exv10w19w1



 






EXHIBIT 10.19.1




      



      



      



      




 




ALLIANCE CONSULTING GROUP ASSOCIATES, INC.

AND

ALLIANCE HOLDINGS, INC.




LOAN AND SECURITY AGREEMENT





 




 









 







This LOAN AND SECURITY AGREEMENT is entered into as of September 25, 2003 by and among COMERICA
BANK (“Bank”) and ALLIANCE CONSULTING GROUP ASSOCIATES, INC. and ALLIANCE HOLDINGS, INC.,
(individually, a “Borrower” and collectively, the “Borrowers”).




RECITALS




     Borrowers desire to obtain credit from time to time from Bank and Bank desires to extend
credit to Borrowers. This Agreement sets forth the terms on which Bank will advance credit to
Borrowers, and Borrowers will repay the amounts owing to Bank.



AGREEMENT




     The parties agree as follows:



     1. DEFINITIONS AND CONSTRUCTION.



          1.1 Definitions. As used in this Agreement, the following terms shall have the
following definitions:



               “Accounts” means all presently existing and hereafter arising accounts, contract rights,
payment intangibles and all other forms of obligations owing to a Borrower arising out of the sale
or lease of goods (including, without limitation, the licensing of software and other technology)
or the rendering of services by a Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing.



               “Advance” or “Advances” means a cash advance or cash advances under the Revolving Facility.



               “Affiliate” means, with respect to any Person, any Person that owns or controls directly or
indirectly such Person, any Person that controls or is controlled by or is under common control
with such Person, and each of such Person’s senior executive officers, directors, and partners.



               “Bank Expenses” means all reasonable costs or expenses (including reasonable attorneys’ fees
and expenses) incurred in connection with the preparation, negotiation, administration, and
enforcement of the Loan Documents; reasonable Collateral audit fees; and Bank’s reasonable
attorneys’ fees and expenses incurred in amending, enforcing or defending the Loan Documents
(including fees and expenses of appeal), incurred before, during and after an Insolvency
Proceeding, whether or not suit is brought.



               “Borrower’s Books” means all of a Borrower’s books and records including: ledgers; records
concerning Borrower’s assets or liabilities, the Collateral, business operations or financial
condition; and all computer programs, or tape files, and the equipment, containing such
information.



               “Borrowing Base” means an amount equal to eighty five percent (85%) of Eligible Accounts, as
determined by Bank with reference to the most recent Borrowing Base Certificate delivered by
Borrower.



               “Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in
the State of California or the Commonwealth of Pennsylvania are authorized or required to close.



               “Change in Control” shall mean a transaction in which any “person” or “group” (within the
meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly
or indirectly, of a sufficient number of shares of all classes of stock then outstanding of a
Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or
“group” to elect a majority of the Board of Directors of a Borrower, who did not have such power
before such transaction; provided that a transaction with any Affiliate of a Borrower shall
not constitute a “Change of Control.”



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               “Closing Date” means the date of this Agreement.



               “Code” means the California Uniform Commercial Code.



               “Collateral” means the property described on Exhibit A attached hereto.



               “Contingent Obligation” means, as applied to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend,
letter of credit or other obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any
obligations with respect to undrawn letters of credit, corporate credit cards, or merchant services
issued or provided for the account of that Person; and (iii) all obligations arising under any
interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate
collar agreement, or other agreement or arrangement designed to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that
the term “Contingent Obligation” shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determined amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith; provided, however, that
such amount shall not in any event exceed the maximum amount of the obligations under the guarantee
or other support arrangement.



               “Copyrights” means any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and derivative work thereof, whether
published or unpublished and whether or not the same also constitutes a trade secret, now or
hereafter existing, created, acquired or held.



               “Credit Extension” means each Advance, amounts extended to Borrower from Bank pursuant to
Bank’s sale to Borrower of foreign currency, or any other extension of credit by Bank for the
benefit of Borrower hereunder.



               “Current Assets” means, as of any applicable date, all amounts that should, in accordance with
GAAP, be included as current assets on the consolidated balance sheet of Borrower and its
Subsidiaries as at such date.



               “Current Liabilities” means, as of any applicable date, all amounts that should, in accordance
with GAAP, be included as current liabilities on the consolidated balance sheet of Borrower and its
Subsidiaries, as at such date, plus, to the extent not already included therein, all outstanding
Credit Extensions made under this Agreement, including all Indebtedness that is payable upon demand
or within one year from the date of determination thereof unless such Indebtedness is renewable or
extendible at the option of Borrower or any Subsidiary to a date more than one year from the date
of determination.



               “Daily Balance” means the amount of the Obligations owed at the end of a given day.



               “Eligible Accounts” means those Accounts that arise in the ordinary course of a Borrower’s
business that comply with all of such Borrower’s representations and warranties to Bank set forth
in Section 5.4; provided, that standards of eligibility may be fixed and revised from time to time
by Bank in Bank’s reasonable judgment and upon notification thereof to a Borrower in accordance
with the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts shall not
include the following:



               (a) Accounts that the account debtor has failed to pay within ninety (90) days of invoice
date, or, in the case of Accounts for which an invoice has not been sent, within forty five (45)
days after the date on which an obligation owing to a Borrower arises with respect to such Account;



               (b) Accounts with respect to an account debtor, thirty-five percent (35%) of whose Accounts
the account debtor has failed to pay within ninety (90) days of invoice date, provided, however,
that Eligible



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Accounts shall include Accounts that are otherwise Eligible Accounts with respect to
Borrower’s customers listed on Appendix I attached hereto, as approved by Bank in Bank’s
discretion from time to time, fifty percent (50%) of whose Accounts the account debtor has failed
to pay within ninety (90) days of invoice date;




               (c) Accounts with respect to which the account debtor is an officer, employee, or agent of a
Borrower;



               (d) Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold, or other terms by reason of which the payment by the
account debtor may be conditional;



               (e) Accounts with respect to which the account debtor is an Affiliate of a Borrower provided,
however, that Eligible Accounts shall include Accounts with respect to which the account debtor is
an Affiliate of a Borrower in an aggregate amount not to exceed Five Hundred Thousand Dollars
($500,000) at any time and only to the extent such Accounts are otherwise Eligible Accounts;



               (f) Accounts with respect to which the account debtor does not have its principal place of
business in the United States, except for Eligible Foreign Accounts;



               (g) Accounts with respect to which the account debtor is the United States or any department,
agency, or instrumentality of the United States, except for Accounts of the United States if the
payee has assigned its payment rights to Bank and the assignment has been acknowledged under the
Assignment of Claims Act of 1940 (31 U.S.C. § 3727);



               (h) Accounts with respect to which a Borrower is liable to the account debtor for goods sold
or services rendered by the account debtor to a Borrower or for deposits or other property of the
account debtor held by a Borrower, but only to the extent of any amounts owing to the account
debtor against amounts owed to a Borrower;



               (i) Accounts with respect to an account debtor, including Subsidiaries and Affiliates, whose
total obligations to Borrowers exceed thirty percent (30%) of all Accounts, to the extent such
obligations exceed the aforementioned percentage, except as approved in writing by Bank;



               (j) Accounts with respect to which the account debtor disputes liability or makes any claim
with respect thereto as to which Bank believes, in its sole discretion, that there may be a basis
for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject
to any Insolvency Proceeding, or becomes insolvent, or goes out of business; and



               (k) Accounts the collection of which Bank reasonably determines to be doubtful.



               “Eligible Foreign Accounts” means Accounts with respect to which the account debtor does not
have its principal place of business in the United States and that (i) are supported by one or more
letters of credit in an amount and of a tenor, and issued by a financial institution, acceptable to
Bank, or (ii) that Bank approves on a case-by-case basis; including, without limitation, Accounts
with IBM Canada Ltd. and any of its Affiliates.



               “Equipment” means all present and future machinery, equipment, tenant improvements, furniture,
fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.



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



               “Event of Default” has the meaning assigned in Article 8.



               “Exchange Contract” has the meaning set forth in Section 2.1(b).



               “Foreign Exchange Reserve” has the meaning set forth in Section 2.1(b).



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               “GAAP” means generally accepted accounting principles as in effect from time to time.



               “Guarantor” means Safeguard Scientifics, Inc.



               “Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of
property or services, including without limitation reimbursement and other obligations with respect
to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent Obligations.



               “Insolvency Proceeding” means any proceeding commenced by or against any person or entity
under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy
or insolvency law, including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.



               “Intellectual Property Collateral” means all of a Borrower’s right, title, and interest in and
to the following:



               (a) Copyrights, Trademarks and Patents;



               (b) Any and all trade secrets, and any and all intellectual property rights in computer
software and computer software products now or hereafter existing, created, acquired or held;



               (c) Any and all design rights which may be available to a Borrower now or hereafter existing,
created, acquired or held;



               (d) Any and all claims for damages by way of past, present and future infringement of any of
the rights included above, with the right, but not the obligation, to sue for and collect such
damages for said use or infringement of the intellectual property rights identified above;



               (e) All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all
license fees and royalties arising from such use to the extent permitted by such license or rights;



               (f) All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents;
and



               (g) All proceeds and products of the foregoing, including without limitation all payments
under insurance or any indemnity or warranty payable in respect of any of the foregoing;



               provided however, that any of the foregoing developed by a Borrower to be used exclusively by
a Borrower’s customer shall not constitute “Intellectual Property Collateral”.



               “Inventory” means all present and future inventory in which Borrower has any interest,
including merchandise, raw materials, parts, supplies, packing and shipping materials, work in
process and finished products intended for sale or lease or to be furnished under a contract of
service, of every kind and description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale
or disposition of any of the foregoing and any documents of title representing any of the above,
and Borrower’s Books relating to any of the foregoing.



               “Investment” means any beneficial ownership of (including stock, partnership interest or other
securities) any Person, or any loan, advance or capital contribution to any Person.



               “IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.



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               “Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other
encumbrance.



               “Loan Documents” means, collectively, this Agreement, any note or notes executed by Borrower,
and any other agreement entered into in connection with this Agreement, all as amended or extended
from time to time.



               “Material Adverse Effect” means a material adverse effect on (i) the business operations
condition (financial or otherwise) or prospects of a Borrower and its Subsidiaries taken as a whole
(ii) the ability of a Borrower to repay the Obligations or otherwise perform its obligations under
the Loan Documents (iii) the value or priority of Bank’s security interests in the Collateral or
(iv) the prospect of repayment of any portion of the Obligations.



               “Negotiable Collateral” means all of Borrower’s present and future letters of credit of which
it is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper,
and Borrower’s Books relating to any of the foregoing.



               “Obligations” means all debt, principal, interest, Bank Expenses and other amounts owed to
Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent,
due or to become due, now existing or hereafter arising, including any interest that accrues after
the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.



               “Patents” means all patents, patent applications and like protections including without
limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations
in part of the same.



               “Periodic Payments” means all installments or similar recurring payments that a Borrower may
now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any
instrument, or agreement now or hereafter in existence between a Borrower and Bank.



               “Permitted Indebtedness” means:



               (h) Indebtedness of a Borrower in favor of Bank arising under this Agreement or any other Loan
Document;



               (i) Indebtedness existing on the Closing Date and disclosed in the Schedule;



               (j) Indebtedness secured by a lien described in clause (c) of the defined term “Permitted
Liens,” provided (i) such Indebtedness does not exceed the lesser of the cost or fair market value
of the equipment financed with such Indebtedness and (ii) such Indebtedness does not exceed
$250,000 in the aggregate at any given time; and



               (k) Subordinated Debt.



               “Permitted Investment” means:



               (a) Investments existing on the Closing Date disclosed in the Schedule; and



               (b) (i) marketable direct obligations issued or unconditionally guaranteed by the United
States of America or any agency or any State thereof maturing within one (1) year from the date of
acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s
Corporation or Moody’s Investors Service, (iii) certificates of deposit maturing no more than one
(1) year from the date of investment therein issued by Bank, and (iv) Bank’s money market accounts.



               “Permitted Liens” means the following:



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               (a) Any Liens existing on the Closing Date and disclosed in the Schedule or arising under this
Agreement or the other Loan Documents;



               (b) Liens for taxes, fees, assessments or other governmental charges or levies, either not
delinquent or being contested in good faith by appropriate proceedings, provided the same have no
priority over any of Bank’s security interests;



               (c) Liens (i) upon or in any equipment which was not financed by Bank acquired or held by a
Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition of such equipment, or (ii) existing on
such equipment at the time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such equipment; and



               (d) Liens incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that
any extension, renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced
does not increase.



               “Person” means any individual, sole proprietorship, partnership, limited liability company,
joint venture, trust, unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or governmental agency.



               “Prime Rate” means the variable rate of interest, per annum, most recently announced by Bank,
as its “prime rate,” whether or not such announced rate is the lowest rate available from Bank.



               “Responsible Officer” means each of the Chief Executive Officer, the Chief Operating Officer,
the Chief Financial Officer and the Controller of Borrower.



               “Revolving Facility” means the facility under which Borrowers may request Bank to issue
Advances, as specified in Section 2.1(a) hereof.



               “Revolving Line” means a credit extension of up to Ten Million Dollars ($10,000,000).



               “Revolving Maturity Date” means the day before the first anniversary of the Closing Date.



               “Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any.



               “Subordinated Debt” means any debt incurred by a Borrower that is subordinated to the debt
owing by Borrower to Bank on terms acceptable to Bank (and identified as being such by Borrower and
Bank).



               “Subsidiary” means any corporation, company or partnership in which (i) any general
partnership interest or (ii) more than 50% of the stock or other units of ownership which by the
terms thereof has the ordinary voting power to elect the Board of Directors, managers or trustees
of the entity, at the time as of which any determination is being made, is owned by a Borrower,
either directly or through an Affiliate.



               “Trademarks” means any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and the entire
goodwill of the business of a Borrower connected with and symbolized by such trademarks.



          1.2 Accounting Terms. All accounting terms not specifically defined herein shall be
construed in accordance with GAAP and all calculations made hereunder shall be made in accordance
with GAAP. When used herein, the terms “financial statements” shall include the notes and
schedules thereto.



     2. LOAN AND TERMS OF PAYMENT.



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          2.1 Credit Extensions.



               Borrowers promise to pay to the order of Bank, in lawful money of the United States of
America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to each
Borrower and/or Borrowers hereunder. Borrowers shall also pay interest on the unpaid principal
amount of such Credit Extensions at rates in accordance with the terms hereof.



               (a) Revolving Advances.



                    (i) Subject to and upon the terms and conditions of this Agreement, Borrowers may request
Advances in an aggregate outstanding amount not to exceed the lesser of the Revolving Line or the
Borrowing Base, minus, in each case, the Foreign Exchange Reserve. Subject to the terms
and conditions of this Agreement, amounts borrowed pursuant to this Section 2.1(a) may be repaid
and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under
this Section 2.1(a) shall be immediately due and payable. Borrowers may prepay any Advances
without penalty or premium.



                    (ii) Whenever Borrowers desire an Advance, a Borrower will notify Bank by facsimile
transmission or telephone no later than 3:30 p.m. Eastern time, on the Business Day that the
Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance
Form in substantially the form of Exhibit B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible Officer or a designee of
a Responsible Officer, or without instructions if in Bank’s discretion such Advances are necessary
to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any
telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a
designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages or loss
suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under
this Section 2.1(a) to a Borrower’s deposit account.



               (b) Foreign Exchange Contracts.



                    (i) Subject to the terms of this Agreement, Borrowers may enter into foreign exchange
contracts (the “Exchange Contracts”) not to exceed an aggregate amount of One Million Dollars
($1,000,000) (the “Contract Limit”), pursuant to which Bank shall sell to or purchase from a
Borrower foreign currency on a spot or future basis. No Borrower shall request any Exchange
Contracts at any time it is out of compliance with any of the provisions of this Agreement. All
Exchange Contracts must provide for delivery of settlement on or before the Revolving Maturity
Date. The amount available under the Revolving Line at any time shall be reduced by the following
amounts (the “Foreign Exchange Reserve”) on any given day (the “Determination Date”): (i) on all
outstanding Exchange Contracts on which delivery is to be effected or settlement allowed more than
two (2) Business Days after the Determination Date, ten percent (10%) of the gross amount of the
Exchange Contracts; plus (ii) on all outstanding Exchange Contracts on which delivery is to be
effected or settlement allowed
within two (2) Business Days after the Determination Date, one hundred percent (100%) of the
gross amount of the Exchange Contracts.



                    (ii) Bank may, in its discretion, terminate the Exchange Contracts at any time (a) that the
Obligations have been accelerated and remain unpaid or (b) that there is not sufficient
availability under the Revolving Line and a Borrower does not have available funds in its bank
account to satisfy the Foreign Exchange Reserve. If Bank terminates the Exchange Contracts, and
without limitation of any applicable indemnities, Borrowers agree to reimburse Bank for any and all
fees, costs and expenses relating thereto or arising in connection therewith.



                    (iii) In the case of Borrowers’ purchase of foreign currency, a Borrower in advance shall
instruct Bank upon settlement either to treat the settlement amount as an advance under the
Revolving Line, or to debit Borrower’s account for the amount settled.



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                    (iv) Borrowers shall execute all standard form applications and agreements of Bank in
connection with the Exchange Contracts and, without limiting any of the terms of such applications
and agreements, Borrowers will pay all standard fees and charges of Bank in connection with the
Exchange Contracts.



                    (v) Without limiting any of the other terms of this Agreement or any such standard form
applications and agreements of Bank, Borrowers agree to indemnify Bank and hold it harmless from
and against any and all claims, debts, liabilities, demands, obligations, actions, costs and
expenses (including, without limitation, reasonable attorneys’ fees of counsel mutually acceptable
to Bank and Borrowers), of every nature and description which it may sustain or incur, based upon,
arising out of, or in any way relating to any of the Exchange Contracts or any transactions
relating thereto or contemplated thereby.



          2.2 If, at any time or for any reason, the amount of Obligations owed by Borrowers to Bank
pursuant to Sections 2.1(a) and 2.1(b) of this Agreement is greater than the lesser of (i) the
Revolving Line or (ii) the Borrowing Base, Borrowers shall immediately pay to Bank, in cash, the
amount of such excess.



          2.3 Interest Rates, Payments, and Calculations.



               (a) Interest Rates. Except as set forth in Section 2.3(b), each Advance which shall
be a Prime Rate Option Advance or a LIBOR Option Advance as elected by Borrowers pursuant to the
terms set forth in the LIBOR Addendum to Loan and Security Agreement executed in connection
herewith (provided, however, that Borrowers may not request, and at no time shall there be, greater
than five (5) LIBOR Option Advances outstanding at any time), shall bear interest on the
outstanding Daily Balance thereof at the applicable rate set forth in such LIBOR Addendum to Loan
and Security Agreement.



               (b) Default Rate. If any payment is not made within ten (10) days after the date such
payment is due, Borrowers shall pay Bank a late fee equal to the lesser of (i) five percent (5%) of
the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under
applicable law. All Obligations shall bear interest, from and after the occurrence and during the
continuance of an Event of Default, at a rate equal to five (5) percentage points above the
interest rate applicable immediately prior to the occurrence of the Event of Default.



               (c) Payments. Interest hereunder shall be due and payable on the first calendar day
of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank
Expenses, and all Periodic Payments against any of a Borrower’s deposit accounts or against the
Revolving Line, in which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the
Obligations, and such interest shall thereafter accrue interest at the rate then applicable
hereunder. All payments shall be free and clear of any taxes, withholdings, duties, impositions or
other charges, to the end that Bank will receive the entire amount of any Obligations payable
hereunder, regardless of source of payment.



               (d) Computation. In the event the Prime Rate is changed from time to time hereafter,
the applicable rate of interest hereunder shall be increased or decreased effective as of the day
the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest chargeable under
the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the
actual number of days elapsed.



          2.4 Crediting Payments. Prior to the occurrence of an Event of Default, Bank shall
credit a wire transfer of funds, check or other item of payment to such deposit account or
Obligation as Borrowers specify. After the acceleration of the Obligations and so long as the
Obligations remain unpaid, the receipt by Bank of any wire transfer of funds, check, or other item
of payment shall be immediately applied to conditionally reduce Obligations, but shall not be
considered a payment on account unless such payment is of immediately available federal funds or
unless and until such check or other item of payment is honored when presented for payment.
Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by
Bank after 3:30 p.m. Eastern time shall be deemed to have been received by Bank as of the opening
of business on the immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date that is not a
Business Day, such payment shall instead be due on the next Business Day, and additional fees or
interest, as the case may be, shall accrue and be payable for the period of such extension.



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          2.5 Fees. Borrowers shall pay to Bank the following:



               (a) Facility Fee. On the Closing Date, a Facility Fee equal to $25,000, which shall
be nonrefundable;



               (b) Commitment Fee. A Commitment Fee equal to one eighth of one percent (0.125%) per
annum of the average unused portion of the Revolving Line. Such fee shall be payable in quarterly
installments on the last day of each fiscal quarter or, in the case of the quarter in which the
Revolving Maturity Date falls, on the Revolving Maturity Date. Each quarterly installment shall be
calculated on the average unused portion of the Revolving Line during such fiscal quarter; and



               (c) Bank Expenses. On the Closing Date, all Bank Expenses incurred through the
Closing Date, including reasonable attorneys’ fees of up to $7,500, exclusive of out-of-pocket
expenses and, after the Closing Date, all Bank Expenses, including reasonable attorneys’ fees and
expenses, as and when they are incurred by Bank.



          2.6 Additional Costs. In case any law, regulation, treaty or official directive or
the interpretation or application thereof by any court or any governmental authority charged with
the administration thereof or the compliance with any guideline or request of any central bank or
other governmental authority (whether or not having the force of law):



               (a) subjects Bank to any tax with respect to payments of principal or interest or any other
amounts payable hereunder by Borrowers or otherwise with respect to the transactions contemplated
hereby (except for taxes on the overall net income of Bank imposed by the United States of America
or any political subdivision thereof);



               (b) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or
similar requirement against assets held by, or deposits in or for the account of, or loans by,
Bank; or



               (c) imposes upon Bank any other condition with respect to its performance under this
Agreement,


and the result of any of the foregoing is to increase the cost to Bank, reduce the income
receivable by Bank or impose any expense upon Bank with respect to the Obligations, Bank shall
notify Borrowers thereof. Borrowers agree to pay to Bank the amount of such increase in cost,
reduction in income or additional expense as and when such cost, reduction or expense is incurred
or determined, upon presentation by Bank of a statement of the amount and setting forth Bank’s
calculation thereof, all in reasonable detail, which statement shall be deemed true and correct
absent manifest error.




          2.7 Term. This Agreement shall become effective on the Closing Date and, subject to
Section 12.7, shall continue in full force and effect for so long as any Obligations remain
outstanding or Bank has any obligation to make Credit Extensions under this Agreement.
Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit
Extensions under this Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank’s Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.



     3. CONDITIONS OF LOANS.



          3.1 Conditions Precedent to Initial Credit Extension. The obligation of Bank to make
the initial Credit Extension is subject to the condition precedent that Bank shall have received,
in form and substance satisfactory to Bank, the following:



               (a) this Agreement;



               (b) a certificate of the Secretary of each Borrower with respect to incumbency and resolutions
authorizing the execution and delivery of this Agreement;



9









 





               (c) financing statements (Form UCC-1);



               (d) two intellectual property security agreements, duly executed by Borrowers;



               (e) an agreement to provide insurance;



               (f) an unconditional guaranty, duly executed by Guarantor;



               (g) a subordination agreement, duly executed by Guarantor;



               (h) LIBOR Addendum to Loan and Security Agreement, duly executed by Borrowers;



               (i) two securities account control agreements for each Borrower;



               (j) payment of the fees and Bank Expenses then due specified in Section 2.5 hereof;



               (k) a payoff letter from PNC Bank;



               (l) current financial statements of Borrowers for the most recent fiscal quarter; and



               (m) such other documents, and completion of such other matters, as Bank may reasonably deem
necessary or appropriate.



          3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank to make
each Credit Extension, including the initial Credit Extension, is further subject to the following
conditions:



               (a) timely receipt by Bank of the Payment/Advance Form as provided in Section 2.1; and



               (b) the representations and warranties contained in Section 5 shall be true and correct in all
material respects on and as of the date of such Payment/Advance Form and on the effective date of
each Credit Extension as though made at and as of each such date, and no Event of Default shall
have occurred and be continuing, or would exist after giving effect to such Credit Extension
(provided, however, that those representations and warranties expressly referring to another date
shall be true, correct and complete in all material respects as of such date). The making of each
Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of
such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.



          3.3 Condition Precedent to Initial Advance. The obligation of Bank to make any
Advances under the Revolving Line 45 days or more after the Closing Date is subject to the
condition precedent that Borrowers shall have used commercially reasonable efforts in assisting
Bank to complete an audit of the Collateral, the results of which are satisfactory to Bank.



     4. CREATION OF SECURITY INTEREST.



          4.1 Grant of Security Interest. Each Borrower hereby grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or arising Collateral
in order to secure prompt repayment of any and all Obligations and in order to secure prompt
performance by Borrower of each of its covenants and duties under the Loan Documents. Except as
set forth in the Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid, first priority security
interest in Collateral acquired after the date hereof.



          4.2 Delivery of Additional Documentation Required. Each Borrower shall from time to
time execute and deliver to Bank, at the request of Bank, all Negotiable Collateral, all financing
statements and other documents that Bank may reasonably request, in form satisfactory to Bank, to
perfect and continue the perfection of



10









 




Bank’s security interests in the Collateral and in order to
fully consummate all of the transactions contemplated under the Loan Documents. Borrowers from
time to time may deposit with Bank specific time deposit accounts to secure specific Obligations.
Borrowers authorize Bank to hold such balances in pledge and to decline to honor any drafts thereon
or any request by a Borrower or any other Person to pay or otherwise transfer any part of such
balances for so long as the Obligations are outstanding.




          4.3 Right to Inspect. Bank (through any of its officers, employees, or agents) shall
have the right, upon reasonable prior notice, from time to time during Borrower’s usual business
hours, but no more than twice a year (unless an Event of Default has occurred and is continuing),
to inspect Borrower’s Books and to make copies thereof and to check, test, and appraise the
Collateral in order to verify a Borrower’s financial condition or the amount, condition of, or any
other matter relating to, the Collateral.



     5. REPRESENTATIONS AND WARRANTIES.



          Each Borrower represents and warrants as follows:



          5.1 Due Organization and Qualification. Each of Borrower and each Subsidiary is a
corporation duly existing under the laws of its state of incorporation and qualified and licensed
to do business in any state in which the conduct of its business or its ownership of property
requires that it be so qualified.



          5.2 Due Authorization; No Conflict. The execution, delivery, and performance of the
Loan Documents are within Borrower’s powers, have been duly authorized, and are not in conflict
with nor constitute a breach of any provision contained in Borrower’s Articles of Incorporation or
Bylaws, nor will they constitute an event of default under any material agreement to which Borrower
is a party or by which Borrower is bound. Except as disclosed in the Schedule, Borrower is not in
default under any material agreement to which it is a party or by which it is bound.



          5.3 No Prior Encumbrances. Borrower has good and marketable title to its property,
free and clear of Liens, except for Permitted Liens.



          5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide existing
obligations. The property and services giving rise to such Eligible Accounts has been delivered or
rendered to the account debtor or to the account debtor’s agent for immediate and unconditional
acceptance by the account debtor. Neither Borrower has received notice of actual or imminent
Insolvency Proceeding of any account debtor that is included in any Borrowing Base Certificate as
an Eligible Account.



          5.5 Merchantable Inventory. All Inventory is in all material respects of good and
marketable quality, free from all material defects, except for Inventory for which adequate
reserves have been made.



          5.6 Intellectual Property Collateral. Borrower is the sole owner of the Intellectual
Property Collateral, except for non-exclusive licenses granted by Borrower to its customers in the
ordinary course of business. Each of the Patents is valid and enforceable, and no part of the
Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part, and
no claim has been made that any part of the Intellectual Property Collateral violates the rights of
any third party. Except as set forth in the Schedule, Borrower’s rights as a licensee of
intellectual property do not give rise to more than five percent (5%) of its gross revenue in any
given month, including without limitation revenue derived from the sale, licensing, rendering or
disposition of any product or service. Except as set forth in the Schedule, Borrower is not a
party to, or bound by, any agreement that restricts the grant by Borrower of a security interest in
Borrower’s rights under such agreement.



          5.7 Name; Location of Chief Executive Office. Except as disclosed in the Schedule,
Borrower has not done business under any name other than that specified on the signature page
hereof. The chief executive office of Borrower is located at the address indicated in Section 10
hereof. Except as disclosed in the Schedule, all Borrower’s Inventory and Equipment is located
only at the location set forth in Section 10 hereof and Borrower has paid for and owns all
Equipment financed by Bank hereunder.



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          5.8 Litigation. Except as set forth in the Schedule, there are no actions or
proceedings pending by or against Borrower or any Subsidiary before any court or administrative
agency in which an adverse decision could have a Material Adverse Effect or a material adverse
effect on Borrower’s interest or Bank’s security interest in the Collateral.



          5.9 No Material Adverse Change in Financial Statements. All consolidated and
consolidating financial statements related to Borrower and any Subsidiary that Bank has received
from Borrower fairly present in all material respects Borrower’s financial condition as of the date
thereof and Borrower’s consolidated and consolidating results of operations for the period then
ended. There has not been a material adverse change in the consolidated or the consolidating
financial condition of Borrower since the date of the most recent of such financial statements
submitted to Bank.



          5.10 Solvency, Payment of Debts. Except as disclosed in the Schedule, Borrower is
solvent and able to pay its debts (including trade debts) as they mature.



          5.11 Regulatory Compliance. Borrower and each Subsidiary has met the minimum funding
requirements of ERISA with respect to any employee benefit plans subject to ERISA, and no event has
occurred resulting from Borrower’s failure to comply with ERISA that could result in Borrower’s
incurring any material liability. Borrower is not an “investment company” or a company
“controlled” by an “investment company” within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of the important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within the meaning of
Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has
complied with all the provisions of the Federal Fair Labor Standards Act. Borrower has not
violated any statutes, laws, ordinances or rules applicable to it, violation of which could have a
Material Adverse Effect.



          5.12 Environmental Condition. Except as disclosed in the Schedule, none of Borrower’s
or any Subsidiary’s properties or assets has ever been used by Borrower or any Subsidiary or, to
the best of Borrower’s knowledge, by previous owners or operators, in the disposal of, or to
produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance
other than in accordance with applicable law; to the best of Borrower’s knowledge, none of
Borrower’s properties or assets has ever been designated or identified in any manner pursuant to
any environmental protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no lien arising under any
environmental protection statute has attached to any revenues or to any real or personal property
owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a
summons, citation, notice, or directive from the Environmental Protection Agency or any other
federal, state or other governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste or hazardous
substances into the environment.



          5.13 Taxes. Except as disclosed in the Schedule, Borrower and each Subsidiary has
filed or caused to be filed all tax returns required to be filed, and has paid, or has made
adequate provision for the payment of, all taxes reflected therein.



          5.14 Subsidiaries. Borrower does not own any stock, partnership interest or other
equity securities of any Person, except for Permitted Investments.



          5.15 Government Consents. Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and given all notices to,
all governmental authorities that are necessary for the continued operation of Borrower’s business
as currently conducted, the failure to obtain which could have a Material Adverse Effect.



          5.16 Accounts. None of Borrower’s nor any Subsidiary’s property is maintained or
invested with a Person other than Bank.



          5.17 Full Disclosure. No representation, warranty or other statement made by Borrower
in any certificate or written statement furnished to Bank contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the statements contained
in such certificates or statements not misleading.



12









 





     6. AFFIRMATIVE COVENANTS.



          Each Borrower covenants and agrees that, until payment in full of all outstanding Obligations,
and for so long as Bank may have any commitment to make a Credit Extension hereunder, each Borrower
shall do all of the following:



          6.1 Good Standing. Borrower shall maintain its and each of its Subsidiaries’
corporate existence and good standing in its jurisdiction of incorporation and maintain
qualification in each jurisdiction in which it is required under applicable law. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals
and agreements, the loss of which could have a Material Adverse Effect.



          6.2 Government Compliance. Borrower shall meet, and shall cause each Subsidiary to
meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject
to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes,
laws, ordinances and government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect.



          6.3 Financial Statements, Reports, Certificates. Each Borrower shall deliver the
following to Bank: (a) as soon as available, but in any event within thirty (30) days after the
end of each calendar month, a company prepared consolidated balance sheet, income, and cash flow
statement covering Borrower’s consolidated operations during such period, prepared in accordance
with GAAP, consistently applied, in a form acceptable to Bank and certified by a Responsible
Officer; (b) as soon as available, but in any event within ninety (90) days after the end of
Borrower’s fiscal year, audited consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably acceptable to Bank; (c)
within sixty (60) days after the last day of each fiscal year, a financial forecast for the current
fiscal year in form and substance satisfactory to Bank; (d) copies of all statements, reports and
notices sent or made available generally by Borrower to its security holders or to any holders of
Subordinated Debt and, if applicable, all reports on Forms 10-K and 10-Q filed with the Securities
and Exchange Commission; (d) promptly upon receipt of notice thereof, a report of any legal actions
pending or threatened against Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of $100,000 or more; (e) such budgets, sales projections, operating
plans or other financial information as Bank may reasonably request from time to time; and (f)
within thirty (30) days of the last day of each fiscal quarter, a report signed by Borrower, in
form reasonably acceptable to Bank, listing any applications or registrations that Borrower has
made or filed in respect of any Patents, Copyrights or Trademarks and the status of any outstanding
applications or registrations, as well as any material change in Borrower’s intellectual property,
including but not limited to any subsequent ownership right of Borrower in or to any Trademark,
Patent or Copyright not specified in Exhibits A, B, and C of the
Intellectual Property Security Agreement delivered to Bank by Borrower in connection with this
Agreement.



     Within twenty (20) days after the last day of each month, Borrower shall deliver to Bank a
Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit
C hereto, together with aged listings of accounts receivable and accounts payable.



     Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in substantially the form of Exhibit D hereto.



     Bank shall have a right from time to time hereafter to audit Borrower’s Accounts and appraise
Collateral at Borrower’s expense, provided that such audits will be conducted no more often than
every six (6) months unless an Event of Default has occurred and is continuing and the fees for
such audits shall be reasonable and customary for a transaction of this type.



          6.4 Inventory; Returns. Borrower shall keep all Inventory in good and marketable
condition, free from all material defects except for Inventory for which adequate reserves have
been made. Returns and allowances, if any, as between Borrower and its account debtors shall be on
the same basis and in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall promptly notify Bank of
all returns and recoveries and of all disputes and claims, where the return, recovery, dispute or
claim involves more than $100,000.



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          6.5 Taxes. Except as disclosed in the Schedule, Borrower shall make, and shall cause
each Subsidiary to make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will execute and deliver to
Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower
will make, and will cause each Subsidiary to make, timely payment or deposit of all material tax
payments and withholding taxes required of it by applicable laws, including, but not limited to,
those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income
taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that
Borrower or a Subsidiary has made such payments or deposits; provided that Borrower or a Subsidiary
need not make any payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower.



          6.6 Insurance.



               (a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by
fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as
ordinarily insured against by other owners in similar businesses conducted in the locations where
Borrower’s business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower’s business, ownership and use of the Collateral in amounts and of a type that
are customary to businesses similar to Borrower’s.



               (b) All such policies of insurance shall be in such form, with such companies, and in such
amounts as are reasonably satisfactory to Bank. All such policies of property insurance shall
contain a lender’s loss payable endorsement, in a form satisfactory to Bank, showing Bank as an
additional loss payee thereof, and all liability insurance policies shall show the Bank as an
additional insured and shall specify that the insurer must give at least twenty (20) days notice to
Bank before canceling its policy for any reason. Upon Bank’s request, Borrower shall deliver to
Bank certified copies of such policies of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at the option of Bank, be payable to
Bank to be applied on account of the Obligations.



          6.7 Accounts. Borrower shall maintain and shall cause each of its Subsidiaries to
maintain its primary depository, operating, and investment accounts with Bank and/or its
Affiliates.



          6.8 Current Ratio. Borrower shall maintain at all times, measured as of the last day
of each calendar month, a ratio of Current Assets to Current Liabilities plus, to the
extent not already included therein, all Indebtedness (including without limitation any Contingent
Obligations) owing from Borrower to Bank, less deferred revenue, of at least 1.25 to 1.00.



          6.9 Intellectual Property Rights.



               (a) Borrower shall register or cause to be registered (to the extent not already registered)
with the United States Patent and Trademark Office or the United States Copyright Office, as the
case may be, those registerable intellectual property rights now owned or hereafter developed or
acquired by Borrower, to the extent that Borrower, in its reasonable business judgment, deems it
appropriate to so protect such intellectual property rights.



               (b) Borrower shall promptly give Bank written notice of any applications or registrations of
intellectual property rights filed with the United States Patent and Trademark Office, including
the date of such filing and the registration or application numbers, if any. Borrower shall (i)
give Bank not less than 30 days prior written notice of the filing of any applications or
registrations with the United States Copyright Office, including the title of such intellectual
property rights to be registered, as such title will appear on such applications or registrations,
and the date such applications or registrations will be filed, and (ii) prior to the filing of any
such applications or registrations, shall execute such documents as Bank may reasonably request for
Bank to maintain its perfection in such intellectual property rights to be registered by Borrower,
and upon the request of Bank, shall file such documents simultaneously with the filing of any such
applications or registrations. Upon filing any such applications or registrations with the United
States Copyright Office, Borrower shall promptly provide Bank with (i) a copy of such applications
or registrations, without the exhibits, if any, thereto, (ii) evidence of the filing of any
documents requested by Bank to be filed for Bank



14









 




to maintain the perfection and priority of its
security interest in such intellectual property rights, and (iii) the date of such filing.




               (c) Borrower shall execute and deliver such additional instruments and documents from time to
time as Bank shall reasonably request to perfect and maintain the priority of Bank’s security
interest in the Intellectual Property Collateral. Borrower shall (i) protect, defend and maintain
the validity and enforceability of the trade secrets, Trademarks, Patents and Copyrights, (ii)
use commercially reasonable efforts to detect infringements of the Trademarks, Patents and
Copyrights and promptly advise Bank in writing of material infringements detected and (iii) not
allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to
the public without the written consent of Bank, which shall not be unreasonably withheld.



               (d) Bank may audit Borrower’s Intellectual Property Collateral to confirm compliance with this
Section, provided such audit may not occur more often than twice per year, unless an Event of
Default has occurred and is continuing. Bank shall have the right, but not the obligation, to
take, at Borrower’s sole expense, any actions that Borrower is required under this Section to take
but which Borrower fails to take, after 15 days’ notice to Borrower. Borrower shall reimburse and
indemnify Bank for all reasonable costs and reasonable expenses incurred in the reasonable
exercise of its rights under this Section.



          6.10 Further Assurances. At any time and from time to time Borrower shall execute and
deliver such further instruments and take such further action as may reasonably be requested by
Bank to effect the purposes of this Agreement.



     7. NEGATIVE COVENANTS.



          Each Borrower covenants and agrees that, so long as any credit hereunder shall be available
and until payment in full of the outstanding Obligations or for so long as Bank may have any
commitment to make any Credit Extensions, no Borrower will do any of the following:



          7.1 Dispositions. Except as disclosed in the Schedule, convey, sell, lease, transfer
or otherwise dispose of (collectively, a “Transfer”), or permit any of its Subsidiaries to
Transfer, all or any part of its business or
property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii)
Transfers of non-exclusive licenses and similar arrangements for the use of the property of
Borrower or its Subsidiaries in the ordinary course of business; or (iii) Transfers of worn-out or
obsolete Equipment.



          7.2 Change in Business; Change in Control or Executive Office. Engage in any
business, or permit any of its Subsidiaries to engage in any business, other than the businesses
currently engaged in by Borrower and any business substantially similar or related thereto (or
incidental thereto); or cease to conduct business in the manner conducted by Borrower as of the
Closing Date; or suffer or permit a Change in Control; or without thirty (30) days prior written
notification to Bank, relocate its chief executive office or state of incorporation or change its
legal name; or without Bank’s prior written consent, change the date on which its fiscal year ends.



          7.3 Mergers or Acquisitions. Merge or consolidate; or permit any of its Subsidiaries
to merge or consolidate, with or into any other business organization (other than any Affiliate of
a Borrower; or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of
the capital stock or property of another Person (other than any Affiliate of a Borrower).



          7.4 Indebtedness. Create, incur, assume or be or remain liable with respect to any
Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness.



          7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with respect to
any of its property, or assign or otherwise convey any right to receive income, including the sale
of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens. Agree
with any Person other than Bank not to grant a security interest in, or otherwise encumber, any of
its property, or permit any Subsidiary to do so.



15









 





          7.6 Distributions. Pay any dividends or make any other distribution or payment on
account of or in redemption, retirement or purchase of any capital stock, or permit any of its
Subsidiaries to do so, except that Borrower may repurchase the stock of former employees pursuant
to stock repurchase agreements as long as an Event of Default does not exist prior to such
repurchase or would not exist after giving effect to such repurchase.



          7.7 Investments. Directly or indirectly acquire or own, or make any Investment in or
to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments; or
maintain or invest any of its property with a Person other than Bank or permit any of its
Subsidiaries to do so unless such Person has entered into an account control agreement with Bank in
form and substance satisfactory to Bank; or suffer or permit any Subsidiary to be a party to, or be
bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise
distributing property to Borrower.



          7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower except for transactions that are in
the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated
Person.



          7.9 Subordinated Debt. Make any payment in respect of any Subordinated Debt, or
permit any of its Subsidiaries to make any such payment, except in compliance with the terms of
such Subordinated Debt, or amend any provision contained in any documentation relating to the
Subordinated Debt without Bank’s prior written consent.



          7.10 Inventory and Equipment. Store the Inventory or the Equipment with a bailee,
warehouseman, or other third party unless the third party has been notified of Bank’s security
interest and Bank (a) has received an acknowledgment from the third party that it is holding or
will hold the Inventory or Equipment for Bank’s benefit or (b) is in pledge possession of the
warehouse receipt, where negotiable, covering such Inventory or Equipment. Store or maintain any
Equipment or Inventory at a location other than the location set forth in Section 10 of this
Agreement.



          7.11 Compliance. Become an “investment company” or be controlled by an “investment
company,” within the meaning of the Investment Company Act of 1940, or become principally engaged
in, or undertake
as one of its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose.
Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards
Act or violate any law or regulation, which violation could have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Bank’s Lien on the Collateral, or
permit any of its Subsidiaries to do any of the foregoing.



          7.12 Negative Pledge Agreements. Permit the inclusion in any contract to which it or
a Subsidiary becomes a party of any provisions that could restrict or invalidate the creation of a
security interest in any of Borrower’s or such Subsidiary’s property.



     8. EVENTS OF DEFAULT.



          Any one or more of the following events shall constitute an “Event of Default” by Borrowers
under this Agreement:



          8.1 Payment Default. If Borrowers fail to pay any of the Obligations within three (3)
days of when due;



          8.2 Covenant Default. If a Borrower fails to perform any obligation under Article 6
or violates any of the covenants contained in Article 7 of this Agreement, or fails or neglects to
perform, keep, or observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other present or future
agreement between a Borrower and Bank and as to any default under such other term, provision,
condition, covenant or agreement; and a Borrower has failed to cure such default within ten (10)
days after a Borrower receives notice thereof or any officer of a Borrower becomes aware thereof;
provided, however, that if the



16









 




default cannot by its nature be cured within the ten (10) day period
or cannot after diligent attempts by Borrowers be cured within such ten (10) day period, and such
default is likely to be cured within a reasonable time, then Borrowers shall have an additional
reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to have cured such default shall not be
deemed an Event of Default but no Credit Extensions will be made;




          8.3 Material Adverse Effect. If there occurs any circumstance or circumstances that
could have a Material Adverse Effect;



          8.4 Attachment. If any portion of a Borrower’s assets is attached, seized, subjected
to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee,
receiver or person acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if a
Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs, or if a judgment or other claim becomes a lien or
encumbrance upon any material portion of a Borrower’s assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of a Borrower’s assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days after a Borrower
receives notice thereof, provided that none of the foregoing shall constitute an Event of Default
where such action or event is stayed or an adequate bond has been posted pending a good faith
contest by Borrowers (provided that no Credit Extensions will be required to be made during such
cure period);



          8.5 Insolvency. If a Borrower becomes insolvent, or if an Insolvency Proceeding is
commenced by a Borrower, or if an Insolvency Proceeding is commenced against a Borrower and is not
dismissed or stayed within thirty (30) days (provided that no Credit Extensions will be made prior
to the dismissal of such Insolvency Proceeding);



          8.6 Other Agreements. If there is a default or other failure to perform in any
agreement to which a Borrower is a party or by which it is bound resulting in a right by a third
party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an
amount in excess of $100,000); or which could have a Material Adverse Effect;



          8.7 Subordinated Debt. If a Borrower makes any payment on account of Subordinated
Debt, except to the extent such payment is allowed under any subordination agreement entered into
with Bank;



          8.8 Judgments. If a judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least $100,000 shall be rendered against a Borrower and
shall remain unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment);



          8.9 Misrepresentations. If any material misrepresentation or material misstatement
exists now or hereafter in any warranty or representation set forth herein or in any certificate
delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter
into this Agreement or any other Loan Document; or



          8.10 Guaranty. If any guaranty of all or a portion of the Obligations (a “Guaranty”)
ceases for any reason to be in full force and effect, or any guarantor fails to perform any
obligation under any Guaranty or a security agreement securing any Guaranty (collectively, the
“Guaranty Documents”), or any event of default occurs under any Guaranty Document or any guarantor
revokes or purports to revoke a Guaranty, or any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth in any Guaranty
Document or in any certificate delivered to Bank in connection with any Guaranty Document, or if
any of the circumstances described in Sections 8.3 through 8.9 occur with respect to any guarantor
or any guarantor dies or becomes subject to any criminal prosecution, or any circumstances arise
causing Bank, in good faith, to become insecure as to the satisfaction of any of any guarantor’s
obligations under the Guaranty Documents.



17









 





     9. BANK’S RIGHTS AND REMEDIES.



          9.1 Rights and Remedies. Upon the occurrence and during the continuance of an Event
of Default, Bank may, at its election, without notice of its election and without demand, do any
one or more of the following, all of which are authorized by each Borrower:



               (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan
Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event
of Default described in Section 8.5 all Obligations shall become immediately due and payable
without any action by Bank);



               (b) Cease advancing money or extending credit to or for the benefit of Borrower under this
Agreement or under any other agreement between Borrower and Bank;



               (c) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms
and in whatever order that Bank reasonably considers advisable;



               (d) Make such payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so
requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes
Bank to enter the premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank’s determination appears to be prior or superior to its security
interest and to pay all expenses incurred in connection therewith. With respect to any of
Borrower’s owned premises, Borrower hereby grants Bank a license to enter into possession of such
premises and to occupy the same, without charge, in order to exercise any of Bank’s rights or
remedies provided herein, at law, in equity, or otherwise;



               (e) Set off and apply to the Obligations any and all (i) balances and deposits of Borrower
held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;



               (f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a
license or other right, solely pursuant to the provisions of this Section 9.1, to use, without
charge, Borrower’s labels, patents, copyrights, rights of use
of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or
any property of a similar nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its
rights under this Section 9.1, Borrower’s rights under all licenses and all franchise agreements
shall inure to Bank’s benefit;



               (g) Dispose of the Collateral by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower’s premises) as Bank determines is
commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank
deems appropriate;



               (h) Bank may credit bid and purchase at any public sale; and



               (i) Any deficiency that exists after disposition of the Collateral as provided above will be
paid immediately by Borrowers.



          9.2 Power of Attorney. Effective only upon the occurrence and during the continuance
of an Event of Default, each Borrower hereby irrevocably appoints Bank (and any of Bank’s
designated officers, or employees) as such Borrower’s true and lawful attorney to: (a) send
requests for verification of Accounts or notify account debtors of Bank’s security interest in the
Accounts; (b) endorse Borrower’s name on any checks or other forms of payment or security that may
come into Bank’s possession; (c) sign Borrower’s name on any invoice or bill of lading relating to
any Account, drafts against account debtors, schedules and assignments of Accounts, verifications
of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and
adjust all claims under and decisions with respect to Borrower’s policies of insurance; (f) settle
and adjust disputes and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (g) to file,



18









 




in its sole discretion, one or
more financing or continuation statements and amendments thereto, relative to any of the
Collateral; and (h) to transfer the Intellectual Property Collateral into the name of Bank or a
third party to the extent permitted under the California Uniform Commercial Code; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the documents described in
Section 4.2 regardless of whether an Event of Default has occurred, including without limitation to
modify, in its sole discretion, any intellectual property security agreement entered into between
Borrower and Bank without first obtaining Borrower’s approval of or signature to such modification
by amending Exhibits A, B, and C, thereof, as appropriate, to include reference to any right, title
or interest in any Copyrights, Patents or Trademarks acquired by Borrower after the execution
hereof or to delete any reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which Borrower no longer has or claims to have any right, title or interest. The
appointment of Bank as each Borrower’s attorney in fact, and each and every one of Bank’s rights
and powers, being coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Bank’s obligation to provide Credit Extensions hereunder is
terminated.




          9.3 Accounts Collection. At any time during the occurrence and continuation of an
Event of Default, Bank may notify any Person owing funds to a Borrower of Bank’s security interest
in such funds and verify the amount of such Account. Each Borrower shall collect all amounts owing
to such Borrower for Bank, receive in trust all payments as Bank’s trustee, and immediately deliver
such payments to Bank in their original form as received from the account debtor, with proper
endorsements for deposit.



          9.4 Bank Expenses. If a Borrower fails to pay any amounts or furnish any required
proof of payment due to third persons or entities, as required under the terms of this Agreement,
then Bank may do any or all of the following after reasonable notice to Borrowers: (a) make
payment of the same or any part thereof; (b) set up such reserves under a loan facility in Section
2.1 as Bank deems necessary to protect Bank from the exposure created by such failure; or (c)
obtain and maintain insurance policies of the type discussed in Section 6.6 of this Agreement, and
take any action with respect to such policies as Bank deems prudent. Any amounts so paid or
deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall
bear interest at the then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar
payments in the future or a waiver by Bank of any Event of Default under this Agreement.



          9.5 Bank’s Liability for Collateral. So long as Bank complies with reasonable banking
practices, Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any
loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the
Collateral shall be borne by Borrowers.



          9.6 Remedies Cumulative. Bank’s rights and remedies under this Agreement, the Loan
Documents, and all other agreements shall be cumulative. Bank shall have all other rights and
remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise
by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on a Borrower’s part shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless
made in a written document signed on behalf of Bank and then shall be effective only in the
specific instance and for the specific purpose for which it was given.



          9.7 Demand; Protest. Each Borrower waives demand, protest, notice of protest, notice
of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees at any time held by Bank on which a Borrower may in any
way be liable.



     10. NOTICES.



          Unless otherwise provided in this Agreement, all notices or demands by any party relating to
this Agreement or any other agreement entered into in connection herewith shall be in writing and
(except for financial statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery
service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to
Borrowers or to Bank, as the case may be, at its addresses set forth below:



19









 





	 	 	 
	If to any Borrower:

	 	Alliance Consulting Group Associates, Inc. and

Alliance Holdings, Inc.

One Commerce Square

2005 Market St., Suite 3200

Philadelphia, PA 19103

Attn: Stephanie Cohen

FAX: (215) 564-4913
	 
	 	 
	with a copy to:

	 	Safeguard Scientifics, Inc

Attn: CFO

800 The Safeguard Building

435 Devon Park Drive

Wayne, PA 19087
	 
	 	 
	If to Bank:

	 	Comerica Bank

9920 S. La Cienega Blvd., Suite 1401

Inglewood, CA 90301

Attn: Manager

FAX: (310) 338-6110
	 
	 	 
	with a copy to:

	 	Comerica Bank

11921 Freedom Drive

Suite 920

Reston, VA 20190

FAX: (703) 467-9308






     The parties hereto may change the address at which they are to receive notices hereunder, by
notice in writing in the foregoing manner given to the other.



     11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.



          This Agreement shall be governed by, and construed in accordance with, the internal laws of
the State of California, without regard to principles of conflicts of law. Each of Borrower and
Bank hereby submits to the exclusive jurisdiction of the state and Federal courts located in the
County of Santa Clara, State of California. BORROWERS AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND
AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.



     12. GENERAL PROVISIONS.



          12.1 Successors and Assigns. This Agreement shall bind and inure to the benefit of
the respective successors and permitted assigns of each of the parties; provided,
however, that neither this Agreement nor any rights hereunder may be assigned by Borrower
without Bank’s prior written consent, which consent may be granted or withheld in Bank’s sole
discretion. Bank shall have the right without the consent of or notice to Borrowers to sell,
transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s
obligations, rights and benefits hereunder.



          12.2 Indemnification. Each Borrower shall defend, indemnify and hold harmless Bank
and its officers, employees, and agents against: (a) all obligations, demands, claims, and
liabilities claimed or asserted by any other party in connection with the transactions contemplated
by this Agreement; and (b) all losses or Bank Expenses in



20









 








any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to transactions
between Bank and a Borrower whether under this Agreement, or otherwise (including without
limitation reasonable attorneys fees and expenses), except for losses caused by Bank’s gross
negligence or willful misconduct.



          12.3 Time of Essence. Time is of the essence for the performance of all obligations
set forth in this Agreement.



          12.4 Severability of Provisions. Each provision of this Agreement shall be severable
from every other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.



          12.5 Amendments in Writing, Integration. Neither this Agreement nor the Loan
Documents can be amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with respect to the
subject matter of this Agreement and the Loan Documents, if any, are merged into this Agreement and
the Loan Documents.



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



          12.7 Survival. All covenants, representations and warranties made in this Agreement
shall continue in full force and effect so long as any Obligations remain outstanding or Bank has
any obligation to make Credit Extensions to Borrowers. The obligations of each Borrower to
indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in
Section 12.2 shall survive until all applicable statute of limitations periods with respect to
actions that may be brought against Bank have run.



     13. CO-BORROWER PROVISIONS.



          13.1 Primary Obligation. This Agreement is a primary and original obligation of each
Borrower and shall remain in effect notwithstanding future changes in conditions, including any
change of law or any invalidity or irregularity in the creation or acquisition of any Obligations
or in the execution or delivery of any agreement between Bank and any Borrower. Each Borrower
shall be liable for existing and future Obligations as fully as if all of all Credit Extensions
were advanced to such Borrower. Bank may rely on any certificate or representation made by any
Borrower as made on behalf of, and binding on, all Borrowers, including without limitation Advance
Request Forms, Borrowing Base Certificates and Compliance Certificates.



          13.2 Enforcement of Rights. Borrowers are jointly and severally liable for the
Obligations and Bank may proceed against one or more of the Borrowers to enforce the Obligations
without waiving its right to proceed against any of the other Borrowers.



          13.3 Borrowers as Agents. Each Borrower appoints the other Borrower as its agent with
all necessary power and authority to give and receive notices, certificates or demands for and on
behalf of both Borrowers, to act as disbursing agent for receipt of any Advances on behalf of each
Borrower and to apply to Bank on behalf of each Borrower for Advances, any waivers and any
consents. This authorization cannot be revoked, and Bank need not inquire as to each Borrower’s
authority to act for or on behalf of Borrower.



          13.4 Subrogation and Similar Rights. Notwithstanding any other provision of this
Agreement or any other Loan Document, each Borrower irrevocably waives all rights that it may have
at law or in equity (including, without limitation, any law subrogating the Borrower to the rights
of Bank under the Loan Documents) to seek contribution, indemnification, or any other form of
reimbursement from any other Borrower, or any other Person now or hereafter primarily or
secondarily liable for any of the Obligations, for any payment made by the Borrower with respect to
the Obligations in connection with the Loan Documents or otherwise and all rights that it might
have to benefit from, or to participate in, any security for the Obligations as a result of any
payment made by the Borrower with respect to the Obligations in connection with the Loan Documents
or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement
prohibited under this Section 13.4 shall be null and void. If any payment is



21









 




made to a Borrower in
contravention of this Section 13.4, such Borrower shall hold such payment in trust for Bank and
such payment shall be promptly delivered to Bank for application to the Obligations, whether
matured or unmatured.




          13.5 Waivers of Notice. Except as otherwise provided in this Agreement, each Borrower
waives notice of acceptance hereof; notice of the existence, creation or acquisition of any of the
Obligations; notice of an Event of Default; notice of the amount of the Obligations outstanding at
any time; notice of intent to accelerate; notice of acceleration; notice of any adverse change in
the financial condition of any other Borrower or of any other fact that might increase the
Borrower’s risk; presentment for payment; demand; protest and notice thereof as to any instrument;
default; and all other notices and demands to which the Borrower would otherwise be entitled. Each
Borrower waives any defense arising from any defense of any other Borrower, or by reason of the
cessation from any cause whatsoever of the liability of any other Borrower. Bank’s failure at any
time to require strict performance by any Borrower of any provision of the Loan Documents shall not
waive, alter or diminish any right of Bank thereafter to demand strict compliance and performance
therewith. Nothing contained herein shall prevent Bank from foreclosing on the Lien of any deed of
trust, mortgage or other security instrument, or exercising any rights available thereunder, and
the exercise of any such rights shall not constitute a legal or equitable discharge of any
Borrower. Each Borrower also waives any defense arising from any act or omission of Bank that
changes the scope of the Borrower’s risks hereunder.



          13.6 Subrogation Defenses. Each Borrower hereby waives any defense based on
impairment or destruction of its subrogation or other rights against any other Borrower and waives
all benefits which might otherwise be available to it under California Civil Code Sections 2809,
2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899, and 3433 and California Code of Civil Procedure
Sections 580a, 580b, 580d and 726, as those statutory provisions are now in effect and hereafter
amended, and under any other similar statutes now and hereafter in effect.



          13.7 Right to Settle, Release.



               (a) The liability of Borrowers hereunder shall not be diminished by (i) any agreement,
understanding or representation that any of the Obligations is or was to be guaranteed by another
Person or secured by other property, or (ii) any release or unenforceability, whether partial or
total, of rights, if any, which Bank may now or hereafter have against any other Person, including
another Borrower, or property with respect to any of the Obligations.



               (b) Without affecting the liability of any Borrower hereunder, Bank may (i) compromise,
settle, renew, extend the time for payment, change the manner or terms of payment, discharge the
performance of, decline to enforce, or release all or any of the Obligations with respect to a
Borrower, (ii) grant other indulgences to a Borrower in respect of the Obligations, (iii) modify in
any manner any documents relating to the Obligations with respect to a Borrower, (iv) release,
surrender or exchange any deposits or other property securing the Obligations, whether pledged by a
Borrower or any other Person, or (v) compromise, settle, renew, or extend the time for payment,
discharge the performance of, decline to enforce, or release all or any obligations of any
guarantor, endorser or other Person who is now or may hereafter be liable with respect to any of
the Obligations.



          13.8 Subordination. All indebtedness of a Borrower now or hereafter arising held by
another Borrower is subordinated to the Obligations and the Borrower holding the indebtedness shall
take all actions reasonably requested by Lender to effect, to enforce and to give notice of such
subordination.



22









 





     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
date first above written.



	 	 	 
	ALLIANCE CONSULTING GROUP
ASSOCIATES, INC.
	 
	 	 
	 
	 	 
	By:

	 	/s/ Stephanie Cohen
	

	 	 
	 
	 	 
	Title:

	 	Chief Financial Officer
	

	 	 
	 
	 	 
	ALLIANCE HOLDINGS, INC.
	 
	 	 
	 
	 	 
	By:

	 	/s/ Stephanie Cohen
	

	 	 
	 
	 	 
	Title:

	 	Authorized Corporate Signer
	

	 	 
	 
	 	 
	COMERICA BANK
	 
	 	 
	 
	 	 
	By:

	 	/s/ Carl Kopfinger
	

	 	 
	 
	 	 
	Title:

	 	First Vice President
	

	 	 







23









 








DEBTOR: ALLIANCE CONSULTING GROUP ASSOCIATES, INC. & ALLIANCE HOLDINGS, INC.




SECURED PARTY: COMERICA BANK




EXHIBIT A




COLLATERAL DESCRIPTION ATTACHMENT

TO LOAN AND SECURITY AGREEMENT




     All personal property of Borrower (herein referred to as “Borrower” or “Debtor”) whether
presently existing or hereafter created or acquired, and wherever located, including, but not
limited to:



          (a) all accounts (including health-care-insurance receivables), chattel paper (including
tangible and electronic chattel paper), deposit accounts, documents (including negotiable
documents), equipment (including all accessions and additions thereto), general intangibles
(including payment intangibles and software), goods (including fixtures), instruments (including
promissory notes), inventory (including all goods held for sale or lease or to be furnished under a
contract of service, and including returns and repossessions), investment property (including
securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books
and records with respect to any of the foregoing, and the computers and equipment containing said
books and records;



          (b) all common law and statutory copyrights and copyright registrations, applications for
registration, now existing or hereafter arising, in the United States of America or in any foreign
jurisdiction, obtained or to be obtained on or in connection with any of the forgoing, or any parts
thereof or any underlying or component elements of any of the forgoing, together with the right to
copyright and all rights to renew or extend such copyrights and the right (but not the obligation)
of Secured Party to sue in its own name and/or in the name of the Debtor for past, present and
future infringements of copyright;



          (c) all trademarks, service marks, trade names and service names and the goodwill associated
therewith, together with the right to trademark and all rights to renew or extend such trademarks
and the right (but not the obligation) of Secured Party to sue in its own name and/or in the name
of the Debtor for past, present and future infringements of trademark;



          (d) all (i) patents and patent applications filed in the United States Patent and Trademark
Office or any similar office of any foreign jurisdiction, and interests under patent license
agreements, including, without limitation, the inventions and improvements described and claimed
therein, (ii) licenses pertaining to any patent whether Debtor is licensor or licensee, (iii)
income, royalties, damages, payments, accounts and accounts receivable now or hereafter due and/or
payable under and with respect thereto, including, without limitation, damages and payments for
past, present or future infringements thereof, (iv) right (but not the obligation) to sue in the
name of Debtor and/or in the name of Secured Party for past, present and future infringements
thereof, (v) rights corresponding thereto throughout the world in all jurisdictions in which such
patents have been issued or applied for, and (vi) reissues, divisions, continuations, renewals,
extensions and continuations-in-part with respect to any of the foregoing; and



          (e) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including,
without limitation, insurance proceeds, and all supporting obligations and the security therefor or
for any right to payment. All terms above have the meanings given to them in the California
Uniform Commercial Code, as amended or supplemented from time to time, including revised Division 9
of the Uniform Commercial Code-Secured Transactions, added by Stats. 1999, c.991 (S.B. 45), Section
35, operative July 1, 2001.



24









 





EXHIBIT B




TECHNOLOGY & LIFE SCIENCES DIVISION

LOAN ANALYSIS

LOAN ADVANCE/PAYDOWN REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS 3:30 P.M. Eastern Time

DEADLINE FOR WIRE TRANSFERS IS 3:30 P.M. Eastern Time




	 	 	 	 	 	 	 	 	 
	  TO: Loan Analysis

	 	DATE:
	 	 	 	TIME:	 	 
	

	 	 	 	 
	 	 	 	 
	  FAX #: (650) 846-6840
	 	 	 	 	 	 	 	 





	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 
	 	FROM:	 	ALLIANCE CONSULTING GROUP
ASSOCIATES, INC. &
ALLIANCE
HOLDINGS, INC.

Borrower’s Name	 	 	TELEPHONE REQUEST (For Bank Use Only):	 
	 	 	 	 	 	 	The following person is authorized to request the loan payment transfer/loan advance on the
designated account and is known to me.	 
	 	FROM:
	 	 	 	 	 	 	 	 
	 	

	 	 	 	 	 	 	 	 
	 	

	 	Authorized Signer’s Name	 	 	 	 	 	 
	 	FROM:
	 	 	 	 	 	 	 	 
	 	

	 	 
	 	 	 	 	 	 
	 	

	 	Authorized Signature (Borrower)
	 	 	 	 	Authorized Request & Phone #	 
	 	PHONE #:
	 	 	 	 	 	 	 	 
	 	

	 	 
	 	 	 	 	 	 
	 	

	 	 	 	 	 	 	Received by (Bank) & Phone #	 
	 	FROM ACCOUNT#:
	 	 	 	 	 	 	 	 
	 	

	 	 	 	 	 	 	 	 
	 	(please include Note number, if applicable)	 	 	 	 	 	 
	 	

	 	 	 	 	 	 	 	 
	 	TO ACCOUNT #:

	 	 	 	 	 	 	Authorized Signature (Bank)	 
	 	

	 	 	 	 	 	 	 	 
	 	(please include Note number, if applicable)	 	 	 	 	 	 
	 	 	 	 	 	 





	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 
	 	REQUESTED TRANSACTION TYPE	 	REQUESTED DOLLAR AMOUNT	 	 	For Bank Use Only
	 
	 	 
	 	 	 	 	 	 	 	 	 	 
	 	PRINCIPAL INCREASE* (ADVANCE)

	 	$
	 	 	 	 	Date Rec’d:	 	 	 
	 	

	 	 	 	 	 	 	 	 	 	 
	 	PRINCIPAL PAYMENT (ONLY)

	 	$
	 	 	 	 	Time:	 	 	 
	 	

	 	 	 	 	 	 	 	 	 	 
	 	

	 	 	 	 	 	 	Comp. Status:
	 	YES                    NO	 
	 	OTHER INSTRUCTIONS:

	 	 	 	 	 	 	Status Date:	 	 	 
	 	

	 	 	 	 	 	 	Time:	 	 	 
	 	 	 	 	 	 	 	 
	 	

	 	 	 	 	 	 	Approval:	 	 	 
	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 






All representations and warranties of Borrower stated in the Loan and Security Agreement are true, correct and complete in all material respects as of the date of the
telephone request for and advance confirmed by this Borrowing Certificate, including without limitation the representation that Borrower has paid for and owns the
equipment financed by the Bank; provided, however, that those representations and warranties the date expressly referring to another date shall be true, correct and
complete in all material respects as of such date.



			
	 	 	 
	  *IS THERE A WIRE REQUEST TIED TO THIS LOAN ADVANCE? (PLEASE CIRCLE ONE)
	 	YES                    NO





If YES, the Outgoing Wire Transfer Instructions must be completed below.




	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	OUTGOING WIRE TRANSFER INSTRUCTIONS	 	 	Fed Reference Number	 	 	Bank Transfer Number	 
	 	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	The items marked with an asterisk (*) are required to be completed.
	 
	 	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	*Beneficiary Name
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	*Beneficiary Account Number
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	*Beneficiary Address
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Currency Type	 	 	US DOLLARS ONLY
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	*ABA Routing Number (9 Digits)
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	*Receiving Institution Name
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	*Receiving Institution Address
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	*Wire Account

	 	 	$	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 





25









 






EXHIBIT C




BORROWING BASE CERTIFICATE





 




Borrower: ALLIANCE CONSULTING GROUP ASSOCIATES, INC. & ALLIANCE HOLDINGS, INC. Lender: Comerica Bank



Commitment Amount: $10,000,000




 




	 	 	 	 	 	 	 	 	 
	ACCOUNTS RECEIVABLE	 	 	 	 
	

	 	1.
	 	Accounts Receivable Book Value as of      
	 	 	 	$                    
	

	 	2.
	 	Additions (please explain on reverse)
	 	 	 	$                    
	

	 	3.
	 	TOTAL ACCOUNTS RECEIVABLE
	 	 	 	$                    
	 
	 	 	 	 	 	 	 	 
	ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)	 	 	 	 
	

	 	4.
	 	Amounts over 90 days due
	 	$                    	 	 
	

	 	5.
	 	Balance of 35% over 90 day accounts
	 	$                    	 	 
	

	 	 	 	Balance of 50% over 90 day accounts (for
account debtors listed on Appendix 1)
	 	$                    	 	 
	

	 	6.
	 	Concentration Limits	 	 	 	 
	

	 	7.
	 	Foreign Accounts
	 	$                    	 	 
	

	 	8.
	 	Governmental Accounts
	 	$                    	 	 
	

	 	9.
	 	Contra Accounts
	 	$                    	 	 
	

	 	10.
	 	Demo Accounts
	 	$                    	 	 
	

	 	11.
	 	Intercompany/Employee Accounts
	 	$                    	 	 
	

	 	12.
	 	Other (please explain on reverse)
	 	$                    	 	 
	

	 	13.
	 	TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
	 	 	 	$                    
	

	 	14.
	 	Eligible Accounts (#3 minus #13)
	 	 	 	$                    
	

	 	15.
	 	LOAN VALUE OF ACCOUNTS (85% of #14)
	 	 	 	$                    
	 
	 	 	 	 	 	 	 	 
	BALANCES	 	 	 	 
	

	 	16.
	 	Maximum Loan Amount
	 	 	 	$                    
	

	 	17.
	 	Total Funds Available [Lesser of #16 or #15]
	 	 	 	$                    
	

	 	18.
	 	Present balance owing on Line of Credit
	 	 	 	$                    
	

	 	19.
	 	Outstanding under Sublimits (Foreign Exchange

Contracts)
	 	 	 	$                    
	

	 	20.
	 	RESERVE POSITION (#17 minus #18 and #19)
	 	 	 	$                    





The undersigned each represents and warrants that the foregoing is true, complete and correct, and
that the information reflected in this Borrowing Base Certificate complies with the representations
and warranties set forth in the Loan and Security Agreement between the undersigned and Comerica
Bank.




	 	 	 	 	 	 	 
	ALLIANCE CONSULTING GROUP ASSOCIATES, INC.	 	ALLIANCE HOLDINGS, INC.
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	By:

	 	 	 	By:	 	 
	

	 	 
	 	 	 	 
	

	 	Authorized Signer
	 	 	 	Authorized Signer






26









 





EXHIBIT D



COMPLIANCE CERTIFICATE




	 	 	 
	TO:

	 	COMERICA BANK
	 
	 	 
	FROM:

	 	ALLIANCE CONSULTING GROUP ASSOCIATES, INC. & ALLIANCE HOLDINGS, INC.






     The undersigned authorized officer of ALLIANCE CONSULTING GROUP ASSOCIATES, INC. & ALLIANCE
HOLDINGS, INC. hereby certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the “Agreement”), (i) Borrower is in complete
compliance for the period ending                      with all required covenants except as noted below
and (ii) all representations and warranties of Borrower stated in the Agreement are true and
correct as of the date hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in accordance with Generally
Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next
except as explained in an accompanying letter or footnotes.



Please indicate compliance status by circling Yes/No under “Complies” column.




	 	 	 	 	 	 	 	 	 
	Reporting Covenant	 	Required	 	 	 	Complies
	 
	 	 	 	 	 	 	 	 
	Monthly financial statements

Annual (CPA Audited)

10K and 10Q

A/R & A/P Agings, Borrowing Base Cert.

A/R Audit

IP Report

Financial Forecast

	 	Monthly within 30 days

FYE within 90 days

(as applicable)

Monthly within 20 days

Initial and Semi-Annual

Quarterly within 30 days

FYE within 60 days
	 	 	 	Yes

Yes

Yes

Yes

Yes

Yes

Yes
	 	No

No

No

No

No

No

No






	 	 	 	 	 	 	 	 	 
	Financial Covenant	 	Required	 	Actual	 	Complies
	Measured on a Monthly Basis:
	 	 	 	 	 	 	 	 
	   Minimum Current Ratio

	 	1.25:1.00* 
	 	     :1.00
	 	Yes
	 	No







* Borrower shall maintain at all times, measured as of the last day of each calendar month, a ratio
of Current Assets to Current Liabilities plus, to the extent not already included therein, all
Indebtedness (including without limitation any Contingent Obligations) owing from Borrower to Bank, less
deferred revenue, of at least 1.25 to 1.00.





	 
	Comments Regarding Exceptions:   See Attached.

	 

	 

	 

	Sincerely,

	 

	 

	 

	 
	SIGNATURE

	 

	 

	 
	TITLE

	 

	 

	 
	DATE















BANK USE ONLY




		
	Received by: 	 





AUTHORIZED SIGNER





		
	Date: 	 





		
	Verified: 	 





AUTHORIZED SIGNER





		
	Date: 	 






			
	 	 	 
	Compliance Status
 
	 	Yes                    No
















27









 








SCHEDULE OF EXCEPTIONS




Permitted Indebtedness (Section 1.1)




See Schedule Attached




Permitted Investments (Section 1.1)




None




Permitted Liens (Section 1.1)



 


Inbound Licenses (Section 5.6)




N/A




Prior Names (Section 5.7)




See Schedule Attached




Litigation (Section 5.8)




N/A





 









 








LIBOR

Addendum To Loan and Security Agreement




     This Addendum to Loan and Security Agreement (this “Addendum”) is entered into on September
25, 2003, by and between Comerica Bank (“Bank”) and Alliance Consulting Group Associates, Inc. &
Alliance Holdings, Inc. (collectively, “Borrower”). This Addendum supplements the terms of the
Loan and Security Agreement of even date herewith.


14. Definitions. Unless otherwise defined herein, all initially capitalized terms in this
Addendum shall be as defined in the Loan Agreement.




     14.1 Advance. As used herein, “Advance” means a borrowing requested by
Borrower and made by Bank under the Loan Agreement, including a LIBOR Option Advance and/or a Prime
Rate Option Advance.



     14.2 Business Day. As used herein, “Business Day” means any day except a
Saturday, Sunday or any other day designated as a holiday under Federal, Pennsylvania or California
statute or regulation.



     14.3 LIBOR. As used herein, “LIBOR” means the rate per annum (rounded upward
if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula:



	 	 	 	 	 
	LIBOR =

	 	Base LIBOR	 	 
	

	 	 	 	 
	

	 	100% — LIBOR Reserve Percentage	 	 
	 
	 	 	 	 
	(1)	 	“Base LIBOR” means the rate per annum determined by Bank at which
deposits for the relevant LIBOR Period would be offered to Bank in
the approximate amount of the relevant LIBOR Option Advance in the
inter-bank LIBOR market selected by Bank, upon request of Bank at
1:00 p.m. Eastern Time, on the day that is the first day of such
LIBOR Period.
	 
	 	 	 	 
	(2)	 	“LIBOR Reserve Percentage” means the reserve percentage prescribed
by the Board of Governors of the Federal Reserve System (or any
successor) for “Eurocurrency Liabilities” (as defined in
Regulation D of the Federal Reserve Board, as amended), adjusted
by Bank for expected changes in such reserve percentage during the
applicable LIBOR Period.






     14.4 LIBOR Business Day. As used herein, “LIBOR Business Day” means a Business Day on
which dealings in Dollar deposits may be carried out in the interbank LIBOR market.



     14.5 LIBOR Period. As used herein, “LIBOR Period” means, with respect to a
LIBOR Option Advance:



	 	 	 	 	 
	(1)	 	initially, the period commencing on, as the case may be, the date the
Advance is made or the date on which the Advance is converted to a
LIBOR Option Advance, and continuing for, in every case, a thirty
(30), sixty (60) or ninety (90) day period thereafter so long as the
LIBOR Option is quoted for such period in the applicable interbank
LIBOR market, as such period is selected by Borrower in the notice of
Advance as provided in the Loan Agreement or in the notice of
conversion as provided in this Addendum; and
	 
	 	 	 	 
	(2)	 	thereafter, each period commencing on the last day of the next
preceding LIBOR Period applicable to such LIBOR Option Advance and
continuing for, in every case, a thirty (30), sixty (60) or ninety
(90) day period thereafter so long as the LIBOR Option is quoted for
such period in the applicable interbank LIBOR market, as such period
is selected by Borrower in the notice of continuation as provided in
this Addendum.






     14.6 Loan Agreement. As used herein, “Loan Agreement” means the Loan and
Security Agreement by and between Bank and Borrower of even date herewith.



 









 





     14.7 Regulation D. As used herein, “Regulation D” means Regulation D of the
Board of Governors of the Federal Reserve System as amended or supplemented from time to time.



     14.8 Regulatory Development. As used herein, “Regulatory Development” means
any or all of the following: (i) any change in any law, regulation or interpretation thereof by
any public authority (whether or not having the force of law); (ii) the application of any existing
law, regulation or the interpretation thereof by any public authority (whether or not having the
force of law); and (iii) compliance by Bank with any request or directive (whether or not having
the force of law) of any public authority.


15. Interest Rate Options. Subject to Section 2.3(b) of the Loan Agreement, Borrower shall
have the following options regarding the interest rate to be paid by Borrower on the Advance under
the Loan Agreement:




     15.1 A rate equal to the Prime Rate as referenced in the Loan Agreement and quoted from time
to time by Bank as such rate may change from time to time (the “Prime Rate Option”); or



     15.2 A rate equal to two and one half of one percent (2.50%) above Bank’s LIBOR, (the “LIBOR
Option”), which LIBOR Option shall be in effect during the relevant LIBOR Period.


16. LIBOR Option Advance. The minimum LIBOR Option Advance will not be less than One
Million Dollars ($1,000,000) for any LIBOR Option Advance.



17. Payment of Interest on LIBOR Option Advances. Interest on each LIBOR Option Advance
shall be payable pursuant to the terms of the Loan Agreement, which provides, in part, that
interest shall be payable on the first day of each month. Interest on such LIBOR Option Advance
shall be computed on the basis of a 360-day year and shall be assessed for the actual number of
days elapsed from the first day of the LIBOR Period applicable thereto but not including the last
day thereof. Interest on each Prime Rate Option Advance shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.



18. Bank’s Records Re: LIBOR Option Advances. With respect to each LIBOR Option Advance,
Bank is hereby authorized to note the date, principal amount, interest rate and LIBOR Period
applicable thereto and any payments made thereon on Bank’s books and records (either manually or by
electronic entry) and/or on any schedule attached to the Loan Agreement, which notations shall be
prima facie evidence of the accuracy of the information noted.



19. Selection/Conversion of Interest Rate Options. At the time any Advance is requested
under the Loan Agreement and/or Borrower wishes to select the LIBOR Option for all or a portion of
the outstanding principal balance of the Loan Agreement, and at the end of each LIBOR Period,
Borrower shall give Bank notice specifying (a) the interest rate option selected by Borrower; (b)
the principal amount subject thereto; and (c) if the LIBOR Option is selected, the length of the
applicable LIBOR Period. Any such notice may be given by telephone so long as, with respect to
each LIBOR Option selected by Borrower, (i) Bank receives written confirmation from Borrower not
later than three (3) LIBOR Business Days after such telephone notice is given; and (ii) such notice
is given to Bank prior to 1:00 p.m., Eastern Time, on the first day of the LIBOR Period. For each
LIBOR Option requested hereunder, Bank will quote the applicable fixed LIBOR Rate to Borrower at
approximately 1:00 p.m., Eastern Time, on the first day of the LIBOR Period. If Borrower does not
immediately accept the rate quoted by Bank, any subsequent acceptance by Borrower shall be subject
to a redetermination of the rate by Bank; provided, however, that if Borrower fails to accept any
such quotation given, then the quoted rate shall expire and Bank shall have no obligation to
permit a LIBOR Option to be selected on such day. If no specific designation of interest is made
at the time any Advance is requested under the Loan Agreement or at the end of any LIBOR Period,
Borrower shall be deemed to have selected the Prime Rate Option for such Advance or the principal
amount to which such LIBOR Period applied. At any time the LIBOR Option is in effect, Borrower
may, at the end of the applicable LIBOR Period, convert to the Prime Rate Option. At any time the
Prime Rate Option is in effect, Borrower may convert to the LIBOR Option, and shall designate a
LIBOR Period.




     Prepayment. In the event that the LIBOR Option is the applicable interest rate for
all or any part of the outstanding principal balance of the Loan Agreement, and any payment or
prepayment of any such outstanding principal balance of the Loan Agreement shall occur on any day
other than the last day of the applicable LIBOR Period (whether voluntarily, by acceleration,
required payment, or otherwise), or if Borrower elects the LIBOR Option as the applicable interest
rate for all or any part of the outstanding principal balance of the Loan Agreement in accordance
with the terms and conditions hereof, and, subsequent to such election, but prior to the
commencement of the applicable LIBOR Period,



 









 




Borrower revokes such election for any reason whatsoever, or if the applicable
interest rate in respect of any outstanding principal balance of the Loan Agreement hereunder shall
be changed, for any reason whatsoever, from the LIBOR Option to the Prime Rate Option prior to the
last day of the applicable LIBOR Period, or if Borrower shall fail to make any payment of principal
or interest hereunder at any time that the LIBOR Option is the applicable interest rate hereunder
in respect of such outstanding principal balance of the Loan Agreement, Borrower shall reimburse
Bank, on demand, for any resulting loss, cost or expense incurred by Bank as a result thereof,
including, without limitation, any such loss, cost or expense incurred in obtaining, liquidating,
employing or redeploying deposits from third parties. Such amount payable by Borrower to Bank may
include, without limitation, an amount equal to the excess, if any, of (a) the amount of interest
which would have accrued on the amount so prepaid, or not so borrowed, refunded or converted, for
the period from the date of such prepayment or of such failure to borrow, refund or convert,
through the last day of the relevant LIBOR Period, at the applicable rate of interest for such
outstanding principal balance of the Loan Agreement, as provided under this Loan Agreement, over
(b) the amount of interest (as reasonably determined by Bank) which would have accrued to Bank on
such amount by placing such amount on deposit for a comparable period with leading banks in the
interbank LIBOR market. Calculation of any amounts payable to Bank under this paragraph shall be
made as though Bank shall have actually funded or committed to fund the relevant outstanding
principal balance of the Loan Agreement hereunder through the purchase of an underlying deposit in
an amount equal to the amount of such outstanding principal balance of the Loan Agreement and
having a maturity comparable to the relevant LIBOR Period; provided, however, that Bank may fund
the outstanding principal balance of the Loan Agreement hereunder in any manner it deems fit and
the foregoing assumptions shall be utilized only for the purpose of the calculation of amounts
payable under this paragraph. Upon the written request of Borrower, Bank shall deliver to Borrower
a certificate setting forth the basis for determining such losses, costs and expenses, which
certificate shall be conclusively presumed correct, absent manifest error. Any prepayment
hereunder shall also be accompanied by the payment of all accrued and unpaid interest on the amount
so prepaid. Any outstanding principal balance of the Loan Agreement which is bearing interest at
such time at the Prime Rate Option may be prepaid without penalty or premium. Partial prepayments
hereunder shall be applied to the installments hereunder in the inverse order of their maturities.




     BY INITIALING BELOW, BORROWER ACKNOWLEDGE(S) AND AGREE(S) THAT: (A) THERE IS NO RIGHT TO
PREPAY ANY LIBOR OPTION ADVANCE, IN WHOLE OR IN PART, WITHOUT PAYING THE PREPAYMENT AMOUNT, EXCEPT
AS OTHERWISE REQUIRED UNDER APPLICABLE LAW; (B) BORROWER SHALL BE LIABLE FOR PAYMENT OF THE
PREPAYMENT AMOUNT IF BANK EXERCISES ITS RIGHT TO ACCELERATE PAYMENT OF ANY LIBOR OPTION ADVANCE AS
PART OR ALL OF THE OBLIGATIONS OWING UNDER THE LOAN AGREEMENT, INCLUDING WITHOUT LIMITATION,
ACCELERATION UNDER A DUE-ON-SALE PROVISION; (C) BORROWER WAIVES ANY RIGHTS UNDER SECTION 2954.10 OF
THE CALIFORNIA CIVIL CODE, OR ANY SUCCESSOR STATUTE; AND (D) BANK HAS MADE EACH LIBOR OPTION
ADVANCE PURSUANT TO THE LOAN AGREEMENT IN RELIANCE ON THESE AGREEMENTS.


20. Hold Harmless and Indemnification. Any LIBOR Option Advances shall, at Bank’s option,
convert to Prime Rate Option Advances in the event that an Event of Default shall exist. Borrower
shall pay to Bank, upon demand by Bank any amounts required to compensate Bank for any loss
(including loss of anticipated profits), cost or expense incurred by such person, as a result of
the conversion of LIBOR Option Advances to Prime Rate Option Advances pursuant to the preceding
sentence. Borrower shall pay to Bank, upon the request of Bank, such amount or amounts as shall be
sufficient (in the sole good faith opinion of Bank) to compensate it for any reasonable loss, costs
or expense incurred by it as a result of any failure by Borrower to borrow a LIBOR Option Rate
Advance on the date for such borrowing specified in the relevant notice of borrowing hereunder.
Borrower agrees to indemnify Bank and to hold Bank harmless from, and to reimburse Bank on demand
for, all losses and expenses which Bank sustains or incurs as a result of (i) any payment of a
LIBOR Option Advance prior to the last day of the applicable LIBOR Period for any reason,
including, without limitation, termination of the Loan Agreement, whether pursuant to this Addendum
or the occurrence of an Event of Default; (ii) any termination of a LIBOR Period prior to the date
it would otherwise end in accordance with this Addendum; or (iii) any failure by Borrower, for any
reason, to borrow any portion of a LIBOR Option Advance.



21. Funding Losses. The indemnification and hold harmless provisions set forth in this
Addendum shall include, without limitation, all losses and expenses arising from interest and fees
that Bank pays to lenders of funds it obtains in order to fund the loans to Borrower on the basis
of the LIBOR Option(s) and all losses incurred in liquidating or re-deploying deposits from which
such funds were obtained and loss of profit for the period after termination. A written




 









 




statement by Bank to Borrower of such losses and expenses shall be conclusive and binding, absent
manifest error, for all purposes. This obligation shall survive the termination of this Addendum
and the payment of the Loan Agreement.



22. Regulatory Developments Or Other Circumstances Relating To Illegality or Impracticality of
LIBOR. If any Regulatory Development or other circumstances relating to the interbank
Euro-dollar markets shall, at any time, in Bank’s reasonable determination , make it unlawful or
impractical for Bank to fund or maintain, during any LIBOR Period, to determine or charge interest
rates based upon LIBOR, Bank shall give notice of such circumstances to Borrower and:





	 	(a)  	In the case of a LIBOR Period in progress, Borrower shall, if requested by
Bank, promptly pay any interest which had accrued prior to such request and the date of
such request shall be deemed to be the last day of the term of the LIBOR Period; and






	 	(b)  	No LIBOR Period may be designated thereafter until Bank determines that such
would be practical.




23. Additional Costs. Borrower shall pay to Bank from time to time, upon Bank’s request,
such amounts as Bank determines are needed to compensate Bank for any costs it incurred which are
attributable to Bank having made or maintained a LIBOR Option Advance or to Bank’s obligation to
make a LIBOR Option Advance, or any reduction in any amount receivable by Bank hereunder with
respect to any LIBOR Option or such obligation (such increases in costs and reductions in amounts
receivable being herein called “Additional Costs”), resulting from any Regulatory
Developments, which (i) change the basis of taxation of any amounts payable to Bank hereunder with
respect to taxation of any amounts payable to Bank hereunder with respect to any LIBOR Option
Advance (other than taxes imposed on the overall net income of Bank for any LIBOR Option Advance by
the jurisdiction where Bank is headquartered or the jurisdiction where Bank extends the LIBOR
Option Advance; (ii) impose or modify any reserve, special deposit, or similar requirements
relating to any extensions of credit or other assets of, or any deposits with or other liabilities
of, Bank (including any LIBOR Option Advance or any deposits referred to in the definition of
LIBOR); or (iii) impose any other condition affecting this Addendum (or any of such extension of
credit or liabilities). Bank shall notify Borrower of any event occurring after the date hereof
which entitles Bank to compensation pursuant to this paragraph as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation. Determinations by Bank for
purposes of this paragraph, shall be conclusive, provided that such determinations are made on a
reasonable basis.



24. Legal Effect. Except as specifically modified hereby, all of the terms and conditions
of the Loan Agreement remain in full force and effect.




     IN WITNESS WHEREOF, the parties have agreed to the foregoing as of the date first set forth
above.



	 	 	 
	ALLIANCE CONSULTING GROUP ASSOCIATES, INC.
	 
	 	 
	By:

	 	/s/ Stephanie Cohen
	

	 	 
	 
	 	 
	Title:

	 	Chief Financial Officer
	

	 	 
	 
	 	 
	 
	 	 
	ALLIANCE HOLDINGS, INC.
	 
	 	 
	By:

	 	/s/ Stephanie Cohen
	

	 	 
	 
	 	 
	Title:

	 	Authorized Corporate Signer
	

	 	 
	 
	 	 
	 
	 	 
	COMERICA BANK
	 
	 	 
	By:

	 	/s/ Carl Kopfinger
	

	 	 
	 
	 	 
	Title:

	 	First Vice President