AMENDMENT NO. 2 TO FIRST AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

                    THIS AMENDMENT NO. 2 TO FIRST AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT is made as of October 31, 2006 (this “Amendment”) by and
among Fifth Third Bank, an Ohio banking corporation (together with its
successors and assigns, the “Lender”), and Zanett, Inc., a Delaware corporation
(“Parent”), and each of Parent’s direct and indirect Subsidiaries identified on
the signature pages hereof (such Subsidiaries, together with Parent, are
referred to hereinafter each individually as a “Borrower”, and individually and
collectively, jointly and severally, as the “Borrowers”), with respect to the
First Amended and Restated Loan and Security Agreement entered into as of
December 30, 2005 by the Lender and the Borrowers, as amended, supplemented,
restated, or otherwise modified from time to time (the “Agreement”). Capitalized
terms used herein and not otherwise defined herein shall have the meanings
ascribed to such terms in the Agreement.

R E C I T A L S

                    WHEREAS, the Borrowers and the Lender have entered into the
Agreement; and

                    WHEREAS, the Lender has made Advances to the Borrowers
pursuant to the terms of the Agreement; and

                    WHEREAS, the Borrowers have requested that the Lender agree
to certain amendments to the Agreement, and the Lender is willing to agree to
the amendments requested by the Borrowers on the terms and conditions
hereinafter set forth;

                    NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

                    Section 1. Amendments to the Agreement.

                                (a) Section 2.1(a) of the Agreement is hereby
deleted and the following inserted in its place:

 

 

 

          (a) Subject to the terms and conditions of this Agreement, and until
November 30, 2006 (the “Revolving Credit Maturity Date”), the Lender agrees to
make revolving credit Advances (the “Revolving Credit Advances”) to the
Borrowers in an amount at any one time outstanding not to exceed an amount equal
to the lesser of (i) the Maximum Revolver Amount, or (ii) the Borrowing Base.
For purposes of this Agreement, “Borrowing Base,” as of any date of
determination, shall mean the result of:

 

 

 

          (x) 75% of the amount of Eligible Accounts, plus

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          (y) 90% of the amount of collected cash balances in the Concentration
Account, minus

 

 

 

          (z) the aggregate amount reserves, if any, established by the Lender
under Section 2.1(b).

 

 

 

          Notwithstanding anything to the contrary in this Agreement or in any
of the other Loan Documents, no Revolving Credit Advances shall hereafter be
made, and no funds or other assets shall hereafter be advanced by any of the
other Borrowers, to Delta Communications Group, Inc., a Delaware corporation,
without the prior specific written consent of the Lender, which the Lender may
grant or withhold in its sole discretion.

                                (b) Section 2.9 of the Agreement is hereby
deleted and the following inserted in its place:

 

 

 

          2.9 Fees. The Borrowers shall pay to the Lender the following fees and
charges, which fees and charges shall be non-refundable when paid (irrespective
of whether this Agreement is terminated thereafter):

 

 

 

 

 

(a) Audit Charges. For the account of the Lender, audit fees and charges as
follows, (i) a fee of $750.00 per day, per auditor, plus out-of-pocket expenses
for each financial audit of any or all of the Borrowers performed by personnel
employed by the Lender and (ii) the actual charges paid or incurred by the
Lender if it elects to employ the services of one or more third Persons to
perform financial audits of any or all of the Borrowers. As long as no Default
or Event of Default has occurred, the Lender will not conduct more than 2
financial audits of the Borrowers per calendar year and, assuming that each
Borrower forwards to the executive offices of the Administrative Borrower all
information requested by or on behalf of the Lender for the conduct of such
audits, such audits will be conducted at the Administrative Borrower’s executive
offices.

 

 

 

 

 

(b) Amendment Fee. An amendment fee in the aggregate amount of $10,000.

                    Section 2. Representations and Warranties. The Borrowers
hereby represent and warrant to the Lender that:

                                (a) no Default or Event of Default has occurred
and is continuing on and as of the date hereof;

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                                (b) the representations and warranties of each
of the Borrowers contained in the Agreement and the other Loan Documents are
true and correct on and as of the date hereof as if made on and as of the date
hereof, except to the extent that such representations and warranties expressly
relate to a different date; and

                                (c) the execution and delivery by the Borrowers
of this Amendment and the performance by the Borrowers of all of their
respective agreements and obligations under this Amendment, the Agreement as
amended hereby, and the other Loan Documents, respectively, are within the power
and authority of the Borrowers and have been duly authorized by all necessary
action on the part of the Borrowers, and the execution and delivery by the
Borrowers of this Amendment, and the performance by them of the transactions
contemplated hereby, do not and will not contravene any term or condition set
forth in any agreement or instrument to which any Borrower is a party or by
which any Borrower is bound.

                    Section 3. Effectiveness and Conditions Precedent. This
Amendment shall become effective upon the Lender’s receipt of: (a) counterparts
of this Amendment executed and delivered by the Borrowers; (b) a Third Amended
and Restated Revolving Note in form and substance satisfactory to the Lender
that has been duly executed and delivered by the Borrowers; (c) certificates of
officers of the Borrowers (in form and substance satisfactory to the Lender in
its sole discretion) certifying to the incumbency of the officers executing this
Amendment and related instruments and to the resolutions of the Boards of
Directors of the Borrowers authorizing the execution of this Amendment and
related instruments and consummation of the transactions contemplated hereby;
and (d) the amendment fee referenced at Section 2.9(b) of the Agreement that has
been paid by the Borrowers.

                    Section 4. Status of Loan Documents; Additional
Representations and Warranties.

                                (a) This Amendment is limited solely for the
purposes and to the extent expressly set forth herein, and the terms,
provisions, and conditions of the Loan Documents and the Liens granted under the
Loan Documents, shall continue in full force and effect and are hereby ratified
and confirmed in all respects. The Borrowers expressly reaffirm all of the Loan
Documents and the debts and other obligations thereunder, the Borrowersagree
that nothing contained herein shall operate to release any of the Borrowersor
any other Person from liability to keep and perform the provisions, conditions,
obligations, and agreements contained in the Loan Documents, except as may be
herein modified, and the Borrowershereby reaffirm that each and every provision,
condition, obligation, and agreement in such documents shall continue in full
force and effect, except as may be herein modified. The validity, priority, and
perfection of all security interests and other liens granted or created by the
Loan Documents are hereby acknowledged and confirmed by the Borrowers, and the
Borrowers agree that such documents shall continue to secure the Advances and
the other Obligations, as the same may be amended by this Amendment, without any
change, loss, or impairment of the priority of such security interests or other
liens

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                                (b) No waiver or amendment of any terms or
provisions of the Agreement made hereunder shall relieve any Borrower from
complying with any other term or provision of the Agreement or any of the other
Loan Documents.

                                (c) No action taken by the Lender prior to, on,
or after the date hereof shall constitute a waiver of or modification of any
term or condition of any of the Loan Documents, except as specifically set forth
herein, or prejudice any rights which the Lender may now have as of the date
hereof or may have in the future under or in connection with the Loan Documents,
including, without limitation, all rights and remedies in connection with
Defaults, Events of Default, and failures of conditions precedent to the making
of Advances that have occurred and are continuing, all of which rights and
remedies the Lender hereby expressly reserves.

                                (d) The Borrowers hereby represent and warrant
to the Lender that except as heretofore disclosed in writing by the Borrower to
the Lender, as of the date hereof there is no pending or, to the knowledge of
any Borrower, threatened action, suit, proceeding, governmental investigation,
or arbitration against or affecting any Borrower or any property of any
Borrower.

                    Section 5. Miscellaneous.

                                (a) No Waiver, Cumulative Remedies. No failure
or delay or course of dealing on the part of the Lender in exercising any right,
power, or privilege hereunder shall operate as an express or implied waiver
thereof, nor shall any single or partial exercise of any such right, power, or
privilege preclude any other or further exercise thereof or the exercise of any
other right, power, or privilege hereunder. The rights, powers, and remedies
herein expressly provided are cumulative and not exclusive of any rights,
powers, or remedies which the Lender would otherwise have. No notice to or
demand on any Borrower in any case shall entitle any Borrower to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Lender to any other or further action in any
circumstances without notice or demand.

                                (b) Ratification, Etc. Except as expressly
provided for herein, the Agreement and all documents, instruments, and
agreements related thereto, including, but not limited to, the other Loan
Documents, are hereby ratified and confirmed in all respects and shall continue
in full force and effect. The Agreement and this Amendment shall be read and
construed as a single agreement. This Amendment shall constitute one of the Loan
Documents and the obligations of the Borrowersunder this Amendment shall
constitute Obligations for all purposes of the Loan Documents. All references in
the Agreement, the Loan Documents, or any related agreement or instrument to the
Agreement shall hereafter refer to the Agreement as amended hereby.

                                (c) Expenses. The Borrowers agree to pay and
reimburse the Lender for all of its costs and expenses (including, without
limitation, costs and expenses of legal counsel) in connection with this
Amendment.

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                                (d) Bankruptcy; Insolvency. The Borrowers hereby
represent and warrant that, on and as of the date hereof: no proceeding has been
filed or commenced by or against anyBorrower for dissolution, termination, or
liquidation; nor does there exist insolvency of anyBorrower, nor does
anyBorrower fail to pay its debts as they become due in the ordinary course of
business; nor has a creditor’s committee been appointed for the business of
anyBorrower; nor has anyBorrower made an assignment for the benefit of
creditors, or filed a petition in bankruptcy or for reorganization or to effect
a plan of arrangement with creditors; nor has anyBorrower applied for or
permitted the appointment of a receiver or trustee for any or all of its
property, assets, or rights; nor is anyBorrower aware of any such receiver or
trustee being appointed for any or all of its property, assets, or rights.

                                (e) Headings Descriptive. The headings of the
several Sections and subsections of this Amendment are inserted for convenience
only and shall not in any way affect the meaning or construction of any
provision.

                                (f) Severability. In case any provision in or
obligation under this Amendment shall be invalid, illegal, or unenforceable in
any jurisdiction, the validity, legality, and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.

                                (g) Counterparts; Execution. This Amendment may
be executed and delivered in any number of counterparts and by the different
parties hereto on separate counterparts, each of which when so executed and
delivered shall be an original, but all of which shall together constitute one
and the same instrument. The exchange of copies of this Amendment and of
signature pages by facsimile or electronic mail transmission shall constitute
effective execution and delivery of this Amendment as to the parties and may be
used in lieu of the original Amendment for all purposes. Signatures of the
parties transmitted by facsimile or electronic mail shall be deemed to be their
original signatures for all purposes.

                                (h) Release. Each Borrower hereby acknowledges
and confirms that: (i) it does not have any grounds, and hereby agrees not to
challenge (or to allege or to pursue any matter, cause, or claim arising under
or with respect to), in any case based upon acts or omissions of the Lender
occurring prior to the date hereof or facts otherwise known to it as of the date
hereof, the effectiveness, genuineness, validity, collectability, or
enforceability of the Agreement or any of the other Loan Documents, the
Obligations, the Liens securing such Obligations, or any of the terms or
conditions of any Loan Document; and (ii) it does not possess (and hereby
forever waives, remises, releases, discharges, and holds harmless the Lender and
its affiliates, stockholders, directors, officers, employees, attorneys, agents,
and representatives and each of their respective heirs, executors,
administrators, successors, and assigns (collectively, the “Indemnified
Parties”) from and against, and agrees not to allege or pursue) any action,
cause of action, suit, debt, claim, counterclaim, cross-claim, demand, defense,
offset, opposition, demand, and/or other right of action whatsoever, whether in
law, equity, or otherwise (which it, all those claiming by, through, or under
it, or its successors or assigns, have or may have) against the Indemnified
Parties, or any of them, by reason of, any matter, cause, or thing whatsoever,
with respect to events or omissions occurring or arising on or prior to the date
hereof and relating to the Agreement or any of the other Loan Documents
(including, without limitation, with

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respect to the payment, performance, validity, or enforceability of the
Obligations, the Liens securing the Obligations, or any or all of the terms or
conditions of any Loan Document) or any transaction relating thereto.

                                (i) Modification. No amendment or waiver of any
provision of this Amendment shall be effective unless the same shall be in
writing and signed by the Lender and the Borrowers, and then any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.

                    Section 7. Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF OHIO WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD REQUIRE
THE APPLICATION OF ANY OTHER LAW.

[Signature page to follow.]

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

 

 

 

 

 

 

 

ZANETT, INC., as the Administrative Borrower and a Borrower

 

 

 

 

 

By:

 

 

 

 

 

 

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Name:

 

 

 

 

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Title:

 

 

 

 

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ZANETT COMMERCIAL SOLUTIONS, INC., as a Borrower

 

 

 

 

 

By:

 

 

 

 

 

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Name:

 

 

 

 

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Title:

 

 

 

 

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PARAGON DYNAMICS, INC., as a Borrower

 

 

 

 

 

By:

 

 

 

 

 

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Name:

 

 

 

 

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Title:

 

 

 

 

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FIFTH THIRD BANK, as the Lender

 

 

 

 

 

By:

 

 

 

 

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Name: David Fuller

 

 

Title: Vice President

 

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