CREDIT AGREEMENT

DATED AS OF OCTOBER 31, 2012

BY AND AMONG

T. O ENTERTAINMENT, INC., a Colorado corporation,

T. O ENTERTAINMENT, INC., a Japan corporation,

T. O ENTERTAINMENT UNITED KINGDOM LTD, a United Kingdom corporation,

T. O ENTERTAINMENT RUS, LLC, a Russia limited liability company, and

T. O ENTERTAINMENT SINGAPORE PTE LTD, a Singapore corporation,

COLLECTIVELY, AS BORROWERS,

AND

TCA GLOBAL CREDIT MASTER FUND, LP,

AS LENDER

--------------------------------------------------------------------------------

CREDIT AGREEMENT

This CREDIT AGREEMENT (this “Agreement”), dated as of October 31, 2012, but made
effective as of November 12, 2012 (the “Effective Date”), is executed by and
among T. O ENTERTAINMENT, INC., a Colorado corporation (the “Issuing Borrower”),
T. O ENTERTAINMENT, INC., a Japan corporation, T. O ENTERTAINMENT UNITED KINGDOM
LTD, a United Kingdom corporation, T. O ENTERTAINMENT RUS, LLC, a Russia limited
liability company, and T. O ENTERTAINMENT SINGAPORE PTE LTD, a Singapore
corporation (each of the foregoing, including the Issuing Borrower, hereinafter
sometimes individually referred to as a “Borrower” and all such entities
sometimes hereinafter collectively referred to as “Borrowers”), and TCA GLOBAL
CREDIT MASTER FUND, LP (“Lender”).

WHEREAS, Borrowers have requested that Lender extend a revolving credit facility
to Borrowers of up to Five Million and No/100 Dollars ($5,000,000.00) for
working capital financing for Borrowers and for any other purposes permitted
hereunder; and for these purposes, Lender is willing to make certain loans and
extensions of credit to Borrowers of up to such amount and upon the terms and
conditions set forth herein; and

WHEREAS, Borrowers have agreed to secure all of their obligations under the Loan
Documents by granting to Lender a first priority security interest in and lien
upon all of their respective existing and after-acquired personal and Real
Property, respectively and as applicable; and

WHEREAS, as further security for all of the Borrowers’ obligations under the
Loan Documents: (i) the Issuing Borrower has agreed to pledge all of its stock
ownership in T.O Entertainment, Inc., a Japan corporation, one of the Borrowers,
to Lender; and (ii) all of the officers and directors of the Issuing Borrower
have agreed to pledge all of their respective stock ownership in the Issuing
Borrower to Lender; and

WHEREAS, in connection with the loans and extensions of credit to be made by
Lender pursuant to this Agreement, the officers and directors of the Borrowers
are willing to execute validity guarantees in favor of Lender in connection with
the Borrowers’ obligations under the Loan Documents;

NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, and for other good and valuable consideration, the
parties hereto agree as follows:

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.

(a)

“Account” shall mean, individually, and “Accounts” shall mean, collectively, any
and all accounts (as such term is defined in the UCC) of each of the Borrowers.

1

--------------------------------------------------------------------------------

(b)

“Account Debtor” shall mean any Person who is obligated to Borrower under an
Account.

(c)

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

(d)

“Agreement” shall mean this Credit Agreement by and between Borrowers and
Lender.

(e)

“Borrower” and “Borrowers” shall have the meanings given to such terms in the
preamble hereof.

(f)

 “Borrowing Base Amount” shall mean an amount, expressed in Dollars, equal to:
(i) eighty percent (80%) of the amount of the Eligible Accounts, subject to
adjustment by Lender, in Lender’s sole discretion: (A) based on the applicable
Account Debtor’s financial state or condition; (B) based on the result of any
audits or on-going due diligence performed by Lender as set forth in this
Agreement; and (C) other criteria as Lender may review, determine or consider
from time to time, in Lender’s sole discretion; less (ii) an amount equal to the
Reserve Amount.

(g)

“Borrowing Base Certificate” shall mean a certificate, in form substantially
similar to that of Exhibit “A” attached hereto, duly executed by the Chief
Executive Officer or the Chief Financial Officer of Borrowers, appropriately
completed, by which such officer shall certify to Lender the formula and
calculation of the Borrowing Base Amount as of the date of such certificate, and
which certificate shall be reviewed by Lender and acceptable to Lender in its
sole and absolute discretion.

(h)

“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 the State of Florida.

(i)

“Capital Expenditures” shall mean expenditures (including Capital Lease
obligations which should be capitalized under GAAP) for the acquisition of fixed
assets which are required to be capitalized under GAAP.

(j)

“Capital Lease” shall mean, as to any Person, a lease of any interest in any
kind of property or asset, whether real, personal or mixed, or tangible or
intangible, by such Person as 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

2

--------------------------------------------------------------------------------

statement of GAAP as may be applicable, recorded as a “capital lease” on the
balance sheets of

Borrower prepared in accordance with GAAP.

(k)

“Change in Control” shall mean any sale, conveyance, assignment or other
transfer, directly or indirectly, of any ownership interest of any Borrower,
which results in any change in the identity of the individuals or entities
previously in Control of any Borrower or the grant of a security interest in any
ownership interest of any Person, directly or indirectly Controlling any
Borrower, which could result in a change in the identity of the individuals or
entities previously in Control of any Borrower.

(l)

“Closing Date” shall mean the date upon which the first Revolving Loan is
initially funded.

(m)

“Collateral” shall mean, collectively, and whether now existing or hereafter
arising, all assets which secure the Loans, including, without limitation, all
existing and after-acquired tangible and intangible assets of each of the
Borrowers, including Real Property interests owned by each of the Borrowers,
with respect to which each Borrower grants to Lender a Lien under the terms of
the Security Agreement and any of the other Loan Documents.

(n)

“Common Stock” shall mean the common stock of the Borrower, no par value per
share.

(o)

 “Compliance Certificate” shall mean the covenant compliance certificate
contemplated by Section 10.11 hereof, the form of which is attached hereto as
Exhibit “B”.

(p)

“Contingent Liability” and “Contingent Liabilities” shall mean, respectively,
each obligation and liability of each of the Borrowers and all such obligations
and liabilities of Borrowers incurred pursuant to any agreement, undertaking or
arrangement by which any Borrower, either: (i) guarantees, endorses or otherwise
becomes or is contingently liable upon (by direct or indirect agreement,
contingent or otherwise, to provide funds for payment, to supply funds to, or
otherwise to invest in, a debtor, or otherwise to assure a creditor against
loss) the indebtedness, dividend, obligation or other liability of any other
Person in any manner (other than by endorsement of instruments in the course of
collection), including without limitation, any indebtedness, dividend or other
obligation which may be issued or incurred at some future time; (ii) guarantees
the payment of dividends or other distributions upon the shares or ownership
interest of any other Person; (iii) undertakes or agrees (whether contingently
or otherwise): (A) to purchase, repurchase, or otherwise acquire any
indebtedness, obligation or liability of any other Person or any property or
assets constituting security therefor; (B) to advance or provide funds for the
payment or discharge of any indebtedness, obligation or liability of any other
Person (whether in the form of loans, advances, stock purchases, capital
contributions or otherwise), or to maintain solvency, assets, level of income,
working capital or other financial condition of any other Person; or (C) to make
payment to any other Person other than for value received; (iv) agrees to lease
property or to purchase securities, property or services from such other Person
with the purpose or intent of assuring the owner of such indebtedness or
obligation of the ability of such other Person to make payment of the
indebtedness or obligation; (v) to induce the issuance of, or in connection with
the issuance of, any letter of credit for the benefit of such other Person; or
(vi) undertakes or agrees otherwise to

3

--------------------------------------------------------------------------------

assure a creditor against loss. The amount of any Contingent Liability shall
(subject to any limitation set forth herein) be deemed to be the outstanding
principal amount (or maximum permitted principal amount, if larger) of the
indebtedness, obligation or other liability guaranteed or supported thereby.

(q)

“Control” or “Controlling” shall mean the possession of the power to direct, or
cause the direction of, the management and policies of a Person by contract,
voting of securities, or otherwise.

(r)

“Default Rate” shall mean a per annum rate of interest equal to the lesser of:
(i) Eighteen Percent (18%) per annum; or (ii) the highest rate permitted by
applicable law.

(s)

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

(t)

“Dollars” or “$” means lawful currency of the United States of America.

(u)

“EBIDTA” shall mean, for any period, the sum of the following: (i) Net Income
(excluding extraordinary and unusual items and income or loss attributable to a
minority equity position in any affiliated corporation or Subsidiary) for such
period; plus (ii) interest expense; plus (iii) income and franchise taxes
payable or accrued; plus (iv) Depreciation for such period; plus (v) all other
non-cash charges; plus (vi) management fees; plus (vii) costs, fees and expenses
incurred in connection with, or otherwise associated with, the closing of the
transaction contemplated by this Agreement; minus (viii) that portion of Net
Income arising out of the sale of assets outside of the Ordinary Course of
Business (to the extent not previously excluded under clause (i) of this
definition), in each case to the extent included in determining Net Income for
such period.

(v)

“Effective Date” shall have the meaning given to it in the preamble hereof.

(w)

 “Eligible Accounts” shall mean those Accounts of any Borrower or any

Subsidiary which:

(i)

are genuine in all respects and have arisen in the Ordinary Course of Business
from the sale of goods or performance of services by any Borrower or the
applicable Subsidiary, which delivery of goods has occurred or performance of
services have been fully performed;

(ii)

are evidenced by an invoice delivered to the Account Debtor thereunder, are due
and payable within thirty (30) days after the date of the invoice, and are not
more than ninety (90) days outstanding past the invoice date;

(iii)

do not arise from a “sale on approval”, “sale or return”, “consignment”,
“guaranteed sale” or “bill and hold”, or are subject to any other repurchase or
return agreement;

4

--------------------------------------------------------------------------------

(iv)

are not due from an Account Debtor which is a Subsidiary or a director, officer,
employee, agent, parent or Affiliate of any Borrower or of any Subsidiary;

(v)

do not arise out of contracts with the United States or any department, agency
or instrumentality thereof, or any state, county, city or other governmental
body, or any department, agency or instrumentality thereof, unless the
applicable Borrower (or applicable Subsidiary of a Borrower) has assigned its
right to payment of such Account to Lender pursuant to the Federal Assignment of
Claims Act of 1940 (or analogous statute), and evidence (satisfactory to Lender)
of such assignment has been delivered to Lender;

(vi)

do not arise in connection with a sale to an Account Debtor who is located
within a state or jurisdiction which requires any Borrower (or applicable
Subsidiary), as a precondition to commencing or maintaining an action in the
courts of that state or jurisdiction, either to: (A) receive a certificate of
authority to do business and be in good standing in such state or jurisdiction;
or (B) file a notice of business activities or similar report with such state’s
or jurisdiction’s taxing authority, unless (I) the applicable Borrower (or the
applicable Subsidiary) has taken one of the actions described in clauses (A) or
(B); (II) the failure to take one of the actions described in either clause (A)
or (B) may be cured retroactively by the applicable Borrower (or the applicable
Subsidiary) at its election; or (III) the applicable Borrower (or applicable
Subsidiary) has proven to the satisfaction of Lender that it is exempt from any
such requirements under such state’s or jurisdiction’s laws;

(vii)

do not arise out of a contract or order which, by its terms, forbids or makes
void or unenforceable the assignment to Lender of the Account arising with
respect thereto and are not assignable to Lender for any other reason;

(viii)

are the valid, legally enforceable and unconditional obligation of the Account
Debtor, are not the subject of any setoff, counterclaim, credit, allowance or
adjustment by the Account Debtor, or of any claim by the Account Debtor denying
liability thereunder in whole or in part, and the Account Debtor has not refused
to accept and/or has not returned or offered to return any of the goods or
services which are the subject of such Account;

(ix)

are subject to a perfected, first priority Lien in favor of Lender and not
subject to any Lien whatsoever, other than the Lien of Lender, except for
Permitted Liens;

(x)

to each Borrower’s knowledge, no Proceedings or actions are pending or
threatened against the Account Debtor which might result in any material adverse
change in its financial condition or in its ability to pay any Account in full;

(xi)

if the Account is evidenced by chattel paper or an instrument, the originals of
such chattel paper or instrument shall have been endorsed and/or assigned and
delivered to Lender or, in the case of electronic chattel paper, shall be in the
control of Lender, in each case in a manner satisfactory to Lender; and

(xii)

to each Borrower’s knowledge, there is no bankruptcy, insolvency or liquidation
proceeding pending by or against the Account Debtor with respect thereto, nor
has the Account Debtor gone out of or suspended business, made a general
assignment for the benefit of creditors or failed to pay its debts generally as
they come due, and/or no condition or

5

--------------------------------------------------------------------------------

event has occurred having a Material Adverse Effect on the Account Debtor which
would require the Accounts of such Account Debtor to be deemed uncollectible in
accordance with GAAP.

An Account which is an Eligible Account shall cease to be an Eligible Account
whenever it ceases to meet any one of the foregoing requirements.

In the event the Revolving Note exceeds Two Hundred Fifty Thousand Dollars
($250,000), if Accounts representing Fifty Percent (50%) or more of the unpaid
net amount of all Accounts from any one Account Debtor fail to qualify as
Eligible Accounts, including (without limitation) because such Accounts are
unpaid more than ninety (90) days after the due date of such Accounts, then all
Accounts relating to such Account Debtor shall cease to be Eligible Accounts. In
the event the Revolving Note exceeds Two Hundred Thousand Dollars ($250,000), if
Accounts owed by a single Account Debtor exceed Fifty Percent (50%) of the
Eligible Accounts, then all Accounts relating to such Account Debtor in excess
of such amount shall cease to be Eligible Accounts.

(x)

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

(y)

“Environmental Laws” shall mean all federal, state, district, local and foreign
laws, rules, regulations, ordinances, and consent decrees relating to health,
safety, hazardous substances, pollution and environmental matters, as now or at
any time hereafter in effect, applicable to any Borrower’s business or
facilities owned or operated by any Borrower, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contamination, chemicals, or hazardous, toxic or dangerous substances, materials
or wastes in the environment (including, without limitation, ambient air,
surface water, land surface or subsurface strata) or otherwise relating to the
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.

(z)

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

(aa)

 “Event of Default” shall mean any of the events or conditions set forth in
Section 12 hereof.

(bb)

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.

(cc)

“Funded Indebtedness” shall mean, as to any Person, without duplication: (i) all
indebtedness for borrowed money of such Person (including principal, interest

6

--------------------------------------------------------------------------------

and, if not paid when due, fees and charges), whether or not evidenced by bonds,
debentures, notes or similar instruments; (ii) all obligations to pay the
deferred purchase price of property or services; (iii) 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 (including the Letters of Credit), and all
unpaid drawings in respect of such letters of credit, bankers’ acceptances and
similar obligations; and (iv) 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). Notwithstanding the foregoing, Funded
Indebtedness 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.

(dd)

“GAAP” shall mean United States 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 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.

(ee)

“Governmental Authority” means any foreign, federal, state or local government,
or any political subdivision thereof, or any court, agency or other body,
organization, group, stock market or exchange exercising any executive,
legislative, judicial, quasi-judicial, regulatory or administrative function of
government.

(ff)

 “Hazardous Materials” shall mean any hazardous, toxic or dangerous substance,
materials and wastes, including, without limitation, hydrocarbons (including
naturally occurring or man-made petroleum and hydrocarbons), flammable
explosives, asbestos, urea  formaldehyde insulation, radioactive materials,
biological substances, polychlorinated biphenyls, pesticides, herbicides and any
other kind and/or type of pollutants or contaminants (including, without
limitation, materials which include hazardous constituents), sewage, sludge,
industrial slag, solvents and/or any other similar substances, materials or
wastes that are or become regulated under any Environmental Law (including,
without limitation, any that are or become classified as hazardous or toxic
under any Environmental Law).

(gg)

“Interest Rate” shall mean a fixed rate of interest equal to Ten Percent

(10%) per annum, calculated on the actual number of days elapsed over a 360-day
year.

(hh)

“Lender” shall have the meaning given to it in the preamble hereof.

(ii)

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

7

--------------------------------------------------------------------------------

(jj)

“Lien” shall mean, with respect to any Person, any mortgage, pledge,
hypothecation, judgment lien or similar legal process, title retention lien, or
other lien or security interest granted by such Person or arising by judicial
process or otherwise, including, without limitation, the interest of a vendor
under any conditional sale or other title retention agreement and the interest
of a lessor under a lease of any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible, by such Person as
lessee that is, or should be, a Capital Lease on the balance sheet of such
Person prepared in accordance with GAAP.

(kk)

 “Loan” or “Loans” shall mean the aggregate of all Revolving Loans made by
Lender to Borrowers under and pursuant to this Agreement.

(ll)

“Loan Documents” shall mean those documents listed in Sections 3.1, 3.2 and 3.3
hereof, and any other documents or instruments executed in connection with this
Agreement or the Revolving Loans contemplated hereby.

(mm)  

“Material Adverse Effect” shall mean: (i) a material adverse change in, or a
material adverse effect upon, the assets, business, prospects, properties,
financial condition or results of operations of any Borrower; (ii) a material
impairment of the ability of any Borrower to perform any of their respective
Obligations under any of the Loan Documents; (iii) a material adverse effect on:
(A) any material portion of the Collateral; (B) the legality, validity, binding
effect or enforceability against any Borrower of any of the Loan Documents; (C)
the perfection or priority (subject to Permitted Liens) of any Lien granted to
Lender under any Loan Document; or (D) the rights or remedies of Lender under
any Loan Document; or (iv) a material adverse effect or impairment on the
Lender’s ability to sell any shares of Issuing Borrower’s Common Stock issuable
to Lender under any Loan Documents, in the Principal Trading Market.

(nn)

“Material Contract” shall mean any contract or agreement to which any Borrower
is a party or by which any Borrower or any of their respective assets are bound
and which: (i) would be deemed a material contract required to be disclosed
under the rules and regulations of the Exchange Act and the SEC; (ii) involves a
Borrower Lease; (iii) imposes any guaranty, surety or indemnification
obligations on any Borrower; or (iv) prohibits any Borrower from engaging in any
business or competing anywhere in the world.

(oo)

“Net Income” shall mean, with respect to any period, the amount shown opposite
the caption “Net Income” or a similar caption on the financial statements of any
Borrower, prepared in accordance with GAAP.

(pp)

“Obligations” shall mean all loans, advances and other financial accommodations
(whether primary, contingent or otherwise), 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), and any fees due to Lender under this Agreement or the other Loan
Documents, any expenses incurred by Lender under this Agreement or the other
Loan Documents, and any and all other liabilities and obligations of the
Borrower to Lender, and the performance by each of the Borrowers of all
covenants, agreements and obligations of every nature and kind on the part of
each of the Borrowers to be performed under this Agreement and any other Loan
Documents.

8

--------------------------------------------------------------------------------

(qq)

“Ordinary Course of Business” means the ordinary course of each

Borrower’s business, consistent with past custom and practice (including with
respect to quantity, quality and frequency).

(rr)

“Organizational Identification Number” means, with respect to each

Borrower, the organizational identification number assigned to each Borrower by
the applicable Governmental Authority of the jurisdiction of organization of
each Borrower, if any.

(ss)

“Payment Date” shall have the meaning given to it in Section 2.1(c) hereof.

(tt)

“Permit” means any license, permit, approval, waiver, order, authorization,
right or privilege of any nature whatsoever, granted, issued, approved or
allowed by any Governmental Authority.

(uu)

“Permitted Liens” shall mean: (i) 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 adequate reserves are maintained in accordance with GAAP and in
respect of which no Lien has been filed; (ii) Liens of carriers, warehousemen,
mechanics and materialmen arising in the Ordinary Course of Business and other
similar Liens imposed by law; (iii) 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 any Borrower taken as a whole or
materially impair the use thereof in the operation of any Borrower’s business
and, in each case, for which adequate reserves are maintained in accordance with
GAAP and in respect of which no Lien has been filed; (iv) attachments, appeal
bonds, judgments and other similar Liens, for sums not exceeding Fifty Thousand
and 00/100 Dollars ($50,000) arising in connection with court proceedings,
provided the execution or other enforcement of such Liens is effectively stayed
and the claims secured thereby are being actively contested in good faith and by
appropriate proceedings and to the extent such judgments or awards do not
constitute an Event of Default; (v) zoning and similar restrictions on the use
of property and easements, rights of way, restrictions, minor defects or
irregularities in title and other similar Liens not interfering in any material
respect with the ordinary conduct of the business of any Borrower; (vi) Liens
arising in connection with Capital Leases (and attaching only to the property
being leased); (vii) Liens that constitute purchase money security interests on
any property securing indebtedness incurred for the purpose of financing all or
any part of the cost of acquiring such property, provided that any such Lien
attaches to such property within sixty (60) days of the acquisition thereof and
attaches solely to the property so acquired; (viii) Liens granted to Lender
hereunder and under the Loan Documents; (ix) any interest or title of a lessor,
sublessor, licensor or sublicensor under any lease or non-exclusive license
permitted by this Agreement; (x) Liens arising from precautionary uniform
commercial code financing statements filed under any lease permitted by this
Agreement; and (xi) banker’s Liens and rights of set-off of financial
institutions arising in connection with items deposited in accounts maintained
at such financial institutions and

9

--------------------------------------------------------------------------------

subsequently unpaid and unpaid fees and expenses that are charged to any
Borrower by such financial institutions in the Ordinary Course of Business of
the maintenance and operation of such accounts.

(vv)

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

(ww)

“Preferred Stock” shall have the meaning given to it in Section 7.3 hereof.

(xx)

 “Principal Trading Market” shall mean the Nasdaq Global Select Market, the
Nasdaq Global Market, the Nasdaq Capital Market, the OTC Bulletin Board, the OTC
Markets, the NYSE Euronext or the New York Stock Exchange, whichever is at the
time the principal trading exchange or market for the Common Stock.

(yy)

“Proceeding” means any demand, claim, suit, action, litigation, investigation,
audit, study, arbitration, administrative hearing, or any other proceeding of
any nature whatsoever.

(zz)

“Real Property” means any real estate, land, building, structure, improvement,
fixture or other real property of any nature whatsoever, including, but not
limited to, fee and leasehold interests.

(aaa)

“Receivable Collection Fee” shall mean a surcharge on the Eligible Accounts of
.875% for receivables and other Accounts outstanding and received by any
Borrower within 30 days of the invoice date therefor, 1.625% for receivables and
other Accounts outstanding and received by any Borrower between 31-60 days of
the invoice date therefor, and 2.25% for receivables and other Accounts
outstanding and received by any Borrower between 61-90 days of the invoice date
therefor.

(bbb)

“Regulatory Change” shall mean the introduction of, or any change in any
applicable law, treaty, rule, regulation or guideline or in the interpretation
or administration thereof by any Governmental Authority or any central bank or
other fiscal, monetary or other authority having jurisdiction over Lender or its
lending office.

(ccc)

“Reserve Amount” shall mean an amount, expressed in Dollars, equal to twenty
percent (20%) of the then applicable Revolving Loan Commitment.

(ddd)

“Revolving Loan” and “Revolving Loans” shall mean, respectively, each direct
advance, and the aggregate of all such direct advances, made by Lender to
Borrowers under and pursuant to Section 2.1 of this Agreement.

(eee)

“Revolving Loan Availability” shall mean at any time the then applicable
Revolving Loan Commitment.

10

--------------------------------------------------------------------------------

(fff)

“Revolving Loan Commitment” shall mean, on the Closing Date, One

Million Two Hundred Thousand and No/100 Dollars ($1,200,000.00), and in the
event Borrowers request and Lender agrees to increase the Revolving Loan
Commitment pursuant to Section 2.1(b), thereafter, shall mean such amount to
which the Revolving Loan Commitment is increased, all as applicable pursuant to
Section 2.1(b).

(ggg)

“Revolving Loan Maturity Date” shall mean the earlier of: (i) six (6) months
from the Closing Date; (ii) upon prepayment of the Revolving Note by Borrowers
(subject to Section 2.1(d)(ii)); or (iii) the occurrence of an Event of Default
and acceleration of the Revolving Note pursuant to this Agreement, unless the
date in clause (i) shall be extended pursuant to Section 2.3 or by Lender
pursuant to any modification, extension or renewal note executed by Borrowers
and accepted by Lender in its sole and absolute discretion in substitution for
the Revolving Note.

(hhh)

“Revolving Note” shall mean that certain Revolving Note in the principal amount
of the Revolving Loan Commitment of even date herewith made by Borrowers in
favor of Lender, in form substantially similar to that of Exhibit “C” attached
hereto, and any renewal, extension, future advance, modification, substitution,
or replacement thereof.

(iii)

“SEC” shall mean the United States Securities and Exchange Commission.

(jjj)

“Securities Act” shall mean the Securities Act of 1933, as amended.

(kkk)

“Security Agreement” shall mean a Security Agreement in favor of Lender, in form
substantially similar to that of Exhibit “D” attached hereto.

(lll)

“Stock Pledge Agreement – TO Japan” shall mean a Stock Pledge Agreement in favor
of Lender, in form substantially similar to that of Exhibit “E” attached hereto.

(mmm)

“Stock Pledge Agreement – Officers” shall mean a Stock Pledge Agreement in favor
of Lender, in form substantially similar to that of Exhibit “F” attached hereto.

(nnn)

 “Subsidiary” and “Subsidiaries” shall mean, respectively, each and all such
corporations, partnerships, limited partnerships, limited liability companies,
limited liability partnerships or other entities of which or in which a Person
owns, directly or indirectly, fifty percent (50%) or more of: (i) the combined
voting power of all classes of stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such entity if a
corporation; (ii) the management authority and capital interest or profits
interest of such entity, if a partnership, limited partnership, limited
liability company, limited liability partnership, joint venture or similar
entity; or (iii) the beneficial interest of such entity, if a trust, association
or other unincorporated organization.

(ooo)

“UCC” shall mean the Uniform Commercial Code in effect in Nevada from time to
time.

11

--------------------------------------------------------------------------------

(ppp)

“Validity Guaranties” shall mean the validity guaranties executed by such
officers and directors of each Borrower as Lender shall require, in Lender’s
sole discretion, which shall be substantially in the form of Exhibit “G”
attached hereto.

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 Lender pursuant hereto
shall be made and prepared, both as to classification of items and as to amount,
in accordance with GAAP as used in the preparation of the financial statements
of 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 Lender 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 each 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, each Borrower will furnish financial
statements in accordance with such changes but shall provide calculations for
all financial covenants, perform all financial covenants and 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 each
Borrower’s accountants.

1.3

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

1.4

Other Definitional Provisions; Construction. Whenever the context so requires,
the neuter gender includes the masculine and feminine, the single number
includes the plural, and vice versa. The words “hereof”, “herein” and
“hereunder” and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and references to Article, Section, Subsection, Annex, Schedule,
Exhibit and like references are references to this Agreement unless otherwise
specified. Wherever the word “include,” “includes” or “including” is used in
this Agreement, it will be deemed to be followed by the words “without
limitation.” An Event of Default shall “continue” or be “continuing” until such
Event of Default has been waived in accordance with Section 14.3 hereof.
References in this Agreement to any party shall include such party’s successors
and permitted assigns. References to any “Section” shall be a reference to such
Section of this Agreement unless otherwise stated. The term “Borrower” or
“Borrowers” shall refer collectively to each of the Borrowers and all of their
respective Subsidiaries, whether made a part of this Agreement or not, and to
each of them individually, in each case as the context may so require, it

12

--------------------------------------------------------------------------------

being the intent of the parties under this Agreement that all of the terms,
conditions, provisions and representations hereof shall, to the greatest extent
possible apply equally to each of the Borrowers and their respective
Subsidiaries, as if each term, covenant, provision and representation was
separately made herein by each of them. 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.

2.

REVOLVING LOAN FACILITY.

2.1

Revolving Loan.

(a)

Revolving Loan Commitment. Subject to the terms and conditions of this Agreement
and the other Loan Documents, and in reliance upon the representations and
warranties of Borrowers set forth herein and in the other Loan Documents, Lender
agrees to make such Revolving Loans at such times as Borrowers may from time to
time request, pursuant to the terms of this Agreement, until, but not including,
the Revolving Loan Maturity Date, and in such amounts as Borrowers may from time
to time request up to the Revolving Loan Availability (and subject at all times
to the amounts available to be borrowed in accordance with the applicable
Borrowing Base Certificate that is acceptable to Lender); provided, however,
that the aggregate principal balance of all Revolving Loans outstanding at any
time shall not exceed the Revolving Loan Availability; and further provided,
however, that, notwithstanding anything contained in this Agreement or any other
Loan Documents to the contrary, each Revolving Loan requested by Borrowers under
this Agreement shall be subject to Lender’s approval, which approval may be
given or withheld in Lender’s sole and absolute discretion. Revolving Loans made
by Lender may be repaid and, subject to the terms and conditions hereof,
borrowed again up to, but not including, the Revolving Loan Maturity Date,
unless the Revolving Loans are otherwise terminated or extended as provided in
this Agreement. The Revolving Loans shall be used by Borrowers for the purpose
of ongoing working capital purposes.

(b)

Increase to Revolving Loan Commitment. Borrowers may request, at any time and
from time to time, that Lender increase the Revolving Loan Commitment to up to
Five Million Dollars ($5,000,000); and Lender, in its sole discretion, may make
available an increase of the Revolving Loan Commitment in such amounts as Lender
may determine, in Lender’s sole and absolute discretion, provided the following
conditions have been satisfied, in Lender’s sole and absolute discretion:

(i)

no Event of Default or Material Adverse Effect shall have occurred or be
continuing, or result from the applicable increase of the Revolving Loan
Commitment;

(ii)

each Borrower shall have executed and delivered a new or revised Revolving Note;

(iii)

After giving effect to such increase, the amount of the aggregate outstanding
principal balance of all Revolving Loans shall not be in excess of the Revolving
Loan Availability; and

(iv)

Lender shall have reviewed and accepted the amount and type of Accounts that are
to be Eligible Accounts.

13

--------------------------------------------------------------------------------

(c)  Revolving Loan Interest and Payments. Except as otherwise provided in this
Section, the outstanding principal balance of the Revolving Loans shall be
repaid on or before the Revolving Loan Maturity Date. Principal amounts repaid
on the Revolving Note may be re-borrowed. The principal amount of the Revolving
Loans outstanding from time to time shall bear interest at the Interest Rate,
commencing as of the Closing Date. The Receivables Collection Fee and accrued
and unpaid interest on the unpaid principal balance of all Revolving Loans
outstanding from time to time shall be payable on a weekly basis on the weekly
anniversary date of the Closing Date, commencing on the first such date to occur
after the date hereof and on the Revolving Loan Maturity Date (each a “Payment
Date”). Any amount of principal or interest on the Revolving Loans which is not
paid when due, whether at stated maturity, by acceleration or otherwise, shall
at Lender’s option bear interest payable on demand at the Default Rate.

(d)

Revolving Loan Principal Repayments.

(i)

Mandatory Principal Prepayments; Overadvances. All Revolving Loans hereunder
shall be repaid by Borrowers on or before the Revolving Loan Maturity Date,
unless payable sooner pursuant to the provisions of this Agreement. In the event
the aggregate outstanding principal balance of all Revolving Loans hereunder
exceed the Revolving Loan Availability, Borrowers shall, upon notice or demand
from Lender, immediately make such repayments of the Revolving Loans or take
such other actions as shall be necessary to eliminate such excess. Lender shall
apply funds (in excess of any recurring fees owed under Section 2.2 fees owed to
any custodian/back-up servicer, the Receivable Collections Fee, interest owed
under Sections 2.1(c) and 2.4 or any other items payable or withheld from funds
in the Lock Box Account in accordance with Section 2.1(e)(i)) received into the
Lock Box Account as payment against the outstanding principal balance of the
Revolving Loans on any Payment Date, at Lender’s sole discretion.

(ii)

Optional Prepayments. Borrowers may, from time to time, prepay  the Revolving
Loans, in whole or in part, provided, however, that if prior to the Revolving
Loan  Maturity Date, Borrowers prepay the entire outstanding amount of the
Revolving Loans in full and then terminate the Revolving Loan Commitment,
Borrowers shall pay to Lender as liquidated damages and compensation for the
costs of being prepared to make funds available hereunder, an amount equal to
Five Percent (5%) of the then applicable Revolving Loan Commitment (the
“Prepayment Penalty”). The parties agree that the amount payable pursuant to
this subsection (ii) is a reasonable calculation of Lender’s lost profits in
view of the difficulties and impracticality of determining actual damages
resulting from an early termination of the Revolving Loan Commitment.
Notwithstanding the foregoing, the Prepayment Penalty shall be reduced to Two
and One-Half percent (2.5%) if the prepayment and termination of the Revolving
Loan Commitment occurs after the first One-Hundred Eighty (180) days following
the Closing Date.

(e)

Collections; Lock Box.

(i)

Each Borrower shall direct all of its Account Debtors to make all payments on
all Accounts directly to the Lock Box Account, or to a post office box
designated by, and under the exclusive control of, Lender (such post office box
is referred to herein as the

14

--------------------------------------------------------------------------------

“Lock Box”). The Lender shall establish and maintain an account at a financial
institution acceptable to Lender in its sole and absolute discretion (the “Lock
Box Account”), which Lock Box Account is (as of the date hereof) and shall be
maintained in Lender’s name, and into which all payments received in the Lock
Box shall be deposited, and into which each Borrower will deposit all payments
received by any Borrower on Accounts in the identical form in which such
payments were received, whether by cash or check. If any Borrower, any Affiliate
or Subsidiary, any shareholder, officer, director, employee or agent of any
Borrower or any Affiliate or Subsidiary, or any other Person acting for or in
concert with any Borrower, shall receive any monies, checks, notes, drafts or
other payments relating to or as proceeds of Accounts, each Borrower and each
such Person shall receive all such items in trust for, and as the sole and
exclusive property of, Lender, and each Borrower or each such Person shall remit
the same (or cause the same to be remitted) in kind to the Lock Box Account upon
the earlier to occur of: (I) upon accumulation by any Borrower or any such
Person of Twenty Five Thousand Dollars ($25,000) or more of such receipts; or
(II) on the first (1st) day of every calendar month. Borrowers and Lender agree
that all payments made to such Lock Box Account, whether in respect of the
Eligible Accounts or as proceeds of other collateral or otherwise (except for
proceeds of Collateral which are required to be delivered to the holder of a
Permitted Lien which is prior in right of payment), will be swept from the Lock
Box Account to Lender on each Payment Date to be applied according to the
following priorities: (1) to unpaid fees and expenses due hereunder or under any
other Loan Documents, including, without limitation, any recurring fees due
pursuant to Section 2.2 hereof; (2) to any custodian/back-up servicer (if
applicable); (3) to accrued but unpaid interest owed under Sections 2.1(c) and
2.4 hereof; (4) to any accrued but unpaid Receivable Collection Fee; (5) if at
any time the Lender is not holding, in the Lock Box Account, an amount equal to
at least the Reserve Amount, then all funds received into the Lock Box Account
shall be withheld and applied by Lender to amounts required to establish the
Reserve Amount, until the Reserve Amount is reached, which Reserve Amount (or
portion thereof) may, at Lender’s discretion, be kept and maintained in the Lock
Box Account during the duration of this Agreement as additional security for the
Obligations; (6) to amounts payable pursuant to Section 2.1(d); and (7) upon the
occurrence of an Event of Default, to Lender (including any Reserve Amount then
in the Lock Box Account), to reduce the outstanding Revolving Loan balance to
zero. After application and payment of the amounts from the Lock Box Account to
Lender in accordance with the immediately preceding sentence, provided the
Borrowers are in good standing under this Agreement and the other Loan
Documents, and provided no Event of Default exists under this Agreement or any
other Loan Document, and provided no event has occurred that, with the passage
of time, or the giving of notice, or both, would constitute an Event of Default
under this Agreement or any other Loan Document, then, subject to compliance
with the Borrowing Base Amount limitations and the Reserve Amount requirements,
any sums remaining in the Lock Box Account shall be transferred to Borrowers’
operating accounts (as directed by Borrowers to lender in writing) within three
(3) Business Days of each Payment Date. Borrowers agree to pay all reasonable
and customary fees, costs and expenses in connection with opening and
maintaining of the Lock Box and Lock Box Account, not to exceed $1,200 per year.
All of such reasonable fees, costs and expenses, if not paid by Borrower within
five (5) Business Days of Lender’s written request, may be paid by Lender and in
such event all amounts paid by Lender shall constitute Obligations hereunder,
shall be payable to Lender by Borrowers upon demand, and, until paid, shall bear
interest at the Default Rate. It is intended that all proceeds of Accounts, and
all other checks, drafts, instruments and other

15

--------------------------------------------------------------------------------

items of payment or proceeds of Collateral at any time received, due or owing to
any Borrower, shall be deposited into the Lock Box Account, and if not deposited
into the Lock Box Account, shall be remitted or endorsed by the applicable
Borrower to Lender into the Lock Box Account, and, if that remittance or
endorsement of any such item shall not be made for any reason, Lender is hereby
irrevocably authorized to remit or endorse the same on each Borrower’s behalf.
For purpose of this Section, each Borrower irrevocably hereby makes, constitutes
and appoints Lender (and all Persons designated by Lender for that purpose) as
each Borrower’s true and lawful attorney and agent-in-fact: (A) to endorse each
Borrower’s name upon said items of payment and/or proceeds of Collateral and
upon any chattel paper, document, instrument, invoice or similar document or
agreement relating to any Accounts or other proceeds of any Borrower; (B) to
take control in any manner of any item of payment or proceeds thereof; (C) to
have access to each Borrower’s operating accounts, through each Borrower’s
online banking system, or otherwise, to make remittances of any proceeds of any
Accounts or otherwise deposited therein into the Lock Box Account as required
hereby; and (D) to have access to any lock box or postal box into which any
Borrower’s mail is deposited, and open and process all mail addressed to any
Borrower and deposited therein.

(ii)

Lender may, at any time and from time to time after the occurrence and during
the continuance of an Event of Default, whether before or after notification to
any Account Debtor and whether before or after the maturity of any of the
Obligations: (A) enforce collection of any of the Accounts of any Borrower or
other amounts owed to any Borrower by suit or otherwise; (B) exercise all of the
rights and remedies of each Borrower with respect to proceedings brought to
collect any Accounts or other amounts owed to any Borrower; (C) surrender,
release or exchange all or any part of any Accounts or other amounts owed to any
Borrower, or compromise or extend or renew for any period (whether or not longer
than the original period) any indebtedness thereunder; (D) sell or assign any
Account of any Borrower or other amount owed to any Borrower upon such terms,
for such amount and at such time or times as Lender deems advisable; (E)
prepare, file and sign each Borrower’s name on any proof of claim in bankruptcy
or other similar document against any Account Debtor or other Person obligated
to any Borrower; and (F) do all other acts and things which are necessary, in
Lender’s sole discretion, to fulfill each Borrower’s obligations under this
Agreement and the other Loan Documents and to allow Lender to collect the
Accounts or other amounts owed to any Borrower. In addition to any other
provision hereof, Lender may at any time after the occurrence and during the
continuance of an Event of Default, at Borrowers’ expense, notify any parties
obligated on any of the Accounts to make payment directly to Lender of any
amounts due or to become due thereunder.

(iii)

On a monthly basis, Lender shall deliver to Borrowers an invoice

and an account statement showing all Loans, charges and payments, which shall be
deemed final, binding and conclusive upon Borrowers, unless Borrowers notify
Lender in writing, specifying any error therein, within thirty (30) days of the
date such account statement is sent to Borrowers and any such notice shall only
constitute an objection to the items specifically identified.

2.2

 Fees.

(a)

Intentionally Left Blank.

16

--------------------------------------------------------------------------------

(b)

Asset Monitoring Fee. Borrowers agree to pay to Lender an asset monitoring fee
(“Asset Monitoring Fee”) equal to One Thousand Five-Hundred and No/100 Dollars
($1,500.00), which shall be due and payable on the Closing Date, and thereafter
on the first day of each calendar quarter during the term of this Agreement. The
Asset Monitoring Fee shall be increased in increments of Five Hundred and No/100
Dollars ($500.00) each time the Revolving Loan Commitment amount is increased
pursuant to Section 2.1(b); provided that the Asset Monitoring Fee shall never
exceed Five Thousand and No/100 Dollars ($5,000.00) per quarter.

(c)

Transaction Advisory Fee. Borrowers agree to pay to Lender a transaction
advisory fee equal to four percent (4.0%) of the Revolving Loan Commitment as of
the Closing Date, and four percent (4.0%) on the amount of any increase thereof
pursuant to Section 2.1(b), which shall be due and payable on the Closing Date
and on the date of any increase to the Revolving Loan Commitment pursuant to
Section 2.1(b).

(d)

Due Diligence Fees. Borrowers agree to pay a due diligence fee equal to

Twelve Thousand Five Hundred and No/100 Dollars ($12,500.00), which shall be due
and payable in full on the Closing Date, or any remaining portion thereof shall
be due and payable on the Closing Date if a portion of such fee was paid upon
the execution of any term sheet related to this Agreement.

(e)

Document Review and Legal Fees. Borrowers agree to pay a document review and
legal fee equal to Twenty-Five Thousand and No/100 Dollars ($25,000.00) which
shall be due and payable in full on the Closing Date, or any remaining portion
thereof shall be due and payable on the Closing Date if a portion of such fee
was paid upon the execution of any term sheet related to this Agreement.

(f)

Other Fees. Each of the Borrowers also agrees to pay to the Lender (or any
designee of the Lender), upon demand, or to otherwise be responsible for the
payment of, any and all other costs, fees and expenses, including the reasonable
fees, costs, expenses and disbursements of counsel for the Lender and of any
experts and agents, which the Lender may incur or which may otherwise be due and
payable in connection with: (i) the preparation, negotiation, execution,
delivery, recordation, administration, amendment, waiver or other modification
or termination of this Agreement or any other Loan Documents; (ii) any
documentary stamp taxes, intangibles taxes, recording fees, filing fees, or
other similar taxes, fees or charges imposed by or due to any Governmental
Authority in connection with this Agreement or any other Loan Documents; (iii)
the exercise or enforcement of any of the rights of the Lender under this
Agreement or the Loan Documents; or (iv) the failure by any Borrower to perform
or observe any of the provisions of this Agreement or any of the Loan Documents.
Included in the foregoing shall be the amount of all expenses paid or incurred
by Lender in consulting with counsel concerning any of its rights under this
Agreement or any other Loan Document or under applicable law. All such costs and
expenses, if not so immediately paid when due or upon demand thereof, shall bear
interest from the date of outlay until paid, at the Default Rate. All of such
costs and expenses shall be additional Obligations of the Borrowers to Lender
secured under the Loan Documents. The provisions of this Subsection shall
survive the termination of this Agreement.

17

--------------------------------------------------------------------------------

(g)

Advisory Fee. The Borrowers shall pay to Lender a fee for advisory services
provided by the Lender to the Borrowers prior to the Closing Date by having the
Issuing Borrower issue to Lender three (3) redeemable warrants, each redeemable
warrant giving the Lender the right to purchase, for no additional
consideration, one percent (1.0%) of the issued and outstanding Common Stock of
the Issuing Borrower, each in the form set forth and attached hereto as Exhibit
“H” (the “Warrants”). Each of the Warrants shall be redeemed by the Issuing
Borrower in accordance with the terms of the Warrants, one at six (6) months
from the Closing Date, one at nine (9) months from the Closing Date, and the
last one at twelve (12) months from the Closing Date, each for a redemption
price of Forty-Five Thousand Dollars ($45,000). Failure by the Issuing Borrower
to redeem the Warrants as hereby provided shall be an Event of Default hereunder
and under the other Loan Documents. The Issuing Borrower’s obligation to redeem
the Warrants as hereby provided shall be applicable and effective regardless of
the amount or number of Revolving Loans made hereunder. In the event the Lender
elects to increase the Revolving Loan Commitment as permitted by this Agreement,
the Issuing Borrower agrees to pay additional advisory service fees to Lender
either in cash or in a similar manner as set forth in this Section 2.2(g)
through the issuance of redeemable warrants, at Lender’s sole discretion, in an
amount to be determined by Lender not to exceed nine percent (9.0%) of the
increase.

2.3

Renewal of Revolving Loans; Non-Renewal of Revolving Loans; Fees. So long as no
Event of Default exists, and that no event has occurred that with the passage of
time, the giving of notice, or both, would constitute an Event of Default,
Borrowers shall have the option to request a renewal of the Revolving Loan
Commitment and extension of the Revolving Loan Maturity Date for one (1)
additional six (6) month period. To make such request, Borrowers shall give
written notice to Lender of Borrowers’ request to renew the Revolving Loan
Commitment and extend the Revolving Loan Maturity Date for an additional one (1)
six (6) month period on or before the Revolving Loan Maturity Date. Lender may
elect to accept or reject Borrowers’ request for a renewal of the Revolving Loan
Commitment and extension of the Revolving Loan Maturity Date in its sole and
absolute discretion, based on Borrowers’ performance during the previous six (6)
month period as well as other factors as Lender deems relevant in its sole and
absolute discretion. In the event Lender accepts Borrowers’ request for renewal
and extension, Borrowers shall, immediately upon demand from Lender and as a
condition to the renewal and extension, deliver a renewal fee to Lender equal to
two percent (2%) of the then outstanding Revolving Loan Commitment, together
with any other documents, instruments and fees that be required by Lender to
evidence the extension.

2.4

Interest and Fee Computation; Collection of Funds. Interest accrued hereunder
shall be payable as set forth in Section 2.1 hereof. 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. If any payment to be made by Borrowers
hereunder or under the Revolving Note 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. Any Obligations which are not paid when due (subject to applicable
grace periods) shall bear interest at the Default Rate.

18

--------------------------------------------------------------------------------

2.5

Automatic Debit. In order to effectuate the timely payment of any of the
Obligations when due, each Borrower hereby authorizes and directs Lender, at
Lender’s option, to: (i) debit, or cause or instruct the debit of, the amount of
the Obligations to any ordinary deposit account of any Borrower; or (ii) make a
Revolving Loan hereunder to pay the amount of the Obligations.

2.6

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

2.7

US Dollars; Currency Risk. All Eligible Accounts will be in Dollars. In the
event Eligible Accounts are not in Dollars, Borrowers shall bear the risk of
Lender’s currency losses, and if Lender suffers a currency loss and the result
is to increase the cost to Lender or to reduce the amount of any sum received or
receivable by Lender under this Agreement or under the Revolving Note with
respect thereto, then after demand by Lender (which demand shall be accompanied
by a certificate setting forth reasonably detailed calculations of the basis of
such demand), Borrowers shall pay to Lender such additional amount or amounts as
will compensate Lender for such increased cost or such reduction. Borrowers
hereby authorize Lender to advance or cause an advance of Revolving Loans to pay
for the increased costs or reductions associated with any such currency losses.

3.

CONDITIONS OF BORROWING.

Notwithstanding any other provision of this Agreement, the obligation of Lender
to disburse or make all or any portion of any Loans is subject to satisfaction
of all of the following conditions precedent (unless a condition is waived in
writing by Lender) contained in this Article 3.

3.1

Intentionally Left Blank.

3.2

Loan Documents to be Executed by Borrowers. As a condition precedent to Lender’s
disbursal or making of the Loans pursuant to this Agreement, Borrowers shall
have executed or cause to be executed and delivered to Lender all of the
following documents, each of which must be satisfactory to Lender and Lender’s
counsel in form, substance and execution:

(a)

Credit Agreement. An original of this Agreement duly executed by Borrowers;

(b)

Revolving Note. An original Revolving Note duly executed by Borrowers;

(c)

Security Agreement. An original of the Security Agreement dated as of the date
of this Agreement, executed by Borrowers;

19

--------------------------------------------------------------------------------

(d)

Stock Pledge Agreements. An original of the Stock Pledge Agreement –

TO Japan and the Stock Pledge Agreement – Officers, executed by the applicable
Borrowers and other officers and directors of the Issuing Borrower that are
parties thereto.

(e)

Validity Guaranties. Validity Guarantees duly executed by such officers and
directors of Borrowers as Lender shall require;

(f)

Search Results. Copies of UCC search reports (and other similar reports in any
other foreign jurisdictions where such reports may be required by Lender) dated
such a date as is reasonably acceptable to Lender, listing all effective
financing statements or other evidences of security interests which name any
Borrower, under its present name and any previous names, as debtors, together
with copies of such financing statements or other evidences of such security
interests;

(g)

Organizational and Authorization Documents. A certificate of the corporate
secretary or other officer of each Borrower certifying and attaching: (i) copies
of its articles of incorporation and bylaws; (ii) resolutions of the board of
directors of such applicable Borrower, approving and authorizing such Borrower’s
issuance of the Revolving Note and approving and authorizing the issuance of the
Warrants and the shares issuable upon exercise thereof as fully paid,
non-assessable shares of the Issuing Borrower’s Common Stock in accordance with
applicable exemptions from the registration requirements under the securities
Act, and the execution, delivery and performance of the Loan Documents to which
it is party and the transactions  contemplated thereby; (iii) the signatures and
incumbency of the officers of each Borrower executing any of the Loan Documents,
each of which Borrowers hereby certify to be true and complete, and in full
force and effect without modification, it being understood that Lender may
conclusively rely on each such document and certificate until formally advised
by Borrowers of any changes therein; and (iv) good standing certificate in the
state of incorporation of each Borrower and in each other state requested by
Lender;

(h)

Insurance. Evidence satisfactory to Lender of the existence of insurance
required to be maintained pursuant to this Agreement or any other Loan
Documents, together with evidence that Lender has been named as additional
insured and lender’s loss payee, as applicable, on all related insurance
policies; (i) Opinion of Counsel. A customary opinion of Borrowers’ counsel, in
form satisfactory to Lender; and

(j)

Additional Documents. Such other agreements, documents, instruments,
certificates, financial statements, schedules, resolutions, opinions of counsel,
notes and other items which Lender shall require in connection with this
Agreement.

3.3

Intentionally Left Blank.

3.4

Payment of Fees. Borrowers shall have paid to Lender all fees, costs and
expenses, including, but not limited to, due diligence expenses, attorney’s
fees, search fees, title fees, documentation and filing fees (including
documentary stamps and taxes payable on the face amount of the Revolving Note).

20

--------------------------------------------------------------------------------

3.5

Event of Default. No Event of Default, or event which, with notice or lapse of
time, or both, would constitute an Event of Default, shall have occurred and be
continuing. 3.6 Adverse Changes. There shall not have occurred any Material
Adverse Effect.

3.7

Litigation. No pending claim, investigation, litigation or Proceeding before any
Governmental Authority or with any other Person shall have been instituted
against any Borrower or any of their Subsidiaries or any of their officers or
shareholders.

3.8

Representations and Warranties. No representation or warranty of any Borrower
contained herein or in any Loan Documents shall be untrue or incorrect in any
material respect as of the date of any Loans as though made on such date, except
to the extent such representation or warranty expressly relates to an earlier
date.

3.9

Due Diligence. The business, legal and collateral due diligence review performed
by Lender, including, but not limited to, a review of Borrowers’ historical
performance and financial information, must be acceptable to Lender in its sole
discretion. Lender reserves the right to increase any and all aspects of its due
diligence in Lender’s sole discretion.

3.10

Key Personnel Investigations. Lender shall be satisfied, in its sole discretion,
with results from background investigations conducted on key members of each
Borrower’s principals and management teams.

3.11

Repayment of Outstanding Indebtedness. Borrowers shall have repaid in full all
outstanding indebtedness secured by Collateral, other than indebtedness giving
rise to Permitted Liens.

4.

NOTES EVIDENCING LOANS.

The Revolving Loans shall be evidenced by the Revolving Note (together with any
and all renewal, extension, modification or replacement notes executed by
Borrowers and delivered to Lender and given in substitution therefor) duly
executed by Borrowers and payable to the order of Lender. At the time of the
initial disbursement of a Revolving Loan and at each time an additional
Revolving Loan shall be requested hereunder or a repayment made in whole or in
part thereon, an appropriate notation thereof shall be made on the books and
records of Lender. All amounts recorded shall be, absent demonstrable error,
conclusive and binding evidence of: (i) the principal amount of the Revolving
Loans advanced hereunder; (ii) any unpaid interest owing on the Revolving Loans;
and (iii) all amounts repaid on the Revolving Loans. The failure to record any
such amount or any error in recording such amounts shall not, however, limit or
otherwise affect the obligations of Borrowers under the Revolving Note to repay
the principal amount of the Revolving Loans, together with all interest accruing
thereon, and all other fees and expenses due in connection therewith in
accordance with this Agreement.

5.

MANNER OF BORROWING.

5.1

Loan Requests. Subject to Section 2.1(a) and Article 3 hereof, the Loans shall
be made available to Borrowers upon Borrowers’ request, from any Person whose
authority to so act has not been revoked by Borrowers in writing previously
received by Lender. Borrowers may

21

--------------------------------------------------------------------------------

make requests for borrowing no more than one time every week up to the then
applicable Revolving Loan Commitment; provided, however, that, notwithstanding
anything contained in this Agreement or any other Loan Documents to the
contrary, each Revolving Loan requested by Borrowers under this Agreement shall
be subject to Lender’s approval, which approval may be given or withheld in
Lender’s sole and absolute discretion. A request for a Loan may only be made if
no default or Event of Default shall have occurred or be continuing and shall be
subject to: (i) delivery (and acceptance of same by Lender) of a Borrowing Base
Certificate, together with supporting documentation in form and content
satisfactory to Lender; and (ii) additional receivables, Accounts and other
Collateral being acceptable to Lender. In addition, a request for a Loan must be
received by no later than 11:00 a.m. eastern time the day it is to be funded and
be in a minimum amount equal to Fifty Thousand Dollars and No/100 ($50,000.00).

5.2

Communications. Lender is authorized to rely on any written, verbal, electronic,
telephonic or telecopy loan requests which Lender believes in its good faith
judgment to emanate from an authorized representative of Borrowers, or any other
Person authorized by an authorized representative of Borrowers in a written
instrument (which may be by e-mail) delivered to Lender. Each Borrower hereby
irrevocably confirms, ratifies and approves all such advances by Lender and
Borrowers hereby indemnify Lender against losses and expenses (including court
costs, attorneys’ and paralegals’ fees) and shall hold Lender harmless with
respect thereto.

6.

SECURITY FOR THE OBLIGATIONS.

To secure the payment and performance by Borrowers of the Obligations hereunder,
each Borrower grants, under and pursuant to a Security Agreement executed by
Borrowers dated as of the date hereof, to Lender, its successors and assigns, a
continuing, first-priority security interest in, and does hereby assign,
transfer, mortgage, convey, pledge, hypothecate and set over to Lender, its
successors and assigns, all of the right, title and interest of each Borrower in
and to the Collateral, whether now owned or hereafter acquired, and all proceeds
(including, without limitation, all insurance proceeds) and products of any of
the Collateral. At any time upon Lender’s request, each Borrower shall execute
and deliver to Lender any other documents, instruments or certificates requested
by Lender for the purpose of properly documenting and perfecting the security
interests of Lender in and to the Collateral granted hereunder, including any
additional security agreements, mortgages, control agreements, and financing
statements as may be required in any local, state, federal or foreign
jurisdiction as Lender may require.

7.

REPRESENTATIONS AND WARRANTIES OF BORROWERS.

To induce Lender to make the Loans, each Borrower makes the following
representations and warranties to Lender, each of which shall be true and
correct in all material respects as of the date of the execution and delivery of
this Agreement and as of the date of each Loan made hereunder, except to the
extent such representation expressly relates to an earlier date, and which shall
survive the execution and delivery of this Agreement:

7.1

Subsidiaries. Other than the Borrowers to this Agreement which are whollyowned
Subsidiaries to the Issuing Borrower in accordance with the organizational chart
attached hereto as Exhibit “I” (except for T.O Entertainment Singapore PTE LTD,
which is not whollyowned, and of which only 70% is owned by the Issuing
Borrower), no Borrower has any

22

--------------------------------------------------------------------------------

Subsidiaries and no Borrower owns, directly or indirectly, any outstanding
voting securities of or other interests in, or have any control over, any other
Person.

7.2

Borrower Organization and Name. Each Borrower is a corporation or limited
liability company, duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and has the full power and
authority and all necessary Permits to: (i) enter into and execute this
Agreement and the Loan Documents and to perform all of its obligations hereunder
and thereunder; and (ii) own and operate its assets and properties and to
conduct and carry on its business as and to the extent now conducted. Each
Borrower is duly qualified to transact business and is in good standing as a
foreign corporation in each jurisdiction where the character of its business or
the ownership or use and operation of its assets or properties requires such
qualification. The exact legal name of each Borrower is as set forth in the
first paragraph of this Agreement, and no Borrower currently conducts, nor has
any Borrower, during the last five (5) years conducted, business under any other
name or trade name, other than the name IBI Acquisitions, Inc.

7.3

Authorization; Validity. Each Borrower has the 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 respective duties
and obligations under this Agreement and the Loan Documents and no other action
or consent on the part of any Borrower, its board of directors, stockholders, or
any other Person is necessary or required by any Borrower to execute this
Agreement and the Loan Documents, consummate the transactions contemplated
herein and therein, and perform all of their obligations hereunder and
thereunder. The execution and delivery of this Agreement and the 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 any Borrower’s Articles of Incorporation, Articles of Organization,
Bylaws, Operating Agreements, or other governing documents. All necessary and
appropriate corporate action has been taken on the part of each Borrower to
authorize the execution and delivery of this Agreement and the Loan Documents
and the issuance of the Revolving Note and the Warrants. This Agreement and the
Loan Documents are valid and binding agreements and contracts of each Borrower,
enforceable against each Borrower in accordance with their respective terms,
except to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws enacted for the relief of
debtors generally and other similar laws affecting the enforcement of creditors’
rights generally or by equitable principles which may affect the availability of
specific performance and other equitable remedies. No Borrower knows of any
reason why any Borrower cannot perform any of their obligations under this
Agreement, the Loan Documents or any related agreements.

7.4

Capitalization. The authorized capital stock or membership interest
capitalization of each Borrower is as set forth in Schedule 7.3 attached hereto.
Schedule 7.3 shall specify, for each Borrower, the total number of authorized
shares of capital stock, and of such authorized shares, the number which are
designated as common stock and the number designated as preferred stock.
Schedule 7.3 shall also specify, for each Borrower, as of the date hereof, the
number of shares of common stock issued and outstanding and the number of shares
of preferred stock issued and outstanding, or, if applicable, the classes of
membership interests issued and outstanding. All of the outstanding shares of
capital stock or membership interests of each Borrower are validly issued, fully
paid and non-assessable, have been issued in compliance with

23

--------------------------------------------------------------------------------

all foreign, federal and state securities laws and none of such outstanding
shares or membership interests were issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities. As of the date of
this Agreement, no shares of any Borrower’s capital stock or membership
interests of any Borrower are subject to preemptive rights or any other similar
rights or any Liens, claims or encumbrances suffered or permitted by any
Borrower. The Common Stock is currently not quoted or traded on any Principal
Trading Market. Except as set forth in Schedule 7.3 attached hereto and except
for the securities to be issued pursuant to this Agreement, as of the date of
this Agreement: (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock or membership
interests of Issuing Borrower or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which Issuing Borrower or any of
its Subsidiaries is or may become bound to issue additional shares of capital
stock or membership interests of or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock or membership interests of any Borrower or any of their
Subsidiaries; (ii) there are no outstanding debt securities, notes, credit
agreements, credit facilities or other contracts or instruments evidencing
indebtedness of any Borrower or any of their Subsidiaries, or by which any
Borrower or any of their Subsidiaries is or may become bound; (iii) there are no
outstanding registration statements with respect to any Borrower or any of their
securities and there are no outstanding comment letters from the SEC, the
Principal Trading Market, or any other Governmental Authority with respect to
any securities of any Borrower or any of their Subsidiaries; (iv) there are no
agreements or arrangements under which any Borrower or any of their Subsidiaries
is obligated to register the sale of any of its securities under the Securities
Act; (v) there are no financing statements filed with any Governmental Authority
securing any obligations of any Borrower or any of their Subsidiaries, or filed
in connection with any assets or properties of any Borrower or any of their
Subsidiaries; (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by this Agreement or
any related agreement or the consummation of the transactions described herein
or therein; and (vii) there are no outstanding securities or instruments of any
Borrower which contain any redemption or similar provisions, and there are no
contracts or agreements by which any Borrower is or may become bound to redeem a
security of such Borrower (except pursuant to this Agreement). Each Borrower has
furnished to the Lender true, complete and correct copies of, as applicable: (I)
if a Borrower is a corporation, such Borrower’s Certificate of Incorporation, as
amended and as in effect on the date hereof and Borrower’s Bylaws, as in effect
on the date hereof, and any other governing or organizational documents, as
applicable; (II) if a Borrower is a limited liability company, such Borrower’s
Articles of Organization and Operating Agreement, and any other governing or
organizational documents, as applicable. Except for the documents delivered to
Lender in accordance with the immediately preceding sentence, there are no other
shareholder agreements, voting agreements, operating agreements, or other
contracts or agreements of any nature or kind that restrict, limit or in any
manner impose obligations, restrictions or limitations on the governance of each
Borrower.

7.5

No Conflicts; Consents and Approvals. The execution, delivery and performance of
this Agreement and the Loan Documents, and the consummation of the transactions
contemplated hereby and thereby, including the issuance of the Warrants, will
not: (i) constitute a violation of or conflict with the Certificate of
Incorporation, Bylaws, Articles of Organization, Operating Agreement or any
other organizational or governing documents of any Borrower; (ii)

24

--------------------------------------------------------------------------------

constitute a violation of, or a default or breach under (either immediately,
upon notice, upon lapse of time, or both), or conflicts with, or gives to any
other Person any rights of termination, amendment, acceleration or cancellation
of, any provision of any contract or agreement to which any Borrower is a party
or by which any of its or their assets or properties may be bound; (iii)
constitute a violation of, or a default or breach under (either immediately,
upon notice, upon lapse of time, or both), or conflicts with, any order, writ,
injunction, decree, or any other judgment of any nature whatsoever; (iv)
constitute a violation of, or conflict with, any law, rule, ordinance or other
regulation (including foreign and United States federal and state securities
laws and the rules and regulations of any market or exchange on which the Common
Stock is quoted); or (v) result in the loss or adverse modification of, or the
imposition of any fine, penalty or other Lien, claim or encumbrance with respect
to, any Permit granted or issued to, or otherwise held by or for the use of, any
Borrower or any of their respective assets. No Borrower is in violation of its
Certificate of Incorporation, Bylaws, Articles of Organization, Operating
Agreement or other organizational or governing documents, as applicable, and no
Borrower is in default or breach (and no event has occurred which with notice or
lapse of time or both could put any Borrower in default or breach) under, and no
Borrower has taken any action or failed to take any action that would give to
any other Person any rights of termination, amendment, acceleration or
cancellation of, any contract or agreement to which any Borrower is a party or
by which any property or assets of any Borrower are bound or affected. No
business of any Borrower is being conducted, and shall not be conducted, in
violation of any law, rule, ordinance or other regulation. Except as
specifically contemplated by this Agreement, no Borrower is required to obtain
any consent or approval of, from, or with any Governmental Authority, or any
other Person, in order for it to execute, deliver or perform any of its
obligations under this Agreement or the Loan Documents in accordance with the
terms hereof or thereof, or to issue the Warrants in accordance with the terms
hereof. All consents and approvals which any Borrower is required to obtain
pursuant to the immediately preceding sentence have been obtained or effected on
or prior to the date hereof.

7.6

Intentionally Left Blank.

7.7

Compliance With Laws. The nature and transaction of each Borrower’s business and
operations and the use of its properties and assets, including, but not limited
to, the Collateral or any Real Property owned, leased, or occupied by any
Borrower, do not and during the term of the Loans shall not, violate or conflict
with any applicable law, statute, ordinance, rule, regulation or order of any
kind or nature of any Governmental Authority, including, without limitation, the
provisions of the Fair Labor Standards Act or any zoning, land use, building,
noise abatement, occupational health and safety or other laws, any Permit or any
condition, grant, easement, covenant, condition or restriction, whether recorded
or not, except to the extent such violation or conflict would not result in a
Material Adverse Effect.

7.8

Environmental Laws and Hazardous Substances. Except to the extent that any of
the following would not have a Material Adverse Effect (including financial
reserves, insurance policies and cure periods relating to compliance with
applicable laws and Permits) and are used in such amounts as are customary in
the Ordinary Course of Business in compliance with all applicable Environmental
Laws, each Borrower represents and warrants to Lender that, to its knowledge:
(i) no Borrower has generated, used, stored, treated, transported, manufactured,
handled, produced or disposed of any Hazardous Materials, on or off any of the
premises of any

25

--------------------------------------------------------------------------------

Borrower (whether or not owned by any Borrower) in any manner which at any time
violates any Environmental Law or any Permit, certificate, approval or similar
authorization thereunder; (ii) the operations of each Borrower comply in all
material respects with all Environmental Laws and all Permits certificates,
approvals and similar authorizations thereunder; (iii) there has been no
investigation, Proceeding, complaint, order, directive, claim, citation or
notice by any Governmental Authority or any other Person, nor is any pending or,
to any Borrower’s knowledge, threatened; and (iv) no Borrower has any liability,
contingent or otherwise, in connection with a release, spill or discharge,
threatened or actual, of any Hazardous Materials or the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Material.

7.9

Collateral Representations. No Person other than each Borrower, owns or has
other rights in the Collateral, and the Collateral is free from any Lien of any
kind, other than the Lien of Lender and Permitted Liens.

7.10

SEC Documents; Financial Statements. The Common Stock of the Issuing Borrower is
registered pursuant to Section 12 of the Exchange Act, the Issuing Borrower is
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, and the Issuing Borrower has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC or any
other Governmental Authority (all of the foregoing filed within the two (2)
years preceding the date hereof or amended after the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being hereinafter referred to as
the “SEC Documents”). The Issuing Borrower is current with its filing
obligations under the Exchange Act and all SEC Documents have been filed on a
timely basis or the Issuing Borrower has received a valid extension of such time
of filing and has filed any such SEC Document prior to the expiration of any
such extension. The Issuing Borrower represents and warrants that true and
complete copies of the SEC Documents are available on the SEC’s website
(www.sec.gov) at no charge to Lender, and Lender acknowledges that it may
retrieve all SEC Documents from such website and Lender’s access to such SEC
Documents through such website shall constitute delivery of the SEC Documents to
Lender; provided, however, that if Lender is unable to obtain any of such SEC
Documents from such website at no charge, as result of such website not being
available or any other reason beyond Lender’s control, then upon request from
Lender, the Issuing Borrower shall deliver to Lender true and complete copies of
such SEC Documents. The Issuing Borrower shall also deliver to Lender true and
complete copies of all draft filings, reports, schedules, statements and other
documents required to be filed with the SEC that have been prepared but not
filed with the SEC as of the date hereof. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act, and none of the SEC Documents, at the time they were filed with
the SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the statements made in any such SEC Documents is, or has
been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior the date
hereof, which amendments or updates are also part of the SEC Documents). As of
their respective dates, the consolidated financial statements of the Issuing
Borrower and its Subsidiaries included in the SEC Documents (the “Financial
Statements”) complied in all material respects with applicable accounting

26

--------------------------------------------------------------------------------

requirements and the published rules and regulations of the SEC with respect
thereto. All of the Financial Statements have been prepared in accordance with
GAAP, consistently applied, during the periods involved (except: (i) as may be
otherwise indicated in such Financial Statements or the notes thereto; or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements), and fairly present in all
material respects the consolidated financial position of the Borrowers and each
of their respective Subsidiaries as of the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments). To the
knowledge of each Borrower and its officers, no other information provided by or
on behalf of any Borrower to the Lender which is not included in the SEC
Documents contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements therein, in the light of
the circumstance under which they are or were made, not misleading.

7.11

Absence of Certain Changes. Since the date the last of the SEC Documents was
filed with the SEC, none of the following have occurred:

(a)

There has been no event or circumstance of any nature whatsoever that has
resulted in, or could reasonably be expected to result in, a Material Adverse
Effect; or

(b)

Any transaction, event, action, development, payment, or any other matter  of
any nature whatsoever entered into by any Borrower other than in the Ordinary
Course of Business.

7.12

Litigation and Taxes. There is no Proceeding pending, or to each Borrower’s
knowledge, threatened, against any Borrower or their respective officers,
managers, members or shareholders, or against or affecting any of their
respective assets. In addition, there is no outstanding judgments, orders,
writs, decrees or other similar matters or items against or affecting any
Borrower, its business or assets. No Borrower has received any material
complaint from any Customer, supplier, vendor or employee. Each Borrower has
duly filed all applicable income or other tax returns and has paid all income or
other taxes when due. There is no Proceeding, controversy or objection pending
or threatened in respect of any tax returns of any Borrower.

7.13

Event of Default. No Event of Default has occurred and is continuing, and no
event has occurred and is continuing which, with the lapse of time, the giving
of notice, or both, would constitute such an Event of Default under this
Agreement or any of the other Loan Documents, and no Borrower is in default
(without regard to grace or cure periods) under any contract or agreement to
which it is a party or by which any of their respective assets are bound.

7.14

ERISA Obligations. To the knowledge of each Borrower, all Employee Plans of each
Borrower meet the minimum funding standards of Section 302 of ERISA, 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 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

27

--------------------------------------------------------------------------------

Borrower has promptly paid and discharged all obligations and liabilities
arising under the ERISA of a character which if unpaid or unperformed might
result in the imposition of a Lien against any of its properties or assets.

7.15

Adverse Circumstances. No condition, circumstance, event, agreement, document,
instrument, restriction, litigation or Proceeding (or threatened litigation or
Proceeding or basis therefor) exists which: (i) could adversely affect the
validity or priority of the Liens granted to Lender under the Loan Documents;
(ii) could adversely affect the ability of any Borrower to perform its
obligations under the Loan Documents; (iii) would constitute a default under any
of the Loan Documents; (iv) would constitute such a default with the giving of
notice or lapse of time or both; or (v) would constitute or give rise to a
Material Adverse Effect.

7.16

Liabilities and Indebtedness of the Borrower. Except as set forth in Schedule
7.16, no Borrower has any Funded Indebtedness or any liabilities or obligations
of any nature whatsoever, except: (i) as disclosed in the Financial Statements;
or (ii) liabilities and obligations incurred in the Ordinary Course of Business
of each Borrower since the date of the last Financial Statements filed by the
Issuing Borrower with the SEC which do not or would not, individually or in the
aggregate, exceed Fifty Thousand Dollars ($50,000) or otherwise have a Material
Adverse Effect.

7.17

Real Estate.

(a)

Real Property Ownership. Except for the Borrower Leases, Borrower does not own
any Real Property.

(b)

Real Property Leases. Except for ordinary office leases described in the SEC
Documents (the “Borrower Leases”), no Borrower leases any other Real Property.
With respect to each of the Borrower Leases: (i) each Borrower has been in
peaceful possession of the property leased thereunder and neither Borrower nor
the landlord is in default thereunder; (ii) no waiver, indulgence or
postponement of any of the obligations thereunder has been granted by any
Borrower or landlord thereunder; and (iii) there exists no event, occurrence,
condition or act known to any Borrower which, upon notice or lapse of time or
both, would be or could become a default thereunder or which could result in the
termination of the Borrower Leases, or any of them, or have a Material Adverse
Effect. No Borrower has violated nor breached any provision of any such Borrower
Leases, and all obligations required to be performed by any Borrower under any
of such Borrower Leases have been fully, timely and properly performed. Each
Borrower has delivered to the Lender true, correct and complete copies of all
Borrower Leases, including all modifications and amendments thereto, whether in
writing or otherwise. No Borrower has received any written or oral notice to the
effect that any of the Borrower Leases will not be renewed at the termination of
the term of such Borrower Leases, or that the Borrower Leases will be renewed
only at higher rents.

7.18

Material Contracts. An accurate, current and complete copy of each of the
Material Contracts has been furnished to Lender and/or is readily available as
part of the SEC Documents, and each of the Material Contracts constitutes the
entire agreement of the respective parties thereto relating to the subject
matter thereof. Each of the Material Contracts is in full force and effect and
is a valid and binding obligation of the parties thereto in accordance with the

28

--------------------------------------------------------------------------------

terms and conditions thereof. To the knowledge of each Borrower and its
officers, all obligations required to be performed under the terms of each of
the Material Contracts by any party thereto have been fully performed by all
parties thereto, and no party to any Material Contracts is in default with
respect to any term or condition thereof, nor has any event occurred which,
through the passage of time or the giving of notice, or both, would constitute a
default thereunder or would cause the acceleration or modification of any
obligation of any party thereto or the creation of any lien, claim, charge or
other encumbrance upon any of the assets or properties of any Borrower. Further,
no Borrower has received any notice, nor does any Borrower have any knowledge,
of any pending or contemplated termination of any of the Material Contracts and,
no such termination is proposed or has been threatened, whether in writing or
orally.

7.19

Title to Assets. Each Borrower has good and marketable title to, or a valid
leasehold interest in, all of its assets and properties which are material to
its business and operations as presently conducted, free and clear of all liens,
claims, charges or other encumbrances or restrictions on the transfer or use of
same. Except as would not have a Material Adverse Effect, the assets and
properties of each Borrower are in good operating condition and repair, ordinary
wear and tear excepted, and are free of any latent or patent defects which might
impair their usefulness, and are suitable for the purposes for which they are
currently used and for the purposes for which they are proposed to be used.

7.20

Intellectual Property. Each Borrower owns or possesses adequate and legally
enforceable rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and all other intellectual property rights necessary to conduct its
business as now conducted. No Borrower has any knowledge of any infringement by
any Borrower of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark
registrations, trade secret or other intellectual property rights of others,
and, to the knowledge of each Borrower, there is no claim, demand or Proceeding,
or other demand of any nature being made or brought against, or to each
Borrowers’ knowledge, being threatened against, any Borrower regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service mark registrations, trade secret or other
intellectual property infringement; and no Borrower is aware of any facts or
circumstances which might give rise to any of the foregoing.

7.21

Labor and Employment Matters. No Borrower is involved in any labor dispute or,
to the knowledge of any Borrower, is any such dispute threatened. To the
knowledge of each Borrower and their respective officers, none of the employees
of any Borrower is a member of a union and each Borrower believes that its
relations with its employees are good. To the knowledge of each Borrower and
their respective officers, each Borrower has complied in all material respects
with all laws, rules, ordinances and regulations relating to employment matters,
civil rights and equal employment opportunities.

7.22

Insurance. Each Borrower is covered by valid, outstanding and enforceable
policies of insurance which were issued to it by reputable insurers of
recognized financial responsibility, covering its properties, assets and
business against losses and risks normally insured against by other corporations
or entities in the same or similar lines of businesses as the

29

--------------------------------------------------------------------------------

Borrowers are engaged and in coverage amounts which are prudent and typically
and reasonable carried by such other corporations or entities (the “Insurance
Policies”). Such Insurance Policies are in full force and effect, and all
premiums due thereon have been paid. None of the Insurance Policies will lapse
or terminate as a result of the transactions contemplated by this Agreement.
Each Borrower has complied with the provisions of such Insurance Policies. No
Borrower has been refused any insurance coverage sought or applied for and no
Borrower has any reason to believe that it will not be able to renew its
existing Insurance Policies as and when such Insurance Policies expire or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations of
any Borrower.

7.23

Permits. Each Borrower possesses all Permits necessary to conduct its business,
and no Borrower has received any notice of, or is otherwise involved in, any
Proceedings relating to the revocation or modification of any such Permits. All
such Permits are valid and in full force and effect and each Borrower is in full
compliance with the respective requirements of all such Permits.

7.24

Lending Relationship. Each Borrower acknowledges and agrees that the
relationship hereby created with Lender is and has been conducted on an open and
arm’s length basis in which no fiduciary relationship exists and that no
Borrower has relied, nor is relying on, any such fiduciary relationship in
executing this Agreement and in consummating the Loans. Lender represents that
it will receive the Revolving Note payable to its order as evidence of the
Loans.

7.25

Compliance with Regulation U. No portion of the proceeds of the Loans shall be
used by any Borrower, or any Affiliates of 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.

7.26

Governmental Regulation. No Borrower is, nor after giving effect to any Loan,
will be, subject to regulation under the Public Utility Holding Borrower Act of
1935, the Federal Power Act 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.

7.27

Bank Accounts. Schedule 7.27 sets forth, with respect to each account of each
Borrower with any bank, broker, merchant processor, or other depository
institution: (i) the name and account number of such account; (ii) the name and
address of the institution where such account is held; (iii) the name of any
Person(s) holding a power of attorney with respect to such account, if any; and
(iv) the names of all authorized signatories and other Persons authorized to
withdraw funds from each such account.

7.28

Places of Business. The principal place of business of each Borrower is set
forth on Schedule 7.28 and each Borrower shall promptly notify Lender of any
change in such location. No Borrower will remove or permit the Collateral to be
removed from such locations without the prior written consent of Lender, except
for: (i) certain heavy equipment kept at third party sites when conducting
business or maintenance; (ii) vehicles, containers and rolling stock; (iii)
Inventory sold or leased in the Ordinary Course of Business; and (iv) temporary
removal of

30

--------------------------------------------------------------------------------

Collateral to other locations for repair or maintenance as may be required from
time to time in each instance in the Ordinary Course of Business of each
Borrower.

7.29

Illegal Payments. No Borrower, nor any director, officer, member, manager,
agent, employee or other Person acting on behalf of any Borrower has, in the
course of his actions for, or on behalf of, any Borrower: (i) used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.

7.30

Related Party Transactions. Except for arm’s length transactions pursuant to
which any Borrower makes payments in the Ordinary Course of Business upon terms
no less favorable than such Borrower could obtain from third parties, none of
the officers, directors, managers, or employees of any Borrower, nor any
stockholders, members or partners who own, legally or beneficially, five percent
(5%) or more of the ownership interests of any Borrower (each a “Material
Shareholder”), is presently a party to any transaction with any Borrower (other
than for services as employees, officers and directors), including any contract
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from, any
officer, director or such employee or Material Shareholder or, to the best
knowledge of each Borrower, any other Person in which any officer, director, or
any such employee or Material Shareholder has a substantial or material interest
in or of which any officer, director or employee of any Borrower or Material
Shareholder is an officer, director, trustee or partner. There are no claims,
demands, disputes or Proceedings of any nature or kind between any Borrower and
any officer, director or employee of any Borrower or any Material Shareholder,
or between any of them, relating to any Borrower.

7.31

Internal Accounting Controls. Each Borrower maintains a system of internal
accounting controls sufficient to provide reasonable assurance that: (i)
transactions are executed in accordance with management’s general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability; (iii) access to assets is permitted only in accordance
with management’s general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

7.32

Brokerage Fees. Except for GSS Capital (the “Finder”), there is no Person acting
on behalf of any Borrower who is entitled to or has any claim for any brokerage
or finder’s fee or commission in connection with the execution of this Agreement
or the consummation of the transactions contemplated hereby. The Finder, a FINRA
registered securities brokerage firm, shall be paid a finder’s fee by the
Borrowers, at Closing, in accordance with a separate agreement between the
Borrowers and Finder.

7.33

No General Solicitation. No Borrower, nor any of their respective Affiliates,
nor any Person acting on its or their behalf, has engaged in any form of general
solicitation or

31

--------------------------------------------------------------------------------

general advertising (within the meaning of Regulation D under the Securities
Act) in connection with the offer or issuance of the Revolving Note, the
Warrants or the shares issuable upon conversion of the Revolving Note.

7.34

No Integrated Offering. No Borrower, nor any of their respective Affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Revolving Note, the
Warrants or any securities issuable upon conversion of the Revolving Note or
exercise of the Warrants under the Securities Act or cause this offering of such
securities to be integrated with prior offerings by any Borrower for purposes of
the Securities Act.

7.35

Private Placement. Assuming the accuracy of the Lender’s representations and
warranties set forth in Section 8 below, no registration under the Securities
Act or the laws, rules or regulation of any other Governmental Authority is
required for the issuance of the Revolving Note, the Warrants or the shares
issuable upon conversion of the Revolving Note or upon exercise of the Warrants
as contemplated hereby.

7.36

Complete Information. This Agreement and all financial statements, schedules,
certificates, confirmations, agreements, contracts, and other materials
submitted to Lender in connection with or in furtherance of this Agreement by or
on behalf of any Borrower fully and fairly states the matters with which they
purport to deal, and do not misstate any material fact nor, separately or in the
aggregate, fail to state any material fact necessary to make the statements made
not misleading.

8.

REPRESENTATIONS AND WARRANTIES OF LENDER.

Lender makes the following representations and warranties to the Borrowers, each
of which shall be true and correct in all material respects as of the date of
the execution and delivery of this Agreement, as of the date of each Loan made
hereunder, and as of the date of any conversion of the Revolving Note, except to
the extent such representation expressly relates to an earlier date, and which
shall survive the execution and delivery of this Agreement:

8.1

Investment Purpose. Lender is acquiring the Revolving Note for its own account,
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the Securities Act.

8.2

Accredited Lender Status. Lender is an “Accredited Lender” as that term is
defined in Rule 501(a)(3) of Regulation D promulgated under the Securities Act.

8.3

Reliance on Exemptions. Lender understands that the Revolving Note is being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that
Borrowers are relying in part upon the truth and accuracy of, and Lender’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of Lender set forth herein in order to determine the
availability of such exemptions and the eligibility of Lender to acquire such
securities.

32

--------------------------------------------------------------------------------

8.4

Information. Lender has been furnished with all materials relating to the
business, finances and operations of Borrowers and information deemed material
by Lender to making an informed investment decision regarding the Revolving
Note, which have been requested by Lender. Lender has been afforded the
opportunity to ask questions of Borrowers and their management. Neither such
inquiries nor any other due diligence investigations conducted by Lender or its
representatives shall modify, amend or affect Lender’s right to rely on
Borrowers’ representations and warranties contained in Article 7 above,
elsewhere in tis Agreement, or in any other Loan Documents. Lender understands
that its investment in the Revolving Note involves a high degree of risk. Lender
is in a position regarding Borrowers, which, based upon economic bargaining
power, enabled and enables Lender to obtain information from Borrowers in order
to evaluate the merits and risks of this investment. Lender has sought such
accounting, legal and tax advice, as it has considered necessary to make an
informed investment decision with respect to the Revolving Note.

8.5

No Governmental Review. Lender understands that no United States federal or
state agency or any other Governmental Authority has passed on or made any
recommendation or endorsement of the Revolving Note, or the fairness or
suitability of the investment in the Revolving Note, nor have such authorities
passed upon or endorsed the merits of the offering of the Revolving Note.

8.6

Transfer or Resale. Lender understands that: (i) the Revolving Note has not been
and is not being registered under the Securities Act or any other foreign or
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless: (A) subsequently registered thereunder; or (B) Lender shall
have delivered to Borrowers an opinion of counsel, in a generally acceptable
form, to the effect that such securities to be sold, assigned or transferred may
be sold, assigned or transferred pursuant to an exemption from such registration
requirements; and (ii) neither Borrower nor any other Person is under any
obligation to register such securities under the Securities Act or any foreign
or state securities laws or to comply with the terms and conditions of any
exemption thereunder, except as otherwise set forth in this Agreement.

8.7

Intentionally Left Blank.

8.8

Authorization, Enforcement. This Agreement has been duly and validly authorized,
executed and delivered on behalf of Lender and is a valid and binding agreement
of Lender enforceable in accordance with its terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.

8.9

Intentionally Left Blank.

8.10

Due Formation of Lender. Lender is an entity that has been formed and validly
exists and has not been organized for the specific purpose of purchasing the
Revolving Note and is not prohibited from doing so.

8.11

No Legal Advice from Borrower. Lender acknowledges that it had the opportunity
to review this Agreement and the transactions contemplated by this Agreement
with

33

--------------------------------------------------------------------------------

his or its own legal counsel and investment and tax advisors. Lender is relying
on such counsel and advisors and not on any statements or representations of
Borrowers or any of their representatives or agents, except as specifically set
forth in this Agreement and the other Loan Documents for legal, tax or
investment advice with respect to this investment, the transactions contemplated
by this Agreement or the securities laws of any jurisdiction; provided, however,
the foregoing shall not modify, amend or affect Lender’s right to rely on
Borrowers’ representations and warranties contained in Article 7 above,
elsewhere in this Agreement, or in any other Loan Documents.

9.

NEGATIVE COVENANTS.

9.1

Indebtedness. No Borrower shall, either directly or indirectly, create, assume,
incur or have outstanding any Funded Indebtedness (including purchase money
indebtedness), or become liable, whether as endorser, guarantor, surety or
otherwise, for any debt or obligation of any other Person, except:

(a)

the Obligations;

(b)

endorsement for collection or deposit of any commercial paper secured  in the
Ordinary Course of Business;

(c)

obligations for taxes, assessments, municipal or other governmental charges;
provided, the same are being contested in good faith by appropriate proceedings
and are insured against or bonded over to the satisfaction of Lender;

(d)

obligations for accounts payable, other than for money borrowed, and obligations
incurred in connection with committee and/or co-production agreements for movie
or book projects, to the extent incurred in the Ordinary Course of Business;
provided that, any management or similar fees payable by any Borrower shall be
fully subordinated in right of payment to the prior payment in full of the Loans
made hereunder;

(e)

obligations existing on the date hereof which are disclosed on the Financial
Statements;

(f)

unsecured intercompany Funded Indebtedness incurred in the Ordinary Course of
Business;

(g)

Funded Indebtedness existing on the Closing Date and set forth in the Financial
Statements, including any extensions or refinancings of the foregoing, which do
not increase the principal amount of such Funded Indebtedness as of the date of
such extension or refinancing; provided such Funded Indebtedness is subordinated
to the Obligations owed to Lender pursuant to a subordination agreement, in form
and content acceptable to Lender in its sole discretion, which shall include an
indefinite standstill on remedies and payment blockage rights during any
default;

(h)

Funded Indebtedness consisting of Capital Lease obligations or secured by
Permitted Liens of the type described in clause (g) of the definition thereof
not to exceed $250,000 in the aggregate at any time;

34

--------------------------------------------------------------------------------

(i)

Contingent Liabilities arising with respect to customary indemnification
obligations in favor of purchasers in connection with dispositions permitted
hereunder;

(j)

Contingent Liabilities incurred in the Ordinary Course of Business with respect
to surety and appeal bonds, performance bonds and other similar obligations; and

(k)

Contingent Liabilities arising under indemnity agreements to title insurers to
cause such title insurers to issue to Lender title insurance policies.

9.2

Encumbrances. No Borrower shall, either directly or indirectly, create, assume,
incur or suffer or permit to exist any Lien or charge of any kind or character
upon any asset of any Borrower or their Subsidiaries, whether owned at the date
hereof or hereafter acquired, except Permitted Liens or as otherwise authorized
by Lender in writing.

9.3

Investments. No Borrower shall, either directly or indirectly, make or have
outstanding any new investments (whether through purchase of stocks, obligations
or otherwise) in, or loans or advances to, any other Person, or acquire all or
any substantial part of the assets, business, stock or other evidence of
beneficial ownership of any other Person except following (it being agreed and
understood that financial commitments or obligations made by any Borrower in
committee and/or co-production agreements for movie or book projects, or
selfproduced projects, to the extent incurred in the Ordinary Course of
Business, shall not be deemedinvestments prohibited under this Section 9.3):

(a)

The stock or other ownership interests in a Subsidiary existing as of the
Closing Date;

(b)

investments in direct obligations of the United States or any state in the
United States;

(c)

trade credit extended by any Borrower in the Ordinary Course of Business;

(d)

 investments in securities of Customers received pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of such
 Customers;

(e)

investments existing on the Closing Date and set forth in the Financial
Statements;

(f)

Contingent Liabilities permitted pursuant to Section 9.1; or

(g)

Capital Expenditures permitted under Section 9.5

.

9.4

Transfer; Merger. No Borrower shall, either directly or indirectly, permit a
Change in Control, merge, consolidate, sell, transfer, license, lease, encumber
or otherwise dispose of all or any part of its property or business or all or
any substantial part of its assets, or sell or discount (with or without
recourse) any of its Notes (as defined in the UCC), Chattel Paper, Payment
Intangibles or Accounts; provided, however, that any Borrower may:

35

--------------------------------------------------------------------------------

(a)

sell or lease Inventory and Equipment in the Ordinary Course of Business;

(b)

upon not less than three (3) Business Days’ prior written notice to Lender, any
Subsidiary of any Borrower may merge with (so long as the applicable Borrower
remains the surviving entity), or dissolve or liquidate into, or transfer its
property to any Borrower;

(c)

dispose of used, worn-out or surplus equipment in the Ordinary Course of
Business;

(d)

discount or write-off overdue Accounts for collection in the Ordinary Course of
Business;

(e)

sell or otherwise dispose (including cancellation of Funded Indebtedness) of any
Investment permitted under Section 9.3 in the Ordinary Course of Business; and

(f)

grant Permitted Liens.

9.5

Capital Expenditures. Without Lender’s prior consent, no Borrower shall make or
incur obligations for any Capital Expenditures in any fiscal year.

9.6

Issuance of Stock. No Borrower shall, nor shall any Borrower permit any of its
Subsidiaries to, either directly or indirectly, issue or distribute any
additional capital stock, membership interest or other securities of any such
Borrower or their Subsidiaries without the prior written consent of Lender.

9.7

Distributions; Restricted Payments. No Borrower shall: (i) purchase or redeem
any shares of its stock or membership interests or declare or pay any dividends
or distributions, whether in cash or otherwise, set aside any funds for any such
purpose or make any distribution to its shareholders, make any distribution of
its property or assets or make any loans, advances or extensions of credit to,
or investments in, any Persons, including, without limitation, such Borrower’s
Affiliates, officers, partners or employees, without the prior written consent
of Lender; (ii) make any payments of any Funded Indebtedness other than as
permitted hereunder; or (iii) increase the annual salary paid to any officers of
any Borrower as of the Closing Date, unless any such increase is part of a
written employment contract with any such officers entered into prior to the
Closing Date, a copy of which has been delivered to and approved by the Lender.

9.8

Use of Proceeds. No Borrower, nor any of their Affiliates, shall use any portion
of the proceeds of the Loans, either directly or indirectly, for the purpose of
purchasing any securities underwritten by any Affiliate of Lender.

9.9

Business Activities; Change of Legal Status and Organizational Documents. No
Borrower shall: (i) engage in any line of business other than the businesses
engaged in on the date hereof and business reasonably related thereto; (ii)
change its name, Organizational Identification Number, its type of organization,
its jurisdictions of organization or other legal structure; or (iii) permit its
Articles of Incorporation, Bylaws, Articles of Organization or Operating
Agreement, or other organizational documents to be amended or modified in any
way which could reasonably be expected to adversely affect the interests of
Lender.

36

--------------------------------------------------------------------------------

9.10

Transactions with Affiliates. No Borrower shall enter into any transaction with
any of its Affiliates, except in the Ordinary Course of Business and upon fair
and reasonable terms that are no less favorable to such Borrower than it would
obtain in a comparable arm’s length transaction with a Person not an Affiliate
of such Borrower.

9.11

Bank Accounts. No Borrower shall maintain any bank, deposit or other accounts
with any financial institution, or any other Person, for any Borrower or any
Affiliate of any Borrower, other than Borrowers’ respective accounts listed in
the attached Schedule 7.27, and other than the Lock Box Account established
pursuant to this Agreement. Specifically, no Borrower may change, modify, close
or otherwise affect the Lock Box Account or any of the other accounts listed in
Schedule 7.26, without Lender’s prior written approval, which approval may be
withheld or conditioned in Lender’s sole and absolute discretion.

10.

AFFIRMATIVE COVENANTS.

10.1

Compliance with Regulatory Requirements. Upon demand by Lender, Borrowers shall
reimburse Lender for Lender’s additional costs and/or reductions in the amount
of principal or interest received or receivable by Lender if at any time after
the date of this Agreement any law, treaty or regulation or any change in any
law, treaty or regulation or the interpretation thereof by any governmental
authority charged with the administration thereof or any other authority having
jurisdiction over Lender or the Loans, whether or not having the force of law,
shall impose, modify or deem applicable any reserve and/or special deposit
requirement against or in respect of assets held by or deposits in or for the
account of the Loans by Lender or impose on Lender any other condition with
respect to this Agreement or the Loans, the result of which is to either
increase the cost to Lender of making or maintaining the Loans or to reduce the
amount of principal or interest received or receivable by Lender with respect to
such Loans. Said additional costs and/or reductions will be those which directly
result from the imposition of such requirement or condition on the making or
maintaining of such Loans.

10.2

Corporate Existence. Each Borrower shall at all times preserve and maintain its:
(i) existence and good standing in the jurisdiction of its organization; and
(ii) its 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 such Borrower is
presently conducting.

10.3

Maintain Property. Each Borrower shall at all times maintain, preserve and keep
its plants, properties and equipment, including, but not limited to, any
Collateral, in good repair, working order and condition, normal wear and tear
excepted, and shall from time to time, as each Borrower deems appropriate in its
reasonable judgment, 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. Each Borrower shall permit Lender to
examine and inspect such plant, properties and equipment, including, but not
limited to, any Collateral, at all reasonable times upon reasonable notice
during business hours. During the continuance of any Event of Default, Lender
shall, at Borrowers’ expense, have the right to make additional inspections
without providing advance notice.

37

--------------------------------------------------------------------------------

10.4

Maintain Insurance. Each Borrower shall at all times insure and keep insured
with insurance companies acceptable to Lender, all insurable property owned by
each Borrower which is of a character usually insured by companies similarly
situated and operating like properties, against loss or damage from
environmental, fire and such other hazards or risks as are customarily insured
against by companies similarly situated and operating like properties; and shall
similarly insure employers’, public and professional liability risks. Prior to
the date of the funding of any Loans under this Agreement, each Borrower shall
deliver to Lender a certificate setting forth in summary form the nature and
extent of the insurance maintained pursuant to this Section. All such policies
of insurance must be satisfactory to Lender in relation to the amount and term
of the Obligations and type and value of the Collateral and assets of each
Borrower, shall identify Lender as sole/lender’s loss payee and as an additional
insured. In the event any Borrower fail to provide Lender 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 Lender, without waiving
or releasing any obligation or default by any 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 premium and take any other action with
respect thereto, which Lender deems advisable. This insurance coverage: (i) may,
but need not, protect any Borrower’s interest in such property, including, but
not limited to, the Collateral; and (ii) may not pay any claim made by, or
against, any Borrower in connection with such property, including, but not
limited to, the Collateral. Any Borrower may later cancel any such insurance
purchased by Lender, but only after providing Lender with evidence that the
insurance coverage required by this Section is in force. The costs of such
insurance obtained by Lender, through and including the effective date such
insurance coverage is canceled or expires, shall be payable on demand by
Borrowers to Lender, together with interest at the Default Rate on such amounts
until repaid and any other charges by Lender in connection with the placement of
such insurance. The costs of such insurance, which may be greater than the cost
of insurance which any Borrower may be able to obtain on its own, together with
interest thereon at the Default Rate and any other charges by Lender in
connection with the placement of such insurance may be added to the total
Obligations due and owing to the extent not paid by any applicable Borrower.

10.5

Tax Liabilities.

(a)

Each Borrower shall at all times pay and discharge all property, income and
other taxes, assessments and governmental charges upon, and all claims
(including claims for labor, materials and supplies) against such Borrower or
any of its properties, Equipment or Inventory, before the same shall become
delinquent and before penalties accrue thereon, unless and to the extent that
the same are being contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP are being maintained.

(b)

Each Borrower shall be solely responsible for the payment of any and all
documentary stamps and other taxes imposed by the State of Florida in connection
with the execution of this Agreement, the Security Agreement and the Revolving
Note.

10.6

ERISA Liabilities; Employee Plans. Each 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,

38

--------------------------------------------------------------------------------

unless such withdrawal can be effected or such Employee Plans can be terminated
without liability to such Borrower; (ii) make contributions to all of such
Employee Plans in a timely manner and in a 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 Lender immediately upon receipt by such 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 Lender 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.

10.7

Financial Statements. Each Borrower shall at all times maintain a system of
accounting capable of producing its individual and consolidated financial
statements in compliance with GAAP (provided that monthly financial statements
shall not be required to have footnote disclosure, are subject to normal
year-end adjustments and need not be consolidated), and shall furnish to Lender
or its authorized representatives such information regarding the business
affairs, operations and financial condition of such Borrower as Lender may from
time to time request or require, including, but not limited to:

(a)

If the Revolving Loan Maturity Date is extended beyond the original term, as
soon as available, and in any event, within ninety (90) days after the close of
each fiscal year, a copy of the annual audited financial statements of each
Borrower, including balance sheet, statement of income and retained earnings,
statement of cash flows for the fiscal year then ended, in reasonable detail,
prepared and reviewed by an independent certified public accountant reasonably
acceptable to Lender, containing an unqualified opinion of such accountant;

(b)

as soon as available, and in any event, within sixty (60) days after the close
of each fiscal quarter, a copy of the quarterly financial statements of each
Borrower, including balance sheet, statement of income and retained earnings,
statement of cash flows for the fiscal year then ended, in reasonable detail,
prepared and certified as accurate in all material respects by the President or
Chief Financial Officer of each Borrower;

(c)

as soon as available, and in any event, within thirty (30) days following the
end of each calendar month, a copy of the financial statements of each Borrower
regarding such month, including balance sheet, statement of income and retained
earnings, statement of cash flows for the month then ended, in reasonable
detail, prepared and certified as accurate in all material respects by the
President or Chief Financial Officer of each Borrower.

No change with respect to such accounting principles shall be made by any
Borrower without giving prior notification to Lender. Each Borrower represents
and warrants to Lender that the financial statements delivered to Lender at or
prior to the execution and delivery of this Agreement and to be delivered at all
times thereafter accurately reflect and will accurately reflect the financial
condition of each Borrower in all material respects. Lender shall have the

39

--------------------------------------------------------------------------------

right at all times (and on reasonable notice so long as there then does not
exist any Event of Default) during business hours to inspect the books and
records of each Borrower and make extracts therefrom. Each Borrower shall at all
times comply with all reporting requirements of the SEC to the extent
applicable.

Each Borrower agrees to advise Lender immediately, in writing, of the occurrence
of any Material Adverse Effect, or the occurrence of any event, circumstance or
other happening that could be reasonably expected to lead to or become a
Material Adverse Effect.

10.8

Supplemental Financial Statements. Each Borrower shall promptly upon receipt
thereof, provide to Lender copies of interim and supplemental reports if any,
submitted to any Borrower by independent accountants in connection with any
interim audit or review of the books of any Borrower.

10.9

Aged Accounts/Payables Schedules. Each Borrower shall, within twenty (20) days
after the end of each calendar month, deliver to Lender an aged schedule of the
Accounts of each Borrower, listing the name and amount due from each Customer
and showing the aggregate amounts due from: (i) 0-30 days; (ii) 31-60 days;
(iii) 61-90 days; (iv) 91-120 days; and (v) more than 120 days, and certified as
accurate by the Chief Financial Officer or the President of each Borrower. Each
Borrower shall, within twenty (20) days after the end of each calendar month,
deliver to Lender an aged schedule of the accounts payable of each Borrower,
listing the name and amount due to each creditor and showing the aggregate
amounts due from: (v) 0-30 days; (w) 31-60 days; (x) 61-90 days; (y) 91-120
days; and (z) more than 120 days, and certified as accurate by the Chief
Financial Officer or the President of each Borrower.

10.10

Intentionally Left Blank.

10.11

Covenant Compliance. Borrowers shall, within thirty (30) days after the end of
each calendar month, deliver to Lender a Compliance Certificate showing
compliance by Borrowers with the covenants therein, and certified as accurate by
the President or Chief Financial Officer of Borrowers.

10.12

Continued Due Diligence/Field Audits. Borrowers acknowledge that during the term
of this Agreement, Lender and its agents and representatives undertake ongoing
and continuing due diligence reviews of Borrowers and their business and
operations. Such ongoing due diligence reviews may include, and each Borrower
does hereby allow Lender, to conduct site visits and field examinations of the
assets and records of each Borrower, the results of which must be satisfactory
to Lender in Lender’s sole and absolute discretion. In this regard, in order to
cover Lender’s expenses of the ongoing due diligence reviews and any site visits
or field examinations which Lender may undertake from time to time while this
Agreement is in effect, the Borrowers shall pay to Lender, one time per calendar
year and within five (5) Business Days after receipt of an invoice or demand
therefor from Lender, a fee of up to $20,000 per year to cover such ongoing
expenses. Failure to pay such fee as and when required shall be deemed an Event
of Default under this Agreement and all other Loan Documents. The foregoing
notwithstanding, from and after the occurrence of an Event of Default or any
event which with notice, lapse of time or both, would become an Event of
Default, Lender may conduct site visits, field examinations and other ongoing
reviews of each Borrower’s records, assets and operations

40

--------------------------------------------------------------------------------

at any time, in its sole discretion, without any limitations in terms of number
of site visits or examinations and without being limited to the fee hereby
contemplated, all at the sole expense of Borrowers.

10.13

Negative EBIDTA Notice and Other Reports. Borrowers shall provide prompt written
notice to Lender if at any time any Borrower fails to comply with Sections 11.1
and 11.2 herein. In addition, Borrowers shall, within such period of time as
Lender may reasonably specify, deliver to Lender such other schedules and
reports as Lender may reasonably require.

10.14

Collateral Records. Each Borrower shall keep full and accurate books and records
relating to the Collateral and shall mark such books and records to indicate
Lender’s Lien in the Collateral including, without limitation, placing a legend,
in form and content reasonably acceptable to Lender, on all Chattel Paper
created by Borrowers indicating that Lender has a Lien in such Chattel Paper.

10.15

Notice of Proceedings. Each Borrower shall, promptly, but not more than five (5)
days after knowledge thereof shall have come to the attention of any officer of
such Borrower, give written notice to Lender of all threatened or pending
actions, suits, and proceedings before any court or governmental department,
commission, board or other administrative agency which may have a Material
Adverse Effect.

10.16

Notice of Default. Each Borrower shall, promptly, but not more than five (5)
days after the commencement thereof, give notice to Lender in writing of the
occurrence of an Event of Default or of any event which, with the lapse of time,
the giving of notice or both, would constitute an Event of Default hereunder.

10.17

Environmental Matters. If any release or threatened release or other disposal of
Hazardous Substances shall occur or shall have occurred on any real property or
any other assets of any Borrower or any Subsidiary or Affiliate of any Borrower,
such Borrower shall cause the prompt containment and/or removal of such
Hazardous Substances and the remediation and/or operation of such real property
or other assets as necessary to comply with all Environmental Laws and to
preserve the value of such real property or other assets. Without limiting the
generality of the foregoing, each Borrower shall comply with any Federal or
state judicial or administrative order requiring the performance at any real
property of any Borrower of activities in response to the release or threatened
release of a Hazardous Substance. To the extent that the transportation of
Hazardous Substances is permitted by this Agreement, Borrowers shall dispose of
such Hazardous Substances, or of any other wastes, only at licensed disposal
facilities operating in compliance with Environmental Laws.

10.18

Reporting Status; Listing. So long as this Agreement remains in effect, and for
so long as Lender owns, legally or beneficially, any shares of Common Stock, the
Issuing Borrower shall: (i) file in a timely manner all reports required to be
filed under the Securities Act, the Exchange Act or any securities laws and
regulations thereof applicable to the Issuing Borrower of any state of the
United States, or by the rules and regulations of the Principal Trading Market,
and, to provide a copy thereof to the Lender promptly after such filing; (ii)
not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would otherwise permit such termination; (iii) if required by

41

--------------------------------------------------------------------------------

the rules and regulations of the Principal Trading Market, promptly secure the
listing of any such shares of Common Stock issuable to Lender under any Loan
Documents upon the Principal Trading Market (subject to official notice of
issuance) and, take all reasonable action under its control to maintain the
continued listing, quotation and trading of its Common Stock on the Principal
Trading Market, and the Issuing Borrower shall comply in all respects with the
Issuing Borrower’s reporting, filing and other obligations under the bylaws or
rules of the Principal Trading Market, the Financial Industry Regulatory
Authority, Inc. and such other Governmental Authorities, as applicable. The
Issuing Borrower shall promptly provide to Lender copies of any notices it
receives from the SEC or any Principal Trading Market, to the extent any such
notices could in any way have or be reasonably expected to have a Material
Adverse Effect.

 

10.19

Rule 144. With a view to making available to Lender the benefits of Rule 144
under the Securities Act (“Rule 144”), or any similar rule or regulation of the
SEC that may at any time permit Lender to sell any shares of Common Stock
issuable to Lender under any Loan Documents to the public without registration,
the Issuing Borrower represents and warrants that: (i) the Issuing Borrower is,
and has been for a period of at least ninety (90) days immediately preceding the
date hereof, subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act; (ii) the Issuing Borrower has filed all required reports under
Section 13 or 15(d) of the Exchange Act, as applicable, during the twelve (12)
months preceding the Closing Date (or for such shorter period that the Issuing
Borrower was required to file such reports); (iii) the Issuing Borrower is not
an issuer defined as a “Shell Company” (as hereinafter defined); and (iv) if the
Issuing Borrower has, at any time, been an issuer defined as a Shell Company,
the Issuing Borrower has: (A) not been an issuer defined as a Shell Company for
at least six (6) months prior to the Closing Date; and (B) has satisfied the
requirements of Rule 144(i) (including, without limitation, the proper filing of
“Form 10 information” at least six (6) months prior to the Closing Date). For
the purposes hereof, the term “Shell Company” shall mean an issuer that meets
the description defined under Rule 144. In addition, so long as Lender owns,
legally or beneficially, any securities of the Issuing Borrower, the Issuing
Borrower shall, at its sole expense:

(a)

Make, keep and ensure that adequate current public information with respect to
the Issuing Borrower, as required in accordance with Rule 144, is publicly
available;

(b)

furnish to the Lender, promptly upon reasonable request: (A) a written statement
by the Issuing Borrower that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act; and (b) such other
information as may be reasonably requested by Lender to permit the Lender to
sell any shares of Common Stock owned by Lender at any time pursuant to Rule 144
without limitation or restriction; and

(i)

promptly at the request of Lender, give the Issuing Borrower’s transfer agent
(the “Transfer Agent”) instructions to the effect that, upon the Transfer
Agent’s receipt from Lender of a certificate (a “Rule 144 Certificate”)
certifying that Lender’s holding period (as determined in accordance with the
provisions of Rule 144) for any shares of Common Stock owned by Lender from time
to time which Lender proposes to sell (or any portion of such shares which
Lender is not presently selling, but for which Lender desires to remove any
restrictive legends applicable thereto) (the “Securities Being Sold”) is not
less than six (6) months, and receipt by the Transfer Agent of the “Rule 144
Opinion” (as hereinafter defined) from the Issuing Borrower or its counsel (or
from Lender and its counsel as permitted below),

42

--------------------------------------------------------------------------------

the Transfer Agent is to effect the transfer (or issuance of a new certificate
without restrictive legends, if applicable) of the Securities Being Sold and
issue to Lender or transferee(s) thereof one or more stock certificates
representing the transferred (or re-issued) Securities Being Sold without any
restrictive legend and without recording any restrictions on the transferability
of such shares on the Transfer Agent’s books and records. In this regard, upon
Lender’s request, the Issuing Borrower shall have an affirmative obligation to
cause its counsel to promptly issue to the Transfer Agent a legal opinion
providing that, based on the Rule 144 Certificate, the Securities Being Sold may
be sold pursuant to the provisions of Rule 144, even in the absence of an
effective registration statement, or re-issued without any restrictive legends
pursuant to the provisions of Rule 144, even in the absence of an effective
registration statement (the “Rule 144 Opinion”). If the Transfer Agent requires
any additional documentation in connection with any proposed transfer (or
re-issuance) by Lender of any Securities Being Sold, the Issuing Borrower shall
promptly deliver or cause to be delivered to the Transfer Agent or to any other
Person, all such additional documentation as may be necessary to effectuate the
transfer (or re-issuance) of the Securities Being Sold and the issuance of an
unlegended certificate to any such Lender or any transferee thereof, all at the
Issuing Borrower’s expense. Any and all fees, charges or expenses, including,
without limitation, attorneys’ fees and costs, incurred by Lender in connection
with issuance of any such shares, or the removal of any restrictive legends
thereon, or the transfer of any such shares to any assignee of Lender, shall be
paid by the Issuing Borrower, and if not paid by the Issuing Borrower, the
Lender may, but shall not be required to, pay any such fees, charges or
expenses, and the amount thereof, together with interest thereon at the highest
non-usurious rate permitted by law, from the date of outlay, until paid in full,
shall be due and payable by the Issuing Borrower to Lender immediately upon
demand therefor, and all such amounts advanced by the Lender shall be additional
Obligations due under this Agreement and the Revolving Note and secured under
the Loan Documents. In the event that the Issuing Borrower and/or its counsel
refuses or fails for any reason to render the Rule 144 Opinion or any other
documents, certificates or instructions required to effectuate the transfer (or
re-issuance) of the Securities Being Sold and the issuance of an unlegended
certificate to any such Lender or any transferee thereof, then: (A) to the
extent the Securities Being Sold could be lawfully transferred (or reissued)
without restrictions under applicable laws, Issuing Borrower’s failure to
provide the Rule 144 Opinion or any other documents, certificates or
instructions required to effectuate the transfer (or re-issuance) of the
Securities Being Sold and the issuance of an unlegended certificate to any such
Lender or any transferee thereof shall be an immediate Event of Default under
this Agreement and all other Loan Documents; and (B) the Issuing Borrower hereby
agrees and acknowledges that Lender is hereby irrevocably and expressly
authorized to have counsel to Lender render any and all opinions and other
certificates or instruments which may be required for purposes of effectuating
the transfer (or re-issuance) of the Securities Being Sold and the issuance of
an unlegended certificate to any such Lender or any transferee thereof, and the
Issuing Borrower hereby irrevocably authorizes and directs the Transfer Agent
to, without any further confirmation or instructions from the Issuing Borrower,
transfer or re-issue any such Securities Being Sold as instructed by Lender and
its counsel.

10.20

Reservation of Shares. The Issuing Borrower shall take all action reasonably
necessary to at all times have authorized, and reserved for the purpose of
issuance, such number of shares of Common Stock as shall be necessary to effect
the full exercise of the Warrants in accordance with their terms (the “Share
Reserve”). If at any time the Share Reserve is insufficient to effect the full
exercise of the Warrants, the Issuing Borrower shall increase the

43

--------------------------------------------------------------------------------

Share Reserve accordingly. If the Issuing Borrower does not have sufficient
authorized and unissued shares of Common Stock available to increase the Share
Reserve, the Issuing Borrower shall call and hold a special meeting of the
shareholders within thirty (30) days of such occurrence, or take action by the
written consent of the holders of a majority of the outstanding shares of Common
Stock, if possible, for the sole purpose of increasing the number of shares
authorized. Issuing Borrower’s management shall recommend to the shareholders to
vote in favor of increasing the number of shares of Common Stock authorized.

10.21

Board Observation Rights. Until such time as all Obligations for indebtedness
hereunder have been indefeasibly paid in full and there are no further
commitments by Lender to make any further Loans hereunder, Lender shall have
board observation rights pursuant to which each Borrower shall and does hereby
permit one (1) representative of Lender to attend all meetings of the board of
directors of Borrowers (and all committee’s thereto) (the “Board of Directors”)
in a non-voting observer capacity, and shall provide such representative with
copies of all notices, minutes, written consents, and other materials that it
provides to members of the Board of Directors, at the time it provides them to
such members. The Issuing Borrower hereby covenants and agrees that it shall
hold meetings of the Board of Directors at least one time per calendar quarter.
The observation right may be exercised in person or via telephone or videophone
participation.

11.

FINANCIAL COVENANTS.

11.1

Positive EBITDA. Borrowers, collectively, shall at all times cause a positive
EBITDA to be maintained.

11.2

Revenue Covenant. For each calendar quarter while this Agreement remains in
effect, Borrowers, collectively, shall have sales revenues that are not less
than seventy-five percent (75%) of the sales revenues shown on the financial
projections provided by Borrowers to Lender as part of Lender’s due diligence.

12.

EVENTS OF DEFAULT.

Borrowers, 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”):

12.1

Nonpayment of Obligations. Any amount due and owing on the Revolving Note or any
of the Obligations, whether by its terms or as otherwise provided herein, is not
paid on the date such amount is due.

12.2

Misrepresentation. Any written warranty, representation, certificate or
statement of any Borrower in this Agreement, the Loan Documents or any other
agreement with Lender shall be false or misleading in any material respect when
made or deemed made.

12.3

Nonperformance. Any failure to perform or default in the performance of any
covenant, condition or agreement contained in this Agreement (not otherwise
addressed in this Article 12), which failure to perform or default in
performance continues for a period of thirty (30) days after any Borrower
receives notice or knowledge from any source of such failure to perform or
default in performance (provided that if the failure to perform or default in

44

--------------------------------------------------------------------------------

performance is not capable of being cured, in Lender’s sole discretion, then the
cure period set forth herein shall not be applicable and the failure or default
shall be an immediate Event of Default hereunder).

12.4

Default under Loan Documents. Any failure to perform or default in the
performance by any Borrower that continues after applicable grace and cure
periods under any covenant, condition or agreement contained in any of the other
Loan Documents or any other agreement with Lender, all of which covenants,
conditions and agreements are hereby incorporated in this Agreement by express
reference.

12.5

Default under Other Obligations. Any default by any Borrower in the payment of
principal, interest or any other sum 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, but not limited to,
any capital or operating lease or any agreement in connection with the deferred
purchase price of property), the effect of which default is to cause or permit
the holder of such obligation (or the other party to such other agreement) to
cause such obligation or agreement to become due prior to its stated maturity,
to terminate such other agreement, or to otherwise modify or adversely affect
such obligation or agreement in a manner that could have a Material Adverse
Effect on any Borrower.

12.6

Assignment for Creditors. Any Borrower makes an assignment for the benefit of
creditors, fails to pay, or admits in writing its inability to pay its debts as
they mature; or if a trustee of any substantial part of the assets of any
Borrower is applied for or appointed, and in the case of such trustee being
appointed in a proceeding brought against such Borrower, such Borrower, by any
action or failure to act indicates its approval of, consent to, or acquiescence
in such appointment and such appointment is not vacated, stayed on appeal or
otherwise shall not have ceased to continue in effect within sixty (60) days
after the date of such appointment.

12.7

Bankruptcy. Any proceeding involving any Borrower, is commenced by or against
any Borrower under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law or statute of the federal
government or any state government, and in the case of any such proceeding being
instituted against any Borrower: (i) such Borrower, by any action or failure to
act, indicates its approval of, consent to or acquiescence therein; or (ii) an
order shall be entered approving the petition in such proceedings and such order
is not vacated, stayed on appeal or otherwise shall not have ceased to continue
in effect within sixty (60) days after the entry thereof.

12.8

Judgments. The entry of any judgment, decree, levy, attachment, garnishment or
other process, or the filing of any Lien against the property of any Borrower
for an amount in excess of $50,000 and which is not fully covered by insurance
and such judgment or other process would have a Material Adverse Effect on the
ability of such Borrower to perform under this Agreement or under Loan
Documents, as determined by Lender in its sole discretion, unless such judgment
or other process shall have been, within sixty (60) days from the entry thereof:
(i) bonded over to the satisfaction of Lender and appealed; (ii) vacated; or
(iii) discharged.

12.9

Material Adverse Effect. A Material Adverse Effect shall occur.

45

--------------------------------------------------------------------------------

12.10

Change in Control. Except as permitted under this Agreement, any Change in
 Control shall occur; provided, however, a Change in Control shall not
constitute an Event of Default if: (i) it arises out of an event or circumstance
beyond the reasonable control of any Borrower (for example, but not by way of
limitation, a transfer of ownership interest due to death or incapacity); and
(ii) within sixty (60) days after such Change in Control, such Borrower provides
Lender with information concerning the identity and qualifications of the
individual or individuals who will be in Control, and such individual or
individuals shall be acceptable to Lender, in Lender’s sole discretion.

12.11

Collateral Impairment. The entry of any judgment, decree, levy, attachment,
garnishment or other process, or the filing of any Lien against, any of the
Collateral or any collateral under a separate security agreement securing any of
the Obligations, 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
Lender and appealed; (ii) vacated; or (iii) discharged, or the loss, theft,
destruction, seizure or forfeiture, or the occurrence of any material
deterioration or impairment of any of the Collateral or any of the Collateral
under any security agreement securing any of the Obligations, or any material
decline or depreciation in the value or market price thereof (whether actual or
reasonably anticipated), which causes the Collateral, in the sole opinion of
Lender acting in good faith, to become unsatisfactory as to value or character,
or which causes Lender to reasonably believe that it is insecure and that the
likelihood for repayment of the Obligations is or will soon be impaired, time
being of the essence. The cause of such deterioration, impairment, decline or
depreciation shall include, but is not limited to, the failure by any Borrower
to do any act deemed reasonably necessary by Lender to preserve and maintain the
value and collectability of the Collateral.

13.

REMEDIES.

Upon the occurrence and during the continuance of an Event of Default, Lender
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 therefor, or as
otherwise provided at law or in equity. Without limiting the generality of the
foregoing, Lender may, at its option, upon the occurrence and during the
continuance of an Event of Default, declare its commitments to Borrowers to be
terminated and all Obligations to be immediately due and payable; provided,
however, that upon the occurrence of an Event of Default under either Section
12.6, “Assignment for Creditors”, or Section 12.7, “Bankruptcy”, all commitments
of Lender to Borrowers 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 Lender. Each of the Borrowers hereby waives any
and all presentment, demand, notice of dishonor, protest, and all other notices
and demands in connection with the enforcement of Lender’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, notwithstanding anything
contained herein or in the Loan Documents to the contrary.

No Event of Default shall be waived by Lender, except and unless such waiver is
in writing and signed by Lender. No failure or delay on the part of Lender in
exercising any right, power or remedy hereunder shall operate as a waiver of the
exercise of the same or any other

46

--------------------------------------------------------------------------------

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 Lender to exercise any remedy available to Lender in
any order. The remedies provided for herein are cumulative and not exclusive of
any remedies provided at law or in equity. Each Borrower agrees that in the
event that any Borrower fails to perform, observe or discharge any of its
Obligations or liabilities under this Agreement, the Revolving Note, and other
Loan Documents, or any other agreements with Lender, no remedy of law will
provide adequate relief to Lender, and further agrees that Lender shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.

14.

MISCELLANEOUS.

14.1

Obligations Absolute. None of the following shall affect the Obligations of any
Borrower to Lender under this Agreement or Lender’s rights with respect to the
Collateral:

(a)

acceptance or retention by Lender of other property or any interest in property
as security for the Obligations;

(b)

release by Lender of all or any part of the Collateral or of any party liable
with respect to the Obligations (other than Borrowers);

(c)

release, extension, renewal, modification or substitution by Lender of the
Revolving Note, or any note evidencing any of the Obligations; or

(d)

failure of Lender to resort to any other security or to pursue any Borrower or
any other obligor liable for any of the Obligations before resorting to remedies
against the Collateral.

14.2

Entire Agreement. This Agreement and the other Loan Documents: (i) are valid,
binding and enforceable against each of the Borrowers and Lender in accordance
with its provisions and no conditions exist as to their legal effectiveness;
(ii) constitute the entire agreement between the parties; and (iii) are the
final expression of the intentions of the Borrowers and Lender. No promises,
either expressed or implied, exist between the Borrowers and Lender, unless
contained herein or in the Loan Documents. This Agreement and the Loan Documents
supersede all negotiations, representations, warranties, commitments, offers,
contracts (of any kind or nature, whether oral or written) prior to or
contemporaneous with the execution hereof.

14.3

Amendments; Waivers. No amendment, modification, termination, discharge or
waiver of any provision of this Agreement or of the Loan Documents, or consent
to any departure by Borrowers therefrom, shall in any event be effective unless
the same shall be in writing and signed by Lender, and then such waiver or
consent shall be effective only for the specific purpose for which given.

14.4

WAIVER OF DEFENSES. EACH OF THE BORROWERS WAIVES EVERY PRESENT AND FUTURE
DEFENSE, CAUSE OF ACTION, COUNTERCLAIM OR SETOFF WHICH EACH BORROWER MAY HAVE AS
OF THE DATE HEREOF TO ANY ACTION

47

--------------------------------------------------------------------------------

BY LENDER IN ENFORCING THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. EACH OF THE
BORROWERS WAIVES ANY IMPLIED COVENANT OF GOOD FAITH AND RATIFIES AND CONFIRMS
WHATEVER LENDER MAY DO PURSUANT TO THE TERMS OF THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS AS OF THE DATE OF THIS AGREEMENT. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR LENDER GRANTING ANY FINANCIAL ACCOMMODATION TO BORROWERS.

14.5

WAIVER OF JURY TRIAL. LENDER AND EACH OF THE BORROWERS, AFTER CONSULTING OR
HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES, IRREVOCABLY, THE RIGHT TO TRIAL BY JURY WITH RESPECT TO
ANY LEGAL PROCEEDING BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT, THE REVOLVING NOTE, ANY LOAN DOCUMENT OR ANY OF THE
OBLIGATIONS, THE COLLATERAL, OR ANY OTHER AGREEMENT EXECUTED OR CONTEMPLATED TO
BE EXECUTED IN CONJUNCTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT OR
COURSE OF DEALING IN WHICH LENDER AND ANY OF THE BORROWERS ARE ADVERSE PARTIES.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER GRANTING ANY FINANCIAL
ACCOMMODATION TO BORROWERS.

14.6

JURISDICTION. TO INDUCE LENDER TO MAKE THE LOANS, EACH OF THE BORROWERS
IRREVOCABLY AGREES THAT ALL ACTIONS ARISING, DIRECTLY OR INDIRECTLY, AS A RESULT
OR CONSEQUENCE OF THIS AGREEMENT, THE REVOLVING NOTE, ANY OTHER AGREEMENT WITH
LENDER OR THE COLLATERAL, SHALL BE INSTITUTED AND LITIGATED ONLY IN COURTS
HAVING THEIR SITUS IN THE COUNTY OF CLARK, NEVADA, PROVIDED THAT NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION. EACH BORROWER HEREBY
CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT
HAVING ITS SITUS IN SAID COUNTY, AND WAIVES ANY OBJECTION BASED ON FORUM NON
CONVENIENS. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY  AND ALL PROCESS
AND CONSENT THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL,
RETURN RECEIPT REQUESTED, DIRECTED TO EACH BORROWER, AS APPLICABLE, AS SET FORTH
HEREIN IN THE MANNER PROVIDED BY APPLICABLE STATUTE, LAW, RULE OF COURT OR
OTHERWISE.

14.7

Assignability. Lender may at any time assign Lender’s rights in this Agreement,
the Revolving Note, any Loan Document, the Obligations, or any part thereof and
transfer Lender’s rights in any or all of the Collateral (all in accordance with
applicable securities laws), and Lender thereafter shall be relieved from all
liability with respect to such Collateral. In addition, Lender may at any time
sell one or more participations in the Loans. No Borrower may sell or assign
this Agreement, any Loan Document or any other agreement with Lender, or any
portion thereof, either voluntarily or by operation of law, nor delegate any of
their duties or obligations hereunder or thereunder, without the prior written
consent of Lender, which consent may be withheld in Lender’s sole and absolute
discretion. This Agreement shall be binding upon

48

--------------------------------------------------------------------------------

Lender and each of the Borrowers and their respective legal representatives,
successors and permitted assigns. All references herein to a 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.

14.8

Confidentiality. Each of the parties hereto shall keep confidential any
information obtained from the other party (except information publicly available
or in such party’s domain prior to disclosure of such information from the other
party hereto, and except as required by applicable laws) and shall promptly
return to the other party all schedules, documents, instruments, work papers and
other written information without retaining copies thereof,  previously
furnished by it as a result of this Agreement or in connection herewith.

14.9

Publicity. Borrowers and Lender shall have the right to approve, before
issuance, any press release or any other public statement with respect to the
transactions contemplated hereby made by any party; provided, however, that
Borrowers shall be entitled, without the prior approval of Lender, to issue any
press release or other public disclosure with respect to such transactions
required under applicable securities or other laws or regulations.
Notwithstanding the foregoing, Borrowers shall use their best efforts to consult
Lender in connection with any such press release or other public disclosure
prior to its release and Lender shall be provided with a copy thereof upon
release thereof.

14.10

Binding Effect. This Agreement shall become effective upon execution by
Borrowers and Lender and shall bind Lender and Borrowers and their respective
successors and permitted assigns.

14.11

Governing Law. This Agreement, the Loan Documents and the Revolving Note 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 Nevada (but giving effect to
federal laws applicable to national banks), and for all purposes shall be
construed in accordance with the laws of such State, without giving effect to
the choice of law provisions of such State.

14.12

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.

14.13

Survival of Borrower’s Representations. All covenants, agreements,
representations and warranties made by each Borrower herein shall,
notwithstanding any investigation by Lender, be deemed material and relied upon
by Lender and shall survive the making and execution of this Agreement and the
Loan Documents and the issuance of the Revolving Note, and shall be deemed to be
continuing representations and warranties until such time as Borrowers have
fulfilled all of their Obligations to Lender, and Lender has been paid in full.
Lender, in extending financial accommodations to Borrowers, is expressly acting
and relying on the aforesaid representations and warranties. Lender’s
representations in Section 8

49

--------------------------------------------------------------------------------

shall survive the making and execution of this Agreement and the issuance of the
Revolving Note.

14.14

Extensions of Lender’s Commitment and the Revolving Note. This Agreement shall
secure and govern the terms of any extensions or renewals of Lender’s commitment
hereunder and the Revolving Note pursuant to the execution of any modification,
extension or renewal note executed by Borrowers and accepted by Lender in its
sole and absolute discretion in substitution for the Revolving Note.

14.15

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

14.16

Counterparts. This Agreement may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute one and the same instrument.

14.17

Electronic Signatures. Lender is hereby authorized to rely upon and accept as an
original any Loan Documents or other communication which is sent to Lender by
facsimile, telegraphic or other electronic transmission (each, a
“Communication”) which Lender in good faith believes has been signed by a
Borrower and has been delivered to Lender by a properly authorized
representative of a Borrower, whether or not that is in fact the case.
Notwithstanding the foregoing, Lender shall not be obligated to accept any such
Communication as an original and may in any instance require that an original
document be submitted to Lender in lieu of, or in addition to, any such
Communication.

14.18

Notices. Any notices, consents, waivers, or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
in each case properly addressed to the party to receive the same in accordance
with the information below, and will be deemed to have been delivered: (i) if
mailed by certified mail, return receipt requested, postage prepaid and properly
addressed to the address below, then three (3) business days after deposit of
same in a regularly maintained U.S. Mail receptacle; or (ii) if mailed by
Federal Express, UPS or other nationally recognized overnight courier service,
next business morning delivery, then one (1) business day after deposit of same
in a regularly maintained receptacle of such overnight courier; or (iii) if hand
delivered, then upon hand delivery thereof to the address indicated on or prior
to 5:00 p.m., EST, on a Business Day. Any notice hand delivered after 5:00 p.m.,
EST, shall be deemed delivered on the following Business Day. Notwithstanding
the foregoing, notice, consents, waivers or other communications referred to in
this Agreement may be sent by facsimile, e-mail, or other method of delivery,
but shall be deemed to have been delivered only when the sending party has
confirmed (by reply e-mail or some other form of written confirmation) that the
notice has been received by the other party. The addresses and facsimile numbers
for such communications shall be as set forth below, unless such address or
information is changed by a notice conforming to the requirements hereof. 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:

50

--------------------------------------------------------------------------------

If to Borrower:

 

T. O Entertainment, Inc.

90 Madison Street, Suite 701

Denver, CO 80206

Attention: Mr. Arnold Tinter

Telephone: (303) 329-3008

Facsimile: (303) 329-3819

E-Mail: atinter@c-fgroup.com

 

 

 

With a copy to:

 

Frascona, Joiner, Goodman and Greenstein, P.C.

4750 Table Mesa Drive

Boulder, CO 80305-5575

Attention: Gary S. Joiner, Esq.

Telephone: (303) 494-3000

E-Mail: gary@frascona.com

 

 

 

If to the Lender:

 

TCA Global Credit Master Fund, LP

1404 Rodman Street

Hollywood, FL 33020

Attn: Mr. Robert Press

Telephone: (786) 323-1650

Facsimile: (786) 323-1651

E-Mail: bpress@trafcap.com

 

 

 

With a copy to:

 

David Kahan, P.A.

6420 Congress Ave., Suite 1800

Boca Raton, Florida 33487

Attn: David Kahan, Esq.

E-Mail: david@dkpalaw.com

14.19

Indemnification. Each Borrower agrees to defend, protect, indemnify and hold
harmless Lender and all of its officers, directors, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (each, a “Lender Indemnitee” and
collectively, the “Lender Indemnitees”) 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 Lender Indemnitee thereto), which may be imposed on, incurred by, or
asserted against, any Lender Indemnitee (whether direct, indirect or
consequential and whether based on any federal, state or local laws or
regulations, including, without limitation, securities, Environmental Laws and
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, but not limited to, the making or issuance
and management of the Loans, the use or intended use of the proceeds of the
Loans, the enforcement of Lender’s rights and remedies under this Agreement, the
Loan Documents, the Revolving Note, any other

51

--------------------------------------------------------------------------------

instruments and documents delivered hereunder, or under any other agreement
between Borrowers and Lender; provided, however, that Borrowers shall not have
any obligations hereunder to any Lender Indemnitee with respect to matters
caused by or resulting from the willful misconduct or gross negligence of such
Lender Indemnitee. 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, Borrowers 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 Lender
Indemnitee on demand, and, failing prompt payment, shall, together with interest
thereon at the Default Rate from the date incurred by each Lender Indemnitee
until paid by Borrowers, be added to the Obligations of Borrowers and be secured
by the Collateral. The provisions of this Section shall survive the satisfaction
and payment of the other Obligations and the termination of this Agreement.

14.20

Release. In consideration of the mutual promises and covenants made herein, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and intending to be legally bound hereby, each Borrower
hereby agrees to fully, finally and forever release and forever discharge and
covenant not to sue Lender, and/or and its parent companies, subsidiaries,
affiliates, divisions, and their respective attorneys, officers, directors,
agents, shareholders, members, employees, predecessors, successors, assigns,
personal representatives, partners, heirs and executors from any and all debts,
fees, attorneys’ fees, liens, costs, expenses, damages, sums of money, accounts,
bonds, bills, covenants, promises, judgments, charges, demands, claims, causes
of action, suits, liabilities, expenses, obligations or contracts of any kind
whatsoever, whether in law or in equity, whether asserted or unasserted, whether
known or unknown, fixed or contingent, under statute or otherwise, from the
beginning of time through the Closing Date, including, without limiting the
generality of the foregoing, any and all claims relating to or arising out of
any financing transactions, credit facilities, debentures, security agreements,
and other agreements including, without limitation, each of the Loan Documents,
entered into by any Borrower with Lender and any and all claims that any
Borrower does not know or suspect to exist, whether through ignorance,
oversight, error, negligence, or otherwise, and which, if known, would
materially affect their decision to enter into this Agreement or the related
Loan Documents.

14.21

Interpretation. If any provision in this Agreement requires judicial or similar
interpretation, the judicial or other such body interpreting or construing such
provision shall not apply the assumption that the terms hereof shall be more
strictly construed against one party because of the rule that an instrument must
be construed more strictly against the party which itself or through its agents
prepared the same. The parties hereby agree that all parties and their agents
have participated in the preparation hereof equally.

14.22

Compliance with Federal Law. The Credit Parties shall: (i) ensure that no Person
who owns a controlling interest in or otherwise controls a Credit Party 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, included in any Executive Orders or any other
similar lists from any government, foreign or national; (ii) 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,
or any other similar national or foreign governmental regulations; and (iii)
comply, and cause each of such

52

--------------------------------------------------------------------------------

Credit Party’s Subsidiaries to comply, with all applicable Lender Secrecy Act
(“BSA”) laws and regulations, as amended. As required by federal law and
Lender’s policies and practices, Lender may need to obtain, verify and record
certain customer identification information and documentation in connection with
opening or maintaining accounts or establishing or continuing to provide
services.

14.23

Joint and Several Liability. The liability of all Borrowers hereunder for the
Obligations, or for the performance of any other term, condition, covenant or
agreement of any Borrower hereunder, shall be joint and several.

[REMAINDER OF PAGE LEFT BLANK, SIGNATURE PAGE FOLLOWS.]

53

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, Borrowers and Lenders have executed this Credit Agreement as
of the date first above written.

BORROWERS:

 

 

 

 

 

T. O ENTERTAINMENT, INC.,

a Colorado corporation

 

T. O ENTERTAINMENT, INC.,

a Japan corporation

 

 

 

By: /s/Takeichi Honda

Name: Takeichi Honda

Title: Chief Executive Officer

 

By: /s/Takeichi Honda

Name: Takeichi Honda

Title: Chief Executive Officer

 

 

 

T. O ENTERTAINMENT UNITED

KINGDOM LTD, a United Kingdom

corporation

 

T. O ENTERTAINMENT RUS, LLC,

a Russia limited liability company

 

 

 

By: /s/Takeichi Honda

Name: Takeichi Honda

Title: Director

 

By: /s/Takeichi Honda

Name: Takeichi Honda

Title: Founder

 

 

 

T. O ENTERTAINMENT SINGAPORE

PTE LTD, a Singapore corporation

 

 

By: /s/Takeichi Honda

Name: Takeichi Honda

Title: Director

 

 

 

 

 

LENDER:

 

 

TCA GLOBAL CREDIT MASTER FUND, LP

 

 

 

By: TCA Global Credit Fund GP, Ltd.

Its: General Partner

 

 

By: /s/ Robert Press

 

 

Robert Press, Director

 

 

54

--------------------------------------------------------------------------------

Exhibit A

Form of Borrowing Base Certificate

55

--------------------------------------------------------------------------------

Exhibit B

Form of Covenant Compliance Certificate

56

--------------------------------------------------------------------------------

Exhibit C

Form of Revolving Note

57

--------------------------------------------------------------------------------

Exhibit D

Form of Security Agreement

58

--------------------------------------------------------------------------------

Exhibit E

Form of Stock Pledge Agreement – TO Japan

59

--------------------------------------------------------------------------------

Exhibit F

Stock Pledge Agreement – Officers

60

--------------------------------------------------------------------------------

Exhibit G

Validity Guaranties

61

--------------------------------------------------------------------------------

Exhibit H

Form of Warrants

62

--------------------------------------------------------------------------------

Exhibit I

Organizational Chart

63