**EXHIBIT 10.34**

 

**SECOND AMENDED AND RESTATEDLOAN AND SECURITY AGREEMENT – REVOLVING LOANS**

 

**DATED AS OF MAY 16, 2005**

 

**BETWEEN**

 

**BRIDGE HEALTHCARE FINANCE, LLC**

 

**AS LENDER,**

 

**AND**

 

**CRDENTIA CORP. (“CRDENTIA”)BAKER ANDERSON CHRISTIE, INC.(“BAKER”)NURSES NETWORK, INC.(“NURSES NETWORK”)NEW AGE STAFFING, INC. (“NEW AGE”)PSR NURSES, LTD. (“PSR LTD.”)PSR NURSE RECRUITING, INC. (“PSR RECRUITING”)PSR NURSES HOLDINGS CORP. (“PSR HOLDING”)CRDE CORP. (“CRDE”)ARIZONA HOME HEALTH CARE/PRIVATE DUTY, INC. (“AHHC”)CARE PROS STAFFING, INC. (“CARE PROS”)HIP HOLDING, INC. (“HIP”)HEALTH INDUSTRY PROFESSIONALS, L.L.C. (“HIP LLC”)TRAVMED USA, INC. (“TRAVMED”)PRIME STAFF, LP (“PRIME STAFF”)MINT MEDICAL STAFFING ODESSA, LP (“MMSO”)GHS ACQUISITION CORPORATION (“GHS”)**

 

**AS BORROWER**

 

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**Table of Contents**

 
| 1.     | DEFINITIONS                                                              |                                        |
|--------|--------------------------------------------------------------------------|---------------------------------------------|
|   |                                                                     |                                        |   |
|   | (a)                                                                      | Defined  Terms                              |   |
|   |                                                                     |                                        |   |
|   | (b)                                                                      | Accounting Terms                            |   |
|   |                                                                     |                                        |   |
|   | (c)                                                                      | Terms Defined in UCC                        |   |
|   |                                                                     |                                        |   |
|   | (d)                                                                      | Other Definitional Provisions; Construction |   |
|   |                                                                     |                                        |   |
|   | (e)                                                                      | References to Agreements, Enactments, Etc   |   |
|   |                                                                     |                                        |   |
| 2.     | LOANS                                                                    |                                        |
|   |                                                                     |                                        |   |
|   | (a)                                                                      | Revolving Loans                             |   |
|   |                                                                     |                                        |   |
|   | (b)                                                                      | Notes                                       |   |
|   |                                                                     |                                        |   |
| 3.     | MANDATORY PREPAYMENTS                                                    |                                        |
|   |                                                                     |                                        |   |
| 4.     | INTEREST, FEES AND CHARGES                                               |                                        |
|   |                                                                     |                                        |   |
|   | (a)                                                                      | Interest Rate                               |   |
|   |                                                                     |                                        |   |
|   | (b)                                                                      | Fees and Charges                            |   |
|   |                                                                     |                                        |   |
|   | (c)                                                                      | Maximum Interest                            |   |
|   |                                                                     |                                        |   |
| 5.     | COLLATERAL                                                               |                                        |
|   |                                                                     |                                        |   |
|   | (a)                                                                      | Grant of Security Interest to Lender        |   |
|   |                                                                     |                                        |   |
|   | (b)                                                                      | Other Security                              |   |
|   |                                                                     |                                        |   |
|   | (c)                                                                      | Possessory Collateral                       |   |
|   |                                                                     |                                        |   |
|   | (d)                                                                      | Electronic Chattel Paper                    |   |
|   |                                                                     |                                        |   |
|   | (e)                                                                      | Letter-of-Credit Rights                     |   |
|   |                                                                     |                                        |   |
|   | (f)                                                                      | Third-Party Collateral                      |   |
|   |                                                                     |                                        |   |
|   | (g)                                                                      | Deposit Account                             |   |
|   |                                                                     |                                        |   |
|   | (h)                                                                      | Insurance Proceeds                          |   |
|   |                                                                     |                                        |   |
| 6.     | PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS  THEREIN |                                        |
|   |                                                                     |                                        |   |
| 7.     | POSSESSION OF COLLATERAL AND RELATED MATTERS                             |                                        |
|   |                                                                     |                                        |   |
| 8.     | COLLECTIONS                                                              |                                        |
|   |                                                                     |                                        |   |
| 9.     | COLLATERAL, AVAILABILITY AND FINANCIAL REPORTS AND SCHEDULES             |                                        |
|   |                                                                     |                                        |   |
|   | (a)                                                                      | Borrowing Base Reports                      |   |
|   |                                                                     |                                        |   |
|   | (b)                                                                      | Monthly Reports                             |   |
|   |                                                                     |                                        |   |
|   | (c)                                                                      | Financial Statements                        |   |

 

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|   | (d)                                                   | Annual Projections                               |   |
|--------|-------------------------------------------------------|--------------------------------------------------|--------|
|   |                                                  |                                             |   |
|   | (e)                                                   | Explanation of Budgets and Projections           |   |
|   |                                                  |                                             |   |
|   | (f)                                                   | Invoices and Billing Statements                  |   |
|   |                                                  |                                             |   |
|   | (g)                                                   | Obligor Financial Statements and Tax  Returns    |   |
|   |                                                  |                                             |   |
|   | (h)                                                   | Other Information                                |   |
|   |                                                  |                                             |   |
|   | (i)                                                   | Post-Closing Review                              |   |
|   |                                                  |                                             |   |
|   | (j)                                                   | Public Reporting                                 |   |
|   |                                                  |                                             |   |
| 10.    | TERMINATION; AUTOMATIC RENEWAL; EARLY TERMINATION FEE |                                             |
|   |                                                  |                                             |   |
| 11.    | REPRESENTATIONS AND WARRANTIES                        |                                             |
|   |                                                  |                                             |   |
|   | (a)                                                   | Financial Statements and Other Information       |   |
|   |                                                  |                                             |   |
|   | (b)                                                   | Locations; Certain Collateral                    |   |
|   |                                                  |                                             |   |
|   | (c)                                                   | Loans by Borrower                                |   |
|   |                                                  |                                             |   |
|   | (d)                                                   | Accounts                                         |   |
|   |                                                  |                                             |   |
|   | (e)                                                   | Liens                                            |   |
|   |                                                  |                                             |   |
|   | (f)                                                   | Organization, Authority and No Conflict          |   |
|   |                                                  |                                             |   |
|   | (g)                                                   | Litigation                                       |   |
|   |                                                  |                                             |   |
|   | (h)                                                   | Compliance with Laws and Maintenance of  Permits |   |
|   |                                                  |                                             |   |
|   | (i)                                                   | Affiliate Transactions                           |   |
|   |                                                  |                                             |   |
|   | (j)                                                   | Names and Trade Names                            |   |
|   |                                                  |                                             |   |
|   | (k)                                                   | Equipment                                        |   |
|   |                                                  |                                             |   |
|   | (l)                                                   | Enforceability                                   |   |
|   |                                                  |                                             |   |
|   | (m)                                                   | Solvency                                         |   |
|   |                                                  |                                             |   |
|   | (n)                                                   | Indebtedness                                     |   |
|   |                                                  |                                             |   |
|   | (o)                                                   | Margin Security and Use of Proceeds              |   |
|   |                                                  |                                             |   |
|   | (p)                                                   | Parent, Subsidiaries and Affiliates              |   |
|   |                                                  |                                             |   |
|   | (q)                                                   | No  Defaults                                     |   |
|   |                                                  |                                             |   |
|   | (r)                                                   | Employee Matters                                 |   |
|   |                                                  |                                             |   |
|   | (s)                                                   | Intellectual Property                            |   |
|   |                                                  |                                             |   |
|   | (t)                                                   | Environmental Matters                            |   |
|   |                                                  |                                             |   |
|   | (u)                                                   | ERISA  Matters                                   |   |
|   |                                                  |                                             |   |
|   | (v)                                                   | Eligible Accounts                                |   |
|   |                                                  |                                             |   |
|   | (w)                                                   | Reimbursement                                    |   |

 

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|   | (x)                   | Compliance with Healthcare Regulations                                                                     |   |
|--------|-----------------------|------------------------------------------------------------------------------------------------------------|--------|
|   |                  |                                                                                                       |   |
|   | (y)                   | Immigration Matters                                                                                        |   |
|   |                  |                                                                                                       |   |
|   | (z)                   | Licenses, Permits, etc                                                                                     |   |
|   |                  |                                                                                                       |   |
|   | (aa)                  | Collective Enterprise                                                                                      |   |
|   |                  |                                                                                                       |   |
|   | (bb)                  | Acquisition                                                                                                |   |
|   |                  |                                                                                                       |   |
|   | (cc)                  | Certain Financial Information                                                                              |   |
|   |                  |                                                                                                       |   |
| 12.    | AFFIRMATIVE COVENANTS |                                                                                                       |
|   |                  |                                                                                                       |   |
|   | (a)                   | Maintenance of Records                                                                                     |   |
|   |                  |                                                                                                       |   |
|   | (b)                   | Notices                                                                                                    |   |
|   |                  |                                                                                                       |   |
|   | (c)                   | Compliance with Laws and Maintenance of  Permits                                                           |   |
|   |                  |                                                                                                       |   |
|   | (d)                   | Inspection and Audits                                                                                      |   |
|   |                  |                                                                                                       |   |
|   | (e)                   | Insurance                                                                                                  |   |
|   |                  |                                                                                                       |   |
|   | (f)                   | Collateral                                                                                                 |   |
|   |                  |                                                                                                       |   |
|   | (g)                   | Use of Proceeds                                                                                            |   |
|   |                  |                                                                                                       |   |
|   | (h)                   | Taxes                                                                                                      |   |
|   |                  |                                                                                                       |   |
|   | (i)                   | Intellectual Property                                                                                      |   |
|   |                  |                                                                                                       |   |
|   | (j)                   | Staffing Contracts                                                                                         |   |
|   |                  |                                                                                                       |   |
|   | (k)                   | Billing and Collection System                                                                              |   |
|   |                  |                                                                                                       |   |
| 13.    | NEGATIVE COVENANTS    |                                                                                                       |
|   |                  |                                                                                                       |   |
|   | (a)                   | Indebtedness                                                                                               |   |
|   |                  |                                                                                                       |   |
|   | (b)                   | Liens                                                                                                      |   |
|   |                  |                                                                                                       |   |
|   | (c)                   | Mergers, Sales, Acquisitions, Subsidiaries  and Other Transactions Outside the Ordinary Course of Business |   |
|   |                  |                                                                                                       |   |
|   | (d)                   | Dividends and Distributions                                                                                |   |
|   |                  |                                                                                                       |   |
|   | (e)                   | Investments; Loans                                                                                         |   |
|   |                  |                                                                                                       |   |
|   | (f)                   | Fundamental Changes, Line of Business                                                                      |   |
|   |                  |                                                                                                       |   |
|   | (g)                   | Equipment                                                                                                  |   |
|   |                  |                                                                                                       |   |
|   | (h)                   | Affiliate Transactions                                                                                     |   |
|   |                  |                                                                                                       |   |
|   | (i)                   | Settling of Accounts                                                                                       |   |
|   |                  |                                                                                                       |   |
|   | (j)                   | Restricted Payments                                                                                        |   |
|   |                  |                                                                                                       |   |
|   | (k)                   | Restricted Locations                                                                                       |   |
|   |                  |                                                                                                       |   |
|   | (l)                   | Payments to Travmed                                                                                        |   |

 

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| 14.    | FINANCIAL COVENANTS                                     |                                                                        |
|--------|---------------------------------------------------------|-----------------------------------------------------------------------------|
|   |                                                    |                                                                        |   |
|   | (a)                                                     | Tangible Net Worth                                                          |   |
|   |                                                    |                                                                        |   |
|   | (b)                                                     | Senior Debt Service Coverage Ratio                                          |   |
|   |                                                    |                                                                        |   |
|   | (c)                                                     | Minimum EBITDA                                                              |   |
|   |                                                    |                                                                        |   |
|   | (d)                                                     | Term Loan Debt Leverage Ratio                                               |   |
|   |                                                    |                                                                        |   |
|   | (e)                                                     | Capital Expenditure Limitations                                             |   |
|   |                                                    |                                                                        |   |
|   | (f)                                                     | Operating Lease Obligations                                                 |   |
|   |                                                    |                                                                        |   |
| 15.    | DEFAULT                                                 |                                                                        |
|   |                                                    |                                                                        |   |
|   | (a)                                                     | Payment                                                                     |   |
|   |                                                    |                                                                        |   |
|   | (b)                                                     | Breach of This Agreement, the Other  Agreements and the Term Loan Agreement |   |
|   |                                                    |                                                                        |   |
|   | (c)                                                     | Breach of Subordination Agreement                                           |   |
|   |                                                    |                                                                        |   |
|   | (d)                                                     | Breaches of Other Obligations                                               |   |
|   |                                                    |                                                                        |   |
|   | (e)                                                     | Breach of Representations and Warranties                                    |   |
|   |                                                    |                                                                        |   |
|   | (f)                                                     | Loss of Collateral                                                          |   |
|   |                                                    |                                                                        |   |
|   | (g)                                                     | Levy, Seizure or Attachment                                                 |   |
|   |                                                    |                                                                        |   |
|   | (h)                                                     | Bankruptcy or Similar Proceedings                                           |   |
|   |                                                    |                                                                        |   |
|   | (i)                                                     | Appointment of Receiver                                                     |   |
|   |                                                    |                                                                        |   |
|   | (j)                                                     | Judgment                                                                    |   |
|   |                                                    |                                                                        |   |
|   | (k)                                                     | Default or Revocation of Guaranty;  Subordination Agreement                 |   |
|   |                                                    |                                                                        |   |
|   | (l)                                                     | Change of Ownership/Management                                              |   |
|   |                                                    |                                                                        |   |
|   | (m)                                                     | Material Adverse Change                                                     |   |
|   |                                                    |                                                                        |   |
|   | (n)                                                     | Governmental Authorizations                                                 |   |
|   |                                                    |                                                                        |   |
|   | (o)                                                     | Lockbox Account Instructions                                                |   |
|   |                                                    |                                                                        |   |
|   | (p)                                                     | Failure to Maintain Third-Party Payroll Tax  Service Provider               |   |
|   |                                                    |                                                                        |   |
|   | (q)                                                     | Breach of Certain Obligations                                               |   |
|   |                                                    |                                                                        |   |
| 16.    | REMEDIES UPON AN EVENT OF DEFAULT                       |                                                                        |
|   |                                                    |                                                                        |   |
| 17.    | CONDITIONS PRECEDENT                                    |                                                                        |
|   |                                                    |                                                                        |   |
| 18.    | JOINT AND SEVERAL LIABILITY                             |                                                                        |
|   |                                                    |                                                                        |   |
| 19.    | RELEASES; INDEMNITIES                                   |                                                                        |
|   |                                                    |                                                                        |   |
| 20.    | NOTICE                                                  |                                                                        |
|   |                                                    |                                                                        |   |
| 21.    | CHOICE OF GOVERNING LAW; CONSTRUCTION;  FORUM SELECTION |                                                                        |

 

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| 22.    | MODIFICATION AND BENEFIT OF AGREEMENT |   |
|--------|---------------------------------------|--------|
|   |                                  |   |   |
| 23.    | HEADINGS OF SUBDIVISIONS              |   |
|   |                                  |   |   |
| 24.    | POWER OF ATTORNEY                     |   |
|   |                                  |   |   |
| 25.    | CONFIDENTIALITY                       |   |
|   |                                  |   |   |
| 26.    | BROKERAGE FEES                        |   |
|   |                                  |   |   |
| 27.    | PUBLICITY                             |   |
|   |                                  |   |   |
| 28.    | LIMITATION OF ACTIONS                 |   |
|   |                                  |   |   |
| 29.    | LIABILITY                             |   |
|   |                                  |   |   |
| 30.    | COUNTERPARTS                          |   |
|   |                                  |   |   |
| 31.    | ELECTRONIC SUBMISSIONS                |   |
|   |                                  |   |   |
| 32.    | WAIVER OF JURY TRIAL; OTHER WAIVERS   |   |
|   |                                  |   |   |
| 33.    | AMENDMENT AND RESTATEMENT             |   |

 

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| ANNEX 1 - DEFINITIONS                                           |
|-----------------------------------------------------------------|
|                                                            |
| EXHIBIT A –  BORROWING BASE CERTIFICATE               |
|                                                            |
| EXHIBIT B –  COMPLIANCE CERTIFICATE                   |
|                                                            |
| EXHIBIT C – CLOSING CHECKLIST                              |
|                                                            |
| EXHIBIT D – INFORMATION  CERTIFICATE                       |
|                                                            |
| EXHIBIT E – NOTICE OF  BORROWING                           |
|                                                            |
| SCHEDULE 1 – PERMITTED LIENS                          |
|                                                            |
| SCHEDULE 11(b) –  BUSINESS AND COLLATERAL LOCATIONS        |
|                                                            |
| SCHEDULE 11(b) -  CERTAIN COLLATERAL                            |
|                                                            |
| SCHEDULE 11(g)  – LITIGATION                          |
|                                                            |
| SCHEDULE 11(i)  – AFFILIATE TRANSACTIONS              |
|                                                            |
| SCHEDULE 11(j)  – NAMES & TRADE NAMES        |
|                                                            |
| SCHEDULE 11(n)  – INDEBTEDNESS                        |
|                                                            |
| SCHEDULE 11(p)  – PARENT, SUBSIDIARIES AND AFFILIATES |
|                                                            |
| SCHEDULE 11(q) –  DEFAULTS                            |
|                                                            |
| SCHEDULE 11(t) –  ENVIRONMENTAL MATTERS               |
|                                                            |
| SCHEDULE 11(z) – LICENSES AND  PERMITS                     |

 

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**SECOND AMENDED AND RESTATEDLOAN AND SECURITY AGREEMENT**

 

THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (asamended, modified or supplemented from time to time, this “**Agreement**”) is made this 16th day of May,2005 by and between BRIDGE HEALTHCARE FINANCE, LLC (“**Lender**”), Crdentia Corp., a Delaware corporation (“**Crdentia**”), Baker Anderson Christie, Inc.,a California corporation (“**Baker**”),Nurses Network, Inc., a California corporation (“**Nurses Network**”), New Age Staffing, Inc., a Delawarecorporation (“**New Age**”), PSRNurses, Ltd., a Texas limited partnership (“**PSRLtd.**”), PSR Nurse Recruiting, Inc., a Texas corporation (“**PSR Recruiting**”), PSR Nurses HoldingsCorp., a Texas corporation (“**PSR Holding**”),CRDE Corp., a Delaware corporation (“**CRDE**”),Arizona Home Health Care/Private Duty, Inc., an Arizona corporation (“**AHHC**”), Care Pros Staffing, Inc., a Texascorporation (“**Care Pros**”), HIPHolding, Inc., a Delaware corporation (“**HIP**”),Health Industry Professionals, L.L.C., a Michigan limited liability company (“**HIP LLC**”), Travmed USA, Inc., a NorthCarolina corporation (“**Travmed**”),GHS Acquisition Corporation, a Delaware corporation (“**GHS**”), Prime Staff, LP, a Texas limitedpartnership (“**Prime Staff**”), andMint Medical Staffing Odessa, LP, a Texas limited partnership (“**MMSO**”; and together with Crdentia, Baker,Nurses Network, New Age, PSR Ltd., PSR Recruiting, PSR Holding, CRDE, AHHC,Care Pros, HIP, HIP LLC, Travmed, GHS and Prime Staff, each referred toindividually and collectively, as “**Borrower**”),each, having its principal place of business at 14114 Dallas Parkway, Suite600, Dallas, Texas 75254.

 

WITNESSETH:

 

WHEREAS, Crdentia, Baker, Nurses Network, New Age, PSR Ltd., PSRRecruiting, PSR Holding, CRDE, AHHC and Care Pros (the “**First Restatement Borrowers**”) entered intothat certain Loan and Security Agreement – Term Loan, dated as of August 31,2004 (as amended, restated, supplemented or otherwise modified from time totime, the “**Term Loan Agreement**”with Bridge Opportunity Finance, LLC (“BOF”), which Term Loan is secured by asecond priority security interest in the Collateral (except for all of theequity interests of each direct and indirect Subsidiary of Crdentia, which hasbeen pledged to Bridge Opportunity Finance, LLC pursuant to the terms of thePledge Agreement);

 

WHEREAS, First Restatement Borrowers and Lender entered into thatcertain Amended and Restated Loan and Security Agreement – Revolving Loansdated as of November 30, 2004, but effective August 31, 2004 (the “**Original Amended andRestated Loan Agreement**”), which Original Amended and Restated LoanAgreement amended and restated and replaced in full that certain Loan andSecurity Agreement – Revolving Loans dated as of June 16, 2004 (the “**Original Loan Agreement**”);

 

WHEREAS, Crdentia formed HIP Acquisition Corporation, a wholly ownedSubsidiary of CRDE, to acquire HIP and HIP LLC through merger.  HIP LLC is a wholly owned Subsidiary ofHIP.  Pursuant to that certain Agreementand Plan of Reorganization (“**HIP MergerAgreement**”) dated as of March 29, 2005 by and among Crdentia, HIPAcquisition Corporation, HIP, and certain shareholders of HIP, HIP merged withand into HIP Acquisition Corporation with HIP Acquisition Corporation being thesurviving entity and immediately upon such merger

 

1

----

 

HIP Acquisition Corporation changed its name to “HIPHolding, Inc.” (the “**HIP Acquisition**”).  Immediately after the HIP Acquisition,Crdentia contributed all of its equity interests in HIP to CRDE.  As a result of the HIP Acquisition andcontribution of equity interests by Crdentia, HIP LLC is a wholly ownedsubsidiary of HIP and HIP is wholly owned subsidiary of CRDE;

 

WHEREAS, Crdentia formed Travmed Acquisition Corporation, a whollyowned Subsidiary of CRDE, to acquire Travmed through merger.  Pursuant to that Agreement and Plan ofReorganization (“**Travmed Merger Agreement**”)dated as of March 29, 2005 by and among Crdentia, CRDE, Travmed AcquisitionCorporation, Travmed and certain shareholders of Travmed, Travmed AcquisitionCorporation merged with and into Travmed, with Travmed being the survivingentity (the “**Travmed Acquisition**”).  As a result of the Travmed Acquisition, Travmedis wholly owned subsidiary of CRDE;

 

WHEREAS, as a result of the HIP Acquisition and Travmed Acquisition,First Restatement Borrowers, HIP, HIP LLC, Travmed and Lender agreed to furtheramend the Original Amended and Restated Loan Agreement pursuant to the terms ofthat certain Amendment No. 1, Joinder and Consent to Amended and Restated Loanand Security Agreement – Revolving Loans, dated March 29, 2005 (the “FirstAmendment”), to provide for, among other things, the addition of HIP, HIP LLCand Travmed as additional Borrowers to the Original Amended and Restated LoanAgreement;

 

WHEREAS, Crdentia formed GHS, a wholly owned Subsidiary of CRDE, toacquire all of the equity interests of Prime Staff and MMSO.  Pursuant to that certain Equity Purchase Agreement(the “**Prime Staff Purchase Agreement**”)dated as of May 5, 2005, by and among Crdentia, CRDE, GHS, Prime Staff,Inc., a Delaware corporation (“**Prime, Inc**.”),Prime Staff GP, LLC, a Delaware limited liability company (“**PSGP**”), Prime Caid Management, Inc., aTexas corporation (“**Prime Caid**”),Mint Medical, LLC, a Delaware limited liability company (“**MM**”), Mint Medical GP, LLC, a Delaware limited liability company (“MMGP”;and together with Prime, Inc., PSGP and MM, each a “Seller” andcollectively, the “**Prime Staff Sellers**”),Mint Management, Inc., a Texas corporation (“MMI”), and Tony M. Brown,the Prime Staff Sellers sold to GHS and CRDE, and GHS and CRDE purchased all ofthe equity interests in each of Prime Staff and MMSO (collectively, the “**Prime Staff Acquisition**”).  As a result of the Prime Staff PurchaseAgreement and the Prime Staff Acquisition, CRDE owns all of the generalpartnership interests of both Prime Staff and MMSO and GHS owns all of thelimited partnership interests of both Prime Staff and MMSO;

 

WHEREAS, as a result of the Prime Staff Purchase Agreement and thePrime Staff Acquisition, Borrower and Lender agreed to further amend theOriginal Amended and Restated Loan Agreement pursuant to the terms of thatcertain Amendment No. 2, Joinder and Consent to Amended and Restated Loan andSecurity Agreement – Revolving Loans, dated May 5, 2005 (the “Second Amendment”),to provide for, among other things, the addition of GHS, Prime Staff and MMSOas additional Borrowers to the Original Amended and Restated Loan Agreement;and

 

WHEREAS, the Borrowers and Lender desire to amend and restate theAmended and Restated Loan Agreement upon the terms and conditions set forth inthis Agreement.

 

2

----

 

NOW, THEREFORE, in consideration of any Revolving Loan hereafter madeto Borrower by Lender, and for other good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged by Borrower, theparties agree that the Original Amended and Restated Loan Agreement, as amendedby the First Amendment and the Second Amendment, is hereby amended and restatedto read in full as follows:

 

1.             DEFINITIONS.

 

(a)           **Defined Terms**.  For the purposes of this Agreement, thefollowing capitalized words and phrases shall have the meanings set forth in Annex Iattached hereto and made a part hereof.

 

(b)           **Accounting Terms**.  Any accounting terms used in this Agreementwhich are not specifically defined herein shall have the meanings customarilygiven them in accordance with GAAP. Calculations and determinations of financial and accounting terms usedand not otherwise specifically defined hereunder and the preparation offinancial statements to be furnished to the Lender pursuant hereto shall bemade and prepared, both as to classification of items and as to amount, inaccordance with GAAP as used in the preparation of the financial statements ofthe Borrower on the Original Closing Date. If any changes in accounting principles or practices from those used inthe preparation of the financial statements are hereafter occasioned by thepromulgation of rules, regulations, pronouncements and opinions by or requiredby the Financial Accounting Standards Board or the American Institute ofCertified Public Accountants (or any successor thereto or agencies with similarfunctions), which results in a material change in the method of accounting inthe financial statements required to be furnished to the Lender hereunder or inthe calculation of financial covenants, standards or terms contained in thisAgreement, the parties hereto agree to enter into good faith negotiations toamend such provisions so as equitably to reflect such changes to the end thatthe criteria for evaluating the financial condition and performance of the Borrowerwill be the same after such changes as they were before such changes; and, ifthe parties fail to agree on the amendment of such provisions, the Borrowerwill furnish financial statements in accordance with such changes but shallprovide calculations for all financial covenants, perform all financialcovenants and otherwise observe all financial standards and terms in accordancewith applicable accounting principles and practices in effect immediately priorto such changes.

 

(c)           **Terms Defined in UCC**.  The terms “**Account**”,“**Account Debtor**”, “**Certificated Security**”, “**Chattel Paper**”, “**Commercial Tort Claim**”, “**DepositAccount**”, “**Document**”, “**Electronic Chattel Paper**”, “**Equipment**”, “**Financial Asset**”, “**Fixture**”,“**General Intangible**”, “**Goods**”, “**Health-Care-InsuranceReceivables**”, “**Instrument**”,“**Inventory**”, “**Investment Property**”, “**Letter-of-Credit Right**”, “**Payment Intangible**”, “**Proceeds**”, “**Security**”, “**SecuritiesAccount**”, “**Security Entitlement**”,“**Software**”, “**Supporting Obligation**”, “**Tangible Chattel Paper**” and “**Uncertificated Security**” shall have therespective meanings assigned to such terms in the UCC.  All other capitalized words and phrases usedherein and not otherwise specifically defined shall have the respectivemeanings assigned to such terms in the UCC, to the extent the same are used ordefined therein.

 

(d)           **Other Definitional Provisions; Construction**.  Whenever the context so requires, the neutergender includes the masculine and feminine, the single number includes the

 

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plural, and vice versa,and in particular the word “Borrower” shall be so construed.  The words “hereof”, “herein” and “hereunder”and words of similar import when used in this Agreement shall refer to thisAgreement as a whole and not to any particular provision of this Agreement, andreferences to Article, Section, Subsection, Annex, Schedule, Exhibit andlike references are references to this Agreement unless otherwisespecified.  The word “including” shallmean “including, without limitation”.  AnEvent of Default shall “continue” or be “continuing” until such Event ofDefault has been waived in accordance with Section 32(e) hereof. References in this Agreement to any party shall include such party’ssuccessors and permitted assigns. References to any “Section” shall be a reference to such Section of thisAgreement unless otherwise stated.  Tothe extent any of the provisions of the Other Agreements are inconsistent withthe terms of this Agreement, the provisions of this Agreement shallgovern.  This Agreement and the OtherAgreements are the result of negotiations among and have been reviewed bycounsel to the Lender, Borrower and any other parties thereto, are product ofall parties and, accordingly, they shall not be construed against the Lender.

 

(e)           **References to Agreements, Enactments, Etc**. Unless otherwise expressly provided herein, (i) references toagreements (including this Agreement) and other contractual instruments shallbe deemed to include all subsequent amendments and other modifications thereto,but only to the extent such amendments, restatements, supplements and othermodifications are not prohibited by the terms of this Agreement or any OtherAgreement, and (ii) references to any statute or regulation shall be construedas including all statutory and regulatory provisions amending, replacing,supplementing or interpreting such statute or regulation.

 

2.             LOANS.

 

(a)           **Revolving Loans**.  Subject to the terms and conditions of thisAgreement and the Other Agreements, during the Term, Lender shall, absent aDefault or an Event of Default, make revolving loans and advances (the “**Revolving Loans**”) in an amount up to thesum of the following sublimits (the “**RevolvingBorrowing Base Amount**”):

 

(i)            Up toeighty five percent (85%), or such lesser percentage as determined by Lender inits sole discretion exercised in good faith, of Borrowers’ Eligible Accounts(as such Borrowers exist as of the Closing Date); provided that such advancerate shall be reduced by one (1) percentage point for each whole orpartial percentage point by which Dilution (as determined by Lender in goodfaith based on the results of the most recent twelve (12) month period forwhich Lender has conducted a field audit of Borrower) exceeds five percent(5%); plus

 

(ii)           Accountsthat are unbilled and aged less than seven (7) days (or for the Accounts ofTravmed that are unbilled and aged less than fourteen (14) days) from the datethat the applicable Staffing Services were rendered or delivered not to exceedan aggregate amount of $750,000 at any time, provided that Lender determinesthat satisfactory documentation exists to generate valid invoices for suchunbilled Eligible Accounts; minus

 

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(iii)          suchreserves against Eligible Accounts as Lender elects, in its good faith creditjudgment, determined in good faith, to establish, increase, or decrease fromtime to time;

 

provided that the Revolving Borrowing Base Amount shall in no eventexceed Fifteen Million Dollars ($10,000,000) (the “**Maximum Revolving Loan Limit**”) except as such amount may beincreased or decreased by Lender, in its sole discretion.

 

The aggregate unpaid principal balance of the Revolving Loans shall notat any time exceed the lesser of the (x) Revolving Borrowing Base Amountand (y) the Maximum Revolving Loan Limit. If at any time the amount of outstanding Revolving Loans exceeds eitherthe Revolving Borrowing Base Amount or the Maximum Revolving Loan Limit, or anyportion of the Revolving Loans exceeds any applicable sublimit within theRevolving Borrowing Base Amount, Borrowers shall immediately, and without thenecessity of demand by Lender, pay to Lender such amount as may be necessary toeliminate such excess and Lender shall apply such payment to the Obligations insuch order as Lender shall determine in its sole discretion.

 

Subject to the terms and conditions of this Agreement, Revolving Loansshall be made against the Revolving Borrowing Base Amount.  The Revolving Borrowing Base Amount shall bedetermined by Lender (including the eligibility of Accounts) based on the mostrecent Borrowing Base Certificate delivered to Lender in accordance with thisAgreement and such other information as may be available to Lender. Withoutlimiting any other rights and remedies of Lender hereunder or under the otherLoan Documents, the Revolving Loans shall be subject to Lender’s continuingright to withhold from the Revolving Borrowing Base Amount reserves, and toincrease and decrease such reserves from time to time, if and to the extentthat in Lender’s good faith credit judgment such reserves are necessary,including to protect Lender’s interest in the Collateral or to protect Lenderagainst possible non-payment of Accounts for any reason by Account Debtors orpossible diminution of the value of any Collateral or possible non-payment ofany of the Obligations or for any taxes or customs duties or in respect of anystate of facts which may constitute an Event of Default.  Lender may, at its option, implement reservesby designating as ineligible a sufficient amount of Accounts which wouldotherwise be Eligible Accounts, so as to reduce the Revolving Borrowing BaseAmount by the amount of the intended reserves. Lender, in its discretion, may further adjust the Revolving BorrowingBase Amount by applying percentages (known as “liquidity factors”) to EligibleAccounts by payor class based upon Borrower’s actual recent collection historyfor each such payor class.  Suchliquidity factors may be adjusted by Lender from time to time as warranted byLender’s underwriting practices and procedures and using its discretion.

 

Borrower hereby authorizes Lender, in its sole discretion, to chargeany of Borrower’s accounts or advance Revolving Loans to make any payments ofprincipal, interest, fees, costs or expenses required to be made under thisAgreement or the Other Agreements.  

 

A request for a Revolving Loan shall be made or shall be deemed to bemade, each in the following manner: Borrowing Agent may give Lender same-day notice, no later than 11:00a.m. Central time on such day, of its request for a Revolving Loan bysubmitting a Notice of Borrowing, in which notice Borrowing Agent shall specifythe amount of the proposed borrowing and the proposed borrowing date; provided,however, that no such request may be

 

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made at a time when there exists an Event of Defaultor an event which, with the passage of time or giving of notice, will become anEvent of Default.  In the event thatBorrower maintains a controlled disbursement account with Lender, each checkpresented for payment against such controlled disbursement account and anyother charge or request for payment against such controlled disbursementaccount shall constitute a request for a Revolving Loan.  Borrowing Agent’s Notice of Borrowing shallbe accompanied with a certificate, on a form designated by Lender and insubstance satisfactory to Lender, certifying the amount of the Borrowing Baseand providing such backup information as Lender shall deem necessary.  Lender may from time to time change the formof such Borrowing Base Certificate and/or Notice of Borrowing and shall at alltimes have the right to request a separate Borrowing Base Certificate from eachentity constituting the Borrower.  As anaccommodation to Borrower, Lender may permit electronic transmittal ofinstructions, authorizations, agreements or reports to Lender by Borrower.  Unless Borrower specifically directs Lenderin writing not to accept or act upon telephonic or electronic communicationsfrom Borrower, Lender shall have no liability to Borrower for any loss ordamage suffered by Borrower as a result of Lender’s honoring of any requests,execution of any instructions, authorizations or agreements or reliance on anyreports communicated to it telephonically or electronically and purporting tohave been sent to Lender by Borrower, and Lender shall have no duty to verifythe origin of any such communication or the authority of the Person sending it.

 

Borrower hereby irrevocably authorizes Lender to disburse the proceedsof each Revolving Loan requested by Borrowing Agent, or deemed to be requestedby Borrowing Agent, as follows:  theproceeds of each Revolving Loan requested under Section 2(a) shallbe disbursed by Lender in lawful money of the United States of America inimmediately available funds, in the case of the initial borrowing, inaccordance with the terms of the written disbursement letter from BorrowingAgent, and in the case of each subsequent borrowing, by wire transfer orAutomated Clearing House (ACH) transfer to such bank account as may be agreedupon by Borrowing Agent and Lender from time to time, or elsewhere if pursuantto a written direction from Borrowing Agent. The Revolving Loans and all other Obligations shall be repaid on thelast day of the Term.

 

(b)           **Notes**.  The Loans shall, in Lender’s sole discretion,be evidenced by one or more promissory notes in form and substance satisfactoryto Lender.  However, if such Loans arenot so evidenced, such Loans may be evidenced solely by entries upon the booksand records maintained by Lender.

 

3.             MANDATORYPREPAYMENTS.  All amounts received byBorrower after the date of a Travmed Subordinated Debt Default and (i) from anAccount Debtor of Travmed USA, Inc. or (ii) which are attributed to servicesprovided by Travmed USA, Inc., after the date in which a Travmed SubordinatedDebt Default occurs, shall immediately be paid by Borrower to Lender as amandatory prepayment of the Loans to be applied against all outstandingObligations, as determined by Lender in its sole discretion.

 

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4.             INTEREST, FEES AND CHARGES.

 

(a)           **Interest Rate**.

 

Each Revolving Loan shall bear interest at the rate ofthree percent (3.0%) per annum in excess of the Prime Rate in effect from timeto time, which rate shall not be less than nine and one-half percent (9.5%),all such interest to be payable on the first Business Day of each month inarrears.  Said rate of interest shallincrease or decrease by an amount equal to each increase or decrease in thePrime Rate effective on the effective date of each such change in the PrimeRate.  Upon the occurrence of an Event ofDefault and during the continuance thereof, each Loan shall bear interest atthe rate of four percent (4%) per annum in excess of the interest rateotherwise payable thereon, which interest shall be payable on demand.  All interest shall be calculated on the basisof a 360-day year.

 

(b)           **Fees and Charges**.

 

(i)            **Closing Fee**:  Borrower has paid to Lender a closing fee ofone hundred fifty thousand dollars ($150,000).

 

(ii)           **Unused Line Fee**:  Borrower shall pay to Lender an unused linefee of one-half percent (0.50%) per annum of the difference between the MaximumRevolving Loan Limit and the average daily balance of the Revolving Loans foreach month, which fee shall be fully earned by Lender and payable monthly inarrears on the first Business Day of each month.  Said fee shall be calculated on the basis of a360-day year.

 

(iii)          **Collateral Monitoring Fee**:  On the first Business Day of each calendarmonth following the Closing Date, Borrower shall pay Lender a monthlycollateral monitoring fee of Four Thousand and No/100 Dollars ($4,000) withrespect to the Revolving Loans (pro rated for the first month, if it is apartial month), which fee shall be deemed earned at the beginning of eachmonth.

 

(iv)          **Costs and Expenses**: Borrower shallreimburse Lender for all reasonable costs and expenses, including, without limitation,legal expenses and reasonable attorneys’ fees (whether for internal or outsidecounsel), incurred by Lender in connection with the (i) documentation andconsummation of this transaction and any other transactions between Borrowerand Lender, including, without limitation, Uniform Commercial Code and otherpublic record searches and filings, overnight courier or other express ormessenger delivery, appraisal costs and surveys (ii) collection,protection or enforcement of any rights in or to the Collateral;(iii) collection of any Obligations; and (iv) administration andenforcement of any of Lender’s rights under this Agreement or any OtherAgreement.  Borrower shall also pay allnormal service charges with respect to all accounts maintained by Borrower withLender and any additional services requested by Borrower from Lender.  All such costs, expenses and charges shall,if owed to Lender, be reimbursed by Lender and, in such event or in the eventsuch costs and expenses are owed to Lender, shall constitute Obligationshereunder, shall be payable by Borrower to Lender on demand and, until paid,shall bear interest at the highest rate then applicable to Loans hereunder.

 

(v)           **Capital Adequacy Charge**:  If Lender shall have determined that theadoption of any law, rule or regulation regarding capital adequacy, or anychange

 

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therein or in the interpretation or applicationthereof, or compliance by Lender with any request or directive regardingcapital adequacy (whether or not having the force of law) from any central bankor governmental authority enacted after the date hereof, does or shall have theeffect of reducing the rate of return on such party’s capital as a consequenceof its obligations hereunder to a level below that which Lender could haveachieved but for such adoption, change or compliance (taking into considerationLender’s policies with respect to capital adequacy) by a material amount, then,from time to time after submission by Lender to Borrower of a written demandtherefor (“**Capital Adequacy Demand**”)together with the certificate described below, Borrower shall pay to Lendersuch additional amount or amounts (“**CapitalAdequacy Charge**”) as will compensate Lender for such reduction, suchCapital Adequacy Demand to be made with reasonable promptness following suchdetermination.  A certificate of Lenderclaiming entitlement to payment as set forth above shall be deemedpresumptively correct in the absence of manifest error.  Such certificate shall set forth the natureof the occurrence giving rise to such reduction, the amount of the CapitalAdequacy Charge to be paid to Lender, and the method by which such amount wasdetermined.  In determining such amount,Lender may use any reasonable averaging and attribution method, applied on anon-discriminatory basis.

 

(c)           **Maximum Interest**.  It is the intent of the parties that the rateof interest and other charges to Borrower under this Agreement and the OtherAgreements shall be lawful; therefore, if for any reason the interest or othercharges payable under this Agreement are found by a court of competentjurisdiction, in a final determination, to exceed the limit which Lender maylawfully charge Borrower, then the obligation to pay interest and other chargesshall automatically be reduced to such limit and, if any amount in excess ofsuch limit shall have been paid, then such amount shall be refunded toBorrower.

 

5.             COLLATERAL.

 

(a)           **Grant of Security Interest to Lender**.  As security for the payment of all Loans nowor in the future made by Lender to Borrower hereunder and for the payment orother satisfaction of all other Obligations, Borrower hereby assigns to Lenderand grants to Lender a continuing first priority security interest (subjectonly to Liens of BOF and other Permitted Liens) in the following property ofBorrower, whether now or hereafter owned, existing, acquired or arising andwherever now or hereafter located: (a) all Accounts and all Goods whose sale, lease or otherdisposition by Borrower has given rise to Accounts and have been returned to,or repossessed or stopped in transit by, Borrower; (b) all Chattel Paper,Instruments, Documents and General Intangibles (including, without limitation,all Intellectual Property, licenses, software, franchises, tax refund claims,claims against carriers and shippers, guarantee claims, contract rights,Payment Intangibles, security interests, security deposits and rights toindemnification); (c) all Inventory; (d) all Goods (other thanInventory), including, without limitation, Equipment, vehicles and Fixtures;(e) all Investment Property; (f) all Deposit Accounts, bank accounts,deposits and cash; (g) all Letter-of-Credit Rights; (h) CommercialTort Claims listed on Schedule 11(b) hereto from time to time;(i) any other property of Borrower now or hereafter in the possession,custody or control of Lender or any agent or any parent, affiliate orsubsidiary of Lender or any participant with Lender in the Loans, for anypurpose (whether for safekeeping, deposit, collection, custody, pledge,transmission or otherwise); and

 

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(j) all additionsand accessions to, substitutions for, and replacements, products and Proceedsof the foregoing property, including, without limitation, proceeds of allinsurance policies insuring the foregoing property, and all of Borrower’s booksand records relating to any of the foregoing and to Borrower’s business.  The foregoingnotwithstanding, the Collateral shall not be deemed to include (y) anyright, title, interest, claim or demand of Borrower in and to any agreement,document, license or instrument which relates to the foregoing Collateral tothe extent such agreement, document, license or instrument is not assignable orcapable of being encumbered as a matter of law or under the terms of theagreement, document or instrument applicable thereto or such grant would resultin a breach of the terms of such agreement, document, license, or instrument(but, in each case, solely to the extent that any such restriction shall beenforceable under applicable law) without the consent of the applicable partythereto, and, in each case, only to the extent that any such term would not berendered ineffective pursuant to Section 9-406, 9-407, 9-408 or 9-409 of theUniform Commercial Code of any relevant jurisdiction.

 

(b)           **Other Security**.  Lender, in its sole discretion, withoutwaiving or releasing any obligation, liability or duty of Borrower under thisAgreement or the Other Agreements or any Event of Default, may at any time ortimes hereafter, but shall not be obligated to, pay, acquire or accept anassignment of any Lien asserted by any Person in, upon or against theCollateral, provided, that Lender may take such actions with respect toPermitted Liens only after the occurrence and during the continuance of anEvent of Default.  All sums paid byLender in respect thereof and all costs, fees and expenses including, withoutlimitation, reasonable attorney fees, all court costs and all other chargesrelating thereto incurred by Lender shall constitute Obligations payable byBorrower to Lender on demand and, until paid, shall bear interest at thehighest rate then applicable to Loans hereunder.

 

(c)           **Possessory Collateral**.  Immediately upon Borrower’s receipt of anyportion of the Collateral evidenced by an agreement, Instrument or Document,including, without limitation, any Tangible Chattel Paper and any InvestmentProperty consisting of Certificated Securities (not including, however, anyequity interests of any Borrower pledged by Crdentia to BOF under the PledgeAgreement), Borrower shall deliver the original thereof to Lender together withan appropriate endorsement or other specific evidence of assignment thereof toLender (in form and substance acceptable to Lender).  If an endorsement or assignment of any suchitems shall not be made for any reason, Lender is hereby irrevocablyauthorized, as Borrower’s attorney and agent-in-fact, to endorse or assign thesame on Borrower’s behalf.

 

(d)           **Electronic Chattel Paper**.  To the extent that Borrower obtains ormaintains any Electronic Chattel Paper, Borrower shall create, store and assignthe record or records comprising the Electronic Chattel Paper in such a mannerthat (i) a single authoritative copy of the record or records exists whichis unique, identifiable and, except as otherwise provided in clauses (iv),(v) and (vi) below, unalterable, (ii) the authoritative copyidentifies Lender as the assignee of the record or records, (iii) the authoritativecopy is communicated to and maintained by the Lender or its designatedcustodian, (iv) copies or revisions that add or change an identifiedassignee of the authoritative copy can only be made with the participation ofLender, (v) each copy of the authoritative copy and any copy of a copy isreadily identifiable as a copy that is not the authoritative copy and(vi) any revision of the authoritative copy is readily identifiable as anauthorized or unauthorized revision.

 

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(e)           **Letter-of-Credit Rights**.  If Borrower at any time is a beneficiaryunder a letter of credit now or hereafter issued in favor of Borrower, at therequest and option of Lender, Borrower shall, pursuant to an agreement in formand substance satisfactory to Lender, either (i) arrange for the issuerand any confirmer of such letter of credit to consent to an assignment toLender of the proceeds of any drawing under the letter of credit, or(ii) arrange for Lender to become the transferee beneficiary of the letterof credit, with Lender agreeing, in each case, that the proceeds of any drawingunder the letter to credit are to be applied as provided in this Agreement.

 

(f)            **Third-Party Collateral**.  If Borrower shall at any time hold or acquirean interest in Collateral in the possession of a third party (other thanCertificated Securities and Goods covered by a Document), Borrower shallpromptly obtain an acknowledgment from the third party that it is holding suchCollateral for the benefit of the Lender. 

 

(g)           **Deposit Account**.  Borrower shall deliver to Lender, withrespect to each Deposit Account maintained by Borrower now or hereafter (otherthan with Lender) and that is permitted hereby, upon obtaining an interest insuch Deposit Account, a deposit account control agreement in form and substancesatisfactory to Lender and BOF, executed by the financial institution at whichsuch account is maintained, and shall take such other actions as Lender and BOFmay jointly request to ensure that Lender’s security interest in such accountis perfected by control as such term is used in UCC Section 9-104.

 

(h)           **Insurance Proceeds**. The netproceeds of any casualty insurance insuring the Collateral, after deducting allcosts and expenses (including attorneys’ fees) of collection, shall be applied,at Lender’s option, either toward replacing or restoring the Collateral, in amanner and on terms satisfactory to Lender, or, at Lender’s discretion afterthe occurrence and during the continuance of an Event of Default, towardspayment of the Obligations.  Any proceedsapplied to the payment of Obligations shall be applied in such manner as Lendermay elect.  In no event shall such applicationrelieve Borrower from payment in full of all installments of principal andinterest which thereafter become due in the order of maturity thereof.  

 

6.             PRESERVATIONOF COLLATERAL AND PERFECTION OF SECURITY INTERESTS THEREIN.  

 

Borrower shall, at Lender’s request, at any time and from time to time,authenticate, execute and deliver to Lender such financing statements,documents and other agreements and instruments (and pay the cost of filing orrecording the same in all public offices deemed necessary or desirable byLender) and do such other acts and things or cause third parties to do suchother acts and things as Lender may deem necessary or desirable in its solediscretion in order to establish and maintain a valid, attached and perfectedsecurity interest in the Collateral in favor of Lender (free and clear of all otherLiens, except Permitted Liens) to secure payment of the Obligations, and inorder to facilitate the collection of the Collateral.  Borrower irrevocably hereby makes,constitutes and appoints Lender (and all Persons designated by Lender for thatpurpose) as Borrower’s true and lawful attorney and agent-in-fact to executeand file such financing statements, documents and other agreements andinstruments and do such other acts and things as may be necessary to preserveand perfect Lender’s security interest in the

 

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Collateral. Borrower further agrees that a carbon, photographic, photostatic orother reproduction of this Agreement or of a financing statement shall besufficient as a financing statement.  Borrowerfurther ratifies and confirms the prior filing by Lender of any and allfinancing statements which identify the Borrower as debtor, Lender as securedparty and any or all Collateral as collateral.

 

7.             POSSESSIONOF COLLATERAL AND RELATED MATTERS.

 

Until otherwise notified by Lender following the occurrence of an Eventof Default, Borrower shall have the right, except as otherwise provided in thisAgreement, in the ordinary course of Borrower’s business, to (a) sell,lease or furnish under contracts of service any of Borrower’s assets in theordinary course of business; (b) use and consume any raw materials, workin process or other materials normally held by Borrower for such purpose;(c) dispose of obsolete or unuseful Equipment or other property or assetsso long as all of the proceeds thereof are used for the replacement orsubstitution of such Equipment or other property or assets, or, if not soreplaced or substituted within ninety (90) days, paid to Lender for applicationto the Obligations (except for such proceeds which are required to be deliveredto the holder of a Permitted Lien which is prior in right of payment);provided, however, that a sale in the ordinary course of business shall notinclude any transfer or sale in satisfaction, partial or complete, of a debtowed by Borrower, other than a debt secured by a Permitted Lien; (d) transferassets to any other Borrower or Subsidiary which is a Borrower; (e) lease orsublease property; (f) sell or dispose of assets for its fair market value inan amount not to exceed $50,000 in the aggregate in any fiscal year; and (g)sell or dispose of other assets with a book value of less than $50,000 in anyfiscal year.

 

8.             COLLECTIONS.

 

(a)           Borrowershall establish and maintain a lockbox (the “**Lockbox**”)with a United States depository institution designated from time to time byLender (the “**Lockbox Bank**”),subject to the provisions of this Agreement for receivables from AccountDebtors.  Borrower shall execute with theLockbox Bank a lockbox agreement for the Account Debtor Collection LockboxAccount in form and substance acceptable to Lender, and such other agreementsrelated to such lockbox agreement as Lender may require.  Borrower shall ensure that all collections ofAccounts on which Account Debtors are obligated are paid directly into theLockbox for deposit into the Account Debtor Collection Lockbox Account, andthat all funds deposited into the Account Debtor Collection Lockbox Account areimmediately transferred into a depository account owned by the Lender (the “**Concentration Account**”).

 

(b)           Notwithstandinganything in any lockbox agreement to the contrary, Borrower agrees that itshall be liable for any fees and charges in effect from time to time andcharged by the Lockbox Bank in connection with the Lockboxes and LockboxAccounts, and that Lender shall have no liability therefor.  Borrower further acknowledges and agreesthat, to the extent such fees and charges are not paid by Borrower directly butare satisfied using collections in the Lockbox Accounts, such fees and chargesshall be deemed to be Revolving Credit Loans made by Lender hereunder and, tothe extent that the payment of such fees or charges by Borrower as providedherein results in any overadvance under this Agreement, Borrower agrees toimmediately (upon notice) repay to Lender the amount of such overadvance.

 

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Borrower agrees toindemnify and hold Lender harmless from any and all liabilities, claims, lossesand demands whatsoever, including reasonable attorneys’ fees and expenses,arising from or relating to actions of Lender or the Lockbox Bank pursuant tothis Section 2.3 or any lockbox agreement, other than if such liability, claim,loss or demand arises due to the gross negligence or willful misconduct ofLender or the Lockbox Bank, as determined by a court of competent jurisdiction.

 

(c)           Borroweragrees that all payments made to the Concentration Account or otherwisereceived by Lender, whether in respect of the Accounts or as Proceeds of otherCollateral or otherwise (except for proceeds of Collateral which are requiredto be delivered to the holder of a Permitted Lien which is prior in right ofpayment and insurance proceeds applied pursuant to Section 5(h)), will beapplied on account of the Obligations in accordance with the terms of thisAgreement.  

 

(d)           Subject to all applicable law, Lender may, atany time and from time to time after the occurrence and during the continuanceof an Event of Default, whether before or after notification to any AccountDebtor and whether before or after the maturity of any of the Obligations,(i) enforce collection of any of Borrower’s Accounts or other amounts owedto Borrower by suit or otherwise; (ii) exercise all of Borrower’s rightsand remedies with respect to proceedings brought to collect any Accounts orother amounts owed to Borrower; (iii) surrender, release or exchange allor any part of any Accounts or other amounts owed to Borrower, or compromise orextend or renew for any period (whether or not longer than the originalperiod) any Indebtedness thereunder; (iv) sell or assign any Accountof Borrower or other amount owed to Borrower upon such terms, for such amountand at such time or times as Lender deems advisable; (v) prepare, file andsign Borrower’s name on any proof of claim in bankruptcy or other similardocument against any Account Debtor or other Person obligated to Borrower; and(vi) do all other acts and things which are necessary, in Lender’s solediscretion, to fulfill Borrower’s obligations under this Agreement and theOther Agreements and to allow Lender to collect the Accounts or other amountsowed to Borrower.  In addition toany other provision hereof, Lender may at any time, after the occurrence andduring the continuance of an Event of Default, at Borrower’s expense, notifyAccount Debtors to make payment directly to Lender of any amounts due or tobecome due thereunder (and once such notice has been given to an AccountDebtor, Borrower shall not give any contrary instructions to such AccountDebtor during the continuance of an Event of Default without Lender’s priorwritten consent). 

 

(e)           For purposes of calculating interest andfees, Lender shall, within three (3) Business Days after receipt by Lender atits office in Chicago, Illinois of (i) checks and (ii) cash or otherimmediately available funds from collections of items of payment and Proceedsof any Collateral, apply the whole or any part of such collections or Proceedsagainst the Obligations in such order as Lender shall determine in its solediscretion.  For purposes ofdetermining the amount of Loans available for borrowing purposes, checks andcash or other immediately available funds from collections of items of paymentand Proceeds of any Collateral shall be applied in whole or in part against theObligations, in such order as Lender shall determine in its sole discretion, onthe day of receipt, subject to actual collection.

 

(f)            On a monthly basis, Lender shall deliver toBorrower an account statement showing all Loans, charges and payments whichshall be deemed final, binding and conclusive

 

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uponBorrower unless Borrower notifies Lender in writing, specifying any errortherein, within thirty (30) days of the date such account statement is sent toBorrower, and any such notice shall only constitute an objection to the itemsspecifically identified.

 

9.             COLLATERAL,AVAILABILITY AND FINANCIAL REPORTS AND SCHEDULES.

 

(a)           **Borrowing Base Reports**.  Borrower shall deliver to Lender an executedBorrowing Base Certificate in the form of Exhibit A at least onceeach week, and otherwise, from time to time, to the extent requested by Lender,and, in any event, in connection with any Revolving Loan request of Borrower, whichBorrowing Base Certificate shall be accompanied by copies of Borrower’s salesjournal, cash receipts journal and credit memo journal, which journal shallreport contractual allowances made by Borrower, for the relevant period.  Such Borrowing Base Certificate shall reflectthe activity of Borrower with respect to Accounts for the immediately precedingweek, and shall be in a form and with such specificity as is satisfactory toLender and shall contain such additional information concerning Accounts andother Collateral as may be requested by Lender, including, without limitation,but only if specifically requested by Lender, copies of all invoices preparedin connection with such Accounts, and evidence of the payment of state andfederal payroll taxes.

 

(b)           **Monthly Reports**.  Borrower shall deliver to Lender, in additionto any other reports, as soon as practicable and in any event:  (i) within fifteen (15) days after theend of each month, (A) a detailed trial balance of Borrower’s Accountsaged by Account Debtor or payor per date of invoice, in form and substancereasonably satisfactory to Lender, including, without limitation, the names andaddresses of all Account Debtors of Borrower, and (B) a summary and detailof accounts payable (such Accounts and accounts payable divided into such timeintervals as Lender may require in its sole discretion), including a listing ofany held checks; and (ii) within fifteen (15) days after the end of eachmonth, (x) completed Account Debtor reconciliation form, in a formatprovided by Lender, and (y) a text file containing a list of Borrower’sAccounts aged by payor per date of service, including, without limitation, thenames and addresses of all Account Debtors of Borrower.

 

(c)           **Financial Statements**.  Borrower shall deliver to Lender thefollowing financial information, all of which shall be prepared in accordancewith GAAP consistently applied (except where such calculations otherwiserequire), and shall be accompanied by a certificate in the form of Exhibit Bhereto, which compliance certificate shall include a calculation of allfinancial covenants contained in this Agreement, including the financial testsset forth in Section 13(j)(iii): (i) no later than fifteen (15) days after each calendar month,copies of internally prepared financial statements, including, withoutlimitation, balance sheets and statements of income, retained earnings and cashflow of (A) CRDE and (B) the Borrowers, in each case certified by the ChiefFinancial Officer of Borrower; (ii) no later than forty-five (45) daysafter the end of each of the first three quarters of Borrower’s Fiscal Year,copies of internally prepared financial statements, including, withoutlimitation, balance sheets, statements of income, retained earnings, cash flowsand reconciliation of surplus for (X) CRDE and (Y) the Borrowers, in each casecertified by the Chief Financial Officer of Borrower; and (iii) no laterthan ninety (90) days after the end of each of Borrower’s Fiscal Years, auditedannual financial statements of the Borrowers on a consolidated basis, with anunqualified opinion as to the

 

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audited financialstatements by independent certified public accountants selected by Borrower andreasonably satisfactory to Lender.  Thereport of such accounts shall be accompanied by copies of any managementletters sent to the Borrower by such accountants.

 

(d)           **Annual Projections**.  As soon as practicable and in any event notless than thirty (30) days prior to the beginning of each Fiscal Year, Borrowershall deliver to Lender projected balance sheets, statements of income and cashflow for Borrower, on a consolidated basis, for each of the twelve (12) monthsduring such Fiscal Year, which shall include the assumptions used therein,together with appropriate supporting details as reasonably requested by Lender.

 

(e)           **Explanation of Budgets and Projections**.  In conjunction with the delivery of theannual presentation of projections or budgets referred to in Subsection 9(d)above, Borrower shall deliver a letter signed by the President or a VicePresident of Borrower and by the Treasurer or Chief Financial Officer ofBorrower, describing, comparing and analyzing, in detail, all changes anddevelopments between the anticipated financial results included in suchprojections or budgets and the historical financial statements of Borrower.

 

(f)            **Invoices and Billing Statements**.  Promptly following request therefor byLender, Borrower shall provide copies of sales journals, cash receipt journals,and deposit slips, copies of service invoices, customer statements and creditmemoranda issued, remittance advices and reports, evidence of billing andcopies of shipping and delivery documents, each as applicable to Borrower.

 

(g)           **Obligor Financial Statements and Tax Returns**.  Borrower shall cause each Obligor to deliverto Lender such Obligor’s annual financial statement (in form acceptable toLender) and a copy of such Obligor’s federal income tax return with respect tothe corresponding year, in each case on the date when such tax return is dueor, if earlier, on the date when available.

 

(h)           **Other Information**.  Promptly following request therefor byLender, such other business or financial data, reports, appraisals andprojections as Lender may reasonably request. This may include, without limitation, a monthly certificate from thePresident and Chief Financial Officer of Borrower showing Borrower’s compliancewith each of the financial covenants set forth in this Agreement, and stating whetherany Event of Default has occurred or event that, with giving of notice or thepassage of time, or both, would constitute an Event of Default, and if so, thesteps being taken to prevent or cure such Event of Default.

 

(i)            **Post-Closing Review**.  Within thirty (30) days after any PermittedAcquisition, Lender shall conduct (or a firm, consultant, advisor or otherthird party hired by the Lender), at Borrower’s cost, a post-closing audit andreview, which post-closing review shall include (whether conducted after theOriginal Closing Date or after a Permitted Acquisition), without limitation,(i) a review of the books, records and accounting systems of Borrower,(ii) a review and final verification of all add-backs used in determiningthe final pro forma financial statements of Borrower, and (iii) a reviewof healthcare regulatory compliance matters (“**Post-ClosingReview**”).

 

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(j)            **Public Reporting**.  Promptly upon the filing thereof, eachBorrower shall deliver to Lender copies of all registration statements andannual, quarterly, monthly or other regular reports which such Borrower or anyof its Subsidiaries files with the Securities and Exchange Commission, as wellas promptly providing to Lender copies of any reports and proxy statementsdelivered to its shareholders.

 

10.           TERMINATION;AUTOMATIC RENEWAL; EARLY TERMINATION FEE.

 

(a)           ThisAgreement shall be in effect for a period of three (3) years from the date ofthe Original Loan Agreement until June 16, 2007 (the “**Term**”), unless earlier terminated by theterms of this Agreement.  

 

(b)           Ifthis Agreement expires, then (i) Lender shall not make any additionalLoans on or after the date identified as the date on which the Obligations areto be repaid; and (ii) this Agreement shall terminate on the datethereafter that the Obligations are paid in full.  At such time as Borrower has repaid all ofthe Obligations and this Agreement has terminated, Borrower shall deliver toLender an indemnification of Lender, in form and substance satisfactory toLender, for checks which Lender has credited to Borrower’s account, but whichsubsequently are dishonored for any reason or for automatic clearinghouse orwire transfers not yet posted to Borrower’s account.  

 

(c)           Borrowermay terminate this Agreement at any time but only upon sixty (60) days priorwritten notice and prepayment of all Obligations.  

 

(d)           Anyprepayment of the Obligations and termination of this Agreement by Borrowershall also be accompanied by a prepayment fee, equal to the Make WholeAmount.  The following definitions shallapply:

 

(i)            “MakeWhole Amount” means the amount determined by discounting the RemainingPayment Amount to the date of the prepayment of the Revolving Loan, at adiscount factor equal to the Loan Yield.

 

(ii)           “RemainingPayment Amount” means the sum of amount of the average outstanding balanceof the Revolving Loans during the period from the date of the initial Loanadvance hereunder through the date of prepayment.

 

(iii)          “LoanYield” means the percentage yield earned by Lender during the period fromthe initial Loan advance hereunder through the date of prepayment.

 

(e)           Notwithstandingthe foregoing, Borrower may prepay all of the Obligations and terminate thisAgreement without payment of a prepayment fee, upon written notice to Lender,if, at any time during the Term, and so long as no Default or Event of Defaulthas occurred and is continuing, Lender reduces the advance rate for EligibleAccounts (as set forth in Section 2(a)(i) hereto) to an advance rate of lessthan eighty-five percent (85%) for a period in excess of 30 days (the “**Prepayment Fee Exception**”).

 

(f)            Ifthe funding obligation of the Lender under this Agreement terminates for anyreason (whether by voluntary termination by Borrowers, by reason of theoccurrence of

 

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an Event of Default orotherwise) prior to the expiration of the Term, the entire principal balance,together with accrued and unpaid interest on any Obligations under thisAgreement and all Term Loan Obligations then outstanding, including, withoutlimitation, a prepayment fee equal to (i) the Make Whole Amount due under thisAgreement, and (ii) the Make Whole Amount due under the Term Loan Agreement,shall be immediately due and payable on the effective date of such termination;provided that if the funding obligations of the Lender under thisAgreement shall terminate solely as a result of Section 10(e) of thisAgreement, Borrower shall not have to pay (I) a prepayment fee equal to theMake Whole Amount under this Agreement, nor (II) a prepayment fee equal to theMake Whole Amount under the Term Loan Agreement.

 

11.           REPRESENTATIONSAND WARRANTIES.

 

Borrower hereby represents and warrants to Lender, which representationsand warranties (whether appearing in this Section 11 or elsewhere)shall be true at the time of the Original Closing Date, shall remain true untilthe repayment in full and satisfaction of all the Obligations and terminationof this Agreement, and shall be remade by Borrower at the time each RevolvingLoan is made pursuant to this Agreement, provided, that representations andwarranties made as of a particular date shall be true and correct as of suchdate.

 

(a)           **Financial Statements and Other Information**.  The financial statements and otherinformation delivered or to be delivered by Crdentia to Lender at or prior tothe Original Closing Date fairly present in all material respects the financialcondition of Borrowers, and there has been no material adverse change in thefinancial condition, the operations or any other status of Borrowers, taken asa whole, since the date of the financial statements delivered to Lender mostrecently prior to the date of this Agreement. All written information now or heretofore furnished by Borrower toLender is true and correct in all material respects as of the date with respectto which such information was furnished, other than budgets and projections,which represent Borrowers’ good faith estimate of the matters containedtherein.

 

(b)           **Locations; Certain Collateral**.  The office where Borrower keeps its books,records and accounts (or copies thereof) concerning the Collateral, Borrower’sprincipal place of business and all of Borrower’s other places of business,locations of Collateral and post office boxes and locations of bank accountsare as set forth in Schedule 11(b) and at other locations withinthe continental United States of which Lender has been advised by Borrower inaccordance with Subsection 12(b)(i).  The Collateral, including, withoutlimitation, the Equipment (except any part thereof which Borrower shall haveadvised Lender in writing consists of Collateral normally used in more than onestate) is kept, or, in the case of vehicles, based, only at the addresses setforth on Schedule 11(b), and at other locations within thecontinental United States of which Lender has been advised by Borrower inwriting in accordance with Subsection 12(b)(i) hereof.  Schedule 11(b) hereto contains acomplete listing of all of the following assets of Borrower as of May 5, 2005(a) Intellectual Property which is subject to registration statutes andlicenses of Intellectual Property to which Borrower is a party (whether aslicensor or licensee), (b) Instruments (other than Instruments depositedfor collection in the ordinary course of business), (c) Deposit Accounts,(d) Investment Property, (e) Letter-of-Credit Rights,(f) Chattel Paper, (g) Documents, (h) Commercial Tort Claims,(i) Collateral which is subject to certificate of title statutes, and(j) tangible Collateral located with any bailee, warehousemen or otherthird parties.

 

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(c)           **Loans by Borrower**.  Borrower has not made any loans or advancesto any Affiliate or other Person except for advances authorized hereunder toemployees, officers and directors of Borrower for travel and other expensesarising in the ordinary course of Borrower’s business.

 

(d)           **Accounts**.  Each Account which Borrower shall, expresslyor by implication, request Lender to classify as an Eligible Account shall, asof the time such request is made, conform in all respects to the requirementsof such classification as set forth in the definition of “Eligible Account” asset forth herein and as otherwise established by Lender from time to time.

 

(e)           **Liens**. Borrower is the lawful owner of all Collateral now purportedly owned orhereafter purportedly acquired by Borrower, free from all Liens, other than thePermitted Liens.

 

(f)            **Organization, Authority and No Conflict**.  Borrower is a corporation or limitedpartnership, duly organized, validly existing and in good standing in the Stateof its organization, its state organizational identification number is as setforth on the Information Certificate and Borrower is duly qualified and in goodstanding in all states where the nature and extent of the business transactedby it or the ownership of its assets makes such qualification necessary or, ifBorrower is not so qualified, Borrower may cure any such failure without losingany of its rights, incurring any Liens or material penalties, or otherwiseaffecting Lender’s rights.  Borrower hasthe right and power and is duly authorized and empowered to enter into, executeand deliver this Agreement and the Other Agreements and perform its obligationshereunder and thereunder.  Borrower’sexecution, delivery and performance of this Agreement and the Other Agreementsdo not conflict with the provisions of the organizational documents ofBorrower, any statute, regulation, ordinance or rule of law, or any agreement,contract or other document which may now or hereafter be binding on Borrower,except for conflicts with agreements, contracts or other documents which wouldnot have a Material Adverse Effect on Borrower, and Borrower’s execution,delivery and performance of this Agreement and the Other Agreements shall notresult in the imposition of any Lien upon any of Borrower’s property (otherthan Permitted Liens) under any existing indenture, mortgage, deed of trust,loan or credit agreement or other agreement or instrument by which Borrower orany of its property may be bound or affected.

 

(g)           **Litigation**.  Except as disclosed to Lender on Schedule 11(g)hereto, as of the May 5, 2005, there are no actions or proceedings which arepending or, to the best of Borrower’s knowledge, threatened in writing againstBorrower, which are, reasonably likely to have a Material Adverse Effect onBorrower.  

 

(h)           **Compliance with Laws and Maintenance of Permits**.  Borrower has obtained all governmentalconsents, franchises, certificates, licenses, authorizations, approvals andpermits, the lack of which would have a Material Adverse Effect onBorrower.  Borrower is in compliance inall material respects with all applicable federal, state, local and foreignstatutes, orders, regulations, rules and ordinances (including, withoutlimitation, Environmental Laws and statutes, orders, regulations, rules andordinances relating to taxes, employer and employee

 

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contributions and similaritems, securities, ERISA or employee health and safety) the failure to complywith which would have a Material Adverse Effect on Borrower.

 

(i)            **Affiliate Transactions**.  Except as set forth on Schedule 11(i)hereto or as permitted pursuant to Subsection 11(c) and Subsection13(h) hereof, Borrower is not conducting, permitting or suffering to beconducted, transactions with any Affiliate other than transactions withAffiliates for the purchase or sale of Inventory or services in the ordinarycourse of business pursuant to terms that are no less favorable to Borrowerthan the terms upon which such transactions would have been made had they beenmade to or with a Person that is not an Affiliate.

 

(j)            **Names and Trade Names**.  Borrower’s name, for the past five years, hasalways been as set forth on the first page of this Agreement and Borroweruses no trade names, assumed names, fictitious names or division names in theoperation of its business, except as set forth on Schedule 11(j)hereto.

 

(k)           **Equipment**.  Except for Permitted Liens, Borrower has goodand indefeasible and merchantable title to and ownership of all Equipment.  No Equipment is a Fixture to real estateunless such real estate is owned by Borrower and is subject to a mortgage infavor of Lender or, if such real estate is leased, is subject to a landlord’sagreement in favor of Lender on terms acceptable to Lender, or an accession toother personal property unless such personal property is subject to a first priorityLien in favor of Lender.

 

(l)            **Enforceability**.  This Agreement and the Other Agreements towhich Borrower is a party are the legal, valid and binding obligations ofBorrower and are enforceable against Borrower in accordance with theirrespective terms.

 

(m)          **Solvency**.  Borrowers on a consolidated basis are, aftergiving effect to the transactions contemplated hereby, solvent, able to paytheir debts as they become due, have capital sufficient to carry on theirbusiness, now own property having a value both at fair valuation and at presentfair saleable value greater than the amount required to pay their debts, andwill not be rendered insolvent by the execution and delivery of this Agreementor any of the Other Agreements or by completion of the transactionscontemplated hereunder or thereunder.

 

(n)           **Indebtedness**.  Except as set forth on Schedule 11(n)hereto, Borrower is not obligated (directly or indirectly) for any Indebtednessother than the Loans and Indebtedness to BOF, and Schedule 11(n) heretodescribes all Indebtedness of the Borrower existing as of May 5, 2005,including, without limitation, any Indebtedness permitted under Section 13(a).

 

(o)           **Margin Security and Use of Proceeds**.  Borrower does not own any margin securities,and none of the proceeds of the Revolving Loans hereunder shall be used for thepurpose of purchasing or carrying any margin securities or for the purpose ofreducing or retiring any Indebtedness which was originally incurred to purchaseany margin securities or for any other purpose not permitted by Regulation U ofthe Board of Governors of the Federal Reserve System as in effect from time totime.

 

(p)           **Parent, Subsidiaries and Affiliates**.  Except as set forth on Schedule 11(p)hereto or as otherwise permitted hereunder, including under Section 13(c)hereof,

 

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Borrower has no Parents,Subsidiaries or other Affiliates, nor is Borrower engaged in any joint ventureor partnership with any other Person.

 

(q)           **No Defaults**.  Except as set forth on Schedule 11(q)hereto, Borrower is not in default under any material contract, lease orcommitment to which it is a party or by which it is bound, nor does Borrowerknow of any dispute regarding any contract, lease or commitment which wouldhave, in either case, a Material Adverse Effect on Borrower.

 

(r)            **Employee Matters**.  As of the Closing Date, there are nocontroversies pending or threatened between Borrower and any of its employees,agents or independent contractors, other than employee grievances arising inthe ordinary course of business which would not, in the aggregate, have aMaterial Adverse Effect on Borrower, and Borrower is in compliance with allfederal and state laws respecting employment and employment terms, conditions andpractices except for such noncompliance which would not have a Material AdverseEffect on Borrower.

 

(s)           **Intellectual Property**.  Borrower possesses adequate licenses,patents, patent applications, copyrights, service marks, trademarks, trademarkapplications, tradestyles and trade names to continue to conduct its businessas heretofore conducted by it except to the extent that the failure to possesssuch items would not have a Material Adverse Effect on Borrower.

 

(t)            **Environmental Matters**.  Except as set forth on Schedule 11(t)hereto, Borrower has not generated, used, stored, treated, transported,manufactured, handled, produced or disposed of any Hazardous Materials, on oroff its premises (whether or not owned by it) in any manner which at any timeviolates in any material respect any Environmental Law, or any license, permit,certificate, approval or similar authorization thereunder, and the operationsof the Borrower comply in all material respects with all Environmental Laws andall licenses, permits, certificates, approvals and similar authorizationsthereunder.  There has been noinvestigation, proceeding, complaint, order, directive, claim, citation ornotice by any governmental authority or any other Person, nor is any pendingor, to the best of the Borrower’s knowledge, threatened with respect to anynon-compliance with or violation of the requirements of any Environmental Lawby the Borrower or the release, spill or discharge, threatened or actual, ofany Hazardous Materials or the generation, use, storage, treatment,transportation, manufacture, handling, production or disposal of any HazardousMaterials or any other environmental, health or safety matter which would havea Material Adverse Effect on Borrower or its business, operations or assets orany properties at which the Borrower has transported, stored or disposed of anyHazardous Materials.  Borrower has nomaterial liability (contingent or otherwise) in connection with a release,spill or discharge, threatened or actual, of any Hazardous Materials or thegeneration, use, storage, treatment, transportation, manufacture, handling,production or disposal of any Hazardous Materials.

 

(u)           **ERISA Matters**.  Borrower has paid and discharged allobligations and liabilities arising under ERISA of a character which, if unpaidor unperformed, might result in the imposition of a Lien against any of itsproperties or assets.

 

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(v)           **Eligible Accounts**.  With respect to each Account, as of the datesuch Account is created and included as an Eligible Account:  

 

(i)            alldocuments and agreements relating to the Account requested by Lender have beendelivered to Lender with respect to such Account and such documents are trueand correct in all material respects; 

 

(ii)           theAccount is genuine and in all respects what it purports to be and is notevidenced by a judgment; 

 

(iii)          theAccount is for a liquidated amount maturing as stated in a duplicate claim orinvoice covering such sale or rendition of Staffing Services;

 

(iv)          the Accountis not subject to any offset, Lien (other than a Lien of Lender or a PermittedLien), recoupment, deduction, defense, dispute, counterclaim or any otheradverse condition or adjustment of any kind (in each case other that any suchitem that is taken into account in determining the net amount of such Account)that is known to Borrower as existing or asserted, and each such Account isabsolutely owing to Borrower and is not contingent in any respect or for anyreason;

 

(v)           there areno facts, events or occurrences which in any way impair the validity orenforceability of any Accounts or tend to reduce the amount payable thereunderfrom the face amount of the claim or invoice and statements delivered to Lenderwith respect thereto other than adjustments made by Borrower in the ordinarycourse of business;

 

(vi)          to theknowledge of the Borrower, the Account Debtor under the Account had thecapacity to contract at the time any contract or other document giving rise tothe Account was executed; 

 

(vii)         withthe exceptions of Accounts described in Section 2(a)(ii), the Account has beenbilled and forwarded to the Account Debtor for payment in accordance withapplicable laws and compliance and conformance in all material respects withany and requisite procedures, requirements and regulations governing payment bysuch Account Debtor with respect to such Account; 

 

(viii)        Borrowerhas obtained and currently has all licenses, permits and authorizations thatare necessary in the generation of such Accounts; 

 

(ix)           Lender hasa perfected, first-priority security interest in such Account to secure theObligations; 

 

(x)            the agingof such Eligible Account, as reflected in the information submitted to Lender,reflects the age of such Eligible Account from the date of service and not fromthe date of billing or any re-billing of the Eligible Account; 

 

(xi)           Borrowerhas not made, and will not make without concurrent written notice provided toLender, any agreement with any Account Debtor for any

 

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extension of the time for payment of the Account, anycompromise or settlement for less than the full amount thereof, any release ofany Account Debtor from liability therefor, or any deduction therefrom except adiscount or allowance for prompt or early payment allowed by Borrower in theordinary course of its business consistent with its historical practices and asdisclosed to Lender in writing; 

 

(xii)          allinformation relating to such Account that has been delivered to Lender is trueand correct in all material respects, such that with respect to each suchAccount that has been invoiced, Borrower has delivered or is delivering to theAccount Debtor all requested supporting claim documents and all information setforth in the invoice and supporting claim documents is true, complete andcorrect in all material respects; 

 

(xiii)         suchAccount is (i) payable in the amount identified by Borrower; or,(ii) to the knowledge of Borrower the legally enforceable obligation ofsuch Account Debtor, and (iii) an account receivable or general intangiblewithin the meaning of the UCC of the state in which Borrower is “located”(within the meaning of such term in the UCC); 

 

(xiv)        nosuch Account (i) after giving effect to the provisions of the UCC,requires the approval of any third person for such Account to be assigned toLender hereunder, or (ii) is past, or within 120 days of, the statutorylimit for collection applicable to the Account Debtor;

 

(xv)         Borrowerdoes not have any guaranty of, letter of credit support for, or collateralsecurity for, such Account, other than any such guaranty, letter of credit orcollateral security to which Lender has a Lien; 

 

(xvi)        thefees and charges charged for the services constituting the basis for suchAccount were when rendered and are currently consistent with (i) theusual, customary and reasonable fees charged by Borrower or (ii) pursuantto negotiated fee contracts, or imposed fee schedules, with or by theapplicable Account Debtors; 

 

(xvii)       ifrequested by Lender, a copy of each related contract and provider agreement towhich Borrower is a party has been delivered to Lender unless Borrower shallhave, prior to the related funding date, certified to Lender that such deliveryis prohibited by the terms of the contract or by law, and the circumstances ofsuch prohibition; and

 

(xviii)      suchAccount was (or if unbilled, will be (nothing herein implying any obligation ofLender to make advances in respect of unbilled Accounts other than as providedin Section 2(a)(ii))) in any event billed no later than thirty (30) days afterthe date the services or goods giving rise to such Account were rendered orprovided, as applicable, and each bill (other than bills delivered prior to thedate that the lockbox agreements are in effect), contains an express directionrequiring the Account Debtor to remit payments to the applicable lockbox linkedto the applicable Account Debtor Collection Lockbox Account.

 

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If a breach of any of the representations or warranties containedherein relating to an Account may, in the reasonable credit judgment of Lenderhave a Material Adverse Effect upon the validity, legality or collectibility ofsuch Account, then such Account shall no longer be deemed an “Eligible Account”as defined in Section 1(a) hereof.

 

(w)          **Reimbursement**.  Borrower has provided to Lender copies of allservice contracts with Account Debtors, to the extent required by theLender.  Borrower is in compliance in allmaterial respects with such contracts and is entitled to reimbursement undersuch contracts.

 

(x)            **Compliance with Healthcare Regulations**.

 

(i)            Borroweris not subject to compliance with any Healthcare Regulations, including withoutlimitation, the Federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b), the FalseClaims Act (31 U.S.C. §§ 3729 et seq.), the Health Insurance Portability andAccountability Act of 1996 (Pub. L. No. 104-191, 110 Stat. 1936 (1996)) and thefederal physician self-referral laws (42 U.S.C. § 1395nn);

 

(ii)           Borrowerhas obtained all necessary licenses and accreditations to operate its businessas now conducted, and currently is in compliance with all statutory andregulatory requirements applicable to it, the failure of which would have aMaterial Adverse Effect upon Borrower; and

 

(iii)          Allpersons providing professional health care services for or on behalf ofBorrower (either as an employee or independent contractor) are appropriatelylicensed in every jurisdiction in which they hold themselves out asprofessional health care providers.

 

(y)           **Immigration Matters**.  Borrower has complied with applicable UnitedStates immigration law requirements, including without limitation the IllegalImmigration Reform and Immigrant Responsibility Act of 1996 (Pub. L. No.104-193), as such laws apply to Borrower’s recruitment of internationaltemporary professional health care service providers.

 

(z)            **Licenses, Permits, etc**. Borrower has all necessary federal, state and local licenses, permits,registrations, certifications and other approvals required in order to conductany healthcare activity in which it is currently engaged; the failure ofBorrower to have such licenses, permits, registrations, certifications andother approvals would have a Material Adverse Effect on the Borrower and anyPerson that provides any healthcare services for or on behalf of Borrower(either as an employee or independent contractor) holds the required federal,state and local licenses that are necessary to legally perform such servicesand are not suspended or limited in any way; and, except as set forth onSchedule 11(z) hereto, Borrower is in good standing with the respectivegovernmental, quasi-governmental and other third party payors and regulatoryagencies that are involved in such healthcare activities.

 

(aa)         **Collective Enterprise**.  Borrowers are engaged in the businesses ofproviding staffing in the healthcare industry as of the Closing Date, as wellas in certain other businesses.  Theseoperations require financing on a basis such that the credit supplied can bemade available from time to time to Borrowers, as required for the continuedsuccessful operation of Borrowers taken as a whole.  Borrowers have requested the Lender makecredit

 

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available hereunderprimarily for the purposes of Subsection 12(g) and generally forthe purposes of financing the operations of Borrowers.  Each Borrower expects to derive benefit (andthe Board of Directors of each Borrower has determined that such Borrower mayreasonably be expected to derive benefit), directly or indirectly, from aportion of the credit extended by Lender hereunder, both in its separatecapacity and as a member of the group of companies, since the successfuloperation and condition of each Borrower is dependent on the continuedsuccessful performance of the functions of the group as a whole.  Each Borrower acknowledges that, but for theagreement of each of the other Borrowers to execute and deliver this Agreement,Lender would not have made available the credit facilities established herebyon the terms set forth herein.

 

(bb)         **Acquisition**.  EachAcquisition has been consummated pursuant to the terms of the AcquisitionDocuments related thereto and in compliance with all applicable laws.  Borrower has provided to Lender completecopies of the Acquisition Documents, including all schedules, exhibits anddisclosure letters referred to therein or delivered pursuant thereto, if any,and all amendments thereto, waivers relating thereto and other side letters oragreements affecting the term thereof. None of such agreements and documents has been amended or supplemented,nor have any of the provisions thereof been waived by the parties thereto,except pursuant to a written agreement or agreement which has heretofore beendelivered to the Lender.

 

(cc)         **CertainFinancial Information**.  The following have been delivered to Lenderas of the Original Closing Date:  (i)internally prepared financial statements of Borrower for the most recent monthend and (ii) projections in form and detail satisfactory to Lender givingeffect to each Permitted Acquisition.

 

12.           AFFIRMATIVECOVENANTS.

 

Until payment and satisfaction in full of all Obligations andtermination of this Agreement, unless Borrower obtains Lender’s prior writtenconsent waiving or modifying any of Borrower’s covenants hereunder in anyspecific instance, Borrower covenants and agrees as follows:

 

(a)           **Maintenance of Records**.  Borrower shall at all times keep accurate andcomplete books, records and accounts with respect to all of Borrower’s businessactivities, in accordance with sound accounting practices and GAAP consistentlyapplied, and shall keep such books, records and accounts, and any copiesthereof, only at the addresses indicated for such purpose on Schedule 11(b)or such other location that is notified to Lender in writing.

 

(b)           **Notices**.  Borrower shall:

 

(i)            Locations.  Promptly (but in no event less than ten (10)days prior to the occurrence thereof) notify Lender of the proposed opening ofany new place of business or new location of Collateral, the closing of anyexisting place of business or location of Collateral, any change of thelocation of Borrower’s books, records and accounts (or copies thereof), theopening or closing of any post office box, the opening or closing of any bankaccount or, if any of the Collateral consists of Goods of a type

 

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normally used in more than one state, the use of anysuch Goods in any state other than a state in which Borrower has previouslyadvised Lender that such Goods will be used.

 

(ii)           EligibleAccounts.  Promptly upon becomingaware thereof (but in no event later than three (3) days after so becomingaware), notify Lender if any Account identified by Borrower to Lender as anEligible Account becomes ineligible for any reason.

 

(iii)          Litigationand Proceedings.  Promptly uponbecoming aware thereof (but in no event later than three (3) days after sobecoming aware), notify Lender of (i) any actions or proceedings that aregreater than $50,000, individually or in the aggregate, which are pending orthreatened against Borrower and (ii) any Commercial Tort Claims ofBorrower which may arise which involve an amount in controversy in excess ofFifty Thousand and No/100 Dollars ($50,000.00), which notice shall constituteBorrower’s authorization to amend Schedule 11(b) to add suchCommercial Tort Claim.

 

(iv)          Namesand Trade Names.  Notify Lenderwithin ten (10) days of the change of its name or the use of any trade name,assumed name, fictitious name or division name not previously disclosed toLender in writing.

 

(v)           ERISAMatters.  Promptly notify Lender of(x) the occurrence of any “reportable event” (as defined in ERISA) whichmight result in the termination by the Pension Benefit Guaranty Corporation(the “**PBGC**”) of any employeebenefit plan (“**Plan**”) covering anyofficers or employees of the Borrower, any benefits of which are, or arerequired to be, guaranteed by the PBGC, (y) receipt of any notice from thePBGC of its intention to seek termination of any Plan or appointment of atrustee therefor or (z) its intention to terminate or withdraw from any Plan.

 

(vi)          EnvironmentalMatters.  Immediately notify Lenderupon becoming aware of any investigation, proceeding, complaint, order,directive, claim, citation or notice with respect to any noncompliance with orviolation of the requirements of any Environmental Law by Borrower or thegeneration, use, storage, treatment, transportation, manufacture, handling,production or disposal of any Hazardous Materials or any other environmental,health or safety matter which affects Borrower or its business operations orassets or any properties at which Borrower has transported, stored or disposedof any Hazardous Materials unless the foregoing could not reasonably beexpected to have a Material Adverse Effect on Borrower.

 

(vii)         Default;Material Adverse Change.  Promptlyadvise Lender of any material adverse change in the business, property, assets,prospects, operations or condition, financial or otherwise, of Borrower, theoccurrence of any Default or Event of Default hereunder or the occurrence ofany event which, if uncured, will become an Event of Default after notice orlapse of time (or both).

 

(viii)        SubordinatedDebt.  Promptly advise Lender of anydefault or any event which, with the giving of notice or lapse of time, orboth, would constitute a default, under any subordination agreement relative toSubordinated Debt, or any

 

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agreement, instrument or document evidencing orrelating to any Subordinated Debt, and a certificate of a authorized officer ofBorrower specifying the nature thereof and Borrower’s proposed responsethereto, in reasonable detail; provided that Borrower shall immediatelyadvise Lender of a Travmed Subordinated Debt Default.

 

All of the foregoing noticesshall be provided by Borrower to Lender in writing.

 

(c)           **Compliance with Laws and Maintenance of Permits**.  Borrower shall maintain all governmentalconsents, franchises, certificates, licenses, authorizations, approvals andpermits, the lack of which would have a Material Adverse Effect on Borrower,and Borrower shall remain in compliance with all applicable federal, state,local and foreign statutes, orders, regulations, rules and ordinances(including, without limitation, Environmental Laws and statutes, orders,regulations, rules and ordinances relating to taxes, employer and employeecontributions and similar items, securities, ERISA or employee health andsafety) the failure with which to comply would have a Material Adverse Effecton Borrower.  Following any determinationby Lender that there is noncompliance, or any condition which requires anyaction by or on behalf of Borrower in order to avoid noncompliance, with anyEnvironmental Law, at Borrower’s expense, cause an independent environmentalengineer acceptable to Lender to conduct such tests of the relevant site(s) asare appropriate and prepare and deliver a report setting forth the results ofsuch tests, a proposed plan for remediation and an estimate of the coststhereof.

 

(d)           **Inspection and Audits**.  Upon five (5) Business Days prior writtennotice so long as no Default or Event of Default exists, Borrower shall permitLender, or any Persons designated by it, to call at Borrower’s places ofbusiness at any reasonable times during normal business hours and, withouthindrance or delay, to inspect the Collateral and to inspect, audit, check andmake extracts from Borrower’s books, records, journals, orders, receipts andany correspondence and other data relating to Borrower’s business, theCollateral or any transactions between the parties hereto, and shall have theright to make such verification concerning Borrower’s business as Lender mayconsider reasonable under the circumstances. Borrower shall furnish to Lender such information relevant to Lender’srights under this Agreement and the Other Agreements as Lender shall at anytime and from time to time request. Lender, through its officers, employees or agents, shall have the right,at any time and from time to time, in Lender’s name, to verify the validity,amount or any other matter relating to any of Borrower’s Accounts, by mail,telephone, telecopy, electronic mail or otherwise, provided that, prior to theoccurrence of an Event of Default, Lender shall conduct such verification inthe name of a nominee of Lender or in Borrower’s name.  Borrower authorizes Lender to discuss theaffairs, finances and business of Borrower with any officers, employees ordirectors of Borrower or with its Parent or any Affiliate or the officers,employees or directors of its Parent or any Affiliate, and to discuss thefinancial condition of Borrower with Borrower’s independent public accountants,which shall be attended by a representative of Borrower.  Any such discussions shall be withoutliability to Lender or to Borrower’s independent public accountants.  Borrower shall pay to Lender all customaryfees (currently Eight Hundred Fifty and No/100 Dollars ($850.00) per person,per day) and all reasonable costs and out-of-pocket expenses incurred by Lenderin the exercise of its rights hereunder, and all of such fees, costs andexpenses shall constitute Obligations hereunder, shall be payable on demandand, until paid, shall bear interest at the highest rate then applicable toRevolving Loans hereunder; provided, however, that so long

 

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as no Event of Defaulthas occurred, Borrower shall not pay for more than four (4) audits in anyFiscal Year, except for any audits of a Target in connection with a proposedAcquisition.

 

(e)           **Insurance**.  Borrower shall:

 

(i)            Keep theCollateral properly housed and insured for the full insurable value thereofagainst loss or damage by fire, theft, explosion, sprinklers, collision (in thecase of motor vehicles) and such other risks as are customarily insured againstby Persons engaged in businesses similar to that of Borrower, with suchcompanies, in such amounts, with such deductibles and under policies in suchform as shall be reasonably satisfactory to Lender and BOF.  Certificates of insurance or, if requested byLender, original (or certified) copies of such policies of insurance have beenor shall be, within ninety (90) days of the Original Closing Date, delivered toLender, together with evidence of payment of all premiums therefor, and shallcontain an endorsement, in form and substance acceptable to Lender, showingloss under such insurance policies payable to Lender and BOF, as theirinterests appear.  Such endorsement, oran independent instrument furnished to Lender, shall provide that the insurancecompany shall give Lender at least thirty (30) days’ written notice before anysuch policy of insurance is altered or canceled (ten (10) days for non-paymentof premiums) and that no act, whether willful or negligent, or default ofBorrower or any other Person shall affect the right of Lender to recover undersuch policy of insurance in case of loss or damage.  In addition, Borrower shall cause to beexecuted and delivered to Lender and BOF, as their interests may appear, anassignment of proceeds of its business interruption insurance policies.  Borrower hereby directs all insurers underall policies of insurance to pay all proceeds payable thereunder directly toLender and BOF, as their interests may appear. Borrower irrevocably makes, constitutes and appoints Lender (and all officers,employees or agents designated by Lender) as Borrower’s true and lawfulattorney (and agent-in-fact) for the purpose of making, settling and adjustingclaims under such policies of insurance, endorsing the name of Borrower on anycheck, draft, instrument or other item of payment for the proceeds of suchpolicies of insurance and making all determinations and decisions with respectto such policies of insurance, provided however, that if no Event of Defaultshall have occurred and is continuing, Borrower may make, settle and adjustclaims involving less than $100,000.00 in the aggregate without Lender’sconsent.

 

(ii)           Maintain,at its expense, such public liability and third-party property damage insuranceas is customary for Persons engaged in businesses similar to that of Borrowerwith such companies and in such amounts with such deductibles and underpolicies in such form as shall be reasonably satisfactory to Lender andcertificates of insurance or, if requested by Lender, original (or certified)copies of such policies have been or shall be, within ninety (90) days afterthe Original Closing Date, delivered to Lender, together with evidence ofpayment of all premiums therefor; each such policy shall contain an endorsementshowing Lender as additional insured thereunder and providing that theinsurance company shall give Lender at least thirty (30) days’ written noticebefore any such policy shall be altered or canceled.

 

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If Borrower at any time ortimes hereafter shall fail to obtain or maintain any of the policies ofinsurance required above or to pay any premium relating thereto, then Lender,without waiving or releasing any obligation or default by Borrower hereunder,may (but shall be under no obligation to) obtain and maintain such policies ofinsurance and pay such premiums and take such other actions with respectthereto as Lender deems advisable.  Suchinsurance, if obtained by Lender, may, but need not, protect Borrower’sinterests or pay any claim made by or against Borrower with respect to theCollateral.  Such insurance may be moreexpensive than the cost of insurance Borrower may be able to obtain on its ownand may be cancelled only upon Borrower providing evidence that it has obtainedthe insurance as required above.  Allsums disbursed by Lender in connection with any such actions, including,without limitation, court costs, expenses, other charges relating thereto andreasonable attorneys’ fees, shall constitute Revolving Loans hereunder, shallbe payable on demand by Borrower to Lender and, until paid, shall bear interestat the highest rate then applicable to Revolving Loans hereunder.

 

(f)            **Collateral**.  Borrower shall keep the Collateral in goodcondition, repair and order and shall make all necessary repairs to theEquipment and replacements thereof so that the operating efficiency and thevalue thereof shall at all times be preserved and maintained in all materialrespects.  Borrower shall permit Lenderto examine any of the Collateral at any time during normal business hours (solong as no Default or Event of Default exists) and wherever the Collateral maybe located and, Borrower shall, promptly upon request therefor by Lender,deliver to Lender any and all evidence of ownership of any of theCollateral.  Borrower shall, at therequest of Lender, indicate on its records concerning the Collateral anotation, in form satisfactory to Lender, of the security interest of Lenderhereunder.  If, prior to the terminationof this Agreement, Borrower shall obtain rights to any new Collateral of thetype described in the last sentence of Subsection 11(b), Borrowershall notify Lender in writing (with reasonable detail) of such changes atleast once every thirty (30) days. Borrower hereby authorizes Lender to unilaterally modify this Agreementby amending Schedule 11(b) to include any such Collateral.  Notwithstanding the foregoing, Borrowerhereby agrees that Lender’s security interest shall extend to all suchCollateral, regardless of whether Lender actually amends Schedule 11(b).

 

(g)           **Use of Proceeds**.  All monies and other property obtained byBorrower from Lender pursuant to this Agreement shall be used solelyfor business purposes of Borrower.

 

(h)           **Taxes**. Borrower and any other Obligor shall file all required tax returns andpay all of its taxes when due, subject to any extensions granted by theapplicable taxing authority, including, without limitation, taxes imposed byfederal, state or municipal agencies, and shall cause any Liens for taxes to bepromptly released; provided, that Obligor shall have the right to contest thepayment of such taxes in good faith by appropriate proceedings so long as(i) the amount so contested is shown on Obligor’s financial statements;and (ii) the contesting of any such payment does not impair theenforceability, validity or priority of the Lender’s Liens.  If Obligor fails to pay any such taxes and inthe absence of any such contest by Obligor, Lender may (but shall be under noobligation to) advance and pay any sums required to pay any such taxes and/orto secure the release of any Lien therefor, and any sums so advanced by Lendershall constitute Revolving Loans hereunder, shall be payable by Obligor toLender on demand and, until paid, shall bear interest at the highest rate thenapplicable to Revolving Loans hereunder.

 

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(i)            **Intellectual Property**.  Borrower shall maintain adequate licenses,patents, patent applications, copyrights, service marks, trademarks, trademarkapplications, tradestyles and trade names to continue its business asheretofore conducted by it or as hereafter conducted by it unless the failureto maintain any of the foregoing could not reasonably be expected to have aMaterial Adverse Effect on Borrower.

 

(j)            **Staffing Contracts**.  Borrower shall promptly provide true andcomplete copies to Lender of all material staffing or similar contracts and, tothe extent requested by Lender, deliver to Lender a collateral assignmentagreement with respect to such contracts.

 

(k)           **Billing and Collection System**.  After the Original Closing Date and, iffeasible based on Borrower’s accounting system, Borrower shall provideelectronic access to Lender to its billing and collection system, on aread-only basis, for purposes of permitting Lender to inspect and verifybilling and collections transactions and related data in connection with theCollateral, from time to time.

 

13.           NEGATIVECOVENANTS.

 

Untilpayment and satisfaction in full of all Obligations and termination of thisAgreement, unless Borrower obtains Lender’s prior written consent waiving ormodifying any of Borrower’s covenants hereunder in any specific instance,Borrower agrees as follows:

 

(a)           **Indebtedness**.  Borrower shall not create, incur, assume orbecome obligated (directly or indirectly), for any Indebtedness for BorrowedMoney other than the Revolving Loans and the Term Loans of BOF, except thatBorrower may (i) maintain its present Indebtedness listed on Schedule 11(n)hereto; and (ii) incur purchase money Indebtedness or Capital LeaseObligations in connection with Capital Expenditures permitted pursuant to Section14 hereof.  Borrower shall not incurany Subordinated Debt without the prior written consent of Lender (which shallinclude an indefinite standstill of remedies and payment blockage rights duringany Event of Default), nor during the existence of an Event of Default, makeany payment of any part or all of any Subordinated Debt or take any otheraction or omit to take any other action in respect of any Subordinated Debt,except in accordance with any subordination agreement relative thereto or thesubordination provisions thereof or hereof, or grant any Liens on any of itsassets to secure such Subordinated Debt, or amend or modify any agreement,instrument or document evidencing or relating to any Subordinated Debt afterLender consents thereto.

 

(b)           **Liens**. Borrower shall not grant or permit to exist (voluntarily orinvoluntarily) any Lien on any of its assets, other than Permitted Liens.

 

(c)           **Mergers, Sales, Acquisitions, Subsidiaries and OtherTransactions Outside the Ordinary Course of Business**.

 

(i)            Borrowershall not, without the prior written consent of Lender:  (A) enter into any merger orconsolidation; provided that (i) any Borrower (other than CRDE, AHHC,Care Pros, HIP, HIP LLC, Travmed, Prime Staff and MMSO) may merge with and intoCrdentia so long as Crdentia is the surviving entity, and (ii) any Borrower(other than CRDE, AHHC, Care Pros, HIP, HIP LLC, Travmed, Prime Staff,

 

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MMSO and Crdentia) may merge with another Borrower(other than CRDE, AHHC, Care Pros, HIP, HIP LLC, Travmed, Prime Staff, MMSO andCrdentia), (B) change the state of Borrower’s organization or enter intoany transaction which has the effect of changing Borrower’s state oforganization, except in connection with a merger permitted in clause (A) above;(C) sell, lease or otherwise dispose of any of its assets other than inthe ordinary course of business or as permitted under Section 7;(D) purchase the stock, other equity interests or all or a materialportion of the assets of any Person or division of such Person; or(E) enter into any other transaction outside the ordinary course of Borrower’sbusiness, including, without limitation, any purchase, redemption or retirementof any shares of any class of its stock or any other equity interest, and anyissuance of any shares of, or warrants or other rights to receive or purchaseany shares of, any class of its stock or any other equity interest, subject toclause (iii) below.  

 

(ii)           Borrowershall not form any new Subsidiaries or enter into any joint ventures orpartnerships with any other Person, without the prior written consent of Lenderunless (A) Crdentia (or such other Borrower) pledges all of the equityinterests of such new Subsidiary to Lender, and (B) such entity entersinto a joinder agreement or similar agreement in which such entity becomes aparty to this Agreement, jointly and severally liable for the Obligations andpledges to Lender all of its assets as Collateral hereunder.

 

(iii)          Notwithstandingthe foregoing, Crdentia may enter into certain Permitted Acquisitions with theprior written consent of Lender in its sole discretion. A permitted acquisition(“**Permitted Acquisition**”) shallmean an Acquisition which satisfies each of the following conditions:  (A) the Borrower shall have: (x) acoverage ratio of EBITDA to Debt Service of at least 1.5 to 1.0, (y) aratio of Senior Debt to EBITDA of not more than 4.0 to 1.0, and (z) aratio of Term Loan Debt to EBITDA of not more than 2.5 to 1.0;(B) Borrowers are in compliance, and shall be on the date of theconsummation of such proposed Acquisition, with all financial covenants set forthin Section 14 hereof; (C) pro forma financial projections, preparedby the Borrower in good faith for the period from the date of the consummationof such proposed Acquisition to the date which is one year thereafter, shallreflect that the Borrowers shall be in compliance with all financial covenantsset forth in Section 14 hereof; (D) Excess Availability of theBorrowers shall be an amount mutually agreed upon between Lender and Borrowerbut in no event less than $250,000 after giving effect to the proposed Acquisition;(E) the Target entity to be acquired in such Acquisition shall become a newBorrower hereunder in accordance with the provisions and requirements ofSection 13(c)(ii) hereof, and shall be subject to all the terms andconditions under this Agreement; (F) any Indebtedness to be issued by anyBorrower in respect of such Acquisition shall be Subordinated Debt subject toSubordination Agreements in form and substance satisfactory to Lenderincluding, without limitation, payment blockage rights and indefinitestandstill on remedies; (G) Lender shall have reviewed and foundsatisfactory all Acquisition Documents in respect thereof prior to Borrowerentering into any such Acquisition Documents; (H) no Default or Event ofDefault exists as of the proposed date of the Acquisition or would result aftergiving effect thereto; (I) Crdentia shall deliver to Lender a certificateof an officer of Crdentia certifying compliance with the foregoing, (J)Borrower shall deliver to Lender any other due diligence reasonably

 

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requested by the Lender in connection with anAcquisition or Target, including, without limitation collateral, cash-flow, andoperational audits, and background checks on Target’s management, in each caseto the reasonable satisfaction to the Lender; and (K) Borrower shall establishand maintain a separate Lockbox with a Lockbox Bank for receivables fromAccount Debtors of CRDE in accordance with the requirements of the Term LoanAgreement and this Agreement, and Borrower shall execute with such Lockbox Banka lockbox agreement, blocked account agreement, and such other agreementsrelated to the lockbox arrangements, in each case in form and substanceacceptable to the Lender.

 

(d)           **Dividends and Distributions**.  No Borrower shall declare or pay any dividendor other distribution (whether in cash or in kind) on any class of its stock(if Borrower is a corporation) or on account of any equity interest in Borrower(if Borrower is a partnership, limited liability company or other type ofentity) to any Person; provided,that (i) any Borrower may pay adividend or other distribution (whether in cash or in kind) on any class of itsstock (if Borrower is a corporation) or on account of any equity interest inBorrower (if Borrower is a partnership, limited liability company or other typeof entity) to Crdentia to pay professional fees, franchise taxes and otherordinary course of business operating expenses incurred by Crdentia solely inits capacity as parent corporation of Borrower, (ii) any Borrower may pay adividend or other distribution (whether in cash or in kind) on any class of itsstock (if Borrower is a corporation) or on account of any equity interest inBorrower (if Borrower is a partnership, limited liability company or other typeof entity) to another Borrower, and (iii) Crdentia may pay customary stockdividends to holders of its Series A Preferred Stock, Series B Preferred Stock,Series B-1 Preferred Stock and Series C Preferred Stock.

 

(e)           **Investments; Loans**.  Borrower shall not purchase or otherwiseacquire, or contract to purchase or otherwise acquire, the obligations or stockof any Person, other than investments in the stock of a Borrower, investmentsin connection with Permitted Acquisitions under Section 13(c)(iii), directobligations of the United States or of any State of the United States orpolitical subdivision thereof, obligations insured by the Federal DepositInsurance Corporation and obligations unconditionally guaranteed by the United Statesor of any State of the United States or political subdivision thereof; norshall Borrower lend or otherwise advance funds to any Person except foradvances made to employees, officers and directors for travel and otherexpenses and extensions of credit to customers arising in the ordinary courseof business.

 

(f)            **Fundamental Changes, Line of Business**.  Borrower shall not enter into a new line ofbusiness materially different from Borrower’s current business.  Borrower further agrees that no Borrower shallamend its organizational documents or change its Fiscal Year if such actions(i) would have a Material Adverse Effect on the Borrower; (ii) would affect theobligations of Borrower to Lender; or (iii) would affect the interpretation ofany of the terms of this Agreement or the Other Agreements unless Lender hasprovided written consent after receiving not less than thirty (30) days’ priorwritten notice of such actions.

 

(g)           **Equipment**.  Borrower shall not (i) permit anyEquipment to become a Fixture to real property unless such real property isowned by Borrower and is subject to a mortgage in favor of Lender or, if suchreal estate is leased, is subject to a landlord’s agreement in favor of Lenderon terms acceptable to Lender, or (ii) permit any Equipment to become an

 

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accession to any otherpersonal property unless such personal property is subject to a first priorityLien in favor of Lender.

 

(h)           **Affiliate Transactions**.  Except as set forth on Schedule 11(i)hereto or as permitted pursuant to Subsection 11(c) hereof,Borrower shall not conduct, permit or suffer to be conducted, transactions withAffiliates other than (i) investments by Affiliates in a Borrower; (ii) theprovision of employment, management and consulting services approved byBorrower’s compensation committee; and (iii) other transactions for thepurchase or sale of Inventory or services in the ordinary course of businesspursuant to terms that are no less favorable to Borrower than the terms uponwhich such transactions would have been made had they been made to or with aPerson that is not an Affiliate.

 

(i)            **Settling of Accounts**.  Borrower will not make without concurrentwritten notice provided to Lender, any agreement with any Account Debtor forany extension of the time for payment of the Account, any compromise orsettlement for less than the full amount thereof, any release of any AccountDebtor from liability therefore, or any deduction therefrom except a discountor allowance for prompt or early payment allowed by Borrower in the ordinarycourse of its business consistent with its historical practices and asdisclosed to Lender in writing; provided, that following the occurrenceand during the continuance of a Default an Event of Default, Borrower shall notsettle or adjust any Account without the consent of Lender.

 

(j)            **Restricted Payments**.** **Untilthe termination of this Agreement, Borrower shall not make any direct orindirect payment or prepayment, in cash, in kind, or otherwise, with respect tothe following Indebtedness, except as provided in clauses (i), (ii) and (iii)below:

 

(i)            **Seller Notes**.  Scheduled payments of principal and interestunder any Seller Note or other instrument of Subordinated Debt may be paid if,and only to the extent that, at the time of any such payment no Event ofDefault then exists or would result from the making of such payment.

 

(ii)           **Management/Advisory Fees**.  Scheduled payments in respect of anymanagement fees, advisory fees or similar fees payable by any Borrower to anyother Borrower may be paid if, and only to the extent that, at the time of anysuch payment no Event of Default described in this Agreement then exists orwould result from the making of such payment.

 

(iii)          **Subordinated Debt**.  Scheduled payments in respect of SubordinatedDebt may be made only if either:  (a) theBorrower has Excess Availability of $500,000, or (b) the Borrower is incompliance with its financial covenants both before and after the SubordinatedDebt payment.

 

(k)           **Restricted Locations**.  Borrower shall not move any of its books orrecords or any of its other assets of any kind to its offices located at (i)3000 S. 31st St. #301, Temple, Arizona 76502 or (ii) 5151 E.Broadway #1530, Tucson, Arizona 85711.

 

(l)            **Payments to****Travmed**.  Immediately upon the occurrence of a TravmedSubordinated Debt Default, (i) Borrower shall not, and shall not permit anySubsidiary or Affiliate to, directly or indirectly, make any payment (includingthe payment of any proceeds of

 

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a Loan or the payment ofproceeds of any Collateral) to Travmed, and (ii) Lender shall have no furtherobligation to make any Loans against the accounts receivable of Travmed and allaccounts receivable of Travmed shall be immediately removed from the RevolvingBorrowing Base Amount.

 

14.           FINANCIALCOVENANTS.

 

Borrower shall maintain and keep in full force and effect each of thefinancial covenants set forth below:

 

(a)           **Tangible Net Worth**.  Borrower’s Tangible Net Worth, on aconsolidated basis, shall not at any time be less than the Minimum Tangible NetWorth; “**Minimum Tangible Net Worth**”being defined for purposes of this Subsection as (i) ($5,000,000) at alltimes through June 30,2005, and (ii) thereafter, from the last day ofeach fiscal quarter of the Borrowers through the day prior to the last day ofeach immediately succeeding fiscal quarter of the Borrowers, the MinimumTangible Net Worth during the immediately preceding period plus seventy-five****percent (75%) of the Borrowers’consolidated net income (but without reduction for any net loss) for the FiscalYear ending on the first day of such period as reflected on the Borrowers’audited year end financial statement; and “Tangible Net Worth” being definedfor purposes of this Subsection as the Borrowers’ shareholders’ equity(including retained earnings) less the book value of all intangibleassets of the Borrowers as determined solely by Lender on a consistent basis plusthe amount of any Subordinated Debt of the Borrowers, all as determined on aconsolidated basis under GAAP applied on a basis consistent with the financialstatement dated March 31, 2005 except as set forth herein;

 

(b)           **Senior Debt Service Coverage Ratio**.  As of the last day of each applicable period,the ratio of the Borrower’s Operating Cash Flow to Borrower’s Senior DebtService for each period set forth below (which ratio shall be tested as of thelast day of each such period) must be at least the following:

 
| **Time  Frame** | ** ** | **Date  Tested**                           | ** ** | **Senior Debt  Service  Coverage Ratio** | ** ** | **Based on**       | ** ** |
|-----------------|------------|--------------------------------------------|------------|------------------------------------------|------------|--------------------|------------|
| Quarterly       |       | 6/30/05                                    |       | 0.5 to 1.00                              |       | Trailing 3 months  |       |
| Quarterly       |       | 9/30/05                                    |       | 1.00 to 1.00                             |       | Trailing 6 months  |       |
| Quarterly       |       | 12/31/05                                   |       | 1.15 to 1.00                             |       | Trailing 9 months  |       |
| Quarterly       |       | 3/31/06                                    |       | 1.5 to 1.00                              |       | Trailing 12 months |       |
| Quarterly       |       | 6/30/06 and each fiscal quarter thereafter |       | 1.5 to 1.00                              |       | Trailing 12 months |       |

 

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(c)           **Minimum EBITDA**.  Borrower shall not permit EBITDA of Borrowerto be less than the amount set forth below for the corresponding period setforth below:

 
| **Time  Frame** | ** ** | **Date  Tested**                           | ** ** | **Minimum  EBITDA** | ** ** | **Based on** |
|-----------------|------------|--------------------------------------------|------------|---------------------|------------|--------------|
| Quarterly       |       | 6/30/05                                    |       | $                   | 100,000    |         | Trailing 3 months |
| Quarterly       |       | 9/30/05                                    |       | $                   | 300,000    |         | Trailing 6 months |
| Quarterly       |       | 12/31/05                                   |       | $                   | 600,000    |         | Trailing 9 months |
| Quarterly       |       | 3/31/06                                    |       | $                   | 1,000,000  |         | Trailing 12 months |
| Quarterly       |       | 6/30/06 and each fiscal quarter thereafter |       | $                   | 1,000,000  |         | Trailing 12 months |

* *

(d)           **Term Loan Debt Leverage Ratio**.  Borrower shall not permit the ratio of TermLoan Debt to EBITDA to be more than the following for each period set forthbelow: 

 
| **Time Frame** | ** ** | **Date Tested**                             | ** ** | **Coverage** | ** ** | **Based on:**       |
|----------------|------------|---------------------------------------------|------------|--------------|------------|---------------------|
| Quarterly      |       | 3/31/06                                     |       | 2.70 to 1    |       | Trailing 12  Months |
| Quarterly      |       | 6/30/06 and  each fiscal quarter thereafter |       | 2.50 to 1    |       | Trailing 12  Months |

 

(e)           **Capital Expenditure Limitations**.  Borrowers shall not make any CapitalExpenditures if, after giving effect to such Capital Expenditure, the aggregatecost of all such fixed assets purchased or otherwise acquired would exceed$500,000 during any Fiscal Year.

 

(f)            **Operating Lease Obligations**.  Borrower shall not incur operating leaseobligations requiring payments in excess of $700,000 in the aggregate duringany Fiscal Year of Borrower.

 

15.           DEFAULT.

 

Theoccurrence of any one or more of the following events shall constitute an “Eventof Default” by Borrower hereunder:

 

(a)           **Payment**.  The failure of any Obligor to pay when due,declared due, or demanded by Lender, any of the Obligations or the Term LoanObligations.

 

(b)           **Breach of This Agreement, the Other Agreements and theTerm Loan Agreement**.  Thefailure of any Obligor to perform, keep or observe any of the covenants,conditions, promises, agreements or obligations of such Obligor under thisAgreement or any of the Other Agreements or the Term Loan Agreement; providedthat (i) any such failure by Borrower under Subsections 12(b)(i), (iv),(v) and 12(i) of this Agreement (or the Term Loan

 

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Agreement) shall notconstitute an Event of Default hereunder until the fifteenth (15th) day followingthe occurrence thereof, and (ii) any such failure by Borrower under Subsections 12(b)(iii)and (vi) of this Agreement (or Sections 12(b)(ii) and (v) of the Term LoanAgreement) shall not constitute an Event of Default hereunder until the fifth(5th) day following the occurrence thereof (including any grace periodsthereto).

 

(c)           **Breach of Subordination Agreement**. The failure of any Person to perform, keep or observe any of thecovenants, conditions, promises, agreements or obligations of such Person underany Subordination Agreement.

 

(d)           **Breaches of Other Obligations**.  The failure of Obligor to pay when due orwithin any applicable grace period any obligation of Obligor in excess of$100,000 (other than its Obligations under this Agreement) for the payment ofIndebtedness, other than Subordinated Debt that is not paid when due to theoperation of the requirements of subordination hereunder, or the becoming dueand payable, or declaration to be due any payable, of such obligation beforethe expressed maturity of the obligation, or the occurrence of an event that,with the giving of notice or lapse of time, or both, would cause any suchobligation to become, or allow any such obligation to be declared to be, dueand payable; 

 

(e)           **Breach of Representations and Warranties**.  The making or furnishing by any Obligor toLender of any representation, warranty, certificate, schedule, report or othercommunication within or in connection with this Agreement or the OtherAgreements, or in connection with any other agreement between such Obligor andLender which is untrue or misleading in any material respect as of the datemade.

 

(f)            **Loss of Collateral**.  The loss, theft, damage or destruction of anyof the Collateral in an amount in excess of $100,000 in excess of insurance inthe aggregate for all such events during any year of the Term as determined byLender in its reasonable discretion determined in good faith, or (except aspermitted hereby) sale, lease or furnishing under a contract of service of, anyof the Collateral.

 

(g)           **Levy, Seizure or Attachment**.  The making or any attempt by any Person tomake any levy, seizure or attachment upon any of the Collateral with a value inexcess of $100,000.

 

(h)           **Bankruptcy or Similar Proceedings**.  The commencement of any proceedings inbankruptcy by or against any Obligor or for the liquidation or reorganizationof any Obligor, or alleging that such Obligor is insolvent or unable to pay itsdebts as they mature, or for the readjustment or arrangement of any Obligor’sdebts, whether under the United States Bankruptcy Code or under any other law,whether state or federal, now or hereafter existing, for the relief of debtors,or the commencement of any analogous statutory or non-statutory proceedingsinvolving any Obligor; provided, however, that if such commencement ofproceedings against such Obligor is involuntary, such action shall notconstitute an Event of Default unless such proceedings are not dismissed withinforty-five (45) days after the commencement of such proceedings**,**though Lender shall have no obligation tomake Loans or issue Letters of Credit to Borrower during such forty-five (45)day period or, if earlier, until such proceedings are dismissed.

 

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(i)            **Appointment of Receiver**.  The appointment of a receiver or trustee forany Obligor, for any of the Collateral or for any substantial part of anyObligor’s assets or the institution of any proceedings for the dissolution, orthe full or partial liquidation, or the merger or consolidation, of any Obligorwhich is a corporation, limited liability company or a partnership; provided,however, that, if such appointment or commencement of proceedings against suchObligor is involuntary, such action shall not constitute an Event of Defaultunless such appointment is not revoked or such proceedings are not dismissedwithin forty-five (45) days after the commencement of such proceedings**,**though Lender shall have no obligation tomake Loans or issue Letters of Credit to Borrower during such forty-five (45)day period or, if earlier, until such proceedings are dismissed.

 

(j)            **Judgment**.  The entry of any judgments or ordersaggregating in excess of confirmed insurance coverage in an amount of $100,000or more against any Obligor which remain unsatisfied or undischarged and ineffect for thirty (30) days after such entry without a stay of enforcement orexecution.

 

(k)           **Default or Revocation of Guaranty; SubordinationAgreement.**  The occurrenceof an event of default under, or the revocation or termination of, anyagreement, instrument or document executed and delivered by any Person toLender pursuant to which such Person has guaranteed to Lender the payment ofall or any of the Obligations, has granted Lender a Lien upon some or all ofsuch Person’s real and/or personal property to secure the payment of all or anyof the Obligations or has subordinated indebtedness in whole or in part to theObligations.

 

(l)            **Change of Ownership/Management. **If any of the following events occurs:(i) Jim Durham shall cease to be (x) the owner of 1,000,000 shares ofthe issued and outstanding capital stock of Crdentia, and (y) the ChiefExecutive Officer of Crdentia at any time, (ii) Pam Atherton shall ceaseto be the President of the Borrower at any time, and (iii) Fred Toneyshall cease to be a director of the Borrower at any time, unless Borrower hasreceived Lender’s written consent for a replacement of Jim Durham, Pam Athertonor Fred Toney, as applicable, within 30 days of such notification (such consentnot to be unreasonably withheld).

 

(m)          **Material Adverse Change**.  Any material adverse change in theCollateral, business, property, assets, prospects, operations or condition,financial or otherwise of any Obligor, as determined by Lender in its solejudgment or the occurrence of any event which, in Lender’s sole judgment, couldhave a Material Adverse Effect.

 

(n)           **Governmental Authorizations**.  A Government Authority shall have revoked anyGovernmental Authorization of Borrower that results in the cessation ofbusiness;

 

(o)           **Lockbox Account Instructions**.  Any instruction or agreement regarding anAccount Debtor Collection Lockbox Account, or related lockbox is amended orterminated without the written consent of Lender, or if Borrower fails, withinfive (5) Business Days of receipt, to forward proceeds of Accounts to theapplicable lockbox account, or if Borrower directs any Account Debtor to make apayment in respect of any such Account to any place or account other than theapplicable Account Debtor Collection Lockbox Account or Lockbox and suchdirections are not reversed within five (5) Business Days; and/or

 

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(p)           **Failure to Maintain Third-Party Payroll Tax ServiceProvider**.  The failure tomaintain a contractual relationship with a payroll tax service provider,acceptable to Lender, at any time.

 

(q)           **Breach of Certain Obligations**.  Notwithstanding anything in Section 15(d) tothe contrary, the occurrence of a Travmed Subordinated Debt Default.

 

16.           REMEDIESUPON AN EVENT OF DEFAULT.

 

(a)           Upon the occurrence and during thecontinuance of an Event of Default described in Subsection 15(g)hereof, all of the Obligations shall immediately and automatically become dueand payable, without notice of any kind. Upon the occurrence of any other Default or Event of Default, allObligations may, at the option of Lender, and without demand, notice or legalprocess of any kind, be declared, and immediately shall become, due andpayable.

 

(b)           Upon the occurrence and during thecontinuance of a Default or an Event of Default, Lender may exercise from timeto time any rights and remedies available to it under the Uniform CommercialCode and any other applicable law in addition to, and not in lieu of, anyrights and remedies expressly granted in this Agreement or in any of the OtherAgreements and all of Lender’s rights and remedies shall be cumulative andnon-exclusive to the extent permitted by law.  In particular, but not by way of limitationof the foregoing, Lender may, without notice, demand or legal process of anykind, take possession of any or all of the Collateral (in addition toCollateral of which it already has possession), wherever it may be found, andfor that purpose may pursue the same wherever it may be found and, may enteronto any of Borrower’s premises where any of the Collateral may be, and searchfor, take possession of, remove, keep and store any of the Collateral until thesame shall be sold or otherwise disposed of, and Lender shall have the right tostore the same at any of Borrower’s premises without cost to Lender.  At Lender’s request, Borrower shall, atBorrower’s expense, assemble the Collateral and make it available to Lender atone or more places to be designated by Lender and reasonably convenient toLender and Borrower.  Borrower recognizesthat if Borrower fails to perform, observe or discharge any of its Obligationsunder this Agreement or the Other Agreements, no remedy at law will provideadequate relief to Lender, and agrees that Lender shall be entitled totemporary and permanent injunctive relief in any such case without thenecessity of proving actual damages.  Anynotification of intended disposition of any of the Collateral required by law willbe deemed to be a reasonable authenticated notification of disposition if givenat least ten (10) days prior to such disposition and such notice shall(i) describe Lender and Borrower, (ii) describe the Collateral thatis the subject of the intended disposition, (iii) state the method of theintended disposition, (iv) state that Borrower is entitled to anaccounting of the Obligations and state the charge, if any, for an accountingand (v) state the time and place of any public disposition or the timeafter which any private sale is to be made. Lender may disclaim any warranties that might arise in connection withthe sale, lease or other disposition of the Collateral and has no obligation toprovide any warranties at such time.  AnyProceeds of any disposition by Lender of any of the Collateral may be appliedby Lender to the payment of expenses in connection with the Collateral,including, without limitation, legal expenses and reasonable attorneys’ fees,and any balance of such Proceeds may be applied by Lender toward the payment ofsuch of the Obligations, and in such order of application as Lender may fromtime to time elect.

 

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17.           CONDITIONSPRECEDENT.

 

The obligation of Lender to enter into and perform this Agreement andto continue to make Loans hereunder is subject to the satisfaction or waiver onor before the date hereof, of the following conditions precedent:

 

(a)           Lender shall have received four (4) originalsof each of the agreements, opinions, reports, approvals, consents, certificatesand other documents set forth on the closing document list attached hereto as ExhibitC (the “Closing Document List”), or any supplement theretopertaining to a Permitted Acquisition in each case in form and substancesatisfactory to Lender (other than Notes, of which Lender shall receive one (1)original) executed by Borrower and other required Persons, as applicable;

 

(b)           Lender shall have received such financialstatements, reports, certifications, and other operational information requiredto be delivered under this Agreement, including without limitation a BorrowingBase Certificate calculating the Borrowing Base;

 

(c)           All of the obligations of Borrower to anyprior lender (other than Subordinated Debt and BOF) as in effect immediatelyprior to the Closing Date will be performed and paid in full from the proceedsof the initial advances under the initial Loans on the Closing Date and allLiens of any such prior lender on any property of Borrower in respect thereofwill be terminated immediately upon such payment;

 

(d)           Lender shall have received evidencesatisfactory to it that the insurance policies required under Section 5are in full force and effect, together with written evidence showing losspayable or additional insured clauses or endorsements in favor of Lender asrequired under such section;

 

(e)           Since March 31, 2004, no event shall haveoccurred which has had or could reasonably be expected to have a MaterialAdverse Effect on any Obligor, as determined by Lender in its reasonable creditjudgment, determined in good faith;

 

(f)            Lender shall have received payment in full ofall fees and expenses payable to it by Borrower or any other Person inconnection herewith, on or before disbursement of the Loans hereunder,including, without limitation, payment of all underwriting fees as agreed to bythe parties;

 

(g)           Lender shall have determined that Borrowerhas Excess Availability of not less than Five Hundred Thousand Dollars($500,000); 

 

(h)           Lender shall have reviewed and foundacceptable, in its sole discretion, a third-party background check on JimDurham, Pam Atherton and Fred Toney;

 

(i)            Lender shall have reviewed the results of,and found such results acceptable, in its sole discretion, a takedown auditincluding verification of payment of all due and owing taxes;

 

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(j)            Lender shall have received the results of aroll-forward “take-over” audit, which shall be satisfactory to Lender in itssole discretion; 

 

(k)           Thereis no material default in any of the Borrower’s obligations under any contractto which Borrower is a party;

 

(l)            Borrowershall be in compliance with all applicable laws;

 

(m)          Lendershall have received on, or prior to the date of any Permitted Acquisition, anopinion from Borrower’s counsel with respect to such Permitted Acquisition, inform and substance reasonably acceptable to the Lender;

 

(n)           Borrowershall have established and maintained in its name all Lockboxes as set forth inSection 8 to the satisfaction of the Lender and Borrower shall have deliveredto Lender, with respect to each Deposit Account maintained by Borrower, adeposit account control agreement in form and substance satisfactory to theLender, executed by the financial institution at which such Deposit Account ismaintained;

 

(o)           Borrowershall have delivered all due diligence materials to the Lender as Lender hasrequested; 

 

(p)           Lendershall have received an executed Collection Custodial Agreement from an officerof the Borrowers in form and substance acceptable to Lender;

 

(q)           BOFshall have received (i) the Term Loan Agreement, and (ii) the WarrantAgreement, fully executed and each in form and substance satisfactory to BOF;and

 

(r)            Lendershall have received satisfactory evidence that Borrower has secured theservices of a third-party payroll tax service provider.

 

18.           JOINTAND SEVERAL LIABILITY.

 

(a)           EachBorrower hereby irrevocably designates Borrowing Agent to be its attorney andagent and in such capacity to borrow, sign and endorse notes, and execute anddeliver all instruments, documents, writings and further assurances now orhereafter required hereunder, on behalf of such Borrower or Borrowers, andhereby authorizes Lender to pay over or credit all loan proceeds hereunder inaccordance with the request of Borrowing Agent.

 

(b)           Thehandling of this credit facility as a co-borrowing facility with a borrowingagent in the manner set forth in this Agreement is solely as an accommodationto Borrowers and at their request. Lender shall not incur liability to Borrowers as a result thereof.  To induce Lender to do so and inconsideration thereof, each Borrower hereby indemnifies Lender and holds Lenderharmless from and against any and all liabilities, expenses, losses, damagesand claims of damage or injury asserted against Lender by any Person arisingfrom or incurred by reason of the handling of the financing arrangements ofBorrowers as provided herein, reliance by Lender on any request or instructionfrom Borrowing Agent or any other action taken by Lender with respect to thisSection 18 except due to willful misconduct or gross (not mere) negligenceby the indemnified party.

 

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(c)           Notwithstandinganything to the contrary contained herein, all Obligations of each Borrowerhereunder shall be joint and several obligations of Borrowers.

 

(d)           Notwithstandingany provisions of this Agreement to the contrary, it is intended that the jointand several nature of the Obligations of Borrowers, and the liens and securityinterests granted by Borrowers to secure the Obligations, not constitute a “FraudulentConveyance” (as defined below). Consequently, Lender and Borrowers agree that if the Obligations of aBorrower, or any liens or security interests granted by such Borrower securingthe Obligations, would, but for the application of this sentence, constitute aFraudulent Conveyance, the Obligations of such Borrower and the liens andsecurity interests securing such Obligations shall be valid and enforceableonly to the maximum extent that would not cause such Obligations or such lienor security interest to constitute a Fraudulent Conveyance, and the Obligationsof such Borrower and this Agreement shall automatically be deemed to have beenamended accordingly.  For purposeshereof, “Fraudulent Conveyance” means a fraudulent conveyance underSection 548 of Chapter 11 of Title II of the United States Code (11 U.S.C.§ 101, et seq.), as amended (the “**BankruptcyCode**”), or a fraudulent conveyance or fraudulent transfer under theapplicable provisions of any fraudulent conveyance or fraudulent transfer lawor similar law of any state, nation or other governmental unit, as in effectfrom time to time.

 

(e)           EachBorrower assumes responsibility for keeping itself informed of the financialcondition of the each other Borrower, and any and all endorsers and/orguarantors of any instrument or document evidencing all or any part of suchother Borrower’s Obligations, and of all other circumstances bearing upon therisk of nonpayment by such other Borrowers of their Obligations and eachBorrower agrees that Lender shall not have any duty to advise such Borrower ofinformation known to Lender regarding such condition or any such circumstancesor to undertake any investigation not a part of its regular businessroutine.  If Lender, in its solediscretion, undertakes at any time or from time to time to provide any suchinformation to a Borrower, Lender shall not be under any obligation to updateany such information or to provide any such information to such Borrower on anysubsequent occasion.

 

(f)            Lenderis hereby authorized, without notice or demand and without affecting theliability of a Borrower hereunder, to, at any time and from time to time,(i) renew, extend, accelerate or otherwise change the time for payment of,or other terms relating to, a Borrower’s Obligations or otherwise modify, amendor change the terms of any promissory note or other agreement, document orinstrument now or hereafter executed by a Borrower and delivered to Lender;(ii) accept partial payments on a Borrower’s Obligations; (iii) takeand hold security or collateral for the payment of a Borrower’s Obligationshereunder or for the payment of any guaranties of a Borrower’s Obligations orother liabilities of a Borrower and exchange, enforce, waive and release anysuch security or collateral; (iv) apply such security or collateral anddirect the order or manner of sale thereof as Lender, in its sole discretion,may determine; and (v) settle, release, compromise, collect or otherwiseliquidate a Borrower’s Obligations and any security or collateral therefor inany manner, without affecting or impairing the obligations of the otherBorrowers.  Lender shall have theexclusive right to determine the time and manner of application of any paymentsor credits, whether received from a Borrower or any other source, and suchdetermination shall be binding on such Borrower.  All such payments and credits may be applied,reversed and reapplied, in whole or in part, to any of a Borrower’s Obligationsas

 

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Lender shall determine inits sole discretion without affecting the validity or enforceability of theObligations of the other Borrowers.

 

(g)           EachBorrower hereby agrees that, except as hereinafter provided, its obligationshereunder shall be unconditional, irrespective of (i) the absence of anyattempt to collect a Borrower’s Obligations from any Borrower or any guarantoror other action to enforce the same; (ii) the waiver or consent by Lenderwith respect to any provision of any instrument evidencing Borrowers’Obligations, or any part thereof, or any other agreement heretofore, now orhereafter executed by a Borrower and delivered to Lender; (iii) failure byLender to take any steps to perfect and maintain its security interest in, orto preserve its rights to, any security or collateral for Borrowers’Obligations; (iv) the institution of any proceeding under the BankruptcyCode, or any similar proceeding, by or against a Borrower or Lender’s electionin any such proceeding of the application of Section 1111(b)(2) of theBankruptcy Code; (v) any borrowing or grant of a security interest by anyBorrower as debtor-in-possession under Section 364 of the Bankruptcy Code;(vi) the disallowance, under Section 502 of the Bankruptcy Code, ofall or any portion of Lender’s claim(s) for repayment of any of Borrowers’Obligations; or (vii) any other circumstance which might otherwiseconstitute a legal or equitable discharge or defense of a guarantor.

 

(h)           Untilthe Obligations of Lender have been paid in full, no payment made by or for theaccount of a Borrower, including, without limitations, (i) a payment madeby such Borrower on behalf of another Borrower’s Obligations or (ii) apayment made by any other person under any guaranty, shall entitle suchBorrower, by subrogation or otherwise, to any payment from such other Borroweror from or out of such other Borrower’s property and such Borrower shall notexercise any right or remedy against such other Borrower or any property ofsuch other Borrower by reason of any performance of such Borrower of its jointand several obligations hereunder.

 

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19.           RELEASES; INDEMNITIES.

 

(a)           Tothe fullest extent permitted by applicable law, in consideration of Lender’sentering into this Agreement, and for other good and valuable consideration,the receipt and sufficiency of which Borrower hereby acknowledges, Borrower, onits own behalf and on behalf of its successors (including, without limitation,any receiver or trustee acting on behalf of Borrower and anydebtor-in-possession with respect to Borrower), assigns, subsidiaries andAffiliates (collectively, the “Releasors”), hereby forever release, discharge andacquit Lender and its parents, subsidiaries, shareholders, Affiliates,partners, trustees, officers, employees, directors, agents and attorneys andtheir respective successors, heirs and assigns (collectively, the “Releasees”)from any and all claims, demands, liabilities, responsibilities, disputes,causes, damages, actions and causes of actions (whether at law or in equity)indebtedness and obligations (collectively, “Claims”) of every type, kind,nature, description or character, including, without limitation, any so-called “lenderliability” claims or defenses, and irrespective of how, why or by reason ofwhat facts, whether such Claims have heretofore arisen, are now existing orhereafter arise, or which could, might or be claimed to exist, of whatever kindor nature, whether known or unknown, suspected or unsuspected, liquidated orunliquidated, matured or unmatured, fixed or contingent, each as though fullyset forth herein at length, which may in any way arise out of, are connectedwith or in any way relate to actions or omissions which occurred on or prior tothe date hereof with respect to Borrower, this Agreement, the Obligations, anyCollateral, the Prior Agreements, any other Loan Document and any third partiesliable in whole or in part for the Obligations, other than such Claims arisingout of the gross negligence or willful misconduct of a Releasee.  This provision shall survive and continue infull force and effect whether or not Borrower shall satisfy all otherprovisions of this Agreement or the Loan Documents, including payment in fullof the Obligations.

 

(b)           Each of the Releasorsfurther agrees to indemnify the Releasees and hold the Releasees harmless fromand against any and all such Claims (as such term is defined in the immediatelypreceding paragraph) which may be brought against any of the Releasees onbehalf of any entity or Person, including, without limitation, officers,directors, agents, trustees, creditors, partners or shareholders of any of theReleasors, whether threatened or initiated, asserting any claim for legal orequitable remedy under any statutes, regulation or common law principle arisingfrom or in connection with the negotiation, preparation, execution, delivery,performance, administration and enforcement of this Agreement or any other LoanDocument, the Obligations, any Collateral or the Prior Agreements, other thansuch Claims arising out of the gross negligence or willful misconduct of aReleasee.  The foregoing indemnity shallsurvive the payment in full of the Obligations and the termination of thisAgreement and the other Loan Documents.

 

20.           NOTICE.

 

All written notices and other written communications with respect tothis Agreement shall be sent by ordinary, certified or overnight mail, bytelecopy or delivered in person, and in the case of Lender shall be sent to itat 233 South Wacker Drive, Suite 5350, Chicago, Illinois 60606, Attention:  Chief Credit Officer, facsimile number:  (312) 334-4450, and in the case ofBorrower shall be sent to it at its principal place of business set forth on Schedule 11(b)hereto or

 

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as otherwise directed by Borrower in writing.  All notices shall be deemed received uponactual receipt thereof or refusal of delivery.

 

21.           CHOICEOF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION.

 

This Agreement and the Other Agreements are submitted by Borrower toLender for Lender’s acceptance or rejection at Lender’s principal place ofbusiness as an offer by Borrower to borrow monies from Lender now and from timeto time hereafter, and shall not be binding upon Lender or become effectiveuntil accepted by Lender, in writing, at said place of business.  If so accepted by Lender, this Agreement andthe Other Agreements shall be deemed to have been made at said place ofbusiness.  **THIS AGREEMENT AND THE OTHER AGREEMENTS SHALL BE GOVERNED AND CONTROLLEDBY THE INTERNAL LAWS OF THE STATE OF ILLINOIS AS TO INTERPRETATION,ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING,WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, BUTEXCLUDING PERFECTION OF THE SECURITY INTERESTS IN COLLATERAL LOCATED OUTSIDE OFTHE STATE OF ILLINOIS, WHICH SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OFTHE RELEVANT JURISDICTION IN WHICH SUCH COLLATERAL IS LOCATED. **If any provision of this Agreementshall be held to be prohibited by or invalid under applicable law, suchprovision shall be ineffective only to the extent of such prohibition orinvalidity, without invalidating the remainder of such provision or remainingprovisions of this Agreement.

 

To induce Lender to accept this Agreement, Borrower irrevocably agreesthat, subject to Lender’s sole and absolute election, **ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER AGREEMENTS ORTHE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OFCHICAGO, STATE OF ILLINOIS.  BORROWERHEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERALCOURTS LOCATED WITHIN SAID CITY AND STATE.**  **BORROWERHEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCHSERVICE OF PROCESS MAY BE MADE UPON SUCH BORROWER BY CERTIFIED ORREGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO BORROWER AT THE ADDRESSSET FORTH FOR NOTICE IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETETEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.**  **BORROWERHEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANYLITIGATION BROUGHT AGAINST BORROWER BY LENDER IN ACCORDANCE WITH THIS SECTION.**

 

22.           MODIFICATIONAND BENEFIT OF AGREEMENT.

 

This Agreement and the Other Agreements may not be modified, altered oramended except by an agreement in writing signed by Borrower or such otherPerson who is a party to such Other Agreement and Lender.  Borrower may not sell, assign or transferthis Agreement, or the Other Agreements or any portion thereof, including,without limitation, Borrower’s rights,

 

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titles, interest, remedies, powers or duties hereunderand thereunder.  Borrower hereby consentsto Lender’s sale, assignment, transfer, pledge or other disposition, at anytime and from time to time hereafter, of this Agreement, or the OtherAgreements, or of any portion thereof, or to Lender granting participations inthe Obligations and related Loan Documents, including, without limitation,Lender’s rights, titles, interest, remedies, powers and/or duties.  Borrower agrees that it shall execute anddeliver such documents as Lender may request in connection with theforegoing.  Borrower further consents tothe pledge or collateral assignment and grant of a security interest, byLender, in connection with its’ own financing, including all rights, benefits,warranties, representations, covenants, indemnities and remedies, and allproceeds of the foregoing, contained in this Agreement and any of the OtherAgreements.

 

23.           HEADINGSOF SUBDIVISIONS.

 

The headings of subdivisions in this Agreement are for convenience ofreference only, and shall not govern the interpretation of any of theprovisions of this Agreement.

 

24.           POWEROF ATTORNEY.

 

Borroweracknowledges and agrees that its appointment of Lender as its attorney andagent-in-fact for the purposes specified in this Agreement is an appointmentcoupled with an interest and shall be irrevocable until all of the Obligationsare satisfied and paid in full and this Agreement is terminated.

 

25.           CONFIDENTIALITY.

 

Lender hereby agrees to use commercially reasonable efforts to assurethat any and all information relating to Borrower which is (i) furnishedby Borrower to Lender (or to any affiliate of Lender); and(ii) non-public, confidential or proprietary in nature shall be kept confidentialby Lender or such affiliate in accordance with applicable law; provided,however, that such information and other credit information relating toBorrower may be distributed by Lender or such affiliate to Lender’s or suchaffiliate’s directors, officers, employees, attorneys, affiliates, assignees,participants, auditors, agents and regulators, and upon the order of a court orother governmental agency having jurisdiction over Lender or such affiliate, toany other party, as long as such person or entity has been informed of Lender’sconfidentiality obligation hereunder and has agreed to abide by its terms.  Borrower and Lender further agree that thisprovision shall survive the termination of this Agreement.  Notwithstanding the foregoing, Borrowerhereby consents to Lender publishing a tombstone or similar advertisingmaterial relating to the financing transaction contemplated by this Agreement.

 

26.           BROKERAGE FEES.  

 

Borrower represents and warrants to Lender that, with respect to thefinancing transaction contemplated herein, no Person (other than Roth CapitalPartners, LLC) is entitled to any brokerage fee or other commission andBorrower agrees to indemnify and hold Lender harmless against any and all suchclaims.

 

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27.           PUBLICITY.  

 

Lender is hereby authorized to issue appropriate press releases and tocause a tombstone to be published announcing the consummation of thistransaction and the aggregate amount thereof.

 

28.           LIMITATION OF ACTIONS.  

 

Borroweragrees that any claim or cause of action by Borrower against Lender, or any ofLender’s directors, officers, employees, agents, accountants or attorneys,based upon, arising from, or relating to this Agreement, or any other presentor future agreement, or any other transaction contemplated hereby or thereby orrelating hereto or thereto, or any other matter, cause or thing whatsoever,whether or not relating hereto or thereto, occurred, done, omitted or sufferedto be done by Lender, or by Lender’s directors, officers, employees, agents,accountants or attorneys, whether sounding in contract or in tort or otherwise,shall be barred unless asserted by Borrower by the commencement of an action orproceeding in a court of competent jurisdiction by the filing of a complaintwithin one (1) year after the first act, occurrence or omission upon which suchclaim or cause of action, or any part thereof, is based and service of asummons and complaint on an officer of Lender or any other Person authorized toaccept service of process on behalf of Lender, within thirty (30) daysthereafter.  Borrower agrees that suchone-year period of time is a reasonable and sufficient time for Borrower toinvestigate and act upon any such claim or cause of action.  The one-year period provided herein shall notbe waived, tolled, or extended except by a specific written agreement ofLender.  This provision shall survive anytermination of this Agreement or any other agreement.

 

29.           LIABILITY.

 

Neither Lender nor any Lender Affiliate shall be liable for anyindirect, special, incidental or consequential damages in connection with anybreach of contract, tort or other wrong relating to this Agreement or theObligations or the establishment, administration or collection thereof(including without limitation damages for loss of profits, businessinterruption, or the like), whether such damages are foreseeable orunforeseeable, even if Lender has been advised of the possibility of suchdamages.  Neither Lender, nor any LenderAffiliate shall be liable for any claims, demands, losses or damages, of anykind whatsoever, made, claimed, incurred or suffered by the Borrower throughthe ordinary negligence of Lender, or any Lender Affiliate.  

 

30.           COUNTERPARTS.

 

This Agreement, any of the Other Agreements, and any amendments,waivers, consents or supplements may be executed in any number of counterpartsand by different parties hereto in separate counterparts, each of which, whenso executed and delivered, shall be deemed an original, but all of whichcounterparts together shall constitute but one agreement.

 

44

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31.           ELECTRONICSUBMISSIONS.

 

Uponnot less than thirty (30) days’ prior written notice (the “**Approved Electronic Form Notice**”), Lendermay permit or require that any of the documents, certificates, forms,deliveries or other communications, authorized, required or contemplated bythis Agreement or the Other Agreements be submitted to Lender in “**Approved Electronic Form**” (as hereafterdefined), subject to any reasonable terms, conditions and requirements in theapplicable Approved Electronic Forms Notice. For purposes hereof, “**Electronic Form**”means e-mail, e-mail attachments, data submitted on web-based forms or anyother communication method that delivers machine readable data or informationto Lender, and “**Approved Electronic Form**”means an Electronic Form that has been approved in writing by Lender (whichapproval has not been revoked or modified by Lender) and sent to Borrower in anApproved Electronic Form Notice.  Exceptas otherwise specifically provided in the applicable Approved Electronic FormNotice, any submissions made in an applicable Approved Electronic Form shallhave the same force and effect that the same submissions would have had if theyhad been submitted in any other applicable form authorized, required orcontemplated by this Agreement or the Other Agreements.

 

32.           WAIVEROF JURY TRIAL; OTHER WAIVERS.

 

(a)           **BORROWER AND LENDER EACH HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANYACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT,ANY OF THE OTHER AGREEMENTS, THE OBLIGATIONS, THE COLLATERAL, ANY ALLEGEDTORTUOUS CONDUCT BY BORROWER OR LENDER OR WHICH, IN ANY WAY, DIRECTLY ORINDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWER ANDLENDER.  IN NO EVENT SHALL LENDER BE LIABLE FOR LOSTPROFITS OR OTHER SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES**.

 

(b)           Borrower hereby waives demand, presentment,protest and notice of nonpayment, and further waives the benefit of allvaluation, appraisal and exemption laws.

 

(c)           Borrower hereby waives the benefit of any lawthat would otherwise restrict or limit Lender or any affiliate of Lender in theexercise of its right, which is hereby acknowledged and agreed to, to set-offagainst the Obligations, without notice at any time hereafter, anyindebtedness, matured or unmatured, owing by Lender or such affiliate of Lenderto Borrower, including, without limitation, any deposit account at Lender orsuch affiliate.

 

(d)           **BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KINDPRIOR TO THE EXERCISE BY LENDER OF ITS RIGHTS TO REPOSSESS THE COLLATERAL OFBORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCHCOLLATERAL, PROVIDED THAT IN THE EVENT LENDER SEEKS TO ENFORCE ITS RIGHTSHEREUNDER BY JUDICIAL PROCESS OR SELF-HELP, LENDER SHALL PROVIDE BORROWER WITHSUCH NOTICES AS ARE REQUIRED BY LAW**.

 

45

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(e)           Lender’s failure, at any time or timeshereafter, to require strict performance by Borrower of any provision of thisAgreement or any of the Other Agreements shall not waive, affect or diminishany right of Lender thereafter to demand strict compliance and performancetherewith.  Any suspension orwaiver by Lender of an Event of Default under this Agreement or any defaultunder any of the Other Agreements shall not suspend, waive or affect any otherEvent of Default under this Agreement or any other default under any of theOther Agreements, whether the same is prior or subsequent thereto and whetherof the same or of a different kind or character.  No delay on the part of Lender in theexercise of any right or remedy under this Agreement or any Other Agreementshall preclude other or further exercise thereof or the exercise of any rightor remedy.  None of the undertakings,agreements, warranties, covenants and representations of Borrower contained inthis Agreement or any of the Other Agreements and no Event of Default under thisAgreement or default under any of the Other Agreements shall be deemed to havebeen suspended or waived by Lender unless such suspension or waiver is inwriting, signed by a duly authorized officer of Lender and directed to Borrowerspecifying such suspension or waiver.

 

33.           AMENDMENTAND RESTATEMENT.  This Agreement shallbecome effective, and shall amend and restate the Original Amended and RestatedLoan Agreement, as amended by the First Amendment and the Second Amendment,upon the execution of this Agreement by Borrower and Lender; and from and aftersuch effective time, (i) all references made to the Original Amended andRestated Loan Agreement, as amended by the First Amendment and the SecondAmendment in the Loan Documents or in any other instrument or document executedand/or delivered pursuant thereto shall, without anything further, be deemed torefer to this Agreement and (ii) the Original Amended and Restated LoanAgreement, as amended by the First Amendment and the Second Amendment, shall bedeemed amended and restated, without novation, in its entirety hereby.  All the Other Agreements are herebyreaffirmed and shall continue in full force and effect.  Borrower acknowledges that the RevolvingLoans and other Obligations evidenced by the Original Amended and Restated LoanAgreement, as amended by the First Amendment and the Second Amendment,including all the other instruments, documents and agreements executed anddelivered in connection with the Original Amended and Restated Loan Agreement,as amended by the First Amendment and the Second Amendment, have not beensatisfied but instead have become part of the Loans and Obligations under thisAgreement and under the other Loan Documents. Borrower further acknowledges that all of the Liens granted by Borrowerunder the Original Amended and Restated Loan Agreement, as amended by the FirstAmendment and the Second Amendment and all instruments, documents andagreements executed in connection therewith are hereby reaffirmed and shallcontinue hereafter to secure the Obligations under the Loan Documents, untilall Obligations are repaid in full in cash and this Agreement is terminated.

 

***SIGNATUREPAGES FOLLOW***

 

46

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***Signature Page to Second Amended and Restated***

***Loan and Security Agreement – Revolving Loans***

 

IN WITNESSWHEREOF, the parties hereto have duly executed this Agreement as of the datefirst written above.

 

 
|   |   | CRDENTIA CORP.,  a Delaware corporation                   |
|--------|--------|-----------------------------------------------------------|
|   |   |                                                      |
|   |   |                                                      |
|   |   | By:                                                       | /s/ Pamela G. Atherton |   |
|   |   |                                                      | Pamela G. Atherton |
|   |   |                                                      | President |
|   |   |                                                      |   |
|   |   |                                                      |   |
|   |   | BAKER ANDERSON CHRISTIE,  INC.,  a California corporation |
|   |   |                                                      |   |
|   |   |                                                      |   |
|   |   | By:                                                       | /s/ Pamela G. Atherton |   |
|   |   |                                                      | Pamela G. Atherton |
|   |   |                                                      | President |
|   |   |                                                      |   |
|   |   |                                                      |   |
|   |   | NURSES NETWORK, INC.,  a California corporation           |
|   |   |                                                      |   |
|   |   |                                                      |   |
|   |   | By:                                                       | /s/ Pamela G. Atherton |   |
|   |   |                                                      | Pamela G. Atherton |
|   |   |                                                      | President |
|   |   |                                                      |   |
|   |   |                                                      |   |
|   |   | NEW AGE STAFFING, INC.,  a Delaware corporation           |
|   |   |                                                      |   |
|   |   |                                                      |   |
|   |   | By:                                                       | /s/ Pamela G. Atherton |   |
|   |   |                                                      | Pamela G. Atherton |
|   |   |                                                      | President |
|        |        |                                                           |  |  |  |  |

 

----

 
|   |   | PSR NURSES, LTD.,  a Texas limited partnership   |
|--------|--------|--------------------------------------------------|
|   |   |                                             |   |
|   |   |                                             | By: | PSR NURSE RECRUITING, INC. |
|   |   |                                             | Its: | General Partner |
|   |   |                                             |   |
|   |   |                                             | By: | /s/ Pamela G. Atherton |   |
|   |   |                                             | Pamela G. Atherton |
|   |   |                                             | President |
|   |   |                                             |   |
|   |   |                                             |   |
|   |   | PSR NURSE RECRUITING, INC.,  a Texas corporation |
|   |   |                                             |   |
|   |   |                                             |   |
|   |   | By:                                              | /s/ Pamela G. Atherton |   |
|   |   |                                             | Pamela G. Atherton |
|   |   |                                             | President |
|   |   |                                             |   |
|   |   |                                             |   |
|   |   | PSR NURSES HOLDINGS CORP.,  a Texas corporation  |
|   |   |                                             |   |
|   |   |                                             |   |
|   |   | By:                                              | /s/ Pamela G. Atherton |   |
|   |   |                                             | Pamela G. Atherton |
|   |   |                                             | President |
|   |   |                                             |   |
|   |   |                                             |   |
|   |   | CRDE CORP.,  a Delaware corporation              |
|   |   |                                             |   |
|   |   |                                             |   |
|   |   | By:                                              | /s/ Pamela G. Atherton |   |
|   |   |                                             | Pamela G. Atherton |
|   |   |                                             | President |
|        |        |                                                  |  |  |  |  |  |

 

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|   |   | ARIZONA HOME HEALTH  CARE/PRIVATE  DUTY, INC.,  an Arizona corporation        |
|--------|--------|-------------------------------------------------------------------------------|
|   |   |                                                                          |   |
|   |   |                                                                          |   |
|   |   | By:                                                                           | /s/ Pamela G. Atherton |   |
|   |   |                                                                          | Pamela G. Atherton |
|   |   |                                                                          | President |
|   |   |                                                                          |   |
|   |   |                                                                          |   |
|   |   | CARE PROS STAFFING, INC.,  a Texas corporation                                |
|   |   |                                                                          |   |
|   |   |                                                                          |   |
|   |   | By:                                                                           | /s/ Pamela G. Atherton |   |
|   |   |                                                                          | Pamela G. Atherton |
|   |   |                                                                          | President |
|   |   |                                                                          |   |
|   |   |                                                                          |   |
|   |   | HIP HOLDING, INC.,  a Delaware corporation                                    |
|   |   |                                                                          |   |
|   |   |                                                                          |   |
|   |   | By:                                                                           | /s/ Pamela G. Atherton |   |
|   |   |                                                                          | Pamela G. Atherton |
|   |   |                                                                          | President |
|   |   |                                                                          |   |
|   |   |                                                                          |   |
|   |   | HEALTH INDUSTRY  PROFESSIONALS, L.L.C.,  a Michigan limited liability company |
|   |   |                                                                          |   |
|   |   |                                                                          |   |
|   |   | By:                                                                           | /s/ Pamela G. Atherton |   |
|   |   |                                                                          | Pamela G. Atherton |
|   |   |                                                                          | President |
|   |   |                                                                          |   |
|   |   |                                                                          |   |
|   |   | TRAVMED USA, INC., a North  Carolina  corporation                             |
|   |   |                                                                          |   |
|   |   |                                                                          |   |
|   |   | By:                                                                           | /s/ Pamela G. Atherton |   |
|   |   |                                                                          | Pamela G. Atherton |
|   |   |                                                                          | President |

 

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|   |   | GHS ACQUISITION CORPORATION,  a Delaware corporation            |
|--------|--------|-----------------------------------------------------------------|
|   |   |                                                            |   |
|   |   |                                                            |   |
|   |   | By:                                                             | /s/ Pamela G. Atherton |   |
|   |   |                                                            | Pamela G. Atherton |
|   |   |                                                            | President |
|   |   |                                                            |   |
|   |   |                                                            |   |
|   |   | PRIME STAFF, LP,  a Texas limited partnership                   |
|   |   |                                                            |   |
|   |   |                                                            | By: | CRDE CORP. |
|   |   |                                                            | Its: | General Partner |
|   |   |                                                            |   |
|   |   |                                                            | By: | /s/ Pamela G. Atherton |   |
|   |   |                                                            | Pamela G. Atherton |
|   |   |                                                            | President |
|   |   |                                                            |   |
|   |   |                                                            |   |
|   |   | MINT MEDICAL STAFFING ODESSA,  LP,  a Texas limited partnership |
|   |   |                                                            |   |
|   |   |                                                            | By: | CRDE CORP. |
|   |   |                                                            | Its: | General Partner |
|   |   |                                                            |   |
|   |   |                                                            | By: | /s/ Pamela G. Atherton |   |
|   |   |                                                            | Pamela G. Atherton |
|   |   |                                                            | President |
|        |        |                                                                 |  |  |  |  |  |

 

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|   |   | BRIDGE HEALTHCARE FINANCE,  LLC,  a Delaware limited liability company |
|--------|--------|------------------------------------------------------------------------|
|   |   |                                                                   |   |
|   |   |                                                                   |   |
|   |   | By                                                                     | /s/ Kim Gordon |   |
|   |   |                                                                   | Kim Gordon |
|   |   |                                                                   | Executive Vice  President/Chief Credit Officer |

 

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ANNEX 1-DEFINED TERMS

 

“**Account**” shall mean allpresent and future accounts and payment intangibles (in respect of StaffingServices), as such terms are defined in the UCC, of Borrower, including,without limitation, all obligations for the payment of money (including,without limitation, all amounts due and owing from Governmental Authorities tothe extent such amounts are deemed to be or construed to be generalintangibles) arising out of the sale, lease, license or other disposition ofgoods or other Property or the rendering of services and all proceeds thereof.

 

“**Account Debtor**” shallmean, with respect to any Account, the Person obligated to pay under suchAccount.  The term “Account Debtor”specifically includes, without limitation, any insurer or GovernmentReimbursement Program.

 

“**Account Debtor Collection LockboxAccount**” shall mean an account or accounts maintained at the LockboxBank into which all collections of Accounts are paid directly; the AccountDebtor Collection Lockbox Account shall be an account in the name of Lender (orBorrower for the sole benefit of Lender), and shall be the sole and exclusiveproperty of Lender.

 

“**Acquisition**” shallmean the purchase by Crdentia (or another Borrower) of all of the issued andoutstanding equity interests or substantially all of the operating assets ofany Person in the healthcare staffing industry pursuant to the AcquisitionDocuments.

 

“**Acquisition Documents**”shall mean all agreements, instruments and documents executed or delivered inconnection with an Acquisition.

 

“**Affiliate**” shall mean anyPerson (i) which directly or indirectly through one or moreintermediaries, controls, is controlled by, or is under common control with,Borrower, (ii) which beneficially owns or holds five percent (5%) or moreof the voting control or equity interests of Borrower, or (iii) fivepercent (5%) or more of the voting control or equity interests of which isbeneficially owned or held by Borrower.

 

“**Authorized Officer**”  shall mean, as applied to any Person, anyindividual holding the position of chairman of the board (if an officer), chiefexecutive officer, president or one of its vice presidents (or the equivalentthereof), and such Person’s chief financial officer or treasurer.

 

**“Borrowed Money”** shall mean, asapplied to any Person, without duplication, (a) all Indebtedness of suchPerson, (b) all debt of such Person, whether or not evidenced by bonds,debentures, notes or similar instruments, (c) all obligations of suchPerson as lessee under Capital Leases which have been or should be recorded asliabilities on a balance sheet of such Person in accordance with GAAP,(d) all obligations of such Person to pay the deferred purchase price ofproperty or services (excluding trade accounts payable in the ordinary courseof business), (e) all indebtedness secured by a Lien on the property ofsuch Person, whether or not such indebtedness shall have been assumed by suchPerson; provided that if such Person has not assumed or otherwise become liablefor such indebtedness, such indebtedness shall be measured at the fair marketvalue of such property securing such indebtedness at the time of determination,(f) all obligations, contingent or otherwise, with respect to the faceamount of all letters of credit (whether or not drawn), bankers’ acceptancesand similar obligations issued for the account of such Person (including theLetters of Credit), (g) all hedging, swap, or similar obligations of such

 

 

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Person, (h) all Contingent Liabilities of suchPerson and (i) all debt of any partnership, limited liability company, orother entity (only if such partnership, limited liability company or otherentity is a Borrower) of which such Person is a majority owner.

 

“**BOF**” shall mean BridgeOpportunity Finance, LLC.

 

“**Borrower**” and “**Borrowers**” shall mean, individually andcollectively, each of the Borrowers named in the first paragraph hereofprovided that each reference to “Borrower” herein shall mean each Borrowerindividually and all Borrowers collectively, as the context requires.

 

“**Borrowing Agent**” shallmean Crdentia.

 

“**Borrowing Base Certificate**”shall mean an officer’s certificate, in the form and substance agreeable toLender, delivered by Borrower to Lender pursuant to the terms of thisAgreement.

 

“**Business Day**” shall meanany day other than a Saturday, a Sunday or any day that banks in Chicago,Illinois are required or permitted to close.

 

“**Capital Expenditures**”shall mean with respect to any period, the aggregate of all expenditures(whether paid in cash or accrued as liabilities and including Capital LeaseObligations) by Borrowers during such period that are required by GAAP,consistently applied, to be included in or reflected by the property, plant andequipment or similar fixed asset accounts (or intangible accounts subject to amortization)on the balance sheet of Borrowers, excluding expenditures for any assets orequity interests acquired pursuant to a Permitted Acquisition.

 

**“Capital Lease”** shall mean, as toany Person, a lease of any interest in any kind of property or asset, whetherreal, personal or mixed, or tangible or intangible, by such Person as lesseethat is, or should be, recorded as a “capital lease” on the balance sheet ofsuch Person prepared in accordance with GAAP.

 

**“Capital Lease Obligations”** shallmean, as to any Person, indebtedness represented by obligations under a CapitalLease that is required to be capitalized for financial reporting purposes inaccordance with GAAP.

 

“**Closing Date**” shall meanMay 16, 2005.

 

“**Closing Document List**”shall have the meaning set forth in Section 17 hereof.

 

“**Collateral**” shall meanall of the property of Borrower described in Section 5 hereof,together with all other real or personal property of any Obligor or any otherPerson now or hereafter pledged to Lender to secure, either directly orindirectly, repayment of any of the Obligations.

 

“**Concentration Account**”shall have the meaning set forth in Section 8(a).

 

**“Contingent Liability”** shall meanany agreement, undertaking or arrangement by which any Person guarantees,endorses or otherwise becomes or is contingently liable upon (by direct

 

 

Annex 1 - 2

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or indirect agreement, contingent or otherwise, toprovide funds for payment, to supply funds to or otherwise to invest in a debtor,or otherwise to assure a creditor against loss) any Indebtedness, obligation orother liability of any other Person (other than by endorsements of instrumentsin the course of collection), or guarantees the payment of dividends or otherdistributions upon the shares of any other Person.  The amount of any Contingent Liability shall(subject to any limitation set forth herein) be deemed to be the outstandingprincipal amount (or maximum permitted principal amount, if larger) of theIndebtedness, obligation or other liability guaranteed or supported thereby.

 

“**CRDE**” shall mean CRDECorp., the Subsidiary of Crdentia formed to hold all Target entities acquiredin Permitted Acquisitions, and shall mean, collectively, CRDE Corp. and each ofits direct or indirect subsidiaries.

 

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

 

**“Derivative Obligations”** shall meanevery obligation of a Person under any forward contract, futures contract,exchange contract, swap, option or other financing agreement or arrangement(including, without limitation, caps, floors, collars and similar agreement),the value of which is dependent upon interest rates, currency exchange rates,commodities or other indices.

 

“**Dilution**” shall mean,with respect to any period, the percentage obtained by dividing (i) thesum of non-cash credits against Accounts (including, but not limited toreturns, adjustments and rebates) of Borrower for such period, plus pending or probable,but not yet applied, non-cash credits against Accounts of Borrower for suchperiod, as determined by Lender in its sole discretion, by (ii) grossinvoiced sales of Borrower for such period.

 

“**EBITDA**” shall mean, withrespect to any period, net income of the Borrower, on a consolidated basis,after taxes for such period (excluding any after-tax gains or losses andexcluding other after-tax extraordinary gains or losses) plus interestexpense, income tax expense, depreciation and amortization for such period, plusor minus any other non-cash charges or gains which have been subtractedor added in calculating net income after taxes for such period.

 

“**Eligible Account**” shallmean an Account arising in the ordinary course of Borrower’s business from therendition of Staffing Services, which was generated originally in the name ofBorrower and not acquired via assignment or otherwise from another Person thatLender, in its reasonable credit judgment, shall deem eligible based on suchconsiderations as Lender may from time to time deem appropriate.  Without limiting the foregoing, an Accountshall NOT be deemed to be an Eligible Account if: 

 

(i)            theAccount remains unpaid for a period of one hundred twenty (120) days past thedate of invoice;

 

(ii)           the AccountDebtor has failed to pay more than fifty percent (50%) of all of theoutstanding amounts owed by the particular Account Debtor or payor to Borrowerone hundred twenty (120) days after the dates of service for such Accounts; 

 

 

Annex 1 - 3

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(iii)          theAccount Debtor is an Affiliate of Borrower; 

 

(iv)          the Accountdoes not arise out of the ordinary course of Borrower’s business, or as towhich a portion, if payable by a third-party payor or acceptable to Lenderpursuant to which payment by the account debtor or payor may be conditional; 

 

(v)           theAccount Debtor is located outside of the United States;

 

(vi)          the AccountDebtor is the United States or any department, agency or instrumentalitythereof, except to the extent that the requirements of the Federal Assignmentof Claims Act, 31 U.S.C. Section 3727; 

 

(vii)         Borroweris or may become liable to the Account Debtor for goods sold or servicesrendered by the Account Debtor to Borrower; 

 

(viii)        theAccount Debtor’s total obligations to Borrower exceed twenty-five percent (25%)of all Eligible Accounts, to the extent of such excess; 

 

(ix)           theAccount Debtor disputes liability with respect to the applicable Account ormakes any claim with respect thereto (up to the amount of such liability or claim),or is subject to any insolvency or bankruptcy proceeding or becomes insolvent,or fails or goes out of a material portion of its business; 

 

(x)            theamount thereof consists of late charges or finance charges, but only to theextent of such charges; 

 

(xi)           the amountthereof consists of a credit balance more than one hundred twenty (120) dayspast due; 

 

(xii)          theface amount of any single invoice thereof exceeds $20,000 unless accompanied byevidence of invoice relating thereto satisfactory to Lender in its reasonablecredit judgment; 

 

(xiii)         theAccount Debtor is an individual or private party not in the business ofproviding healthcare services (e.g. “self-pay” individuals not covered byinsurance or workers compensation); 

 

(xiv)        theamount thereof is not yet represented by an invoice or bill issued in the nameof the applicable Account Debtor, other than as contemplated by Section2(a)(ii); 

 

(xv)         the amountthereof is denominated in or payable with any currency other than U. S.Dollars; 

 

(xvi)        theAccount is not at all times subject to Lender’s duly perfected first prioritysecurity interest; 

 

 

Annex 1 - 4

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(xvii)       therepresentations and warranties with respect to such Account set forth inSection 11(w) of this Agreement have been breached or are no longer true andcorrect; or

 

(xviii)      solelywith respect to Travmed USA, Inc., the Account is owed by an Account Debtor ofTravmed USA, Inc. (or such Account is generated by any service provided by, or directlyattributed to, Travmed USA, Inc.) and such Account is generated after the datein which a Travmed Subordinated Debt Default occurs.

 

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

 

“**ERISA**” shall mean theEmployee Retirement Income Security Act of 1974, as amended, modified orrestated from time to time.

 

“**Event of Default**” shallhave the meaning specified in Section 15 hereof.

 

“**Excess Availability**”shall mean, as of any date of determination by Lender, the excess, if any, ofthe lesser of (i) the Maximum Revolving Loan Limit less the sum of theoutstanding Revolving Loans and (ii) the Revolving Borrowing Base Amountless the sum of the outstanding Revolving Loans, in each case as of the closeof business on such date and assuming, for purposes of calculation, that allaccounts payable of the Borrower which remain unpaid more than thirty (30) daysafter the due dates thereof (except for professional fees and amounts contestedin good faith) as of the close of business on such date are treated asadditional Revolving Loans outstanding on such date.

 

“**Fiscal Year**” shall meaneach twelve (12) month accounting period of Borrower, which ends on December31st of each year.

 

**“GAAP”** shall mean generally acceptedaccounting principles, using the accrual basis of accounting and consistentlyapplied with prior periods to the extent required under Section 1(b); provided,however, that GAAP with respect to any interim financial statements or reportsshall be deemed subject to fiscal year-end adjustments and footnotes made inaccordance with GAAP.

 

“**Governmental Authorization**”means any permit, license, registration, authorization, certificate,accreditation, plan, directive, consent order or consent decree of or from, ornotice to, any Government Authority.

 

“**Government Authority**”means any federal, state, District of Columbia, municipal, national or othergovernment, governmental department, commission, board, bureau, court, agencyor instrumentality or political subdivision thereof or any entity or officerexercising

 

 

Annex 1 - 5

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executive, legislative, judicial, regulatory oradministrative functions of or pertaining to any government or any court, ineach case whether associated with a state of the United States, the UnitedStates, or a foreign entity or government.

 

“**Government Reimbursement Program**”shall mean (i) the Medicare program established under the Title XVIII of theFederal Social Security Act, the Federal Employees Health Benefit Program under5 U.S.C. §§ 8902 et seq., the TRICARE program established by the Department ofDefense under 10 U.S.C. §§ 1071 et seq. or the Civilian Health and MedicalProgram of the Uniformed Services under 10 U.S.C. §§ 1079 and 1086, (ii) theMedicaid program of any state or the District of Columbia acting pursuant to ahealth plan adopted pursuant to Title XIX of the Federal Social Security Act or(iii) any agent, administrator, intermediary or carrier for any of theforegoing.

 

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

 

“**Healthcare Regulations**”means any and all current or future Laws relating to HMOs, healthcare serviceproviders, Government Reimbursement Programs, Persons engaged in the HealthcareService Business, healthcare-related insurance companies, or any other similarPerson and any rule, regulation, directive, order or decision promulgated orissued pursuant thereto.  HealthcareRegulations shall include the Food, Drug and Cosmetic Act (21 U.S.C. § 301 etseq.), federal anti-kickback statute (42 U.S.C. § 1320a-7b), the False ClaimsAct (31 U.S.C. §§ 3729 et seq.), the Health Insurance Portability andAccountability Act of 1996 (Pub. L. No. 104-191, 110 Stat. 1936 (1996)) and thefederal physician self-referral laws (42 U.S.C. § 1395nn).

 

**“Indebtedness”** of any Person shallmean, without duplication, (a) all indebtedness of such Person forborrowed money, whether or not evidenced by bonds, debentures, notes or similarinstruments, (b) all Capital Lease Obligations of such Person,(c) all obligations of such Person to pay the deferred purchase price ofproperty or services (excluding trade accounts payable in the ordinary courseof business), (d) all indebtedness secured by a Lien on the property ofsuch Person, whether or not such indebtedness shall have been assumed by suchPerson, (e) all obligations, contingent or otherwise, with respect to theface amount of all letters of credit (whether or not drawn) and banker’sacceptances issued for the account of such Person, (f) all DerivativeObligations of such Person, (g) all Contingent Obligations, and(h) all liabilities of any partnership or joint venture of which suchPerson is a general partner or joint venturer.

 

“**Information Certificate**”means the document attached hereto as Exhibit D.

 

 

Annex 1 - 6

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**“Intellectual Property”** shall meanall past, present and future:  tradesecrets (including, without limitation, customer lists), know-how and otherproprietary information; trademarks, Internet domain names, service marks,trade dress, trade names, business names, designs, logos, slogans (and alltranslations, adaptations, derivations and combinations of the foregoing),indicia and other source and/or business identifiers, and the goodwill of thebusiness relating thereto and all registrations or applications forregistrations which have heretofore been or may hereafter be issued thereonthroughout the world; copyrights (including copyrights for computer programs)and copyright registrations or applications for registrations which haveheretofore been or may hereafter be issued throughout the world and alltangible property embodying the copyrights; unpatented inventions (whether ornot patentable); patent applications and patents; industrial designs,industrial design applications and registered industrial designs; licenseagreements related to any of the foregoing and income therefrom; books,records, writings, computer tapes or disks, flow diagrams, specificationsheets, computer software, source codes, object codes, executable code, data,databases and other physical manifestations, embodiments or incorporations ofany of the foregoing; the right to sue for all past, present and futureinfringements of any of the foregoing; all other intellectual property; and allcommon law and other rights throughout the world in and to all of theforegoing.

 

“**Lender Affiliate**” shallmean Lender’s directors, officers, employees, agents, attorneys or any otherPerson or entity affiliated with or representing Lender.

 

**“Lien”** shall mean any mortgage,pledge, claim, hypothecation, judgment lien or similar legal process, titleretention lien, or other lien or security interest, including, withoutlimitation, the interest of a vendor under any conditional sale or other titleretention agreement and the interest of a lessor under a lease of any interestin any kind of property or asset, whether real, personal or mixed, or tangibleor intangible, that is, or should be, accounted for as a Capital Lease.

 

“**Loan Documents**” shallmean this Agreement and the Other Agreements.

 

“**Loans**” shall mean allloans and advances made by Lender to or on behalf of Borrower hereunder.

 

“**Lockbox**” shall have themeaning specified in Subsection 8(a) hereof.

 

“**Lockbox Bank**” shall havethe meaning specified in Subsection 8(a) hereof.

 

“**Material Adverse Effect**”shall mean a material adverse effect on the business, property, assets,prospects, operations or condition, financial or otherwise, of a Person.

 

“**Makewell Agreement**” meansthat certain Makewell Agreement executed by MedCap Partners L.P., a Delawarelimited partnership, dated as of August 31, 2004, in favor of BOF, as the samemay be amended, restated, supplemented or otherwise modified from time to time.

 

“**Maximum Loan Limit**” shallmean Ten Million and No/100 Dollars ($10,000,000).

 

“**Maximum Revolving Loan Limit**”shall have the meaning specified in Subsection 2(a) hereof.

 

 

Annex 1 - 7

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“**Notice of Borrowing**”shall mean a written notice that is accompanied by a Borrowing BaseCertificate, in the form of that attached hereto as Exhibit E, andappropriately completed by Borrowing Agent.

 

“**Obligations**” shall meanany and all obligations, liabilities and Indebtedness of Borrower to Lender(other than Term Loan Obligations), or to any parent, affiliate or subsidiaryof Lender, of any and every kind and nature, howsoever created, arising orevidenced and howsoever owned, held or acquired, whether now or hereafterexisting, whether now due or to become due, whether primary, secondary, direct,indirect, absolute, contingent or otherwise (including, without limitation,obligations of performance), whether several, joint or joint and several, andwhether arising or existing under written or oral agreement or by operation oflaw.

 

“**Obligor**” shall meanBorrower and each other Person who is or shall become primarily or secondarilyliable for any of the Obligations.

 

“**Operating Cash Flow**”means, for any period, Borrower’s consolidated net income or loss (excludingthe effect of any extraordinary gains or losses), determined in accordance withGAAP, plus or minus each of the following items on a consolidatedbasis, to the extent deducted from or added to the revenues of Borrower in thecalculation of consolidated net income or loss: (i) depreciation;(ii) amortization and other non-cash charges; (iii) interest and feeexpenses paid or accrued; (iv) total federal and state income tax expensedetermined as the accrued liability of Borrower in respect of such period,regardless of what portion of such expense has actually been paid by Borrowerduring such period; and (v) gain or loss on the sale of property, plant orequipment of Borrower; and (vi) management fees and other fees paid tosubordinating creditors to the extent permitted hereunder, and under theapplicable subordination agreement(s), but only to the extent any such item wasexpensed in the calculation of net income and after deduction for each of(a) federal and state income taxes, to the extent actually paid duringsuch period; (b) any non-cash income and gains from the sale of property;and (c) all actual Capital Expenditures made during such period and notfinanced.

 

“**Original Closing Date**”shall mean June 16, 2004.

 

“**Other Agreements**” shallmean all agreements, makewell agreements, instruments and documents, other thanthis Agreement and the Term Loan Agreement, including, without limitation,guaranties, mortgages, trust deeds, pledges, powers of attorney, consents,assignments, contracts, notices, security agreements, leases, financingstatements, subordination agreements, and all other writings heretofore, now orfrom time to time hereafter executed by or on behalf of Borrower or any otherPerson and delivered to Lender in connection with the Obligations or thetransactions contemplated hereby, as each of the same may be amended, modifiedor supplemented from time to time.

 

“**Parent**” shall mean anyPerson now or at any time or times hereafter owning or controlling (alone orwith any other Person) at least a majority of the issued and outstanding equityof Borrower and, if Borrower is a partnership, the general partner of Borrower.

 

“**PBGC**” shall have themeaning specified in Subsection 12(b)(v) hereof.

 

“**Permitted Acquisition**”shall have the meaning specified in Section 13(c)(iii) hereof.

 

 

Annex 1 - 8

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“**Permitted Liens**” shallmean (i) statutory Liens of landlords, carriers, warehousemen, processors,mechanics, materialmen or suppliers incurred in the ordinary course of businessand securing amounts not yet due or declared to be due by the claimantthereunder in excess of fifteen (15) days or amounts which are being contestedin good faith and by appropriate proceedings and for which Borrower has maintainedadequate reserves; (ii) Liens in favor of Lender; (iii) zoningrestrictions and easements, licenses, covenants and other restrictionsaffecting the use of real property that do not individually or in the aggregatehave a material adverse effect on Borrower’s ability to use such real propertyfor its intended purpose in connection with Borrower’s business;(iv) Liens in connection with purchase money indebtedness and CapitalLeases otherwise permitted pursuant to this Agreement, provided, that such Liensattach only to the assets the purchase of which was financed by such purchasemoney indebtedness or which is the subject of such Capital Leases;(v) Liens set forth on Schedule 1; (vi) Liensspecifically permitted by Lender in writing; (vii) involuntary Lienssecuring amounts less than $50,000 and which are released or for which a bondacceptable to Lender in its reasonable credit judgment, determined in goodfaith, has been posted within ten (10) days of its creation; (viii) Liens fortaxes not yet due and payable or for taxes being contested in good faith byappropriate proceedings and as to which the Borrower has deposited with theLender an amount sufficient in the Lender’s sole discretion to pay such taxes,together with all estimated interest and penalties in connection therewith; and(ix) Liens in favor of BOF, including the pledge by Crdentia of all of thestock and other equity interests in each of the Subsidiaries of Crdentia underthe Pledge Agreement. 

 

“**Person**” shall mean anyindividual, sole proprietorship, partnership, joint venture, trust,unincorporated organization, association, corporation, limited liabilitycompany, institution, entity, party or foreign or United States government(whether federal, state, county, city, municipal or otherwise), including,without limitation, any instrumentality, division, agency, body or departmentthereof.

 

“**Plan**” shall have themeaning specified in Subsection 12(b)(v) hereof.

 

“**Pledge Agreement**” shallmean that certain Pledge Agreement dated as of August 31 2004 betweenCrdentia and BOF, as amended, restated, supplemented or otherwise modified fromtime to time.

 

“**Prime Rate**” shall meanthe prime rate publicly announced by LaSalle Bank, N.A., in effect from time totime.

 

“**Property**” shall mean,with respect to any Person, any interest of such Person in any kind of propertyor asset, whether real, personal or mixed, or tangible or intangible, includingcapital stock in, and other securities of, any other Person.  

 

“**Revolving Borrowing Base Amount**”shall have the meaning specified in Subsection 2(a) hereof.

 

“**Revolving Loans**” shallhave the meaning specified in Subsection 2(a) hereof.

 

 

Annex 1 - 9

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“**Seller Notes**” shall mean,collectively, the notes listed on Schedule 11(n) hereto and any othernotes representing Subordinated Debt incurred as a part of the purchase priceof a Permitted Acquisition subject to a Subordination Agreement acceptable tothe Lender.

 

“**Senior Debt Service**”means, for any period with respect to the Borrowers, the sum of payments madeor required to be made by Borrower during such period for (i) interestonly payments due on the Revolving Loans facility, and (ii) interest andscheduled principal payments due on any and all other Indebtedness for BorrowedMoney excluding the Subordinated Debt.

 

“**Staffing Services**” meansarranging to provide healthcare-related staffing services, long-term care orany business or activity that is reasonably similar thereto or a reasonableextension, development or expansion thereof or ancillary thereto.

 

“**Subordinated Debt**” shallmean Indebtedness of Borrower or any Subsidiary of Borrower that issubordinated to the Obligations in a manner satisfactory to Lender, andcontains terms, including, without limitation, payment terms, satisfactory toLender.

 

“**Subordination Agreements**”shall mean, individually and collectively, all subordination agreements,intercreditor agreements, consent and similar agreements among either Borrower,Lender and any holder of Indebtedness, whether entered into on or prior to thedate hereof or from time to time hereafter, together with all modifications,amendments and restatements of any of the foregoing, including, withoutlimitation, the Subordination Agreements listed on Schedule 11(n) heretoin respect of the Seller Notes existing on the Original Closing Date.

 

“**Subsidiary**” shall meanany corporation of which more than fifty percent (50%) of the outstandingcapital stock having ordinary voting power to elect a majority of the board ofdirectors of such corporation (irrespective of whether, at the time, stock ofany other class of such corporation shall have or might have voting power byreason of the happening of any contingency) is at the time, directly orindirectly, owned by Borrower, or any partnership, joint venture or limitedliability company of which more than fifty percent (50%) of the outstandingequity interests are at the time, directly or indirectly, owned by Borrower orany partnership of which Borrower is a general partner. 

 

“**Tangible Net Worth**” shallhave the meaning specified in Subsection 14(a) hereof.

 

“**Target**” shall mean, theentity which is the subject of an Acquisition.

 

“**Term**” shall have themeaning specified in Section 10 hereof.

 

“**Term Loan**“ shall mean thatcertain Term Loan of BOF to the Borrowers pursuant to the Term Loan Agreement.

 

“**Term Loan Agreement**”shall mean that certain Loan and Security Agreement – Term Loan, dated as ofthe date hereof between Borrowers and BOF.

 

“**Term Loan Obligations**”shall mean all indebtedness and obligations of every kind and nature ofBorrowers to BOF in respect of the Term Loan Agreement.

 

 

Annex 1 - 10

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“**Total Debt Service**”means, for any period, the sum of payments made (or, as to clause (i) of thissentence, required to be made) by Borrower on a consolidated basis during suchperiod for (i) Senior Debt Service, (ii) interest, fees and scheduledprincipal payments due on the Term Loans, (iii) pursuant to the scheduledSubordinated Debt payments permitted by this Agreement and the applicablesubordination agreement, and (iv) interest and scheduled principalpayments due on any and all other Indebtedness for Borrowed Money of Borrower.

 

“**Travmed Subordinated Debt**”shall mean the Indebtedness of Borrower owed to Robert Litton, Steve Williams,or any other Person, including all of their respective successors and assigns,which is in connection with the acquisition by Borrower of Travmed USA, Inc.

 

“**Travmed Subordinated Debt Default**”shall mean a “Default” as defined in any of the Travmed Subordinated Notes.

 

“**Travmed Subordinated Notes**”shall mean (i) that certain Subordinated Promissory Note dated as of March 28,2005, issued by Crdentia in favor of Robert Litton (including all of hissuccessors and assigns) in the original principal amount of $1,607,745, and(ii)  that certain SubordinatedPromissory Note dated as of March 28, 2005, issued by Crdentia in favor ofRobert Litton (including all of his successors and assigns) in the originalprincipal amount of $1,607,745.

 

“**UCC**” shall mean theUniform Commercial Code as in effect from time to time in the State ofIllinois.

 

 

Annex 1 - 11

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**INDEX OF EXHIBITS AND SCHEDULES**

 
| Exhibits        |   |                                      |
|-----------------|--------|-------------------------------------------|
|            |   |                                      |
| Exhibit A       |   | Borrowing Base  Certificate               |
|            |   |                                      |
| Exhibit B       |   | Compliance  Certificate                   |
|            |   |                                      |
| Exhibit C       |   | Closing Checklist                         |
|            |   |                                      |
| Exhibit D       |   | Information Certificate                   |
|            |   |                                      |
| Exhibit E       |   | Notice of Borrowing                       |
|            |   |                                      |
| Schedules       |   |                                      |
|            |   |                                      |
| Schedule 1      |   | Permitted Liens                           |
|            |   |                                      |
| Schedule 11(b)  |   | Business and Collateral Locations         |
|            |   |                                      |
| Schedule 11(b)  |   | Certain Collateral                        |
|            |   |                                      |
| Schedule 11(g)  |   | Litigation                                |
|            |   |                                      |
| Schedule 11(i)  |   | Affiliate  Transactions                   |
|            |   |                                      |
| Schedule 11(j)  |   | Names & Trade Names                   |
|            |   |                                      |
| Schedule 11(n)  |   | Indebtedness                              |
|            |   |                                      |
| Schedule 11(p)  |   | Parent,  Subsidiaries and Affiliates      |
|            |   |                                      |
| Schedule 11(q)  |   | Defaults                                  |
|            |   |                                      |
| Schedule 11(x)  |   | Government  Reimbursement Program Matters |
|            |   |                                      |
| Schedule 11(t)  |   | Environmental Matters                     |
|            |   |                                      |
| Schedule 11(x)  |   | Healthcare Compliance                     |
|            |   |                                      |
| Schedule 11(y)  |   | Healthcare Regulatory Matters             |
|            |   |                                      |
| Schedule 11(z)  |   | Licenses and Permits                      |
|            |   |                                      |
| Schedule 11(aa) |   | Healthcare Authorizations                 |

 

 

Annex 1 - 1

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**EXHIBIT A - BORROWING BASE CERTIFICATE**

 

**FORM OF BORROWING BASE CERTIFICATE**

 

To:          BridgeHealthcare Finance, LLC                                          ,Agent233 South Wacker Drive, Suite 5350Chicago, Illinois  60606

* *

Ladies and Gentlemen:

 

Please refer to the Second Amended and Restated Loan and SecurityAgreement dated as of May 16, 2005 (as further amended or otherwise modifiedfrom time to time, the “Loan Agreement”) between Crdentia Corp., aDelaware corporation and its Subsidiaries (collectively, “Borrower”),and BRIDGE HEALTHCARE FINANCE, LLC.  Thiscertificate (this “Certificate”), together with supporting calculationsattached hereto, is delivered to you pursuant to the terms of the LoanAgreement.  Capitalized terms used butnot otherwise defined herein shall have the same meanings herein as in the LoanAgreement.

 

The Borrower hereby certifies and warrants to the Bank that at theclose of business on                           ,200      (the “Calculation Date”), theRevolving Borrowing Base Amount was $                     ,computed as set forth on the schedule attached hereto.

 

IN WITNESS WHEREOF, the Borrower has caused this Certificate to beexecuted and delivered by its officer thereunto duly authorized on                      ,              .

 
|   | [                                      ]  |   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | a                                                                                                                                                                                                                                            |   |   |   |
|   |                                                                                                                                                                                                                                         |   |
|   |                                                                                                                                                                                                                                         |   |
|   |                                                                                                                                                                                                                                         |   |
|   | By:                                                                                                                                                                                                                                          |   |   |
|   | Its:                                                                                                                                                                                                                                         |   |   |
|        |                                                                                                                                                                                                                                              |        |  |  |  |  |

 

 

EXHIBIT A - 1

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**EXHIBIT B – COMPLIANCE CERTIFICATE**

 

Date:

 

TO:         Bridge HealthcareFinance, LLC, Agent233 South Wacker Drive, Suite 5350Chicago, Illinois 60606

 

Gentlemen and Ladies:

 

The undersigned Borrower herebycertifies to you the following pursuant to Section 9(c) of the Second Amendedand Restated Loan and Security Agreement-Revolving Loans (the “Agreement”)dated as of May 16, 2005, among Crdentia Corp., a Delaware corporation (“**Crdentia**”), Baker Anderson Christie, Inc.,a California corporation (“**Baker**”),Nurses Network, Inc., a California corporation (“**Nurses Network**”), New Age Staffing, Inc., a Delawarecorporation (“**New Age**”), PSRNurses, Ltd., a Texas limited partnership (“**PSRLtd.**”), PSR Nurse Recruiting, Inc., a Texas corporation (“**PSR Recruiting**”), PSR Nurses HoldingsCorp., a Texas corporation (“**PSR Holding**”),CRDE Corp., a Delaware corporation (“**CRDE**”),Arizona Home Health Care/Private Duty, Inc., an Arizona corporation (“**AHHC**”), Care Pros Staffing, Inc., a Texascorporation (“**Care Pros**”), HIPHolding, Inc., a Delaware corporation (“**HIP**”),Health Industry Professionals, L.L.C., a Michigan limited liability company (“**HIP LLC**”), Travmed USA, Inc., a NorthCarolina corporation (“**Travmed**”),GHS Acquisition Corporation, a Delaware corporation (“**GHS**”), Prime Staff, LP, a Texas limitedpartnership (“**Prime Staff**”), andMint Medical Staffing Odessa, LP, a Texas limited partnership (“**MMSO**”; and together with Crdentia, Baker,Nurses Network, New Age, PSR Ltd., PSR Recruiting, PSR Holding, CRDE, AHHC,Care Pros, HIP, HIP LLC, Travmed, GHS and Prime Staff, each referred to individuallyand collectively, as “**Borrower**”),and Bridge Healthcare Finance, LLC (the “Lender”).

 

1.     As of       ,no event of default or event which with the lapse of time or the giving ofnotice, or both, would become an event of default (an “unmatured event ofdefault”) has occurred or, if such a change has occurred, a writing attachedhereto specifies the nature thereof and the action that Borrower has taken orproposes to take with respect thereto.

 

2.     No material adverse change inthe condition, financial or otherwise, business, property, or results ofoperations of Borrower has occurred since                                                           [date of last Compliance Certificate/last financial statements delivered priorto closing], or, if such a change has occurred, a writing attached heretospecifies the nature thereof and the action that Borrower has taken or proposesto take with respect thereto.

 

3.     Borrower is in compliancewith the representations, warranties and covenants in the Agreement or, ifBorrower is not in compliance with any representations, warranties

 

----

 

or covenantsin the Agreement, a writing attached hereto specifies the nature thereof andthe action that Borrower has taken or proposes to take with respect thereto.

 

4.     As of                 ,Borrower maintains the following financial covenants pursuant to Section 14 ofthe Agreement.

 

a.     Borrowershall maintain a Minimum Tangible Net Worth of (i) $(5,000,000) from thedate hereof through June 30, 2005 and (ii) thereafter, from the last day ofeach fiscal quarter of the Borrowers through the day prior to the last day ofeach immediately succeeding fiscal quarter of the Borrowers, the MinimumTangible Net Worth during the immediately preceding period plus seventy-five****percent (75%) of the Borrowers’ net income(but without reduction for any net loss) for the Fiscal Year ending on thefirst day of such period as reflected on the Borrowers’ audited year endfinancial statement.  (See attached ScheduleA for calculation of Tangible Net Worth)

 
| Compliance |   | Yes:  o |   | No:  o |
|------------|--------|-------------------|--------|------------------|

 

b.     Asof the last day of each applicable period, the ratio of the Borrower’sOperating Cash Flow to Borrower’s Senior Debt Service for each period set forthbelow (which ratio shall be tested as of the last day of each such period) mustbe at least the following: (See attached Schedule B for calculation)

 
| **Time  Frame** | ** ** | **Date  Tested**                           | ** ** | **Senior  Debt Service  Coverage Ratio** | ** ** | **Based on**       |
|-----------------|------------|--------------------------------------------|------------|------------------------------------------|------------|--------------------|
| Quarterly       |       | 6/30/05                                    |       | 0.5 to 1.00                              |       | Trailing 3 months  |
| Quarterly       |       | 9/30/05                                    |       | 1.00 to 1.00                             |       | Trailing 6 months  |
| Quarterly       |       | 12/31/05                                   |       | 1.15 to 1.00                             |       | Trailing 9 months  |
| Quarterly       |       | 3/31/06                                    |       | 1.5 to 1.00                              |       | Trailing 12 months |
| Quarterly       |       | 6/30/06 and each fiscal quarter thereafter |       | 1.5 to 1.00                              |       | Trailing 12 months |

 
| Actual Debt Service Coverage Ratio: |   | Compliance: |   | Yes:  o |   | No:  o |
|-------------------------------------|--------|-------------|--------|-------------------|--------|------------------|

 

c.     MinimumEBITDA.  Borrower shall not permitEBITDA of Borrower to be less than the amount set forth below for thecorresponding period set forth below: (See attached Schedule C forcalculation):  

 

----

 
| **Time  Frame** | ** ** | **Date  Tested**                           | ** ** | **Minimum  EBITDA** | ** ** | **Based on** |
|-----------------|------------|--------------------------------------------|------------|---------------------|------------|--------------|
| Quarterly       |       | 6/30/05                                    |       | $                   | 100,000    |         | Trailing 3 months |
| Quarterly       |       | 9/30/05                                    |       | $                   | 300,000    |         | Trailing 6 months |
| Quarterly       |       | 12/31/05                                   |       | $                   | 600,000    |         | Trailing 9 months |
| Quarterly       |       | 3/31/06                                    |       | $                   | 1,000,000  |         | Trailing 12 months |
| Quarterly       |       | 6/30/06 and each fiscal quarter thereafter |       | $                   | 1,000,000  |         | Trailing 12 months |

 
| Compliance |   | Yes:  o |   | No:  o |
|------------|--------|-------------------|--------|------------------|

 

d.     TermLoan Debt Leverage Ratio.  Borrowershall note permit the ratio of Term Loan Debt to EBITDA to be more than thefollowing for each period set forth below: (See Schedule D for calculation) 
| **Time Frame** | ** ** | **Date Tested**                             | ** ** | **Coverage** | ** ** | **Based on:**       |
|----------------|------------|---------------------------------------------|------------|--------------|------------|---------------------|
| Quarterly      |       | 3/31/06                                     |       | 2.70 to 1    |       | Trailing 12  Months |
| Quarterly      |       | 6/30/06 and  each fiscal quarter thereafter |       | 2.50 to 1    |       | Trailing 12  Months |

 
| Actual Term Loan Debt Leverage Ratio: |   | Compliance: |   | Yes:  o |   | No:  o |
|---------------------------------------|--------|-------------|--------|-------------------|--------|------------------|

 

e.     CapitalExpenditure Limitation:  the aggregatecost of all fixed assets purchased or otherwise acquired shall not exceed$500,000 during any Fiscal Year.

 
| Total Capital Expenditures  (YTD): |   | Compliance: |   | Yes:  o |   | No:  o |
|------------------------------------|--------|-------------|--------|-------------------|--------|------------------|

 

f.      OperatingLease Obligations:  payments madepursuant to operating lease obligations shall not exceed $700,000 during anyFiscal Year.

 
| Operating Lease Payments  (YTD): |   | Compliance: |   | Yes:   o |   | No:  o |
|----------------------------------|--------|-------------|--------|-------------------------|--------|------------------|

 

The financial statements, reports andinformation submitted concurrently herewith have been prepared in accordancewith generally accepted accounting principles consistently applied (whereapplicable) and there have been no material changes in accounting

 

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policies or financial reporting practices ofBorrower since                                                          [date of last Compliance Certificate/last financial statements delivered priorto closing], or, if such a change has occurred, a writing attached heretospecifies the nature thereof and the action that Borrower has taken or proposesto take with respect thereto.

 

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Any and all initially capitalized terms setforth in this certificate without definition shall have the respective meaningsascribed thereto in the Agreement.

 

 
| ** ** | ** ** | **Crdentia Corp.** |
|------------|------------|--------------------|
|       |       |               |
|       | By:        |               |   |
|       | Its:       |               |   |

 

----

 

**Schedule A**

 

**Tangible Net Worth**

 

**TangibleNet Worth**

 
| Shareholders’ equity (including retained  earnings and preferred stock) of Borrowers |   |
|-------------------------------------------------------------------------------------------|--------|
|                                                                                      |   |
| Less: Book value of all intangible assets                                                 |   |
|                                                                                      |   |
| Add: Amount of debt of Borrowers  subordinated to Lender                                  |   |
|                                                                                      |   |
| Tangible Net Worth                                                                        |   |

 

----

 

**Schedule B**

 

**Senior Debt Service Coverage Ratio**

 

**OperatingCash Flow**

 
| Net income (Loss) of the Borrowers  excluding extraordinary gains or losses |                                                                                               |
|-----------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|
|                                                                        |                                                                                               |
| Add:                                                                        | Depreciation                                                                                       |   |
|                                                                        | Amortization and other non-cash charges                                                            |   |
|                                                                        | Interest and fee expenses paid or accrued                                                          |   |
|                                                                        | Total federal and state income tax expenses  accrued regardless of whether paid during such period |   |
|                                                                        | Management fees and other fees paid to subordinated  creditors                                     |   |
|                                                                        |                                                                                               |   |
| Add/Less:                                                                   |                                                                                               |
|                                                                        | Gain or loss on the sale of property, plant  or Equipment                                          |   |
|                                                                        |                                                                                               |   |
|                                                                        | Subtotal                                                                                           |   |
|                                                                        |                                                                                               |   |
| Less:                                                                       | Cash Capital Expenditures made during such  period of the Borrowers                                |   |
|                                                                        | All taxes paid or required to be paid  during such period and all non-cash income of the Borrowers |   |
|                                                                        |                                                                                               |   |
| Total Operating Cash Flow                                                   |                                                                                               |
|                                                                        |                                                                                               |   |
| **Senior Debt Service**                                                     | ** **                                                                                         |
|                                                                        |                                                                                               |   |
| Add:                                                                        | Interest due on Revolving Loans of the  Borrowers                                                  |   |
|                                                                        |                                                                                               |   |
|                                                                        | Scheduled principal and interest payments  made                                                    |   |
|                                                                        | or required to be made on all other  indebtedness of the Borrowers                                 |   |
|                                                                        | (excluding Subordinated Debt)                                                                      |   |
|                                                                        |                                                                                               |   |
| Total Senior Debt Service                                                   |                                                                                               |
|                                                                        |                                                                                               |   |
| **Total Operating Cash Flow:   Total Senior Debt Service**             | =           to 1.0                                         |   |
|                                                                             |                                                                                                    |  |  |

 

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**ScheduleC**

** **

**EBITDA**

 
| **EBITDA**                                                                                                                                 | ** **                      |
|--------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------|
|                                                                                                                                       |                            |
| Net income (Loss) of the Borrowers  (excluding any after-tax gains or losses and excluding other after-tax  extraordinary gains or losses) |                            |
|                                                                                                                                       |                            |
| Add:                                                                                                                                       | Interest expense                |   |
|                                                                                                                                       | Income tax expense              |   |
|                                                                                                                                       | Depreciation                    |   |
|                                                                                                                                       | Amortization                    |   |
|                                                                                                                                       |                            |   |
| Add/Less:                                                                                                                                  |                            |
|                                                                                                                                       | Other non-cash charges or gains |   |
|                                                                                                                                       |                            |   |
| Total EBITDA                                                                                                                               |                            |

 
| Minimum EBITDA |   | $                       |   | Total EBITDA |   | $                      |
|----------------|--------|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|--------|---------------------------------------------------------------------------------------------------------------------------------|

 

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**ScheduleD**

 

**Term Loan Debt Leverage Ratio**

 

**TermLoan Debt**

 
| Aggregate principal amount of Term Loan  outstanding |                                                 |
|------------------------------------------------------|------------------------------------------------------|
|                                                 |                                                 |
| **EBITDA (from Schedule C)**                         | ** **                                           |
|                                                 |                                                 |
|                                                 |                                                 |
| **Term Loan Debt to EBITDA**                         | =          to 1.0 |   |
|                                                      |                                                      |  |

 

 

EXHIBIT B - 1

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**SCHEDULE 1 –PERMITTED LIENS**

 

 

SCHEDULE 1 - 1

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**SCHEDULE 11(B) -BUSINESS AND COLLATERAL LOCATIONS; CERTAIN COLLATERAL**

 

Attached to and made a part of that certain Loan and Security Agreementof even date herewith between CRDENTIA CORP., a           corporation and its Subsidiaries (collectively, “**Borrower**”) and BRIDGE HEALTHCARE FINANCE, LLC (“**Lender**”).

 

A.            Borrower’sbusiness locations (please indicate which location is the principal place ofbusiness and at which locations originals and all copies of Borrower’s books,records and accounts are kept).

 

1.

 

2.

 

B.            Otherlocations of Collateral (including, without limitation, warehouse locations,processing locations, consignment locations) and all post office boxes ofBorrower.  Please indicate therelationship of such location to Borrower (i.e., public warehouse, processor,etc.).

 

1.

 

2.

 

C.            BankAccounts of Borrower:

 
|   |   | **Bank  (with address)** | ** ** | **Account  Number** | ** ** | **Type of  Account** |
|--------|--------|--------------------------|------------|---------------------|------------|----------------------|
| 1.     |   |                     |       |                |       |                 |
|   |   |                     |       |                |       |                 |
| 2.     |   |                     |       |                |       |                 |

 

D.            CertainCollateral

 

a.             IntellectualProperty

 

b.             Instruments

 

c.             DepositAccounts

 

d.             InvestmentProperty

 

e.             Letter-of-CreditRights

 

f.              ChattelPaper

 

g.             Documents

 

 

SCHEDULE 11(B) - 1

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h.             CommercialTort Claims

 

i.              Certificateof Title Goods

 

j.              Collateralwith Third Parties

 

 

SCHEDULE 11(B) - 2

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**SCHEDULE 11(G) – LITIGATION**

 

 

SCHEDULE 11(G) - 1

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**SCHEDULE 11(I) – AFFILIATE TRANSACTIONS**

 

 

SCHEDULE 11(I) - 1

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**SCHEDULE 11(J) – NAMES & TRADE NAMES**

 

 

SCHEDULE 11(J) - 1

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**SCHEDULE 11(N) – INDEBTEDNESS**

 

 

SCHEDULE 11(N) - 1

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**SCHEDULE 11(P) – PARENT, SUBSIDIARIES AND AFFILIATES**

 

 

 

SCHEDULE 11(P) - 1

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**SCHEDULE 11(X) – GOVERNMENT REIMBURSEMENT PROGRAM MATTERS**

 

 

SCHEDULE 11(X) - 1

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