exv10w1



 





Exhibit 10.1




EXECUTION COPY




 





CREDIT AGREEMENT




Dated as of December 27, 2006




Between




MBI FINANCIAL INC.

as Borrower




and




OLD MASTER GIOTTO FUND LIMITED

as Lender




 






 









 








TABLE OF CONTENTS




Page




	 	 	 	 	 
	ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
	 	 	1	 
	SECTION 1.01. Certain Defined Terms
	 	 	1	 
	SECTION 1.02. Computation of Time Periods
	 	 	6	 
	SECTION 1.03. Accounting Terms
	 	 	6	 
	SECTION 1.04. Principles of Construction
	 	 	6	 
	 
	 	 	 	 
	ARTICLE II AMOUNT AND TERMS OF THE ADVANCE
	 	 	6	 
	SECTION 2.01. The Advance
	 	 	6	 
	SECTION 2.02. Repayment of Advance
	 	 	7	 
	SECTION 2.03. Interest
	 	 	7	 
	SECTION 2.04. Maximum Interest
	 	 	7	 
	SECTION 2.05. Financing Right
	 	 	8	 
	SECTION 2.06. Prepayments of Advance
	 	 	8	 
	SECTION 2.07. Cash Collateral
	 	 	8	 
	SECTION 2.08. Payments and Computations
	 	 	9	 
	SECTION 2.09. Taxes
	 	 	10	 
	SECTION 2.10. Illegality
	 	 	10	 
	 
	 	 	 	 
	ARTICLE III CONDITIONS OF LENDING
	 	 	11	 
	SECTION 3.01. Conditions Precedent to Closing
	 	 	11	 
	SECTION 3.02. Conditions Precedent to the Advance
	 	 	12	 
	 
	 	 	 	 
	ARTICLE IV REPRESENTATIONS AND WARRANTIES
	 	 	13	 
	SECTION 4.01. Representations and Warranties of Borrower
	 	 	13	 
	 
	 	 	 	 
	ARTICLE V COVENANTS OF BORROWER
	 	 	17	 
	SECTION 5.01. Affirmative Covenants
	 	 	17	 
	SECTION 5.02. Negative Covenants
	 	 	20	 
	 
	 	 	 	 
	ARTICLE VI EVENTS OF DEFAULT
	 	 	22	 
	SECTION 6.01. Events of Default
	 	 	22	 
	 
	 	 	 	 
	ARTICLE VII MISCELLANEOUS
	 	 	25	 
	SECTION 7.01. Amendments, Etc
	 	 	25	 
	SECTION 7.02. Notices, Etc
	 	 	25	 
	SECTION 7.03. No Waiver; Remedies
	 	 	26	 
	SECTION 7.04. Costs, Expenses and Indemnification
	 	 	26	 
	SECTION 7.05. Binding Effect; Assignment
	 	 	27	 
	SECTION 7.06. Governing Law; Submission to Jurisdiction
	 	 	27	 
	SECTION 7.07. Severability
	 	 	28	 
	SECTION 7.08. Execution in Counterparts
	 	 	28	 
	SECTION 7.09. Survival
	 	 	28	 
	SECTION 7.10. Confidentiality
	 	 	29	 
	SECTION 7.11. No Fiduciary Relationship
	 	 	29	 






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Page





	 	 	 	 	 
	SECTION 7.12. Right of Setoff
	 	 	29	 
	SECTION 7.13. Judgment Currency
	 	 	29	 
	SECTION 7.14. Replacement of Promissory Note
	 	 	30	 
	SECTION 7.15. Headings Descriptive
	 	 	30	 
	SECTION 7.16. Entire Agreement
	 	 	30	 
	SECTION 7.17. WAIVER OF JURY TRIAL
	 	 	30	 
	 
	 	 	 	 
	EXHIBITS

	 
	 	 	 	 
	Exhibit A  –  Form of Note
	 	 	 	 
	Exhibit B  –  Form of Legal Opinion of Counsel to Borrower
	 	 	 	 
	Exhibit C  –  Form of Borrower Security Agreement
	 	 	 	 
	Exhibit D  –  Form of Warrants
	 	 	 	 
	 
	 	 	 	 
	ANNEX

	 
	 	 	 	 
	Annex A –  Payment Schedule
	 	 	 	 
	Annex B  –  Quarterly Payments
	 	 	 	 
	 
	 	 	 	 
	SCHEDULES

	 
	 	 	 	 
	Schedule 1 – Subsidiaries
	 	 	 	 
	Schedule 2 – Debt
	 	 	 	 
	Schedule 3 – Senior Debt
	 	 	 	 







ii









 








CREDIT AGREEMENT




          THIS CREDIT AGREEMENT (this “Agreement”), dated as of December 27, 2006, is entered into by
and between MBI FINANCIAL INC., a Nevada corporation (“Borrower”), and OLD MASTER GIOTTO
FUND LIMITED, a Cayman Islands exempt company (“Lender”).




          Borrower has requested that Lender make a loan to it in the amount of Five Million
($5,000,000) Dollars for the purposes set forth herein and Lender is prepared to make such loan
upon the terms and conditions hereof. Accordingly, the parties hereto agree as follows:




ARTICLE I




DEFINITIONS AND ACCOUNTING TERMS




          SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall
have the following meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):





     “Account Control Agreement” means an account control agreement in form and
substance acceptable to the Lender relating to the Quarterly Cash Reserve Account and each
other deposit account and securities account of the Borrower.




     “Acquisitions” means the acquisition by the Borrower of all or substantially
all of the assets of, or a majority of the capital stock of, a Person.




     “Advance” means the loan made by Lender to Borrower pursuant to Section 2.01.




     “Affiliate” means, with respect to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with such Person. A
Person shall be deemed to control another Person if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and policies of
such other Person, whether through the ownership of voting securities, by contract or
otherwise.




     “Agreement” shall mean this Credit Agreement, as modified, supplemented or
amended from time to time.




     “Bank” means Bank of America, N.A. or such other bank as mutually agreed by
Borrower and Lender.




     “Bankruptcy Code” means the Federal Bankruptcy Code of 1978, Title 11 of the
United States Code, as amended from time to time.




     “Borrower Security Agreement” means that certain security agreement between
Borrower and Lender dated as of the date hereof provided in connection with and



 









 






securing the Advance, as the same may be amended, modified or supplemented from time to
time.




     “Business Day” means a day of the year other than a Saturday or Sunday on which
banks are not required or authorized to close in New York, New York.




     “Change in Key Management” shall be deemed to have occurred if Patrick McGeeney
ceases to be the Chief Executive Officer of the Borrower or John Farkas ceases to be
President of MBI Mortgage, Inc., and either ceases to have substantial involvement in the
day-to-day operations of Borrower or MBI Mortgage.




     “Change of Control” shall be deemed to have occurred at such time as a “person”
or “group” (within the meaning of Section 13(d) and 14(d) of the U.S. Securities and
Exchange Act of 1934, as amended) (other than those as of the date hereof) becomes the
“beneficial owner” (as defined in Rule 13d-3 under such Act), directly or indirectly, of
twenty (20%) percent or more of the total voting power of Borrower or any of the
Subsidiaries or otherwise has the power to direct or cause the direction of the management
or policies of Borrower or any of the Subsidiaries.




     “Closing Date” means the earliest date as of which the conditions precedent to
the obligation of Lender to make the Advance to Borrower shall have been satisfied or
waived.




     “Closing Fee” has the meaning specified in Section 2.01(b).




     “Collateral” shall mean the “Collateral” as defined in the Borrower Security
Agreement.




     “Committed Amount” means Five Million ($5,000,000) dollars.




     “Confidential Information” means information that Borrower or any of its
Subsidiaries or Affiliates furnishes to Lender on a confidential basis by informing the
recipient that such information is confidential or marking such information as such, but
does not include any such information that (i) is or at the time of disclosure by such
Person has become generally available to the public other than as a result of a disclosure
by Lender or its directors, officers, employees, advisors or agents in breach of Section
7.10, (ii) was available to Lender on a non-confidential basis prior to its disclosure to
Lender by such Person, (iii) is or at the time of disclosure by such Person has become
available to Lender from a source other than Borrower or any of its Subsidiaries, unless
Lender has actual knowledge that such source is prohibited from transmitting the information
by a confidentiality agreement, with or other legal or fiduciary obligation to, Borrower or
any of its Subsidiaries or (iv) has been authorized by Borrower to be disseminated on a
non-confidential basis.




     “Contractual Obligation” means as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or other undertaking to which such
Person is a party or by which it or any of its property is bound.



2









 






     “Debt” of any Person means (a) indebtedness of such Person for borrowed money,
(b) obligations of such Person evidenced by bonds, debentures, notes or other similar
instruments, (c) obligations of such Person to pay the deferred purchase price of property
or services (excluding trade payables and other accounts payable incurred in the ordinary
course of business of such Person), (d) capital lease obligations of such Person, (e) Debt
of others secured by a Lien on the property of such Person up to the amount of the Lien,
whether or not the respective indebtedness so secured has been assumed by such Person, (f)
the maximum amount available to be drawn under all letters of credit issued for the account
of such Person and all unpaid drawings in respect of such letters of credit, (g) all
obligations of such Person to pay a specified purchase price for goods or services, whether
or not delivered or accepted (i.e., take-or-pay and similar obligations), (h) all
obligations of such Person created or arising under any conditional sale or other title
retention agreement or incurred as financing, (i) the net obligations of such Person under
derivative transactions (including, but not limited to, under Swap Agreements) or commodity
transactions; and (j) obligations of such Person under a Guaranty of Debt of others of the
kinds referred to in clauses (a) through (h) above.




     “Default” means an event that, with notice or lapse of time or both, would
become an Event of Default.




     “Dollars” and “$” mean the lawful currency of the United States of
America.




     “Employee Plan” means any employee benefit or management compensation plan or
the grant of stock and stock options to employees of Borrower or any of its Subsidiaries
pursuant to a written plan or agreement that has been approved by the Board of Directors (or
analogous entity) of Borrower or such Subsidiary.




     “Events of Default” has the meaning specified in Section 6.01.




     “Excess Revenues” has the meaning specified in Section 2.07(a).




     “Facility Documents” means, collectively, this Agreement, the Note, the
Security Agreement, each Account Control Agreement, the Warrants, and each other agreement
or instrument executed or delivered in connection herewith or therewith.




     “Financing Notice” has the meaning specified in Section 2.05.




     “Financing Right” has the meaning specified in Section 2.05.




     “GAAP” means U.S. generally accepted accounting principles consistently
applied.




     “Governmental Authority” means any nation or government, any state, province or
other political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.




     “Guaranty” by any Person means any obligation of such Person guaranteeing or in
effect guaranteeing any Debt of another Person, including, but not limited to, any



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obligation of such Person to purchase or pay (or supply advance funds for the purchase or
payment of) such Debt (whether arising by virtue of a partnership agreement, agreement
to keep-well, to purchase property or assets or services, to take-or-pay, or to maintain
financial statement conditions or otherwise), or any obligation incurred for the purpose of
assuring the holder of such Debt of the payment thereof in whole or in part; provided that
the term “Guaranty” shall not include any endorsement of an instrument for deposit or
collection in the ordinary course of business.




     “Indemnified Party” has the meaning specified in Section 7.04(b).




     “Intellectual Property” has the meaning specified in Section 4.01(n).




     “Judgment Currency” has the meaning specified in Section 7.13.




     “Law” shall mean any constitution, treaty, convention, statute, law, code,
ordinance, decree, order, rule, regulation, guideline, interpretation, direction, policy or
request, or judicial or arbitral decision, of a Governmental Authority.




     “Lender” means each of Lender and any other Person that becomes a Lender
pursuant to Section 7.05, individually and not collectively.




     “Lien” means any lien, pledge, security interest or other charge or encumbrance
of any kind, or any other type of preferential arrangement, including, but not limited to,
the lien or retained security title of a conditional vendor and the interest of a lessor
under a lease intended as security.




     “Margin Stock” means margin stock within the meaning of Regulation U.




     “Material Adverse Effect” means a material adverse effect on (a) the business,
operations, property, condition (financial or otherwise) or prospects of Borrower and its
Subsidiaries, taken as a whole, or (b) the validity or enforceability of (i) this Agreement,
the Note or any other Facility Document or (ii) the rights or remedies of Lender hereunder
or thereunder.




     “Maturity Date” means January 1, 2009.




     “Maximum Lawful Rate” has the meaning specified in Section 2.04(b).




     “MBI Mortgage” means MBI Mortgage, Inc., a wholly owned subsidiary of the
Borrower.




     “Minimum Coverage Ratio Test” means on any date of determination (i) during the
period from June 1, 2007, through July 31, 2007, that (a) EBITDA for the three (3) calendar
months immediately preceding such date multiplied by four (4) less (b) all Subordinated Debt
as of such date of determination, is equal to or greater than 150% of the Net Loan Payable,
and (ii) during the period from August 1, 2007, and thereafter, (x) EBITDA for the three (3)
calendar months immediately preceding such date multiplied



4









 






by four (4) less (y) all
Subordinated Debt as of such date of determination, is equal to or greater than 200% of the
Net Loan Payable.




     “Mortgage Loans” means a loan (constituting Debt) that is not a construction
loan or Commercial Loan, is evidenced by a valid promissory note, and is secured by a
mortgage, deed of trust, or trust deed that grants a Lien on residential real property.




     “Net Loan Payable” means, as of the date of determination, the excess, if any,
of (i) the Total Loan Amount Payable over (ii) the sum of the Quarterly Payments previously
received.




     “New Acquisition Financing” has the meaning specified in Section 2.05.




     “New Financing” has the meaning specified in Section 2.07(b).




     “Note” means the promissory note of Borrower payable to the order of Lender, in
substantially the form of Exhibit A hereto, evidencing the indebtedness of Borrower
in respect of the Advance and any other promissory note accepted from time to time in
substitution or exchange therefor or renewal thereof.




     “Other Taxes” has the meaning specified in Section 2.09(b).




     “Payment Schedule” has the meaning specified in Section 2.02.




     “Person” means an individual, partnership, corporation (including a business
trust), limited liability company, joint stock company, trust, unincorporated association,
joint venture or other entity, or a government or any political subdivision or agency
thereof.




     “Quarter” and “Quarterly” means each ninety (90) day period following
January 1, 2007.




     “Quarterly Cash Reserve Account” has the meaning specified in Section 2.07.




     “Quarterly Payment” means the amount specified in the Payment Schedule as
adjusted to account for interest at the Default Rate, if applicable, as being due for the
applicable Quarter.




     “Regulation T” means Regulation T issued by the Board of Governors of the
Federal Reserve System, as from time to time amended.




     “Regulation U” means Regulation U issued by the Board of Governors of the
Federal Reserve System, as from time to time amended.




     “Regulation X” means Regulation X issued by the Board of Governors of the
Federal Reserve System, as from time to time amended.




     “Required Cash Reserve” has the meaning specified in Section 2.07(a).



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     “Requirement of Law” means as to any Person, the certificate of incorporation
and by-laws, certificate of formation, limited liability company agreement or other
organizational or governing documents of such Person, and any law, treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject.




     “Responsible Officer” of Borrower means its chief executive officer or its
chief financial officer (whether or not the Person performing such duties is so designated)
or any designee thereof.




     “Sinking Fund” has the meaning specified in Section 2.07(a).




     “Stated Rate” has the meaning specified in Section 2.04(b).




     “Subordinated Debt” shall mean all Debt incurred by Borrower or any Subsidiary
that is contractually subordinated and payments are deferred to Borrower’s Debt hereunder.




     “Subsidiary” means, with respect to any Person, any corporation, partnership,
limited liability company or other entity of which more than fifty (50%) percent of the
securities or other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or other persons performing similar functions of
such corporation, partnership, limited liability company or other entity (irrespective of
whether or not at the time securities or other ownership interests of any other class or
classes of such corporation, partnership, limited liability company or other entity shall
have or might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or more Subsidiaries
of such Person or by such Person and one or more Subsidiaries of such Person.




     “Swap Agreement” means any “swap agreement” as defined in § 101(53B) of the
Bankruptcy Code, or any successor provision.




     “Taxes” has the meaning specified in Section 2.09(a).




     “Total Loan Amount Payable” means Six Million Eighty-Nine Thousand Three
Hundred Forty-Eight and 56/100 Dollars ($6,089,348.56).




     “Unpaid Principal Amount” has the meaning specified in Section 2.03(a).




     “Warrants” means the Warrant, dated the date hereof, issued by Borrower to Old
Master Cimabue Holdings, Limited, and all additional warrants issued hereafter pursuant to
such Warrant.



6









 





          SECTION 1.02. Computation of Time Periods. In this Agreement in the computation of
periods of time from a specified date to a later specified date, the word “from” means “from and
including” and the words “to” and “until” mean “to but excluding.”




          SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with accounting principles consistent with GAAP.




          SECTION 1.04. Principles of Construction. All references to Sections, Articles,
Schedules, Exhibits and Appendices are to Sections, Articles, Schedules, Exhibits and Appendices in
or to this Agreement unless otherwise specified. The words “hereof” “herein” and “hereunder” and
words of similar import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement.




ARTICLE II




AMOUNT AND TERMS OF THE ADVANCE




          SECTION 2.01. The Advance.




          (a) Lender agrees, on the terms and conditions herein set forth, to make an Advance to
Borrower in Dollars on the Closing Date in an amount equal to Five Million Dollars ($5,000,000).
Not later than 11:00 a.m. (New York City time) on the date of the Advance and upon fulfillment of
the applicable conditions set forth in Article III, Lender will make the Advance available to
Borrower in same day funds at an account specified by Borrower in writing at least one Business
Day prior to the date of the Advance. Any amounts borrowed under this Agreement and repaid or
prepaid may not be reborrowed.




          (b) Borrower agrees to pay to Lender out of the Advance a closing fee in the amount Fifty
Thousand Dollars ($50,000) (the “Closing Fee”), and to pay additional expenses of the
Lender as set forth in Section 7.04.




          SECTION 2.02. Repayment of Advance. Borrower shall repay the principal amount of the
Advance, together with accrued and unpaid interest thereon, on the dates and otherwise in
accordance with the payment schedule attached hereto as Annex A (the “Payment
Schedule”). The Unpaid Principal Amounts, together with accrued and unpaid interest thereon,
shall mature and be due and payable on the Maturity Date.




          SECTION 2.03. Interest.





          (a) Ordinary Interest. Borrower shall pay interest on the unpaid principal amount of
the Advance (the “Unpaid Principal Amount”), from the date of the Advance until such
principal amount shall be paid in full, at a rate per annum equal to eighteen percent (18%) (the
“Interest Rate”). The Interest Rate shall permanently increase to twenty-five percent (25%) per
annum (the “Default Rate”) on and after the date on which the second (2nd) Default
shall occur under the terms of this Agreement, whether or not such Default becomes an Event of
Default hereunder. Interest shall be payable on the dates and otherwise in accordance with the
Payment Schedule, commencing April 1, 2007, and on the date of any other payment or



7









 






prepayment of
the Unpaid Principal Amount. Interest shall be compounded on the first day of each calendar month
and shall be based on a year of 365 or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day) in the period for which interest is payable.
Interest in respect of the period from the date of the Advance to December 31, 2006 shall be due
and payable as separately agreed by Borrower and Lender. In the event interest becomes payable at
the Default Rate, the Lender may provide Borrower with a replacement Payment Schedule which shall
be binding on the Borrower absent manifest error. Failure of the Lender to provide a replacement
Payment Schedule shall not release the obligation to pay interest at the Default Rate on each
Quarterly Payment date.




          (b) Default Interest. Notwithstanding anything to the contrary contained herein,
upon the occurrence and during the continuance of any Default and upon the occurrence of any
Event of Default, Borrower shall pay interest (which shall apply to any such period occurring
before and/or after the date of Borrower’s filing of any petition in bankruptcy or other
insolvency proceedings) on:




          (i) the Unpaid Principal Amount at a rate per annum equal to the Default Rate; and




          (ii) the past-due amount of any interest, fee or other amount otherwise payable
hereunder that is not paid within the applicable grace period, from the date such amount was
originally due until such amount shall be paid in full, at a rate per annum equal to the
Default Rate.




The amount of additional interest incurred under this subsection (b) as a result of the
application of the Default Rate, shall be payable on demand, and otherwise on the dates
referenced in subsection (a) of this Section 2.03.



          SECTION 2.04. Maximum Interest.





          (a) In no event shall the interest charged with respect to the Advance or any other
obligations of Borrower hereunder exceed the maximum amount permitted under the laws of the State
of New York or of any other applicable jurisdiction.




          (b) Notwithstanding anything to the contrary herein or elsewhere, if at any time the rate of
interest payable for the account of Lender hereunder or under the Note (the “Stated Rate”)
would exceed the highest rate of interest permitted under any applicable law to be charged by
Lender (the “Maximum Lawful Rate”), then for so long as the Maximum Lawful Rate would be
so exceeded, the rate of interest payable for the account of Lender shall be equal to the Maximum
Lawful Rate; provided, that if at any time thereafter the Stated Rate is less than the Maximum
Lawful Rate, Borrower shall, to the extent permitted by law, continue to
pay interest for the account of Lender at the Maximum Lawful Rate until such time as the
total interest received by Lender is equal to the total interest which Lender would have received
had the Stated Rate been (but for the operation of this provision) the interest rate payable.
Thereafter, the interest rate payable for the account of Lender shall be the Stated Rate unless
and until the Stated Rate again would exceed the Maximum Lawful Rate, in which event this
provision shall again apply.



8









 






          (c) In no event shall the total interest received by Lender exceed the amount which Lender
could lawfully have received had the interest been calculated for the full term hereof at the
Maximum Lawful Rate.




          (d) If Lender has received interest hereunder in excess of the Maximum Lawful Rate, such
excess amount shall be applied to the reduction of the principal balance of the Advance or to
other amounts (other than interest) payable hereunder, and if no such principal or other amounts
are then outstanding, such excess or part thereof remaining shall be paid to Borrower.



          SECTION 2.05. Financing Right of First Offer. If at any time, and from time to time,
prior to the Maturity Date, Borrower intends to obtain Debt for the purpose of financing all or any
portion of the purchase price to be paid by Borrower in connection with an Acquisition (“New
Acquisition Financing”), then Borrower shall provide Lender with notice of its intent and the
proposed terms for such financing (the “Financing Notice”), and Lender shall have the right,
exercisable for a period of thirty (30) days from receipt of the Financing Notice, to provide
Borrower with a written offer to provide such Debt financing to Borrower (the “Financing Offer”).
Borrower shall have thirty (30) days to accept or reject such Financing Offer. If Borrower accepts
the Financing Offer, then Borrower and Lender shall cooperate in good faith to consummate the
transaction on the terms and subject to the conditions set forth in the Financing Offer.




          SECTION 2.06. Prepayments of Advance. Borrower may prepay the Unpaid Principal
Amount, at any time on not less than ten (10) Business Days notice to Lender; provided that
Borrower (a) makes payment in full of the then-current Unpaid Principal Amount, together with all
other amounts owing to Lender hereunder including, without limitation, all interest accrued
thereon, and (b) pay to Lender a prepayment fee equal to (i) the per annum interest rate then
applicable to the Unpaid Principal Amount, multiplied by (ii) the Unpaid Principal Amount
immediately prior to such prepayment.




          SECTION 2.07. Cash Collateral.





          (a) Borrower shall deposit $1,000,000 on the Closing Date into deposit account number               
at Bank (the “Quarterly Cash Reserve Account”). Borrower shall cause Bank to
enter into an Account Control Agreement with the Borrower and the Lender within ninety (90) days
after the Closing Date, pursuant to which the Bank will agree to act only on instructions from the
Lender with respect to amounts on deposit in the Quarterly Cash Reserve Account. Beginning
February 1, 2007, the Borrower will deposit cash into the Quarterly Cash Reserve Account in
accordance with Annex B hereto (such amounts, the “Sinking Fund Payments”).
Notwithstanding the foregoing, to the extent that amounts on deposit in the Quarterly Cash Reserve
Account on the Business Day following each Quarterly Payment
commencing July 2, 2007 exceed $400,000 (the “Required Cash Reserve”), then the
scheduled Sinking Fund payments for the Quarter succeeding such date shall be reduced by the
amount of such excess in inverse order. If, as a result of any Quarterly Payment, the amounts on
deposit in the Quarterly Cash Reserve Account is less than the Required Cash Reserve, then in
addition to any scheduled Sinking Fund Payments, the Borrower shall deposit an amount equal to 50%
of the amount by which EBITDA for the immediately preceding three (3) calendar



9









 






month period
exceeds the Quarterly Payment next due, to the extent required to increase the amount on deposit
in the Quarterly Cash Reserve Account (exclusive of Sinking Fund Payments made during such period)
to an amount equal to the Required Cash Reserve.




          (b) The Borrower shall deposit into the Quarterly Cash Reserve Account, on or prior to May 1,
2007, $800,000 from the proceeds of issuance of common stock or subordinate Debt (the “New
Financing”).




          (c) Lender shall be entitled to direct the Bank to pay to Lender on the first Business Day of
each Quarter from the Quarterly Cash Reserve Account the amount of the Quarterly Payment then due
(or if the amount in the Quarterly Cash Reserve Account is less than the Quarterly Payment then
due, all of the amounts then deposited in the Quarterly Cash Reserve Account).




          (d) In the event of any Event of Default under the Borrower Security Agreement or Sections
4.01(m), 5.02(b) or 5.02(g) hereof, Borrower may cure such Event of Default by depositing into the
Quarterly Cash Reserve Account an amount equal to the sum of the two (2) Quarterly Payments next
succeeding such date by no later than the end of the 30th Business Day after the
occurrence of such Event of Default provided that an Account Control Agreement in respect of the
Quarterly Cash Reserve Account has been entered into prior to such date. Such additional deposits
shall increase the Required Cash Reserve, shall be additional segregated Collateral and shall not
be available to make regularly scheduled Quarterly Payments unless at the time such Quarterly
Payment is due the amount of the Unpaid Principal Amount plus interest thereon through the
Maturity Date is less than the aggregate amount on deposit in the Quarterly Cash Reserve Account
(including such additional deposits).




          (e) If Borrower shall at any time fail, or be in danger of failing, to comply with the terms
of Section 5.01(j), then Borrower may prevent the occurrence of any Default or Event of Default
that would otherwise be caused by such failure on written notice to Lender by depositing into the
Quarterly Cash Reserve Account an amount equal to the sum of the two (2) Quarterly Payments next
succeeding such date by no later than the end of the 30th Business Day after the date
on which Borrower has actual knowledge of such failure, and provided that an Account Control
Agreement in respect of the Quarterly Cash Reserve Account has been entered into prior to such
date. Such additional deposits shall increase the Required Cash Reserve, shall be additional
segregated Collateral and shall not be available to make regularly scheduled Quarterly Payments
unless at the time such Quarterly Payment is due the amount of the Unpaid Principal Amount plus
interest thereon through the Maturity Date is less than the aggregate amount on deposit in the
Quarterly Cash Reserve Account (including such additional deposits).




          (f) On the last Business Day of each month Borrower will report to Lender the amount then on
deposit in the Quarterly Cash Reserve Account.




          (g) Notwithstanding anything to the contrary contained herein, if, and for so long as, the
amount on deposit in the Quarterly Cash Reserve Account at any time exceeds the sum of the
remaining Quarterly Payments due through the Maturity Date, Borrower’s obligation to make future
deposits into the Quarterly Cash Reserve Account shall cease.



10









 





          SECTION 2.08. Payments and Computations.





          (a) All obligations of Borrower under the Facility Documents are absolute and unconditional.




          (b) Borrower shall make each payment hereunder and under the Note in accordance with Lender’s
then-existing payment instructions (as notified by Lender to Borrower), without set-off,
counterclaim or other defense, not later than 11:00 a.m. (New York time) on the day when due in
Dollars and immediately available funds. If payment is made after such time on any day, it shall
be deemed to have been made on the next following Business Day.




          (c) Whenever any payment hereunder or under the Note would be due on a day other than a
Business Day, such due date shall be extended to the next succeeding Business Day, and any such
extension of such due date shall in such case be included in the computation of payment of
interest or any fees, as the case may be.




          (d) All payments (including without limitation prepayments) made by Borrower to Lender under
any Facility Document shall be applied to amounts then due and payable in the following order: (i)
to any expenses, fees and indemnities payable by Borrower to Lender under any Facility Document,
(ii) to any accrued but unpaid interest due under this Agreement; and (iii) to principal payments
on the Unpaid Principal Amount.



          SECTION 2.09. Taxes.





          (a) Any and all payments by Borrower hereunder or under the Note shall be made free and clear
of and without deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto; provided that such
amounts shall exclude, in the case of Lender, taxes imposed on its income, and franchise
taxes imposed on it, by the jurisdiction under the laws of which it is organized or any political
subdivision thereof (all such taxes, levies, imposts, deductions, charges, withholdings and
liabilities not otherwise excluded pursuant to the preceding proviso being herein referred to as
“Taxes”). If Borrower shall be required by law to deduct any Taxes from or in respect of
any sum payable hereunder or pursuant to the Note, then (i) the sum payable shall be increased as
may be necessary so that after making all required deductions (including deductions applicable to
additional sums payable under this Section) Lender receives an amount equal to the sum it would
have received had no such deductions been made, (ii) Borrower shall make such deductions and (iii)
Borrower shall pay the full amount deducted to the relevant taxation authority or other authority
in accordance with applicable law.




          (b) In addition, Borrower agrees to pay any present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies which arise from any payment made
hereunder or under the Note or from the execution or delivery of, or
otherwise with respect to, this Agreement, the Note or any Facility Document (herein
referred to as “Other Taxes”).




          (c) Borrower will indemnify Lender for the full amount of Taxes or Other Taxes paid by Lender
and any liability (including penalties, interest and expenses) arising



11









 






therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. A
certificate as to the amount of such Taxes and Other Taxes, submitted to Borrower by Lender, shall
be conclusive evidence of the amount payable to Lender hereunder absent manifest error.



          SECTION 2.10. Illegality. Notwithstanding any other provision of this Agreement, if
Lender shall notify Borrower that the introduction of or any change in or in the interpretation of
any Law makes it unlawful, or any central bank or other Governmental Authority asserts that it is
unlawful, for Lender to perform its obligation to maintain the loan hereunder, the obligation of
Lender shall be terminated and the Unpaid Principal Amount, all interest thereon and all other
amounts payable under this Agreement shall become due and payable.




ARTICLE III




CONDITIONS OF LENDING




          SECTION 3.01. Conditions Precedent to Closing. The obligation of Lender to make the
Advance is subject to the fulfillment, to the satisfaction of Lender and its counsel, of each of
the following conditions on or before the Closing Date, each (unless otherwise specified below)
dated the Closing Date and in form and substance satisfactory to Lender:





          (a) The Closing Date shall occur on or before December 27, 2006.




          (b) Lender shall have received each of the following documents:




     (i) the Note payable to the Lender duly executed by Borrower;




     (ii) certified copies of (x) the certificate of incorporation and By-laws of
Borrower, (y) the resolutions of the Board of Directors of Borrower authorizing and
approving the making and performance by Borrower of this Agreement, the Borrower
Security Agreement, the Note and the other Facility Documents and the borrowings
hereunder and (z) documents evidencing all other necessary company action and
governmental approvals, if any, with respect to this Agreement, the Borrower
Security Agreement, the Note and any other Facility Documents;




     (iii) a certificate of Borrower certifying the names and true signatures of the
officers of the Borrower authorized to sign this Agreement, the Note, the Borrower
Security Agreement or any other Facility Document to be delivered hereunder or
thereunder;




     (iv) certificate issued by the Secretary of State of the State of Nevada, dated
a date not earlier than ten (10) Business Days prior to the Closing Date, as to the
good standing of Borrower in the State of Nevada;




     (v) an opinion of counsel to Borrower, substantially in the form of Exhibit
B;



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     (vi) the Borrower Security Agreement, substantially in the form of Exhibit
C, duly executed by Borrower, and all documents contemplated thereby;




     (vii) the Warrant, substantially in the form of Exhibit D, duly
executed by Borrower;




     (viii) original stock certificates representing Borrower’s ownership interests
in each of its Subsidiaries, together with undated and signed blank stock powers
with respect thereto; and




     (ix) Lender shall have received evidence of the filing of all Uniform
Commercial Code financing statements required to perfect its security interest in
the Collateral, and the results of tax, judgment and lien searches on Borrower and
each of its Subsidiaries in all applicable jurisdictions;




          (c) Lender shall have received evidence, satisfactory to it in its sole and absolute
discretion, of the termination and the release of all liens of the lenders set forth on
Schedule 3 hereto.




          (d) There shall not have been any Law applicable to the transactions contemplated herein, or
the financing thereof, promulgated, enacted, entered or enforced by any Governmental Authority,
nor shall there be pending any action or proceeding by or before any Governmental Authority
involving a substantial likelihood of an order, that would prohibit, restrict, delay or otherwise
materially affect the execution, delivery and performance of the Facility Documents or the making
of the Advance.




          (e) Borrower shall have paid Lender the Closing Fee and all fees and disbursements and other
out-of-pocket costs and expenses (including, without limitation, reasonable legal fees and
expenses) incurred by Lender in connection with this Agreement and the other Facility Documents.




          (f) Lender shall have received such other approvals, opinions and documents relating to this
Agreement and the transactions contemplated hereby as it shall have reasonably requested.




          (g) Lender shall have completed due diligence satisfactory to the Lender on the Borrower and
members of Key Management.



          SECTION 3.02. Conditions Precedent to the Advance. In addition to the foregoing, the
obligation of Lender to make the Advance hereunder shall be subject to the further conditions
precedent that on the date of the Advance the following statements shall be true (and
the acceptance by Borrower of the proceeds of the Advance shall constitute a representation
and warranty by Borrower that on the date of the Advance such statements are true):





          (a) each of the representations and warranties contained in Section 4.01 are true and correct
in all material respects on and as of the date of the Advance, before and immediately after giving
effect the Advance and to the application of the proceeds on the date of the Advance, as though
made on and as of such date; and



13









 






          (b) no event has occurred and is continuing, or would result from the Advance or from the
application of the proceeds on the date of the Advance, which constitutes a Default or an Event of
Default.



ARTICLE IV




REPRESENTATIONS AND WARRANTIES




          SECTION 4.01. Representations and Warranties of Borrower. Borrower represents and
warrants to Lender as follows:





     (a) Borrower (i) is a corporation duly organized, validly existing and in good standing
under the State of Nevada, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property or in which the
conduct of its business requires it to so qualify or be licensed and where, in each case,
failure to so qualify and be in good standing could reasonably be expected to have a
Material Adverse Effect and (iii) has all requisite corporate power and authority to own or
lease and operate its properties and to carry on its business as now conducted and as
proposed to be conducted.




     (b) The execution, delivery and performance by Borrower of this Agreement, the Note and
the other Facility Documents to which it is a party and the grant of the security interest
contemplated hereby with respect to the Collateral are within its corporate powers, have
been duly authorized by all necessary corporate action, and do not (i) contravene Borrower’s
constitutive documents, (ii) contravene any contractual restriction binding on it or require
any consent under any agreement or instrument to which it or any of its Affiliates is a
party or by which any of its properties or assets is bound which has not been obtained,
(iii) result in or require the creation or imposition of any Liens upon any property or
assets of Borrower other than Liens permitted by Section 5.02, or (iv) violate any Law.
Borrower shall not be deemed to be in violation of any such Law or in breach of any
contractual restriction binding upon it, unless such violation or breach could reasonably be
expected to cause a Material Adverse Effect.




     (c) Except for any filings specifically provided for herein or in the Borrower Security
Agreement, no order, consent, approval, license, authorization or validation of, or filing,
recording or registration with, or exemption or waiver by, any Governmental Authority or any
other third-party (except such as have been obtained or made and are in full force and
effect) is required to authorize, or is required in connection to which it is a party with,
(i) the execution, delivery and performance by Borrower of any Facility
Document or (ii) the legality, validity, binding effect or enforceability of any
Facility Document to which it is a party.




     (d) This Agreement and the other Facility Documents to which Borrower is a party are,
and the Note and Warrant when delivered for value hereunder will be, legal, valid and
binding obligations of Borrower enforceable against Borrower in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,



14









 






insolvency,
reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights
generally.




     (e) The consolidated balance sheets of Borrower and its consolidated Subsidiaries as at
September 30, 2005, and the related consolidated statements of income and of cash flows for
the fiscal year ended on such date, audited by Killman, Murrell & Company, P.C., copies of
which have heretofore been furnished to Lender, are complete and correct in all material
respects and present fairly the consolidated financial condition of Borrower and its
consolidated Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the fiscal year then ended.




     (f) (i) The unaudited consolidated balance sheet of Borrower and its consolidated
Subsidiaries as at September 30, 2006, and the related unaudited consolidated statements of
income and of cash flows for the three (3)-month period ended on such date, certified by a
Responsible Officer, copies of which have heretofore been furnished to Lender, are complete
and correct in all material respects and present fairly the consolidated financial condition
of Borrower and its consolidated Subsidiaries as at such date, and the consolidated results
of their operations and their consolidated cash flows for the three (3)-month period then
ended (subject to normal year-end audit adjustments).




          (ii) The unaudited non-consolidated balance sheet of Borrower and each of its
Subsidiaries as at November 30, 2006 and the related unaudited consolidated statements of
income and of cash flows for the one-month period ended on such date, certified by a
Responsible Officer, copies of which have heretofore been furnished to Lender, are complete
and correct in all material respects and present fairly the consolidated financial condition
of Borrower and its consolidated Subsidiaries as at such date, and the consolidated results
of their operations and their consolidated cash flows for the one-month period then ended
(subject to normal year-end audit adjustments).




     (g) All such financial statements referred to in Sections 4.01(e) and 4.01(f) above,
including the related schedules and notes thereto, have been prepared in accordance with
GAAP applied consistently throughout the periods involved (except as approved by such
accountants or Responsible Officer, as the case may be, and as disclosed therein).




     (h) Neither Borrower nor any of its consolidated Subsidiaries had, at the date of the
most recent balance sheet referred to above, any material Guaranty, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term commitment,
including, without limitation, any interest rate or foreign currency swap or exchange
transaction or other financial derivative, which is not reflected in the foregoing
statements or in the notes thereto.




     (i) During the period from October 1, 2005, to and including the date hereof there has
been no sale, transfer or other disposition by Borrower or any of its consolidated
Subsidiaries of any material part of its business or property and no purchase or other
acquisition of any business or property (including any capital stock of any other



15









 






Person)
material in relation to the consolidated financial condition of Borrower and its
consolidated Subsidiaries at June 30, 2006 that has not been described in a filing with the
U.S. Securities and Exchange Commission.




     (j) Since October 1, 2005, there has been no development or event nor any prospective
development or event, which has had or could have a Material Adverse Effect.




     (k) There is no pending or threatened action or proceeding affecting Borrower or any
Subsidiary of Borrower before any court, governmental agency or arbitrator which (i) is
reasonably likely to have a Material Adverse Effect or (ii) purports to affect the legality,
validity or enforceability of this Agreement, the Borrower Security Agreement, the Note or
any other Facility Document.




     (l) Each of Borrower and its Subsidiaries is, and for at least the last five (5) years
(or since the applicable date of formation, if in existence less than five (5) years) has
been, to Borrower’s knowledge, in compliance with all Laws binding on or applicable to it
and its respective properties (whether owned or leased or otherwise occupied), except where
the failure to comply with such Laws could not reasonably be expected to have a Material
Adverse Effect.




     (m) Each of Borrower and its Subsidiaries has good and marketable title in fee simple
to, or a valid leasehold interest in, all real property it occupies, and good title to, or a
valid leasehold interest in, all of its personal property, and none of such property is
subject to any Lien, other than Liens permitted by Section 5.02. Other than Liens permitted
by Section 5.02, neither Borrower nor any of the Subsidiaries has made any registrations,
filings or recordations as a debtor in any jurisdiction evidencing a Lien in any of the
foregoing, including, but not limited to, filings of UCC-1 financing statements. Upon the
filing of a properly completed UCC-1 financing statement in the State of Nevada, Lender will
have a valid and perfected first priority security interest in the Collateral free and clear
of all Liens other than Liens permitted by Section 5.02.




     (n) Each of Borrower and its Subsidiaries owns, or is licensed to use, all trademarks,
tradenames, copyrights, technology, know-how and processes necessary for the conduct of its
business as currently conducted (the “Intellectual Property”), except where the
failure to own or license such Intellectual Property could not reasonably be expected to
have a Material Adverse Effect. No legal claim has been asserted and is pending by any
Person challenging or questioning the use of any such Intellectual Property, or the validity
or effectiveness of any such Intellectual Property, nor does Borrower know of any valid
basis for any such claim. The use of such Intellectual Property by Borrower and its
Subsidiaries does not infringe the rights of any Person, except for such claims and
infringements that, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect. Neither Borrower nor its Subsidiaries has any trademark, patent or
copyright registered with the United States Patent and
Trademark Office or Copyright Office, or the analogous filing offices of any other
jurisdiction.



16









 






     (o) Each of Borrower and its Subsidiaries has filed all income tax returns and all
other material tax returns which are required to be filed by it with Governmental
Authorities, and has paid all material taxes, assessments, claims, governmental charges or
levies imposed on it or its properties by any Governmental Authority, except for taxes
contested in good faith as to which adequate reserves have been provided in accordance with
GAAP. Neither Borrower nor any of its Subsidiaries has entered into an agreement or waiver,
or been asked to enter into an agreement or waiver, extending any statute of limitations
relating to the payment or collection of taxes owed by Borrower or such Subsidiary, or is
aware of any circumstances that would cause the taxable years or other taxable periods of
Borrower or any Subsidiary to be subject to a statute of limitations that is different from
that applicable to the taxes payable by the Borrower or any Subsidiary.




     (p) Neither Borrower nor any of its Subsidiaries is engaged principally, or as one of
its important activities, in the business of extending credit for the purpose of buying or
carrying Margin Stock.




     (q) None of the Borrower, its Subsidiaries, or their respective assets, properties and
revenues is subject to any right of immunity on the grounds of sovereignty, or not subject
to the jurisdiction of any court or from setoff or any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid of execution, execution
or otherwise) under any Law applicable to the Borrower or such Subsidiaries.




     (r) The Advance constitutes an unconditional Debt obligation of Borrower and is not
subject to subordination in favor of any other creditor of Borrower. Borrower has no senior
Debt except for Debt incurred in respect of the Advance under this Agreement and as set
forth in Schedule 3.




     (s) All information provided with respect to Borrower and its Affiliates by or on
behalf of Borrower to Lender in connection with the negotiation, execution and delivery of
this Agreement, the Note, the Borrower Security Agreement, and the other Facility Agreements
or the transactions contemplated hereby and thereby, including, but not limited to, any
financial statements of Borrower and its Subsidiaries provided to Lender is complete and
correct in all material respects, and does not contain any untrue statement of a material
fact or omit to state a fact necessary to make the statements contained therein not
misleading in light of the time and circumstances under which such statements were made.




     (t) Each material agreement to which Borrower is party is in full force and effect, and
Borrower is not in default under any provision of any material indenture, mortgage, deed of
trust, credit agreement, loan agreement or any other material agreement or instrument to
which Borrower is party or by which Borrower or any of its properties or assets is bound, in
each case, which could reasonably be expected to result in a Material Adverse Effect.




     (u) All licenses, permits, approvals, concessions or other authorizations necessary to
the conduct of the business of Borrower and each of its Subsidiaries have
been duly obtained and are in full force and effect, except where the failure to obtain
and



17









 






maintain any of the foregoing could not reasonably be expected to have a Material
Adverse Effect. There are no restrictions or requirements which limit Borrower’s ability to
lawfully conduct its business which could reasonably be expected to have a Material Adverse
Effect or perform its obligations under this Agreement or any other Facility Document




     (v) All the Subsidiaries of Borrower at the date hereof are listed on Schedule
1.



ARTICLE V




COVENANTS OF BORROWER




          SECTION 5.01. Affirmative Covenants. So long the Advance or other amount payable
hereunder remains unpaid, Borrower covenants and agrees that:





     (a) Financial Statements. Borrower shall furnish to Lender:




          (i) as soon as available after the end of each fiscal year of Borrower, but in any
event within five (5) days of the date Borrower files a Form 10-K with the Securities and
Exchange Commission, a copy of the consolidated and consolidating balance sheet of Borrower
and its consolidated Subsidiaries as at the end of such fiscal year and the related
consolidated statements of income and retained earnings and of cash flows for such fiscal
year, setting forth in each case in comparative form the figures for the previous fiscal
year, reported on without a “going concern” or like qualification or exception, or a
qualification with respect to the scope of the audit, by Killman, Murrell & Company, P.C. or
other independent certified public accounts of nationally recognized standing reasonably
acceptable to Lender;




          (ii) as soon as available after the end of each of the first three (3) Quarterly
periods of each fiscal year of Borrower, but in any event not later than five (5) days of
the date Borrower files a Form 10-Q with the Securities and Exchange Commission, the
unaudited consolidated balance sheet of Borrower and its consolidated Subsidiaries as at the
end of such Quarter and the related unaudited consolidated statements of income and retained
earnings and of cash flows of Borrower and its consolidated Subsidiaries for such Quarter
and the portion of the fiscal year through the end of such Quarter, setting forth in each
case in comparative form the figures for the corresponding period or periods of (or, in the
case of the balance sheet, as of the end of) the previous fiscal year, certified by a
Responsible Officer as being fairly stated in all material respects when considered in
relation to the consolidated financial statements of Borrower and its consolidated
Subsidiaries (subject to normal year-end audit adjustments); and




          (iii) as soon as available, but in any event not later than fifteen (15) days after the
end of each calendar month, the unaudited consolidated balance sheet and profit and loss
statements of Borrower and its consolidated Subsidiaries;




all such financial statements referred to in items (i) and (ii) above shall be complete and
correct in all material respects and to be prepared in reasonable detail and in accordance




18









 






with GAAP applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be, and
disclosed therein).




     (b) Certificates; Other Information. Borrower shall furnish to Lender:




           (i) concurrently with the delivery of the financial statements referred to in
subsection (a)(ii) of this Section, a certificate of a Responsible Officer stating that, to
the best of such Responsible Officer’s knowledge, during the relevant period, Borrower
observed or performed all of its covenants and other agreements, and satisfied every
condition applicable to it, whether contained in this Agreement, the Note or the other
Facility Documents to which it is a party, and that such Responsible Officer has no
knowledge of any Default or Event of Default, in each case, except as specified in such
certificate;




          (ii) not later than thirty (30) days following the end of each fiscal year of Borrower,
a copy of the projections by Borrower of the operating budget and cash flow budget of
Borrower and its Subsidiaries for the succeeding fiscal year, such projections to be
accompanied by a certificate of a Responsible Officer to the effect that such projections
have been prepared on the basis of sound financial planning practice and that such Officer
has no reason to believe they are incorrect or misleading in any material respect;




           (iii) within five (5) days after the same are sent, copies of all financial statements
and reports which Borrower sends to its stockholders, and within five (5) days after the
same are filed, copies of all financial statements and reports which Borrower may submit to
or file with any Governmental Authority;




          (iv) promptly, such additional financial and other information as Lender may reasonably
request from time to time.




     (c) Payment of Obligations. Borrower shall pay, discharge or otherwise satisfy
at or before maturity, or before they become delinquent, as the case may be, all payment
obligations of whatever nature under any Contractual Obligations, except where the amount or
validity thereof is currently being contested in good faith by appropriate proceedings and
reserves in conformity with GAAP with respect thereto have been provided on the books of
Borrower or its Subsidiaries, as the case may be, or where the failure to satisfy such
payment obligations could not reasonably be expected to have a Material Adverse Effect.




     (d) Conduct of Business and Maintenance of Existence. Each of Borrower and its
Subsidiaries shall (i) continue to engage in business of the same general type as now
conducted by it and keep in full force and effect its legal existence, (ii) take all
reasonable action to maintain all rights, privileges and franchises necessary for the normal
conduct of its business, except as otherwise permitted pursuant to Section 5.02, and (iii)
comply with all Contractual Obligations and Requirements of Law except to the extent that
failure to comply therewith could not in the aggregate, have a Material Adverse Effect.



19









 






     (e) Maintenance of Property; Insurance. Each of Borrower and its Subsidiaries
shall keep all property that is necessary for the conduct of its business in good working
order and condition, ordinary wear and tear excepted, and maintain with financially sound
and reputable insurance companies insurance on all its property in at least such amounts and
against at least such risks (but including in any event public liability, product liability
and business interruption) as are customarily insured against by companies engaged in the
same or similar business; and furnish to Lender, upon written request, information
reasonably requested with respect to such insurance.




     (f) Inspection of Property; Books and Records; Discussions. Borrower and each
of its Subsidiaries shall keep proper books of records and account in which full, true and
correct entries in conformity with (and to the extent required by) GAAP and all applicable
Requirements of Law shall be made of all dealings and transactions in relation to its
business and activities; and permit representatives of Lender to visit and inspect any of
its properties and examine and make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be desired and to discuss the business,
operations, properties and financial and other condition of Borrower and its Subsidiaries
with officers and employees of Borrower and its Subsidiaries during regular business hours
and with its independent certified public accountants; provided that so long as no Default
or Event of Default has occurred, any visits or inspections in excess of once per Quarter
shall be at Lender’s expense.




     (g) Notices. Borrower shall promptly give notice to Lender of:




          (i) the occurrence of any Default or Event of Default;




          (ii) any (x) default or event of default under any Contractual Obligation of Borrower
or any of its Subsidiaries or (y) litigation, investigation or proceeding which may exist at
any time between Borrower or any of its Subsidiaries and any Governmental Authority in
connection with any alleged or suspected violation of Law, which in either case, if not
cured or if adversely determined, as the case may be, could reasonably be expected to have a
Material Adverse Effect;




          (iii) any litigation, investigation or proceeding affecting Borrower or any of its
Subsidiaries, in which the amount involved is equal to or greater than One Hundred Thousand
Dollars ($100,000) and, if (A) such amount is not covered by insurance or in which
injunctive or similar relief is sought; and




          (iv) the occurrence of any other event not described above that could reasonably be
expected to result in a Material Adverse Effect.




Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible
Officer setting forth details of the occurrence referred to therein and stating what action
Borrower proposes to take with respect thereto.




     (h) Use of Proceeds. Borrower shall use the proceeds of the Advance solely to
repay the Debt listed on Schedule 3 hereto and One Million Dollars ($1,000,000) in



20









 






respect of Subordinated Debt owing to Art Feather, to fund Acquisitions and for working
capital purposes.




     (i) Fannie Mae Certification. Borrower shall submit its application for
certification from Fannie Mae as a Fannie Mae Seller/Servicer no later than January 1, 2008
and receive such approval no later than April 30, 2008. FHA will have completed their review
of the 15 test cases and confirmed approval of MBI Mortgage as an approved FHA Lender by no
later than April 30, 2007.




     (j) Minimum Coverage Ratio Test. Subject to the terms of Section 2.07,
Borrower shall be in compliance with the Minimum Coverage Ratio Test at all times.




     (k) Subordination Agreements. Borrower shall provide no later than 30 days from
the date hereof subordination agreements in form and substance satisfactory to Lender
executed and delivered by each of the creditors holding any Debt listed on Schedule 2 in
which such creditors agree to subordinate all amounts due or to become due to them for
whatever reason to the payment in full of the Lender, including in any bankruptcy or other
insolvency proceeding and agree not to take any action against the Borrower to enforce or
demand payment of any such Debt or any security therefore until the Lender has been paid in
full.



          SECTION 5.02. Negative Covenants. So long as the Advance or other amount payable
hereunder remains unpaid, Borrower covenants and agrees that Borrower shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly:





     (a) Limitation on Debt.



          Create, incur, assume or suffer to exist any Debt, except Debt in respect of the Advance, the
Note and other obligations of Borrower under this Agreement and the following:





     (i) Debt of any Subsidiary of Borrower made in favor of Borrower;




     (ii) Guaranty obligations in respect of any primary obligation constituting
Debt which is otherwise permitted hereunder;




     (iii) Debt outstanding on the date hereof and listed on Schedule 2
(other than Debt listed on Schedule 3 to be retired), and any refinancings,
refundings, renewals or extensions thereof (without increasing, or shortening the
maturity of, the principal amount thereof);




     (iv) Any Debt of MBI Mortgage, the stated purpose of which is to finance MBI
Mortgage’s origination and/or acquisition and warehousing of Mortgage Loans until
such loans are sold to a third-party or into the secondary market.



     (v) Debt representing deferred compensation to employees of Borrower or its
Subsidiaries in an amount not exceeding $50,000 in the aggregate;



21









 







     (vi) Debt incurred by the Borrower or its Subsidiaries in an Acquisition
representing obligations for the adjustment of the purchase price or similar
adjustments that have been subordinated to the amounts due to Lender hereunder
pursuant to a subordination agreement acceptable to Lender in its sole discretion;




     (vii) Debt in respect of netting services, overdraft protections and similar
arrangements in each case in connection with deposit accounts;



          (b) Limitation on Liens.




          Create, incur, assume or suffer to exist any Lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired, except for:





           (i) Liens created pursuant to the Security Agreement or any other Facility Document;




          (ii) Liens for taxes not yet due or which are being contested in good faith by
appropriate proceedings, provided that adequate reserves with respect thereto are maintained
on the books of Borrower or its Subsidiaries, as the case may be, in conformity with GAAP;




          (iii) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like
Liens arising in the ordinary course of business which secure amounts not overdue for a
period of more than sixty (60) days or which are being contested in good faith by
appropriate proceedings;




           (iv) pledges or deposits in connection with workers’ compensation, unemployment
insurance and other social security legislation and deposits securing liability to insurance
carriers under insurance or self-insurance arrangements;




          (v) deposits to secure the performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature incurred in the ordinary course of business;




           (vi) easements, rights-of-way, restrictions and other similar encumbrances imposed by
applicable law or incurred in the ordinary course of business which, in the aggregate, are
not substantial in amount and which do not in any case materially detract from the value of
the property subject thereto or materially interfere with the ordinary conduct of the
business of Borrower or such Subsidiary; and




           (vii) attachment or judgment Liens with respect to any judgments or orders not
constituting an Event of Default hereunder.




     (c) Limitations on Fundamental Changes.




     Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign,



22









 






transfer
or otherwise dispose of, all or substantially all of its property, business or assets, or
make any material change in its present method of conducting business, except:




           (i) any Subsidiary of Borrower may be merged or consolidated with or into Borrower
(provided that Borrower shall be the continuing or surviving corporation) or with or into
any one or more wholly-owned Subsidiaries of Borrower (provided that the wholly-owned
Subsidiary or Subsidiaries shall be the continuing or surviving corporation) and after
giving effect to any of such transactions, no Default or Event of Default shall exist;




           (ii) any wholly-owned Subsidiary may sell, lease, transfer or otherwise dispose of any
or all of its assets (upon voluntary liquidation or otherwise) to Borrower or any other
wholly-owned Subsidiary of Borrower;




           (iii) any wholly owned special purpose acquisition corporation may be merged with or
into any target of an Acquisition; and




           (iv) the Borrower may merge with and into a newly formed Delaware corporation for the
purpose of changing its domicile provided that such merger will not otherwise result in any
Default or Event of Default hereunder, Borrower takes all steps necessary to maintain the
continuous perfection and priority of Lender’s Liens hereunder and delivers an opinion of
counsel to Lender that all Facility Documents, the Note, Warrant and Liens are enforceable
in accordance with their terms and all Liens remain continuously perfected.




     (d) Limitation on Dividends.




     Declare or pay any dividend (other than dividends payable solely in common stock of
Borrower) on, or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition
of, any shares of any class of capital stock of Borrower or any Subsidiary or any warrants
or options to purchase any such capital stock, whether now or hereafter outstanding, or make
any other distribution in respect thereof, either directly or indirectly, whether in cash or
property or in obligations of Borrower or any Subsidiary, except (i) pursuant to the terms
of an Employee Plan, and (ii) that any wholly-owned Subsidiary may declare and pay dividends
to Borrower or, in the case of any Subsidiary that is wholly-owned by any other Subsidiary,
to such Subsidiary.




     (e) Limitations on Loans and Advances.




     Make or permit to exist any loans or advances to any Person, other than (a) extensions
of trade credit in the ordinary course of business in an amount not exceeding Fifty Thousand
Dollars ($50,000) to any one Person; (b) Mortgage Loans originated or
acquired by MBI Mortgage; or (c) subject to the prior written approval of Lender, loans
or advances made to a seller in connection with an Acquisition.



23









 






     (f) Transactions with Affiliates.




     Enter into any transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless such
transaction is (a) otherwise permitted under the Agreement, (b) in the ordinary course of
Borrower’s or such Subsidiary’s business and (c) upon fair and reasonable terms no less
favorable to Borrower or such Subsidiary, as the case may be, than it would obtain in a
comparable arm’s length transaction with a Person which is not an Affiliate.




     (g) Limitation on Negative Pledge Clauses.




     Enter into any agreement with any Person other than Lender pursuant to this Agreement
or any other Facility Document which prohibits or limits the ability of Borrower or any of
its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its
property, assets or revenues, whether now owned or hereafter acquired.




     (h) Organizational Documents.




     Amend its certificate of incorporation (except to make ministerial changes therein) or
its by-laws or issue or sell any of its equity interests unless Borrower complies with the
terms of Section 2.07. Issue any warrants, options or other securities or interests
convertible into common stock of preferred stock, other than in connection with an Employee
Plan or Acquisition, and only to the extent that Borrower otherwise complies with the terms
of the Warrants.




     (i) Fiscal Year.




     Permit the fiscal year of Borrower to end on a day other than September 30.




     (j) Limitation on Conduct of Business.




     Enter into any business either directly or through any Subsidiary except for businesses
in which the Company and its Subsidiaries are engaged on the date of this Agreement and
business directly, reasonably related or complementary to such existing businesses.



ARTICLE VI




EVENTS OF DEFAULT




          SECTION 6.01. Events of Default. If any of the following events (“Events of
Default”) shall occur and be continuing:





     (a) (i) Borrower shall fail to pay any principal of the Advance when the same becomes
due and payable; or (ii) Borrower shall fail to pay any interest on the Advance or any other
amount payable hereunder or under any other Facility Document when due and in the case of
either (i) or (ii), such failure remains unremedied for a period of eight (8) Business Days
or more; or



24









 






     (b) any representation or warranty made by Borrower herein or in any other Facility
Document shall be incorrect in any material respect when made; or




     (c) (i) Borrower shall fail to perform or observe any term, covenant or agreement
contained in this Agreement, any other Facility Document or any other agreement between
Lender and Borrower to be performed or observed by Borrower and such failure remains
unremedied for eight (8) Business Days after notice thereof shall have been given to
Borrower by Lender; or




     (d) Borrower or any of its Subsidiaries shall fail to pay any principal of any other
Debt of Borrower or such Subsidiary, as applicable, for or in respect of borrowed money
which is outstanding in an aggregate principal amount of at least Twenty Five Thousand
($25,000) Dollars when the same becomes due and payable (whether at scheduled maturity, by
required prepayment, acceleration, demand or otherwise); or any other event shall occur or
condition shall exist under any agreement or instrument relating to any other Debt and shall
continue after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate, or to permit the
acceleration of, the maturity of such other Debt; or such other Debt shall be declared to be
due and payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or
defease such other Debt shall be required to be made, in each case prior to the stated
maturity thereof; or




     (e) Borrower or any of its Subsidiaries shall generally not pay its debts as such debts
become due, or shall admit in writing its inability to pay its debts generally, or shall
make a general assignment for the benefit of creditors; or any proceeding shall be
instituted by or against Borrower or any of its Subsidiaries seeking to adjudicate it as
bankrupt or insolvent, or seeking liquidation, winding-up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property and assets and, in the case of
any such proceeding instituted against Borrower or any of its Subsidiaries, such proceeding
shall remain undismissed or unstayed for a period of thirty (30) days; or Borrower or any of
its Subsidiaries shall take any corporate or company action (as applicable), to authorize
any of the actions set forth above in this subsection; or




     (f) (i) any judgment or order for the payment of money in excess of Twenty Five
Thousand ($25,000) Dollars shall be rendered against Borrower or any of its Subsidiaries and
either (x) enforcement proceedings shall have been commenced by any creditor upon such
judgment or order which shall not have been stayed or dismissed
within thirty (30) days after the commencement of such proceedings or (y) there shall
be any period of thirty (30) consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in effect, or
(ii) any failure by Borrower or any of its Subsidiaries to satisfy when due any non-monetary
judgment if the failure so to do could reasonably be expected to have a Material Adverse
Effect; or



25









 






     (g) (i) Lender shall cease to have a first-priority, perfected security interest in,
lien on and charge over any material portion of the Collateral or (ii) any “Event of
Default” (as defined therein) under the Borrower Security Agreement shall have occurred
(after the expiration of any applicable grace period set forth therein); or




     (h) (a) Borrower shall deny any of its obligations under this Agreement or any other
Facility Document to which it is a party, (b) any Law shall purport to render invalid, or
preclude enforcement of, any provision of this Agreement or any other Facility Document, or
impair in any material respect performance of Borrower’s obligations hereunder or under any
other Facility Document or (c) any dominant authority asserting or exercising de jure or de
facto governmental or police powers shall, through any Law applicable to Borrower, cancel,
suspend or defer the obligation of Borrower to pay any amount required to be paid hereunder
or under any other Facility Document; or




     (i) any event or condition shall occur or exist, which in the reasonable judgment of
Lender, could have a Material Adverse Effect and that, if capable of being remedied, remains
unremedied for eight (8) Business Days after notice thereof shall have been given to
Borrower by Lender; or




     (j) any Governmental Authority shall have condemned, nationalized, seized, or otherwise
expropriated all or any substantial part of the property or other assets of Borrower or any
of its Subsidiaries or shall have assumed custody or control of such property or other
assets or of the business or operations of Borrower or any of its Subsidiaries or shall have
taken any action for the dissolution or disestablishment of Borrower or any of its
Subsidiaries or any action that would prevent Borrower or its officers from carrying on the
business of Borrower or a substantial part thereof, or




     (k) Borrower fails to file any Form 10-K or Form 10-Q or other periodic or required
report with the U.S. Securities and Exchange Commission by the required dates and such
failure continues for eight (8) Business Days; or




     (l) Borrower fails to cause Bank to enter into an Account Control Agreement within 90
days of the Closing Date; or




     (m)
the Borrower shall not have filed a registration statement to register any of the shares into which the Warrant is exercisable within 30 days after the closing of the New
Financing or such registration statement shall not have become effective within 180 days of
filing with the U.S. Securities and Exchange Commission.




     (n) a Change of Control shall occur;




     (o) a Change in Key Management shall occur; or




     (p) Borrower shall fail to deliver executed subordination agreements as set required in
Section 5.01(k) hereunder.



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Notwithstanding anything to the contrary herein, if the Default shall occur for the third time,
then all grace periods specified above with respect to compliance with such Default provision shall
be zero (0) days.



Following the occurrence of an Event of Default Lender may, by notice to Borrower, declare the
Advance, all interest thereon and all other amounts payable under this Agreement to be forthwith
due and payable, whereupon the Advance, all such interest and all such other amounts shall become
and be forthwith due and payable, without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by Borrower; provided, however, that
in the event of an actual or deemed entry of an order for relief with respect to Borrower under the
Bankruptcy Code or any applicable bankruptcy or similar proceeding the Advance, all such interest
and all such other amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly waived by Borrower.




ARTICLE VII




MISCELLANEOUS




          SECTION 7.01. Amendments, Etc. No amendment or waiver of any provision of this
Agreement or the Note, nor consent to any departure by Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by Lender (and the Borrower in the case of
an amendment), and then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.




          SECTION 7.02. Notices, Etc. Any notice or other communication required or permitted
pursuant to this Agreement or any of the other Facility Documents shall be deemed given (i) when
personally delivered to any officer or representative of the party to whom it is addressed, (ii) on
the earlier of actual receipt thereof or five (5) days following posting thereof by certified mail,
postage prepaid, return receipt requested, or (ii) upon actual receipt thereof when sent by a
recognized overnight delivery service, or (iii) upon actual receipt thereof when sent by facsimile
to the number set forth below with electronic confirmation of receipt, in each case addressed to
the applicable party at its address set forth below or at such other address as has been furnished
in writing by such party to the other by like notice:




          if to Borrower:



MBI Financial, Inc.

1845 Woodall Rodgers Frwy., Suite 1225

Dallas, Texas 75201

Fax: (214) 468-0001



Attn: Patrick McGeeney





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          with a copy to:




Haynes and Boone, LLP

901 Main Street, Suite 3100

Dallas, Texas 75202

Fax: (214) 651-5940

Attn: Gregory R. Samuel




          if to Lender:



Old Master Giotto Fund Limited

c/o Maricorp Services Ltd.,

4th Floor, West Wind Building

70 Harbour Drive

PO Box 2075GT

George Town, Grand Cayman

Cayman Islands, British West Indies




          with a copy to each of:



Old Master Capital, LLC

152 West 57th Street 6th Floor

New York, New York 10038

Fax: (212) 974-0404

Attn: Matt Kishlansky



Katten Muchin Rosenman LLP

575 Madison Avenue

New York, New York 10025

Fax: (212) 940-8876

Attn: Jack P. Governale, Esq.




Marilyn Selby Okoshi, Esq.



or at such other address, facsimile or telephone number or to the attention of such other
individual or department as the party to which such information pertains may hereafter specify for
the purpose in a notice to the other specifically captioned “Notice of Change of Address.”




          SECTION 7.03. No Waiver; Remedies. No failure on the part of Lender to exercise, and no delay in exercising, any right
hereunder or under the Note shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of any remedies
provided by Law. No notice to or demand on Borrower in any case shall entitle Borrower to any
other or further notice or demand in similar or other circumstances or constitute a waiver of the
rights of Lender or the holder of the Note to any other or further action in any circumstances
without notice or demand.







28









 







          SECTION 7.04. Costs, Expenses and Indemnification.



          (a) Borrower agrees to pay and reimburse on demand all reasonable costs and expenses of
Lender in connection with (i) the negotiation, preparation, execution and delivery of this
Agreement, the Borrower Security Agreement, the Note, the other Facility Documents and other
documents to be delivered hereunder or thereunder or in respect of the transactions contemplated
hereby or thereby, including the fees and out-of-pocket expenses of its counsel, and (ii) any
amendment, consent or waiver with respect to any of the foregoing. Borrower further agrees to pay
on demand all costs and expenses, if any (including, but not limited to, reasonable counsel fees
and expenses), incurred by Lender in connection with administration, modification and
supplementation of this Agreement, the Borrower Security Agreement, the Note, the other Facility
Documents, the Collateral and the collateral under the Subsidiary Security Agreement, and the
enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement, the
Borrower Security Agreement, the Note, the other Facility Documents and the other documents to be
delivered hereunder or in respect of the transactions contemplated hereby, including, but not
limited to, reasonable counsel fees and expenses in connection with the enforcement of rights
under this subsection and under any other Facility Document and any fees and expenses of Lender in
any bankruptcy or insolvency proceeding in respect of Borrower.




          (b) (i) Borrower shall indemnify Lender and each of its Affiliates and their respective
officers, directors, employees, agents and advisors (each, an “Indemnified Party”) from
and against any and all claims, damages, losses, liabilities and expenses (including, but not
limited to, fees and disbursements of counsel) that may be incurred by or asserted or awarded
against any Indemnified Party, in each case arising out of or in connection with or relating to
any investigation, litigation or proceeding or the preparation of any defense with respect thereto
arising out of or in connection with or relating to this Agreement, the Borrower Security
Agreement, the Note, any other Facility Document or the transactions contemplated hereby or
thereby, or any consent (or lack of consent) rendered by Lender in connection with Collateral and
the collateral under the Subsidiary Security Agreement (including, but not limited to,
substitution or reallocation), or any use made or proposed to be made of the proceeds of the
Advance, whether or not such investigation, litigation or proceeding is brought by Borrower, any
of its owners or creditors, an Indemnified Party or any other Person, or an Indemnified Party is
otherwise a party thereto, and whether or not any of the conditions precedent set forth in Article
III are satisfied or the transactions contemplated by this Agreement are consummated, except to
the extent such claim, damage, loss, liability or expense results from such Indemnified Party’s
fraud, gross negligence or willful misconduct.




          SECTION 7.05. Binding Effect; Assignment. (a) This Agreement shall become effective
when it shall have been executed by Borrower and Lender. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby. Borrower shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of Lender. Lender may not assign or otherwise
transfer its rights or obligations hereunder except in accordance with Section 7.05(b).




          (b) Lender may, upon notice to Borrower, assign to any of its Affiliates all or a portion of
its rights and obligations under this Agreement (including, but not limited to, all or a portion
of the Advance and the Note); provided that no more than four (4) Affiliates may take





29









 







assignment
of Lender’s rights and obligations hereunder. The parties to each such assignment shall execute
and deliver an assignment, together with the Note subject to such assignment, whereupon such
assignee, to the extent of the assigned interest, shall be a “Lender” hereunder. Upon its receipt
of an assignment executed by an assignor and an assignee, together with the Note subject to such
assignment, the Borrower shall execute and deliver to the Lender in exchange for the surrendered
Note a new Note to the order of such assignee and, if it has retained an interest in the Advance,
to the order of such assignor. Such new Note(s) shall be in an aggregate principal amount equal
to the aggregate principal amount of such surrendered Note.




          SECTION 7.06. Governing Law; Submission to Jurisdiction. This Agreement and the Note
shall be governed by, and construed in accordance with, the law of the State of New York, exclusive
of its conflict of laws provisions other than Section 5-1401 and Section 5-1402 of the New York
General Obligations Law. Borrower hereby submits to the nonexclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New York state court sitting
in New York City for the purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. Borrower irrevocably consents to the service of
any and all process in any legal proceeding by the mailing of copies of such process to Borrower at
its address set forth in Section 7.02. Borrower irrevocably waives, to the fullest extent
permitted by applicable law, any objection that it may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim that any such proceeding brought
in such a court, has been brought in an inconvenient forum. A final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Borrower further irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to Borrower at its address
specified in or pursuant to Section 7.02, such service to become effective thirty (30) days after
such mailing. Nothing herein shall affect the right of Lender or the holder of the Note to serve
process in any other manner permitted by Law or to commence legal proceedings or otherwise proceed
against Borrower in any other jurisdiction. To the extent that Borrower has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid of execution, execution or
otherwise) with respect to itself or its property, Borrower hereby irrevocably waives such immunity
in
respect of its obligations under this Agreement, the Borrower Security Agreement, the Note and
the other Facility Documents and, without limiting the generality of the foregoing, agrees that the
waivers set forth herein shall have the fullest scope permitted under the Foreign Sovereign
Immunities Act of 1976 of the United States and are intended to be irrevocable for purposes of such
Act.




          SECTION 7.07. Severability. In case any provision in this Agreement or in the Note
shall be held to be invalid, illegal or unenforceable, such provision shall be severable from the
rest of this Agreement or the Note, as the case may be, and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or impaired thereby.




          SECTION 7.08. Execution in Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each of





30









 







which when so
executed shall be deemed to be an original and all of which taken together shall constitute one and
the same agreement. Delivery of an executed counterpart of a signature page of this Agreement by
telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.




          SECTION 7.09. Survival. The obligations of Borrower herein shall remain in full force
and effect during the term of this Agreement. The obligations of Borrower under Sections 2.09,
7.04, 7.12 and 7.13 shall survive the termination of this Agreement. In addition, each
representation and warranty made, or deemed to be made by any acceptance by Borrower of the
proceeds of such borrowing shall constitute a representation and warranty by Borrower that on the
date of such borrowing such statements are true, herein or pursuant hereto shall survive the making
of such representation and warranty, and Lender shall not be deemed to have waived, by reason of
making the Advance, any Default or Event of Default that may arise by reason of such representation
or warranty proving to have been false or misleading, notwithstanding that Lender may have had
notice or knowledge or reason to believe that such representation or warranty was false or
misleading at the time such extension of credit was made.




          SECTION 7.10. Confidentiality. Lender will not, without the prior written consent of
Borrower (which shall not be unreasonably withheld), disclose (other than to its Affiliates and to
its and its Affiliates’ directors, employees, auditors and counsel, in each case only to the extent
necessary for Lender’s administration and enforcement of this Agreement) any Confidential
Information with respect to Borrower furnished to it under this Agreement, except (i) as may be
required to comply with any applicable Law or pursuant to legal process or otherwise as required in
connection with litigation (and Lender agrees that it will, to the extent reasonably practicable
and if permitted by applicable Law, give Borrower prior written notice of such disclosure
reasonably sufficient to permit Borrower to contest such disclosure), (ii) to the extent requested
by any Governmental Authority (and Lender agrees that it will, to the extent reasonably practicable
and if permitted by applicable Law, give Borrower prior written notice of such disclosure
reasonably sufficient to permit
Borrower to contest such disclosure) and (iii) in connection with Lender’s enforcement of its
rights hereunder after an Event of Default has occurred and is continuing. The obligations of
Lender hereunder with regard to any Confidential Information furnished to it shall terminate one
year after receipt of such information.




          SECTION 7.11. No Fiduciary Relationship. Borrower acknowledges that Lender does not
have a fiduciary relationship with, or fiduciary duty to, Borrower arising out of or in connection
with this Agreement or the Note, and the relationship between Lender and Borrower is solely that of
creditor and debtor. This Agreement does not create a joint venture among the parties.




          SECTION 7.12. Right of Setoff. Upon the occurrence of an Event of Default, Lender is
hereby authorized at any time or from time to time, without presentment, demand, protest or other
notice of any kind to Borrower or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and apply any and all deposits (general or special) and any
other indebtedness at any time held or owing by Lender or any of its Affiliates to or for the
credit or the account of Borrower against and on account of the obligations and liabilities of
Borrower to Lender under this Agreement or under any of the other Facility Documents, including,
but not limited to, all claims of any nature or description arising out of or





31









 







connected with this
Agreement or any other Facility Document, irrespective of whether or not Lender shall have made any
demand hereunder and although said obligations, liabilities or claims, or any of them, shall be
contingent or unmatured.




          SECTION 7.13. Judgment Currency. If a judgment, order or award is rendered by any
court or tribunal for the payment of any amounts owing to Lender under this Agreement or any other
Facility Document or for the payment of damages in respect of a judgment or order of another court
or tribunal for the payment of such amount or damages, such judgment, order or award being
expressed in a currency (the “Judgment Currency”) other than Dollars, Borrower agrees (a)
that its obligations in respect of any such amounts owing shall be discharged only to the extent
that on the Business Day following Lender’s receipt of any sum adjudged in the Judgment Currency
Lender may purchase Dollars with the Judgment Currency and (b) to indemnify and hold harmless
Lender against any deficiency in terms of the Dollars in the amounts actually received by Lender
following any such purchase (after deduction of any premiums and costs of exchange payable in
connection with the purchase of, or conversion into, Dollars). The indemnity set forth in the
preceding sentence shall (notwithstanding any judgment referred to in the preceding sentence)
constitute an obligation of Borrower separate and independent from its other obligations hereunder,
shall apply irrespective of any indulgence granted by Lender.




          SECTION 7.14. Replacement of Promissory Note. Upon receipt of (a) an affidavit of an
officer of Lender as to the loss, theft, destruction or mutilation of the Note or any other
security document which is not of public record, and, in the case of any such loss, theft,
destruction or mutilation, upon cancellation or
deemed cancellation of such Note or such other security document and (b) a customary agreement
of indemnification from Lender with respect to potential liabilities with respect to the
replacement thereof of such Note, Borrower shall promptly issue in lieu thereof a replacement note
or other security document in the same principal amount and otherwise of like tenor.




          SECTION 7.15. Headings Descriptive. The headings of the sections and subsections of
this Agreement are inserted for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement.




          SECTION 7.16. Entire Agreement. This Agreement and the other Facility Documents
constitute the entire agreement between the parties hereto relating to the subject matter hereof
and supersede any and all previous agreements and understandings, oral or written, between the
parties hereto relating to the subject matter hereof.




          SECTION 7.17. WAIVER OF JURY TRIAL. EACH OF BORROWER AND LENDER HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE, THE OTHER FACILITY
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.




[END OF TEXT]




32









 








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




	 	 	 	 	 
	MBI FINANCIAL INC.	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Name:
	 	 
	 

	 	Title:	 	 
	 
	 	 	 	 
	OLD MASTER GIOTTO FUND LIMITED	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Name:
	 	 
	 

	 	Title:	 	 






33









 






Exhibit A – Form of Note




NON-NEGOTIABLE PROMISSORY NOTE




			
	 	 	 
	$5,000,000
	 	Dated: December 27, 2006






          FOR VALUE RECEIVED, the undersigned, MBI FINANCIAL INC., a Nevada corporation
(“Borrower”), HEREBY PROMISES TO PAY to OLD MASTER GIOTTO FUND LIMITED, a Cayman Islands
exempted company (the “Lender”), the principal sum of FIVE MILLION DOLLARS ($5,000,000)
(the “Advance”), on the dates and in the principal amounts provided in the Credit Agreement
(as defined below).




          Borrower promises to pay interest on the unpaid principal amount of the Advance to Borrower
from the date of the Advance until such principal amount is paid in full, at such interest rates,
and payable at such times, as are specified in the Credit Agreement. Both principal and interest
are payable in lawful money of the United States of America to Lender, in immediately available
funds.




          This Non-Negotiable Promissory Note is the Note referred to in, and is entitled to the
benefits of, among other things, the Credit Agreement dated as of December 27, 2006 (as from time
to time amended, supplemented or otherwise modified, the “Credit Agreement”) between
Borrower and Lender and the Borrower Security Agreement between Borrower and Lender, dated as of
December 27, 2006 (as from time to time amended, supplemented or otherwise modified, the
“Security Agreement”), as and to the extent provided therein. The Credit Agreement, among
other things, (i) provides for the making of the Advance by Lender to Borrower which is evidenced
by this Non-Negotiable Promissory Note, and (ii) contains provisions for acceleration of the
maturity hereof upon the happening of certain events therein specified.




          Borrower hereby waives presentment, demand, protest and notice of any kind. No failure to
exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall
operate as a waiver of such rights.




          This Non-Negotiable Promissory Note shall be governed by, and construed in accordance with,
the law of the State of New York, exclusive of its conflict of laws provisions other than Section
5-1401 of the New York General Obligations Law.




	 	 	 	 	 
	MBI FINANCIAL INC.	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Name:
	 	 
	 

	 	Title:	 	 






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Exhibit B — Form of Legal Opinion of Counsel to Borrower





35









 








Exhibit C — Form of Borrower Security Agreement





36









 








Exhibit D — Form of Warrant




37









 








Annex A — Payment Schedule




	 	 	 	 	 	 	 	 	 
	13-Dec-06
	 	Initial Principal	 	$	5,000,000.00	 
	01-Jan-07
	 	 	 	 	 	$	5,060,000.00	 
	01-Feb-07
	 	1st monthly interest + Principal	 	$	5,135,900.00	 
	01-Mar-07
	 	2nd monthly interest + Principal	 	$	5,211,800.00	 
	01-Apr-07
	 	3rd monthly interest + Principal	 	$	5,289,977.00	 
	01-Apr-07
	 	1st ‘Quarterly’ Payment	 	$	914,977.00	 
	 
	 	 	 	 	 	 	 	 
	 
	 	New Principal	 	$	4,375,000.00	 
	01-May-07
	 	4th monthly interest + Principal	 	$	4,440,625.00	 
	01-Jun-07
	 	5th monthly interest + Principal	 	$	4,507,234.38	 
	01-Jul-07
	 	6th monthly interest + Principal	 	$	4,574,842.89	 
	01-Jul-07
	 	2nd ‘Quarterly’ Payment	 	$	824,842.89	 
	 
	 	 	 	 	 	 	 	 
	 
	 	New Principal	 	$	3,750,000.00	 
	01-Aug-07
	 	7th monthly interest + Principal	 	$	3,806,250.00	 
	01-Sep-07
	 	8th monthly interest + Principal	 	$	3,863,343.75	 
	01-Oct-07
	 	9th monthly interest + Principal	 	$	3,921,293.91	 
	01-Oct-07
	 	3rd ‘Quarterly’ Payment	 	$	796,293.91	 
	 
	 	 	 	 	 	 	 	 
	 
	 	New Principal	 	$	3,125,000.00	 
	01-Nov-07
	 	10th monthly interest + Principal	 	$	3,171,875.00	 
	01-Dec-07
	 	11th monthly interest + Principal	 	$	3,219,453.13	 
	01-Jan-08
	 	12th monthly interest + Principal	 	$	3,267,744.92	 
	01-Jan-08
	 	4th ‘Quarterly’ Payment	 	$	767,744.92	 
	 
	 	 	 	 	 	 	 	 
	 
	 	New Principal	 	$	2,500,000.00	 
	01-Feb-08
	 	13th monthly interest + Principal	 	$	2,537,500.00	 
	01-Mar-08
	 	14th monthly interest + Principal	 	$	2,575,562.50	 
	01-Apr-08
	 	15th monthly interest + Principal	 	$	2,614,195.94	 
	01-Apr-08
	 	5th ‘Quarterly’ Payment	 	$	739,195.94	 
	 
	 	 	 	 	 	 	 	 
	 
	 	New Principal	 	$	1,875,000.00	 
	01-May-08
	 	16th monthly interest + Principal	 	$	1,903,125.00	 
	01-Jun-08
	 	17th monthly interest + Principal	 	$	1,931,671.88	 
	01-Jul-08
	 	18th monthly interest + Principal	 	$	1,960,646.95	 
	01-Jul-08
	 	6th ‘Quarterly’ Payment	 	$	710,646.95	 
	 
	 	 	 	 	 	 	 	 
	 
	 	New Principal	 	$	1,250,000.00	 
	01-Aug-08
	 	19th monthly interest + Principal	 	$	1,268,750.00	 
	01-Sep-08
	 	20th monthly interest + Principal	 	$	1,287,781.25	 
	01-Oct-08
	 	21st monthly interest + Principal	 	$	1,307,097.97	 
	01-Oct-08
	 	7th ‘Quarterly’ Payment	 	$	682,097.97	 






38









 






	 	 	 	 	 	 	 	 	 
	 
	 	New Principal	 	$	625,000.00	 
	01-Nov-08
	 	22nd monthly interest + Principal	 	$	634,375.00	 
	01-Dec-08
	 	23rd monthly interest + Principal	 	$	643,890.63	 
	01-Jan-09
	 	24th monthly interest + Principal	 	$	653,548.98	 
	01-Jan-09
	 	8th ‘Quarterly’ Payment	 	$	653,548.98	 






39









 






Annex B – Quarterly Payments



On February 1, 2007, fifteen (15%) percent of the second Quarterly Payment;



On March 1, 2007, twenty (20%) percent of the second Quarterly Payment;



On April 1, 2007, twenty (20%) percent of the second Quarterly Payment;



On May 1, 2007, twenty (20%) percent of the second Quarterly Payment; and



On June 1, 2007, twenty-five (25%) percent of the second Quarterly Payment.



On July 1, 2007 and the first day of each calendar month thereafter,



In the first month of a Quarter, twenty (20%) percent of the Quarterly Payment next due; and



In each of the last two months of the Quarter, forty (40%) percent of the Quarterly Payment next
due.




40









 








Schedule 1 – Subsidiaries




MBI Mortgage, Inc.




41









 








Schedule 2 – Debt




	 	 	 	 	 
	Name	 	Amount	 
	Art Feather
	 	$	1,500,000	 
	Art Feather Dec. Bridge
	 	$	425,000	 
	Brett Faryniarz
	 	 	1,018,668	 
	Spencer Clark Long-term
	 	 	1,500,000	 
	Fradella
	 	 	110,000	 
	Thompson
	 	 	110,000	 
	Webb
	 	 	49,708	 
	RG America
	 	 	75,000	 
	Spencer Clark — Short-Term
	 	 	150,000	 
	William Marshall — Dallas Acq.
	 	 	100,000	 
	 
	 	 	 
	 
	 	 	 	 
	 
	 	$	5,038,376	 
	 
	 	 	 






42









 






Schedule 3 – Senior Debt 




Debt Schedule




	 	 	 	 	 
	Name	 	Amount	 
	Art Feather
	 	$	1,000,000	 
	Art Feather Dec. Bridge
	 	$	425,000	 
	Spencer Clark Long-term
	 	 	1,500,000	 
	 
	 	 	 
	 
	 	 	 	 
	 
	 	$	2,925,000	 
	 
	 	 	 






43