TABLE OF CONTENTS       Page RECITALS  1      AGREEMENT  1      1. DEFINITIONS  1 1.1. “Account Debtor”  1 1.2. “Adjusted Income (Loss) from Operations”  1 1.3. “Advance”  1 1.4. “Affiliate”  2 1.5. “Banking Day”  2 1.6. “Blocked Account”  2 1.7. “Borrower’s knowledge”  2 1.8. “Borrower”  2 1.9. “Borrowing Base Certificate”  2 1.10. “Capital Expenditure”  2 1.11. “Code”  2 1.12. “Collateral”  2 1.13. “Compliance Certificate”  2 1.14. “Corporate/LLC Guarantor”  3 1.15. “Corporate/LLC Guaranty”  3 1.16. “Deposit Account”  3 1.17. “Default”  3 1.18. “Eligible Receivables”  3 1.19. “Environment”  5 1.20. “Environmental Laws”  5 1.21. “Equipment”  5 1.22. “ERISA”  6 1.23. “Events of Default”  6 1.24. “Fiscal Year”  6 1.25. “General Intangibles”  6 1.26. “Generally Accepted Accounting Principles”  6 1.27. “Governmental Rules”  6 1.28. “Guarantors”  6 1.29. “Guaranty”  6 1.30. “Indebtedness”  6 1.31. “Individual Guarantor”  6 1.32. “Individual Guaranty”  6 1.33. “Inventory”  7 1.34. “Investment Property”  7 1.35. “LIBOR”  7 1.36. “Lien”  7 1.37. “Loan Documents”  7 
 
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       Page 1.38. “Loans”  7 1.39. “Lockbox”  7 1.40. “Material Adverse Effect”  7 1.41. “Maximum Facility”  7 1.42. “Notice of Borrowing”  8 1.43. “Obligations”  8 1.44. “Other Collateral”  8 1.45. “Person”  8 1.46. “Plan”  8 1.47. “Prime Rate”  8 1.48. “Property”  8 1.49. “Receivables”  8 1.50. “Reconciliation Report”  9 1.51. “Reportable Event”  9 1.52. “Revolving Advances”  9 1.53. “Revolving Loan”  9 1.54. “Revolving Note”  9 1.55. “Solvent”  9 1.56. “Subordination Agreements”  9 1.57. “Termination Date”  9 1.58. “This Agreement”  9 1.59. “UCC”  10 1.60. “Validity/Support Guarantor”  10 1.61. “Validity/Support Guaranty”  10 1.62. “Voting Stock”  10      2. THE REVOLVING LOAN  10 2.1. Revolving Advances  10 2.2. Overline  10 2.3. Reserves  10 2.4. Manner of Borrowing  11 2.5. Evidence of Borrower’s Obligations  11 2.6. Payments  12 2.7. Collections/Balance/Statements/etc.  12 2.8. Payment on Termination Date  13      3. LENDER’S COMPENSATION  13 3.1. Interest on Revolving Advances; Costs and Expenses  13 3.2. Commitment and Closing Fee  13 3.3. Facility Fee  13 3.4. Collateral Management Fee  13 3.5. Field Examination Fees  14 3.6. Prepayment Premium  14 3.7. Computation of Interest and Fees  14 3.8. Payment of Interest and Fees  14 
 
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       Page 4. APPLICATION OF PROCEEDS  14      5. SECURITY INTEREST IN COLLATERAL  14      6. RECOURSE TO SECURITY  15      7. INDUCING REPRESENTATIONS  16 7.1. Organization and Qualifications  16 7.2. Corporate Name and Address  16 7.3. Corporate Structure  16 7.4. Legally Enforceable Agreement  16 7.5. Solvent Financial Condition  16 7.6. Financial Statements  17 7.7. Joint Ventures  17 7.8. Real Estate  17 7.9. Patents, Trademarks, Copyrights and Licenses  17 7.10. Existing Business Relationship  17 7.11. Investment Company Act: Federal Reserve Board Regulations  17 7.12. Tax Returns  18 7.13. Litigation  18 7.14. Receivables Locations  18 7.15. Inventory Locations  18 7.16. Equipment List and Locations  18 7.17. Title Liens  18 7.18. Existing Indebtedness  19 7.19. ERISA Matters  19 7.20. Occupational Safety and Health  19 7.21. Environmental Matters  19 7.22. Labor Disputes  20 7.23. Intellectual Property  20 7.24. Location of Bank and Securities Accounts  20 7.25. Compliance With Laws  20 7.26. No Other Violations  20 7.27. Survival of Representations and Warranties  21      8. FINANCIAL STATEMENTS AND INFORMATION;CERTAIN NOTICES TO LENDER  21 8.1. Borrowing Base Certificate  21 8.2. Monthly Reports  21 8.3. Annual Financial Statements  21 8.4. Financial Statements  21 8.5. Tax Returns  22 
 
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       Page 8.6. Projections  22 8.7. Customer Lists  22 8.8. Insurance  22 8.9. Notice of Event of Default and Adverse Business Developments  22 8.10. Other Information   23      9. ACCOUNTING  23      10. WARRANTIES WITH RESPECT TO RECEIVABLES  24      11. SPECIAL PROVISIONS WITH RESPECT TO RECEIVABLES ANDRELATED MATTERS  24 11.1. Confirmatory Written Assignments  24 11.2. Notice of Certain Events  24 11.3. Communication with Account Debtors  25      12. AFFIRMATIVE COVENANTS   25 12.1. Business and Existence  25 12.2. Trade Names  25 12.3. Transactions with Affiliates  25 12.4. Taxes  25 12.5. Compliance with Laws  25 12.6. Maintain Properties: Insurance  26 12.7. Business Records  26 12.8. Litigation  26 12.9. Damage or Destruction of Collateral  26 12.10. Name Change  26 12.11. Access to Books and Records  27 12.12. Solvent  27 12.13. Compliance With Environmental Laws  27 12.14. Compliance with ERISA and other Employment Laws  27 12.15. Proceeds of Collateral  27 12.16. Delivery of Documents  27 12.17. United States Contracts  27 12.18. Accounting System  27 12.19. Sales Terms  27      13. NEGATIVE COVENANTS  28 13.1. Indebtedness  28 13.2. Mergers; Consolidations; Acquisitions  28 13.3. Sale or Disposition  28 13.4. Defaults  28 13.5. Limitations on Liens  29 13.6. Dividends and Distributions  29 
 
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       Page 13.7. Borrowers’ Names and Offices  29 13.8. Guaranties; Contingent Liabilities  29 13.9. Removal of Collateral  29 13.10. Transfer of Notes or Accounts  30 13.11. Settlements  30 13.12. Modification of Governing Documents  30 13.13. Change of Business  30 13.14. Change of Accounting Practices  30 13.15. Inconsistent Agreement  30 13.16. Loan or Advances  30 13.17. Investments  30 13.18. Adjusted Income (loss) from Operations  30 13.19. Capital Expenditures  30      14. FURTHER RIGHTS OF LENDER  31 14.1. Lender’s Right to Take Certain Actions  31 14.2. Lender’s Right to Perform Borrower’s Obligations  31 14.3. Lender’s Right of Set-Off  32      15. CONDITIONS PRECEDENT; CLOSING  32 15.1. Conditions Precedent  32 15.2. Conditions to All Extensions of Credit  33      16. TERM  33 16.1. Revolving Loan Availability  33 16.2. Voluntary Termination  33      17. EVENTS OF DEFAULT  34 17.1. Defaults  34 17.2. Obligations Immediately Due  35 17.3. Continuation of Security Interests  35      18. REMEDIES OF LENDER  36 18.1. Rights Under UCC  36 18.2. Collections; Modification of Terms  36 18.3. Notification of Account Debtors  37 18.4. Insurance  37 18.5. Waiver of Rights by Borrowers  37 18.6. Lender’s Rights  37      19. GENERAL PROVISIONS  37 19.1. Rights Cumulative  37 19.2. Successors and Assigns  38 19.3. Notice  38 
 
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       Page 19.4. Strict Performance  38 19.5. Amendments  38 19.6. Waiver  39 19.7. Conflict of Laws  39 19.8. Expenses  39 19.9. Reimbursements Charged to Revolving Loan  40 19.10. Waiver of Right to Jury Trial  40      20. INDEMNIFICATION BY BORROWER/WAIVER OF CLAIMS  40 20.1. Indemnification  40 20.2. Savings Clause for Indemnification  41 20.3. Waiver  41      21. MISCELLANEOUS  41 21.1. Entire Agreement; Amendments; Lender’s Consent  41 21.2. Cross Default; Cross Collateral  42 21.3. Execution in Counterparts  42 21.4. Severability of Provisions  42 21.5. Table of Contents; Headings  42 21.6. Exhibits and Schedules  42 21.7. Consent to Jurisdiction  42 
 
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   **Exhibits:**     Exhibit A Borrowing Base CertificateExhibit B Compliance CertificateExhibit C Notice of Borrowing   **Schedules:**     Schedule 7.2 TradenamesSchedule 7.3 Affiliates and SubsidiariesSchedule 7.8 Real EstateSchedule 7.9 Patents & Trademarks/NamesSchedule 7.13 LitigationSchedule 7.14 Receivables LocationsSchedule 7.15 Inventory LocationsSchedule 7.16 Equipment LocationsSchedule 7.17 LiensSchedule 7.18 IndebtednessSchedule 7.21 Environmental MattersSchedule 7.24 List of Bank AccountsSchedule 7.27 Excluded Matters
 
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**LOAN AND SECURITY AGREEMENT****THIS LOAN AND SECURITY AGREEMENT**made as of December 29, 2009, by and between**HELIOS & MATHESON NORTH AMERICA INC.,**a Delaware corporationauthorized to do business in New York and having its principalexecutive office and principal place of business at 200 Park AvenueSouth, Suite 901, New York, New York 10003 (hereinafter called**“Borrower”**)and**KELTIC FINANCIAL PARTNERS II, LP,**a Delaware limited partnership,with a place of business at 580 White Plains Road, Suite 610,Tarrytown, NY 10591 (**“Lender”**).**RECITALS:**A. **WHEREAS,**Borrower has requested that Lender extend a **ONE MILLION AND NO/100 ($1,000,000)DOLLAR**revolving credit facility to Borrower, the proceeds of which will be used to provideBorrower with working capital support;B. Lender is willing to so extend the credit facility on the terms and subject to theconditions set forth in this Agreement.**AGREEMENT:****1. ****DEFINITIONS****.**As used herein, the following terms shall have the following meanings(terms defined in the singular shall have the same meaning when used in the plural and viceversa):**1.1. “****Account Debtor****”**shall mean any Person who is or may become obligated under oron account of any Receivable.**1.2. “Adjusted Income (Loss) from Operations” shall mean the consolidated income(loss) from operations of Borrower and its subsidiaries, less interest expense and after addingback any stock compensation expense, all calculated in accordance with Generally AcceptedAccounting Principles.**1.3. “****Advance****”**shall mean any loan or advance by Lender with respect to the RevolvingLoan.
 
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**1.4. “****Affiliate****”**shall mean any Person: (i) which directly or indirectly through oneor more intermediaries controls, or is controlled by, or is under common control with, Borrower;(ii) which beneficially owns or holds 20% or more of any class of the Voting Stock of Borrower;or (iii) 20% or more of the Voting Stock of which is beneficially owned or held by Borrower;provided, however, that the inactive entities T3 Media, Inc., Always-On Software, Inc., andMethoda, Ltd. shall not be deemed to be Affiliates. For purposes hereof, “control” means thepossession, directly or indirectly, of the power to direct or cause the direction of themanagement and policies of a Person, whether through the ownership of Voting Stock or otherequity interests, by contract or otherwise.**1.5.“****Banking Day****”**shall mean any day other than a Saturday or Sunday or other day onwhich commercial banks are authorized or required to close in New York State and, when used inconnection with a loan on which interest is based on LIBOR, the term “Banking Day” shall alsoexclude any day on which banks are not open for dealings in dollar deposits in the London interbankmarket.**1.6. “****Blocked Account****”**shall mean account #590978403 maintained at HSBC Bank, ABA #022000020, The Plaza/Rochester Office, 1 HSBC Plaza, Rochester, NY, Account Name: Keltic FinancialPartners FBO Helios and Matheson, opened and held pursuant to the blocked account agreement amongBorrower, Lender and HSBC Bank (or other financial institution chosen by Borrower with the consentof Lender) into which payments of Receivables are deposited.**1.7. “****Borrower’s knowledge****”**shall mean the actual knowledge of each of Borrower’sdirectors, officers and key employees after due inquiry under the circumstances.**1.8. “****Borrower****”**shall have the meaning specified in the preamble hereto.**1.9. “****Borrowing Base Certificate****”**shall mean a borrowing base certificatesubstantially in the form of **Exhibit “A”** attached hereto.**1.10. “****Capital Expenditure****”**shall mean, as determined in accordance with GenerallyAccepted Accounting Principles, the dollar amount of gross expenditures (including obligationsunder capital leases) made or incurred for fixed assets, real property, plant and equipment, andall renewals, improvements and replacements thereto (but not repairs thereof) during any period.**1.11. “****Code****”**shall mean the Internal Revenue Code of 1986, as from time to timeamended.**1.12. “****Collateral****”**shall mean all of the property and interests in property describedin **Article 5** hereof, except as set forth in **Article 5(l)**, and all other personal Property ofBorrower and all interests of Borrower in personal Property that now or hereafter secures thepayment and performance of any of the Obligations pursuant to any of the Loan Documents orotherwise, including, without limitation, any proceeds and insurance proceeds of the foregoing.A**1.13. “****Compliance Certificate****”**shall mean the certificate substantially in the form of**Exhibit “B”** attached hereto and made a part hereof.
 
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**1.14. “****Corporate/LLC Guarantor****”**is a collective term which means each and all of thefollowing: (a) **IOT;**and  (b) any other corporation, limited liability company, partnership(whether general or limited) or other entity which hereafter guarantees thepayment of all or a portion of the Obligations, it being understood that on thedate hereof, there is no Corporate/LLC Guarantor other than **IOT.****1.15. “****Corporate/LLC Guaranty****”**is a collective term which means each and all of thefollowing: (a) **IOT’s**instrument of written guaranty dated on or about evendate herewith and by which **IOT**guarantees payment and performance of theObligations owed to Lender by Borrower;  (b) any other guaranty of the payment of all or a portion of theObligations hereafter executed by any Corporate/LLC Guarantor; and  (c) all amendments, modifications or supplements of any of theforegoing guaranties made from time to time hereafter.**1.16. “****Deposit Account****”**shall have the meaning given to such term in the UCC and shallinclude the Blocked Account.**1.17. “****Default****”**shall mean an event or condition the occurrence of which would, withthe lapse of time or the giving of notice, or both, become an Event of Default, whether or notLender has declared an Event of Default to have occurred.**1.18. “****Eligible Receivables****”**shall mean and include, only Receivables of Borrowercomprised of time and material invoices that are approved by the Account Debtor, the records andaccounts of which are located in compliance with **Section 7.14** hereof, that are otherwise acceptableto Lender in Lender’s discretion, arise out of sales in the ordinary course of business made byBorrower to a Person which is not an Affiliate of Borrower nor an employee of Borrower norcontrolled by an Affiliate of Borrower, which are not in dispute and which do not then violate anywarranty with respect to Receivables set forth in **Article 11**of this Agreement. No Receivable shallbe an Eligible Receivable if it is more than ninety (90) days past original invoice date. WhileEligible Receivables shall consist only of Receivables of Borrower comprised of time and materialinvoices that are approved by the Account Debtor, Lender may treat any Receivable as ineligible if: (a) any Receivable arising out of an invoice for software,training, maintenance, bill-in advance, progress billing and fixed priceprojects, provided, however, that notwithstanding the foregoing, a Receivablearising out of a fixed price project may be considered an Eligible Receivableif all other criteria ofeligibility set forth in this Section are met and if, in addition, (1) Lender is given atrue and complete final contract for the applicable fixed price project if it is inexcess of $200,000 and (2) all invoices have been accepted in writing by the applicableAccount Debtor and (3) if any previous invoice under the applicable fixed price projecthas not been paid, no subsequent invoice will be considered eligible until all previousinvoices have been paid; or
 
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 (b)  any warranty contained in this Agreement with respect to an Eligible Receivable or anywarranty with respect to such Receivable contained in this Agreement has been breached; or  (c)  the Account Debtor or any Affiliate of the Account Debtor has disputed liability, or made anyclaim with respect to any other Receivable due from such customer or Account Debtor toBorrower, with respect to any Receivable which Lender, in its discretion, deems material; or  (d)  the Account Debtor has filed a case for bankruptcy or reorganization under the BankruptcyCode, or if any such case under the Bankruptcy Code has been filed against the Account Debtor,or if the Account Debtor has assigned for the benefit of creditors, or if the Account Debtorhas failed, suspended business operations, become insolvent, or had or suffered a receiver ora trustee to be appointed for all or a significant portion of its assets or affairs; or  (e)  if the Account Debtor is also a supplier to or creditor of Borrower or if the Account Debtorhas or asserts any right of any offset with respect to any Receivable or asserts any claim orcounterclaim against Borrower with respect to any Receivable or otherwise; or  (f)  the sale is to an Account Debtor outside the United States or Canada, unless the sale is onletter of credit, acceptance or other terms acceptable to Lender; or  (g)  fifty percent (50%) or more of the accounts of any Account Debtor that would otherwise betreated as Eligible Receivables hereunder is ineligible by reason of being more than ninety(90) days past original invoice date, then all the accounts of such Account Debtor may bedeemed ineligible by Lender hereunder; or  (h)  the total unpaid Receivables of the Account Debtor exceed: (i) twenty percent (20%) of thenet amount of all Receivables; or (ii) in the case of Receivables due from Pfizer, Inc., inwhich case the total unpaid Receivables shall not exceed thirty percent (30%) of the netamount of all such Receivables; or (iii) in the case of Receivables due from BMW, in whichcase the total unpaid Receivables shall not exceed thirty-five percent(35%) of the net amount of all such Receivables; or (iv) as otherwiseagreed from time to time, in any case of (i) or (ii) or (iii), to theextent of such excess; or
 
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 (i)  it relates to a sale of goods or services to the United Statesof America or any agency or department thereof, unless Borrower assigns itsright to payment of such Receivable to Lender, in form and substancesatisfactory to Lender, so as to comply with the Assignment of Claim Act of1940, as amended; or  (j)  it relates to intercompany sales, employee sales or anyReceivable due from an Affiliate of Borrower; or  (k)  it consists of a sale to an Account Debtor on consignment, billand hold, guaranteed sale, sale or return, sale on approval or any otherrepurchase or return basis or if payment in full is not due within 90 days ofthe original invoice date; or  (l)  the Account Debtor is located in a state in which Borrower isdeemed to be doing business under the laws of such state and which deniescreditors access to its courts in the absence of qualifications to transactbusiness in such state or of the filing of any reports with such state, unlessBorrower has qualified as a foreign corporation authorized to do business insuch state or has filed all required reports; or  (m)  the Receivable is evidenced by chattel paper or an instrument ofany kind, or has been reduced to judgment; or  (n)  the Receivable arises from a retail sale of goods to a Personwho is purchasing such goods primarily for personal, family or householdpurposes; or  (o)  if Lender believes, in its reasonable judgment, collection ofsuch Receivable is insecure or that such Receivable may not be paid by reasonof the Account Debtor’s financial inability to pay.**1.19. “****Environment****”**shall mean any water or water vapor, any land surface orsubsurface, air, fish, wildlife, biota and all other natural resources.**1.20. “****Environmental Laws****”**shall mean all federal, state and local laws, statutes,ordinances and codes relating to the protection of the Environment and/or governing exposure to orthe use, storage, treatment, generation, transportation, processing, handling, production ordisposal of “hazardous substances” and the rules, regulations, interpretations, decisions, ordersand directives of federal, state and local governmental agencies and authorities with respectthereto.**1.21. “****Equipment****”**shall have the meaning given that term in the UCC.
 
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**1.22. “****ERISA****”**shall mean the Employee Retirement Income Security Act of 1974, asamended.**1.23. “****Events of Default****”**shall have the meaning set forth in Article 19 of thisAgreement.**1.24. “****Fiscal Year****”**shall mean with respect to any Person, a year of 365 or 366 days,as the case may be.**1.25. “****General Intangibles****”**shall have the meaning given that term in the UCC.**1.26. “****Generally Accepted Accounting Principles****”**shall mean generally acceptedaccounting principles consistently applied and maintained throughout the period indicated andconsistent with the prior financial practice of Borrower, except for changes mandated by theFinancial Accounting Standards Board or any similar accounting authority of comparable standing.Whenever any accounting term is used herein which is not otherwise defined, it shall be interpretedin accordance with Generally Accepted Accounting Principles.**1.27. “****Governmental Rules****”**shall have the meaning given to such term in **Section 7.25**of this Agreement.**1.28. “****Guarantors****”**is a collective term which means all Individual Guarantors and allCorporate/LLC Guarantors, it being understood that on the date hereof, there are no IndividualGuarantors and no Corporate/LLC Guarantors except **IOT.****1.29. “****Guaranty****”**is a collective term which means any guaranty (other than aValidity/Support Guaranty) of the payment of all or a portion of the Obligations now or hereafterexecuted by any Corporate/LLC Guarantor or any Individual Guarantor and all amendments,modifications or supplements of any such guaranty made from time to time hereafter, it beingunderstood that on the date hereof, the only Guaranty has been given by **IOT.****1.30. “****Indebtedness****”**shall mean and include all obligations for borrowed money of anykind or nature, including funded debt and unfunded liabilities, contingent obligations underletters of credit or guaranties, and all obligations for the acquisition or use of any fixed asset,including capitalized leases, or improvements which are payable over a period longer than one year,regardless of the term thereof or the person or persons to whom the same is payable.**1.31. “****Individual Guarantor****”**shall mean any individual who now or hereafter guaranteesthe payment of all or a portion of the Obligations, it being understood that on the date hereof,there is no Individual Guarantor.**1.32. “****Individual Guaranty****”**is a collective term which means any guaranty (other thana Validity/Support Guaranty) of the payment of all or a portion of the Obligations now or hereafterexecuted by any Individual Guarantor and all amendments, modifications or supplements of any suchguaranty made from time to time hereafter, it being understood that on the date hereof, there is noIndividual Guaranty.
 
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**1.33. “****Inventory****”**shall have the meaning given to such term in the UCC.**1.34. “****Investment Property****”**shall have the meaning given that term in the UCC.**1.35. “****LIBOR****”**shall mean the three month London Interbank Offered Rate published inthe “Money Rates” column of The Wall Street Journal from time to time or, in the event that TheWall Street Journal is not available at any time, such rate published in another publication asdetermined by Lender.**1.36. “****Lien****”**shall mean any interest in Property securing an obligation owed to, or aclaim by, a Person, whether such interest is based on the common law, statute or contract, andincluding, but not limited to, the security interest, security title or lien arising from asecurity agreement, mortgage, deed of trust, deed to secure debt, encumbrance, pledge, conditionalsale or trust receipt or a lease, consignment or bailment for security purposes.**1.37. “****Loan Documents****”**shall mean this Agreement, the Guaranty, the Revolving Note,the Subordination Agreements (when and if given), the Validity/Support Guaranty (when and if given)and all other documents and instruments to be delivered by Borrower or any Guarantor or anyValidity/Support Guarantor under this Agreement or in connection with the Loan or any otherindebtedness or obligation of Borrower to Lender or any Affiliate of Lender, as the same may beamended, modified or supplemented from time to time, it being understood that on the date hereof,there is no Guaranty except the Guaranty of **IOT**and there is no Subordination Agreement and noValidity/Support Guaranty.**1.38. “****Loans****”**shall mean the loans and advances made by Lender hereunder, includingall Advances.**1.39*****.*****“****Lockbox****”**shall mean the account or accounts established by Borrower pursuantto the lockbox agreement among Borrower, Lender and a financial institution with which Borrowermaintains a depository account into which the proceeds of all Collateral are to be deposited, itbeing understood that on the date hereof no Lockbox is required.**1.40. “****Material Adverse Effect****”**shall mean any material adverse effect, as determinedin Lender’s discretion, on (a) the business, assets, operations, prospects or condition, financialor otherwise, of Borrower or any Guarantor or any Validity/Support Guarantor; (b) the ability ofBorrower or any Guarantor or any Validity/Support Guarantor to pay or perform the obligations inaccordance with their terms; (c) the value of the Collateral or the perfection or priority ofLender’s liens; (d) the validity or enforceability of this Agreement or any of the Loan Documents;or (e) the practical realization of the benefits, rights and remedies inuring to Lender hereunderor under the Loan Documents.**1.41. “****Maximum Facility****”**shall mean **ONE MILLION AND 00/100 US DOLLARS ($1,000,000.00).**
 
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**1.42. “****Notice of Borrowing****”**shall mean a written borrowing request substantially inthe form of **Exhibit “C”** attached hereto.**1.43. “****Obligations****”**shall mean and include all loans (including the Loans), advances, debts,liabilities, obligations, covenants and duties owing by Borrower to Lender of any kind or nature,present or future, whether or not evidenced by any note, guaranty or other instrument, whetherarising under this Agreement, the Loan Documents or under any other agreement or by operation oflaw, whether or not for the payment of money, whether arising by reason of an extension of credit,opening, guaranteeing or confirming of a letter of credit, loan, guaranty, indemnification or inany other manner, whether direct or indirect (including those acquired by assignment), absolute orcontingent, due or to become due, now due or hereafter arising and however acquired, including,without limitation, all interest, charges, expenses, commitment, facility, collateral management orother fees, attorneys’ fees and expenses, and any other sum chargeable to Borrower under thisAgreement, the Loan Documents or any other agreement with Lender.**1.44. “****Other Collateral****”**shall mean all Collateral other than Receivables.**1.45. “****Person****”**shall mean an individual, partnership, limited liability company,limited liability partnership, corporation, joint venture, joint stock company, land trust,business trust or unincorporated organization, or a government or agency or political subdivisionthereof.**1.46. “****Plan****”**shall mean an employee benefit plan or other plan now or hereaftermaintained for employees of Borrower and covered by Title IV of ERISA.**1.47. “****Prime Rate****”**shall mean the rate published in the “Money Rates” column ofThe Wall Street Journal from time to time or, in the event that The Wall StreetJournal is not available at any time, such rate published in another publication as determinedby Lender.**1.48. “****Property****”**shall mean any interest in any kind of property or asset, whetherreal, personal or mixed, or tangible or intangible.**1.49. “****Receivables****”**shall have the meaning given the term **“Accounts”**in the UCC andshall include therein all present and future accounts, contract rights, promissory notes, chattelpaper (whether tangible or electronic), instruments, documents, letter of credit rights (whether ornot the letter of credit is evidenced by a writing) all tax refunds and rights to receive taxrefunds, bonds, certificates, rights to payment for the sale or lease of equipment and policies ofinsurance and insurance proceeds, investment securities, notes, instruments and Deposit Accounts,book accounts, credits and reserves and all forms of obligations whatsoever owing, together withall instruments, all documents of title representing any of the foregoing, and all rights in anymerchandise or goods which any of the same may represent, all files and records with respect to anycollateral or security given by Borrower to Lender, together with all right, title, security andguaranties with respect to each Receivable, including any right of stoppage in transit, whether nowowned or hereafter created or acquired by Borrower or in which Borrower now has or hereafteracquires any interest.
 
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**1.50. “****Reconciliation Report****”**shall mean a report in form satisfactory to Lender,reconciling Borrower’s month-end Receivable agings and Payable agings to Borrower’s monthlyfinancial statements, and including bank reconciliations.**1.51. “****Reportable Event****”**shall have the meaning assigned to that term in Title IV ofERISA.**1.52. “****Revolving Advances****”**shall mean the Advances to be made by Lender to Borrowerpursuant to **Section 2.1** of this Agreement.**1.53. “****Revolving Loan****”**shall mean the Advances to be made by Lender to Borrowerpursuant to **Article 2** of this Agreement, and all interest thereon and all fees, costs and expensespayable by Borrower in connection therewith.**1.54. “****Revolving Note****”**shall mean Borrower’s promissory note dated on or about evendate herewith and given by Borrower to Lender to evidence the Revolving Advances, as the same maybe amended, modified or supplemented from time to time.**1.55. “****Solvent****”**shall mean when used with respect to any Person, such Person (a) ownsproperty the fair value of which is greater than the amount required to pay all of such Person’sIndebtedness (including contingent debts), (b) owns property the present fair salable value ofwhich is greater than the amount that will be required to pay the probable liabilities of suchPerson on its then existing Indebtedness as such become absolute and matured, (c) is able to payall of its Indebtedness as such Indebtedness matures, and (d) has capital sufficient to carry onits then existing business.**1.56. “****Subordination Agreements****”**is a collective term which means all of thefollowing: (a) any instrument by the terms of which the payment of any debtowed by Borrower to any Person is subordinated to the prior payment of theObligations, it being understood that on the date hereof there are noSubordination Agreements; and  (b) all amendments, modifications or supplements of any of theforegoing made from time to time hereafter.**1.57. “****Termination Date****”**shall mean the earlier of **December 31, 2010,**or the date onwhich Lender terminates this Agreement pursuant to **Section 16.1**hereof or Borrower terminates thisAgreement pursuant to **Section 16.2**hereof.**1.58. “****This Agreement****”**shall include all written amendments, modifications andsupplements and shall refer to this Agreement as the same may be in effect at the time suchreference becomes operative.
 
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**1.59. “****UCC****”**shall mean the Uniform Commercial Code in effect from time to time in theState of New York.**1.60. “****Validity/Support Guarantor****”**shall mean any individual or entity who now orhereafter executes a Validity/Support Guaranty, it being understood that on the date hereof, thereis no Validity/Support Guarantor.**1.61. “****Validity/Support Guaranty****”**is a collective term which means all of thefollowing: (a) any instrument by the terms of which the Person executingsuch instruments guarantees and supports the validity of the Receivables andother Collateral providing credit support to the Revolving Loan; and  (b) all amendments, modifications or supplements of any suchValidity and Support Agreement made from time to time hereafter.**1.62. “****Voting Stock****”**shall mean securities of any class or classes of a corporationthe holders of which are ordinarily, in the absence of contingencies, entitled to elect a majorityof the corporate directors (or Persons performing similar functions).**2.****THE REVOLVING LOAN.****2.1.****Revolving Advances.** Subject to the terms and conditions of this Agreement andrelying upon the representations and warranties set forth in this Agreement, for so long as noDefault or Event of Default exists, Lender shall lend to Borrower on its request, a sum equal tothe lesser of: (a) **ONE MILLION AND 00/100 ($1,000,000.00) US DOLLARS,**and (b) up to **seventy fivepercent (75%)** of the net face amount of Borrower’s Eligible Receivables, provided, however, thatas it relates to Borrower’s Eligible Receivables arising out of a fixed price project, theaforesaid percentage shall be 50% not 75%.**2.2.****Overline****.**Borrower acknowledges that Lender has advised Borrower that Lenderdoes not intend to permit Borrower to incur Obligations at any time in an outstanding principalamount exceeding the Maximum Facility; however, it is agreed that should the Obligations ofBorrower to Lender incurred under the Revolving Loan or otherwise exceed that figure or any otherlimitation herein set forth, including without limitation, the borrowing formulas set forth in**Section 2.1**above, all such excess obligations shall (a) constitute Obligations under thisAgreement, (b) shall be entitled to the benefit of all security and protection under thisAgreement and all Loan Documents and secured by the Collateral and (c) shall be payableimmediately upon demand by Lender.**2.3.****Reserves****.**The borrowing limits set forth in **Section 2.1**above and otherwiseherein, shall be subject to such reserves as Lender shall reasonably deem necessary and proper inLender’s reasonable discretion. Reserves may be established by Lender from time to time and insuch manner (including reduction of the rate of Revolving Advances) and for such reasons asLender may determine from time to time in Lender’s reasonable discretion. Payments, deposits,guaranties or indemnifications made by Lender under any reimbursement agreement, guaranty orsimilarinstrument made in respect of any such instrument may be treated by Lender as Revolving Advancesto Borrower hereunder.
 
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**2.4.****Manner of Borrowing.** Each Revolving Advance shall be requested in writing viafacsimile by a Notice of Borrowing executed by an authorized officer of Borrower, not later than11:00 a.m. Eastern Time on any Banking Day on which a Revolving Loan is requested. Provided thatBorrower shall have satisfied all conditions precedent set forth in this Agreement, including thereaffirmation of the representations and warranties and covenants as required under **Section 15.2**hereof, and Borrower shall have sufficient Collateral to permit a Revolving Advance hereunder inaccordance with **Section 2.1** hereof, Lender shall make the Advance in the amount requested inwriting by Borrower in immediately available funds for credit to any account of Borrower (otherthan a payroll account) at a bank in the United States of America as Borrower may specify(provided, however, that Borrower shall pay Lender its usual and customary fees for such transfer).Lender shall not be responsible for any failure of any amount so transferred to be credited to anysuch account, unless such failure is due to Lender’s gross negligence or willful misconduct.**2.5.****Evidence of Borrower’s Obligations****.**(a) Borrower’s obligation to pay principal of, and interest on, the Revolving Advances made toBorrower shall be evidenced by the Revolving Note executed by Borrower on the date hereof anddelivered to Lender, as such note may from time to time be extended, modified, refinanced, renewed,substituted, replaced and/or redated with the written consent of Lender.(b) In addition to being evidenced by the Revolving Note, all Revolving Advances made byLender under the Revolving Loan and all interest due on the Revolving Loan and all other amountsdue under the Revolving Loan and this Agreement and all payments made on account of principaland/or interest and/or such other amounts may be entered by Lender on its records. The aggregateunpaid principal and/or interest and/or other amounts entered and shown on Lender’s records shallfurther evidence the principal and/or interest and/or other amounts owing and unpaid on theRevolving Loan and this Agreement.(c) Lender shall render a statement of account which can be accomplished by a monthly mailingof transaction activity and balances similar to what is being done presently. If Borrower fails toobject to the statement within sixty (60) days after it is received by Borrower, it shall be deemedto be an account stated and binding upon Borrower, absent manifest error. Notwithstanding theforegoing, Lender’s failure to enter on such records the date and amount of any Revolving Advanceor unpaid interest or other amounts shall not, however, limit or otherwise affect the obligationsof Borrower under this Agreement to repay the principal amount of the Revolving Advances made byLender to Borrower under the Revolving Loan, together with all interest accruing and other amountsdue thereon.
 
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**2.6.****Payments.** All payments with respect to the Obligations shall either be charged byLender to Borrower’s account, charged as an advance or made by Borrower to Lender in U.S. currencyand without any defense, offset or counterclaim of any kind, at 580 White Plains Road, Suite 610,Tarrytown, NY 10591, or to such other address as Lender shall specify, by 12:00 noonNew York, New York time on the date when due. Whenever any payment to be made shall otherwise bedue on a day that is not a Banking Day, such payment shall be made on the next succeeding BankingDay and such extension of time shall be included in computing interest in connection with any suchpayment. Lender may make an Advance to reimburse itself for any payments on the Obligations(including fees and expenses payable by Borrower) which are not paid when due, without priornotice or demand to Borrower, but which Lender agrees shall be reflected in the monthly statementsset forth in **Section 8** of this Agreement. Prior to the occurrence of an Event of Default, Lendershall give written notice to Borrower of any reasonable legal, auditing, or accounting fees orexpenses incurred by Lender (other than such fees and expenses which are attributable to periodsprior to the closing hereof or which are attributable to the closing hereof, all of which fees andexpenses are due and payable at the time of closing), whereupon Borrower shall have thirty (30)days to make satisfactory payment of such fees and expenses. If Borrower fails to pay such feesand expenses in full within such thirty (30) day period, then Lender may, without further noticeor demand, make an Advance to reimburse itself for such fees and expenses; provided,however, that, Borrower’s right to review, object to and dispute such fees andexpenses shall not be effected thereby; provided, further, however,that Borrower’s right to review, object to and dispute such fees and expenses shall beexercised in accordance with **Section 9**of this Agreement.**2.7.****Collections/Balance/Statements/etc****.**(a) **Collection and Remittance.** Borrower covenants and agrees to maintain the Blocked Accountover which Lender shall have the sole power of withdrawal. All proceeds of Receivables whethercash, checks, drafts, notes, acceptances or other forms of payment, if received by Borrower, shallbe received by Borrower in trust for Lender, and Borrower agrees to deliver or cause to bedelivered, such payments forthwith, in the identical form in which received, to Lender or to theBlocked Account, as Lender shall require from time to time. Collected funds in the Blocked Accountshall be swept daily and the proceeds deposited to an account of Lender or Borrower as Lender shallelect.(b) **Determination of Balance of Revolving Loan.** In determining the outstanding balance of theRevolving Loan, (i) funds transferred from the Blocked Account to the Lender’s account at HarrisTrust and Savings Bank, ABA # 071000288, Chicago, Illinois 60690, Account Name: Keltic FinancialPartners II, L.P., Account No. 3117009 (or such other account as Lender may direct from time totime), before 2 p.m. Eastern Time of a Business Day will be credited on the second (2nd) BankingDay after such Banking Day, and thereafter on the following Banking Day, as follows: (a) first, tothe outstanding principal balance of the Revolving Loan, and (b) second, to all other Obligationsin such order as Lender shall elect; (ii) any other form of funds received by Lender will becredited on the Banking Day when Lender has received notification that such funds are collected andavailable to Lender if before 2 p.m. (Eastern Time), and thereafter on the following Banking Day;(iii) all credits shall be conditional upon final payment to Lender in cash or solvent credits ofthe items giving rise to them and, if any item is not so paid, the amount of any credit given forit shall be charged to the balance of the Revolving Loan whether or not the item is returned; and(iv) for the purpose of computing interest on the Revolving Loan and other Obligations, interestshall continue to accrue on the amount of any payment credited to the Revolving Loan balance byLender for a period of two (2) calendar days after the date so credited. Subject to Lender’srights, as set forth in **Section 14**, as soon as available payment is received by Lender withrespect to all credits, if there are no outstanding Obligations hereunder, then Lender inaccordance with and subject to applicable law, will transfer upon Borrower’s written request thefunds on deposit in the Blocked Account to Borrower’s operating account.
 
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**2.8.****Payment on Termination Date****.**Notwithstanding anything herein to the contrary,the entire outstanding principal balance of the Loans, plus all accrued and unpaid interestthereon and all fees and other amounts payable under this Agreement and the Loan Documents,shall be due and payable, in full, on the Termination Date.**3.****LENDER’S COMPENSATION****.****3.1.****Interest on Revolving Advances; Costs and Expenses****.**(a) Borrower shall pay interest monthly, in arrears, on the first day of each month, on theaverage daily unpaid principal amount of the Revolving Advances made to Borrower at the RevolvingLoan Interest Rate(b) The Revolving Loan Interest Rate shall mean the per annum rate equal to the highest of:(1) the Prime Rate plus 275 basis points (2.75%) or (2) LIBOR plus five and one-quarterpercent (5.25%) per annum, or (3) seven percent (7.00%) — in each instance calculated on the basisof a year consisting of 360 days and paid for the number of days actually elapsed.(c) Notwithstanding the foregoing, on and after the occurrence of an Event of Defaulthereunder, Borrower shall pay interest on all Revolving Advances at a rate which is three percent(3%) per annum above the interest rate which would otherwise be in effect under this Agreementwith respect to the Revolving Advances; provided, however, in no event shall any interest to bepaid hereunder or under any Loan Document exceed the maximum rate permitted by law.**3.2.****Commitment and Closing Fee.** Borrower shall pay to Lender a $15,000 closingfee, payable upon the date hereof.**3.3.****Facility Fee.** Borrower shall pay to Lender monthly, in arrears, on the firstday of each month (commencing on February 1, 2010, for the month of January 2010), a facility feein an amount equal to one percent (1%) per annum of the Maximum Facility. The aforesaid facilityfee, despite permitted monthly installment payments, is deemed earned in full on the date hereof.**3.4.****Collateral Management Fee.** Borrower shall pay to Lender monthly, in arrears, onthe first day of each month, a collateral management fee in an amount of Seven Hundred and 00/100Dollars ($700.00), provided, however, that if there is no borrowing under the Revolving Loan inany calendar month, the aforesaid collateral management fee will be in the amount of Five Hundred00/100 Dollars ($500.00) for such month. Notwithstanding the foregoing, on and after theoccurrence of an Event of Default hereunder, the collateral management fee shall be increased by$1,000.00 per month over the otherwise applicable collateral management fee.
 
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**3.5.****Field Examination Fees.** Borrower shall promptly reimburse Lender for all costsand expenses associated with periodic field examinations performed by Lender and its agents, asdeemed reasonably necessary by Lender; provided, however, Lender agrees that solong as an Event of Default has not occurred and is not continuing, Borrower shall not be requiredto reimburse Lender for the costs and expenses associated with more than four (4) such fieldexaminations per calendar year. Lender shall use its best efforts to complete the on site portionsuch field examinations within two (2) man days per field examination.**3.6.****Prepayment Premium.** If Borrower prepays all or substantially all of theprincipal of the Revolving Loan prior to the Termination Date other than from funds internallygenerated in the ordinary course of business, including, without limitation, by raising additionalcapital or any normal course payment on the Loans that do not have the effect of a permanentreduction in the Loans, Borrower shall pay to Lender at the time of such prepayment, a prepaymentpremium in an amount equal to two percent (2.0%) of the Maximum Facility, except that noprepayment premium shall be required in connection with any termination of this Agreement byLender so long as there is no Event of Default hereunder.**3.7.****Computation of Interest and Fees****.**All interest and fees hereunder shall becomputed on the basis of a year consisting of three hundred sixty (360) days for the number ofdays actually elapsed.**3.8.****Payment of Interest and Fees.** Interest and fees shall be payable immediatelywhen due, and shall be paid by Lender’s making an Advance in the amount of the interest and/or feedue against the Revolving Loan, but any failure or delay by Lender in submitting any invoice forsuch interest or fee or in the making of an advance against the Revolving Loan shall not dischargeor relieve Borrower of its obligation to make such interest or fee payment.**4. ****APPLICATION OF PROCEEDS.** The proceeds of the Revolving Advances shall be used solelyby Borrower for working capital needed in the normal operation of Borrower’s business.**5. ****SECURITY INTEREST IN COLLATERAL.** To secure the prompt payment and performance of allof Borrower’s Obligations to Lender, Borrower transfers and assigns to Lender and grants toLender a first priority Lien on and first security interest in all of the following propertyand interests in property of Borrower, whether now owned or existing or hereafter created,acquired or arising and wheresoever located: (a) All Receivables, whether now owned or existing or hereaftercreated, acquired or arising and wheresoever located;  (b) all Inventory, whether now owned or existing or hereaftercreated, acquired or arising and wheresoever located;
 
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 (c) all Equipment, whether now owned or existing or hereaftercreated, acquired or arising and wheresoever located;  (d) all General Intangibles, whether now owned or existing orhereafter created, acquired or arising and wheresoever located;  (e) all Investment Property, whether now owned or existing orhereafter created, acquired or arising and wheresoever located;  (f) all Deposit Accounts, whether now owned or existing orhereafter created, acquired or arising and wheresoever located;  (g) Letter-of-Credit Rights, whether now owned or existing orhereafter created, acquired or arising and wheresoever located;  (h) all monies or other Property of any kind, now or at any timeor times hereafter, in the possession or under the control of Lender or anyaffiliate of Lender or any representative, agent or correspondent of Lender,whether now owned or existing or hereafter created, acquired or arising andwheresoever located;  (i) all other business assets of Borrower, whether now owned orexisting or hereafter created, acquired or arising and wheresoever located;  (j) all accessions to, substitutions for and all replacements,products and cash and noncash proceeds of (a), (b), (c), (d), (e), (f), (g),(h) and (i) above, including, without limitation, proceeds of and unearnedpremiums with respect to insurance policies insuring any of the Collateraland claims against any Person for loss of, damage to, or destruction of anyor all of the Collateral; and  (k) all books and records (including, without limitation,customer lists, credit files, computer programs, printouts and other computermaterials and records) of Borrower pertaining to any of (a), (b), (c), (d),(e), (f), (g), (h), (i) or (j) above.  (l) in the case of Borrower’s interests in any non-U.S.subsidiary, if any, “Collateral” shall be limited to no more than 65% of thestock of any non-U.S. subsidiary, and shall exclude the assets of anynon-U.S. subsidiary.**6. RECOURSE TO SECURITY.** Borrower specifically understands and agrees that Lender’srecourse against and/or to any security or Collateral shall not be required as a priorcondition to Lender’s exercise of any of its rights and remedies hereunder.
 
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**7. **INDUCING REPRESENTATIONS.** In order to induce Lender to make the Loans, Borrower makesthe following representations and warranties to Lender:**7.1.****Organization and Qualifications****.**(a) Borrower is a corporation duly organized and existing under the laws of the State ofDelaware.(b) Borrower is qualified to do business in New York and in every other jurisdiction where thenature of its business requires it to be so qualified and where failure to so qualify might have aMaterial Adverse Effect.**7.2.****Corporate Name and Address****.**(a) Borrower was incorporated on October 1, 2009. On or about November 18, 2009, **HELIOS &MATHESON NORTH AMERICA INC.**, a New York corporation formerly known as The A Consulting Team, Inc.,was merged into Borrower, as evidenced by a State of Delaware Certificate of Ownership and Mergerfiled with the Delaware Secretary of State on November 18, 2009.(b) Borrower’s executive office is at the addresses set forth above.**7.3.****Corporate Structure****.**Borrower has no subsidiaries or Affiliates, except as setforth on **Schedule 7.3** attached hereto.**7.4.****Legally Enforceable Agreement****.**The execution, delivery and performance of thisAgreement, and each and all of the other Loan Documents and all and any other instruments anddocuments to be delivered by Borrower or its Affiliates hereunder and the creation of all Liens andsecurity interests provided for herein are within Borrower’s corporate power, have been dulyauthorized by all necessary or proper corporate action (including the consent of shareholders whererequired), are not in contravention of any agreement or indenture to which Borrower is a party orby which it is bound, or of the Certificate of Incorporation or By-Laws of Borrower, and are not,to the best of Borrower’s knowledge, in contravention of any provision of law and the same do not,to the best of Borrower’s knowledge, require the consent or approval of any governmental body,agency, authority or any other person which has not been obtained and a copy thereof furnished toLender. The execution, delivery and performance of the Guaranty to be delivered by the Guarantor isnot, to the best of Borrower’s knowledge, in contravention of any provision of law and the samedoes not require the consent or approval of any governmental body, agency, authority or any otherperson which has not been obtained and a copy thereof furnished to the Lender.**7.5.****Solvent Financial Condition****.**Borrower and Guarantor are each Solvent, as definedin **Section 1.55** hereof.
 
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**7.6.****Financial Statements****.**(a) Borrower’s filed SEC Form 10-K dated as of December 31, 2008, a copy of which has beendelivered to Lender, fairly presents Borrower’s financial condition and results ofoperations as relevant and as of such date and there have been no material adverse changes sincesuch date.(b) Borrower does not have any material contingent liabilities, liabilities for taxes,unusual forward or long-term commitments, or unrealized or unanticipated losses from anyunfavorable commitments except those, if any, which were disclosed to Lender in such Form 10-K.**7.7.****Joint Ventures****.**Borrower is not engaged in any joint venture or partnership withany other Person.**7.8.****Real Estate****.**Attached hereto as **Schedule 7.8** is a list showing, to the best ofBorrower’s knowledge, all real property owned or leased by Borrower.**7.9.****Patents, Trademarks, Copyrights and Licenses****.**To the best of Borrower’sknowledge, Borrower owns or has a valid license to use all the patents, trademarks, service marks,trade names, copyrights and licenses, if any, which are currently used by it in and are reasonablynecessary for the present and planned future conduct of its business without conflict with therights of others. To the best of Borrower’s knowledge, all such licenses and other similar rights(exclusive of licenses relating to normal office business software (e.g. licenses for computerprograms such as Word and Excel) that are used by Borrower in its normal operations) with a valueto Borrower in excess of $200,000.00 are listed on **Schedule 7.9**attached hereto and made a parthereof, if any.**7.10.****Existing Business Relationship.** There exists no actual or, to the best ofBorrower’s knowledge, threatened termination, cancellation or limitation of, or any materiallyadverse modification or change in, the business relationship of Borrower with any customer or groupof customers whose purchases individually or in the aggregate are material to the operations ofBorrower, or with any supplier.**7.11.****Investment Company Act: Federal Reserve Board Regulations.** Borrower is not an“investment company”, or an “affiliated person” of, or “promoter” or “principal underwriter” for,an “investment company”, as such terms are defined in the Investment Company Act of 1940, asamended (15 U.S.C. §80(a)(1), etseq.). The making of the Revolving Loan hereunderby Lender, the application of the proceeds and repayment thereof by Borrower and the performance ofthe transactions contemplated by this Agreement will not violate any provision of said Act, or anyrule, regulation or order issued by the Securities and Exchange Commission thereunder. Borrowerdoes not own any margin security as that term is defined in Regulation U of the Board of Governorsof the Federal Reserve System and the proceeds of the borrowings made pursuant to this Agreementwill be used only for the purposes contemplated hereunder. None of the proceeds will be used,directly or indirectly, for the purpose of purchasing or carrying any margin security or for thepurpose of reducing or retiring any indebtedness which was originally incurred to purchase or carrymargin security or for any other purpose which might constitute any of the loans under thisAgreement a “purpose credit” within the meaning of said Regulation U or Regulations T or X of theFederal Reserve Board. Borrower will not take, or permit any agent acting on its behalf to take,any action which might cause this Agreement or any document or instrument delivered pursuant heretoto violate any regulation of the Federal Reserve Board.
 
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**7.12.****Tax Returns.** Borrower and the Guarantors have filed or timely extended thefiling date of all material tax returns (Federal, state or local) required to be filed and paid alltaxes shown thereon to be due and payable including interest and penalties or has provided adequatereserves therefore, except to the extent that the failure to do so could not reasonably be expectedto result in a Material Adverse Effect. To the best of Borrower’s knowledge, no assessments havebeen made against Borrower or the Guarantors by any taxing authority nor has any penalty ordeficiency been made by any such authority. To the best of Borrower’s knowledge, no Federal incometax return of Borrower or any Guarantor is presently being examined by the Internal Revenue Servicenor are the results of any prior examination by the Internal Revenue Service or any State or localtax authority being contested by Borrower.**7.13.****Litigation.** Except as disclosed in **Schedule 7.13**, no action or proceeding, isnow pending or, to the best of Borrower’s knowledge, is threatened against Borrower or anyGuarantor at law, in equity or otherwise, before any court, board, commission, agency orinstrumentality of the Federal or state government or of any municipal government or any agency orsubdivision thereof, or before any arbitrator or panel of arbitrators, and neither Borrower nor anyGuarantor has accepted liability for any such action or proceeding. Borrower has not receivednotice of and, to the best of Borrower’s knowledge, there is no proceeding pending before anygovernmental agency (Federal, state or local) and, to the best of Borrower’s knowledge, noinvestigation has been commenced before any such government agency the effect of which, ifadversely decided, would affect or impair Borrower’s business or financial condition.**7.14.****Receivables Locations.** Annexed hereto as **Schedule 7.14**is a list showing allplaces at which Borrower maintains, or will maintain, records relating to Receivables.**7.15.****Inventory Locations.** Annexed hereto as **Schedule 7.15**is a list showing allplaces where Borrower maintains, or will maintain, Inventory with, in the aggregate, book value inexcess of $50,000.00. Such list indicates whether the premises are owned or leased by Borrower orwhether the premises are the premises of a warehouseman or other third party, and if owned by athird party, the name and address of such third party.**7.16.****Equipment List and Locations.** Annexed hereto as **Schedule 7.16**is a computerprintout from Borrower’s books and records showing substantially all of Borrower’s Equipment(except for items of Equipment which in the aggregate do not have material value), and describingthe places where the same is located. All Equipment is free and clear of all Liens and securityinterests voluntarily created by Borrower in favor of any Person other than Lender, except as setforth on **Schedule 7.16**, and to the best of Borrower’s knowledge, there are no other Liens orsecurity interests encumbering any Equipment.**7.17.****Title Liens.** Borrower has good and marketable title to the Receivables and, tothe best of Borrower’s knowledge, the Other Collateral, as sole owner thereof. There are noexisting Liens voluntarily created by Borrower on any property of Borrower, except for Liens infavor of Lender and Liens described in **Schedule 7.17**and, to the best of Borrower’s knowledge,there are no other Liens on any property of Borrower. Except as set forth on **Schedule 7.17**, none ofthe Receivables and, to the best of Borrower’s knowledge, none of the Other Collateral is subjectto anyprohibition against encumbering, pledging, hypothecating or assigning the same or requires noticeor consent in connection therewith.
 
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**7.18.****Existing Indebtedness.** Borrower has no existing Indebtedness except theIndebtedness described in **Schedule 7.18**.**7.19.****ERISA Matters.** Borrower does not have any so-called “defined benefit” Plan and,with respect to Borrower’s so-called “defined contribution” Plan, Borrower has not made anycontributions thereunder, is not obligated to make any contributions and does not have anyoutstanding obligations thereunder pursuant to the terms thereof. To the best of Borrower=sknowledge, Borrower has not engaged in any transaction which would subject Borrower to tax,penalty or liability for prohibited transactions imposed by ERISA or the Code.**7.20.****Occupational Safety and Health.** To the best of Borrower’s knowledge, Borrowerhas duly complied in all material respects with the provisions of the federal Occupational Safetyand Health Act, 29 U.S.C. § 651, et seq. and all rules and regulations thereunder and all similarstate and local Governmental Rules related to occupational safety and health. To the best ofBorrower’s knowledge, there are no outstanding citations, notices or orders of non-complianceissued to Borrower under any such Governmental Rules related to occupational safety and health.**7.21.****Environmental Matters.** Except as disclosed in **Schedule 7.21**or as would notreasonably be expected to result as a Material Adverse Effect:(a) To the best of Borrower’s knowledge, no property currently owned or leased by Borrower isor has been used for the generation, manufacture, refining, transportation, treatment, storage,handling or disposal of any “hazardous substances” or “hazardous wastes” which are regulated underEnvironmental Laws in a manner materially violating any Environmental Law; (b) to the best ofBorrower’s knowledge, Borrower is in material compliance with all applicable Environmental Laws;(c) to the best of Borrower’s knowledge, Borrower has not released hazardous substances at, upon,under or within any property currently owned or leased by Borrower, (d) to the best of Borrower’sknowledge, there are not now any above-ground or underground storage tanks used or operated byBorrower at any property currently owned or leased by Borrower that are not in material compliancewith Environmental Law; (e) to the best of Borrower’s knowledge, there are no transformers,capacitors or other items of Equipment containing polychlorinated biphenyls at levels in excess of49 parts per million, violative of any applicable Environmental Law, at any property currentlyowned or leased by Borrower except for those owned or operated by utility companies; (f) to thebest of Borrower’s knowledge, no hazardous substances are present at any property currently ownedor leased by Borrower in a manner materially violating any Environmental Law; (g) to the best ofBorrower’s knowledge, all permits and authorization required under Environmental Laws for alloperations of Borrower have been duly issued and are in full force and effect, including but notlimited to those for air emissions, water discharges and treatment, storage tanks and thegeneration, treatment, storage and disposal of hazardous substances; (h) to the best of Borrower’sknowledge, there are no past, pending or threatened environmental claims againstBorrower or any property currently owned or leased by Borrower except for such claims which havebeen resolved; (i) to the best of Borrower’s knowledge, there is no condition or occurrence on anyproperty currently owned or leased by Borrower that could be anticipated (1) to form the basis ofany environmental claim against Borrower or (2) to cause any property currently owned or leased byBorrower to be subject to any restrictions on its ownership, occupancy or transferability under anyEnvironmental Law.
 
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**7.22.****Labor Disputes.** There are no pending or, to the best of Borrower’s knowledge,threatened labor disputes which could have a Material Adverse Effect.**7.23.****Intellectual Property.** To the best of Borrower’s knowledge, Borrower owns or hasa valid license to use all necessary patents, trademarks, service marks, copyrights and otherintellectual property, if any, which are currently used by it in and are reasonably necessary oruseful in the operation of its business, in each case free of any claims or infringements.Notwithstanding the foregoing, Borrower is aware of other users of the term “TACT” and combinationsincluding “A Consulting”, which users may be able to restrict Borrower’s ability to establish orprotect Borrower’s right to use these terms. Borrower has in the past been contacted by other usersof the term “TACT” alleging rights to the term. Borrower has completed filings with the U.S. Patentand Trademark Office in order to protect certain marks, including “TACT” and “The A ConsultingTeam”.**7.24.****Location of Bank and Securities Accounts.****Schedule 7.24**hereto sets forth acomplete and accurate list of all deposit, checking and other bank accounts, all securities andother accounts maintained with any broker dealer and all other similar accounts maintained byBorrower, together with a description thereof.**7.25.****Compliance With Laws.** Borrower is in compliance with all federal, state andlocal governmental rules, ordinances and regulations(**“Governmental Rules”**) applicable to itsownership or use of properties or the conduct of its business, except for violations or failures tocomply, if any, which would not reasonably be expected to have a Material Adverse Effect. Borrowerhas not received any notice of violation of any of the foregoing.**7.26.****No Other Violations.** Borrower is not in violation of any term of its Certificateof Incorporation or By-laws and, to the best of Borrower’s knowledge, no event or condition hasoccurred and is continuing which constitutes or results in (or would constitute or result in, withthe giving of notice, lapse of time or other condition) (a) a breach of, or a default under, anyagreement, undertaking or instrument to which Borrower is a party or by which it or any of itsproperty may be affected, or (b) the imposition of any Lien on any property of Borrower. To thebest of Borrower’s knowledge, no Guarantor is in breach or default under any agreement, undertakingor instrument to which any such Guarantor is a party or by which he/it or his/its property may beaffected, nor does any condition exist which would constitute such a breach or default or result inthe imposition of any Lien on any Property of any such Guarantor.
 
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**7.27.****Survival of Representations and Warranties.** Borrower covenants, warrants andrepresents to Lender that all representations and warranties of Borrower contained in thisAgreementor any of the other Loan Documents shall be true at the time of Borrower’s execution of thisAgreement and the other Loan Documents, and Lender’s right to bring an action for breach of anysuch representation or warranty or to exercise any remedy hereunder based upon the breach of suchrepresentation or warranty shall survive the execution, delivery and acceptance hereof by Lenderand the closing of the transactions described herein or related hereto until the Obligations arefinally and irrevocably paid in full. Lender acknowledges and agrees that Borrower is not makingany representation or warranty to Lender with respect to those matters set forth on **Schedule 7.27**hereto; provided, however, that Borrower represents and warrants that it knows of no fact orcircumstance, and it has not failed to disclose to Lender any fact or circumstance known to it,that would make any such matters false or materially misleading.**8. ****FINANCIALSTATEMENTS AND INFORMATION; CERTAIN NOTICES TO LENDER.** So long as Borrowershall have any Obligations to Lender under this Agreement, Borrower shall deliver to Lender, orshall cause to be delivered to Lender:**8.1.****Borrowing Base Certificate.** A satisfactorily completed and executed BorrowingBase Certificate monthly (within 2 days after the end of each month), *provided, however,*that ifBorrower initiates borrowing under the Loan Agreement, Borrower must submit a satisfactorilycompleted and executed Borrowing Base Certificate twice-monthly, the first as at the15th day of each month (to be submitted within 2 days after such date) and the secondas at the end of each month (within 2 days after the end of each such month), as well ascontemporaneously with each request for an Advance.**8.2.****Monthly Reports. Within twenty (20) days after the end of each month, anaccounts receivable aging and accounts payable aging and Borrower’s Reconciliation Report forsuch month, all in form satisfactory to Lender, prepared by Borrower and if Lender so requests,customer statements, sales journals, cash receipts journals and detailed sales credit reports.**8.3.****Annual Financial Statements.** Within ninety (90) days after the close of eachFiscal Year, (a) a copy of the annual consolidating and consolidated financial statements ofBorrower consisting of balance sheets, statements of operations and retained earnings andstatements of cash flow audited by independent certified public accountants and certified by suchaccountants, and accompanied by such accountants’ certification that, in the normal course oftheir review, such accountants have become aware of no presently existing state of factsconstituting a Default or an Event of Default under this Agreement, (b) a copy of the annualconsolidating financial statements of Borrower in the same format as the annual consolidatedfinancial statements except that such consolidating statements shall be prepared by management ofBorrower in accordance with Generally Accepted Accounting Principles providedthat the consolidating financial statements will not contain footnotes and certified bythe chief financial officer of Borrower, and (c) the Compliance Certificate. In addition,Borrower shall deliver, or cause to be delivered, to Lender, if and when issued, any managementletters prepared by Borrower’s independent certified public accountants.**8.4.****Financial Statements.** Within (a) forty-five (45) days after the end of eachfirst, second and third quarter, and (b) ninety (90) days after the end of each fourth quarter ofeach Fiscal Year, consolidating and consolidated financial statements of Borrower consisting ofbalance sheets,statements of operations and retained earnings and statements of cash flow, prepared by managementof Borrower in accordance with Generally Accepted Accounting Principles and certified by the chieffinancial officer of Borrower, together with the Compliance Certificate; providedthat the consolidating financial statements will not contain footnotes.
 
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**8.5.****Tax Returns.** A copy of Borrower’s federal income tax return, as and when filedwith the Internal Revenue Service.**8.6.****Projections.** Within thirty (30) days prior to the end of each of Borrower’sfiscal years, financial projections for Borrower in form satisfactory to Lender covering not lessthan a one (1) year period, commencing with the succeeding fiscal year. If such projections are fora one (1) year period, then such projections shall be prepared on a monthly basis. If suchprojections are for more than a one (1) year period, then such projections shall be prepared on amonthly basis with respect to first year thereof and on a quarterly basis thereafter.**8.7.****Customer Lists.** Semiannually, a list of all of Borrower’s customers and vendors,including the addresses, telephone and facsimile numbers which lists shall be delivered withinthirty (30) days after each second fiscal quarter and within thirty (30) days after the each fiscalyear end.**8.8.****Insurance.** Annually, within thirty (30) days of the renewal date of suchinsurance policy, evidence of insurance in form and content satisfactory to Lender and otherwise incompliance with **Section 12.6** hereof, together with the original insurance policy.**8.9.****Notice of Event of Default and Adverse Business Developments.** Immediately afterbecoming aware of the existence of a Default or any Event of Default under this Agreement or afterbecoming aware of any developments or other information which is likely to (i) materially adverselyaffect Borrower’s business, prospects, profits or condition (financial or otherwise) or its abilityto perform this Agreement, or (ii) adversely affect the properties of Borrower, including, withoutlimitation, the following:(a) any substantial dispute that may arise between Borrower and any governmental regulatorybody or law enforcement authority, including any action relating to any material tax liability ofBorrower;(b) all litigation against Borrower where the amount claimed in any one suit or action is$250,000 or more and all litigation where the amount claimed in the aggregate is $500,000 or moreexcept when the same is fully covered by insurance and the insurer accepts liability therefor;(c) any labor controversy resulting in or threatening to result in a strike or work stoppageagainst Borrower;(d) any proposal by any public authority to acquire the assets or business of Borrower;
 
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(e) the location of any Collateral other than at Borrower’s place of business or as permittedunder this Agreement;(f) any proposed or actual change of Borrower’s name, identity or corporate structure; and(g) any other matter which has resulted or is likely to result in a Material Adverse Effect.In each case, Borrower will provide Lender with telephonic or telegraphic notice specifying anddescribing the nature of such Default, Event of Default or development or information, and suchanticipated effect, which telephonic or telegraphic notice shall be promptly confirmed inwriting within three (3) Banking Days; and**8.10.****Other Information.** Such other information respecting the financial conditionof Borrower or any property of Borrower in which Lender may have a Lien as Lender may, from timeto time, reasonably request. Borrower authorizes Lender to communicate directly with Borrower’sindependent certified public accountants and has authorized those accountants to disclose toLender any and all financial statements and other information of any kind that they may have withrespect to Borrower and its business and financial and other affairs. Borrower shall deliver aletter addressed to such accountants instructing them to comply with the provisions of thisSection. Lender shall treat all non-public documents and information marked “Confidential”**(“Confidential Information”)** so obtained or provided by Borrower or its agents, representativesor certified public accountants as confidential and will hold and will cause its respectiveemployees, agents and representatives to hold in confidence all such Confidential Informationconcerning Borrower,**IOT** and their Affiliates except: (i) when Lender is required to disclosepursuant to Governmental Rules, (ii) when Lender is compelled to disclose by judicial oradministrative process, (iii) when deemed necessary by Lender in its commercially reasonablediscretion to enforce this Agreement or any of the other Loan Documents, and (iv) in connectionwith the sale of participations in or the assignment of all or any part of Lender’s interest inthe Loans. Lender will not release or disclose such Confidential Information to any other person,except its auditors, attorneys, financial advisors and other consultants, advisors, agents andrepresentatives. If the transactions contemplated by this Agreement are not consummated, suchconfidence shall be maintained and, if requested by or on behalf of Borrower, Lender will, andwill use all reasonable efforts to cause its auditors, attorneys, financial advisors and otherconsultants, agents and representatives to, return to Borrower or destroy, at Borrower’s cost andexpense, all copies of all such Confidential Information.**9. ****ACCOUNTING.** Lender shall account monthly to Borrower. Each and every account shallbe deemed final, binding and conclusive upon Borrower in all respects, as to all matters reflectedtherein, unless Borrower, within thirty (30) days after the date the account was rendered,delivers to Lender written notice of any objections which it may have to any such account and inthat event only those items expressly objected to in such notice shall be deemed to be disputed byBorrower. If Borrower disputes the correctness of any statement, Borrower’s notice shall specifyin detail the particulars of its basis for contending that such statement is incorrect.
 
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**10. ****WARRANTIES WITH RESPECT TO RECEIVABLES.** Borrower represents and warrants to Lenderthat each Receivable created by it (i) will be free and clear of liens and encumbrances infavor of any Person other than Lender, except as otherwise permitted hereunder, (ii) willcover a bona fide sale and delivery of merchandise usually dealt in by Borrower in theordinary course of its business or will cover the rendition of services by Borrower tocustomers of a kind ordinarily rendered in the ordinary course of Borrower’s business, (iii)will be for a liquidated amount from a customer competent to contract therefor, (iv) is notsubject to renegotiation, except in the ordinary course of Borrower’s business consistent withBorrower’s past practice, (v) is not subject to any prepayment or credit and will not besubject to any deduction, offset, counterclaim, lien or other condition other than in theordinary course of Borrower’s business, and (vi) is generally enforceable in accordance withits terms. Borrower further represents and warrants that all services to be performed byBorrower in connection with each Receivable have been performed.**11.****SPECIAL PROVISIONS WITH RESPECT TO RECEIVABLES AND RELATED MATTERS.****11.1.****Confirmatory Written Assignments.** Promptly after the creation of anyReceivable, if Lender shall so request, Borrower shall execute and deliver confirmatory writtenassignments to Lender of Eligible Receivables, but the failure to execute or deliver anyschedule or assignment shall not affect or limit any Lien or other right of Lender in and to anyReceivable. Borrower shall cause all of its invoices to be printed and to bear consecutivenumbers, and to issue its invoices in such consecutive numerical order. On Lender’s requesttherefor, Borrower shall also furnish to Lender copies of invoices to customers and employeetimesheets. Borrower will also furnish Lender with such other documents and instruments asLender may request in connection with any Receivables, including detailed monthly agings.Borrower shall deliver to Lender the originals of all letters of credit, notes, and instrumentsin its favor and such endorsements or assignments as Lender may request. If Borrower shall failto deliver to Lender any Receivables, financial or any other report with respect to theCollateral required to be delivered by Borrower pursuant to **Section 7** and **Section 8** of thisAgreement within ten (10) days after the dates set forth therein, then Borrower agrees to pay toLender a fee of fifty dollars ($50.00) per day, beginning on the date that next follows the daterequired for delivery of such report and continuing through the date that Borrower delivers saidreport for each report and/or document that Borrower fails to deliver to Lender under thisAgreement.**11.2**. **Notice of Certain Events.** Borrower will notify Lender of all disputes,returns and of all claims asserted with respect to (i) any Receivables which disputes or claimsexceed $50,000 per occurrence, and (ii) any Receivables (other than Eligible Receivables) whichdisputes or claims exceed $150,000 per occurrence. Borrower shall promptly report each suchreturn, repossession or recovery of merchandise to Lender, advising it of the location thereofand providing it with a description of such goods and their location. Borrower shall not settleor adjust any dispute or claim, or grant any discount (except ordinary trade discounts andvolume discounts), credit or allowance or accept any return of merchandise, without Lender’sconsent, except for credits, discounts or allowances on Receivables in an aggregate amount notto exceed (i) $150,000 per calendar month, and (ii) $400,000 per calendar quarter. Upon theoccurrence of and during thecontinuance of an Event of Default for a period of in excess of two (2) months, Lender maysettle or adjust disputes or claims directly with customers or Account Debtors of Borrower foramounts and upon terms which it considers advisable. Where Borrower receives Collateral of anykind or nature by reason of transactions between itself and its customers or Account Debtors,it will hold the same on Lender’s behalf, subject to Lender’s instructions, and as propertyforming part of the Receivables. Where Borrower sells to a customer or Account Debtor whichalso sells to it or which may have other claims against it, Borrower will so advise Lender,promptly upon being notified of such purchase order.
 
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**11.3.****Communication with Account Debtors.** Borrower authorizes Lender, before anEvent of Default, without the consent of Borrower, to communicate directly with Account Debtorsor customer’s accounts payable departments, by whatever means Lender shall elect, for thepurpose of verifying the information supplied by Borrower to Lender with respect to Receivablesonly. Borrower authorizes Lender, upon the occurrence of an Event of Default, without theconsent of Borrower, to communicate directly with customers or Account Debtors of Borrower bywhatever means Lender shall elect for the purpose of verifying the information supplied byBorrower to Lender with respect to Receivables. Upon Lender’s request, before or after theoccurrence of an Event of Default, Borrower shall provide Lender with a list of the addresses ofits Account Debtors.**12.****AFFIRMATIVE COVENANTS.** Borrower represents and warrants that, so long as it shallhave any Obligations to Lender hereunder, Borrower will:**12.1.****Business and Existence.** Preserve and maintain Borrower’s separate corporateexistence and rights, privileges and franchises in connection herewith.**12.2.****Trade Names.** Transact business in Borrower’s own name and invoice all ofBorrower’s Receivables in Borrower’s own name.**12.3.****Transactions with Affiliates.** Whenever Borrower engages in transactions withan Affiliate of Borrower, conduct the same, with respect to the payment obligations thereof, onan arms-length basis or other basis more favorable to Borrower.**12.4.****Taxes.** Pay and discharge all material taxes, assessments, government chargesand levies imposed upon Borrower, Borrower’s income or Borrower’s profits or upon any propertybelonging to Borrower prior to the date on which penalties attach thereto, except where the samemay be contested in good faith by appropriate proceedings or where the failure to do so could notreasonably be expected to result in a Material Adverse Effect.**12.5.****Compliance with Laws.** Substantially comply with all Governmental Rulesapplicable to Borrower, including, without limitation, all laws and regulations regarding thecollection, payment and deposit of employees’ income, unemployment and Social Security taxes;provided, however, that Borrower shall not be in default as a result of its failure to complywith a Governmental Rule if such failure would not reasonably be expected to result in a MaterialAdverse Effect.
 
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**12.6.****Maintain Properties: Insurance.** Safeguard and protect all property used in theconduct of Borrower’s business and keep all of Borrower’s property insured with insurance companieslicensed to do business in the states where the property is located against loss or damage by fireor other risk usually insured against by other owners or users of such properties in similarbusinesses under extended coverage endorsement and against theft, burglary, and pilferage togetherwith such other hazards as Lender may from time to time reasonably request, in amounts reasonablysatisfactory to Lender. Borrower shall deliver the policy or policies of such insurance orcertificates of insurance to Lender. All such insurance shall contain endorsements in formsatisfactory to Lender naming Lender as lender loss payee and providing that the insurance shallnot be canceled, amended or terminated except upon thirty (30) days’ prior notice to Lender andshowing Lender as an additional party insured as its interest may appear. All insurance proceedsreceived by Lender shall be retained by Lender for application to the payment of such portion ofthe Obligations as Lender may determine in Lender’s discretion. Borrower shall promptly notifyLender of any event or occurrence causing a loss or decline in value of property insured or theexistence of an event justifying a claim under any insurance and the estimated amount thereof ifthe amount of any such loss, decline in value or claim exceeds $250,000.00 in the aggregate.**12.7.****Business Records.** Keep adequate records and books of account with respect toBorrower’s business activities in which proper entries are made in accordance with soundbookkeeping practices reflecting all financial transactions of Borrower.**12.8.****Litigation.** Give Lender prompt notice of any suit at law or in equity againstitself involving money or property valued in excess of Two Hundred Fifty Thousand Dollars($250,000) except where the same is fully covered by insurance and the insurer accepts liabilitytherefor, and of any investigation or proceeding before or by any administrative or governmentalagency the effect of which would be to prohibit or materially limit or restrict the manner in whichBorrower presently conducts its respective business.**12.9.****Damage or Destruction of Collateral.** Maintain or cause to be maintained theCollateral and all its other assets and properties in good condition and repair at all times,preserve the Collateral and all its other assets and properties from loss, damage, or destructionof any nature whatsoever and provide Lender with prompt written notice of (i) any destruction orsubstantial damage to any Collateral evidencing or relating to Receivables and of the occurrence ofany condition or event which has caused, or may cause, loss or depreciation in the value of anyReceivables, and (ii) any material destruction or substantial damage to any Other Collateral and ofthe occurrence of any material condition or event which has caused, or may cause, loss ordepreciation in the value of any Other Collateral.**12.10.****Name Change.** Provide Lender with (i) not fewer than thirty (30) days writtennotice prior to any proposed change of name, and (ii) contemporaneous written notice of thecreation of any subsidiary.
 
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**12.11.****Access to Books and Records.** Provide Lender with such reports and with suchaccess upon three (3) days prior written notice (unless an Event of Default has occurred, in whichcase no notice shall be required), during normal business hours, to Borrower’s books and recordsand permit Lender to copy and inspect such reports and books and records all as Lender reasonablydeems necessary or desirable to enable Lender to monitor the credit facilities extended hereby;provided, however, that Lender shall use reasonable efforts to avoid disrupting Borrower’sordinary business operations, particularly during periods when (i) Borrower is preparing filingsfor submission to the U.S. Securities and Exchange Commission, and (ii) Borrower’s auditors arepresent and auditing Borrower’s books and records.**12.12.****Solvent.** Continue to be Solvent, as defined in **Section 1.55** hereof.**12.13.****Compliance With Environmental Laws.** Comply in all material respects with allapplicable Environmental Laws.**12.14.****Compliance with ERISA and other Employment Laws.** Comply in all materialrespects with all: (a) applicable provisions of ERISA and the Code and (b) any other applicablelaws, rules or regulations relating to the compensation of employees and funding of employeepension plans.**12.15.****Proceeds of Collateral.** Forthwith upon receipt, pay to Lender all proceeds ofCollateral, whereupon such proceeds shall be applied to the Obligations in an order and manner asshall be determined in the discretion of Lender.**12.16.****Delivery of Documents.** Notify Lender if any proceeds of Receivables shallinclude, or any of the Receivables shall be evidenced by, notes, trade acceptances or instrumentsor documents, or if any Inventory is covered by documents of title or chattel paper, whether or notnegotiable, and if required by Lender, immediately deliver them to Lender appropriately endorsed.Borrower waives protest regardless of the form of the endorsement. If Borrower fails to endorse anyinstrument or document, Lender is authorized to endorse it on Borrower’s behalf provided Lender hasprovided Borrower with notice of such endorsement, except for checks and wire transferauthorizations for which Lender shall not be required to give such notice.**12.17.****United States Contracts.** If any of the Eligible Receivables arises out of acontract with the United States or any of its departments, agencies or instrumentalities,immediately notify Lender, and if required by Lender, execute any necessary instruments in orderthat all money due or to become due under such contract shall be assigned to Lender and propernotice of the assignment given under the Federal Assignment of Claims Act.**12.18.****Accounting System.** Maintain an accounting system whereby Receivables agingshall be formatted alphabetically by Account Debtor and coded to identify all invoices that are notfor time and material, including, without limitation, fixed price, software, business solutions,training, employee placement and bill-in advance, the foregoing to Lender’s satisfaction.**12.19.****Sales Terms.** Borrower shall notify Lender in writing if more than ten percent(10%) of Borrower’s Receivables arise from sales described in **Section 1.18(k)**.
 
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**13.****NEGATIVE COVENANTS.** So long as Borrower shall have any Obligations to Lenderhereunder and unless Lender has first consented thereto in writing, Borrower shall not:**13.1.****Indebtedness.** Create, incur, assume or suffer to exist, voluntarily orinvoluntarily, any Indebtedness, except (i) Obligations to Lender, (ii) trade debt incurred inthe ordinary course of Borrower’s business, (iii) purchase money financing and equipment leasesnot to exceed Seven Hundred Fifty Thousand Dollars ($750,000) in any fiscal year, and (iv)existing Indebtedness described on **Schedule 7.18**.**13.2.****Mergers; Consolidations; Acquisitions.** Enter into any merger, consolidation,reorganization or recapitalization after the date hereof with any other Person except for suchmergers, consolidations, reorganizations and recapitalizations that (i) have been disclosed toand consented to by Lender in writing, such consent not to be unreasonably withheld, and (ii) donot have a Material Adverse Effect; take any formal steps to dissolve or to liquidate all orsubstantially all of the assets of Borrower except for such liquidations that have beendisclosed to and consented to by Lender in writing; conduct any part of its business through anycorporate subsidiary, unincorporated association or other entity not disclosed on **Schedule 7.3**;acquire the stock or assets of any Person, whether by merger, consolidation, purchase of stockor otherwise except for mergers, consolidations, purchases of stock or otherwise that have beendisclosed to and consented to by Lender; or acquire all or any substantial part of theproperties of any Person except for acquisitions that have been disclosed to and consented to byLender.**13.3.****Sale or Disposition.** Sell or dispose of all or any portion of its assets (asthat term is defined in accordance with Generally Accepted Accounting Principles) or grant anyPerson an option to acquire any such assets: provided, however, that the foregoing shallnot prohibit (a) sales of Inventory in the ordinary course of business; (b) the sale ofEquipment that is of *de minimus*value and of no further use in the operations of Borrower’sbusiness; (c) as required by Governmental Rules; and (d) as required by contractual obligationsexisting on the date hereof in an amount not to exceed $500,000.00, or as otherwise provided forin this Agreement; so long as there are no Events of Default hereunder and the proceeds of anysuch sales are applied to any overline or overadvance, then to unpaid interest, fees andexpenses, then to the outstandings under the Revolving Loan. The foregoing to the contrarynotwithstanding, in no event shall Borrower sell, assign or transfer its Receivables.**13.4.****Defaults.** Permit any landlord, mortgagee, trustee under deed of trust orlienholder to declare a default under any lease, mortgage, deed of trust or lien on real estateowned or leased by Borrower, which default remains uncured for a period in excess of thirty (30)days from its occurrence, unless such default is being contested by Borrower in good faith byappropriate proceedings being diligently conducted.
 
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**13.5.****Limitations on Liens.** Suffer (i) any Lien, encumbrance, mortgage orsecurity interest on any Receivables, or (ii) any Lien, encumbrance, mortgage or securityinterest on any other property of Borrower which Lien, encumbrance, mortgage or securityinterest remains undischarged or unsatisfied for a period in excess of thirty (30) days afterBorrower receives notification of its existence, except:(a) Liens at any time granted in favor of Lender;(b) Liens for taxes not yet due or being contested, but only if such Lien does not have aMaterial Adverse Effect;(c) Liens securing the claims or demands of materialmen, mechanics, carriers, warehousemen,landlords and other like Persons for labor, materials, supplies or rentals incurred in the ordinarycourse of Borrower’s business, but only if the payment thereof is not at the time required and onlyif such Liens are junior in priority to the Liens in favor of Lender;(d) Liens resulting from deposits made in the ordinary course of business in connection withworkmen’s compensation, unemployment insurance, social security and other like laws;(e) such other Liens as appear on **Schedule 7.17** attached hereto, if any.**13.6.****Dividends and Distributions.** Pay any cash dividends, make any capitaldistribution in cash or other property or return of capital, or purchase or redeem any of its stockor other securities (provided, however, that annual repurchases of Borrower’s common stock up to$250,000 in any one fiscal year is permitted so long as no Event of Default has occurred and iscontinuing hereunder), or retire any of its stock, or take any action which would have an effectequivalent to any of the foregoing, except that Borrower may pay stock dividends and make non-cashstock splits.**13.7.****Borrower’s Names and Offices.** Transfer Borrower’s chief executive office orchange its company name or office where it maintains records (including computer printouts andprograms) with respect to Receivables, except upon not less than thirty (30) days advance writtennotice to Lender and after the delivery to Lender of financing statements in form and contentsatisfactory to Lender; provided, however, in no event shall such Transfer be permitted ifit shall render unperfected or otherwise impair Lender’s security interest in the Collateral.**13.8.****Guaranties; Contingent Liabilities.**(a) Assume, guarantee, endorse, contingently agree to purchase or otherwise become liable uponthe obligation of any Person, except by the endorsement of negotiable instruments for deposit orcollection or similar transactions in the ordinary course of business, except for contractualobligations existing on the date hereof and Borrower represents the maximum aggregate liabilitythereunder is not more than $100,000.00 in the combined aggregate, or(b) Agree to maintain the working capital or net worth of any Person or to make investments inany Person (except for short-term investments of excess cash as herein permitted).**13.9.****Removal of Collateral.** Remove, or cause or permit to be removed, any of theCollateral or other assets from the premises where such Collateral is currently located and setforth on **Schedule 7.15** and **Schedule 7.16** hereof, except for sales of Inventory in the ordinarycourse of business or unless otherwise expressly permitted under the terms of this Agreement.
 
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**13.10.****Transfer of Notes or Accounts.** Sell, assign, transfer, discount or otherwisedispose of any Eligible Receivables or any promissory note or other instrument payable to it withor without recourse.**13.11.****Settlements.** Compromise, settle or adjust any claim relating to any of theCollateral.**13.12.****Modification of Governing Documents.** Make or permit any change, alteration ormodification of its Certificate of Incorporation or By-laws which would result in a MaterialAdverse Effect, or make any other change, alteration or modification thereto except upon timelywritten notice to Lender.**13.13.****Change of Business.** Cause or permit a material change in the nature of itsbusiness as conducted on the date of this Agreement.**13.14.****Change of Accounting Practices.** Change its present accounting principles orpractices in any respect, except as may be required by changes in Generally Accepted AccountingPrinciples.**13.15.****Inconsistent Agreement.** Enter into any agreement containing any provision thatwould be violated by the performance of the Obligations or Borrower’s obligations under anydocument delivered or to be delivered by it in connection with this Agreement or any Loan Document.**13.16.****Loan or Advances.** Make any loans or advances to any Person, except loans oradvances to employees or shareholders of Borrower in a combined aggregate amount of up to$50,000.00 outstanding at anytime.**13.17.****Investments.** Make any investment in any person, firm or corporation, including,without limitation, in any Affiliates or from any Affiliates or subsidiaries not existing on thedate hereof.**13.18.****“Adjusted Income (loss) from Operations”.** Shall maintain “adjusted income(loss) from operations of no less than **$25,000,**tested quarterly at the end of each calendarquarter, commencing with the calendar quarter ending December 31, 2009, only if any borrowingsremain outstanding at the end of the quarter.**13.19.****Capital Expenditures.**(a) Capital Expenditures shall not exceed the combined aggregate levels set forth below,during the periods set forth below:     Amount  Time Period     $800,000.00  during any calendar year, commencing with the calendar yearbeginning January 1, 2009(b) No carry forward to subsequent calendar years shall be permitted in the event thatBorrower’s Capital Expenditures for a given calendar year are less than the combined maximumamount set forth above for such period.
 
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**14.****FURTHER RIGHTS OF LENDER.****14.1.****Lender’s Right to Take Certain Actions.** Borrower shall do all things andshall deliver all instruments requested by Lender to protect or perfect any security interest,mortgage or Lien given hereunder or in connection herewith including, without limitation,financing statements under the UCC and all documents and instruments necessary under the FederalAssignment of Claims Act. Upon the occurrence of an Event of Default and in the event thatLender requests, Borrower shall instruct its Account Debtors to remit payments directly toLender or to Lender’s designee. Lender may examine, inspect and copy or make extracts from allproperty and all books and records of Borrower at any time and all such property and all booksand records shall be kept confidential in accordance with the requirements of**Section 8.10** ofthis Agreement subject to the limitations set forth in **Section 12.11**. Borrower authorizes Lenderto execute alone any financing statements or other documents or instruments that Lender mayrequire to perfect, protect or establish any Lien or security interest granted to Lender byBorrower and further authorizes Lender to sign Borrower’s name on the same. Borrower appointssuch person or persons as Lender may designate as Borrower’s attorney-in-fact to endorse thename of Borrower on any checks, notes, drafts or other forms of payment or security that maycome into the possession of Lender or any Affiliate of Lender, to sign Borrower’s name oninvoices or bills of lading, drafts against customers, notice of assignment, verifications andschedules and, generally, and all such property and all books and records shall be keptconfidential in accordance with the requirements of **Section 8.10** of this Agreement, to do allthings necessary to carry out this Agreement. Such attorney-in-fact may notify the Post Officeauthorities to change the address of delivery of mail to an address designated by Lender, andopen and dispose of mail addressed to Borrower. The powers granted herein, being coupled with aninterest, are irrevocable, and Borrower approves and ratifies all acts of the attorney-in-fact,provided, however, that such powers shall automatically terminate upon the indefeasiblerepayment in full of the Obligations. Neither Lender nor the attorney-in-fact shall be liablefor any act or omission, error in judgment or mistake of law so long as the same is not willfulor grossly negligent. Lender agrees that it shall endeavor to give Borrower prompt writtennotice of any such actions but Lender’s failure to give any such notice shall not impair orrestrict Lender’s rights hereunder.**14.2.****Lender’s Right to Perform Borrower’s Obligations.** In the event that Borrowershall fail to purchase or maintain insurance, or to pay any tax, assessment, government chargeor levy, except as the same may be otherwise permitted hereunder, or in the event that any lien,encumbrance or security interest prohibited hereby shall not be paid in full or dischargedpursuant to the terms of this Agreement, or in the event that Borrower shall fail to perform orcomply with any other covenant, promise or Obligation to Lenderhereunder or under any Loan Document, Lender may, but shall not be required to, perform, pay,satisfy, discharge or bond the same for the joint and several account of Borrower, and allmonies so paid by Lender, including actual attorneys’ fees andreasonable expenses, shall be treated as an Advance hereunder to Borrower. Lender agrees thatit shall endeavor to give Borrower prompt written notice of any such actions but Lender’sfailure to give any such notice shall not impair or restrict Lender’s rights hereunder.
 
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**14.3.****Lender’s Right of Set-Off.** Lender may, at any time upon the occurrence of anEvent of Default hereunder and without any further notice to Borrower, set-off or apply any andall deposits (general or special, time or demand, provisional or final) at any time held by, orany other Indebtedness at any time owing by Lender or any Affiliate of Lender or any participantin Lender’s loans, to Borrower to or for the credit or the account of Borrower against anyObligation irrespective of whether any demand has been made hereunder or whether such Obligationis mature. The rights given hereunder are cumulative with all of the other rights and remediesof Lender, including other rights of set-off, under this Agreement, any other agreement or byoperation of law or otherwise and shall also constitute a security interest in such deposits.Lender agrees that it shall endeavor to give Borrower prompt written notice of any such actionsbut Lender’s failure to give any such notice shall not impair or restrict Lender’s rightshereunder.**15.****CONDITIONS PRECEDENT; CLOSING.****15.1.****Conditions Precedent.** As conditions precedent to the making of any Advancehereunder, Borrower shall deliver to Lender, or shall cause to be delivered to Lender thefollowing documents duly executed and in form satisfactory to Lender and its counsel:(a) the Revolving Note;(b) appropriate company resolutions of Borrower;(c) certificates evidencing all insurance coverages required by this Agreement, (including,without limitation, credit insurance policies) together with loss payee endorsements for all suchcoverages naming Lender as lender loss payee;(d) a copy of Borrower’s Certificate of Incorporation and By-laws and all amendmentsthereto;(e) a Good Standing Certificate for Borrower issued by the Secretary of State of the Stateof Delaware and each other jurisdiction (including new York) where the conduct of Borrower’sbusiness activities or the ownership of its Properties necessitates qualification;(f) evidence that Borrower’s franchise taxes payable to the New York State Department ofTaxation have been paid;(g) an initial Borrowing Base Certificate dated as of the date hereof;(h) all UCC financing statements required by Lender, all of which Borrower authorizesLender to record and file;
 
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(i) a certificate, dated as of the date hereof and executed by an authorized officer ofBorrower, stating that, as of such date, no Event of Default or Default exists and to suchfurther effect as Lender or its counsel may require;(j) allUCC, tax lien and judgment searches deemed necessary by Lender in form andsubstance satisfactory to Lender, which searches shall be obtained by Lender;(k) payment of all fees and expenses which are payable to Lender, its counsel, or tothird-party providers of services related to the closing of this transaction; and(l) such other documents, instruments, agreements, and information as Lender or its counselshall reasonably request.**15.2.****Conditions to All Extensions of Credit.(a) Lender’s obligations to advance any Loan is subject to the condition that, as of thedate of the advancing of such Loan, no Event of Default or Default shall have occurred and becontinuing and that the matters set forth in **Section 7,Section 10, Section 11, Section 12** and**Section 13** and the representations set forth in the Loan Documents continue to be true andcomplete.(b) Borrower’s acceptance of each Loan under this Agreement shall constitute a confirmation,as of the date of the advancing of such Loan, of the matters set forth in **Section 7, Section 10,Section 11, Section 12** and **Section 13** of the representations set forth in the Loan Documents, andthat no Default or Event of Default then exists. If requested by Lender, Borrower shall furtherconfirm such matters by delivery of a certificate dated the day of the advancing of such Loan andsigned by an authorized officer of Borrower.**16.****TERM****.****16.1.****Revolving Loan Availability****.**Unless sooner terminated by Lender pursuant tothe terms of this Agreement, the period during which the Revolving Loan shall be available shallinitially be a period commencing on the date hereof and concluding on the Termination Date.**16.2.****Voluntary Termination****.**Borrower shall give Lender at least fifteen (15) days’advance written notice (**“Termination Notice”**) of Borrower’s election to terminate theavailability of Revolving Loans hereunder prior to the Termination Date. The Termination Noticeshall be irrevocable and shall specify the effective date of such termination, which effectivedate shall not be less than fifteen (15) days after the giving of the Termination Notice andshall be in no event later than the Termination Date.
 
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**17.****EVENTS OF DEFAULT****.****17.1.****Defaults****.**Upon the happening of any of the following events (collectively,**“Events of Default”**):(a) if Borrower shall fail to make payment when due of any Obligation under this Agreement orany Loan Document, provided, however, that, for purposes of Borrower’sobligation to make payment of any Obligations to Lender comprised of Obligations to reimburseLender for or to pay field examination expenses and legal fees and expenses incurred by Lenderafter the date hereof, no Event of Default shall be deemed to have occurred, unless sixty (60) dayshave elapsed from the date of demand therefor by Lender; providedthat, Lender’sright hereunder to charge such fees and expenses to Borrower shall not be affected by the foregoingand in the event Lender so charges Borrower for such fees and expenses any such incipient Event ofDefault shall be deemed cured thereby; or(b) if Borrower shall fail to comply with any terms, conditions, covenant, warranty orrepresentation contained in **Section 10, Section 11, Section 12 and **Section 13 of this Agreement; or(c) if Borrower shall fail to comply with any term, condition, covenant or warranty of or inthis Agreement, any other Loan Document or any other agreement between Lender and Borrower, otherthan in **Section 10, Section 11, Section 12 and **Section 13 of this Agreement, and such failurecontinues for a period in excess of twenty (20) days after notice thereof is given by Lender toBorrower; or(d) if Borrower shall cease to be Solvent, make an assignment for the benefit of itscreditors, call a meeting of its creditors to obtain any general financial accommodation, suspendbusiness or if any case under any provision of the Bankruptcy Code, including provisions forreorganizations, shall be commenced by or against Borrower; or(e) if any statement or representation contained in any financial statement or certificatedelivered by Borrower to Lender shall be false, in any material respect, when made; or(f) if any federal tax lien is filed of record against Borrower or any Guarantor and is notbonded or discharged within ten (10) days; or(g) if Borrower’s independent public accountants shall refuse to deliver any financialstatement required by this Agreement (after the date due hereunder) within ten (10) days afterwritten demand by Lender for delivery of such financial statements; or(h) if a receiver, trustee or equivalent officer shall be appointed for all or any of theassets of Borrower; or(i) if a judgment for more than Two Hundred and Fifty Thousand Dollars ($250,000) shall beentered against Borrower in any action or proceeding and shall not be stayed, vacated, bonded,paid, discharged or applied in good faith within twenty(20) days; provided, that, noEvent of Default shall be deemed to have occurred in the case of any judgment where the claim iscovered by insurance and the insurance company has accepted liability therefor; or
 
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(j) if any obligation of Borrower in respect of Indebtedness shall be declared to be orshall become due and payable prior to the stated maturity thereof or such obligation shall notbe paid as and when the same becomes due and payable; or there shall occur any event orcondition which constitutes an event of default under any mortgage, indenture, instrument,agreement or evidence of indebtedness relating to any obligation of Borrower in respect of anysuch Indebtedness the effect of which is to permit the holder or the holders of such mortgage,indenture, instrument, agreement or evidence of Indebtedness, or a trustee, agent or otherrepresentative on behalf of such holder or holders, to cause the Indebtedness evidenced therebyto become due prior to its stated maturity; provided, that, the foregoing shallnot include (a) Indebtedness to Lender; or (b) Indebtedness arising in connection with any realproperty lease obligations up to $50,000.00, so long as no judgments are entered againstBorrower as a result of Borrower’s failure to pay such Indebtedness; or(k) upon the happening of any Reportable Event which Lender in its discretion determinescould reasonably be expected to constitute grounds for the termination of any Plan, or if atrustee shall be appointed by an appropriate United States District Court or other court ofadministrative tribunal to administer any Plan, or if the Pension Benefit Guaranty Corporationshall institute proceedings to terminate any Plan or to appoint a trustee to administer anyPlan; or(l) upon the occurrence and continuance of any Material Adverse Effect, which in the soleand absolute opinion of Lender, impairs Lender’s security or increases its risks; or(m) upon the happening of any of the events described in **Section 17.****1(d)****, Section 17.****1(e)****,Section 17.****1(g)****, Section 17.****1(h)****, Section 17.****1(i)** or **Section 17.**1(j)** with respect to a Guarantoror if any Guarantor purports to terminate its guaranty or if any Validity/Support Guarantorpurports to terminate his/its Validity/Support Guaranty or upon the death of any Guarantor orValidity/Support Guarantor that is a natural person; then and in any such event, Lender mayterminate this Agreement without prior notice or demand to Borrower or may demand payment of allObligations (whether otherwise then payable on demand or not) without terminating this Agreementand shall, in any event, be under no further responsibility to extend any credit or afford anyfinancial accommodation to Borrower, whether under this Agreement or otherwise or upon the saleof any Guarantor at a fair value of more than fifty thousand ($50,000).**17.2.****Obligations Immediately Due****.**Upon the effective date of termination for anyreason, all of Borrower’s Obligations to Lender, including but not limited to the Loans, shallimmediately become due and payable without further notice or demand.**17.3.****Continuation of Security Interests****.**Notwithstanding any termination, until allObligations of Borrower shall have been fully paid and satisfied, Lender shall retain allsecurity in and title to all existing and future Receivables, General Intangibles, Inventory,Equipment, Investment Property, and other Collateral held by Lender hereunder or under any otheragreement and Borrower shall continue to assign Receivables and consign Inventory to Lender andcontinue to turn over collections to Lender.
 
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**18.****REMEDIES OF LENDER****.****18.1.****Rights Under UCC****.**Upon the occurrence of any Event of Default or upon anytermination of this Agreement following an Event of Default, then Lender shall have, in addition toall of its other rights under this Agreement or otherwise (which rights shall be cumulative), allof the rights and remedies of a secured party under the UCC and shall have the right to enter uponany premises where the Collateral is kept and peacefully retake possession thereof. Lender may,without demand, advertising or notice all of which Borrower hereby waives (except as the same maybe required by law), sell, lease, dispose of, deliver and grant options to a third party topurchase, lease or otherwise dispose of any and all Receivables, General Intangibles, Inventory,Equipment, Investment Property or other security or Collateral held by it or for its account at anytime or times in one or more public or private sales or other dispositions, for cash, on credit orotherwise, as such prices and upon such terms as Lender, in its discretion, deems advisable. Noticeof any public sale shall be sufficient if it describes the security or Collateral to be sold ingeneral terms, stating the amounts thereof, the nature of the business in which such Collateral wascreated and the location and nature of the properties covered by the other security interests ormortgages and the prior liens thereon and any other information required under UCC 9-613, and inthe case of a public sale, is published at least once in The Wall Street Journal not lessthan ten (10) business days prior to the date of sale. If The Wall Street Journal is notthen being published, publication may be made in lieu thereof in any newspaper then beingcirculated in the City of New York which Lender may elect. Without requiring notice to Borrower,all requirements of reasonable notice under this Article shall be met if such notice is mailed,postage prepaid, to Borrower at its address set forth above or such other address as it may have,in writing, provided to Lender, at least ten (10) days before the time of such sale or disposition.Lender may, if it deems it reasonable, postpone or adjourn any sale of any Collateral from time totime by an announcement at the time and place of the sale to be so postponed or adjourned withoutbeing required to give a new notice of sale, provided, however, that Lender shall provide Borrowerwith written notice of the time and place of such postponed or adjourned sale. Lender may be thepurchaser at any such sale if it is public, and payment may be made, in whole or in part, inrespect of such purchase price by the application of Obligations due from Borrower to Lender.Borrower shall be jointly and severally obligated for, and the proceeds of sale shall be appliedfirst to, the costs of retaking, refurbishing, storing, guarding, insuring, preparing for sale, andselling the Collateral, including the fees and disbursements of attorneys, auctioneers, appraisersand accountants employed by Lender. Proceeds shall then be applied to the payment in whatever orderLender may elect, of all Obligations of Borrower. Lender shall return any excess to Borrower andBorrower shall remain jointly and severally liable for any deficiency.**18.2.****Collections; Modification of Terms****.**Without limiting any rights Lender may havepursuant to **Section 18.1** above, upon the occurrence and during the continuance of an Event ofDefault, Lender may demand, sue for, collect and give receipts for any money, instruments orproperty payable or receivable on account of or in exchange for any of the Collateral, or make anycompromises it deems necessary or proper, including without limitation, extending the time ofpayment, permitting payment in installments, or otherwise modifying the terms or rights relating toany of the Collateral, all of which may be effected without notice to or consent by Borrower andwithout otherwise discharging or affecting the Obligations, the Collateral or the security interestgranted under this Agreement or any of the Loan Documents.
 
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**18.3.****Notification of Account Debtors****.**Without limiting any rights of Lenderpursuant to this Agreement or under applicable law, after a Default or Event of Default hasoccurred, (i) Borrower, at the request of Lender, shall notify the Account Debtors of Lender’ssecurity interest in Borrower’s Receivables; and (ii) Lender may notify the Account Debtors onany of the Receivables to make payment directly to Lender, and Lender may endorse all items ofpayment received by it that are payable to Borrower.**18.4.****Insurance****.**Without limiting any rights of Lender pursuant to this Agreement orunder applicable law, after a Default or Event of Default has occurred, Lender may file proofs ofloss and claim with respect to any of the Collateral with the appropriate insurer, and mayendorse in its own and Borrower’s name any checks or drafts constituting insurance proceeds.Lender agrees that it shall endeavor to give Borrower prompt written notice of any such actionsbut Lender’s failure to give any such notice shall not impair or restrict Lender’s rightshereunder.**18.5.****Waiver of Rights by Borrower****.**Except as may be otherwise specifically providedherein or in any other agreement between Lender and Borrower which may be applicable, Borrowerwaives, to the extent permitted by law, any bonds, security or sureties required by any statute,rule or otherwise by law as an incident to any taking of possession by Lender of property subjectto Lender’s Lien. Borrower authorizes Lender, upon the occurrence of an Event of Default, topeacefully enter upon any premises owned by or leased to Borrower without obligation to pay rentor for use and occupancy, through self help, without judicial process and without having firstgiven notice to Borrower or obtained an order of any court.**18.6.****Lender’s Rights****.**Borrower agrees that Lender shall not have any obligation topreserve rights to any Collateral against prior parties or to marshall any Collateral of any kindfor the benefit of any other creditor of Borrower or any other person. After the occurrence of anEvent of Default, Lender is hereby granted a license or other right to use, without charge,Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names,trademarks and advertising matter, or any property of a similar nature, as it pertains to theCollateral, in completing production of, advertising for sale, and selling any Collateral andBorrower’s rights under all licenses and any franchise, sales or distribution agreements shallinure to Lender’s benefit for such purpose, subject to any limitations set forth in the relevantlicense(s), franchise(s), sales or distribution agreements, including, without limitation, limitson assignment rights.**19.****GENERAL PROVISIONS****.****19.1.****Rights Cumulative****.**Lender’s rights and remedies under this Agreement shall becumulative and non-exclusive of any other rights or remedies which it may have under any otheragreement or instrument, by operation of law or otherwise.
 
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**19.2.****Successors and Assigns****.**This Agreement is entered into for the benefit of theparties hereto and their successors and assigns. It shall be binding upon and shall inure to the,benefit of the said parties, their successors and assigns. Lender shall have the right, uponwritten notice to Borrower, without the necessity of any further consent or authorization byBorrower, to sell, assign, securitize or grant participation in all, or a portion of, Lender’sinterest in the Loans, to other financial institutions of the Lender’s choice and on such terms as are acceptable to Lender in itssole discretion, and Lender shall give Borrower prompt written notice of any such assignments,securitizations or participations; provided, however, that all such successors and assignsmust, to the satisfaction of the Borrower in its sole discretion, establish exemption from U.S.withholding tax and backup withholding by providing the appropriate and properly executed InternalRevenue Service Form W-9 or W-8.**19.3.****Notice****.**Wherever this Agreement provides for notice to any party (except asexpressly provided to the contrary), it shall be given by messenger, telegram, certified U.S. mailwith return receipt requested, or nationally recognized overnight courier with receipt requested,effective when received by the corporate party to whom addressed, and shall be addressed asfollows, or to such other address as the party affected may hereafter designate:       If to Lender: Keltic Financial Partners II, LP    Attn: John P. Reilly, President and CEO    580 White Plains Road    Suite 610    Tarrytown, NY 10591    Telephone:     914-921-3555 (ext. 208)    Facsimile:       914-921-1154       With a copy to: Meyner and Landis LLP    Attn: John N. Malyska, Esq.    Suite 2500    One Gateway Center    Newark, New Jersey 07102       If to Borrower: Helios & Matheson North America Inc.    200 Park Avenue South, Suite 901    New York, New York 10003    Attn: Salvatore M. Quadrino**19.4.****Strict Performance****.**The failure, at any time or times hereafter, to requirestrict performance by Borrower of any provision of this Agreement shall not waive, affect ordiminish any right of Lender thereafter to demand strict compliance and performance therewith.Any suspension or waiver by Lender of any Event of Default by Borrower under this Agreement or anyof the other Loan Documents shall not suspend, waive or affect any other Event of Default byBorrower under this Agreement or any of the other Loan Documents, whether the same is prior orsubsequent thereto and whether of the same or a different type.**19.5.****Amendments****.**This Agreement and the other agreements to which it refersconstitute the complete agreement between the parties with respect to the subject matter and maynot be changed, modified, waived, amended or terminated orally, but only by a writing signed by theparty to be charged.
 
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**19.6.****Waiver****.**Borrower waives presentment, protest, notice of dishonor and notice ofprotest upon any instrument on which it may be liable to Lender as maker, endorser, guarantor orotherwise.**19.7.****Conflict of Laws****.**This Agreement shall be governed by and construed inaccordance with the internal laws of the State of New York; provided, however, that if any of theCollateral shall be located in any jurisdiction other than New York, the laws of such jurisdictionshall govern the method, manner and procedure for foreclosure of Lenders’ lien upon such Collateraland the enforcement of Lenders’ other remedies in respect of such Collateral to the extent that thelaws of such jurisdiction are different from or inconsistent with the laws of New York.**19.8.****Expenses****.**(a) Borrower agrees to pay (i) the actual attorneys’ fees and expenses of Lender’s counselarising from the negotiation and preparation of this Agreement and the other Loan Documents and allreasonable expenses, costs, charges and other fees of such counsel of Lender incurred in connectiontherewith, and (ii) Lender’s out-of-pocket expenses in connection with periodic audits andappraisals performed by Lender.(b) If, at any time prior to the occurrence of an Event of Default, Lender employs counsel foradvice or other representation, or incurs legal expenses or other costs or out-of-pocket expensesin connection with: (1) the administration of this Agreement or any of the other Loan Documents andthe transactions contemplated hereby and thereby; (2) any litigation, contest, dispute, suit,proceeding or action (whether instituted by Lender, Borrower or any other Person) in any wayrelating to the Collateral, this Agreement or any of the other Loan Documents or Borrower’saffairs; (3) the perfection of any Lien on the Collateral; (4) any attempt to enforce any rights orremedies of Lender against Borrower or any other Person which may be obligated to Lender by virtueof this Agreement or any of the other Loan Documents, including, without limitation, the AccountDebtors; or (5) any attempt to inspect, verify, protect, preserve, restore, collect, sell,liquidate or otherwise dispose of or realize upon the Collateral; then, in any such event, theactual reasonable attorneys’ fees and expenses arising from such services and all reasonableexpenses, costs, charges and other fees of such counsel of Lender or relating to any of the eventsor actions described in this Section shall be payable by Borrower to Lender, and shall beadditional Obligations hereunder secured by the Collateral; provided, however, suchfees and expenses shall in no event exceed $20,000.00 per annum.(c) If, upon or after the occurrence of an Event of Default, Lender employs counsel for adviceor other representation, or incurs legal expenses or other costs or out-of-pocket expenses inconnection with any of the events or actions set forth in subparagraphs (a) or (b) of this Section;then, in any such event, the actual and reasonable attorneys’ fees and expenses arising from suchservices and all reasonable expenses, costs, charges and other fees of such counsel or of Lenderrelating to any of the events or actions described in subparagraphs (a) or (b) of this Section,including, without limitation, the reasonable cost and expense to Lender attributable to utilizingLender’s in-house staff for such purposes, shall be payable by Borrower to Lender, and shall beadditional Obligations hereunder secured by the Collateral.
 
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(d) Additionally, if any taxes (excluding (1) taxes imposed upon or measured by the netincome or net profits of Lender; (2) any withholding or backup withholding tax, or any other taxthat may arise as a result of the tax residence of the Lender, or its successor or assign, beingoutside the United States; and (3) any liability for interest and penalties arising with respectto such taxes; but including any intangibles tax, stamp tax or recording tax) shall be payable onaccount of the execution or delivery of this Agreement, or the execution, delivery, issuance orrecording of any of the other Loan Documents, or the creation of any of the Obligationshereunder, by reason of any existing or hereafter enacted federal or state statute, Borrower willpay (or will promptly reimburse Lender for the payment of) all such taxes, including, but notlimited to, any interest and penalties thereon, and will indemnify and hold Lender harmless fromand against liability in connection therewith.(e) Borrower shall also reimburse Lender for all other expenses incurred by Lender inconnection with the transactions contemplated under this Agreement or the other Loan Documents,including, without limitation, fees in connection with any bank account, the Blocked Account,wire charges, ACH Fees and other similar costs and expenses; provided, however, that Lender shalluse commercially reasonable efforts to minimize the occurrence and amount of such fees andexpenses.**19.9.****Reimbursements Charged to Revolving Loan****.**With respect to any amount advancedby Lender and required to be reimbursed by Borrower pursuant to the foregoing provisions of**Section 19.8**, it is hereby agreed that Lender may charge any such amount to Borrower’s RevolvingLoan on the dates such reimbursement is due, subject to the provisions of **Section 2.6** of thisAgreement. Lender agrees to provide Borrower notice of such charges in the monthly statementdelivered to Borrower pursuant to **Section 9** of this Agreement. Borrower’s obligations under**Section 19.8** shall survive termination of the other provisions of this Agreement.**19.10.****Waiver of Right to Jury Trial****.**Each party waives the right to trial by juryin the event of any action, suit, proceeding, counterclaim or other litigation to which Lenderand Borrower are parties in respect of any matter arising under this Agreement or any othermatter involving Borrower and Lender, whether or not other persons are also parties thereto.Borrower acknowledges that the foregoing waiver by Borrower is a material inducement to Lender’sentering into this Agreement and that Lender is relying on the foregoing waiver in its futuredealings with Borrower. Borrower represents and warrants that it reviewed this jury waiverprovision with its legal counsel, and has made this waiver knowingly and voluntarily.**20.****INDEMNIFICATION BY BORROWER/WAIVER OF CLAIMS****.****20.1.****Indemnification****.**Borrower hereby covenants and agrees to indemnify, defend andhold harmless Lender and its officers, partners, employees and agents from and against any andall claims, damages, liabilities, costs and expenses (including with limitation, the fees andexpenses of counsel) which may be incurred by or asserted against Lender and/or its designatedagents, and in respect of any claims, damages, liabilities, costs and expenses resulting from anybreach by Borrower of any representation or warranty made by it herein or in any other LoanDocument or nonfulfillment of any agreement or covenant of Borrower under this Agreement or in any otherLoan Document, in connection with:(a) any investigation, action or proceeding arising out of or in any way relating to thisAgreement, any of the Loans, any of the Loan Documents, any other agreement relating to any ofthe Obligations, any of the Collateral, or any act or omission relating to any of the foregoingby Borrower or its officers, directors, agents, consultants, advisors or employees; or
 
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(b) any taxes (other than taxes expressly excluded in **Section 19.****8(d)****)**, liabilities, claimsor damages relating to the Collateral or Lender’s liens thereon; or(c) the correctness, validity or genuineness of any instruments or documents that may bereleased or endorsed to Borrower by Lender (which shall automatically be deemed to be withoutrecourse to Lender in any event), or the existence, character, quantity, quality, condition,value or delivery of any goods purporting to be represented by any such documents; or(d) any broker’s commission, finder’s fee or similar charge or fee in connection with theLoans and the transactions contemplated in this Agreement, provided, however, it is understoodthat Lender has incurred no such fee or charge with respect to this transaction.**20.2.****Savings Clause for Indemnification****.**To the extent that the undertaking toindemnify, pay and hold harmless set forth in **Section 20.1** above may be unenforceable because itis violative of any law or public policy, Borrower shall contribute the maximum portion which itis permitted to pay and satisfy under applicable law to the payment and satisfaction of allmatters referred to under **Section 20.1**.**20.3.****Waiver****.**To the extent permitted by applicable law, no claim may be made byBorrower or any other Person against Lender or any of its Affiliates, partners, officers,employees, agents, attorneys or consultants for any special, indirect, consequential or punitivedamages in respect of any claim for breach of contract, tort or any other theory of liabilityarising out of or related to the transactions contemplated by this Agreement or any act, omissionor event occurring in connection therewith; and Borrower hereby waives, releases and agrees notto sue upon any claim for any such special, indirect, consequential or punitive damages, whetheror not accrued and whether or not known or suspected to exist in its favor. Neither Lender norany of its Affiliates, partners, officers, employees or agents shall be liable for any actiontaken or omitted to be taken by it or them under or in connection with this Agreement or thetransactions contemplated hereby, except for its or their own gross negligence or willfulmisconduct.**21.****MISCELLANEOUS****.****21.1.****Entire Agreement; Amendments; Lender’s Consent****.**This Agreement (including theExhibits and Schedules thereto) and the Loan Documents supersede, with respect to their subjectmatter, all prior and contemporaneous agreements, understandings, inducements or conditionsbetween the respective parties, whether express or implied, oral or written. No amendment orwaiver of any provision of this Agreement or any of the Loan Documents, nor consent to anydeparture by Borrower therefrom, shall in any event be effective unless the same shall be inwriting and signed by Lender, and then such waiver or consent shall be effective only in thespecific instance and for the specific purpose for which given.
 
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**21.2.****Cross Default; Cross Collateral****.**Borrower hereby agrees that (a) all otheragreements between Borrower and Lender or any of Lender’s Affiliates are hereby amended so that adefault under this Agreement is a default under all such other agreements and a default under anyone of the other agreements is a default under this Agreement, and (b) the Collateral under thisAgreement secures the Obligations now or hereafter outstanding under all other agreements betweenBorrower and Lender and the Collateral pledged under any other agreement with Lender secures theObligations under this Agreement.**21.3.****Execution in Counterparts****.**This Agreement may be executed in any number ofcounterparts, each of which when so executed shall be deemed to be an original and all of whichtaken together shall constitute but one and the same agreement.**21.4.****Severability of Provisions****.**Any provision of this Agreement or any of the LoanDocuments that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,be ineffective to the extent of such prohibition or unenforceability without invalidating theremaining provisions of this Agreement or the Loan Documents or affecting the validity orenforceability of such provision in any other jurisdiction.**21.5.****Table of Contents; Headings****.**The table of contents and headings preceding thetext of this Agreement are inserted solely for convenience of reference and shall not constitute apart of this Agreement or affect its meaning, construction or effect.**21.6.****Exhibits and Schedules****.**All of the Exhibits and Schedules to this Agreement arehereby incorporated by reference herein and made a part hereof.**21.7.****Consent to Jurisdiction****.**As part of the consideration for new value received,and regardless of any present or future domicile or principal place of business of Borrower orLender, Borrower hereby consents and agrees that any federal or state court located in any county,in New York State, shall have jurisdiction to hear and determine any claims or disputes betweenBorrower and Lender pertaining to this Agreement or to any matter arising out of or related to thisAgreement; provided, however, Lender may, at its option, commence any action, suit or proceeding inany other appropriate forum or jurisdiction to obtain possession of or foreclose upon anyCollateral, to obtain equitable relief or to enforce any judgment or order obtained by Lenderagainst Borrower or with respect to any Collateral, to enforce any other right or remedy under thisAgreement or to obtain any other relief deemed appropriate by Lender. Borrower expressly submitsand consents in advance to such jurisdiction in any action or suit commenced in any such court, andBorrower hereby waives any objection which Borrower may have based upon lack of personaljurisdiction, improper venue or forum non conveniens and hereby consents to the granting of suchlegal or equitable relief as is deemed appropriate by such court. Borrower represents and warrantsthat it has reviewed this consent to jurisdiction provision with its legal counsel, and has madethis waiver knowingly and voluntarily.
 
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**IN WITNESS WHEREOF**, the parties hereto have caused this Agreement to be executed by theirofficers thereunto duly authorized on the day and year first above written.           **KELTIC FINANCIAL PARTNERS II, LP**     By: KELTIC FINANCIAL SERVlCES LLC,      its general partner               By: /s/ John P. Reilly         John P. Reilly, President and CEO             **HELIOS & MATHESON NORTH AMERICA INC.**             By: /s/ Salvatore M. Quadrino             Name: Salvatore M. Quadrino      Title:   Chief Financial Officer  
 
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**EXHIBIT “A”****BORROWING BASE CERTIFICATE****As of**                               **BORROWER:**                   PREVIOUS DAY A/R { / / } $—                  Sales: $—       Credits: $—       Debits: $—       Collections: $—       Coll. Adj’s: $—                ENDING A/R { / / } $—                Ineligibles: Past Due a/o__: $—       Ineligible a/o__: $—              ELIGIBLE A/R: $—              A/R @ 75%: / $—              TOTAL AVAILABLE COLLATERAL: $—              OUTSTANDING LOAN BALANCE AS OF / / : $—     ADVANCE { / / }: $—     OUTSTANDING LOAN BALANCE AS OF / / : $—              NET AVAILABILITY: $—     I hereby certify in connection with the Loan and Security Agreement, dated as of December 29, 2009,between **HELIOS****&****MATHESON NORTH AMERICA INC.**and Keltic Financial Partners II, LP, that theinformation and each calculation set forth above is to the best of my knowledge, true, correct andcomplete as of the date hereof and are calculated in accordance with the Loan and SecurityAgreement. Unless otherwise defined herein, all terms used herein shall have the meanings ascribedto them in the Loan and Security Agreement.         Prepared By:   Dated:       (Authorized Signature)      
 
 

 
**EXHIBIT “B”****COMPLIANCE CERTIFICATE****HELIOS & MATHESON NORTH AMERICA INC.**(“Borrower”) hereby certifies to KELTIC FINANCIALSERVICES, LP in accordance with the provisions of a Loan and Security Agreement between Borrowerand Lender dated as of December 29, 2009, as the same from time to time may be amended,supplemented or otherwise modified (“Agreement”) that:(i) Borrower has complied in all respects with all the terms, covenants and conditions of theAgreement which are binding upon them;(ii) there exists no Event of Default or Default as defined in the Agreement;(iii) the representations and warranties contained in the Agreement are true in all respectswith the same effect as though such representations and warranties had been made on the datehereof; andWITNESS the signature of the undersigned duly authorized officer of Borrower on September 27,2007.      **HELIOS & MATHESON NORTH AMERICA INC.********************