Document:

Exhibit 10.1

 

SECURITIES
PURCHASE AGREEMENT

 

THIS
SECURITIES PURCHASE AGREEMENT (this “Agreement”)
is dated as of July 2, 2008, among CRDENTIA CORP.,
a Delaware corporation (the “Company”),
and the investors identified on the signature pages hereto (each, including
its successors and assigns, an “Investor”
and collectively, the “Investors”).

 

WHEREAS, subject to
the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of
the Securities Act of 1933, as amended (the “Securities
Act”) and Rule 506 promulgated thereunder, the Company
desires to issue and sell to each Investor, and each Investor, severally and
not jointly, desires to purchase from the Company certain securities of the
Company, as more fully described in this Agreement.

 

NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants
contained in this Agreement, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the Company and each
Investor agree as follows:

 

ARTICLE I.

DEFINITIONS

 

Section 1.1                                      Definitions.  In addition to the terms defined elsewhere in
this Agreement, for all purposes of this Agreement, the following terms shall
have the meanings indicated in this Section 1.1:

 

“Action”
means any action, suit, inquiry, notice of violation, proceeding (including any
partial proceeding such as a deposition) or investigation pending or threatened
in writing against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency, regulatory authority (federal, state, county, local or
foreign), stock market, stock exchange or trading facility.

 

“Affiliate”
means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144 under the
Securities Act.  With respect to an
Investor, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Investor will be
deemed to be an Affiliate of such Investor.

 

“Business
Day” means any day except Saturday, Sunday and any day which is
a federal legal holiday in the United States or a day on which banking
institutions in the State of New York are authorized or required by law or
other government action to close.

 

“Closing”
means the closing of the purchase and sale of the Securities pursuant to Article II.

 

“Closing
Date” means the Business Day on which all of the Transaction
Documents have been executed and delivered by the applicable parties thereto,
and all conditions

 

 

precedent
to (i) the Investors’ obligations to pay the Investment Amount and (ii) the
Company’s obligations to deliver the Shares and Warrants have been satisfied or
waived.

 

“Commission”
means the Securities and Exchange Commission.

 

“Common
Stock” means the common stock of the Company, par value $0.001
per share, and any securities into which such common stock may hereafter be
reclassified.

 

“Common
Stock Equivalents” means any securities of the Company or any
Subsidiary which entitle the holder thereof to acquire Common Stock at any
time, including, without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time exercisable or
convertible into or exchangeable for, or otherwise entitles the holder thereof
to receive, Common Stock or other securities that entitle the holder to
receive, directly or indirectly, Common Stock.

 

“Company
Counsel” means Kane Russell Coleman & Logan PC.

 

“Disclosure
Materials” has the meaning set forth in Section 3.1(h).

 

“Disclosure
Schedules” has the meaning set forth in Article III.

 

“Discussion
Time” has the meaning set forth in Section 3.2(f).

 

“Evaluation
Date” has the meaning set forth in Section 3.1(q).

 

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

 

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

 

“Intellectual
Property Rights” has the meaning set forth in Section 3.1(n).

 

“Investment
Amount” means, as to each Investor, the aggregate amount to be
paid for the Shares and Warrants purchased hereunder as specified next to such
Investor’s name on the signature page of this Agreement and below the
heading “Investment Amount,” in United States Dollars and in immediately
available funds.

 

“Investor”
has the meaning set forth in the Preamble of this Agreement

 

“Investor
Party” has the meaning set forth in Section 4.11.

 

“Legend
Removal Date” has the meaning set forth in Section 4.1(c).

 

“Lien”
means any lien, charge, encumbrance, security interest, right of first refusal
or other restrictions of any kind.

 

“Material
Adverse Effect” means any of (i) a material and adverse
effect on the legality, validity or enforceability of any Transaction Document,
(ii) a material and adverse effect on the results of operations, assets,
business or condition (financial or otherwise) of the

 

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Company
and the Subsidiaries, taken as a whole, or (iii) an adverse impairment to
the Company’s ability to perform on a timely basis its obligations under any
Transaction Document.

 

“New
York Courts” means the state and federal courts sitting in the
City of New York, Borough of Manhattan.

 

“Per
Share Purchase Price” equals $0.30 per share

 

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

 

“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.

 

“Rule 144” means Rule 144
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such Rule.

 

“SEC
Reports” has the meaning set forth in Section 3.1(h).

 

“Securities”
means the Shares, the Warrants and the Warrant Shares.

 

“Securities
Act” has the meaning set forth in the Preamble.

 

“Shares”
means $1 million worth of the shares of Common Stock issued or issuable to the
Investors pursuant to this Agreement.

 

“Short
Sales” include, without limitation, all “short sales” as defined
in Rule 200 promulgated under Regulation SHO under the Exchange Act and
all types of direct and indirect stock pledges, forward sale contracts,
options, puts, calls, swaps and similar arrangements (including on a total
return basis), and sales and other transactions through non-US broker dealers
or foreign regulated brokers.

 

“Subsidiary”
means any “significant subsidiary”, as defined in Rule 1-02(w) of the
Regulation S-X promulgated by the Commission under the Exchange Act, of the
Company.

 

“Trading
Day” means (i) a day on which the Common Stock is traded on
a Trading Market (other than the OTC Bulletin Board), or (ii) if the
Common Stock is not listed on a Trading Market (other than the OTC Bulletin
Board), a day on which the Common Stock is traded in the over-the-counter
market, as reported by the OTC Bulletin Board, or (iii) if the Common
Stock is not quoted on any Trading Market, a day on which the Common Stock is
quoted in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding to its
functions of reporting prices); provided, that in the event that the Common
Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof,
then Trading Day shall mean a Business Day.

 

3

 

“Trading
Market” means whichever of the New York Stock Exchange, the
American Stock Exchange, the NASDAQ Global Market, the NASDAQ Capital Market or
OTC Bulletin Board on which the Common Stock is listed or quoted for trading on
the date in question.

 

“Transaction
Documents” means this Agreement, the Warrant, and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.

 

“Warrants”
means collectively the Common Stock purchase warrants, in the form of Exhibit A
hereto, delivered to the Investors at the Closing in accordance with Section 2.2(a) hereof,
which Warrants shall be exercisable immediately and have a term of exercise
equal to five (5) years.

 

“Warrant
Shares” means the shares of Common Stock issuable upon exercise
of the Warrants.

 

ARTICLE II.

PURCHASE AND SALE

 

Section 2.1                                      Closing.  Subject to the terms and conditions set forth
in this Agreement, at the Closing (as defined below), the Company shall issue
and sell to each Investor, and each such Investor shall, severally and not
jointly, purchase from the Company, the Shares and Warrants representing such
Investor’s Investment Amount as set forth on Schedule A hereto, for aggregate
gross proceeds to the Company in the amount of One Million and No/100 Dollars
($1,000,000.00).  Each Investor shall
deliver to the Company via wire transfer or a certified check immediately
available funds equal to their Investment Amount and the Company shall deliver
to each Investor their respective Shares and Warrants as determined pursuant to
Section 2.2(a) and the other items set forth in Section 2.2
issuable at the Closing.  Upon
satisfaction of the conditions set forth in Sections 2.3 and 2.4,
the Closing shall occur at the offices of Kane Russell Coleman & Logan
PC, 3700 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201 or such other
location as the parties shall mutually agree (which time and place are
designated as the “Closing”).

 

Section 2.2                                      Closing Deliveries

 

(a)                                  At the Closing,
the Company shall deliver or cause to be delivered to each Investor the
following:

 

(i)                                     this Agreement
duly executed by the Company;

 

(ii)                                  a certificate
evidencing a number of Shares equal to such Investor’s Investment Amount
divided by the Per Share Purchase Price, registered in the name of such
Investor; and

 

(iii)                               a Warrant
registered in the name of such Investor to purchase up to a number of shares of
Common Stock equal to 50% of the number of Shares such Investor purchases under
this Agreement at the Closing, with an exercise price equal to $0.35 per share,
subject to adjustment therein.

 

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(b)                                 At the Closing,
each Investor shall deliver or cause to be delivered to the Company the
following:

 

(i)                                     this Agreement
duly executed by such Investor; and

 

(ii)                                  such Investor’s
Investment Amount, in United States dollars and in immediately available funds,
by check or by wire transfer to an account specified in writing by the Company
for such purpose.

 

Section 2.3                                      Closing Conditions.

 

(a)                                  The obligation
of each Investor to acquire Securities at the Closing is subject to the
satisfaction or waiver by such Investor, at or before the Closing, of each of
the following conditions:

 

(i)                                     the Company
shall have received commitments from Investors to purchase an amount of
Securities with an aggregate purchase price of $1 million;

 

(ii)                                  the accuracy in
all material respects on the Closing Date of the representations and warranties
of the Company contained herein;

 

(iii)                               all
obligations, covenants and agreements of the Company required to be performed
at or prior to the Closing Date shall have been performed;

 

(iv)                              the delivery by
the Company of the items set forth in Section 2.2(a) of this
Agreement; and

 

(v)                                 there shall
have been no Material Adverse Effect with respect to the Company since the date
hereof.

 

(b)                                 The obligation
of the Company to sell Securities at the Closing is subject to the satisfaction
or waiver by the Company, at or before the Closing, of each of the following
conditions:

 

(i)                                     the accuracy in
all material respects when made and on the Closing Date of the representations
and warranties of the Investors contained herein;

 

(ii)                                  all
obligations, covenants and agreements of the Investors required to be performed
at or prior to the Closing shall have been performed; and

 

(iii)                               the delivery by
the Investors of the items set forth in Section 2.2(b) of this
Agreement.

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

Section 3.1                                      Representations
and Warranties of the Company.  Except as set forth under the corresponding
section of the disclosure schedules delivered to the Investors

 

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concurrently herewith (the “Disclosure Schedules”), which
Disclosure Schedules shall be deemed a part hereof, the Company hereby makes
the following representations and warranties to each Investor:

 

(a)                                  Subsidiaries.  The Company has no direct or indirect
Subsidiaries other than as specified in the SEC Reports.  The Company owns, directly or indirectly, all
of the capital stock of each Subsidiary free and clear of any and all Liens,
and all the issued and outstanding shares of capital stock of each Subsidiary
are validly issued and are fully paid, non-assessable and free of preemptive
and similar rights.  Other than as
specified in the SEC Reports, neither the Company nor any Subsidiary is party
to any material joint venture or has any ownership interest in any entity that
is material to the Company.

 

(b)                                 Organization
and Qualification.  The Company
and each Subsidiary are duly incorporated or otherwise organized and validly
existing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any
Subsidiary is in violation of any of the material provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents.  The Company and each
Subsidiary are duly qualified to conduct its respective businesses and are in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, have
or reasonably be expected to result in a Material Adverse Effect.

 

(c)                                  Authorization;
Enforcement.  The Company
has the requisite corporate power and authority to enter into and to consummate
the transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder.  The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company in connection therewith.  Each
Transaction Document has been (or upon delivery will have been) duly executed
by the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies, and (iii) insofar as indemnification and contribution provisions
may be limited by applicable law.

 

(d)                                 No Conflicts.  Except as otherwise disclosed on Schedule
3.1(d), the execution, delivery and performance of the Transaction Documents by
the Company and the consummation by the Company of the transactions
contemplated thereby do not and will not (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, or (ii) conflict
with, or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation (with

 

6

 

or
without notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing a Company or Subsidiary debt or otherwise) to
which the Company or any Subsidiary is a party or by which any property or
asset of the Company or any Subsidiary is bound, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company
or a Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or any
Subsidiary is bound or affected; except in the case of each of clauses (ii) and
(iii), such as could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect.

 

(e)                                  Filings,
Consents and Approvals.  The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing with the Commission of
one or more Registration Statements in accordance with the requirements of the
Registration Rights Agreement, (ii) filings required by state securities
laws, (iii) the filing of a Notice of Sale of Securities on Form D
with the Commission under Regulation D of the Securities Act, (iv) the
filings required in accordance with Sections 4.6 and 4.15, (v) such
consents or waivers as may be required under registration rights agreements
entered into in connection with business acquisitions effected prior to the
date of this Agreement, (vi) the filing of any requisite notices with the
Trading Market, and (vii) those that have been made or obtained prior to
the date of this Agreement.

 

(f)                                    Issuance of the
Securities.  The
Securities have been duly authorized and, when issued and paid for in
accordance with the Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens.  The Company has reserved from its duly
authorized capital stock the Shares issuable pursuant to this Agreement.

 

(g)                                 Capitalization.  The number of shares and type of all
authorized, issued and outstanding capital stock of the Company, and all shares
of Common Stock reserved for issuance under the Company’s various option and
incentive plans as of March 31, 2008, is accurately set forth in the SEC
Reports.  Except as specified in the SEC
Reports, no securities of the Company are entitled to preemptive or similar
rights.  No Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.  Except as specified in the SEC Reports, and
other than stock options granted pursuant to the Company’s stock option plans
following March 31, 2008, there are no outstanding options, warrants,
scrip rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. 
The issue and sale of the Securities will not, immediately or with the
passage of time, obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Investors) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities.

 

7

 

(h)                                 SEC Reports;
Financial Statements.  The Company
has filed all reports, forms and schedules required to be filed by it under the
Securities Act and the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the twelve months preceding the date hereof (or
such shorter period as the Company was required by law to file such reports)
(the foregoing materials being collectively referred to herein as the “SEC Reports” and, together with the
Schedules to this Agreement (if any), the “Disclosure Materials”)
on a timely basis or has timely filed a valid extension of such time of filing
and has filed any such SEC Reports prior to the expiration of any such
extension.  The SEC Reports, as amended,
when filed, complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, as amended,
when filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.  The financial
statements of the Company included in the SEC Reports, as amended, comply in
all material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing.  Such financial statements have
been prepared in accordance with GAAP applied on a consistent basis during the
periods involved, except as may be otherwise specified in such financial
statements or the notes thereto, and fairly present in all material respects
the financial position of the Company and its consolidated Subsidiaries as of
and for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
year-end audit adjustments.

 

(i)                                     Material
Changes.  Since the date of the latest
audited financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables, accrued expenses
and other liabilities incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected in the
Company’s financial statements pursuant to GAAP or required to be disclosed in
filings made with the Commission, (iii) the Company has not altered its
method of accounting or the identity of its auditors, (iv) the Company has
not declared or made any dividend or distribution of cash or other property to
its stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock (other than in connection with
repurchases of unvested stock issued to employees of the Company), and (v) the
Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock option plans.

 

(j)                                     Litigation.  There is no Action which (i) adversely
affects or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) except as specifically
disclosed in the SEC Reports, could, if there were an unfavorable decision,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect.  Neither the
Company nor any Subsidiary, nor any director or officer thereof (in his or her
capacity as such), is or has been the subject of any Action involving a claim
of violation of or liability under federal or state securities laws or a claim
of breach of fiduciary duty, except as specifically disclosed in the SEC
Reports.  During the past twelve (12)
months preceding the date hereof there has not been, and to the knowledge of
the Company, there is no

 

8

 

pending
any investigation by the Commission involving the Company or any current or
former director or officer of the Company (in his or her capacity as
such).  The Commission has not issued any
stop order or other order suspending the effectiveness of any registration statement
filed by the Company or any Subsidiary under the Exchange Act or the Securities
Act.

 

(k)                                  Compliance.  Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is
in violation of, or in receipt of notice that it is in violation of, any order
of any court, arbitrator or governmental body, or (iii) is or has been in
violation of, or in receipt of notice that it is in violation of, any statute, rule or
regulation of any governmental authority, including without limitation all
foreign, federal, state and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and safety,
employment and labor matters and, to its knowledge, privacy, except in each
case as could not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect.  The Company is in compliance with all
effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and
regulations thereunder, that are applicable to it, except where such
noncompliance could not have or reasonably be expected to result in a Material
Adverse Effect.

 

(l)                                     Regulatory
Permits.  The Company and the
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities necessary
to conduct their respective businesses as described in the SEC Reports, except
where the failure to possess such permits could not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such permits.

 

(m)                               Title to Assets.  The Company and the Subsidiaries have good
and marketable title in fee simple to all real property owned by them that is
material to their respective businesses and good and marketable title in all
personal property owned by them that is material to their respective
businesses, in each case free and clear of all Liens, except for Liens as do
not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company and the Subsidiaries.  Any real
property and facilities held under lease by the Company and the Subsidiaries
are held by them under leases valid, subsisting and enforceable against the
Company and the Subsidiaries, and the Company and the Subsidiaries are in
compliance with such leases, except as could not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect.

 

(n)                                 Patents and
Trademarks.  The Company
and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights that are necessary or material
for use in connection with their respective businesses as described in the SEC
Reports and which the 

 

9

 

failure
to so have could, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect (collectively, the “Intellectual Property Rights”).  Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person
and the Company has no knowledge of any such violation or infringement.  Except as set forth in the SEC Reports, to
the knowledge of the Company, all such Intellectual Property Rights are
enforceable.

 

(o)                                 Insurance.  The Company and the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary for enterprises of
similar size and stage of development in the businesses in which the Company
and the Subsidiaries are engaged.  The
Company has no reason to believe that it will not be able to renew its and the
Subsidiaries’ existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business on terms consistent with market for the Company’s and
such Subsidiaries’ respective lines of business.

 

(p)                                 Transactions
With Affiliates and Employees.  Except as set forth in the SEC Reports, none
of the officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary required to be disclosed in the
SEC Reports (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

 

(q)                                 Internal
Accounting Controls.  The Company
and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii) transactions
are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences. 
The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities.  The Company’s certifying officers have
evaluated the effectiveness of the Company’s controls and procedures in
accordance with Item 307 of Regulation S-K under the Exchange Act for the
Company’s fiscal quarter ended March 31, 2008 (such date, the “Evaluation Date”).  The Company presented in its most recently
filed Form 10-Q the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. 
Since the Evaluation Date, there have been no significant changes in the
Company’s internal controls (as such term is defined in Item 308 of Regulation
S-K under the Exchange Act) or, to the Company’s 

 

10

 

knowledge,
in other factors that could significantly affect the Company’s internal
controls which was required to be disclosed in the SEC Reports and was not so
disclosed.

 

(r)                                    Certain Fees.  No agent or broker will receive brokerage or
finder fees or commissions payable by the Company with respect to the
transactions contemplated by this Agreement. 
The Investors shall have no obligation with respect to any fees or with
respect to any claims (other than such fees or commissions owed by an Investor
pursuant to written agreements executed by such Investor which fees or
commissions shall be the sole responsibility of such Investor) made by or on
behalf of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by this Agreement.

 

(s)                                  Certain
Registration Matters.  Assuming
the accuracy of the Investors’ representations and warranties set forth in Section 3.2,
no registration under the Securities Act is required for the offer and sale of
the Shares and Warrants by the Company to the Investors under the Transaction
Documents.

 

(t)                                    Listing and
Maintenance Requirements. 
Except as specified in the SEC Reports, the Company has not, in the two
years preceding the date hereof, received notice from any Trading Market to the
effect that the Company is not in compliance with the listing or maintenance
requirements thereof.  The Company is,
and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with the listing and maintenance requirements for
continued listing of the Common Stock on the Trading Market on which the Common
Stock is currently listed or quoted.  The
issuance and sale of the Securities under the Transaction Documents does not
contravene the rules and regulations of the Trading Market on which the
Common Stock is currently listed or quoted, and no approval of the shareholders
of the Company thereunder is required for the Company to issue and deliver to
the Investors the Securities contemplated by Transaction Documents.

 

(u)                                 Investment
Company.  The Company is not, and is not
an Affiliate of, and immediately following the Closing will not have become, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.

 

(v)                                 Application of
Takeover Protections.  The Company
has taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Company’s Certificate of Incorporation (or similar charter documents) or the
laws of its state of incorporation that is or could become applicable to the
Investors as a result of the Investors and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including without limitation the Company’s issuance of the Securities and the
Investors’ ownership of the Securities.

 

(w)                               No Additional
Agreements.  The Company
does not have any agreement or understanding with any Investor with respect to
the transactions contemplated by the Transaction Documents other than as
specified in the Transaction Documents.

 

(x)                                   Disclosure.  The Company confirms that neither it nor any
Person acting on its behalf has provided any Investor or its respective agents
or counsel with any information

 

11

 

that
the Company believes constitutes material, non-public information except
insofar as the existence and terms of the proposed transactions hereunder may
constitute such information.  The Company
understands and confirms that the Investors will rely on the foregoing representations
and covenants in effecting transactions in securities of the Company.  All disclosure provided to the Investors
regarding the Company, its business and the transactions contemplated hereby,
furnished by or on behalf of the Company (including the Company’s
representations and warranties set forth in this Agreement) are true and
correct and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.

 

(y)                                 Insolvency.  The Company is not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
Closing will not, be Insolvent.  For
purposes of this Agreement, “Insolvent” shall mean, with respect to any Person,
that (i) such Person is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured or (ii) such Person intends to incur or believes that
it will incur debts that would be beyond its ability to pay as such debts
mature.

 

(z)                                   Transfer Taxes.  On the Closing Date, all stock transfer or
other taxes (other than income or similar taxes) which are required to be paid
in connection with the sale and transfer of the Securities to be sold to each
Investor hereunder will be, or will have been, fully paid or provided for by
the Company, and all laws imposing such taxes will be or will have been
complied with by the Company, except where such noncompliance could not have or
reasonably be expected to result in a Material Adverse Effect.

 

(aa)                            Tax Status.  The Company and each of its Subsidiaries (i) has
made or filed all foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject, (ii) has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set
aside on its books provision reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply, except where the failure to do so could not have or
reasonably be expected to result in a Material Adverse Effect.  There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim.

 

(bb)                          Undisclosed
Liabilities.  No event,
liability, development or circumstance has occurred or exists with respect to
the Company or its business, properties, prospects, operations or financial
condition that would be required to be disclosed by the Company under the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder relating to an issuance and sale by the
Company of its securities and which has not been reported in accordance with
such rules and regulations of the Commission.

 

(cc)                            Employee
Relations.  Neither the
Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. 
The Company and its Subsidiaries believe that their relations with their
employees are good.  No executive officer
of the Company or any of its Subsidiaries (as defined in Rule 501(f) of
the Securities Act)

 

12

 

has
notified the Company or any such Subsidiary that such officer intends to leave
the Company or any such Subsidiary or otherwise terminate such officer’s
employment with the Company or any such Subsidiary.  No executive officer of the Company or any of
its Subsidiaries, to the knowledge of the Company or any such Subsidiary, is
now, or expects to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract, agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any such Subsidiary to any liability with respect to any
of the foregoing matters.  The Company
and its Subsidiaries are in compliance with all federal, state and local laws
and regulations respecting labor, employment and employment practices and
benefits, terms and conditions of employment and wages and hours, except where
failure to be in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.  There are no complaints or charges against
the Company or its Subsidiaries pending or, to the knowledge of the Company and
its Subsidiaries, threatened to be filed with any governmental authority or arbitrator
based on, arising out of, in connection with, or otherwise relating to the
employment or termination of employment by the Company or its Subsidiaries of
any individual that would be reasonably likely to result in a Material Adverse
Effect.

 

(dd)                          Subsidiary
Rights.  The Company or one or more of
its Subsidiaries have the unrestricted right to vote, and (subject to
limitations imposed by applicable law) to receive dividends and distributions
on, all capital securities of its Subsidiaries as owned by the Company or such
Subsidiaries.

 

(ee)                            Off Balance
Sheet Arrangements.  There is no
transaction, arrangement, or other relationship between the Company and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its SEC Reports and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse Effect.

 

Section 3.2                                      Representations
and Warranties of the Investors.  Each Investor hereby, for itself and for no
other Investor, represents and warrants to the Company as follows:

 

(a)                                  Organization;
Authority.  Such
Investor is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with full right,
corporate or partnership power and authority to enter into and to consummate
the transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder.  The execution, delivery and performance by
such Investor of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of such
Investor.  Each Transaction Document to
which it is a party has been duly executed by such Investor, and when delivered
by such Investor in accordance with the terms hereof, will constitute the valid
and legally binding obligation of such Investor, enforceable against it in
accordance with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’
rights generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and (iii) insofar
as indemnification and contribution provisions may be limited by applicable
law.

 

13

 

(b)                                 Own Account.  Such Investor understands that the Securities
are “restricted securities” and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities as
principal for its own account and not with a view to or for distributing or
reselling such Securities or any part thereof in violation of the Securities
Act or any applicable state securities law, has no present intention of
distributing any of such Securities in violation of the Securities Act or any
applicable state securities law, and has no arrangement or understanding with
any other Persons regarding the distribution of such Securities in violation of
the Securities Act or any applicable state securities law (this representation
and warranty not limiting such Investor’s right to sell the Securities pursuant
to a registration statement or otherwise in compliance with applicable federal
and state securities laws).  Such
Investor is acquiring the Securities hereunder in the ordinary course of its
business.  Such Investor does not have
any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.

 

(c)                                  Investor Status.  At the time such Investor was offered the
Securities, it was, and on the date hereof it is, and on each date on which it
exercises any Warrants it will be either: (i) an “accredited investor” as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under
the Securities Act or (ii) a “qualified institutional buyer” as defined in
Rule 144A(a) under the Securities Act.  Such Investor is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.

 

(d)                                 Experience of
Such Investor.  Such
Investor, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters so
as to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of such
investment.  Such Investor is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.

 

(e)                                  General
Solicitation.  Such
Investor is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in
any newspaper, magazine or similar media or broadcast over television or radio
or presented at any seminar or any other general solicitation or general
advertisement.

 

(f)                                    Short Sales and
Confidentiality Prior To The Date Hereof.  Other than the transactions contemplated
hereunder, such Investor has not directly or indirectly, nor has any Person
acting on behalf of or pursuant to any understanding with such Investor,
executed any disposition, including Short Sales, in the securities of the
Company during the period commencing from the time that such Investor first
received a term sheet from the Company or any other Person setting forth the
material terms of the transactions contemplated hereunder until the date hereof
(“Discussion Time”).  Notwithstanding the foregoing, in the case of
an Investor that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Investor’s assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Investor’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement.  Other than to other Persons party to this Agreement,
such

 

14

 

Investor
has maintained the confidentiality of all disclosures made to it in connection
with the transactions contemplated hereunder (including the existence and terms
of such transactions).

 

The Company acknowledges and
agrees that no Investor has made or makes any representations or warranties
with respect to the transactions contemplated hereby other than those
specifically set forth in this Section 3.2.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

Section 4.1                                      Transfer Restrictions.

 

(a)                                  The Securities
may only be disposed of in compliance with state and federal securities
laws.  In connection with any transfer of
Securities other than pursuant to an effective registration statement or Rule 144,
to the Company or to an Affiliate of an Investor or in connection with a pledge
as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor and reasonably acceptable to the Company, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act.  As a condition
of transfer, any such transferee shall agree in writing to be bound by the
terms of this Agreement shall have the rights of an Investor under this
Agreement.

 

(b)                                 The Investors
agree to the imprinting, so long as is required by this Section 4.1(b),
of a legend on any of the Securities in the following form:

 

NEITHER THESE SECURITIES NOR
THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.  THESE SECURITIES AND THE SECURITIES ISSUABLE
UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

The Company acknowledges and
agrees that an Investor may from time to time pledge pursuant to a bona fide
margin agreement with a registered broker-dealer or grant a security interest
in some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and, if required under
the terms of such arrangement, such Investor may transfer pledged or secured
Securities to the pledgees or secured parties. 
Such a pledge or transfer would

 

15

 

not
be subject to approval of the Company and no legal opinion of legal counsel of
the pledgee, secured party or pledgor shall be required in connection
therewith.  Further, no notice shall be
required of such pledge.  At the appropriate
Investor’s expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably
request in connection with a pledge or transfer of the Securities.

 

(c)                                  Certificates
evidencing the Warrant Shares shall not contain any legend (including the
legend set forth in Section 4.1(b) hereof): (i) while a
registration statement covering the resale of such security is effective under
the Securities Act, or (ii) following any sale of such Warrant Shares
pursuant to Rule 144, or (iii) if such Warrant Shares are eligible for
sale under Rule 144, or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission).  The Company agrees that at such time as such
legend is no longer required under this Section 4.1(c), it will
promptly cause its counsel to issue a legal opinion to the Company’s transfer
agent if required by the Company’s transfer agent to effect the removal of the
legend hereunder.  If all or any portion
of a Warrant is exercised at a time when there is an effective registration
statement to cover the resale of the Warrant Shares, or if such Warrant Shares
may be sold under Rule 144 or if such legend is not otherwise required
under applicable requirements of the Securities Act (including judicial
interpretations thereof, then such Warrant Shares shall be issued free of all
legends.  The Company agrees that at such
time as such legend is no longer required under this Section 4.1(c),
it will, no later than ten Trading Days following the delivery by an Investor
to the Company or the Company’s transfer agent of a certificate representing
the Warrant Shares issued with a restrictive legend (such tenth Trading Day,
the “Legend Removal Date”),
deliver or cause to be delivered to such Investor a certificate representing
such shares that is free from all restrictive and other legends.  The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that enlarge
the restrictions on transfer set forth in this Section.  Certificates for Securities subject to legend
removal hereunder shall be transmitted by the transfer agent of the Company to
the Investors by crediting the account of the Investor’s prime broker with the Depository
Trust Company System.

 

(d)                                 Each Investor,
severally and not jointly with the other Investors, agrees that the removal of
the restrictive legend from certificates representing Securities as set forth
in this Section 4.1 is predicated upon the Company’s reliance that
the Investor will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus
delivery requirements, or an exemption therefrom.

 

Section 4.2                                      Acknowledgment
of Dilution.  The Company
acknowledges that the issuance of the Securities may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions.  The Company
further acknowledges that its obligations under the Transaction Documents,
including without limitation its obligation to issue the Warrant Shares
pursuant to the Transaction Documents, are unconditional and absolute and not
subject to any right of set off, counterclaim, delay or reduction, regardless
of the effect of any such dilution or any claim the Company may have against
any Investor and regardless of the dilutive effect that such issuance may have
on the ownership of the other stockholders of the Company.

 

16

 

Section 4.3                                      Furnishing of
Information.  As long as
any Investor owns Securities, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act.  As long as any
Investor owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Investors and
make publicly available in accordance with Rule 144 such information as is
required for the Investors to sell the Securities under Rule 144.  The Company further covenants that it will
take such further action as any holder of Securities may reasonably request,
all to the extent required from time to time to enable such Person to sell such
Securities without registration under the Securities Act within the limitation
of the exemptions provided by Rule 144.

 

Section 4.4                                      Integration.  The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the sale of the Securities
to the Investors or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading
Market.

 

Section 4.5                                      Exercise
Procedures.  The form of
Notice of Exercise included in the Warrants sets forth the totality of the
procedures required of the Investors in order to exercise the Warrants.  No additional legal opinion or other
information or instructions shall be required of the Investors to exercise
their Warrants.  The Company shall honor
exercises of the Warrants and shall deliver Warrant Shares in accordance with
the terms, conditions and time periods set forth in the Transaction Documents.

 

Section 4.6                                      Securities Laws
Disclosure; Publicity.  The
Company shall, by 8:30 a.m. Eastern time on the third Trading Day
following the date hereof, issue a Current Report on Form 8-K, reasonably
acceptable to each Investor disclosing the material terms of the transactions
contemplated hereby, and shall attach the Transaction Documents thereto.  The Company and each Investor shall consult
with each other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor any Investor
shall issue any such press release or otherwise make any such public statement
without the prior consent of the Company, with respect to any press release of
any Investor, or without the prior consent of each Investor, with respect to
any press release of the Company, which consent shall not unreasonably be
withheld, except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. 
Notwithstanding the foregoing, the Company shall not publicly disclose
the name of any Investor, or include the name of any Investor in any filing
with the Commission or any regulatory agency or Trading Market, without the
prior written consent of such Investor, except (i) as required by federal
securities law in connection with a registration statement and (ii) to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Investors with prior notice of such
disclosure permitted under subclause (i) or (ii).

 

Section 4.7                                      Shareholder
Rights Plan.  No claim
will be made or enforced by the Company or, to the knowledge of the Company,
any other Person that any Investor is an “Acquiring Person” under any
shareholder rights plan or similar plan or arrangement in effect or

 

17

 

hereafter adopted by the
Company, or that any Investor could be deemed to trigger the provisions of any
such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Investors.  The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.

 

Section 4.8                                      Non-Public
Information.  The Company
covenants and agrees that neither it nor any other Person acting on its behalf
will provide any Investor or its agents or counsel with any information that
the Company believes constitutes material non-public information, unless prior
thereto such Investor shall have executed a written agreement regarding the
confidentiality and use of such information. 
The Company understands and confirms that each Investor shall be relying
on the foregoing representations in effecting transactions in securities of the
Company.

 

Section 4.9                                      Use of Proceeds.  The Company shall use the net proceeds from
the sale of the Securities hereunder for acquisitions and for general working
capital purposes.

 

Section 4.10                                Reimbursement.  If any Investor becomes involved in any
capacity in any Proceeding by or against any Person who is a stockholder of the
Company (except as a result of sales, pledges, margin sales and similar
transactions by such Investor to or with any current stockholder), solely as a
result of such Investor’s acquisition of the Securities under this Agreement,
the Company will reimburse such Investor for its reasonable legal and other
expenses (including the cost of any investigation preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred.  The reimbursement obligations
of the Company under this paragraph shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any Affiliates of the Investors who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
controlling persons (if any), as the case may be, of the Investors and any such
Affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Investors and any such Affiliate and any such Person.  The Company also agrees that neither the
Investors nor any such Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company solely as a result of
acquiring the Securities under this Agreement.

 

Section 4.11                                Indemnification
of Investors.  Subject to
the provisions of this Section 4.11, the Company will indemnify and
hold each Investor and its directors, officers, shareholders, members,
partners, employees and agents (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding a lack of such
title or any other title), each Person who controls such Investor (within the
meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents, members, partners or
employees (and any other Persons with a functionally equivalent role of a
Person holding such titles notwithstanding a lack of such title or any other
title) of such controlling person (each, an “Investor
Party”) harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys’
fees and costs of investigation that any such Investor Party may suffer or
incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in
this Agreement or

 

18

 

in the other Transaction
Documents or (b) any action instituted against an Investor, or any of them
or their respective Affiliates, by any stockholder of the Company who is not an
Affiliate of such Investor, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of such Investor’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Investor may
have with any such stockholder or any violations by the Investor of state or
federal securities laws or any conduct by such Investor which constitutes
fraud, gross negligence, willful misconduct or malfeasance).  If any action shall be brought against any
Investor Party in respect of which indemnity may be sought pursuant to this
Agreement, such Investor Party shall promptly notify the Company in writing,
and the Company shall have the right to assume the defense thereof with counsel
of its own choosing.  Any Investor Party
shall have the right to employ separate counsel in any such action and participate
in the defense thereof, but the fees and expenses of such counsel shall be at
the expense of such Investor Party except to the extent that (i) the
employment thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable
opinion of such separate counsel, a material conflict on any material issue
between the position of the Company and the position of such Investor
Party.  The Company will not be liable to
any Investor Party under this Agreement (i) for any settlement by an
Investor Party effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (ii) to the extent, but
only to the extent that a loss, claim, damage or liability is attributable to
any Investor Party’s breach of any of the representations, warranties,
covenants or agreements made by the Investors in this Agreement or in the other
Transaction Documents.

 

Section 4.12                                Reservation and Listing of Securities.

 

(a)                                  The Company
shall maintain a reserve from its duly authorized shares of Common Stock for
issuance pursuant to the Transaction Documents in such amount as may be
required to fulfill its obligations in full under the Transaction Documents
(the “Required Minimum”).

 

(b)                                 If, on any
date, the number of authorized but unissued (and otherwise unreserved) shares
of Common Stock is less than the Required Minimum on such date, then the Board
of Directors of the Company shall use commercially reasonable efforts to amend
the Company’s certificate or articles of incorporation to increase the number
of authorized but unissued shares of Common Stock to at least the Required
Minimum at such time, as soon as possible and in any event not later than the
ninetieth (90th) day after such date.

 

(c)                                  The Company
shall, if applicable: (i) in the time and manner required by the Trading
Market, prepare and file with such Trading Market an additional shares listing
application covering a number of shares of Common Stock at least equal to the
Required Minimum on the date of such application, (ii) take all steps
necessary to cause such shares of Common Stock to be approved for listing on
the Trading Market as soon as possible thereafter, (iii) provide to the
Investors evidence of such listing, and (iv) maintain the listing of such
Common Stock on any date at least equal to the Required Minimum on such date on
such Trading Market or another Trading Market.

 

19

 

Section 4.13                                Equal Treatment
of Investors.  No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all other parties to the
Transaction Documents.

 

Section 4.14                                Short Sales and
Confidentiality After The Date Hereof.  Each Investor severally and not jointly with
the other Investors covenants that neither it nor any Affiliates acting on its
behalf or pursuant to any understanding with it will execute any Short Sales
during the period after the Discussion Time and ending at the time that the
transactions contemplated by this Agreement are first publicly announced as
described in Section 4.6. 
Further, each Investor severally and not jointly with the other
Investors covenants that until such Investor does not hold any of the Warrants,
such Investor shall not create any “net short” position in the Company’s Common
Stock, whereby the Investor shall have engaged in a Short Sale which would make
such Investor’s short position greater than the number of shares of Common
Stock which such Investor could obtain by exercising its Warrants held at the
time of such determination.  Each
Investor, severally and not jointly with the other Investors, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 4.6, such Investor
will maintain, the confidentiality of all disclosures made to it in connection
with such transactions (including the existence and terms of such
transactions).  Each Investor understands
and acknowledges, severally and not jointly with any other Investor, that the
Commission currently takes the position that coverage of short sales of shares
of the Common Stock “against the box” prior to the date a registration
statement is first declared effective by the Commission is a violation of Section 5
of the Securities Act, as set forth in Item 65, Section 5 under Section A,
of the Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.  Notwithstanding the foregoing, no Investor
makes any representation, warranty or covenant hereby that it will not engage
in Short Sales in the securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced as
described in Section 4.6. 
Notwithstanding the foregoing, in the case of an Investor that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Investor’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Investor’s assets, the covenant set forth above
shall only apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities covered by
this Agreement.

 

Section 4.15                                Form D;
Blue Sky Filings.  The Company
agrees to timely file a Form D with respect to the Securities as required
under Regulation D and to provide a copy thereof, promptly upon request of any
Investor.  The Company shall, on or
before or after the Closing Date, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for, or to
qualify the Securities for, sale to the Investors at the Closing under
applicable securities or “Blue Sky” laws of the states of the United States,
and shall provide evidence of such actions promptly upon request of any
Investor.

 

20

 

ARTICLE V.

MISCELLANEOUS

 

Section 5.1                                      Fees and
Expenses.  Each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of the
Transaction Documents.  The Company shall
pay all stamp and other taxes and duties levied in connection with the sale of
the Shares.

 

Section 5.2                                      Entire
Agreement.  The
Transaction Documents, together with the Exhibits and Schedules thereto,
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements, understandings, discussions
and representations, oral or written, with respect to such matters, which the
parties acknowledge have been merged into such documents, exhibits and
schedules.

 

Section 5.3                                      Notices.  Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (a) the
date of transmission, if such notice or communication is delivered via
facsimile (provided the sender receives a machine-generated confirmation of
successful transmission and reasonably promptly following such transmission
sends such notice or communication via U.S. mail or overnight courier) at the
facsimile number specified in this Section prior to 5:00 p.m. (New
York City time) on a Business Day, (b) the next Business Day after the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section on a day that
is not a Business Day or later than 5:00 p.m. (New York City time) on any
Business Day, (c) the Business Day following the date of mailing, if sent
by U.S. nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given.  The address for such notices and
communications shall be as follows:

 

If
to the Company:                                             Crdentia Corp.

5001 LBJ Freeway, Suite 850

Dallas, Texas 75244

Facsimile No.:  (972) 850-0780

Telephone No.: (972) 392-2722

Attention: Chief Executive Officer

 

With
a copy to:                                                             Kane Russell
Coleman & Logan PC

3700 Thanksgiving Tower

1601 Elm Street

Dallas, Texas 75201

Facsimile
No.:  (214) 777-4299

Attention:  Patrick V. Stark, Esq.

 

If
to an Investor:                                                       To the address
set forth under such Investor’s name on the signature pages hereof

 

or such other address as may
be designated in writing hereafter, in the same manner, by such Person.

 

Section 5.4                                      Amendments;
Waivers; No Additional Consideration.  No provision of this Agreement may be waived,
modified, supplemented or amended except in a written

 

21

 

instrument signed, in the
case of an amendment, by the Company and the Investors holding a majority of
the Shares or, in the case of a waiver, by the party against whom enforcement
of such waiver is sought.  No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver
of any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.

 

Section 5.5                                      Headings.  The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.  The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict
construction will be applied against any party.

 

Section 5.6                                      Successors and
Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns.  Other than in connection
with a merger, consolidation, sale of all or substantially all of the Company’s
assets or other similar change in control transaction, the Company may not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Investors.  Any
Investor may assign any or all of its rights under this Agreement to any Person
to whom such Investor assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred Securities,
by the provisions hereof that apply to the Investors.

 

Section 5.7                                      No Third-Party
Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person, except as otherwise
set forth in Section 4.11.

 

Section 5.8                                      Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof.  Each party agrees that all
Proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective Affiliates, employees
or agents) shall be commenced exclusively in the New York Courts.  Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York Courts for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the enforcement
of any of the Transaction Documents), and hereby irrevocably waives, and agrees
not to assert in any Proceeding, any claim that it is not personally subject to
the jurisdiction of any such New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. 
Each party hereto hereby irrevocably waives personal service of process
and consents to process being served in any such Proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence
of delivery) to such party at the address in effect for notices to it under
this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law.  Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any

 

22

 

legal proceeding arising out
of or relating to this Agreement or other Transaction Documents or the
transactions contemplated hereby or thereby. 
If either party shall commence a Proceeding to enforce any provisions of
a Transaction Document, then the prevailing party in such Proceeding shall be
reimbursed by the other party for its reasonable attorneys’ fees and other
costs and expenses incurred with the investigation, preparation and prosecution
of such Proceeding.

 

Section 5.9                                      Survival.  The agreements, covenants, representation and
warranties contained herein shall survive the Closing and the delivery or
exercise of the Securities, as applicable, until the third anniversary of the
Closing.

 

Section 5.10                                Execution.  This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. 
In the event that any signature is delivered by facsimile transmission,
such signature shall create a valid and binding obligation of the party
executing (or on whose behalf such signature is executed) with the same force
and effect as if such facsimile signature page were an original thereof.

 

Section 5.11                                Severability.  If any provision of this Agreement is held to
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

 

Section 5.12                                Rescission and
Withdrawal Right. 
Notwithstanding anything to the contrary contained in (and without
limiting any similar provisions of) the Transaction Documents, whenever any
Investor exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within
the periods therein provided, then such Investor may rescind or withdraw, in
its sole discretion from time to time upon written notice to the Company, any
relevant notice, demand or election in whole or in part without prejudice to
its future actions and rights; provided, however, in the case of a rescission
of an exercise of a Warrant, the Investor shall be required to return any
shares of Common Stock subject to any such rescinded exercise notice.

 

Section 5.13                                Replacement of
Securities.  If any
certificate or instrument evidencing any Securities is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested.  The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Securities.  If a replacement certificate or instrument
evidencing any Securities is requested due to a mutilation thereof, the Company
may require delivery of such mutilated certificate or instrument as a condition
precedent to any issuance of a replacement.

 

Section 5.14                                Remedies.  In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, each
of the Investors and the Company

 

23

 

will be entitled to specific
performance under the Transaction Documents. 
The parties agree that monetary damages may not be adequate compensation
for any loss incurred by reason of any breach of obligations described in the
foregoing sentence and hereby agrees to waive in any action for specific
performance of any such obligation the defense that a remedy at law would be
adequate.

 

Section 5.15                                Payment Set
Aside.  To the extent that the Company
makes a payment or payments to any Investor pursuant to any Transaction
Document or an Investor enforces or exercises its rights thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Company, a trustee, receiver or
any other Person under any law (including, without limitation, any bankruptcy
law, state or federal law, common law or equitable cause of action), then to
the extent of any such restoration the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.

 

Section 5.16                                Independent
Nature of Investors’ Obligations and Rights.  The obligations of each Investor under any
Transaction Document are several and not joint with the obligations of any
other Investor, and no Investor shall be responsible in any way for the
performance of the obligations of any other Investor under any Transaction
Document.  The decision of each Investor
to purchase Securities pursuant to the Transaction Documents has been made by
such Investor independently of any other Investor.  Each Investor’s obligations hereunder are
expressly not conditioned on the purchase by any or all of the other Investors
of the Shares.  Nothing contained herein
or in any Transaction Document, and no action taken by any Investor pursuant
thereto, shall be deemed to constitute the Investors as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents.  Each Investor
acknowledges that no other Investor has acted as agent for such Investor in
connection with making its investment hereunder and that no Investor will be
acting as agent of such Investor in connection with monitoring its investment
in the Securities or enforcing its rights under the Transaction Documents.  Each Investor shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Investor to be joined as an
additional party in any proceeding for such purpose.  Each Investor has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents.

 

Section 5.17                                Construction.  The parties agree that each of them and/or
their respective counsel has reviewed and had an opportunity to revise the
Transaction Documents and, therefore, the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of the Transaction Documents or any
amendments hereto.

 

[Remainder of Page Intentionally Left Blank]

 

24

 

IN
WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first above written.

 

	
   

  	
  CRDENTIA CORP.,

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  John Kaiser

  
	
   

  	
   

  	
  Name:
  John Kaiser

  
	
   

  	
   

  	
  Title:
  Chief Executive Officer

  

 

 

[Signature Pages for Investors Follow]

 

25

 

IN
WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first above written.

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Investment
  Amount:   $

  	
   

  
	
   

  	
  Tax
  ID No.:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ADDRESS FOR NOTICE

  
	
   

  	
   

  
	
   

  	
  c/o:

  	
   

  
	
   

  	
  Street:

  	
   

  
	
   

  	
  City/State/Zip:

  	
   

  
	
   

  	
  Attention:

  	
   

  
	
   

  	
  Tel:

  	
   

  
	
   

  	
  Fax:

  	
   

  
	
   

  	
   

  
	
   

  	
  DELIVERY INSTRUCTIONS

  
	
   

  	
  (if different from above)

  
	
   

  	
   

  
	
   

  	
  c/o:

  	
   

  
	
   

  	
  Street:

  	
   

  
	
   

  	
  City/State/Zip:

  	
   

  
	
   

  	
  Attention:

  	
   

  
	
   

  	
  Tel:

  	
   

  
													

 

26

 

SCHEDULE
A

 

SCHEDULE
OF INVESTORS

 

	
  Name/Address

  	
   

  	
  Investment

  Amount

  	
   

  	
  Number of Shares

  Purchased at Closing

  	
   

  	
  Number of

  Warrant Shares

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FatBoy Capital, LP

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9611 North U.S. Highway 1,
  Box 390

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sebastian, FL 32958

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Phone: (973) 426-0300

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fax: (973) 426-0313

  	
   

  	
  $

  	
  50,000

  	
   

  	
  166,667

  	
   

  	
  83,333

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Intertec Health Care
  Partners

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5980 Horton Street,
  Suite 390

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Emeryville, CA 94608

  	
   

  	
  $

  	
  25,000

  	
   

  	
  83,333

  	
   

  	
  41,667

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Latin Healthcare
  Investment, LLC

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  30 Nagog Park,
  Suite 210

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Acton, MA 01720

  	
   

  	
  $

  	
  50,000

  	
   

  	
  166,667

  	
   

  	
  83,333

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MedCap Partners L.P.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  c/o MedCap Management and
  Research LLC

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  500 Third Street,
  Suite 535

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  San Francisco, CA 94107

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Phone: (415) 495-1010

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fax: (415) 495-1012

  	
   

  	
  $

  	
  375,000

  	
   

  	
  1,250,000

  	
   

  	
  625,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MedCap Partners Offshore
  L.P.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  c/o MedCap Management and
  Research LLC

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  500 Third Street,
  Suite 535

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  San Francisco, CA 94107

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Phone: (415) 495-1010

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fax: (415) 495-1012

  	
   

  	
  $

  	
  375,000

  	
   

  	
  1,250,000

  	
   

  	
  625,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Norman C. Roberts Trust

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  c/o Norman Roberts

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2810 Hidden Valley Road

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  La Jolla, CA 92037-7925

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Phone: (858) 459-2481)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fax: (858) 456-7925)

  	
   

  	
  $

  	
  100,000

  	
   

  	
  333,333

  	
   

  	
  166,667

  	
   

  

 

1

 

	
  Name/Address

  	
   

  	
  Investment

  Amount

  	
   

  	
  Number of Shares

  Purchased at Closing

  	
   

  	
  Number of

  Warrant Shares

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sandra L. Jones

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  930 Tahoe Boulevard,
  Suite 802-193

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Incline Village, NV 89451

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Phone: (775) 830-8192

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fax: (775) 832-6884

  	
   

  	
  $

  	
  25,000

  	
   

  	
  83,333

  	
   

  	
  41,667

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL:

  	
   

  	
  $

  	
  1,000,000

  	
   

  	
  3,333,333

  	
   

  	
  1,666,667

  	
   

  

 

2

 

EXHIBIT
A

 

FORM OF
WARRANT

 

1Exhibit 10.2

 

LOAN AND SECURITY
AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT, dated as of the Acceptance Date (as
defined in Exhibit B attached hereto
and incorporated into this Agreement by reference, paragraph 1) is
entered into between CAPITAL TEMPFUNDS,
a division of CAPITAL BUSINESS CREDIT LLC,  a Delaware
limited liability company, with its principal place of business at 1700
Broadway, 19th Floor, New York, New York 10019, (hereinafter
referred to as “TEMPFUNDS”), and Borrower (as defined in Exhibit B, paragraph
2). Borrower and TEMPFUNDS agree as follows:

 

PURPOSE OF AGREEMENT

 

1.             Borrower desires to obtain commercial
financing from TEMPFUNDS.  The purpose of
this financing is not for household, family, and/or personal use.

 

DEFINITIONS

 

2.             “Account(s)” means all accounts receivable due to
Borrower, and other forms of obligations now or hereafter owing to Borrower,
whether arising from the sale or lease of goods or the rendition of services by
Borrower (including, without limitation, any obligation that might be
characterized as an account, contract right, general intangible or chattel
paper under the Code), all of Borrower’s rights in, to and under all purchase
orders now or hereafter received by Borrower for goods and services, all monies
due or to become due to Borrower under all contracts for the sale or lease of
goods or the rendition of services by Borrower (whether or not yet earned)
(including, without limitation, the right to receive the proceeds of said
purchase orders and contracts), and all collateral security and guarantees of
any kind given by any obligor with respect to any of the foregoing.

 

3.             “Acceptable Accounts” means and includes those Accounts (i) which
have been validly assigned to TEMPFUNDS, (ii) strictly comply with all of
Borrower’s warranties and representations to TEMPFUNDS, (iii) contain
payment terms of not greater than the Term Days (as defined on Exhibit B,
paragraph 3) from invoice date, (iv) are not past due more than the number
of Maximum Days (as defined on Exhibit B, paragraph 4), (v) are
invoiced not later than ten (10) days from the last date of service or
delivery (vi) are invoiced on not greater than a monthly cycle, and (vii) other
than those Accounts where TEMPFUNDS has notified Borrower that, in TEMPFUNDS
sole discretion, which shall be exercised in a commercially reasonable manner,
the Account or Customer is not acceptable to TEMPFUNDS.

 

Without limiting TEMPFUNDS rights to deem any Account not acceptable, as
a general guideline Acceptable Accounts shall not include the following:  (a) Accounts with respect to which the
Customer has common officers, employees, directors or agents with Borrower, or
is a subsidiary of, related to or affiliated with Borrower; (b) Accounts
with respect to which services or goods are on guaranteed sale or other terms
by reason of which the payment by the Customer may be conditional; (c) Accounts
with respect to which the Customer is not a resident of the United States; (d) Accounts
with respect to which the Customer is the United States or any department,
agency or instrumentality of the United States; provided,
however, that an Account shall not be
deemed ineligible by reason of this clause if the aggregate amount of such
Accounts does not exceed five percent (5%) of the total of Borrower’s Accounts,
or in the event the aggregate amount of such Accounts does exceed five percent
(5%) of the total of Borrower’s Accounts, and that Borrower has completed all
steps necessary, in the opinion of TEMPFUNDS, to comply with the Federal
Assignment of Claims Act of 1940 (31 U.S.C. Section 3727); (e) Accounts
with respect to which the Customer is any state of the United States or any
city, town, municipality, county or division thereof; provided, however, that an
Account shall not be deemed ineligible by reason of this clause (e) if the
aggregate amount of such Accounts does not exceed five percent (5%) of the
total of Borrower’s Accounts outstanding, or in the event the aggregate amount
of such Accounts does exceed five percent (5%) of the total of Borrower’s
Accounts, the Account can be assigned to TEMPFUNDS in a manner reasonably
acceptable to TEMPFUNDS, and the Account can be collected by Borrower in the
ordinary course, in the same manner as its other trade accounts receivable; (f) Accounts not previously approved by TEMPFUNDS
where the expected dollar value for such Customer is greater than ten (10%)
percent of Borrower’s existing Accounts or the Maximum Concentration Amount (as
defined on Exhibit B, paragraph 5),
whichever is less;  (g) all
of the Accounts owed by an Customer where the Cross Aging Percentage (as
defined on Exhibit B, paragraph 6) or more of all of the Accounts owed by
that Customer are unpaid more than the Past Due Days (as defined on Exhibit B,
paragraph 7) from the invoice date; (h) Accounts for which the services
have not yet been rendered to the Customer or the goods sold have not yet been
delivered to the Customer (commonly referred to as “pre-billed accounts”),  (i) Accounts
subject to a Customer Dispute, as defined below; and (j) Accounts, if any,
specifically described on Exhibit B, paragraph 8.

 

4.             “Agreement” means this Loan and Security
Agreement and all amendments and supplements thereto.

 

5.             “Customer” means Borrower’s customer or the
account debtor.

 

6.             “Customer Dispute” means (i) a claim by any
Customer against Borrower of any kind whatsoever, or (ii) financial
inability of a Customer to pay its obligations as they become due, including,
without limitation, a Customer who is subject to any insolvency, including
without limitation, the appointment of a receiver or trustee, the filing by or
against such Customer of a bankruptcy proceeding or the making of an assignment
for the benefit of creditors or (iii) any mistaken, incorrect and/or
erroneous Account submitted by Borrower to TEMPFUNDS.

 

A
“Customer Dispute” may arise from any kind of disagreement between Customer and
Borrower whatsoever, whether such disagreement is valid or invalid, and may
also arise at any time, both before and/or after the signing of this Agreement
or the financing of the Account with TEMPFUNDS.

 

7.             “Ineligible Account” means an Account that is not
an Acceptable Account as defined in Section 3.

 

Crdentia Corp

Loan and Security Agreement

July 2008

 

1

 

8.             The term “warrant” or “warranty” as used
in this Agreement means to guarantee, as a material element of this
Agreement.  Each separate warranty herein
is also an independent condition to TEMPFUNDS duties under this Agreement.

 

WARRANTIES AND COVENANTS BY BORROWER

 

As
an inducement for TEMPFUNDS to enter into this Agreement with full knowledge
that the truth and accuracy of the warranties in this Agreement are being
relied upon by TEMPFUNDS in entering into this Agreement and in making the
loans described herein, Borrower warrants and/or covenants that:

 

9.             Borrower’s name as of the date hereof, as it
appears in the official filing the state of its organization is as set forth in
Exhibit B, paragraph 2.  Borrower’s
only state of organization or incorporation is in the Organizational State, as
defined in Exhibit B, paragraph 9. 
Pursuant to the Borrower’s bylaws, only one officer is required to
execute this Agreement, and the party signing this Agreement on behalf of the
Borrower is an authorized officer.

 

10.           Borrower is duly organized and in good standing under the laws of its
Organizational State, and is properly licensed and authorized to operate as a
for profit business in all states in which such business is conducted.

 

11.           Borrower’s trade name(s) listed in Exhibit B,
paragraph 10 are the only names under which the Borrower conducts business and
all have been properly filed and published as required by applicable law.

 

12.           Borrower’s Federal Tax ID number is listed in Exhibit B,
paragraph 11.  Borrower’s Organizational
Number is listed in Exhibit B, paragraph 12.

 

13.           Borrower is in compliance with all laws, rules and
regulations applicable to its business. 
Furthermore, Borrower, in all material respects, has in the past, is currently in compliance,
and at all times will comply with any and all federal, state and local
statutes, laws and regulations concerning the preservation of the environment
and the use and disposal of hazardous and toxic materials and substances
(collectively the “Environmental Laws”).

 

14.           Borrower’s business is solvent, the value of its assets
exceed the value of its liabilities excluding debt subordinated to TEMPFUNDS (“Subordinated
Debt”) pursuant to a subordination agreement acceptable to TEMPFUNDS in its
sole discretion (a “Subordination Agreement”), and it is able to meet its
obligations as they become due.

 

15.           Each Customer’s business is solvent to Borrower’s
knowledge.

 

16.           Borrower is, and at all times during the term of this
Agreement will be, the lawful owner of and have good and undisputed title to
all Accounts, free and clear of any encumbrances of any kind whatsoever.

 

17.           Each Account is an accurate and undisputed statement of
indebtedness owing by a Customer to Borrower for a certain sum which is due and
payable upon receipt or within such time as is agreed to, in writing, by
TEMPFUNDS and Borrower, and is not subject to any defenses, setoffs or
counterclaims of any kind whatsoever, and is not subject to any discounts,
deductions, allowances or other contra items unless so indicated on the invoice
and accepted by a duly authorized officer of TEMPFUNDS in writing, and is an
accurate statement of a bona fide sale, delivery and acceptance of merchandise
or prescribed goods, or performance of service by Borrower to a Customer.

 

18.           All financial records, statements, books or other
documents shown or provided to TEMPFUNDS by Borrower at any time, either before
or after the signing of this Agreement, are materially true and accurate, as
determined by TEMPFUNDS in its commercially reasonable discretion.

 

19.           Borrower will not under any circumstances or in any
manner whatsoever, interfere with any of TEMPFUNDS rights under this Agreement.

 

20.           For as long as any indebtedness whatsoever
remains owing by Borrower to TEMPFUNDS, Borrower will not factor, assign,
hypothecate, transfer, pledge a security interest in, or sell Accounts, except
for the security interest granted to ComVest Capital, LLC (“ComVest”) in
connection with its subordinated debt (the “ComVest Sub Debt”).  Furthermore, until the Obligations are
indefeasibly paid in full, Borrower will not file any financing statement or
amendment or termination statement with respect to any financing statement
filed in favor of TEMPFUNDS, except with the prior written consent of TEMPFUNDS.

 

21.           Borrower, has not transferred, pledged or granted a
security interest in any of Borrower’s Accounts or other Collateral, as defined
below, to any other party other than ComVest in connection with the ComVest Sub
Debt and Borrower will not transfer, pledge or grant a security interest to any
other party in said Accounts or other Collateral for the term of this Agreement
and for as long as Borrower is indebted to TEMPFUNDS hereunder; provided,
however, Borrower shall have a period of thirty (30) days to cure any Default
that arises in connection with the granting of a security interest in the
Borrower’s machinery, equipment, furniture and fixtures.  In addition, Borrower has, and will have
throughout the term of this Agreement, good title to the Collateral.

 

22.           Borrower will not change or modify the terms of any
Acceptable Account with any Customer unless TEMPFUNDS first consents in writing
to such change after receiving prior written notice of such proposed change or
modification from Borrower.

 

23.           Except for (a) other security interests listed on Exhibit B,
paragraph 13 as “Other Security Interests” and (b) additional equipment
leases which in the aggregate will not at any time exceed $200,000.00, there
are no existing liens, security interests or encumbrances on any of Borrower’s
personal property, including, without limitation, the Collateral, and Borrower
shall not consent to the placement of any lien, security interest or
encumbrance upon any of Borrower’s personal property of any type and wherever
located not otherwise pledged or assigned to TEMPFUNDS without TEMPFUNDS prior
written consent, and Borrower shall provide written notice to 

 

2

 

TEMPFUNDS within five (5) days of Borrower
obtaining any knowledge, from any source, of the filing, recording or
perfection by any means, of any non-consensual lien, claim or encumbrance
against the aforementioned property of Borrower.

 

24.           Borrower will maintain such insurance covering
Borrower’s business and/or the property of the Borrower as reasonably required
by TEMPFUNDS and as indicated under Other Insurance, as provided in Exhibit B,
paragraph 14, and will maintain workers’ compensation insurance in accordance
with applicable law and will name TEMPFUNDS as certificate holder on all such
workers’ compensation policies.

 

25.           Borrower will notify TEMPFUNDS in writing at least
thirty (30) days prior to any change in Borrower’s place(s) of business or
change in location of any Collateral, or if Borrower has or intends to acquire
or add any additional place(s) of business, or any change in Borrower’s
chief executive office, the office or offices where Borrower’s books and
records concerning Accounts are kept, or in the event Borrower intends to
change its Organizational State.

 

26.           Borrower will notify TEMPFUNDS in writing at least
thirty days prior to any change of Borrower’s name, identity, legal entity,
corporate structure, use of additional trade name(s), and/or any proposed
change in any of the officers, principals, partners, and/or owners of Borrower.

 

27.           Borrower will deliver to TEMPFUNDS within the
Periodic Period, as defined in Exhibit B, paragraph 15, if applicable and
within the Annual Period, as defined in Exhibit B, paragraph 16, a balance
sheet together with related statements of income, retained earnings, and cash
flow in form and substance reasonably acceptable to TEMPFUNDS as more fully
described in Exhibit B, paragraph 17 under Financial Statements. Borrower
will also provide TEMPFUNDS with copies of all of its income and payroll tax
returns, federal, state and local, upon filing with the appropriate
authorities.  Borrower shall execute and deliver to
TEMPFUNDS within five (5) days after the end of each month during the term
of this Agreement, reflecting the status as of the end of each month, certified
by any one of the officers of Borrower as being true and correct, (i) a
current detailed aging, by total and by customer, of Borrower’s Accounts, (ii) a
current detailed aging, by total and by vendor, of Borrower’s accounts payable
and (iii) a Compliance Certificate in the form of Exhibit “C”
from one of the officers of Borrower certifying that no Default currently
exists under this Agreement, all of which shall be set forth in a form and
shall contain such information as is reasonably acceptable to TEMPFUNDS.

 

28.       Borrower’s assignment of any Accounts to
TEMPFUNDS pursuant to this Agreement will not at any time violate any federal,
state and/or local law, rule or regulation, court or other governmental order
or decree or terms of any contract relating to such Accounts.

 

29.           (a) Borrower possesses all necessary
trademarks, trade names, copyrights, patents, patent rights and licenses to
conduct its business as now operated, without any known conflict with any
trademarks, trade names, copyrights, patents and license rights of any other
person or entity.

 

(b)           The Borrower is in compliance with all federal
and state laws and regulations with respect to the issuance of securities,
including but not limited to, disclosure and reporting obligations and all
other matters relative thereto.

 

(c)           The Borrower will not engage in any uncovered
short sales of its common stock.

 

(d)           In
connection with the Unbilled Accounts (defined below), the Borrower may pay
employees and/or independent contractors who perform services that may be
billed to its Customers immediately upon completion of the services, and prior
to billing the Customer for such services. The prospective amount to be billed
to Customers for such services shall be defined as the “Unbilled Accounts” and
consist of services that have been fully provided and accepted by the Customer,
and other than the fact that the invoice cannot be physically presented to the
Customer until the end of the applicable billing period, complies with all the
representations and warranties of this Agreement, including but not limited to
the those in Section 17, and for which the employees and/or independent
contractors who provided such services have received their payroll for such
services rendered.

 

(e)           There is only one (1) holder
remaining of the 2006 Convertible Debentures issued by the Borrower (the “Debenture”),
that holder is Alpha Capital AG, and the amount outstanding on such Debenture
is $525,000.00.

 

FURTHER PROMISES

 

30.           SECURITY
INTEREST/COLLATERAL:  As a further
inducement for TEMPFUNDS to enter into this Agreement, and as collateral for
all obligations of Borrower to TEMPFUNDS, now existing and hereafter arising, whether direct or indirect, absolute or
contingent, due or to become due (collectively the “Obligations”), Borrower grants, assigns, conveys and transfers
to TEMPFUNDS, a security interest under the New York Uniform Commercial Code
(the “Code”), in the following described property (hereinafter collectively
called “Collateral”): All presently existing or hereafter arising, now
owned or hereafter acquired, including all additions, replacements, accessions,
substitutions, increases, profits, income, distributions, and proceeds thereof,
(i) Accounts, accounts receivable, contract rights, chattel paper
(including electronic chattel paper), documents, instruments (including
promissory notes), reserves, reserve accounts, commercial tort claims, rebates,
refunds, and general intangibles (including tax refunds, payment intangibles,
software, lists, trademarks, tradenames, tradestyles, tradedresses,
licenses, licensing agreements, copyrights and patent rights) and all books and records relating to the
Accounts and all proceeds of the foregoing property, including insurance proceeds,
and any renewals, and extensions of the foregoing property and all proceeds
thereof;  (ii) all of Borrower’s
rights to receive payments from any source and for any reason (whether
characterized as accounts, accounts receivable, chattel paper, choses-in
action, contract rights, general intangibles, instruments, securities, notes or
otherwise) including, without limitation, Borrower’s right to receive payments
for goods and other products sold or leased or for services rendered, whether
or not earned by performance or recognized or billed by Borrower; (iii) all
of Borrower’s contract rights including, without limitation, Borrower’s rights
under distribution contracts, franchise agreements, license agreements, sales
contracts, unfilled customer orders, and lease agreements; (iv) all of
Borrower’s cash, drafts, certificates of deposit and deposit accounts; (v) all
of Borrower’s assets, property and rights now or hereafter in the possession of
TEMPFUNDS or its agents; (vi) all of Borrower’s supporting obligations, 

 

3

 

investment property and letter of credit rights, as
defined in the Code; (vii) all inventory, wherever located, now owned or hereafter acquired,
including without limitation, raw materials, work in process, finished goods,
materials and supplies, computer software, programs, stored data,
repossessions, deposits and credit balances relating thereto; and (viii) all
leasehold improvements, furniture, fixtures, machinery and equipment, and
computer hardware along with all increases, substitutions, replacements,
additions, accessions of Borrower relating thereto, wherever situated, now
owned by Borrower or hereafter acquired, (ix) such
other assets of the same class or classes as the foregoing hereafter owned or
acquired by Borrower; but excluding (x) any items of personal
property described in Exhibit B, paragraph 18 under Excluded Collateral.

 

31.           PERFECTION OF SECURITY
INTEREST: Borrower shall execute and deliver to TEMPFUNDS, concurrent with
Borrower’s execution of this Agreement, and at any time or times hereafter at
the request of TEMPFUNDS, all financing statements, continuation financing
statements, security agreements, assignments, endorsements, affidavits,
reports, notices, schedules of accounts, letters of authority and all other
documents that TEMPFUNDS may request, in form and substance satisfactory to
TEMPFUNDS, to perfect or maintain perfection of TEMPFUNDS liens in the
Collateral and in order to fully consummate or give effect to all of the transactions
contemplated under this Agreement. Borrower does hereby authorize TEMPFUNDS to
file financing statements, including, without limitation, original financing
statements, amendments and continuation statements against the Borrower and
authorizes TEMPFUNDS to file financing statements that describe the Collateral
as all assets of the Borrower, or words of similar effect.

 

If Borrower shall at any time acquire a commercial tort claim, as
defined in the Code, Borrower shall immediately notify TEMPFUNDS in a writing
signed by Borrower of the brief details thereof and grant to TEMPFUNDS in such
writing a security interest therein and in the proceeds thereof, all upon the
terms of this Agreement, with such writing to be in form and substance
satisfactory to TEMPFUNDS.  In the event
that any Collateral, including proceeds, is evidenced by or consists of
promissory notes, Borrower shall, upon request of TEMPFUNDS, immediately
endorse and assign such promissory notes over to TEMPFUNDS and deliver actual
physical possession of the promissory notes to TEMPFUNDS.

 

Borrower will cooperate
with TEMPFUNDS in obtaining control with respect to Collateral consisting of
deposit accounts, investment property, letter of credit rights and electronic
chattel paper.

 

32.           NOTIFICATION: TEMPFUNDS may at any time after a
Default has occurred and at its sole discretion notify any Customer of Borrower
or any third party payer to make payments directly to TEMPFUNDS. TEMPFUNDS may
require Borrower to place any legend or other statement on invoices indicating
the assignment of the invoice to TEMPFUNDS.

 

33.           ASSIGNMENT: 
Borrower shall from time to time present Accounts to TEMPFUNDS for
approval and approved Accounts shall be identified by separate and subsequent
written assignments on a form to be provided to Borrower by TEMPFUNDS known as “Schedule
of Accounts”.

 

34.           ADVANCES: 
TEMPFUNDS may advance funds to Borrower in an amount up to the Advance
Rate and the Maximum Credit Facility, both as defined in Exhibit B,
paragraphs 20  and 21 respectively.
TEMPFUNDS reserves the right to retain certain reserves against advances,
including, without limitation, the Dilution Reserve, as defined in Exhibit B,
paragraph 22. Borrower agrees to repay to TEMPFUNDS the amount of each such
advance, with interest and fees as set forth below and on Exhibit A. As
consideration for each such advance, TEMPFUNDS shall be paid in accordance with
the rate schedule attached hereto as Exhibit A and incorporated into this
Agreement by reference (the “Rate Schedule”). Borrower promises to repay each
advance, and each such advance shall be due and payable, if not sooner paid by
Borrower or through collection of the assigned Account, on or before the
Maximum Days (the “Advance Period”). Unless otherwise extended, all advances
and any unpaid interest and fees shall be paid by Borrower to TEMPFUNDS as
aforesaid or, at TEMPFUNDS option, may be charged to Borrower’s Loan Account
(as defined in Exhibit B, paragraph 23) or may be withheld and paid to
TEMPFUNDS from any subsequent advance made to Borrower. In addition to the
amounts set forth on the Rate Schedule, TEMPFUNDS may charge interest at the
rate of eighteen percent (18%) per annum (the “Default Rate”) on any advances
which remain unpaid on and after the occurrence of an event of Default
(irrespective of the date that TEMPFUNDS notifies the Borrower of such Default)
and/or after judgment.  TEMPFUNDS shall
be entitled to charge the Default Rate whether or not it demands payment of the
Obligations or exercises any of its rights and remedies hereunder or under any
other agreement between the Borrower and TEMPFUNDS.   All
interest shall be computed for the actual number of days elapsed on the basis
of a year consisting of 360 days.  Borrower acknowledges that TEMPFUNDS accrues
interest on all advances on a daily basis, however, such interest is due on a
monthly basis, unless otherwise payable as provided hereunder.  In the event that, at any time and for
any reason, the amount of advances made pursuant to this Agreement exceed the
Advance Rate and/or the Maximum Credit Facility (an “Over Advance”), then
Borrower, upon TEMPFUNDS election and demand, shall immediately pay to
TEMPFUNDS, in cash, the amount of such excess. 
In the event of the existence of an Over Advance, Borrower shall pay to
TEMPFUNDS, at TEMPFUNDS discretion, an Over Advance Fee of .0493 % of the
amount of the Over Advance for each day that the Over Advance is
outstanding.  Nothing provided herein
shall constitute consent by TEMPFUNDS to such Over Advance.

 

Borrower
irrevocably waives the right to direct the application of any and all payments
and collections at any time or times hereafter received by TEMPFUNDS from or on
behalf of Borrower, and Borrower does hereby irrevocably agree that TEMPFUNDS
shall have the continuing exclusive right to apply and reapply any and all such
payments and collections received at any time or times hereafter by TEMPFUNDS
or its agent against the Obligations, in such manner as TEMPFUNDS may deem
advisable.  The advances shall constitute
one general Obligation of Borrower, and shall be secured by TEMPFUNDS lien upon
all of the Collateral.

 

IT IS THE
INTENTION OF THE PARTIES HERETO NOT TO MAKE ANY AGREEMENT IN VIOLATION OF THE
LAWS OF THE STATE OF NEW YORK OR THE UNITED STATES RELATING TO USURY.  IN NO EVENT, THEREFORE, SHALL ANY INTEREST
DUE HEREUNDER BE AT A RATE IN EXCESS OF THE HIGHEST LAWFUL RATE, i.e., IN NO
EVENT SHALL TEMPFUNDS CHARGE OR SHALL BORROWER BE REQUIRED TO PAY ANY INTEREST
THAT, TOGETHER WITH ANY OTHER CHARGES HEREUNDER THAT MAY BE DEEMED TO BE
IN THE NATURE OF INTEREST, HOWEVER COMPUTED, EXCEEDS THE MAXIMUM LAWFUL RATE OF
INTEREST ALLOWABLE UNDER THE LAWS OF THE STATE OF NEW YORK AND/OR OF THE UNITED
STATES.  SHOULD ANY PROVISION OF THIS AGREEMENT
OR ANY OTHER AGREEMENT BETWEEN BORROWER AND TEMPFUNDS BE CONSTRUED TO REQUIRE
THE PAYMENT OF INTEREST THAT EXCEEDS SUCH MAXIMUM LAWFUL 

 

4

 

RATE, ANY SUCH EXCESS SHALL BE AND IS
EXPRESSLY HEREBY WAIVED BY TEMPFUNDS. 
SHOULD ANY EXCESS INTEREST IN FACT BE PAID, SUCH EXCESS SHALL BE DEEMED
TO BE A PAYMENT OF THE PRINCIPAL AMOUNT OF OUTSTANDING INDEBTEDNESS OWING BY
BORROWER TO TEMPFUNDS AND SHALL BE APPLIED TO SUCH PRINCIPAL.

 

In
order to satisfy any of the Obligations, Borrower authorizes TEMPFUNDS, or its
agents, affiliates, or depository bank(s) to initiate electronic debit or
credit entries through the ACH system to or from any deposit account maintained
by Borrower (“ACH Transfers”).

 

Borrower shall be liable for, and TEMPFUNDS may charge
Borrower’s account with all reasonable Costs and Expenses as described in Exhibit B,
paragraph 19 under Costs and Expenses. Such costs and expenses shall be
considered advanced under this Agreement.

 

35.           REQUIRED FORMS: 
Along with the Schedule of Accounts, Borrower shall provide TEMPFUNDS,
upon request, with duplicate copies of invoices, proofs of delivery or service,
contracts or purchase orders, and/or purchase order numbers, as appropriate to
the business of Borrower, all in form acceptable to TEMPFUNDS together with all
those items set forth in the Procedures Manual.

 

36.           NOTICE OF DISPUTE: 
Borrower will immediately notify TEMPFUNDS of any Customer Dispute
involving in excess of $10,000.00 for any one Customer, and of any litigation
or proceeding, pending or threatened, by or against Borrower.

 

37.           INELIGIBLE ACCOUNTS AND RIGHT OF OFFSET:  Upon notice of any Customer Dispute or in the
event that any Account becomes an Ineligible Account, TEMPFUNDS may, in
addition to any other remedies under this Agreement, declare the Account to be
ineligible for funding hereunder and Borrower will immediately pay to TEMPFUNDS
all amounts advanced to Borrower against such Account. TEMPFUNDS may, at its
sole discretion, charge such amounts to the Loan Account or offset against any
advances or remittances it would otherwise make to Borrower for any amounts
owed to TEMPFUNDS hereunder. Notwithstanding the foregoing, such Accounts shall
remain as Collateral for TEMPFUNDS as provided herein.

 

38.           TEMPFUNDS STATEMENTS: From time to time, TEMPFUNDS
shall provide Borrower with Borrower ledgers and other reports. Such reports
shall be deemed final and conclusive between Borrower and TEMPFUNDS as to the
contents of said reports except for any errors of which Borrower shall have
notified TEMPFUNDS in writing within thirty (30) days after the date of receipt
by Borrower of such reports and TEMPFUNDS, in its good faith and discretion
determines that such exceptions are accurate and makes an appropriate
adjustment.

 

39.           SOLE RIGHT TO PAYMENT:  Other than to the ComVest Sub Debt, which is
subject to a subordination agreement in favor of TEMPFUNDs, the right to
payment from the Customers of the Borrower as to all Accounts is solely collaterally
assigned to TEMPFUNDS. Any interference, including but not limited to Borrower
failing to comply with Section 40 below or Borrower’s unauthorized receipt
and retention of Collateral proceeds will constitute a Default hereunder and
may result in, inter alia, termination of future advances to the
Borrower.

 

40.           COLLECTIONS: Borrower
will notify all of its Customers to forward all payments to the lock box
address indicated in Exhibit B, paragraph 24 (the “Lock Box”).  In the event that any payments from Customers
come into Borrower’s possession, Borrower will hold the same in trust and
safekeeping, and immediately deposit into the Lock Box the identical check or
other form of payment received by Borrower, properly endorsed, including
electronic or wire transfers. Should Borrower come into possession of a check
or other form of payment, which constitutes payment of either Acceptable
Accounts and/or Ineligible Accounts, Borrower shall immediately remit such
payment(s) to the Lock Box.

 

In
the event that the Borrower fails to comply with the provisions of this Section 40,
in addition to all other remedies of TEMPFUNDS hereunder, Borrower shall pay a
Misdirection Fee equal to 2.5% of the amount of the funds which Borrower
deposits in any bank account other than bank accounts as directed by TEMPFUNDS
under this Agreement or in the Lock Box, or are otherwise not remitted to
TEMPFUNDS as required herein (the “Misdirected Funds”). Nothing provided herein
shall in any manner authorize the Borrower to misdirect funds as prohibited by
the Agreement. Notwithstanding the foregoing, in the event that collections of
Customers are remitted to the account or lock box controlled by ComVest (the “ComVest
Collections”), and so long as ComVest remits such payments to TEMPFUNDS as
provided in the payoff letter between ComVest and TEMPFUNDS, no Misdirection
Fee shall be assessed in connection with such ComVest Collections.

 

Any wire transfer of funds, check, or other item of payment received by
TEMPFUNDS shall be credited to Borrower when applied by TEMPFUNDS and will be
applied to conditionally reduce Borrower’s Obligations, but shall not be
considered a payment on account unless and until such check or other method or
item of payment is honored when presented for payment.  The receipt of any check or other or method item
of payment deposited into the Lock Box shall be deemed to have been paid to
TEMPFUNDS at the expiration of the Collection Day Period (as defined in Exhibit B,
paragraph 25) after the date TEMPFUNDS actually receives possession of such
check or other method or item of payment into the Wire Account referred to in Exhibit B,
paragraph 26. Absent legal process to the
contrary and provided that the outstanding indebtedness due TEMPFUNDS does not
exceed the availability hereunder and so long as there is not a Default
hereunder, then; (i) amounts collected and applied to Accounts in excess
of outstanding obligations due TEMPFUNDS will be credited, without interest, to
Borrower, (ii) payment of Accounts not assigned to TEMPFUNDS or against
Ineligible Accounts will be credited, without interest, to Borrower, and (iii) the
amounts credited to Borrower under (i) and (ii) will be available to
Borrower.

 

41.           ACCESS TO BOOKS AND RECORDS, ACCOUNT AND FINANCIAL
INFORMATION: Upon request, Borrower will furnish TEMPFUNDS with accounting
records, financial information or other information pertaining to the operation
of Borrower’s business and will allow TEMPFUNDS to review financial records
kept by Borrower with respect to its business. 
The foregoing right of access shall include, without limitation, the
right of TEMPFUNDS to conduct field examinations with access to Borrower’s
business facilities and the right, after a Default, to contact Customers and/or
any third party payors for any reason, including the confirmation of any or all
invoices or statements. Borrower agrees to hold TEMPFUNDS harmless from and
against any costs, claims, expenses or liabilities incurred by TEMPFUNDS
arising out of or relating to any actions or omissions of TEMPFUNDS permitted
by this Section 41 or taken or refrained from 

 

5

 

being
taken in reliance on any information received from Borrower hereunder. Borrower
shall promptly reimburse TEMPFUNDS for the expenses of each field examination
as provided in Exhibit B, paragraph 27 under Field Examination Expenses.

 

In
addition, the Borrower will provide to TEMPFUNDS: (a) promptly upon
receipt thereof, copies of any reports submitted by independent certified
public accountants in connection with examination of the financial statements
of the Borrower or any subsidiary or any Guarantor made by such accountants;

 

(b) promptly
after the furnishing thereof, copies of any statement or report furnished to
any other party pursuant to the terms of any indenture, loan or debenture and
not otherwise required to be furnished to TEMPFUNDS;

 

(c)   promptly after the
sending or filing thereof, copies of all proxy statements, financial statements
and reports which the Borrower or any subsidiary sends to its stockholders, and
copies of all regular, periodic and special reports, and all registration
statements which the Borrower or any subsidiary files with the SEC or any
governmental authority which may be substituted therefore, or with any national
security exchange.

 

(d)  promptly after receiving, any communication from the SEC or
any governmental authority which may be substituted therefore, or with any
national security exchange relating to the Borrower’s securities.

 

42.           TAX COMPLIANCE: 
Borrower agrees to provide to TEMPFUNDS, as and when requested, evidence
of timely payment of all Federal, State and/or local taxes due in connection
with Borrower’s business enterprises whether related to this Agreement or not,
including, payment of all employee withholding taxes.

 

43.           NOTICE OF LEVY: 
Borrower will promptly notify TEMPFUNDS of any attachment, tax
assessment, tax lien, judgment lien, or other legal process levied against
Borrower or any of its assets or if Borrower becomes aware, of any of Customers
assets.

 

44.           NO PLEDGE: 
Borrower will not pledge the credit of TEMPFUNDS to any person or
business for any purpose whatsoever.

 

45.           LICENSE AGREEMENTS:   Borrower
will keep each License Agreement, if any, in full force and effect for so long
as Borrower has any inventory the manufacture, sale or distribution of which is
in any manner governed by or subject to such License Agreement, and provide
TEMPFUNDS, upon request, with copies of each such License Agreement and all
amendments, extensions or modifications thereto. “License Agreement” as used
herein shall mean any licenses held by the Borrower for the sale of products.

 

46.           BOOK ENTRY: 
Borrower will, immediately upon assignment of Accounts to TEMPFUNDS,
make proper entries on its books and records disclosing the assignment of said
Accounts to TEMPFUNDS.

 

47.           LEGAL FEES: 
If, at any time or times
regardless of whether or not a Default then exists, TEMPFUNDS incurs legal or
accounting expenses or any other costs or out-of-pocket expenses in connection
with the loan transaction described herein, including, without limitation: (i) the
negotiation and preparation of this Agreement or any amendment of or
modification of this Agreement or any of the other loan documents in connection
with this transaction (the “Loan Documents”); (ii) the administration of
this Agreement or any of the other Loan Documents and the transactions
contemplated hereby and thereby; (iii) any litigation, contest, dispute,
suit, proceeding or action (whether instituted by TEMPFUNDS, Borrower or any
other person) in any way relating to the Collateral, this Agreement or any of
the other Loan Documents or Borrower’s affairs, and including all actions in
bankruptcy, appeal and probate; (iv) any attempt to enforce any rights of
TEMPFUNDS against Borrower or any other person which may be obligated to
TEMPFUNDS by virtue of this Agreement or any of the other Loan Documents,
including any account debtor, Customer or guarantor of Borrower’s obligations
owing to TEMPFUNDS; (v) any consultations regarding this Agreement or any
other Loan Documents or preparation therefore, or the financing extended
hereunder or (vi) any attempt to inspect, verify, protect, preserve,
perfect or continue the perfection of TEMPFUNDS liens upon, restore, collect,
sell, liquidate or otherwise dispose of or realize upon the Collateral; then
all such reasonable legal and accounting expenses and other reasonable costs
and out-of-pocket expenses of TEMPFUNDS shall be charged to Borrower.  Legal fees shall include all fees of
TEMPFUNDS in house counsel.  All such
legal fees shall be based upon the usual and customary rates for services
actually rendered and not upon any fixed percentage of the outstanding balance
hereunder.  All amounts chargeable to
Borrower under this Section 47 shall be Obligations secured by all of the
Collateral, shall be payable on demand to TEMPFUNDS, and shall bear interest
from the date such demand is made until paid in full at the rate provided on Exhibit A.  In
addition, in the event Borrower is in Default under this Agreement, Borrower
agrees to pay any and all additional costs incurred by TEMPFUNDS in connection
with such Default, including, without limitation, the cost of additional field
exams, additional legal fees, and the cost of providing notices of Default,
sale, or assignment, etc.

 

48.           POWER OF ATTORNEY: 
Borrower irrevocably appoints TEMPFUNDS, or any person or entity
designated by TEMPFUNDS, its special attorney in fact, or agent, with power to:

 

(a)           after the occurrence of a Default, strike out
Borrower’s address on all Accounts mailed to Customers and put TEMPFUNDS’
address on all Accounts.

 

(b)           after the occurrence of a Default, receive, open
and dispose of all mail addressed to Borrower, or to Borrower’s fictitious
trade name and to notify the United States Postal Service to change the address
of Borrower to an address designated by TEMPFUNDS.

 

(c)           endorse the name of Borrower or Borrower’s
fictitious trade name on any checks or other evidences of payment that may come
into the possession of TEMPFUNDS or pursuant to Default and on any other
documents relating to any of the Accounts or to the Collateral.

 

6

 

(d)           after the occurrence of a Default, in Borrower’s
name, or otherwise, demand, sue for, collect, and give releases for any and all
monies due or to become due on Accounts.

 

(e)           after the occurrence of a Default, compromise,
prosecute, or defend any action, claim or proceeding as to said Accounts,
including making claims on any insurance policies.

 

(f)            deposit into the Lock
Box any checks or other remittances received on Accounts regardless of
notations or conditions placed thereon by Customers or deductions reflected
thereby and to charge the amount of any such deduction to Borrower. However, in
the event that a Customer who has asserted a claim with respect to any Account
makes a partial payment of that Account, and such payment contains a statement
to the effect that such partial payment constitutes full satisfaction of the
amount owed, then, Borrower agrees upon TEMPFUNDS request, to refund such
partial payment to the Customer and reassign such Account to TEMPFUNDS.

 

(g)           after the occurrence of
a Default, place any legend or
other statement on the Borrower’s invoices indicating the assignment of the
invoice to TEMPFUNDS.

 

(h)           file Uniform Commercial
Code financing statements, including, without limitation, original financing
statements, amendments and continuations.

 

(i)            after the occurrence of
a Default, draw and endorse any
checks or promissory notes on any bank in which Borrower may have an account
and do any and all matters and things connected with Borrower’s accounts in the
said bank(s) in which Borrower may have an account, which Borrower itself
might or could do.

 

(j)            do any and all things
necessary and proper to carry out the purpose intended by this Agreement, as
determined by TEMPFUNDS in its commercially reasonable discretion.

 

The authority granted TEMPFUNDS hereunder shall remain
in full force and effect until all assigned Accounts are paid in full and any
Obligations are discharged in full in accordance with the terms and conditions
of this Agreement.

 

49.           INDEMNIFICATION: 
Borrower hereby indemnifies and holds TEMPFUNDS and its executive
committees, parent, affiliates, depository banks, subsidiaries, agents,
directors, officers, employees, agents, and their successors and assigns
(collectively the “Indemnified Parties”) harmless against any damages or claims
arising from TEMPFUNDS collecting or attempting to collect any Accounts and
from any and all costs, claims, expenses, actions and liabilities, including
fees of attorneys and other professionals and experts, costs of suit and
interest, arising out of any failure by Borrower or Borrower’s documentation to
comply with all applicable laws, rules and regulations.

 

Should any excise, sales, documentary stamp,
intangible, service or other tax be imposed by state, federal or local
authorities with respect to any of the transactions hereunder in such form that
TEMPFUNDS is required to withhold, collect or pay such taxes, Borrower agrees
to disclose such requirement to TEMPFUNDS and to indemnify the Indemnified
Parties with respect to such payments, and TEMPFUNDS shall be entitled to
charge and collect such payments from Borrower’s account. In addition, and if applicable, Borrower
agrees that if the Department of Revenue of the State of Florida, at any time
hereafter, including after the termination of this Agreement, takes the
position that documentary stamp taxes or nonrecurring intangible taxes, or
both, are applicable to this Agreement, or any renewals or extensions thereof,
or TEMPFUNDS make such determination, TEMPFUNDS will pay all such taxes, and
any interest and penalties or other liabilities in connection therewith. TEMPFUNDS expressly disclaims any obligation to
Borrower with respect to state, local or Federal income taxation and the
preparation of income tax reports or returns, except as agreed to between the
parties herein.  It is agreed that
TEMPFUNDS shall not in any way be considered a “responsible party” in
connection with the payment of any taxes on behalf of Borrower.

 

Borrower hereby indemnifies and holds Indemnified
Parties harmless from any and all liability, claims and damages, including fees
of attorneys (including in-house counsel for the Indemnified Parties) and other
professionals and experts, costs of suit and interest which any of the
Indemnified Parties may incur as a result of the failure of Borrower to pay any
taxes due and payable to any taxing authority. 
Borrower does further agree to immediately notify TEMPFUNDS of any
failure to pay federal, state or local taxes due in connection with any of its
business enterprises.  Borrower further
agrees to provide to TEMPFUNDS true and accurate copies of any tax liens or
warning notices received by Borrower in connection with its business
enterprises whether related to this Agreement or not.

 

Borrower hereby releases, discharges and holds
harmless Indemnified Parties from all liabilities, actions, suits, causes of
action, costs, expenses, fines, penalties, claims, judgments and demands
whatsoever which the Borrower or any other person or entity had or may have now
against one or more of them under or arising out of this Agreement between
Borrower and TEMPFUNDS, or any acts or omissions in connection herewith;
provided, however, that nothing herein shall preclude the enforcement by
Borrower and TEMPFUNDS of all rights and benefits conferred in this Agreement.

 

Borrower does hereby warrant that there has been
no mortgage or loan broker involved in connection with the transaction
contemplated by this Agreement other than as set forth on Exhibit B, paragraph 28, whose fees will
be paid by Borrower, and Borrower agrees to
indemnify and hold harmless the Indemnified Parties from any and all liability,
claims and damages, including fees of attorneys (including in-house counsel for
TEMPFUNDS) and other professionals and experts, costs of suit and interest
which TEMPFUNDS may incur as a result of any claim of compensation payable to
any mortgage or loan broker in connection with the transaction contemplated by
this Agreement.

 

Borrower hereby indemnifies and holds Indemnified
Parties harmless from any and all liability, claims and damages, including fees
of attorneys (including in-house counsel for TEMPFUNDS) and other professionals
and experts, costs of suit and interest which TEMPFUNDS may incur as a result
of the failure of Borrower to comply with the Environmental Laws.

 

The indemnifications set forth
herein shall survive the termination of this Agreement

 

7

 

50.           DEFAULTS:  Any one or more of the following shall be a
Default hereunder:

 

(a)           Borrower shall fail to pay any indebtedness to
TEMPFUNDS (whether arising hereunder or otherwise) when due.

 

(b)           Borrower shall breach any term, provision,
covenant, warranty or representation under this Agreement or under any other
agreements or contracts, between Borrower and TEMPFUNDS or obligation of
Borrower to TEMPFUNDS, and as relates to the following representations and
warrantees only, such breach is not cured by Borrower within thirty (30) days
of its occurrence:

 

Section 10

Section 11

Section 13

Section 14

 

Section 22, provided, however, that nothing
provided herein shall in any way restrict TEMPFUNDS’ ability to require a
reserve for such Accounts

 

Section 24, but no cure period for worker’s
compensation insurance or any other insurance that Borrower is required to
carry under any of its agreements with it Customers

 

Section 27

 

Exhibit B, paragraph 33, which as to (a) can
only be cured by the Borrower infusing additional capital into the Borrower
through additional capital or Subordinated Debt in form and amount acceptable
to TEMPFUNDS..

 

(c)           The appointment of any receiver or trustee of all
or a substantial portion of the assets of Borrower.

 

(d)           Borrower shall become insolvent or unable to pay
debts as they become due, shall make a general assignment for the benefit of
creditors or shall voluntarily file under any bankruptcy or similar law.

 

(e)           Any involuntary petition in bankruptcy shall be
filed against Borrower which is not dismissed within forty-five (45) days,
provided, however, that during such time TEMPFUNDS shall have the option to
required court approval prior to providing any advances to Borrower.

 

(f)            Any levies of
attachment, executions, tax assessments, tax liens, judgments or similar
process shall be issued against the Collateral or the existence of any other
lien, claim or other encumbrance against the Collateral.  Notwithstanding the foregoing,  other than in connection with tax liens, so
long as such levies of attachment, executions, tax assessments, judgments or
similar process do not affect TEMPFUNDS’ perfection and first priority security
interest in the Collateral, Borrower shall have a period of thirty (30) days to
have the same released.

 

(g)           Any financial statements, profit and loss
statements, borrowing certificates or schedules, or other statements or
representations of any kind furnished or made by Borrower to TEMPFUNDS prove
materially false or incorrect as determined by TEMPFUNDS in its commercially
reasonable discretion.

 

(h)           Borrower shall terminate/cease assignments
hereunder while TEMPFUNDS has unpaid Accounts outstanding.

 

(i)            The occurrence of a
Material Adverse Effect (as defined below).

 

(j)            The sale or transfer,
directly or indirectly, of any of the capital stock, partnership interest,
membership interest, owner’s equity or assets, as the case may be, of Borrower
without the prior written approval of TEMPFUNDS.

 

(k)           Borrower shall fail to pay when due any federal,
state or local taxes or fail to make any required tax withholding payment, or
shall fail to maintain required workers’ compensation or other insurance
coverage required by law or this Agreement, provided, Borrower shall have a
period of thirty (30) days to cure any failure to pay the above taxes so long
as the failure to pay shall not result in a lien upon any of the Collateral,
and Borrower shall have a period of thirty (30) days to cure any failure to
have insurance coverage, other than in connection with worker’s compensation
insurance and any other insurance required under any of the agreements between
Borrower and its Customers.

 

(l)            The attempted revocation
of any guaranty of the obligations of Borrower hereunder by any guarantor, the
death of any such guarantor unless a substitute guarantor acceptable to TEMPFUNDS
enters into a guaranty, in form acceptable to TEMPFUNDS, within thirty (30)
days of such death, or the non-compliance or Default under such guaranty.

 

(m)          The retention or attempted retention by Borrower
of any payment, or partial payment, of any Account.

 

(n)           If Borrower is enjoined, restrained, or in any way prevented by the
order of any court or any administrative or regulatory agency from conducting
any material part of Borrower’s business; or

 

(o)           The loss, suspension or revocation of or
failure to renew, any material license or permit now held or hereafter acquired
by Borrower, which loss, suspension, revocation or failure to renew might have
a Material Adverse Effect (which shall mean a material adverse effect upon the
business, operations, properties, assets or condition, financial or otherwise,
of Borrower on an individual basis or taken as a whole which impairs Borrower’s
ability to perform in all material respects Borrower’s obligations under this
Agreement or TEMPFUNDS ability to enforce or collect any obligations) and such
loss, suspension, revocation or failure to renew continues for more than thirty
(30) days after such occurrence, provided that such grace period shall not
apply, and such event shall constitute an event of Default, if such event may
not, in TEMPFUNDS reasonable determination, be cured by Borrower during such
thirty (30) day grace period.

 

8

 

(p)           If Borrower makes a payment on any Subordinated
Debt in violation of any Subordination Agreement in favor of TEMPFUNDS, which
is not cured within thirty (30) days of its payment.

 

(q)           An Event of Default by Borrower under any
obligation owing to ComVest or any other party holding long term debt of the
Borrower, after the expiration of all applicable cure periods;

 

(r)            Default by Borrower
under the term of any preferred stock, debenture or any other security, other
than a default that would be caused by Borrower entering into this Agreement.

 

(s)           So long as the Borrower is a public company, in the event that the SEC or any state
securities authority or any stock exchange takes or threatens to take any
action against the Borrower, or in the event that trading of Borrower’s stock
is suspended by any stock exchange, or in the event that the Borrower’s stock
is delisted by any stock exchange.

 

(t)               The entering into an agreement for the
acquisition of the stock or assets of another company, or any merger or
business combination without the prior written consent of TEMPFUNDS.

 

(u)             The occurrence of a Sale. “Sale”
shall mean any transaction or series of related transactions (a) whereby a
majority of the outstanding capital stock of the Borrower which ordinarily has
voting power for the election of directors (including preferred stock counted
on an “as converted” basis into common stock and common stock counted on a
fully diluted basis) is sold, assigned or transferred, (b) whereby the
Borrower issues shares of its capital stock which, after giving effect to such
transaction or transactions, constitute a majority of the outstanding capital
stock of the Borrower which ordinarily has voting power for the election of
directors (including preferred stock counted on an “as converted” basis into
common stock and common stock counted on a fully diluted basis), (c) whereby
Control of the Borrower is held by a Person (or group of Persons acting in
concert) who does not hold such Control on the date of this Agreement, (d) 
in which the Borrower is a constituent party to any merger or consolidation and
as a result thereof (i) the holders of the outstanding capital stock of
the Borrower which ordinarily has voting power for the election of directors
(including preferred stock counted on an “as converted” basis into common
stock) immediately prior to such merger or consolidation cease to own a
majority of the outstanding capital stock of the Borrower which ordinarily has
voting power for the election of directors (including preferred stock counted
on an “as converted” basis into common stock), or (ii) the Borrower is not
the surviving corporation, or (e) whereby all or any material portion of
the assets of the Borrower are sold, assigned or transferred; provided, however,
that a “Sale” shall not be deemed to have occurred by reason of any of the
aforedescribed transactions (other than a sale of assets) if, after giving
effect to the consummation of the subject transaction, (A) the Borrower or
the surviving entity in such transaction shall be a corporation whose common
stock is traded or listed on any national securities exchange, the Nasdaq
Global Market, or the Nasdaq Global Select Market or is actively quoted on the
OTC Bulletin Board, (B) if the surviving entity is not the Borrower, then
such surviving entity assumes all of the Borrower’s hereunder, (C) the
Borrower or other surviving entity is Controlled By one or more Persons of the
Borrower on the date of this Agreement, and (D) no Default occurred in the
performance of the subject transaction or exists upon the consummation of the
subject transaction.  “Person”
shall mean any individual, partnership, corporation, limited liability company,
banking association, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature. “Control” shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise, and the terms “Controlling” and “Controlled” shall
have meanings correlative thereto.

 

51.           REMEDIES AFTER DEFAULT: 
In the event of any Default TEMPFUNDS may do any one or more of the
following:

 

(a)           Declare any indebtedness including amounts
advanced against outstanding Accounts immediately due and payable.

 

(b)           Notify any Customers to make payment of Accounts
directly to TEMPFUNDS or its agent and take possession of Collateral and
collect any Accounts without judicial process.

 

(c)           Require Borrower to assemble the
Collateral and the records pertaining to Accounts and any other Collateral and
make them available to TEMPFUNDS at a place designated by TEMPFUNDS.

 

(d)           Enter the premises of Borrower and take possession
of the Collateral and of the records pertaining to the Accounts and any other
Collateral.

 

(e)           Grant extensions, compromise claims and settle
Accounts for less than face value, in its reasonable discretion.  Any such settlement or compromise agreed
and/or accepted by TEMPFUNDS does not relieve or constitute a waiver of
Borrower’s liability and obligation for the repayment in full of advances by
TEMPFUNDS with respect to such Accounts.

 

(f)            Use, in connection with
any assembly or disposition of the Collateral, any trademark, trade name, trade
style, copyright, patent right or technical process used or utilized by
Borrower.

 

(g)           Exercise all rights of a secured party under the
Code.  In the event any notice is
required, the parties agree that ten (10) calendar days shall be a
reasonable notice.

 

(h)           Hold Borrower liable for any deficiency.

 

9

 

(i)            Withhold further
advances pursuant to paragraph 34 above for such period as the Default
continues, without declaring immediately due or accelerating amounts previously
advanced against outstanding Accounts or otherwise availing itself of other
remedies available, during which period of withholding further advances fees
shall continue to accrue on all monies previously advanced.  Notwithstanding an election to withhold
further advances as provided above, TEMPFUNDS may at any time avail itself of
any or all of the other remedies listed above without further notice.

 

(j)            Setoff against all sums
standing to Borrower’s credit on TEMPFUNDS books and all of Borrower’s property
in TEMPFUNDS possession, or upon or in which TEMPFUNDS has a lien or security
interest. In addition to and not in limitation of the above, with respect to
any deposits or property of Borrower in TEMPFUNDS possession or control,
TEMPFUNDS shall have the right to setoff all or any portion thereof.

 

(k)           TEMPFUNDS may settle or
compromise any Customer Dispute in its sole discretion.  Any such settlement or compromise agreed
and/or accepted by TEMPFUNDS does not relieve or constitute a waiver of
Borrower’s liability and obligation for the repayment in full of advances by
TEMPFUNDS with respect to such Accounts.

 

(l)            TEMPFUNDS may cease
providing the client ledgers, reports and computer access to the same, as
provided in Section 38 above.  Upon
payment of all Obligations, TEMPFUNDS will provide client ledgers to the
Borrower.

 

(m)          Terminate this
Agreement, which shall not terminate, extinguish, or remove any liens or
security interests granted to TEMPFUNDS hereunder until Borrower shall have
fully paid and discharged any and all obligations and indebtedness due
TEMPFUNDS. From and after the effective date of termination, all amounts
charged or chargeable to Borrower and all Borrower’s obligations and indebtedness
due TEMPFUNDS shall become immediately due and payable without further notice
or demand.

 

52.           TERM: This Agreement shall continue in full force
and effect for the Term as defined in Exhibit B, paragraph 29 but shall be
automatically renewed for consecutive two (2) year terms unless terminated
by written notice of either party sixty (60) days prior to the end of the
initial Term or any renewal Term.

 

53.           POST-TERMINATION: 
After termination Borrower shall continue to be liable to TEMPFUNDS for
the full and prompt performance and payment of the full amount of all
Obligations to TEMPFUNDS which for any reason remain, or otherwise are, then
outstanding and unpaid, whether disputed or undisputed.  TEMPFUNDS will continue to have a security
interest in the Collateral of Borrower until any and all Obligations are paid
in full.  When TEMPFUNDS has received
payment and performance in full of all Obligations and an acknowledgment from
Borrower that it is no longer entitled to request any advances from TEMPFUNDS under this Agreement, TEMPFUNDS shall execute a termination of
all security interests given by Borrower to TEMPFUNDS,
upon the execution and delivery of general releases by Borrower, any guarantor
or surety of Borrower’s Obligations to TEMPFUNDS.

 

54.           BINDING ON FUTURE PARTIES:  This Agreement inures to the benefit of and
is binding upon the heirs, executors, administrators, successors and assigns of
the parties thereto.

 

55.           CUMULATIVE RIGHTS: 
All rights, remedies and powers granted to TEMPFUNDS in this Agreement,
or in any note or other agreement given by Borrower to TEMPFUNDS, are
cumulative and may be exercised singularly or concurrently with such other
rights as TEMPFUNDS may have.  These
rights may be exercised from time to time as to all or any part of the pledged
Collateral as TEMPFUNDS in its discretion may determine.

 

56.           WRITTEN WAIVER: 
TEMPFUNDS may not waive its rights and remedies unless the waiver is in
writing and signed by TEMPFUNDS.  A
waiver by TEMPFUNDS of a right or remedy under this Agreement on one occasion
is not a waiver of the right or remedy on any subsequent occasion.

 

57.           CHOICE OF LAW:  The validity of
this Agreement, its construction, interpretation and enforcement, and the
rights of the parties hereunder and concerning the Collateral, shall be
determined under, governed by, and construed in accordance with the laws of the
State of New York.  The parties agree
that all actions or proceedings arising in connection with this Agreement shall
be tried and litigated in the state and federal courts located in the County of
New York, State of New York, or at TEMPFUNDS option, in any court in which
TEMPFUNDS shall initiate legal or equitable proceedings and which has subject
matter jurisdiction over the matter in controversy.  Borrower waives any right it may have to
assert the doctrine of forum  non  conveniens
or to object to any such venue and hereby consents to any court ordered relief.

 

58.           INVALID PROVISIONS:  If any provision of this Agreement shall be
declared illegal or contrary to law, it is agreed that such provisions shall be
disregarded and this Agreement shall continue in force as though such provision
had not been incorporated herein.

 

59.           ENTIRE AGREEMENT: 
This instrument contains the entire Agreement between the parties relating
to the matters set forth herein.  Any
addendum or modification hereto will be signed by both parties and attached
hereto.

 

60.           EFFECTIVE: 
This Agreement becomes effective when it is accepted and executed by an
authorized officer of TEMPFUNDS.

 

61.           ASSIGNMENT BY TEMPFUNDS: 
TEMPFUNDS may assign this Agreement to any party and such assignee shall
be entitled to all rights and privileges hereunder.  Borrower may not assign this Agreement.
TEMPFUNDS reserves the right to
sell, assign, transfer, negotiate or grant participations in all or any part
of, or any interest in, TEMPFUNDS rights and benefits hereunder, and Borrower
hereby consents to TEMPFUNDS sharing of all financial information regarding the
Borrower with any such participants.

 

62.       RESERVED

 

10

 

63.          COMPLIANCE: 
Borrower agrees that if requested by TEMPFUNDS or TEMPFUNDS counsel, it
will fully cooperate and execute and/or re-execute any document or documents
due to clerical errors, scrivener’s errors or relating to additional matters
due to receipt and review of miscellaneous required items post closing, using
reasonable discretion of TEMPFUNDS and TEMPFUNDS Counsel, and hereby authorize
TEMPFUNDS and TEMPFUNDS Counsel to date this Agreement and any Loan Documents,
and to complete, on behalf of Borrower, any blanks in the Agreement and any
Loan Documents.

 

64.           AUTHORIZED PARTIES:  As an accommodation to Borrower, TEMPFUNDS
may permit telephonic, electronic or other transmittal of instructions or requests
for advances, authorizations, agreements, assignment sheets, assignment
schedules, requests for advances or reports between TEMPFUNDS and Borrower,
received from or sent by any one or more of the employees (including contract
or leased employees), officers, directors, managers or consultants of the
Borrower (collectively the “Authorized Signatories”).  Unless Borrower specifically directs
TEMPFUNDS in writing not to accept or act upon telephonic, telecopied,
electronic or other communications from Borrower or to only accept instructions
from certain specified employees or officers of Borrower, TEMPFUNDS shall have
no liability to Borrower for any loss or damage suffered by Borrower as a
result of TEMPFUNDS honoring of any requests, execution of any instructions,
authorizations or agreements or reliance on any reports communicated to
TEMPFUNDS and purporting to have been sent to TEMPFUNDS by Borrower and
TEMPFUNDS shall have no duty to verify the origin of any such communication or
the authority of the person sending it.

 

Pursuant to the terms hereof, Borrower will deliver to TEMPFUNDS, from
time to time, assignment schedules of Borrower’s Accounts on TEMPFUNDS form of
Schedule of Assigned Accounts signed by one of the Authorized Signatories, all
of which is subject to the procedures set forth herein and in the “Funding
Procedures Memo” delivered by TEMPFUNDS to the Borrower as amended and/or
updated from time to time (the “Procedures Manual”).  The Borrower specifically requests that
TEMPFUNDS agree to accept any signature or facsimile signature on any Schedule
of Assigned Accounts or any notice which TEMPFUNDS in its sole discretion
believes to have been sent or forwarded to TEMPFUNDS by one of the Authorized
Signatories.  The Borrower hereby agrees
to follow up any of said facsimile transmissions with the original of same no
later than the next Business Day following any such facsimile transmission.

 

In addition to the other indemnifications set forth herein, the Borrower
hereby indemnifies and holds all Indemnified Parties harmless from and against
any and all claims, demands, losses, liabilities, actions, lawsuits and other
proceedings, judgments and awards, and from costs and expenses (including
without limitation reasonable attorney’s fees) arising directly or indirectly,
in whole or in part, out of the negligence, willful misconduct, misuse or
unlawful or unauthorized use of any facsimile message or, facsimile signature
or signatures of any person or persons, including the Borrower or its partners,
officers, directors, agents or employees, whether within or beyond the scope of
such individual’s duties or authority thereunder.  Further, the Borrower agrees to assume full
responsibility for any and all advances and actions taken by TEMPFUNDS in
reliance upon any facsimile transmission or, facsimile signature or signatures
of any person or persons, including the Borrower or its partners, officers,
directors, agents or employees, signing on behalf of the Borrower.

 

Borrower agrees that TEMPFUNDS shall not be responsible for any
communication or miscommunication by any individual claiming to or which
TEMPFUNDS in its discretion believes to have proper authority to give any
facsimile transmission.

 

65.           TRANSMITTAL OF FUNDS.  Borrower
understands that TEMPFUNDS charges a Wire Fee (as defined in Exhibit B,
paragraph 30) for incoming and outgoing wire transfer of funds and that there
is no fee for ACH transfers.  TEMPFUNDS
may initiate a wire or ACH for the approved amount of a transfer no later than
the second Business Day after receipt of all necessary documentation in
connection with the assignment of Accounts and the advance.  Borrower understands and agrees that
TEMPFUNDS cannot control the time it will take for Borrower’s bank to credit an
ACH transfer to Borrower’s account. 
Accordingly, Borrower instructs TEMPFUNDS to send all transfers to
Borrower’s account based upon the instructions set forth in Exhibit B,
paragraph 31.

 

66.           WAIVER OF JURY TRIAL.   AS AN INDUCEMENT FOR
TEMPFUNDS TO ENTER INTO THIS AGREEMENT AND TO MAKE ANY LOANS OR ADVANCES TO
BORROWER, BORROWER AND TEMPFUNDS  HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO
A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT AND, OTHER DOCUMENTS OR TERMS AND
CONDITIONS STIPULATED HEREIN OR EXECUTED IN CONNECTION THEREWITH.

 

67.           JOINT AND SEVERAL OBLIGATIONS; DEALINGS WITH
MULTIPLE BORROWERS.   If more than one
person or entity is named as Borrower hereunder, all Obligations,
representations, warranties, covenants and indemnities set forth herein or in
any other loan documents between the Borrower, TEMPFUNDS and any guarantors of
the Borrower’s obligations to TEMPFUNDS (collectively the “Loan Documents”) to which
such person or entity is a party shall be joint and several.  TEMPFUNDS shall have the right to deal with
any individual of any Borrower with regard to all matters concerning the rights
and obligations of TEMPFUNDS and Borrower hereunder and pursuant to applicable
law with regard to the transactions contemplated under the Loan Documents.  All actions or inactions of the officers,
managers, members and/or agents of any Borrower with regard to the transactions
contemplated under the Loan Documents shall be deemed with full authority and
binding upon all Borrowers hereunder. 
Each Borrower hereby appoints each other Borrower as its true and lawful
attorney-in-fact, with full right and power, for purposes of exercising all
rights of such person hereunder and under applicable law with regard to the
transactions contemplated under the Loan Documents, and the Borrower hereby
appoint Crdentia
Corp., to act on
behalf of all of them, until such time as the Borrower advises TEMPFUNDS in
writing of a change in the party to act on their behalf.  The foregoing is a material inducement to the
agreement of TEMPFUNDS to enter into this Agreement and to consummate the
transactions contemplated hereby.  The
Borrower represents that Crdentia Corp.,
CRDE Corp., GHS Acquisition Corporation, Staff Search Acquisition Corp., MP
Health Corp., Prime Staff, LP, Mint Medical Staffing Odessa, LP, and ATS
Universal, LLC are operated as part of one consolidated business entity and are
directly dependent upon each other for and in connection with their respective
business activities and financial resources. Each Borrower instructs TEMPFUNDS
to fund all advances to Crdentia Corp.,
and Crdentia Corp., shall distribute
the loan advances to all other Borrowers based upon their portion of each
advance.   Each Borrower will receive a
direct economic and financial benefit from the Obligations incurred under this
Agreement and the incurrence of such Obligations is in the best interests of
each Borrower.

 

11

 

[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

12

 

	
   

  	
  CRDENTIA CORP., a Delaware
  Corporation

  
	
   

  	
  CRDE
  Corp., a Delaware corporation

  
	
   

  	
  GHS
  Acquisition Corporation, a Delaware corporation

  
	
   

  	
  Staff
  Search Acquisition Corp., a Texas corporation

  
	
   

  	
  MP
  Health Corp., a Delaware corporation

  
	
   

  	
  Prime
  Staff, LP, a Texas limited partnership

  
	
   

  	
  By: CRDE Corp., Its General Partner

  
	
   

  	
  Mint
  Medical Staffing Odessa, LP, a Texas limited partnership

  
	
   

  	
  By: CRDE Corp., Its General Partner

  
	
   

  	
  ATS
  Universal, LLC, a Florida limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ John B. Kaiser

  
	
   

  	
  Signature

  
	
   

  	
  John B. Kaiser, Chief
  Executive Officer

  
	
   

  	
   

  	
  Name and Title

  
				

 

STATE OF

 

COUNTY OF

 

The foregoing instrument acknowledged before me
this            day of July 2008,
by John B. Kaiser, as Chief Executive Officer of CRDENTIA
CORP., a Delaware corporation, CRDE Corp., a Delaware corporation, GHS Acquisition Corporation, a
Delaware corporation, Staff Search Acquisition Corp., a Texas corporation, MP
Health Corp., a Delaware corporation, Prime Staff, LP, a Texas limited
partnership, Mint Medical Staffing Odessa, LP, a Texas limited partnership, and
ATS Universal, LLC, a Florida limited liability company on behalf of the corporations, limited liability
companies and limited partnerships.  He
is personally known to me or has produced
                                          
as identification and did (did not) take an oath.

 

 

	
   

  	
   

  
	
   

  	
  (Notary Signature)

  
	
  (NOTARY SEAL)

  	
   

  
	
   

  	
   

  
	
   

  	
  (Notary Name Printed)

  
	
   

  	
  NOTARY PUBLIC Commission No.

  
	
   

  	
   

  
	
   

  	
   

  	
  Accepted by TEMPFUNDS this     day
  of
               2008

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  at
                      ,
                              
  (hereinafter, the Acceptance Date.) CAPITAL TEMPFUNDS,
  a division of CAPITAL BUSINESS CREDIT LLC,  a
  Delaware limited liability company 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
        /s/

  
	
   

  	
   

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Corporate Seal)

  
					

 

 

STATE OF

 

COUNTY OF

 

The foregoing instrument was acknowledged before
me this            day of
                          
2008, by
                                                ,
as
                                      
of CAPITAL TEMPFUNDS, a
division of CAPITAL BUSINESS CREDIT LLC,  a Delaware
limited liability company on behalf of the
limited liability company.  He is
personally known to me or has produced
                      
as identification and did (did not) take an oath.

 

	
   

  	
   

  
	
   

  	
  (Notary Signature)

  
	
  (NOTARY SEAL)

  	
   

  
	
   

  	
  (Notary Name Printed)

  
	
   

  	
  NOTARY PUBLIC Commission No.

  

 

13

 

REMAINDER
OF THIS PAGE LEFT BLANK INTENTIONALLY

 

14

 

EXHIBIT “A”-RATE SCHEDULE

 

As
consideration for advances made by TEMPFUNDS to Borrower under this Agreement,
TEMPFUNDS shall be paid the following Fees and interest:

 

(a)                                  Interest upon the daily net balance of any
advances to Borrower and interest applicable to the charges or to the expenses
referred to in this Agreement, shall be charged as of the last day of each
month at a rate the greater of (i) eight and one half percent (8.50%) per
annum or (ii) the rate of interest designated by the Wall Street Journal
as the “Prime Rate” plus 2.00%. The Prime Rate shall mean, at any time, the
rate of interest quoted in the Wall Street Journal, Money Rates Section as
the “Prime Rate” (currently defined as the base rate on corporate loans posted
by at least 75% of the nation’s thirty (30) largest banks).  In the event that the Wall Street Journal
quotes more than one rate, or a range of rates as the Prime Rate, then the
Prime Rate shall mean the highest of the quoted rates.  In the event that the Wall Street Journal
ceases to publish a Prime Rate, then the Prime Rate shall be the average of the
three largest U.S. money center commercial banks, as determined by TEMPFUNDS.
Any adjustment in TEMPFUNDS interest rate, whether downward or upward, will
become effective on the first day of the month following the month in which the
Prime Rate of interest is reduced or increased. 
HOWEVER, in no event shall the rate of interest agreed to or charged to
Borrower hereunder exceed the maximum rate of interest permitted to be agreed
to or charged to Borrower under applicable law.

 

(b)                                 Monitoring Fee: For TEMPFUNDS services hereunder,
Borrower shall pay and TEMPFUNDS shall be entitled to receive a monthly
monitoring fee equal to fifteen hundredths of one percent (0.15%)  of the average Obligations outstanding for
each month (the “Standard Rate”) payable on the first day after the end of each
month. In the event the Borrower has three (3) consecutive months of
positive Cash Flow (as defined below), 
the monthly monitoring fee shall be reduced to one eighth of one percent
(0.125%)  of the average Obligations
outstanding for each month, provided, however, that the monthly monitoring fee
will resume to the Standard Rate in the event there is negative Cash Flow in
any calendar quarter.  Cash Flow shall mean
(i) net income plus (ii) depreciation and amortization and other
non-cash expenses, less (iii) debt service, distributions and dividends
and non-financed capital expenditures.

 

(c)                                  Closing
Fee: Borrower will pay to TEMPFUNDS a closing  fee in the amount equal to $135,000.00 due
upon execution of this Agreement, but as a courtesy to Borrower, payable in
three (3) payments of $45,000.00 each, one on February 22, 2009 one on August
22, 2009 and the final payment on March 1, 2010. If this Agreement is renewed,
a renewal fee in the amount equal to eight-tenths of one percent (.80%) of the
Maximum Credit Facility shall be due and payable on March 1 of each year during
each renewal Term, unless such renewal fee is waived by TEMPFUNDS in writing
prior to each renewal date.  Such fees
shall be fully earned on the date when due and shall not be refundable to the
Borrower in any event.

 

(d)                                 Lock Box Fee: The Borrower shall be responsible for the
costs of maintaining the Lock Box and the lock box account.

 

(e)                                  Early Termination Fee:  If the Borrower seeks to terminate this Agreement
or prepay the Obligations prior to the expiration of the initial Term, in
addition to all other amounts due hereunder, the Borrower shall pay to
TEMPFUNDS an early termination fee equal to ONE PERCENT (1.0%) of the Maximum Credit Facility,  together
with the unpaid facility fees and monthly monitoring fees for the remainder of
the Term.  In the event that payment of
the Obligations shall be accelerated for any reason whatsoever by TEMPFUNDS,
the prepayment fee in effect as of the date of such acceleration shall be paid
and such prepayment fee shall also be added to the outstanding balance of the
Obligations in determining the debt for the purposes of any judgment of
foreclosure of any loan documents given to secure the Obligations.

 

THIS EXHIBIT”A” IS MADE A PART OF AND INCORPORATED
INTO THE LOAN AND SECURITY AGREEMENT.

 

15

 

EXHIBIT
“B”

 

1.               The Acceptance Date
referred to in the opening paragraph of this Agreement means the date signed and
accepted by a duly authorized officer of TEMPFUNDS.

 

2.               Borrower referred to in
the opening paragraph means Crdentia
Corp.,  a Delaware corporation with its
principal place of business and chief executive office at 5001 LBJ Freeway,
#850, Dallas, TX 75244 (“Crdentia”), CRDE Corp., a Delaware corporation, with
its principal place of business and chief executive office at 5001 LBJ Freeway,
#850, Dallas, TX 75244  (“CRDE”) , GHS
Acquisition Corporation, a Delaware corporation, with its principal place of business
and chief executive office at 5001 LBJ Freeway, #850, Dallas, TX 75244  (“GHS”) , 
Staff Search Acquisition Corp., a Texas corporation, with its principal
place of business and chief executive office at 8240 N. Mopac Expressway, Suite 150,
Austin, TX 78759 (“Staff”),MP Health Corp., a Delaware corporation, with its
principal place of business and chief executive office at 201 Beacon Parkway
West, Suite 404, Birmingham, AL 
35209 (“MP”) , Prime Staff, LP, a Texas limited partnership, with its
principal place of business and chief executive office at 24 E. Greenway Plaza,
Suite 1508, Houston, TX 77046 (“Prime”) , Mint Medical Staffing Odessa,
LP, a Texas limited partnership, with its principal place of business and chief
executive office at 2020 East 8th Street, Odessa, TX 79761(“Mint”),
and ATS Universal, LLC, a Florida limited liability company, with its principal
place of business and chief executive office at 2250 Lee Road, Suite 201,
Winter Park, FL  32789 (“ATS”),  hereinafter collectively referred to as “Borrower”.
Borrower is the assignor of the Accounts
and debtor under the Code. Borrower may also sometimes be referred to as
Client.

 

3.               “Term Days” as referred
to in Section 3 (iii) means: 
thirty (30) days.

 

4.               “Maximum Days” as
referred to in Sections 3 (iv) and 34 means: One hundred twenty (120) days
from date of invoice provided the invoice date is not greater than ten (10) days
from the last date of service.

 

5.               “Maximum Concentration Amount” as referred to in Section 3
(f) means: $200,000.00, unless otherwise approved by TEMPFUNDS in writing.

 

6.               “Cross
Aging Percentage” as referred to in Section 3 (g) means: Forty
percent (40%).

 

7.               “Past
Due Days” as referred to in Section 3 (g) means: 120 days.

 

8.               The
following is added at the end of Section 3:  “Permanent Placement Accounts” which mean any
Accounts which arise from the permanent placement of an employee who will be
hired by a Customer and will be an addition to the ongoing payroll of the
Customer (hereinafter “PPA”). Notwithstanding the foregoing, PPAs may be
considered Acceptable Accounts provided they are otherwise in compliance with
the provisions of Sections 2 and 3 of the Agreement and the employee, which is
the subject of the Account, has reported to the Customer’s place of employment
(which may be verified by TEMPFUNDS in its sole discretion), and the total
of such Accounts are less than five percent (5%) of the total amount of
the Acceptable Accounts. TEMPFUNDS shall also maintain a dilution reserve on
Acceptable Accounts which are the result of PPAs of five percent (5%) of the
invoice amount plus actual Dilution.

 

9.               “Organizational State” as referred to in Section 9 means:

 

	
   

  	
   

  	
  (a) as to Crdentia: Delaware;

  
	
   

  	
  (b) as to CRDE: Delaware;

  
	
   

  	
   

  	
  (c) as to GHS: Delaware;

  
	
   

  	
   

  	
  (d) as to Staff: Texas;

  
	
   

  	
   

  	
  (e) as to MP: Delaware;

  
	
   

  	
   

  	
  (f) as to Prime: Texas;

  
	
   

  	
   

  	
  (g) as to Mint: Texas;

  
	
   

  	
   

  	
  (h) as to ATS: Florida.

  

 

10.         Borrower’s Trade names as referenced in Section 11
are as follows: None.

 

11.         Borrower’s Federal
Identification Number as referenced in Section 12 is:

 

	
   

  	
   

  	
  (a) as
  to Crdentia: 76-0585701;

  
	
   

  	
  (b) as
  to CRDE:20-1472509;

  
	
   

  	
   

  	
  (c) as
  to GHS: 20-2639736;

  
	
   

  	
   

  	
  (d) as
  to Staff: 20-1942759;

  
	
   

  	
   

  	
  (e) as
  to MP: 26-1564403;

  
	
   

  	
   

  	
  (f) as
  to Prime: 61-1405307;

  
	
   

  	
   

  	
  (g) as
  to Mint: 02-0661284;

  
	
   

  	
   

  	
  (h) as
  to ATS: 55-0863980.

  

 

12.         Borrower’s Organizational Number as referenced in Section 12
is:

 

	
   

  	
   

  	
  (a) as to Crdentia: 2811491;

  
	
   

  	
  (b) as
  to CRDE: 3840764;

  
	
   

  	
   

  	
  (c) as
  to GHS: 3950557;

  
	
   

  	
   

  	
  (d) as
  to Staff: 800632536;

  

 

16

 

	
   

  	
   

  	
  (e) as
  to MP: 4387519;

  
	
   

  	
   

  	
  (f) as
  to Prime: 800059131;

  
	
   

  	
   

  	
  (g) as
  to Mint: 800164477;

  
	
   

  	
   

  	
  (h) as
  to ATS: L04000031301.

  

 

13.  “Other
Security Interest” as referred to in Section 23 means: (a) as to Crdentia: UCC file #80667442, filed February 25, 2008 by ComVest Capital,
LLC with the Delaware Secretary of State.

(b) as
to CRDE: UCC file #80667376, filed February 25,
2008 by ComVest Capital, LLC with the Delaware Secretary of State                             ;

(c) as
to GHS: UCC file #80667343, filed February 25,
2008 by ComVest Capital, LLC with the Delaware Secretary of State

(d) as
to Staff: UCC file #08-0006977815, filed February 27,
2008 by ComVest Capital, LLC with the Texas Secretary of State;

(e) as
to MP: UCC file #80667236, filed February 25,
2008 by ComVest Capital, LLC with the Delaware Secretary of State;

(f) as
to Prime: UCC file #08-0006977704, filed February 27,
2008 by ComVest Capital, LLC with the Texas Secretary of State;

(g) as
to Mint: UCC file #08-0006977693, filed February 27,
2008 by ComVest Capital, LLC with the Texas Secretary of State;

(h) as
to ATS: UCC file #200807722101, filed February 25,
2008 by ComVest Capital, LLC with the Florida Secured Transactions Registry.

 

Collateral is all Assets
of the Borrower, which financing statements and security interests are subordinate
to the interests and UCC filing of TEMPFUNDS pursuant to the terms of a
Subordination Agreement between TEMPFUNDS and ComVest.

 

NOTE:  As to the interests listed
above, the listing thereof in this Loan and Security Agreement shall not, in
any manner whatsoever, be deemed to be an acknowledgement by TEMPFUNDS as to
the perfection, priority, validity or enforceability thereof.

 

14.         “Other Insurance” as
referred to in Section 24 means: i) Liability insurance coverage with
TEMPFUNDS named as additional insured and ii) property damage insurance
coverage with TEMPFUNDS named as a lender loss payee.

 

15.         “Periodic Period” as
described in Section 27 means: 45 days after each month, and 45 days after
every calendar quarter, provided, however, that upon Borrower being taken
private and no longer being a public company, quarterly financial statements
will no longer be required.

 

16.         “Annual Period” as
described in Section 27 means: 
ninety (90) days after the end of each of Borrower’s fiscal years.

 

17.         “Financial Statement”
means on a consolidated and consolidating basis: (i) at the end of each
month internally prepared financial statements certified by Borrower’s
management; (ii) at the end of each fiscal year audited financial
statements prepared, without any exceptions, by a Certified Public Accountant
acceptable to TEMPFUNDS.

 

18.         “Excluded Collateral” as
referred to in Section 30 means: 
None

 

19.         “Costs and Expenses” as referred to in Section 34
means: Borrower is liable for, and TEMPFUNDS may charge Borrower’s account
with, all customary and usual out of pocket wire charges and overnight delivery
expenses, and all reasonable costs and expenses of filing financing statements
(including any filing or recording taxes), making lien searches, and any
attorney’s fees and expenses that may be incurred by TEMPFUNDS in perfecting,
protecting, preserving, modifying, or enforcing its security interest and
rights hereunder.

 

20.         “Advance Rate” as referred to in Section 34
means: (i) ninety percent (90%) of the face amount of each Acceptable
Account approved by TEMPFUNDS and assigned by Borrower on a Schedule of
Accounts; and (ii) eighty percent (80%) of the Unbilled Accounts, approved
by TEMPFUNDS and assigned by Borrower on a Schedule of Accounts.

 

21.         “Maximum
Credit Facility” as referred to in Section 34 means: Subject to the terms
and conditions of, and in reliance upon Borrower’s representations and
warranties made in this Agreement the total advances outstanding to Borrower at
any time during the term of this Agreement shall not exceed Seven Million Five
Hundred Thousand and no ($7,500,000) Dollars (the “Maximum Credit Facility”).  If
any advances outstanding at any time should exceed the Maximum Credit Facility
such advances shall constitute Obligations under this Agreement or indebtedness
to TEMPFUNDS and be subject to the terms and conditions of this Agreement.
Subject to the terms and conditions of, and in reliance upon Borrower’s
representations and warranties made in this Agreement the total advances
outstanding to Borrower against: (i) Unbilled Accounts at any time during
the term of this Agreement shall not exceed Five Hundred Thousand and no
Dollars ($500,000.00) in the aggregate; (ii) Accounts due from individual
patients at any time during the term of this Agreement shall not exceed Three
Hundred Thousand and no Dollars ($300,000.00) in the aggregate; and (iii) Accounts
due from all state Medicaid programs and providers at any time during the term
of this Agreement shall not exceed Five Hundred Thousand and no Dollars
($500,000.00) in the aggregate.

 

22.         “Dilution Reserve” referred to in Section 34
means the Dilution Percentage less the Base Dilution.  The Dilution Percentage is defined as: (i) uncollected
sales (as determined by TEMPFUNDS in its sole discretion, exercised in a
commercially reasonable manner, and including all sales subject to a Customer
Dispute) excluding Accounts that remain unpaid but are collectable, divided by (ii) total
sales and (iii) stated as a percentage. 
Base Dilution means: two percent (2%). 
The Dilution Reserve will not be effective until ninety (90) days after
the Acceptance Date.

 

23. “Loan Account” as referred to in Section 34
means that account established on TEMPFUNDS books, upon which TEMPFUNDS shall
enter all advances as debits to the Loan Account and shall also record in the
Loan Account all payments made by Borrower on any Obligations and all proceeds
of Collateral which are finally paid to TEMPFUNDS, and may record therein, in
accordance with customary accounting practice, other debits and credits,
including interest and all charges and expenses properly chargeable to
Borrower.

 

17

 

24.         Lock Box address as
referenced in Section 40 shall be:

 

Comerica Bank

P.O. Box 49301

San Jose, CA 
95161-9301

 

The Lock Box
address can be changed by TEMPFUNDS from time to time upon prior written notice
to Borrower.

 

25.         “Collection Day Period” as referenced in Section 40
means: 3 days.

 

26.   “Wire Account” referred to in Section 40 shall mean:

 

WACHOVIA
BANK

Charlotte, NC  28256-3970

For the account of

CAPITAL TEMPFUNDS, a division of CAPITAL BUSINESS CREDIT
LLC

Account #2010000354362

ABA#053207766

For Further Credit (CRDENTIA
CORP., et al)

For proper credit, please be
sure your customers

indicate their name and
invoice numbers being

paid in the text of the wire.

 

27.         “Field Examination Expenses” as referred
to in Section 41 means: In the Event of Default, out of pocket expenses
including, but not limited to, transportation, hotel, parking, and meals plus
$850 per TEMPFUNDS representative per day for each day of the field examination
and including preparation of the field examination report.

 

28.         The broker, if any,
referred to in Section 49 is: NONE.

 

29.         “Term” as referred to in
Section 52 means: February 28, 2011.

 

30.         “Wire Fee” as referred
to in Section 65 means $25.00 per wire.

 

31.         In accordance with Section 65, please
send all our transfers via:  (circle one)

 

	
  Instructions
  are as follows:

  	
   

  	
  Wire

  
	
   

  	
   

  	
   

  
	
  Bank
  Name

  	
   

  	
  Comerica
  Bank

  
	
   

  	
   

  	
   

  
	
  Bank
  Address

  	
   

  	
  250
  Lytton Avenue

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Palo
  Alto, CA 94301-4359

  
	
   

  	
   

  	
   

  
	
  Bank Phone Number

  	
   

  	
  650-462-6155

  
	
   

  	
   

  	
   

  
	
  Bank
  Contact

  	
   

  	
  Nina
  Cortez

  
	
   

  	
   

  	
   

  
	
  Transit
  Number (ABA#)

  	
   

  	
  121137522

  
	
   

  	
   

  	
   

  
	
  Company
  Name (on Bank Account) Crdentia Corp.

  
	
   

  	
   

  	
   

  
	
  Address

  	
   

  	
  5001
  LBJ Freeway, Suite 850

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Dallas,
  TX 75244

  
	
   

  	
   

  	
   

  
	
  Account Number

  	
   

  	
  1892275403

  

 

Type of Account: Operating

 

32.         The
following Supplements and Addendum apply to this Agreement and are incorporated
and attached hereto: Electronic Data Transmission Agreement.

 

18

 

33.         The Borrower shall at all times maintain the
following financial covenants:

 

a. Borrower’s Cash Flow shall:
(i) not be negative more than TWO MILLION DOLLARS ($2,000,000.00) from the
date of this Agreement through December 31, 2008; and (ii) beginning January 1,
2009 and thereafter, at all times be positive, measured quarterly.

 

b. The Borrower will not make,
directly or indirectly, capital expenditures for the purchase, fabrication,
creation or lease of fixed assets, including rentals on leased items, in excess
of an aggregate of TWO HUNDRED FIFTY
THOUSAND  DOLLARS ($250,000.00) per annum (noncumulative).  For purposes of this paragraph, the word “expenditures” shall refer to:

 

i)in the event of a purchase, the entire purchase
price of the fixed asset; or

 

ii)in the case of a lease, the entire rental for
the term.

All of the above financial covenants shall be determined in accordance
with GAAP, unless otherwise provided.  “GAAP”
means generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board that are applicable to the circumstances as of the
date of determination and applied on a consistent basis.

 

THIS EXHIBIT “B” IS MADE A PART OF AND INCORPORATED INTO THE LOAN
AND SECURITY AGREEMENT.

 

19

 

EXHIBIT
“C”

 

	
  [Letterhead of Borrower]

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Current
  date

  

 

CAPITAL
TEMPFUNDS

a
division of CAPITAL BUSINESS CREDIT LLC

1799
W. Oakland Park Blvd

Ft
Lauderdale, Florida  33311

 

The
undersigned,                         the
Chief Executive Officer of CRDENTIA CORP.,
a Delaware corporation, CRDE Corp., a Delaware corporation, GHS Acquisition
Corporation, a Delaware corporation, Staff Search Acquisition Corp., a Texas
corporation, MP Health Corp., a Delaware corporation, Prime Staff, LP, a Texas
limited partnership, Mint Medical Staffing Odessa, LP, a Texas limited
partnership, and ATS Universal, LLC, a Florida limited liability company
(collectively “Borrower”), gives this certificate to CAPITAL
TEMPFUNDS, a division of CAPITAL BUSINESS CREDIT LLC (“Lender”) in
accordance with the requirements of that certain Loan and Security Agreement
dated as of July              ,
2008, between Borrower and Lender (“Loan Agreement”).  Capitalized terms used in this Certificate,
unless otherwise defined herein, shall have the meanings ascribed to them in
the Loan Agreement.

 

No Event of Default exists on the date hereof, other than:                                                              [if
none, so state].

 

1)
Borrower’s Cash Flow for the period ending                           is
equal to                          .

 

2)
Borrower’s Capital Expenditures for the fiscal year ending December 31       were
equal to                       .

 

As of the date hereof, Borrower is current in its payment of all accrued
rent and other charges to persons who own or lease any premises where any of
the Collateral is located, and there are no pending disputes or claims
regarding Borrower’s failure to pay or delay in payment of any such rent or
other charges.

 

	
   

  	
  Yours
  truly,

  
	
   

  	
   

  
	
   

  	
   

  

 

20

 

AFFIDAVIT FOR EXECUTION OF LOAN AND SECURITY AGREEMENT WITHOUT THE STATE
OF FLORIDA

 

	
  STATE OF

  	
  )

  
	
   

  	
   

  
	
  COUNTY OF

  	
  )

  

 

BEFORE ME, the undersigned authority, personally appeared the
undersigned, John B. Kaiser (the “Affiant”),
who being first duly sworn upon oath, deposes and says that he/she is the Chief Executive Officer of CRDENTIA CORP., a Delaware corporation, CRDE Corp., a
Delaware corporation, GHS Acquisition Corporation, a Delaware corporation,
Staff Search Acquisition Corp., a Texas corporation, MP Health Corp., a
Delaware corporation, Prime Staff, LP, a Texas limited partnership, Mint
Medical Staffing Odessa, LP, a Texas limited partnership, and ATS Universal,
LLC, a Florida limited liability company, as Borrower, to me well known and who
deposed and said that he executed and delivered that certain Loan and Security
Agreement dated as of July         ,
2008, in the maximum amount of Seven Million Five Hundred Thousand and NO/100
DOLLARS ($7,500,000.00) (the “Agreement”), which Agreement is between CRDENTIA
CORP., a Delaware corporation,
CRDE Corp., a Delaware corporation, GHS Acquisition Corporation, a Delaware
corporation, Staff Search Acquisition Corp., a Texas corporation, MP Health
Corp., a Delaware corporation, Prime Staff, LP, a Texas limited partnership,
Mint Medical Staffing Odessa, LP, a Texas limited partnership, and ATS
Universal, LLC, a Florida limited liability company, as Borrower, and CAPITAL
TEMPFUNDS, a division of  CAPITAL
BUSINESS CREDIT LLC,  a Delaware
limited liability company, as lender, in the City of 
                        ,
State of                                         .

 

FURTHER AFFIANT SAYETH NAUGHT.

 

	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  John B. Kaiser

  

 

SWORN TO AND SUBSCRIBED before me this
           day of July,  2008 by John
B. Kaiser, who personally appeared before me, and who [  ] is personally known to me or [  ] has produced
                                                        ,
as identification.

 

 

	
   

  	
   

  
	
   

  	
  Notary Public, State of

  
	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
  My Commission Expires:

  	
   

  
	
   

  	
   

  
	
   

  	
  [NOTARIAL SEAL]

  
				

 

21

 

	
  STATE OF

  	
  )

  
	
   

  	
   

  
	
  COUNTY OF

  	
  )

  

 

AFFIDAVIT OF OUT-OF-STATE DELIVERY

 

BEFORE ME, the undersigned authority, personally appeared the
undersigned                                    (the
“Affiant”), who being first duly sworn upon oath, deposes and says that:

 

1.                             The Affiant is a                               of
CAPITAL TEMPFUNDS, a division of  CAPITAL
BUSINESS CREDIT LLC,  a Delaware
limited liability company (“TEMPFUNDS”), and the Affiant is duly authorized to
and does make this affidavit in said capacity on behalf of TEMPFUNDS.

 

2.                             That on the          day
of July 2008, I executed on behalf of TEMPFUNDS on the date referenced
below that certain Loan and Security Agreement (the “Agreement”), which
Agreement is between CRDENTIA CORP.,
a Delaware corporation, CRDE Corp., a Delaware corporation, GHS Acquisition
Corporation, a Delaware corporation, Staff Search Acquisition Corp., a Texas
corporation, MP Health Corp., a Delaware corporation, Prime Staff, LP, a Texas
limited partnership, Mint Medical Staffing Odessa, LP, a Texas limited
partnership, and ATS Universal, LLC, a Florida limited liability company as
Borrower, and CAPITAL TEMPFUNDS, a division
of  CAPITAL BUSINESS CREDIT LLC,  a Delaware limited liability company, as lender.

 

3.                             That the execution of the Agreement by
TEMPFUNDS took place in
                          ,
                                  .

 

FURTHER AFFIANT SAYETH NAUGHT.

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Affiant

  
	
   

  	
   

  	
  Title

  

 

 

SWORN TO AND SUBSCRIBED before me this
           day of July, 2008
by                                                               ,
who personally appeared before me, and who is personally known to me.

 

	
   

  	
   

  
	
   

  	
  [NOTARIAL SEAL]

  
	
   

  	
   

  
	
   

  	
  Notary Public, State of

  	
   

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
  My Commission Expires:

  	
   

  
					

 

22

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