards or
terms contained in this Agreement, the parties hereto agree to enter into good
faith negotiations to amend such provisions so as equitably to reflect such
changes to the end that the criteria for evaluating the financial condition and
performance of the Borrower will be the same after such changes as they were
before such changes; and if the parties fail to agree on the amendment of such
provisions, the Borrower will furnish financial statements in accordance with
such changes, but shall provide calculations, which are reviewed and certified
by the Borrower’s accountants, for all financial covenants, shall perform all
financial covenants and shall otherwise observe all financial standards and
terms in accordance with applicable accounting principles and practices in
effect immediately prior to such changes. Calculations with respect to
financial covenants required to be stated in accordance with applicable
accounting principles and practices in effect immediately prior to such changes
shall be reviewed and certified by the Borrower’s accountants.

 

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

 

1.4           Other Interpretive Provisions.

 

(a)           The meanings of defined terms are
equally applicable to the singular and plural forms of the defined terms.  Whenever the context so requires, the neuter
gender includes the masculine and feminine, the single number includes the
plural, and vice versa, and in particular the word “Borrower” shall be so
construed.

 

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

 

10

 

when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement.

 

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

 

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

 

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

 

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

 

(g)           This Agreement and the other Loan
Documents may use several different limitations, tests or measurements to
regulate the same or similar matters. 
All such limitations, tests and measurements are cumulative and each
shall be performed in accordance with its terms.

 

Section 2                                             COMMITMENT OF THE BANK; BORROWING PROCEDURES; PAYMENTS

 

2.1           Commitments.  Subject to the terms and conditions of this
Agreement and the other Loan Documents, and in reliance upon the
representations and warranties of the Borrower set forth herein and in the
other Loan Documents:

 

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

 

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

 

11

 

Master Letter of Credit
Agreement and a Letter of Credit Application, the Bank agrees to issue for the
account of Borrower from time to time up to, but not including, the Revolving
Loan Termination Date, such Letters of Credit in the standard form of the Bank
and otherwise in form and substance acceptable to the Bank, provided that (i) the
Letter of Credit Obligations may not at any time exceed the Letter of Credit
Sublimit, and (ii) no Letter of Credit shall have an expiration date later
than the earlier of (1) one year from its date of issuance, and (2) the
Letter of Credit Maturity Date.  The
amount of any payments made by the Bank with respect to draws made by a
beneficiary under a Letter of Credit for which the Borrower has failed to
reimburse the Bank upon the earlier of (i) the Bank’s demand for
repayment, or (ii) one (1) day from the date of such payment to such
beneficiary by the Bank, shall be deemed to have been converted to a Revolving
Loan as of the date such payment was made by the Bank to such beneficiary.  Upon the occurrence of an Event of a Default
and at the option of the Bank, all Letter of Credit Obligations shall be
converted to Revolving Loans consisting of Prime Loans, all without demand,
presentment, protest or notice of any kind, all of which are hereby waived by
the Borrower.  To the extent the
provisions of the Master Letter of Credit Agreement differ from, or are
inconsistent with, the terms of this Agreement, the provisions of this
Agreement shall govern.

 

2.2           Borrowing Procedures.

 

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

 

(b)           LIBOR Conversion and Continuation
Procedures.  Each LIBOR Loan shall
automatically renew for the Interest Period specified in the initial request
received 

 

12

 

by the Bank pursuant to Section 2.2(a),
at the then current LIBOR Rate unless the Borrower, pursuant to a subsequent
written notice received by the Bank, shall elect a different Interest Period or
the conversion of all or a portion of such LIBOR Loan to a Prime Loan.  Each Interest Period occurring after the
initial Interest Period with respect to any LIBOR Loan shall commence on the
same day of each applicable month as the first day of the initial Interest
Period.  Whenever the last day of any Interest
Period with respect to any LIBOR Loan would otherwise occur on a day other than
a Business Day, the last day of such Interest Period shall be extended to occur
on the next succeeding Business Day. 
Whenever an Interest Period with respect to any LIBOR Loan would
otherwise end on a day of a month for which there is no numerically
corresponding day in the calendar month, such Interest Period shall end on the
last day of such calendar month, unless such day is not a Business Day, in
which event such Interest Period shall be extended to end on the next Business
Day.  Upon receipt by the Bank of such
subsequent notice, the Borrower may, subject to the terms and conditions of
this Agreement, elect, as of the last day of the applicable Interest Period, to
continue any LIBOR Loan having an Interest Period expiring on such day for a
different Interest Period, or to convert any such LIBOR Loan to a Prime
Loan.  Such notice shall, in the case of
a conversion to a Prime Loan, be given before 11:00 a.m., Chicago time, on
the proposed date of such conversion, and in the case of conversion to a LIBOR
Loan having a different Interest Period, be given before 11:00 a.m.,
Chicago time, at least three Business Days prior to the proposed date of such
conversion, specifying: (i) the proposed date of conversion; (ii) the
aggregate amount of Loans to be converted; (iii) the type of Loans
resulting from the proposed conversion; and (iv) the duration of the
requested Interest Period.  The Borrower
may not elect a LIBOR Rate, and an Interest Period for a LIBOR Loan shall not
automatically renew, with respect to any principal amount which is scheduled to
be repaid before the last day of the applicable Interest Period, and any such
amounts shall bear interest at the Applicable Interest Rate for Prime Loans
until repaid.

 

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

 

13

 

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

 

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

 

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

 

(f)            LIBOR Indemnity.  If any Regulatory Change, or compliance by
the Bank or any Person controlling the Bank with any request or directive of
any governmental authority, central bank or comparable agency (whether or not
having the force of law) shall (a) impose, modify or deem applicable any
assessment, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of or loans by, or any other acquisition
of funds or disbursements by, the Bank; (b) subject the Bank or any LIBOR
Loan to any tax, duty, charge, stamp tax or fee or change the basis of taxation
of payments to the Bank of principal or interest due from the Borrowers to the
Bank hereunder (other than a change in the taxation of the overall net income
of the Bank); or (c) impose on the Bank any other condition regarding such
LIBOR Loan or the Bank’s funding thereof, and the Bank shall determine (which
determination shall be conclusive, absent manifest error) that the result of
the foregoing is to increase the cost to, or to impose a cost on, the Bank or
such controlling Person of making or maintaining such 

 

14

 

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

 

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

 

2.4           Discretionary Disbursements.  The Bank, in its sole and absolute
discretion, may immediately upon notice to the Borrower, disburse any or all
proceeds of the Loans made or available to the Borrower pursuant to this
Agreement to pay any fees, costs, expenses or other amounts required to be paid
by the Borrower hereunder and not so paid. 
All monies so disbursed shall be a part of the Obligations, payable by
the Borrowers on demand from the Bank.

 

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

 

2.6           Revolving Loan Principal Payments.

 

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

 

(b)           In the event the Revolving Loan
Exposure exceeds the Revolving Loan Commitment, the Borrower shall, without
notice or demand of any kind, immediately make such repayments of the Revolving
Loans or take such other actions as are satisfactory to the Bank as shall be
necessary to eliminate such excess.

 

15

 

(c)                                  The Borrower may from time to time prepay the Revolving
Loans which are Prime Loans, in whole or in part, without any prepayment
penalty whatsoever, provided that any prepayment of the entire principal
balance of the Prime Loans shall include accrued interest on such Prime Loans
to the date of such prepayment.  Any
prepayment of any LIBOR Loan shall be subject to Section 2.2(c).

 

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

 

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

 

2.7                                 Taxes.

 

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

 

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

 

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

 

16

 

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

 

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

 

(e)                                  The agreements in this Section 2.7 shall survive the
satisfaction and payment of the Obligations and the termination of this
Agreement.

 

2.8                                 Compliance with Bank Regulatory Requirements; Increased
Costs.  If the Bank shall reasonably determine that
any Regulatory Change, or compliance by the Bank or any Person controlling the
Bank with any request or directive (whether or not having the force of law) of
any governmental authority, central bank or comparable agency has or would have
the effect of reducing the rate of return on the Bank’s or such controlling
Person’s capital as a consequence of the Bank’s obligations hereunder or under
any Letter of Credit to a level below that which the Bank or such controlling
Person could have achieved but for such Regulatory Change or compliance (taking
into consideration the Bank’s or such controlling Person’s policies with
respect to capital adequacy) by an amount deemed by the Bank or such
controlling Person to be material or would otherwise reduce the amount of any
sum received or receivable by the Bank under this Agreement or under any Note
with respect thereto, then from time to time, upon demand by the Bank (which
demand shall be accompanied by a statement setting forth the basis for such
demand and a calculation of the amount thereof in reasonable detail), the
Borrowers shall pay directly to the Bank or such controlling Person such
additional amount as will compensate the Bank for such increased cost or such
reduction, so long as such amounts have accrued on or after the day which is
ninety days (90) days prior to the date on which the Bank first made demand
therefor.

 

Section 3                                             INTEREST RATE, FEES AND EXPENSES.

 

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

 

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

 

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

 

17

 

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

 

3.4                                 Computations.  Except as otherwise set forth herein, all
interest and fees shall be calculated on the basis of a year consisting of 360
days and shall be paid for the actual number of days elapsed.  Principal payments submitted in funds not
immediately available shall continue to bear interest until collected.

 

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

 

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

 

3.7                                 Costs, Fees and Expenses.  The Borrower shall pay or reimburse the Bank
for all reasonable costs, fees and expenses incurred by the Bank or for which
the Bank becomes obligated in connection with, (a) the negotiation,
preparation and consummation of this Agreement, the other Loan Documents and
all other documents provided for herein or delivered or to be delivered
hereunder or in connection herewith (including any amendment, supplement or
waiver to any Loan Document); (b) during any workout, restructuring or
negotiations in respect thereof, reasonable consultants’ fees, (c) any and
all stamp and other taxes payable in connection with this Agreement or the
other Loan Documents, UCC search fees, filing fees and other costs and expenses
in connection with the execution and delivery of this Agreement and the other
Loan Documents, (d) all inspections or audits by the Bank (or by the Bank’s
agents), provided, however, that so long as no Event of Default or Unmatured
Event of Default exists, the Borrower shall not be required to reimburse the
Bank for inspections or audits more frequently than once each fiscal year.  That portion of the Obligations consisting of
costs, expenses or advances to be reimbursed by the Borrower to the Bank
pursuant to this Agreement or the other Loan Documents which are not paid on or
prior to the date hereof shall be payable by the Borrower to the Bank within
ten (10) Business Days of notice thereof. 
In addition, if at any time or times hereafter the Bank: (x) employs
counsel for advice or other representation (i) with respect to this
Agreement or the other Loan Documents, (ii) to represent the Bank in any
litigation, contest, dispute, suit or proceeding or to commence, defend, or
intervene or to take any other action in or with respect to any litigation,
contest, dispute, suit, or proceeding (whether instituted by the Bank, the
Borrower, or any other Person) in any way or respect relating to this
Agreement, the 

 

18

 

other
Loan Documents or the Borrower’s business or affairs, or (iii) to enforce
any rights of the Bank against a Borrower or any other Person that may be
obligated to the Bank by virtue of this Agreement or the other Loan Documents;
and/or (c) attempts to or enforces any of the Bank’s rights or remedies
under the Agreement or the other Loan Documents, the costs and expenses
incurred by the Bank in any manner or way with respect to the foregoing, shall
be part of the Obligations, payable by the Borrowers to the Bank on demand.

 

Section 4                                             CONDITIONS OF BORROWING.

 

Notwithstanding any other
provision of this Agreement, the Bank shall not be required to disburse, make
or continue all or any portion of the Loans, if any of the following conditions
shall have occurred.

 

4.1                                 Loan Documents.  The Borrower shall have failed to execute and
deliver to the Bank any of the following Loan Documents, all of which must be
satisfactory to the Bank and the Bank’s counsel in form, substance and
execution:

 

(a)                                  Loan Agreement.  Two copies of this Agreement duly executed by
the Borrower.

 

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

 

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

 

(d)                                 Secretary’s Certificate.  Certified copies of (i) the
organizational documents of the Borrower, (ii) good standing certificates
in the state of organization of the Borrower and in each other state requested
by the Bank, (iii) resolutions of the of the Borrower approving and
authorizing the execution, delivery and performance of the Loan Documents and
the transactions contemplated thereby, and (iv) signature and incumbency
certificates of the authorized signers for the Borrower executing any of the
Loan Documents, it being understood that the Bank may conclusively rely on each
such certificate until formally advised by a like certificate of any changes
therein), all certified by its secretary or an assistant secretary (or similar
officer) as being in full force and effect without modification.

 

(e)                                  Insurance.  Standard certificates of insurance which
include the dollar amount of the coverage on the items located at each of
Borrower’s locations.

 

19

 

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

 

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

 

4.2                                 Event of Default.  Any Event of Default or Unmatured Event of
Default shall have occurred and be continuing or the Borrower shall not
otherwise be in full compliance with the terms and conditions of this
Agreement.

 

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

 

4.4                                 Reimbursement of Expenses.  The Borrower shall have failed to reimburse
the Bank for all expenses for which it has agreed to reimburse the Bank
pursuant to Section 11.17 hereto for which invoices have been
presented to the Borrower.

 

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

 

4.6                                 Litigation.  Any litigation or governmental proceeding
shall have been instituted against the Borrower or any of its officers or
shareholders having a Materially Adverse Effect upon the Borrower.

 

4.7                                 Representations and Warranties.  Any representation
or warranty of the Borrower contained herein or in any Loan Document shall be
untrue or incorrect in any material respect as of the date of any Loan as
though made on such date, except to the extent such representation or warranty
expressly relates to an earlier date.

 

Section 5                                             REPRESENTATIONS AND WARRANTIES.

 

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

 

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

 

20

 

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

 

5.3                                 Validity and Binding Nature.  This Agreement and the other Loan Documents
are the legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their terms, subject to bankruptcy,
insolvency and similar laws affecting the enforceability of creditors’ rights
generally and to general principles of equity.

 

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

 

5.5                                 Equity Ownership.  All issued and outstanding Capital Securities
of the Borrower and each of its Subsidiaries are duly authorized and validly
issued, fully paid, non-assessable, and such securities were issued in
compliance with all applicable state and federal laws concerning the issuance
of securities.

 

5.6                                 Intellectual Property.  The Borrower owns and possesses or has a
license or other right to use all Intellectual Property as are materially
necessary for the conduct of the businesses of the Borrower, without any
infringement upon rights of others which could reasonably be expected to have a
Material Adverse Effect upon the Borrower, and no material claim has been
asserted and is pending challenging or questioning the use of any Intellectual
Property or the validity or effectiveness of any Intellectual Property nor does
the Borrower know of any valid basis for any such claim.

 

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

 

5.8                                 Litigation and Contingent Liabilities.  There is no
litigation, arbitration proceeding, demand, charge, claim, petition or
governmental investigation or proceeding 

 

21

 

pending,
or to the knowledge of the Borrower, threatened, against the Borrower, which,
if adversely determined, might reasonably be expected to have a Material
Adverse Effect upon the Borrower.  Other
than any liability incident to such litigation or proceedings, the Borrower has
no material guarantee obligations, contingent liabilities, liabilities for
taxes, or any long-term leases or unusual forward or long-term commitments,
including any interest rate or foreign currency swap or exchange transaction or
other obligation in respect of derivatives, that are not fully-reflected or
fully reserved for in the most recent financial statements delivered to the
Bank or otherwise disclosed in writing to the Bank.

 

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

 

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

 

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

 

5.12                           Solvency, etc.  As of the date hereof, and immediately prior
to and after giving effect to the Borrower undertaking any Obligation
hereunder, (a) the fair value of the Borrower’s assets is greater than the
amount of its liabilities (including disputed, contingent and unliquidated
liabilities) as such value is established and liabilities evaluated as required
under the Section 548 of the United States Bankruptcy Code, (b) the
present fair saleable value of the Borrower’s assets is not less than the
amount that will be required to pay the probable liability on its debts as they
become absolute and matured, (c) the Borrower is able to realize upon its
assets and pay its debts and other liabilities (including disputed, contingent
and unliquidated liabilities) as they mature in the normal course of business, (d) the
Borrower does not intend to, and does not believe that it will, incur debts or
liabilities beyond its ability to pay as such debts and liabilities mature, and
(e) the Borrower is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which its property would
constitute unreasonably small capital.

 

5.13                           ERISA Obligations. 
All Employee Plans of the Borrower meet the minimum funding standards of
Section 302 of ERISA and 412 of the Internal Revenue Code where
applicable, and each such Employee Plan that is intended to be qualified within
the meaning of Section 401 of the Internal Revenue Code of 1986 is
qualified.  No withdrawal liability has
been 

 

22

 

incurred under any such Employee Plans and no “Reportable
Event” or “Prohibited Transaction” (as such terms are defined in ERISA), has
occurred with respect to any such Employee Plans, unless approved by the
appropriate governmental agencies.  The
Borrower has promptly paid and discharged all obligations and liabilities
arising under the Employee Retirement Income Security Act of 1974 (“ERISA”) of
a character which if unpaid or unperformed might result in the imposition of a
lien against any of its properties or assets.

 

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

 

5.15                           Lending Relationship.  The relationship hereby created between the
Borrower and the Bank is and has been conducted on an open and arm’s length
basis in which no fiduciary relationship exists and that the Borrower has not
relied and is not relying on any such fiduciary relationship in executing this
Agreement and in consummating the Loans. 
The Bank represents that it will receive any promissory note payable to
its order as evidence of a bank loan.

 

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

 

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

 

5.18                           Compliance with Regulation U.  No portion of the proceeds of the Loans shall
be used by the Borrower, or any Affiliates of the Borrower, either directly or
indirectly, for the purpose of purchasing or carrying any margin stock, within
the meaning of Regulation U as adopted by the Board of Governors of the Federal
Reserve System or any successor thereto.

 

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

 

23

 

Company
Act of 1935, the Federal Power Act, the ICC Termination Act of 1995 or the
Investment Company Act of 1940 or to any federal or state statute or regulation
limiting its ability to incur indebtedness for borrowed money.

 

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

 

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

 

Section 6                                             AFFIRMATIVE COVENANTS.

 

6.1                                 Borrower  Existence.  The Borrower shall
at all times preserve and maintain its (a) existence and good standing in
the jurisdiction of its organization, and (b) qualification to do business
and good standing in each jurisdiction where the nature of its business makes
such qualification necessary (other than such jurisdictions in which the
failure to be qualified or in good standing could not reasonably be expected to
have a Material Adverse Effect), and shall at all times continue as a going
concern in the business which the Borrower is presently conducting.

 

6.2                                 Compliance With Laws.  The Borrower shall use the proceeds of the
Loans to refinance existing indebtedness, for the issuance of Letters of Credit
as set forth herein, for working capital and other general corporate or
business purposes not in contravention of any requirements of law and not in
violation of this Agreement, and shall comply, and cause any Subsidiary to
comply, in all respects, including the conduct of its business and operations
and the use of its properties and assets, with all applicable laws, rules,
regulations, decrees, orders, judgments, licenses and permits, except where
failure to comply could not reasonably be expected to have a Material Adverse Effect.  In addition, and without limiting the
foregoing sentence, the Borrower shall (a) ensure, and cause each
Subsidiary to ensure, that no person who owns a controlling interest in or
otherwise controls the Borrower or any Subsidiary is or shall be listed on the
Specially Designated Nationals and Blocked Person List or other similar lists
maintained by the Office of Foreign Assets Control (“OFAC”), the Department of
the Treasury or included in any Executive Orders, (b) not use or permit
the use of the proceeds of the Loans to violate any of the foreign asset
control regulations of OFAC or any enabling statute or Executive Order relating
thereto, and (c) comply, and cause each Subsidiary to comply, with all
applicable Bank Secrecy Act laws and regulations, as amended.

 

24

 

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

 

6.4           Maintain Property.  The Borrower shall at all times maintain,
preserve and keep its plant, properties and equipment in good repair, working
order and condition, normal wear and tear excepted, and shall from time to time
make all needful and proper repairs, renewals, replacements, and additions
thereto so that at all times the efficiency thereof shall be fully preserved
and maintained.  The Borrower shall
permit the Bank to examine and inspect such plant, properties and equipment at
all reasonable times.

 

6.5           Maintain Insurance.  The Borrower shall at all times maintain, and
cause any Subsidiary to maintain, with insurance companies reasonably
acceptable to the Bank, such insurance coverage as may be required by any law
or governmental regulation or court decree or order applicable to it and such
other insurance, to such extent and against such hazards and liabilities,
including employers’, public and professional liability risks, as is
customarily maintained by companies similarly situated, and shall have insured
amounts no less than, and deductibles no higher than, are reasonably acceptable
to the Bank.  The Borrower shall furnish
to the Bank a certificate setting forth in reasonable detail the nature and
extent of all insurance maintained by the Borrower, which shall be reasonably
acceptable in all respects to the Bank.

 

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

 

6.6           ERISA Liabilities; Employee Plans.  The Borrower shall (i) keep
in full force and effect any and all Employee Plans which are presently in
existence or may, from time to time, come into existence under ERISA, and not
withdraw from any such Employee Plans, unless such withdrawal can be effected
or such Employee Plans can be terminated without liability to the Borrower; (ii) make
contributions to all of such Employee Plans in a timely manner and in a 

 

25

 

sufficient amount to comply with the standards of ERISA;
including the minimum funding standards of ERISA; (iii) comply with all
material requirements of ERISA which relate to such Employee Plans; (iv) notify
the Bank immediately upon receipt by the Borrower of any notice concerning the
imposition of any withdrawal liability or of the institution of any proceeding
or other action which may result in the termination of any such Employee Plans
or the appointment of a trustee to administer such Employee Plans; (v) promptly
advise the Bank of the occurrence of any “Reportable Event” or “Prohibited
Transaction” (as such terms are defined in ERISA), with respect to any such
Employee Plans; and (vi) amend any Employee Plan that is intended to be
qualified within the meaning of Section 401 of the Internal Revenue Code
of 1986 to the extent necessary to keep the Employee Plan qualified, and to
cause the Employee Plan to be administered and operated in a manner that does
not cause the Employee Plan to lose its qualified status.

 

6.7           Intellectual Property.  The Borrower shall maintain, preserve and
renew all Intellectual Property that is materially necessary for the conduct of
its business as and where the same is currently located as heretofore or as
hereafter conducted by it.

 

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

 

6.9           Notice of Event of Default or
Material Adverse Effect.  The
Borrower shall, immediately after the commencement thereof, give notice to the
Bank in writing of the occurrence of any Event of Default or any Unmatured
Event of Default, or the occurrence of any condition or event having a Material
Adverse Effect on the Borrower.

 

6.10         Environmental Matters.  The Borrower will comply in all material
respects with all Environmental Laws and will obtain all licenses, permits,
certificates, approvals and similar authorizations thereunder. The Borrower
shall immediately notify the Bank upon becoming aware of any such
investigation, proceeding, complaint, order, directive, claim, citation or
notice, and shall take prompt and appropriate actions to respond thereto, with
respect to any non-compliance with, or violation of, the requirements of any
Environmental Law by the Borrower or the release, spill or discharge,
threatened or actual, of any Hazardous Material or the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Material or any other environmental, health or safety
matter, which affects the Borrower or its business, operations or assets or any
properties at which the Borrower has transported, stored or disposed of any
Hazardous Substances.  The Borrower
agrees to allow the Bank or its agent reasonable access to the properties of
the Borrower and any Subsidiaries to confirm compliance with all Environmental
Laws, and the Borrower shall, following determination by the Bank that there is
non-compliance, or any condition which requires any action by or on behalf of
the Borrower in order to avoid any non-compliance, with any Environmental Law,
at the Borrower’s sole expense, cause an independent environmental engineer
acceptable to the Bank to conduct such tests of the relevant site as are
reasonably 

 

26

 

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

 

6.11                           Further Assurances.
 The Borrower shall take, and cause any
Subsidiary to take, such actions as are necessary or as the Bank may reasonably
request from time to time to ensure that the Obligations under the Loan
Documents are secured by substantially all of the assets of the Borrower and
its Subsidiaries, in each case as the Bank may determine, including (a) the
execution and delivery of security agreements, pledge agreements, mortgages,
deeds of trust, financing statements and other documents, and the filing or
recording of any of the foregoing, and (b) the delivery of certificated
securities and other collateral with respect to which perfection is obtained by
possession.

 

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

 

6.13                          Financial Statements and Books and Records.  The Borrower shall
make no change with respect to its accounting principles without giving prior
notification to the Bank.  All financial
statements delivered to the Bank will accurately reflect the financial
condition of the Borrower.  The Bank
shall have the right at all times during business hours to inspect the books
and records of the Borrower and make extracts therefrom.

 

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

 

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

 

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

 

27

 

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

 

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

 

6.16                          Other Reports.  Within such period of time as the Bank may
specify, the Borrower shall deliver to the Bank such other schedules and
reports as the Bank may require.

 

Section 7                                             NEGATIVE COVENANTS.

 

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

 

(a)           the Obligations under this Agreement
and the other Loan Documents or any other indebtedness from time to time owing
to the Bank;

 

(b)           obligations of the Borrower for
taxes, assessments, municipal or other governmental charges;

 

(c)           obligations of the Borrower for
accounts payable, other than for money borrowed, incurred in the ordinary
course of business;

 

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

 

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

 

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

 

28

 

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

 

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

 

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

 

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

 

(c)           investments in certificates of
deposit issued by the Bank or by any United States commercial bank having
capital and surplus of not less than $100,000,000 which have a maturity of one
year or less.

 

7.5                                This section has been intentionally omitted.

 

7.6                                Transactions with Affiliates.  The Borrower shall not, directly or
indirectly, enter into or permit to exist any transaction with any of its
Affiliates or with any director, officer or employee of the Borrower other than
transactions in the ordinary course of, and pursuant to the reasonable
requirements of, the business of the Borrower and upon fair and reasonable
terms which are fully disclosed to the Bank and are no less favorable to the
Borrower than would be obtained in a comparable arm’s length transaction with a
party that is not an Affiliate of the Borrower.

 

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

 

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

 

29

 

course
of business or otherwise consistent with Borrower’s historical practices with
regard to its accounts receivable.

 

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

 

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

 

7.11                          Business Activities; Change of Legal Status and
Organizational Documents.  The Borrower shall not and shall not permit
any Subsidiary to (a) engage in any line of business other than the
businesses engaged in on the date hereof and businesses reasonably related
thereto, (b) change its name, its type of organization, its jurisdiction
of organization or other legal structure, or (c) permit its charter, bylaws
or other organizational documents to be amended or modified in any way which
could reasonably be expected to materially adversely affect the interests of
the Bank.

 

Section 8                                             FINANCIAL COVENANTS.

 

8.1                                Tangible Net Worth.  As of the end of their fiscal quarter ending December 31,
2008 and each of their subsequent fiscal quarters, the Borrower and its
Subsidiaries shall maintain consolidated Tangible Net Worth in an amount not
less than Ten Million and 00/100 Dollars ($10,000,000.00).

 

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

 

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

 

Section 9                                             EVENTS OF DEFAULT.

 

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

 

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

 

30

 

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

 

9.3                                Nonperformance.

 

(a)           Any failure to perform or default in
the performance of any covenant, condition or agreement contained in Sections
6.1, 6.5, 6.7, 6.14, 7.1, 7.2, 7.3, 7.4, 7.5, 7.10, 8.1, 8.2 or 8.3 of this
Agreement; or

 

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

 

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

 

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

 

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

 

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

 

31

 

arrangement,
or other case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding, is commenced in respect of any Obligor,
and if such case or proceeding is not commenced by such Obligor, it is
consented to or acquiesced in by such Obligor, or remains undismissed for
ninety (90) days; or any Obligor takes any action to authorize, or in
furtherance of, any of the foregoing.

 

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

 

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

 

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

 

Section 10                                      REMEDIES.

 

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

 

10.2                          No Waiver.  No Event of Default shall be waived by the
Bank except in writing.  No failure or
delay on the part of the Bank in exercising any right, power or remedy
hereunder shall operate as a waiver of the exercise of the same or any other
right at any other time; 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 hereunder.  There shall be no obligation on the part of
the Bank to exercise any remedy available to the Bank in any order.  The remedies provided for herein are
cumulative and not exclusive of any remedies provided at law or in equity.  The Borrower agrees that in the event that
the Borrower fails to perform, observe or discharge any of its Obligations or
liabilities under this Agreement or any other agreements with the Bank, no
remedy of law will provide adequate relief to the Bank, and further 

 

32

 

agrees
that the Bank shall be entitled to temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages.

 

Section 11                                      MISCELLANEOUS.

 

11.1                          Entire Agreement.  This Agreement and the other Loan Documents (i) constitute
the entire agreement between the parties with respect to the subject matter
hereof and thereof; and (ii) are the final expression of the intentions of
the Borrower and the Bank.  No promises,
either expressed or implied, exist between the Borrower and the Bank, unless
contained herein or therein.  This
Agreement, together with the other Loan Documents, supersedes all negotiations,
representations, warranties, commitments, term sheets, discussions,
negotiations, offers or contracts (of any kind or nature, whether oral or
written) prior to or contemporaneous with the execution hereof with respect to
any matter, directly or indirectly related to the terms of this Agreement and
the other Loan Documents.  This Agreement
and the other Loan Documents are the result of negotiations among the Bank, the
Borrower and the other parties thereto, and have been reviewed (or have had the
opportunity to be reviewed) by counsel to all such parties, and are the
products of all parties.  Accordingly,
this Agreement and the other Loan Documents shall not be construed more
strictly against the Bank merely because of the Bank’s involvement in their
preparation.

 

11.2                          Amendments.  No amendment, modification or waiver of, or
consent with respect to, any provision of this Agreement or the other Loan
Documents shall in any event be effective unless the same shall be in writing
and acknowledged by the Bank, and then any such amendment, modification, waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.

 

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

 

11.4                          Forum Selection and Consent to Jurisdiction.  ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF ILLINOIS OR IN THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO PRECLUDE THE BANK FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN
ANY OTHER JURISDICTION.  THE BORROWER
HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF
THE STATE OF ILLINOIS SITTING IN THE COUNTY OF COOK  AND
OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH
ABOVE.  THE 

 

33

 

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

 

11.5         Waiver
of Jury Trial.  THE BANK AND THE
BORROWER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH
COUNSEL, EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY, ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT, ANY OF THE
OTHER OBLIGATIONS, THE COLLATERAL, OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH
OR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION
WITH ANY OF THE FOREGOING, OR ANY COURSE OF CONDUCT OR COURSE OF DEALING IN
WHICH THE BANK AND THE BORROWER ARE ADVERSE PARTIES, AND EACH AGREES THAT ANY
SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A
JURY.  THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE BANK GRANTING ANY FINANCIAL ACCOMMODATION TO THE BORROWER.

 

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

 

11.7         Confidentiality.  The Bank agrees to use commercially
reasonable efforts (equivalent to the efforts the Bank applies to maintain the
confidentiality of its own confidential information) to maintain as
confidential all Confidential Information, except that the Bank may disclose
Confidential Information (a) to persons employed or engaged by the Bank in
evaluating, approving, structuring or administering the Loans; (b) to any
assignee or participant or potential assignee or participant that has agreed to
comply with the covenant contained in this Section 11.7 (and any
such assignee or participant or potential assignee or participant may disclose
such information to persons employed or engaged by them as described in clause (a) above);
(c) as required or requested by any federal or state regulatory authority
or examiner, or any insurance industry association, or as reasonably believed
by the Bank to be compelled by any court decree, 

 

34

 

subpoena
or legal or administrative order or process; (d) as, on the advice of the
Bank’s counsel, is required by law; (e) in connection with the exercise of
any right or remedy under the Loan Documents or in connection with any
litigation to which the Bank is a party; (f) to any nationally recognized
rating agency that requires access to information about the Bank’s investment
portfolio in connection with ratings issued with respect to the Bank; (g) with
the prior written consent of Borrower; or (h) that ceases to be
confidential through no fault of the Bank, it being understood that the persons
to whom disclosure of Confidential Information is made will first be informed
of the confidential nature of such information and instructed to keep such
information confidential.  The Bank agrees
that it shall be responsible for the breach of any of the terms hereof by any
third party to whom the Bank discloses Confidential Information pursuant to
this Section 11.7.

 

11.8         Binding
Effect.  This Agreement shall become
effective upon execution by the Borrower and the Bank.  If this Agreement is not dated or contains
any blanks when executed by the Borrower, the Bank is hereby authorized,
without notice to the Borrower, to date this Agreement as of the date when it
was executed by the Borrower, and to complete any such blanks according to the
terms upon which this Agreement is executed.

 

11.9         Governing
Law.  This Agreement and the other
Loan Documents shall be delivered and accepted in and shall be deemed to be
contracts made under and governed by the internal laws of the State of Illinois (but giving effect to federal laws applicable to national
banks) applicable to contracts made and to be performed entirely within such
state, without regard to conflict of laws principles.

 

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

 

11.11       Survival of Borrower Representations.  All covenants, agreements, representations
and warranties made by the Borrower herein shall, notwithstanding any
investigation by the Bank, be deemed material and relied upon by the Bank and
shall survive the making and execution of this Agreement and the other Loan
Documents, and shall be deemed to be continuing representations and warranties
until such time as the Borrower has fulfilled all of its Obligations to the
Bank, and the Bank has been indefeasibly paid in full in cash.  The Bank, in extending financial
accommodations to the Borrower, is expressly acting and relying on the
aforesaid representations and warranties.

 

11.12       Extensions
of Bank’s Commitment.  This Agreement
shall govern the terms of (i) any extensions or renewals of the Bank’s
commitment hereunder, and (ii) any replacement note executed by the
Borrower and accepted by the Bank in its sole and absolute discretion in
substitution for any note evidencing a Loan.

 

35

 

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

 

11.14                     Counterparts; Facsimile Signatures.  This Agreement may
be executed in any number of counterparts and by the different parties hereto
on separate counterparts and each such counterpart shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Agreement.  Receipt of an executed
signature page to this Agreement by facsimile or other electronic
transmission shall constitute effective delivery thereof. Electronic records of
executed Loan Documents maintained by the Bank shall be deemed to be originals
thereof.

 

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

 

If
to the Bank, to:

 

Harris
N.A.

111
West Monroe Street

Chicago,
Illinois  60603

Attention:
James Hess, Senior Vice President

Telephone:     (312) 461-5026

Facsimile:      (312)
461-6190

 

with
a copy to:

 

Janet
A. Stiven, Esq.

Dykema
Gossett PLLC

10
South Wacker Drive

Suite 2300

Chicago,
Illinois  60606

Telephone:
(312) 627-2153

Facsimile:
(866) 547-9401

 

if
to the Borrower, to:

 

KOSS
Corporation

4129
North Port Washington Avenue

Milwaukee,
Wisconsin  53212

Telephone:  [·]

Facsimile:  [·]

 

36

 

with
a copy to:

 

John
E. Garda

K&L
Gates LLP

1717
Main Street

Suite 2800

Dallas,
TX 75043

Telephone:  (214) 939-5563

Facsimile:  (214) 939-5849

 

All notices addressed as above
shall be deemed to have been properly given (i) if given by facsimile, when such facsimile is transmitted to the facsimile number specified in this Section and a
confirmation of such facsimile has
been received by the sender; (ii) if mailed by certified or registered
mail, return receipt requested, postage prepaid, on the fifth (5th) day following the day such notice is deposited in any post office
station or letter box; or (iii) if served in person or sent by recognized
overnight courier, when delivered at the addresses specified in this
Section.  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.

 

11.16                     Release of Claims Against Bank.  In consideration of
the Bank making the Loans, the Borrower and all other Obligors do each hereby
release and discharge the Bank of and from any and all claims, harm, injury,
and damage of any and every kind, known or unknown, legal or equitable, which
any Obligor may have against the Bank from the date of their respective first
contact with the Bank until the date of this Agreement including any claim
arising from any reports (environmental reports, surveys, appraisals, etc.)
prepared by any parties hired or recommended by the Bank.  The Borrower and all other Obligors confirm
to Bank that they have reviewed the effect of this release with competent legal
counsel of their choice, or have been afforded the opportunity to do so, prior
to execution of this Agreement and the Loan Documents and do each acknowledge
and agree that the Bank is relying upon this release in extending the Loans to
the Borrower.

 

11.17                     Costs, Fees and Expenses.  The Borrower shall pay or reimburse the Bank
for all reasonable costs, fees and expenses incurred by the Bank or for which
the Bank becomes obligated in connection with the negotiation, preparation, due
diligence, consummation, collection of the Obligations or enforcement of this
Agreement, the other Loan Documents and all other documents provided for herein
or delivered or to be delivered hereunder or in connection herewith (including
any amendment, supplement or waiver to any Loan Document), or during any
workout, restructuring or negotiations in respect thereof, including, without
limitation, reasonable consultants’ fees and attorneys’ fees and time charges
of counsel to the Bank, which shall also include attorneys’ fees and time
charges of attorneys who may be employees of the Bank or any Affiliate of the
Bank, plus costs and expenses of such attorneys or of the Bank; search fees,
costs and expenses; and all taxes payable in connection with this Agreement or
the other Loan Documents, whether or not the transaction contemplated hereby
shall be consummated.  In furtherance of
the foregoing, the Borrower shall pay any and all stamp and other taxes, UCC
search fees, filing fees and other costs and expenses in connection with the
execution and delivery of this Agreement and the other Loan Documents to be
delivered 

 

37

 

hereunder,
and agrees to save and hold the Bank harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission
to pay such costs and expenses.  That
portion of the Obligations consisting of costs, expenses or advances to be
reimbursed by the Borrower to the Bank pursuant to this Agreement or the other
Loan Documents which are not paid on or prior to the date hereof shall be
payable by the Borrower to the Bank on demand. 
If at any time or times hereafter the Bank: (a) employs counsel for
advice or other representation (i) with respect to this Agreement or the
other Loan Documents, (ii) to represent the Bank in any litigation,
contest, dispute, suit or proceeding or to commence, defend, or intervene or to
take any other action in or with respect to any litigation, contest, dispute,
suit, or proceeding (whether instituted by the Bank, the Borrower, or any other
party) in any way or respect relating to this Agreement, the other Loan
Documents or the Borrower’s business or affairs, or (iii) to enforce any
rights of the Bank against the Borrower or any other party that may be
obligated to the Bank by virtue of this Agreement or the other Loan Documents; (b) takes
any action to protect, collect, sell, liquidate, or otherwise dispose of any
collateral for the Loans; and/or (c) attempts to or enforces any of the
Bank’s rights or remedies under this Agreement or the other Loan Documents, the
costs and expenses incurred by the Bank in any manner or way with respect to
the foregoing, shall be part of the Obligations, payable by the Borrower to the
Bank on demand.

 

11.18       Indemnification.  The Borrower agrees to defend (with counsel
satisfactory to the Bank), protect, indemnify, exonerate and hold harmless each
Indemnified Party from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs, expenses
and distributions of any kind or nature (including, without limitation, the
disbursements and the reasonable fees of counsel for each Indemnified Party
thereto, which shall also include, without limitation, reasonable attorneys’
fees and time charges of attorneys who may be employees of any Indemnified
Party), which may be imposed on, incurred by, or asserted against, any
Indemnified Party (whether direct, indirect or consequential and whether based
on any federal, state or local laws or regulations, including, without
limitation, securities laws, Environmental Laws, commercial laws and
regulations, under common law or in equity, or based on contract or otherwise)
in any manner relating to or arising out of this Agreement or any of the Loan
Documents, or any act, event or transaction related or attendant thereto, the
preparation, execution and delivery of this Agreement and the Loan Documents,
including the making or issuance and management of the Loans, the use or
intended use of the proceeds of the Loans, the enforcement of the Bank’s rights
and remedies under this Agreement, the other Loan Documents, any other
instruments and documents delivered hereunder, or under any other agreement
between the Borrower and the Bank; provided, however, that the Borrower shall
not have any obligations hereunder to any Indemnified Party with respect to
matters determined by a court of competent jurisdiction by final and
nonappealable judgment to have been  caused
by or resulting from the willful misconduct or gross negligence of such
Indemnified Party.  To the extent that
the undertaking to indemnify set forth in the preceding sentence may be
unenforceable because it violates any law or public policy, the Borrower shall
satisfy such undertaking to the maximum extent permitted by applicable
law.  Any liability, obligation, loss,
damage, penalty, cost or expense covered by this indemnity shall be paid to
each Indemnified Party on demand, and failing prompt payment, together with
interest thereon at the Default Rate from the date incurred by each Indemnified
Party until paid by the Borrower, shall be added to the Obligations of the Borrower.  The provisions of this Section 11.17
shall survive the satisfaction and payment of the other Obligations and the
termination of this Agreement.

 

38

 

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

 

11.20       Customer Identification — USA PATRIOT
Act Notice.  The Bank hereby notifies
the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title
III of Pub. L. 107-56, signed into law October 26, 2001) (the “Act”), and
the Bank’s policies and practices, the Bank is required to obtain, verify and
record certain information and documentation that identifies the Borrower,
which information includes the name and address of the Borrower and such other
information that will allow the Bank to identify the Borrower in accordance
with the Act.

 

[SIGNATURE PAGE TO FOLLOW]

 

39

 

IN WITNESS WHEREOF, the
Borrower and the Bank have executed this Loan Agreement as of the date first
above written.

 

 

	
   

  	
  Borrower:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  KOSS
  CORPORATION, a Delaware

  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Agreed and accepted:

  
	
   

  	
   

  	
   

  
	
   

  	
  Bank:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HARRIS
  N.A., a national banking

  association

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

 

EXHIBIT A

 

FORM OF
REVOLVING NOTE

 

See attached.

 

 

EXHIBIT B

 

INTENTIONALLY DELETED

 

 

EXHIBIT C

 

COVENANT
COMPLIANCE CERTIFICATE

 

See attached.Exhibit 10.1

 

SEVERANCE AGREEMENT

 

In exchange for the promises
and covenants contained herein, MathStar, Inc., a Delaware corporation
(the “Company”), and Douglas Pihl (“Employee”) hereby agree as follows:

 

1.                                       Definitions.  We intend all words used in this Severance
Agreement (“Agreement”) to have their plain meanings in ordinary English.  Specific terms we use in this Agreement have
the following meanings:

 

A.                                   Employee,
as used herein, shall include the undersigned Employee and anyone who has
obtained any legal rights or claims through the undersigned Employee.

 

B.                                     Company,
as used herein, shall at all times mean MathStar, Inc., its parent
company, its subsidiaries, successors and assigns, its affiliated and
predecessor companies, their successors and assigns, their affiliated and
predecessor companies, and the present or former directors, officers,
employees, representatives, and agents (including, without limitation, its
accountants and attorneys) of any of them, whether in their individual or
official capacities, and the current and former trustees or administrators of
any pension or other benefit plan applicable to employees or former employees
of the Company, in their official or individual capacities.

 

C.                                     Employee’s Claims,
as used herein, means all of the rights Employee has now to any relief of any
kind from the Company, whether or not Employee now knows about those rights,
arising out of his employment with the Company and his separation from
employment with the Company, including, without limitation, claims arising
under the Age Discrimination in Employment Act, as amended by the Older Worker
Benefit Protection Act; the Oregon civil rights laws codified in Oregon Revised
Statute sections 659A.100, et seq.;
the Americans with Disabilities Act; Title VII of the Civil Rights Act of 1964,
as amended; or other federal, state or local civil rights laws; all claims for
alleged breach of fiduciary duty under Section 409 of the Employee
Retirement Income Security Act allegedly impairing the value of Employee’s
accounts under any qualified retirement plan sponsored by MathStar, Inc.;
claims for breach of contract; fraud or misrepresentation; defamation,
intentional or negligent infliction of emotional distress; breach of covenant
of good faith and fair dealing; promissory estoppel; negligence; wrongful
termination of employment; and any other claims for unlawful employment
practices.

 

2.                                       Separation Date.  Employee’s last day of work for Company shall
be on a date to be determined by the Company (“Separation Date”).

 

3.                                       Company’s Obligations and Severance Agreements.  In consideration
for Employee’s promises contained herein, specifically including, but not
limited to, the release of all claims by Employee and Employee’s promises to
refrain from disclosing confidential information of the Company, the Company
agrees as follows:

 

A.                                   Severance Payment.  The Company agrees to pay to Employee a
Severance payment of $216,285.60 (“Severance Payment”), which is equal to
twelve (12) months of Employee’s base salary calculated at Employee’s regular
rate of pay as of the date of this 

 

 

Agreement.  This Severance Payment will be payable in one
lump sum  after the expiration of
the Rescission Period, as hereinafter defined. 
The Severance Payment shall be subject to all federal and state
withholding taxes and FICA.  This payment
will be made no later than July 31, 2008.

 

B.                                     Medical
Insurance Benefits.  The
Company, pursuant to federal and state law, will provide, for a period of
eighteen (18) months following the effective date of Employee’s termination (“COBRA
Period”), a continuation of the group medical insurance coverage previously
provided to Employee by the Company, entirely at Employee’s expense.

 

C.                                     Salary.  Effective August 1, 2008, the Employee
will retain current salary plan, all current benefit plans, and will remain the
Chief Executive Officer and Corporate Officer until further notice by the Board
of Directors.

 

4.                                       Employee Obligations.  As material inducement to Company in entering
into this Agreement and providing the consideration described in Section 3,
Employee hereby agrees as follows:

 

A.                                   Release.  Employee agrees to release all Employee’s
Claims.  Employee acknowledges that the
money and promises received and to be received by Employee are in exchange for
the release of Employee’s Claims.

 

B.                                     Covenant Not To Sue.  Employee agrees that he will not initiate any
litigation to pursue claims which Employee released in Section 4.A.  This covenant does not apply to litigation
challenging the validity of Section 4.A. 
Excluded from this covenant are any claims which cannot be waived by
law, including, without limitation, the right to file a charge with or
participate in any investigation conducted by the Equal Employment Opportunity
Commission (“EEOC”) or any state or local agency.  Employee agrees to waive, however, his right
to any monetary recovery should the EEOC or any state or local agency pursue
any claims on Employee’s behalf. 
Further, employee agrees to pay Company’s attorneys fees if Employee
breaches the covenant not to sue contained in this Section 4.B.

 

C.                                     Company Property.  Employee will return all property belonging
to Company to Company immediately upon the execution of this Agreement, whether
such property is currently on or off the premises of Company, including,
without limitation, any and all computer hardware or computer software.

 

D.                                    Confidentiality.  For all time hereafter forever, Employee will
not use or make available or divulge to any person, firm, corporation or other
entity any information of or regarding Company including, without limitation,
trade secrets, customer lists, business policies, financial information,
technical information, methods of operation, marketing programs, customer price
lists or any other confidential or secret information concerning the business
and affairs of Company or any of its affiliates.

 

E.                                      Confidentiality of Agreement.  Employee agrees that he will keep the terms
and conditions of this Agreement strictly confidential except that Employee may
disclose the terms and conditions of this Agreement to his spouse, if any,
attorney, tax preparer, 

 

2

 

government
agencies, or as required by law. 
Employee agrees that in the event that Employee discloses any of the
terms of this Agreement, including the fact of payment other than as set forth
above, he shall be liable to Company as set forth in Section 4.G. of this
Agreement and for any and all injuries or damages sustained by Company
including costs, disbursements and attorneys’ fees incurred by Company as a
direct result of Employee’s disclosure.

 

F.                                      Non-Disparagement.  Employee agrees that he shall not disparage
or defame Company in any respect.

 

G.                                     Remedies.  Employee acknowledges that any breach of any
of the promises set forth in Sections 4.C, 4.D., 4.E., and 4.F. will cause
Company irreparable harm for which there is no adequate remedy at law and
Employee therefore consents to the issuance of any injunction in favor of
Company enjoining the breach of any of those promises by any court of competent
jurisdiction.  If any promise made by
Employee in this Section 3 should be held to be unenforceable because of
its scope or duration, or the area or subject matter covered thereby, Employee
agrees that the court making such determination shall have the power to reduce
or modify the scope, duration, subject matter or area of that promise to the
extent that allows the maximum scope, duration, subject matter or area
permitted by applicable law.  Employee
further agrees that the remedies provided for herein are in addition to, and
are not to be construed as replacements for, or a limitation of, rights and
remedies otherwise available to Company.

 

5.                                       Employee’s Understandings.  Employee acknowledges and represents that:

 

A.                                   Employee understands that he has the right to consult with
an attorney regarding the meaning and effect of this Agreement.

 

B.                                     Employee also understands that he has a period of at least
forty-five (45) calendar days from the date on which he receives an unsigned
copy of this Agreement in which to consider whether or not to sign this
Agreement and that, having been advised of that entitlement, he may elect to
sign this Agreement at any time prior to the expiration of that time
period.  Employee understands that any revisions
to this that are not material will not restart the forty-five day period.  However, Employee understands that he shall
not execute this Agreement at any time before the Separation Date.

 

C.                                     Employee understands that he may rescind (that is, cancel)
within seven (7) calendar days of signing the Agreement the provisions of Section 4.A.
of this Agreement with respect to claims arising under the Age Discrimination
in Employment Act (the “Rescission Period”). 
To be effective, rescission must be in writing, delivered to Company at
19075 NW Tanasbourne Drive, Suite 200, Hillsboro, Oregon, 97124, Attn:
Patti Lusk, within the Rescission Period, or sent to Company, at such address,
by certified mail, return receipt requested, postmarked within the applicable rescission
period.

 

6.                                       Cancellation of Agreement By Company.  If Employee
exercises his right of rescission under Section 5.C. of this Agreement,
Company will have the right, exercisable by written notice delivered to
Employee, to terminate this Agreement in its entirety, in which event Company
will 

 

3

 

have
no obligation whatsoever to Employee hereunder. 
If Employee exercises his right of rescission under Section 5.C. of
this Agreement, and Company does not exercise its right to terminate this
Agreement hereunder, the remaining provisions of this Agreement (including
specifically the remaining provisions of Section 4 of this Agreement)
shall remain valid and continue in full force and effect.

 

7.                                       Performance By Employee.  Nothing contained herein shall operate as a
waiver or an election of remedies by Company should Employee fail to perform
any duty or obligation imposed upon him hereunder.  Notwithstanding anything contained herein to
the contrary, this Agreement and the duties and obligations of Employee
hereunder shall continue in full force and effect irrespective of any violation
of any term or provision of this Agreement by Employee.

 

8.                                       No Admission Of Liability.  The parties agree that this Agreement shall
not be considered an admission of liability by Company.  Company expressly denies that it is in any
way liable to Employee or that it has engaged in any wrongdoing with respect to
Employee.

 

9.                                       Employee Acknowledgments.  Employee acknowledges and represents
that:  (a) he has read this
Agreement and understands its consequences; (b) he has received adequate
opportunity to read and consider this Agreement; (c) he has determined to
execute this Agreement of his own free will and acknowledges that he has not
relied upon any statements or explanations made by Company regarding this
Agreement; and (d) the promises of Company made in this Agreement
constitute fair and adequate consideration for the promises, releases and
agreements made by Employee in this Agreement.

 

10.                                 Entire Agreement.  This Agreement , including any exhibits
attached hereto or documents expressly referred to herein, contains the entire
agreement between Company and Employee and supersedes and cancels any and all
other agreements, whether oral or in writing, between Company and Employee with
respect to the matters referred to herein; provided, however, that this
Agreement does not supersede, cancel or otherwise void that certain Employee
Confidentiality, Non-Disclosure and Intellectual Property Agreement, which
shall remain in full force and effect.

 

11.                                 Governing Law.  This Agreement shall be construed and
enforced in accordance with the laws of the State of Oregon.

 

12.                                 Effective Date.  This Agreement was originally offered to
Employee on or about May 30, 2008. 
Employee shall have until the latter of the close of business on July 14,
2008 or the Separation Date to accept this Agreement but shall not sign this
Agreement at any time before the Separation Date.  If Employee desires to accept this Agreement,
Employee shall execute the Agreement and return the same to Company at the
address set forth in Section 5.C. hereof. 
If Employee does not so accept this Agreement, this Agreement, and the
offer contained herein, shall be null and void as of the close of business on July 14,
2008.

 

13.                                 Counterparts.  This Agreement may be executed in
counterparts with an executed counterpart to be delivered to the other
party.  Each such executed counterpart
shall be deemed an original but shall constitute one and the same instrument.

 

4

 

	
   

  	
   

  	
  MATHSTAR, INC.

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
  7/14/08

  	
   

  	
  By:

  	
  /s/ John M. Jennings

  
	
   

  	
   

  	
  Its:

  	
  Chief Accounting Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
  7/14/08

  	
   

  	
  /s/ Douglas M. Pihl

  
	
   

  	
   

  	
  Douglas Pihl

  

 

5

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