Document:

EX-10.4

Exhibit 10.4

MASTER AMENDMENT TO LOAN DOCUMENTS

(Sparton Corporation — Line of Credit)

     This Master Amendment to Loan Documents (the “Amendment”) dated as of April 21, 2008 and
effective as of March 31, 2008 is made by and between Sparton Corporation, an Ohio corporation
(“Borrower”); Sparton Medical Systems, Inc. f/k/a Astro Instrumentation, Inc., a Michigan
corporation (“Sparton Medical”); Sparton Technology, Inc., a New Mexico corporation (“Sparton
Technology”); Spartronics, Inc., a Michigan corporation (“Spartronics”); Sparton Electronics
Florida, Inc., a Florida corporation (“Sparton Florida”) and Sparton of Canada, Limited, a Canadian
corporation (“Sparton Canada”) (each of Sparton Medical, Sparton Technology, Spartronics, Sparton
Florida and Sparton Canada may be referred individually as a “Guarantor” and collectively, as the
“Guarantors”) and National City Bank, a national banking association (the “Lender”).

RECITALS

     A. The Lender has made a line of credit loan (the “Line of Credit Loan”) to Borrower in the
original principal amount of Twenty Million and No/100 Dollars ($20,000,000.00), which Line of
Credit Loan is evidenced by, among other documents, that certain: (1) Promissory Note and
Promissory Note Covenant Exhibit (the “Covenant Exhibit”), each dated January 22, 2008
(collectively, the “Sparton Corporation Note”); and (2) Amended and Restated Security Agreement of
even date herewith (the “Sparton Corporation Security Agreement”, and together with the Sparton
Corporation Note and all other documents now or hereafter executed in connection therewith,
including, without limitation, the Guarantees (defined below), the “Sparton Corporation Loan
Documents”).

     B. The Borrower’s obligations under the Sparton Corporation Loan Documents have been
guaranteed by the Guarantors pursuant to those Commercial Security Guaranty agreements, each dated
January 22, 2008, signed by each Guarantor (each, a “Guaranty” and collectively, the “Guarantees”).

     C. The Lender has also made a term loan (the “Term Loan”) to Sparton Medical in the original
principal amount of Ten Million and No/100 Dollars ($10,000,000.00), which Term Loan is evidenced
by a Promissory Note dated May 30, 2006, as amended and Promissory Note Covenant Exhibit dated
August 1, 2007, as amended (the “Sparton Medical Note, and together with all other documents now or
hereafter executed in connection therewith including, without limitation, the Guarantees, the
“Sparton Medical Loan Documents”).

     D. Borrower has requested certain modifications to the terms of the Line of Credit Loan and
the Sparton Corporation Loan Documents and Lender is willing to make such modifications subject to
the terms of this Amendment.

     NOW, THEREFORE, in consideration of the foregoing Recitals and other good and valuable
consideration, the receipt of which is hereby acknowledged, the Borrower, Guarantors and the Lender
hereby agree as follows:

 

 

     1. Cross Default. Any default or Event of Default under any of the Sparton Medical
Loan Documents shall constitute a default and Event of Default under the Sparton Corporation Loan
Documents.

     2. Cross Collateralization. Any collateral now or hereafter given to Bank as security
for repayment of the Borrower’s obligations under Line of Credit Loan and the Sparton Corporation
Loan Documents shall be collateral for the repayment of Sparton Medical’s obligations under the
Term Loan and the Sparton Medical Loan Documents. Any collateral now or hereafter given to Bank as
security for the repayment of Sparton Medical’s obligations under the Term Loan and the Sparton
Medical Loan Documents shall be collateral for the repayment of obligations under the Line of
Credit Loan and the Sparton Corporation Loan Documents.

     3. Interest Rate. The third paragraph of the Sparton Corporation Note entitled
“Variable Interest Rate” shall be amended to replace “1.250 percentage points over the Index” with
“3.0 percentage points over the Index”.

     4. Discretionary Advances. The Sparton Corporation Note shall be amended to add the
following as a new paragraph on page 1 of the Sparton Corporation Note before the paragraph
entitled “DEFAULT”:

“ADVANCES: Any and all advances under the Line of Credit Loan shall
be discretionary and made only in the Lender’s sole and absolute
discretion. Lender shall have no obligation to make any advance
under the Line of Credit Loan.”

     5. Financial Reporting Requirements. The following shall be added to Section
1A of the Covenant Exhibit as new subsections (g), (h), and
(i):

“(g) With respect to Borrower’s engagement of Chikol Equities, Inc.
(“Chikol”) as a consultant: (i) the Lender shall have the right to
schedule weekly meetings and/or conference calls with Chikol, in
which Borrower shall be permitted to participate; and (ii) within
five (5) days following Lender’s request, Borrower shall provide
Lender with copies of such documents and information now or
hereafter prepared or delivered by Chikol, as may be reasonably
requested by the Lender.

(h) Within twenty-one (21) days following the date of the Master
Amendment to Loan Documents dated April 21, 2008 by and among the
Lender, the Borrower and the Guarantors (the “Master Amendment”), a
thirteen (13) week cashflow projection for the Borrower, Sparton
Medical and their subsidiaries, on a consolidating and consolidated
basis, with detail on receipts, disbursements and required
borrowings under the Line of Credit, together with a complete set of
assumptions for the projections, all of which shall be acceptable to
the Lender. The Borrower hereby authorizes the Bank to review and
discuss such projections with Chikol;

 

 

(i) Within seventy five (75) days following the date of the Master
Amendment, the Borrower shall provide the Bank with fiscal year 2009
projections for the Borrower, Sparton Medical and their
subsidiaries, on a consolidating and consolidated basis, including,
without limitation, an income statement and balance sheet, together
with a complete set of assumptions for the projections, all of which
shall be acceptable to the Lender;”

     6. Maximum Debt Covenant. Section 2.2 of the Promissory Note Covenant
Exhibit shall be amended and restated as follows:

“2.2 Maximum Net Debt. Borrower shall not suffer or permit the (i)
the Borrower’s and (ii) Sparton Medical Systems, Inc.’s aggregate
senior Bank debt less aggregate cash and marketable securities to be
more than the following:

	 	 	 
	Maximum Net Debt	 	 
	Measurement Date	 	Maximum Net Debt
	 
	 	 
	March 31, 2008

	 	$13,000,000

Each Maximum Net Debt Measurement Period shall be as of the
Borrower’s fiscal quarter-end as stated.

Within fifteen (15) days following receipt of the information and
projections required to be delivered under Section
1.A (g), (h), and (i) of the Loan
Agreement, Lender shall provide Borrower with the required Maximum
Net Debt amounts for the quarters ending June 30, 2008, September
30, 2008 and December 31, 2008, together with an amendment to the
Covenant Exhibit to incorporate such required amounts. No advances
under the Line of Credit Loan shall be made following the Lender’s
delivery of such amendment until such time that the Borrower
delivers to Lender a fully executed copy of such amendment signed by
the Borrower and the Guarantors. In the event such signed amendment
is not delivered within five (5) days following the Lender’s
delivery thereof, it shall constitute an immediate Event of
Default.”

     7. Guarantees. The second sentence of the second paragraph contained in each of the
Guarantees shall be amended and restated as follows:

“‘Indebtedness’ includes, without limitation, loans,
advances, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, guaranty obligations, liabilities and obligations
under any interest rate protection agreements or foreign currency
exchange agreements or commodity price protection agreements, other
obligations, and liabilities of Borrower and/or Sparton Medical
Systems, Inc. (“Sparton Medical”), and any present or future
judgments against Borrower and/or Sparton Medical, future advances,
loans or transactions that renew, extend, modify,

 

 

refinance, consolidate or substitute these debts, liabilities and
obligations whether: voluntarily or involuntarily incurred; due or
to become due by their terms of acceleration; absolute or
contingent; liquidated or unliquidated; determined or undetermined;
direct or indirect; primary or secondary in nature of arising from a
guaranty or surety; secured or unsecured; joint or several or joint
and several; evidenced by a negotiable or non-negotiable instrument
or writing; originated by Lender or another or others; barred or
unenforceable against Borrower and/or Sparton Medical for any reason
whatsoever; for any transactions that may be voidable for any reason
(such as infancy, insanity, ultra vires or otherwise); and
originated then reduced or extinguished and then afterwards
increased or reinstated.”

     8. Choice of Law. Notwithstanding anything contained to the contrary in any of the
Sparton Corporation Loan Documents (excluding the Security Agreement of even date herewith executed
and delivered by Sparton Canada) including, without limitation, the Guarantees, the Sparton
Corporation Loan Documents (excluding the Security Agreement of even date herewith executed and
delivered by Sparton Canada) shall be governed by and construed according to the laws of the State
of Michigan without regard to conflict of law principles in such state.

     9. Conditions Precedent. Borrower shall satisfy the following conditions simultaneous
with delivery of this signed Amendment and this Amendment shall not be effective until all of the
following have been satisfied to Lender’s reasonable satisfaction:

	 	(a)	 	Borrower shall have delivered to Lender a copy of its agreement
for the engagement of Chikol;
	 
	 	(b)	 	Borrower shall have delivered executed Security Agreements in
favor of Lender from each Guarantor;
	 
	 	(c)	 	Borrower shall have delivered authorizing resolutions for
Borrower and each Guarantor authorizing each such party to execute, deliver and
perform its obligations under this Amendment, the above referenced Security
Agreements and all such other documents executed in connection herewith;
	 
	 	(d)	 	Borrower and Guarantors shall have delivered each of their
certified articles of incorporation and certified bylaws as requested by
Lender; and
	 
	 	(e)	 	Borrower shall have paid all of Lender’s costs and expenses
incurred in connection with the Line of Credit Loan, the Sparton Corporation
Loan Documents and this Amendment including, without limitation, UCC search
expenses, certified organizational document fees and Lender’s attorney fees.

     10. Reaffirmation of Borrower. Borrower hereby reaffirms the representations and
warranties contained in the Sparton Corporation Loan Documents as if made as of the date of this
Agreement. Borrower has fully complied with all covenants and agreements to be complied with or
performed by it under the Sparton Corporation Loan Documents to which it is a party

 

 

and Borrower is not presently in default under any Sparton Corporation Loan Document to which
it is a party. Borrower has the full power and authority to enter into this Amendment.

     11. Reaffirmation of Guarantors. Guarantors agree to the terms set forth in this
Amendment, reaffirm all of their obligations under the Guarantees and represent and warrant that no
defenses or counterclaims exist with respect to their obligations under the Guarantees. Each
Guarantor reaffirms the representations and warranties contained in the Guarantees as if made as of
the date of this Agreement. Each Guarantor represents and warrants that each of them has fully
complied with all covenants and agreements to be complied with or performed by its under the
Guarantees and no Guarantor is presently in default under any term of the Guarantees. Each
Guarantor has the full power and authority to enter into this Agreement.

     12. Full Force and Effect. Borrower and Guarantors expressly acknowledge and agree
that except as expressly stated in this Amendment, the Sparton Corporation Loan Documents, as
amended, remain in full force and effect and are ratified, confirmed and restated.

     13. Costs. Borrower is responsible for all costs incurred by Lender, including
without limit reasonable attorney fees, with regard to the Line of Credit Loan, the Sparton
Corporation Loan Documents and the preparation, negotiation and execution of this Amendment and
such other documents necessary in connection with the transactions contemplated hereunder.

     14. No Waiver. The execution of this Amendment shall not be deemed to be a waiver of
any now or hereafter existing default or Event of Default.

     15. Governing Law. This Amendment shall be governed by and construed according to the
laws of the State of Michigan without regard to conflict of law principles in such state.

     16. Submission to Jurisdiction. Borrower and each Guarantor hereby waives any plea of
jurisdiction or venue on the ground that Borrower or any Guarantor is not a resident of Oakland
County or Wayne County, Michigan, and hereby specifically authorizes any action brought to enforce
Borrower’s or any Guarantor’s obligations to the Lender to be instituted and prosecuted in either
the Circuit Court of Oakland County, Michigan, the Circuit Court of Wayne County, Michigan, or in
the United States District Court for the Eastern District of Michigan at the election of Lender,
and Borrower and each Guarantor hereby submits to the jurisdiction of such Court. Borrower and each
Guarantor further agrees and consents that, in addition to any methods of service of process
provided for under applicable law, all service of process in any proceeding in any Michigan State
sitting in Oakland County, Michigan, Wayne County, Michigan or United States District for the
Eastern District of Michigan Court may be made by certified or registered mail, return receipt
requested, directed to Borrower and each Guarantor, at the address indicated herein, and service so
made shall be complete upon receipt; except that if Borrower or any Guarantor shall refuse to
accept delivery, service shall be deemed complete five (5) days after the same shall have been so
mailed.

     17. Counterparts and Facsimiles. This Amendment may be executed in one or more
counterparts, each of which when taken together, shall constitute one and the same original.
Facsimile signatures are acceptable and may be relied upon as if originals.

     18. WAIVER OF JURY TRIAL. BORROWER, GUARANTORS AND LENDER ACKNOWLEDGE THAT THE RIGHT
TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED, EACH PARTY, AFTER CONSULTING
(OR HAVING

 

 

HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR
THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE
PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AMENDMENT OR ANY OF THE SPARTON
CORPORATION LOAN DOCUMENTS.

     19. Release of Claims. Borrower and Guarantors each hereby waive, discharge, and
forever release Lender, Lender’s employees, officers, directors, attorneys, stockholders, and their
successors and assigns, from and of any and all claims, causes of action, allegations or assertions
that Borrower and/or Guarantor has or may have had at any time up through and including the date of
this Amendment, against any or all of the foregoing, regardless of whether any such claims, causes
of action, allegations or assertions are known to Borrower or any Guarantor or whether any such
claims, causes of action, allegations or assertions arose as result of Lender’s actions or
omissions in connection with the Line of Credit Loan or Sparton Corporation Loan Documents, or any
amendments, extensions or modifications thereto including, without limitation, this Amendment or
Lender’s administration of any debt evidenced by the Sparton Corporation Loan Documents or
otherwise.

     20. Amendment to Loan Documents. Each of the Sparton Corporation Loan Documents is
hereby amended to include all provisions of this Amendment. This Amendment is not an agreement to
any further or other amendment of the Sparton Corporation Loan Documents and Lender shall have no
obligation to agree to make any other modifications to the Sparton Corporation Loan Documents now
or hereafter requested by Borrower.

[Remainder of Page Intentionally Left Blank]

 

 

     IN WITNESS WHEREOF, Borrowers, Guarantors and Lender have executed and delivered this
Amendment as of the day and year first above written.

	 	 	 	 	 	 	 
	 	 	BORROWER:	 	 
	 
	 	 	 	 	 	 
	 	 	SPARTON CORPORATION,

an Ohio corporation	 	 
	 
	 

	 	By:
	 	/s/
 

Richard L. Langley
	 	 
	 

	 	Its:
	 	Treasurer	 	 
	 
	 	 	 	 	 	 
	 	 	GUARANTORS:	 	 
	 
	 	 	 	 	 	 
	 	 	SPARTON MEDICAL SYSTEMS, INC. 

f/k/a Astro
Instrumentation, Inc.,

a Michigan corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Richard L. Langley	 	 
	 

	 	Its:
	 	Treasurer	 	 
	 
	 	 	 	 	 	 
	 	 	SPARTON TECHNOLOGY,

a New Mexico corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Richard L. Langley	 	 
	 

	 	Its:
	 	Treasurer	 	 

[Signature Page to Master Amendment to Loan Documents

(Sparton Corporation — Line of Credit) dated April 21, 2008]

[Signatures Continued on Following Page]

 

 

Signature Page to Master Amendment to Loan Documents

(Sparton Corporation — Line of Credit) dated April 21, 2008

	 	 	 	 	 	 	 
	 	 	SPARTRONICS, INC.,

a Michigan corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/
 

Richard L. Langley
	 	 
	 

	 	Its:
	 	Treasurer	 	 
	 
	 	 	SPARTON ELECTRONICS FLORIDA, INC.,

a Florida corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Richard L. Langley	 	 
	 

	 	Its:
	 	Treasurer	 	 
	 
	 	 	 	 	 	 
	 	 	SPARTON OF CANADA, LIMITED,

a Canadian corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Richard L. Langley	 	 
	 

	 	Its:
	 	Treasurer	 	 
	 
	 	 	 	 	 	 
	 	 	LENDER:	 	 
	 
	 	 	 	 	 	 
	 	 	NATIONAL CITY BANK, a national

banking association	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Robert A. Henry	 	 
	 

	 	Its:
	 	Vice PresidentEX-10.5

Exhibit 10.5

National City

PROMISSORY NOTE

 

	 	 	 	 	 	 	 
	Borrower:

	 	Sparton Corporation
	 	Lender:
	 	National City Bank
	 

	 	2400 East Ganson Street
	 	 	 	Central Region
	 

	 	Jackson, MI 49202
	 	 	 	120 North Washington Square
	 

	 	 	 	 	 	Lansing, MI 48933

 

	 	 	 	 	 
	Principal Amount:       $20,000,000.00

	 	 	 	Date of Note: January 22, 2008

PROMISE TO PAY. Sparton Corporation (“Borrower”) promises to pay National City Bank (“Lender”), or
order, in lawful money of the United States of America, the principal amount of Twenty Million &
00/100 Dollars ($20,000,000.00) or so much as may be outstanding, together with interest on the
unpaid outstanding principal balance of each advance. Interest shall be calculated from the date
of each advance until repayment of each advance.

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued
unpaid interest on January 20, 2009. In addition, Borrower will pay regular monthly payments of
all accrued unpaid interest due as of each payment date, beginning February 22, 2008, with all
subsequent interest payments to be due on the same day of each month after that. Unless otherwise
agreed or required by applicable law, payments will be applied first to any accrued unpaid
interest; then to principal; then to any unpaid collection costs; and then to any late charges.
The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is outstanding. Borrower
will pay Lender at Lender’s address shown above or at such other place as Lender may designate in
writing.

VALUABLE INTERST RATE. The interest rate on this Note is subject to change from time to time based
on changes in an index which is the fluctuating rate per annum which is designated or published
from time to time by Lender as being its “One Month Libor Rate”, it being acknowledged that the
Index is not necessarily a) the lowest rate of interest or the only “LIBOR” denominated interest
rate then available from Lender on fluctuating rate loans or b) calculated in the same manner as
any other “LIBOR” denominated interest rate offered by Lender. It is further acknowledged that the
Index is not necessarily calculated in the same manner as any other “LIBOR” denominated interest
rate offered by any other bank or published by any publication (the “Index”). Lender will tell
Borrower the current Index rate upon Borrower’s request. The interest rate change will not occur
more often than each month on the Change Date. Borrower understands that Lender may make loans
based on other rates as well. The interest rate to be applied to the unpaid principal balance
during this Note will be at a rate of 1.250 percentage points over the Index. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate allowed by
applicable law.

 

 

PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it
is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower’s obligation to continue to make payments of accrued unpaid interest. Rather, early
payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked
“paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender
may accept it without losing any of Lender’s rights under this Note, and Borrower will remain
obligated to pay any further amount owed to Lender. All written communications concerning disputed
amounts, including any check or other payment instrument that indicates that the payment
constitutes “payment in full” of the amount owed or that is tendered with other conditions or
limitations or as full satisfaction of a disputed amount must be mailed or delivered to: National
City Bank, Central Region, 120 North Washington Square, Lansing MI 48933.

LATE CHARGE. If a payment is 20 days or more late, Borrower will be charged 5.000% of the unpaid
portion of regularly scheduled payment or $20.00, whichever is greater.

INTERST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest
rate on this Note shall be increased by adding a 2.000 percentage point margin (“Default Rate
Margin”). The Default Rate Margin shall also apply to each succeeding interest rate change that
would have applied had there been no default. However, in no event will the interest rate exceed
the maximum interest rate limitations under applicable law.

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under
this Note:

Payment Default. Borrower fails to make any payment when due under this Note.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation,
covenant or condition contained in this Note or in any of the related documents or to comply
with or to perform any term, obligation, covenant or condition contained in any other
agreement between Lender and Borrower.

False Statements. Any warranty, representation or statement made or furnished to Lender by
Borrower or on Borrower’s behalf under this Note or the related documents is false or
misleading in any material respect, either now or at the time made or furnished or becomes
false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower’s existence as a going business, the
insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property,
any assignment for the benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency laws by or against
Borrower.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings,
whether by judicial proceeding, self-help, repossession or any other method, by any creditor
of Borrower or by an governmental agency against any collateral securing the loan. This
includes a garnishment of any of Borrower’s accounts, including deposit accounts, with
Lender. However, this Event of Default shall not apply if there is a good faith dispute by
Borrower as to the validity or reasonableness of the claim which is the

 

 

basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice
of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond
for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole
discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any
Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or
revokes or disputes the validity of, or liability under, any guaranty of the indebtedness
evidenced by this Note.

Change in Ownership. Any change in ownership of fifty percent (50%) or more of the common
stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or
Lender believes the prospect of payment or performance of this Note is impaired.

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this
Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount;
provided, however that in the case of an Event of Default of the type described in the “Insolvency”
subsection above, such acceleration shall be automatic and not optional.

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if
Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender’s reasonable attorneys’ fees and Lender’s legal expenses whether or
not there is a lawsuit, including reasonable attorneys’ fees and expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals.
If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all
other sums provided by law.

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either Lender or Borrower against the other.

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent
not preempted by federal law, the laws of the State of Michigan without regard to its conflicts of
law provisions. This Note has been accepted by Lender in the State of Michigan.

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if Borrower makes a payment on
Borrower’s loan and the check or preauthorized charge with which Borrower pays is later dishonored.

COLLATERAL. Borrower acknowledges this Note is secured by any and all mortgages, security
agreements, assignments, loan agreements, pledge agreements and any other document or instrument
evidencing a security interest or other lien in favor of Lender and executed and delivered by
Borrower or any third party as security for payment of this Note and/or all indebtedness of
Borrower to Lender, whether contemporaneous with the execution of this Note or at any other time.

LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note, as well
as directions for payment from Borrower’s accounts, may be requested orally or in writing by
Borrower or by an authorized person. Lender may, but need not, require that all oral

 

 

requests be confirmed in writing. Borrower agrees to be liable for all sums either: (A) advanced
in accordance with the instructions of an authorized person or (B) credited to any of Borrower’s
accounts with Lender. the unpaid principal balance owing on this Note at any time may be evidenced
by endorsements on this Note or by Lender’s internal records, including daily computer print-outs.
Lender will have no obligation to advance funds under this Note if: (A) Borrower or any guarantor
is in default under the terms of this Note or any agreement that Borrower or any guarantor has with
Lender, including any agreement made in connection with the signing of this Note; (B) Borrower or
any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor’s guarantee of this Note or any other loan with
Lender; or (D) Borrower has applied funds provided pursuant to this Note for purposes other than
those authorized by Lender.

SHARING INFORMATION. Borrower hereby authorizes Lender to share all credit and financial
information relating to Borrower with Lender’s parent company and with any subsidiary or affiliate
of Lender or of Lender’s parent company.

FINANCIAL INFORMATION. Borrower will furnish to Lender, at Borrower’s expense, promptly upon each
request of Lender, such information in writing regarding Borrower’s financial condition, income
taxes, properties, business operations, if any, and pension plans, if any, as Lender may from time
to time reasonably request, prepared, in the case of financial information, in accordance with
generally accepted accounting principles consistently applied and otherwise in form and detail
satisfactory to Lender.

FINAL AGREEMENT. This Note and the related documents set forth the entire agreement between the
parties regarding the transactions contemplated hereby and supersede all prior agreements,
commitments, discussions, representations and understandings, whether written or oral, and any and
all contemporaneous oral agreements, commitments, discussions, representations and understandings
between the parties relating to the subject matter hereof.

DIRECT DEBIT. The following is applicable if checked by Borrower: [    ] Payments shall be paid by
Borrower by debiting Borrower’s                                          account, account number                                
         
on the due date.

RELATED DOCUMENTS: The words “related documents” mean all promissory notes, credit agreements,
loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, security deeds, collateral mortgages, subordination agreements, assignments, financial
statements, certificates and all other instruments, agreements and documents, whether now or
hereafter existing, which evidence or secure any debt of Borrower to Lender, which govern the
relative rights and priorities of Lender and one or more other persons or entities to payments made
by, or the property of, Borrower or any guarantor of the obligations of Borrower, which are
delivered to Bank pursuant to another such writing, or which are otherwise delivered to Lender by
or on behalf of any person or entity (or any employee, officer, auditor, counsel, or agent of any
person or entity) in respect of or in connection with all or any part of Borrower’s debt to Lender.

CHANGE
DATE. The interest rate change will not occur more often than once each month and shall be
based on the index rate effective as of each Change Date, commencing on February 22, 2008 and
continuing on the 22nd day of each month thereafter (“Change Date”), unless such day
shall not be a Banking Day, in which case the Change Date shall be the first Banking Day

 

 

immediately following such day. If the Index becomes unavailable during the term of the loan,
Lender may designate a substitute index after notice to Borrower.

“Banking Day” means any day (other than any Saturday, Sunday or legal holiday) on which Lender’s
banking office is open to the public for carrying on substantially all of its banking functions.

LENDER INCLUDES PREDECESSORS. The term “Lender” shall include all entities which were merged into,
or whose name was changed to, National City Bank or a predecessor thereof, including but not
limited to National City Bank of Michigan/Illinois.

PROMISSORY
NOTE COVENANT EXHIBIT. An exhibit, titled “PROMISSORY NOTE COVENANT EXHIBIT,” is
attached to this Note and by this reference is made a part of this Note just as if all the
provisions, terms and conditions of the Exhibit had been fully set forth in this Note.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s
heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender
and its successors and assigns.

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the
rest of the Note. Lender may delay or forego enforcing any of its rights or remedies under this
Note without losing them. Borrower and any other person who signs, guarantees or endorses this
Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor.
Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether or maker, guarantor, accommodation maker or endorser, shall be
released from liability. All such parties agree that Lender may renew or extend (repeatedly and
for any length of time) this loan or release any party or guarantor or collateral; or impair, fail
to realize upon or perfect Lender’s security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree
that Lender may modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made. The obligations under this Note are joint and several.

PRIOR
TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING
THE VARIABLE INTERST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

BORROWER:

SPARTON CORPORATION

	 	 	 	 	 
	By:

	 	/s/
 

Richard L. Langley, Treasurer of Sparton Corporation

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