Document:

United States Securities and Exchange Commission EDGAR Filing

Exhibit 10.1

PURCHASE AGREEMENT

dated as of July 22, 2008

by and among

STONECO H, INC.,

CROSS COUNTRY HEALTHCARE, INC.,

MDA HOLDINGS, INC.,

MEDICAL DOCTOR ASSOCIATES, INC.,

ALLIED HEALTH GROUP, INC.,

CREDENT VERIFICATION AND LICENSING SERVICES, INC.,

JAMESTOWN INDEMNITY, LTD.,

and

MDA EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN ESOP COMPONENT TRUST

PURCHASE AGREEMENT

PURCHASE AGREEMENT, dated as of July 22, 2008, by and among StoneCo H, Inc., a Delaware corporation (“Buyer”), Cross Country Healthcare, Inc., solely with respect to its obligations under Section 7.21 hereof (“Cross Country”), MDA Holdings, Inc., a Georgia corporation (“Holdings”),  Medical Doctor Associates, Inc., a Georgia corporation (“MDA”), Allied Health Group, Inc., a Georgia corporation (“Allied”), Credent Verification and Licensing Services, Inc., a Georgia corporation (“CVL” and together with Holdings, MDA and Allied, the “Operating Companies”), and Jamestown Indemnity, Ltd., a Cayman Islands corporation (“Jamestown” and together with Holdings, MDA, Allied and CVL, collectively the “Companies” and individually, the “Company”), and MDA Employee Stock Ownership and 401(k) Plan – ESOP Component Trust (the “ESOP Trust”) by First Bankers Trust Services, Inc., not in its individual or corporate capacity but solely as trustee of the ESOP Trust (the “ESOP Trustee”).

WHEREAS, MDA is in the locum tenens and permanent placement businesses; Allied is in the business of staffing allied healthcare professionals; CVL is in the credentialing business; and Jamestown is an insurance company doing business solely outside of the United States (collectively, the “Business”); and

WHEREAS, Buyer desires to acquire the Business and the Operating Companies (as hereinafter defined) desire to sell the Business; and

WHEREAS, in furtherance thereof, Buyer will acquire (i) certain of the assets and assume certain of the liabilities of the Operating Companies, and (ii) all of the issued and outstanding shares of capital stock of Jamestown (the “Shares”).

NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING, OF THE REPRESENTATIONS, WARRANTIES, COVENANTS AND MUTUAL AGREEMENTS HEREINAFTER CONTAINED, AND OF OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, THE PARTIES AGREE AS FOLLOWS:

ARTICLE I

DEFINITIONS

The terms defined in this ARTICLE I, whenever used herein (including, without limitation, the Exhibits and Schedules hereto), shall have the following meanings for all purposes of this Agreement:

“401(k) Component” means the portion of the ESOP designated as the 401(k) Component in the ESOP document.

“2008 Earn-Out Payment” has the meaning set forth in Section 3.2 hereof.

“2009 Earn-Out Payment” has the meaning set forth in Section 3.2 hereof.

“Additional Net Operating Working Capital Adjustment” has the meaning set forth in Section 3.1(e) hereof.

“Adjusted EBITDA” means the audited EBITDA of the Business for the applicable 12-month period ended December 31st (determined in accordance with GAAP and adjusted as provided on Exhibit A attached hereto).

“Affiliate” of a Person means any other Person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with such Person.

“Agreement” means this agreement among the parties set forth on the first page hereof, including, without limitation, all Exhibits and Schedules hereto, as the same may be amended from time to time.

“Allied” has the meaning given to it in the caption hereof.

“Assignment and Assumption Agreement” means an agreement in substantially the form annexed to this Agreement as Exhibit B.

“Assignment of Company Intellectual Property Rights” means an agreement in substantially the form annexed to this Agreement as Exhibit C.

“Assignment of Leases” means an agreement in substantially the form annexed to this Agreement as Exhibit D.

“Assumed Contracts” has the meaning set forth in Section 2.1(b) hereof.

“Assumed Liabilities” has the meaning set forth in Section 2.3 hereof.

“Balance Sheet Date” means December 31, 2007.

“Base Amount” has the meaning set forth in Section 2.7 hereof.

“Bill of Sale” means a bill of sale in substantially the form annexed to the Agreement as Exhibit E.

“Business” has the meaning given to it in the recitals hereto.

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in New York City are required or authorized by law to be closed.

“Buyer” has the meaning given to it in the caption hereof.

“Buyer Claimant,” or “Buyer Claimants” when the context requires, has the meaning given to it in Section 9.2 hereof.

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“Cash and Cash Equivalents” means, with respect to any Company, all cash and cash equivalents repayable on demand and freely remittable without any exchange or other approvals or significant tax costs as of immediately prior to the Closing, determined in accordance with GAAP.  For avoidance of doubt, Cash and Cash Equivalents shall (i) be calculated net of issued but uncleared checks and drafts and (ii) include checks and drafts deposited for the account of any Company.

“CIMA” means the Cayman Islands Monetary Authority.

“Claim,” or “Claims” when the context requires, has the meaning set forth in Section 9.2 hereof.

“Claimant” has the meaning set forth in Section 9.4(a) hereof. 

“Closing” means the closing of the Contemplated Transactions (as hereinafter defined) which shall be deemed to have occurred as of 11:59 p.m. EDT on the day immediately preceding the Closing Date.

“Closing Date” means the second Business Day after the satisfaction or waiver of the conditions set forth in ARTICLE VIII hereto, or such other date as the parties may mutually agree, upon which the Closing takes place.

“Closing Date Payment” means the sum of the Base Amount, plus or minus, as the case may be, the Estimated Net Operating Working Capital Adjustment determined pursuant to Section 3.1(a) hereof.

“Code” means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.

“Companies” and “Company”, as the context may require, have the meaning set forth in the caption hereto.

“Company Computer Systems” has the meaning set forth in Section 4.10(h) hereof.

“Company Intellectual Property Rights” has the meaning set forth in Section 4.10(a) hereof.

“Company License Rights” has the meaning set forth in Section 4.10(b) hereof.

“Company Rights” has the meaning set forth in Section 4.10(b) hereof.

“Company Software Products” has the meaning set forth in Section 4.10(a)(i) hereof.

“Computer Systems” has the meaning set forth in Section 4.10(h) hereof.

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“Consents” means any consent, approval, authorization, license or order of, registration, declaration or filing with, or notice to, or waiver from, any Governmental Entity or any Person, including, without limitation, any security holder, creditor or vendor which is required to be obtained, made or given in connection with the execution and delivery of this Agreement and/or any Operative Document, the performance by a Person of its obligations hereunder and/or thereunder and the consummation of the transactions contemplated hereby and/or thereby.

“Contemplated Transactions” means all of the transactions contemplated by this Agreement and the Operative Documents.

“Contract” means any agreement, contract, Lease, consensual obligation, promise or undertaking (whether written or oral and whether express or implied), that is legally binding.

“Copyrights” has the meaning set forth in Section 4.10(a)(ii) hereof.

“Costs” has the meaning set forth in Section 7.18(a) hereof.

“Cross Country” has the meaning given to it in the caption hereof.

“CVL” has the meaning given to it in the caption hereof.

“Deductible” has the meaning set forth in Section 9.2 hereof.

“Defunct Subsidiary” means any or both of Medical Resource Management, Inc. and PracticeAdmin.com, both Georgia corporations and former subsidiaries of Holdings dissolved by administrative action of the Secretary of State of Georgia.

“Directly or Indirectly” means as an individual, partner, shareholder, member, creditor, director, officer, principal, agent, employee, trustee, consultant, advisor or in any other relationship or capacity.

“Disclosure Schedule” means the disclosure schedule attached to this Agreement as Exhibit F.

“Disclosure Statement” has the meaning set forth in Section 7.17 hereof.

“Domain Names” has the meaning set forth in Section 4.10(a)(vi) hereof.

“Earn-Out Payments” has the meaning set forth in Section 3.2 hereof.

“Earn-Out Period” means the 12-consecutive month periods commencing on January 1, 2008 and on January 1, 2009, respectively.

“EBITDA” means, (i) for any period prior to Closing, the consolidated earnings before interest, taxes, depreciation and amortization, of the Companies calculated in accordance with GAAP, on a basis consistent with that applied in the preparation of the Financial 

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Statements, and (ii) for any period on and after the Closing, the consolidated earnings before interest, taxes, depreciation and amortization, of the Business calculated in accordance with GAAP, on a basis consistent with that applied in the preparation of the Financial Statements.  For clarification (and consistent with the treatment applied in the preparation of the Financial Statements), earnings of Jamestown shall include investment income of Jamestown other than investment income earned on Excess Cash.

“EBITDA Calculations” has the meaning set forth in Section 3.3(a) hereof.

“Employee” means any employee of or consultant to the Companies.

“Employee Benefit Plan” means any “employee benefit plan” (as defined under Section 3(3) of ERISA) or any other bonus, deferred compensation, pension, profit-sharing, retirement, stock purchase, stock option, stock appreciation, other forms of incentive compensation, excess benefit, supplemental pension, insurance plans, disability, medical, supplemental unemployment, vacation benefits, payroll practice, fringe benefit, scholarship, sickness, accident, severance, or post-retirement compensation or benefit, welfare or any other employee benefit plan, policy, arrangement, agreement (including employment, consulting and collective bargaining agreements) or practice, whether written or oral.

“Encumbrance” means any security interests, liens, pledges, claims of third parties of any nature whatsoever, leases, levies, charges, escrows, encumbrances, options, rights of first refusal, transfer restrictions, conditional sale contracts, title retention contracts, mortgages, hypothecations, indentures, security agreements or other agreements, arrangements, contracts, commitments, understandings or obligations, whether written or oral, other than (i) liens for Taxes, assessments and other governmental charges that are not yet due and payable or that are being contested in good faith and in respect of which adequate reserves have been included in the calculation of Net Operating Working Capital, (ii) mechanics’, materialmen’s, workmen’s, repairmen’s, landlord’s or similar liens that are being contested in good faith and in respect of which adequate reserves have been included in the calculation of Net Operating Working Capital; (iii) deposits or pledges to secure obligations under worker’s compensation, social security or similar laws, or under unemployment insurance; and (iv) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the Ordinary Course of Business.

“Environment” means any surface or subsurface physical medium or natural resource, including, air, land, soil, surface waters, ground waters, stream and river sediments.

“Environmental Laws” means any federal, state, local, foreign or common law, rule, regulation, ordinance, code, order or judgment (including the common law and any judicial or administrative interpretations, guidance, directives, policy statements or opinions) relating to the injury to, or the pollution or protection of, human health and safety or the Environment.

“Environmental Liabilities” means any Claims, judgments, damages (including punitive damages), losses, penalties, fines, liabilities, encumbrances, liens, violations, costs and expenses (including attorneys’ and consultants’ fees), including costs of investigation, 

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assessment, remediation or monitoring or defense of any matter relating to human health, safety or the Environment of whatever kind or nature by any Person or Governmental Entity, (A) which are incurred as a result of (i) the existence of Hazardous Substances in, on, under, at or emanating from any Real Property or in connection with operation of the Business, (ii) the transportation, treatment, storage or disposal of Hazardous Substances generated by any Company or the Business, or (iii) the violation of or non-compliance with any Environmental Laws, or (B) which arise under the Environmental Laws.

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

“ERISA Affiliate” means any entity that would be deemed a “single employer” with any Company under Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.

“Escrow Agent” has the meaning set forth in Section 2.8 hereof.

“Escrow Agreement” has the meaning set forth in Section 2.8 hereof.

“Escrow Amount” has the meaning set forth in Section 2.8 hereof.

“ESOP” means the Employee Stock Ownership and 401(k) Plan sponsored by Holdings.

“ESOP Trust” has the meaning given to it in the caption hereof.

“ESOP Trustee” has the meaning given to it in the caption hereof.

“Estimated Closing Balance Sheet” has the meaning set forth in Section 3.1(a) hereof.

“Estimated Excess Cash” has the meaning set forth in Section 3.4(a) hereof.

“Estimated Net Operating Working Capital” has the meaning set forth in Section 3.1(a) hereof.

“Estimated Net Operating Working Capital Adjustment” has the meaning set forth in Section 3.1(a) hereof.

“Excess Cash” means the Cash and Cash Equivalents of Jamestown as of immediately prior to the Closing less (i) bank overdrafts and (ii) an amount of Cash and Cash Equivalents sufficient to fund the level of capital of Jamestown required by CIMA.  

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Excluded Assets” has the meaning set forth in Section 2.2, hereof.

“Excluded Liabilities” has the meaning set forth in Section 2.4 hereof.

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“Final Claims Date” has the meaning set forth in Section 9.1 hereof.

“Financial Statements” means the consolidated audited balance sheets as of December 31, 2006 and December 31, 2007 and the related consolidated audited statements of income, operations, changes in equity and cash flows of the Companies for the fiscal years then ended, including the related notes thereto, and (ii) the consolidated unaudited balance sheet as of May 31, 2008 and the related consolidated statements of income, operations, equity and cash flows of the Companies for the five-month period then ended, including the related notes thereto.

“GAAP” means United States generally accepted accounting principles, applied on a consistent basis.

“Governmental Entity” means any federal, state, local or foreign government, political subdivision, legislature, court, agency, department, bureau, commission or other governmental regulatory authority, body or instrumentality, including any industry or other non-governmental self-regulatory organizations.

“Hazardous Substance” means petroleum, petroleum products, petroleum-derived substances, radioactive materials, hazardous wastes, polychlorinated biphenyls, lead based paint, radon, urea formaldehyde, asbestos or any materials containing asbestos, and any materials or substances regulated or defined as or included in the definition of “hazardous substances,” “hazardous materials,” “hazardous constituents,” “toxic substances,” “pollutants,” “contaminants” or any similar denomination intended to classify or regulate substances by reason of toxicity, carcinogenicity, ignitability, corrosivity or reactivity under any Environmental Law.

“Holdings” has the meaning given to it in the caption hereof.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“Indebtedness” means all obligations of the Companies existing immediately prior to Closing (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for which interest charges are customarily paid, (iv) under conditional sale or other title retention agreements relating to property or assets purchased by such Person, (v) issued or assumed as the deferred purchase price of property or services (other than trade accounts payable or accounts payable to independent contractors), (vi) earn-outs arising in connection with acquisitions, (vii) under capital leases, (viii) in respect of interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements, (ix) as an account party in respect of letters of credit and bankers’ acceptances, (x) with respect to Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise to be secured by) any Encumbrances on property owned or acquired by such Person, (xi) in the nature of guarantees of Indebtedness of others, (xii) for all accrued interest on any of the foregoing, and (xiii) any loans incurred by the ESOP Trust.  Any contingent liabilities of a Person required to be reported in accordance with GAAP on a balance sheet or the related notes thereto shall be deemed included within Indebtedness.

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“Indemnified Parties” has the meaning set forth in Section 7.18(a) hereof.

“Indemnitor” has the meaning set forth in Section 9.4(a) hereof.

“Independent Auditor” has the meaning set forth in Section 3.1(d) hereof.

“IRS” means the Internal Revenue Service.

“Jamestown” has the meaning given to it in the caption hereof.

“Jamestown Adjustment Schedule” has the meaning set forth in Section 3.4(c).

“Knowledge” has the meaning set forth in Section 11.15 hereof.

“Leases” means the Company leases for the properties located at 145 Technology Parkway, Norcross, Georgia; 147 Technology Parkway, Norcross, Georgia; 7400 East Crestline Circle, Greenwood Village, Colorado 80111; Suite 1550, 600 Las Colinas Boulevard, Irving, Texas 75039; and 887 East 100 North #2B, Payson, Utah 84651.

“Licensed Computer Systems” has the meaning set forth in Section 4.10(h) hereof.

“Licensed Software Products” has the meaning as set forth in Section 4.10(h) hereof.

“Marks” has the meaning as set forth in Section 4.10(a)(iv) hereof.

“made available” means posted to the data site McGuire Woods Connect Project Stone Extranet prior to the date hereof.

“Material Adverse Effect” means any circumstance, effect or change that could reasonably be expected to be, individually or in the aggregate with any other circumstance, change or effect, materially adverse to (x) the earnings, operations, assets, liabilities, properties, prospects, condition (financial or otherwise), results of operations, net worth or Permits of the Companies, taken as a whole, or the Business or condition of the Purchased Assets, or (y) the ability of any party to consummate timely the transactions contemplated hereby or (z) the ability of Buyer to conduct the Business or to own the Purchased Assets after the Closing in substantially the same manner as conducted by the Companies prior to the Closing Date; provided that none of the following shall be deemed to constitute, and none of the following shall be taken into account in determining whether there has been, a Material Adverse Effect: (a) any adverse change, event, development, or effect arising from or relating to (1) general business or economic conditions or conditions affecting the locum tenens industry generally, (2) national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, (3) financial, banking, or securities markets (including any disruption thereof and any decline in the price of any security or any market index), (4) changes in GAAP, (5) changes in laws, rules, regulations, orders, or other binding directives issued by any Governmental Entity or (6) the taking of any action 

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contemplated by this Agreement and the Operative Agreements and (b) any adverse change in or effect on the Business or prospects of the Companies that is cured before the earlier of (1) the Closing Date and (2) the date on which this Agreement is terminated pursuant to Section 11.1 hereof, and does not result in any continuing adverse change or effect on the business or prospects of the Companies.

“MDA” has the meaning given to it in the caption hereof.

“Nearest Jamestown Balance Sheet” means the monthly balance sheet of Jamestown prepared by Global Captive Management, Ltd. as of the month-end immediately preceding the month in which the Closing occurs.

“Net Operating Working Capital” means, as of immediately prior to the Closing, (a) the current assets of the Operating Companies as of such time that are included within the Purchased Assets less Cash and Cash Equivalents of the Operating Companies, less (b) all current liabilities of the Operating Companies as of such time that are included within the Assumed Liabilities, in each case calculated in accordance with GAAP on a basis consistent with that applied in the preparation of the Financial Statements, as set forth in Exhibit G.  For clarification, Net Operating Working Capital shall include the current liabilities accruals for all vacation, paid time off and bonuses accrued though the Closing Date.

“Ordinary Course of Business” means an action taken by a Person that: (a) is consistent with the past practices of such Person and is taken in the ordinary course of business of the normal, day-to-day operations of such Person; and (b) is not required to be authorized by the board of directors of such Person (or any Person or group of Persons exercising similar authority) and is not required to be specifically authorized by the parent company (if any) of such Person.

“Operating Companies” has the meaning given to it in the caption hereof.

“Operative Document” means any agreement, instrument or other document to be executed and delivered in connection with the consummation of the Contemplated Transactions as set forth on Schedule 1.1 of the Disclosure Schedule hereto.

“Party Representative” has the meaning set forth in Section 7.19(a) hereof.

“Patents” has the meaning set forth in Section 4.10(a)(iii) hereof.

“Permits” means all licenses, certificates of authority, permits, orders, consents, approvals, registrations, local siting approvals, authorizations, qualifications and filings under any federal, state, local or foreign laws or with any Governmental Entities or other private Persons.

“Person” means an individual, corporation, partnership, limited liability company, firm, joint venture, association, joint stock company, trust, unincorporated organization or other entity, or any Governmental Entity or quasi-governmental body or regulatory authority.

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“Plan” means any Employee Benefit Plan established, maintained, sponsored, or contributed to by the Companies or any ERISA Affiliate on behalf of any Employee, director, or other service provider or independent contractor of the Companies (whether current, former or retired) or their beneficiaries, or with respect to which the Companies or any ERISA Affiliate has or has had any obligation on behalf of any such Employee, director or other service provider or independent contractor.

“Preliminary Opinion” has the meaning set forth in Section 5.7(b) hereof.

“Property,” or “Properties” when the context requires, means any Real Property and any personal or mixed property, whether tangible or intangible.

“Purchase Price” has the meaning set forth in Section 2.7 hereof.

“Purchase Price Adjustment Escrow Amount” has the meaning set forth in Section 2.9 hereof.

“Purchased Assets” has the meaning set forth in Section 2.1 hereof.

“Real Property” means any real property presently or formerly owned, used, leased, occupied, managed or operated by the Companies or their predecessors.

“Reasonable Efforts” means commercially reasonable efforts that a prudent business Person desirous of achieving a result would use in similar circumstances to achieve the desired result; but shall not be deemed to require a Person to undertake extraordinary or unreasonable measures, including the payments of amounts in excess of normal and usual filing fees and processing fees, if any, or any other payments with respect to any Assumed Contract that are significant in the context of such Assumed Contract (or significant on any aggregate basis as to all Assumed Contracts.)

“Related Persons” has the meaning given to it in Section 4.5 hereof.

“Relative” means the current or former spouse, children, parents or siblings of an individual (or any spouse of any of the foregoing).

“Revised Closing Balance Sheet” has the meaning set forth in Section 3.1(c) hereof.

 “Schedule of Adjustments” has the meaning as set forth in Section 3.1(c) hereof.

“Securities Act” means the Securities Act of 1933, as amended.

“Seller Claimant” or “Seller Claimants” when the context requires has the meaning given to it in Section 9.3 hereof.

“Shareholder Group” has the meaning as set forth in Section 11.17 hereof.

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“Shares” has the meaning given to it in the recitals hereof.

 “Subsidiary,” or “Subsidiaries” where the context requires, means any corporation, partnership, limited liability company or other entity in which any Company, directly or indirectly, owns or controls 50% or more of the voting stock or other ownership interests.

“Tax Return” means each and every report, return, declaration, information return, claim for refund, statement or other information filed with a taxing or governmental authority with respect to any Tax or Taxes, including, without limitation, any combined or consolidated return for any group of entities including the Companies.

“Taxes” (or “Tax” where the context requires) means all federal, state, county, provincial, local, foreign and other taxes (including, without limitation, income, profits, premium, estimated, excise, sales, use, occupancy, stamp, gross receipts, real and personal property, value added, franchise, ad valorem, capital levy, occupational, production, transfer, withholding, social security, unemployment insurance, disability, workers’ compensation, employment and payroll related and property taxes and duty or other governmental charges and assessments), whether attributable to statutory or nonstatutory rules and whether or not measured in whole or in part by net income, and including, without limitation, interest, additions to tax or interest, charges and penalties with respect thereto, and expenses associated with contesting any proposed adjustment related to any of the foregoing.

“Tax Survival Date” has the meaning set forth in Section 9.1 hereof.

“Third Party Contributor” has the meaning set forth in Section 9.4(f) hereof.

“Trade Secrets” means any information which (i) is used in a business, (ii) is not generally known to the public or to Persons who can obtain economic value from its disclosure, and (iii) is subject to reasonable efforts to maintain its secrecy or confidentiality; the term may include but is not limited to inventions, processes, know-how, formulas, computer software, and mask works which are not patented and are not protected by registration (e.g., under copyright or mask work laws); lists of customers, suppliers, and employees, and data related thereto; business plans and analyses; and financial data.

“Transferred Employees” means the Employees who accept the Buyer’s offer of employment and who commence employment with Buyer or one of its Affiliates.

ARTICLE II

SALE AND PURCHASE; CLOSING

2.1

Purchase of Assets.  Upon the terms and subject to the conditions hereof, and upon the basis of the agreements, representations and warranties contained in this Agreement, the Operating Companies shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase and acquire from the Operating Companies at the Closing all of the Operating Companies’ right, title and interest in and to the Business and all of the Operating Companies’ right, title and interest in and to all of their assets, properties and rights of every kind 

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and description, personal and mixed, tangible and intangible, used in, useful for or otherwise relating to the Business, wherever situated (excluding only Excluded Assets) as those assets exist on the Closing Date (collectively, the “Purchased Assets”), free and clear of any Encumbrance.  The Purchased Assets shall include, but shall not be limited to, the following assets, properties, rights and interests of the Operating Companies: 

(a)

all tangible personal property, owned, leased or licensed by the Operating Companies, wherever located, whether or not carried on the books of the Operating Companies, including, without limitation, those items set forth on Schedule 2.1(a) of the Disclosure Schedule;

(b)

all right, title and interest of the Operating Companies in the Contracts with MDA or Allied clients, Self-Employment Agreements and similar Contracts with MDA providers, Self-Employment or Employment or similar Contracts with Allied providers, and Vendor or Service Contracts used in connection with the Business on the date hereof, including those Contracts listed on Schedule 2.1(b) of the Disclosure Schedule hereto as in effect on the Closing Date and all outstanding offers or solicitations made by an Operating Company to enter into any similar Contract (collectively, the “Assumed Contracts”); 

(c)

all customer and vendor lists, customer credit histories, information, files, correspondence, records, data, plans, Contracts and recorded knowledge, including all accounting or other books and records, and any other information reduced to writing or in electronic format; 

(d)

all accounts, notes and other receivables;

(e)

all Company Rights, including without limitation, those items set forth on Schedule 4.10(a) of the Disclosure Schedule;

(f)

all Permits held in connection with the Business to the extent legally transferable or assignable;

(g)

all deposits and prepaid expenses; 

(h)

all books, records, general ledgers, operating data, employee records, computer records and other data relating to the Business other than employee records relating to the ESOP and 401(k) Plan and including, but not limited to, all records, documents or data relating to accounting and financial information and all other sales and marketing information which relate to the Business, all rights of the Operating Companies in all URL’s or domains, telephone and facsimile numbers and post office boxes used in connection with the Business, as well as all existing catalogs and other support material, advertising plans of any kind, sales literature, marketing material and related items (including, but not limited to, all art work and printers’ plates presently in the possession of the Operating Companies’ advertising agencies and printers);

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(i)

all right, title and interest in and to all causes of action, claims and rights in litigation or which could result in litigation against any party pertaining to the Business or the Purchased Assets; 

(j)

the existing employment agreement with Kenneth Shumard to be modified and assigned pursuant to Section 8.1(v) hereof; and

(k)

all other tangible and intangible assets used in, useful for or otherwise related to the Business of any kind or description, including, without limitation, the names “MDA Holdings”, “Medical Doctor Associates”, “Allied Health”, and “Credent Verification and Licensing” and goodwill, wherever located.

2.2

Excluded Assets.  Notwithstanding the foregoing, the Purchased Assets shall not include (collectively, the “Excluded Assets”):

(a)

all rights of the Operating Companies, the ESOP, the ESOP Trust, and the ESOP Trustee under this Agreement and the Operative Documents;

(b)

all Excess Cash of Jamestown;

(c)

all Cash and Cash Equivalents at the Operating Companies;

(d)

all rights, assets, interests and obligations under the Plans except as otherwise provided in Section 7.13 hereof;

(e)

all personnel, employment, and benefit records that relate to any former employee of an Operating Company that is not a Transferred Employee;

(f)

all insurance policies to which any Company is a party that are not expressly assumed by Buyer;

(g)

any insurance claims or rights to unpaid insurance proceeds;

(h)

any Contract with any of Kenneth Shumard, the ESOP, the ESOP Trust, the ESOP Trustee, or any Affiliate of the same, other than (i) the Leases and (ii) the existing employment agreement with Kenneth Shumard to be modified and assigned pursuant to Section 8.1(v) hereof;

(i)

the corporate charter, qualifications to conduct business as a foreign corporation, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, stock transfer books, blank stock certificates, issued and outstanding stock, and other documents relating to the organization, maintenance, existence and ownership of any Operating Company or Defunct Subsidiary;

(j)

any obligation of an Operating Company or Defunct Subsidiary in connection with the dissolution of any such Defunct Subsidiary;

(k)

any Contract other than the Assumed Contracts; and

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(l)

any security deposits held by vendors or landlords under the Assumed Contracts, or the right to receive any reimbursement for operating expenses paid by the Operating Companies in connection with Leases, unless such security deposit or right is included as an asset in calculating the Net Operating Working Capital.

2.3

Assumed Liabilities.  Buyer shall not assume or be responsible for, and shall in no event be liable for, any debts, liabilities or obligations of or relating to the business of the Operating Companies or the Operating Companies, whether fixed or contingent, known or unknown, liquidated or unliquidated, suspected or unsuspected, material or immaterial, absolute or contingent, matured or unmatured, determinable or undeterminable, direct or indirect, secured or unsecured, or otherwise, except as otherwise provided in the following sentence.  As the sole exceptions to the first sentence of this Section 2.3, effective as of the Closing, Buyer hereby assumes and agrees to pay, discharge or perform, as appropriate, the following (the “Assumed Liabilities”):

(a)

obligations of the Operating Companies under the Assumed Contracts (other than as set forth in Section 2.4 below) to the extent such obligations accrue after the Closing, are not required to be performed on or prior to the Closing and are disclosed in the text of such Assumed Contracts and do not arise out of or relate to a default or breach of the applicable Assumed Contracts prior to the Closing;

(b)

all trade payables, accrued expenses and other liabilities of the Operating Companies relating to the operation of the Business incurred in the Ordinary Course of Business prior to the Closing and included in the calculation of Net Operating Working Capital.

(c)

any severance or other form of termination payments to Employees (and the Companies’ share of any employment or other taxes associated with such payments) to whom an offer of employment is not made by Buyer pursuant to Section 7.11; and 

(d)

payment of commissions and other amounts due to sales representatives, including, without limitation, any charges, liabilities or costs incurred in connection with the termination of sales representatives to the extent included in the calculation of Net Operating Working Capital.

2.4

Excluded Liabilities.  Without limiting the generality of the first sentence of Section 2.3 and except to the extent otherwise provided in the second sentence of Section 2.3, the Operating Companies shall be solely responsible and liable for (the “Excluded Liabilities”):

(a)

any liability or obligation with respect to current, former or retired employees of the Operating Companies (including any liability for unpaid bonuses, severance payments, vacation time, paid time off or other amounts payable to employees) or consultants or other service providers of the Operating Companies arising out of or relating to the employment of, or services performed by such employees or consultants or other service providers by the Operating Companies prior to the Closing, other than (i) liabilities identified in Sections 2.3(b) and 2.3(c) above, and (ii) liabilities to current employees for unpaid bonuses, vacation time, paid time off or other amounts payable to employees to the extent such is liability is included in the calculation of Net Operating Working Capital;

14

(b)

all liabilities and obligations for Taxes, fees and other similar items however designated, and all interest, penalties and additions to tax, including, but not limited to, franchise and income taxes and all accrued property, sales, use and payroll taxes incurred or arising on or prior to the Closing, or incurred or accrued after the Closing in connection with or relating to activities of the Operating Companies or the Business prior to the Closing;

(c)

Indebtedness;

(d)

all liabilities and obligations arising out of or relating to the provision of any services by the Operating Companies or the business of the Operating Companies on or prior to the Closing;

(e)

all litigation, whether currently pending or not, relating to the business of the Operating Companies prior to the Closing, or arising on or after the Closing to the extent that such litigation relates to activities of the Operating Companies or the business of the Operating Companies on or prior to the Closing;

(f)

all liabilities and obligations under Contracts (or amendments thereto) that are not specifically assumed by Buyer under Section 2.3(a); 

(g)

all liabilities and obligations arising out of any failure by any Operating Company to perform any obligation required to be performed by it or out of any default by any Operating Company (or out of any event, fact or circumstance that, with notice or lapse of time or both, would constitute a default by any Operating Company) on or before the Closing under any of the Assumed Contracts (regardless of whether the assignment of any Assumed Contract contains anything to the contrary or is silent on such issue), or out of the failure of any Operating Company or the business of the Operating Companies to comply with any law, regulation, ordinance, order, writ, judgment, injunction, decree or other requirement of any Governmental Entity prior to the Closing Date, except as otherwise set forth herein; 

(h)

all liabilities and obligations to any Affiliate of the Operating Companies or any owner or holder of any interest in any Operating Company, other than liabilities arising under the Leases on and after the Closing Date, to the extent such liabilities accrue after the Closing, are not required to be performed on or prior to the Closing and are disclosed in the text of such Lease and do not arise out of or relate to a default of the applicable Lease prior to the Closing; 

(i)

except to the extent otherwise provided in Section 7.13 hereof, all liabilities and obligations of any Operating Company or the Business and any ERISA Affiliate with respect to any Employee Benefit Plan established, maintained, sponsored or contributed to by any Operating Company or the Business or any ERISA Affiliate, including, without limitation, liabilities under the Plans;

(j)

all liabilities and obligations arising out of or relating to the Excluded Assets; and 

15

(k)

all liabilities and obligations of any Operating Company or the Business that Buyer is not specifically assuming under Section 2.3.  

2.5

Contract Consents.  The Operating Companies shall use Reasonable Efforts to endeavor to obtain all necessary Consents as identified on Schedule 8.1(c) of the Disclosure Schedule prior to Closing, but shall have no obligation, pre or post Closing, to obtain any Consent with respect to any other Assumed Contract.  Buyer agrees to assume the obligations of any Company under all Assumed Contracts to be performed on and after the Closing and will perform and fulfill such obligations as though such Contract has been assigned to Buyer at Closing. 

2.6

Purchase of Shares.  Upon the terms and subject to the conditions hereof, and upon the basis of the agreements, representations and warranties contained in this Agreement, at the Closing, Holdings shall sell to Buyer, and Buyer shall purchase and acquire from Holdings, the Shares free and clear of any Encumbrances.  As a result of such sale, Buyer shall assume any and all obligations and liabilities of Jamestown.

2.7

Consideration.  The aggregate consideration for the Purchased Assets and the Shares (the “Purchase Price”) shall be an amount equal to (a) One Hundred Twelve Million Three Hundred Seventeen Thousand One Hundred and Four and No/100 Dollars ($112,317,104.00) (the “Base Amount”), plus (b) the Earn-Out Payments, if any, pursuant to Sections 3.2 and  3.3 below, plus or minus, as the case may be, (c) the sum of (i) the Estimated Net Operating Working Capital Adjustment, plus or minus, as the case may be, (ii) the Additional Net Operating Working Capital Adjustment, and (d) the assumption of the Assumed Liabilities.  The Closing Date Payment less the Escrow Amount and the Purchase Price Adjustment Escrow Amount shall be paid and delivered to the Operating Companies at the Closing by wire transfer of immediately available funds to the account(s) designated in writing by Holdings at least two (2) Business Days prior to the Closing.  The Purchase Price shall be subject to adjustment as set forth in ARTICLE III below, and all references to the Purchase Price shall be deemed to be the Purchase Price as adjusted pursuant to such ARTICLE III.

2.8

Escrow Amount.  Notwithstanding anything to the contrary contained herein, Buyer shall withhold from the Closing Date Payment an amount equal to 7.5% of the Closing Date Payment (the “Escrow Amount) for the purpose of providing funds to satisfy the indemnification obligations of the Operating Companies in Section 9.2 hereof.  On the Closing Date, Buyer shall cause the Escrow Amount to be delivered to LaSalle Bank, National Association, as escrow agent (the “Escrow Agent”), pursuant to an escrow agreement by and among Buyer, the Operating Companies and the Escrow Agent (the “Escrow Agreement”) substantially in the form annexed hereto as Exhibit H and as such agreement may be amended from time to time by the parties thereto in accordance with the terms therein.  Such Escrow Amount, together with any interest or earnings thereon, will serve as the sole source of funds to satisfy any amounts owed by any or all of the Operating Companies and ESOP Trust to Buyer under or in connection with this Agreement, including all obligations owed by the Operating Companies pursuant to Section 9.2 hereof, except to the extent otherwise provided in Sections 2.9, 3.1(e), 3.4, 7.24 and 9.2 hereof.  The Escrow Amount shall be paid to the Escrow Agent on the Closing Date by wire transfer of immediately available funds to the account designated in 

16

writing by the Escrow Agent.  The Escrow Amount shall be released pursuant to the terms of the Escrow Agreement.

2.9

Purchase Price Adjustment Escrow Amount.  Notwithstanding anything to the contrary contained herein, Buyer shall withhold from the Closing Date Payment an amount equal to $250,000 (the “Purchase Price Adjustment Escrow Amount”) for the purpose of providing funds to satisfy the obligations of the Operating Companies and the ESOP Trust to pay any adjustments set forth in Section 3.1 hereof.  On the Closing Date, Buyer shall cause the Purchase Price Adjustment Escrow Amount to be delivered to the Escrow Agent pursuant to the Escrow Agreement by wire transfer of immediately available funds to the account designated in writing by the Escrow Agent.  The Purchase Price Adjustment Escrow Amount shall be released pursuant the terms of the Escrow Agreement.  Obligations of the Operating Companies to Buyer pursuant to the terms of Section 3.1 of this Agreement shall be satisfied first by payment from the Purchase Price Adjustment Escrow Amount, but shall not be limited at any time to the value of the Purchase Price Adjustment Escrow Amount.  The Operating Companies and the ESOP Trust acknowledge and agree that to the extent the amount and application of the Purchase Price Adjustment Escrow Amount are insufficient to pay and discharge all amounts owing by the Operating Companies to Buyer pursuant to Section 3.1 hereof, Buyer may pursue all rights and remedies hereunder, or under applicable law, against the Operating Companies for such deficiency without resorting to the Escrow Amount.

2.10

The Closing.  The Closing shall take place at 9:00 a.m., local time, on the Closing Date, at the offices of McGuireWoods LLP, 1170 Peachtree Street N.E., Atlanta, Georgia, or at such other time, date or place as the parties may mutually agree, subject to the satisfaction or waiver of all of the conditions to Closing set forth in ARTICLE VIII hereof.  At the Closing, Buyer, the Companies and the ESOP Trust shall deliver or cause to be delivered all items required pursuant to ARTICLE VIII hereof, including, but not limited to, the additional documents identified in Sections 8.1(r) and 8.2(g) hereof. 

2.11

Allocation of Purchase Price.  The Operating Companies and Buyer shall allocate the Purchase Price among the Purchased Assets and Shares in a manner complying with Section 1060 of the Code without regard to the timing of any payment of a portion of the Purchase Price.  Within forty-five (45) days of the Closing Date, Buyer shall provide the Operating Companies with a preliminary allocation of the Purchase Price for their review and approval.  The parties hereby agree that the foregoing allocation, once approved by the Operating Companies, shall be conclusive and binding on each of them for purposes of federal and, where applicable, state and local Tax filings, declarations, returns and reports related to this Agreement, including the reports required to be filed under Section 1060 of the Code.  Buyer shall prepare and deliver IRS Form 8594 to the Operating Companies within ninety (90) days after the Closing Date if such form is required to be filed with the IRS.  In any action, hearing, investigation, litigation or suit (whether civil, criminal, administrative, judicial, public or private) related to any Tax, no party to this Agreement shall contend or represent that such allocation is not correct.

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ARTICLE III

PURCHASE PRICE ADJUSTMENTS

3.1

Net Operating Working Capital Adjustments.  

(a)

The Operating Companies and Buyer agree that the Operating Companies shall have Net Operating Working Capital of $12,600,000 on the Closing Date.  No more than five (5) Business Days prior to the Closing Date, and not less than two (2) days prior to the Closing, Holdings shall in good faith prepare and deliver to Buyer a consolidated closing balance sheet of the Operating Companies as of immediately prior to the Closing (“Estimated Closing Balance Sheet”) as well as an estimate of Net Operating Working Capital (“Estimated Net Operating Working Capital”).  If the Estimated Net Operating Working Capital is less than $12,600,000, the Closing Date Payment shall be reduced dollar-for-dollar by the amount of such difference.  If the Estimated Net Operating Working Capital is greater than $12,600,000, the Closing Date Payment shall be increased dollar-for-dollar by the amount of such difference. The Parties agree to include the difference between Estimated Net Operating Working Capital and $12,600,000, whether a positive or negative number, in calculating the portion of the Closing Date Payment payable by Buyer to the Operating Companies at Closing (the “Estimated Net Operating Working Capital Adjustment”). 

(b)

Buyer will have a period of sixty (60) days following the Closing to notify Holdings of any disagreements with the Estimated Closing Balance Sheet, Estimated Net Operating Working Capital and Estimated Net Operating Working Capital Adjustment.  Buyer and its representatives shall be permitted to review the working papers related to the Estimated Closing Balance Sheet, Estimated Net Operating Working Capital and Estimated Net Operating Working Capital Adjustment.

(c)

Any such notice of disagreement shall be accompanied by supporting documentation, including a consolidated balance sheet of the Companies on the Closing Date (the “Revised Closing Balance Sheet”), as well as a calculation of the adjustments, if any, to be made to the Estimated Net Operating Working Capital Adjustment (the Schedule of Adjustments”).  Failure to notify Holdings within such 60 day period shall be deemed acceptance of the Estimated Closing Balance Sheet, Estimated Net Operating Working Capital and Estimated Net Operating Working Capital Adjustment.  In the event Buyer timely notifies Holdings of any disagreement, each of the Operating Companies and Buyer agrees that it will attempt in good faith to resolve such disagreement.  Holdings and its representatives shall be permitted to review the working papers related to Buyer’s calculation of the Revised Closing Balance Sheet and Schedule of Adjustments.

(d)

If within 45 days after delivery to Holdings and the ESOP Trust of the notification by Buyer of a disagreement, the Parties are unable to resolve such disagreement, either Holdings, on the one hand, or Buyer, on the other hand, shall have the right to submit the determination of such matters to an independent accountant of national standing, to be selected by Holdings and Buyer in good faith within ten (10) additional days after delivery of the notice of disagreement (the “Independent Auditor”), whose decision shall be delivered to Buyer and the Operating Companies within sixty (60) days of the submission to the Independent Auditor and shall be binding on the parties.  The cost of the Independent Auditor shall be paid by the 

18

party whose aggregate estimate of the disputed amount or amounts, as the case may be, differs most greatly from the determination of the Independent Auditor.  

(e)

If it is determined pursuant to this Section 3.1 that the Estimated Net Operating Working Capital Adjustment paid at the Closing is greater than the additional net operating working capital adjustment as determined pursuant to Section 3.1 (b), (c) and (d) above (the “Additional Net Operating Working Capital Adjustment”), the Operating Companies shall be required to remit such difference to Buyer in cash, with the amount of such difference being paid from the Purchase Price Adjustment Escrow Amount to the extent available, and thereafter directly from the Operating Companies.  If it is determined pursuant to this Section 3.1 that the Estimated Net Operating Working Capital Adjustment paid at the Closing is less than the Estimated Net Operating Working Capital Adjustment as determined pursuant to this Section 3.1, Buyer shall remit such difference in cash to the Operating Companies.

(f)

Any cash payment to be made as a result of adjustments made in accordance with Section 3.1 shall be paid within five (5) Business Days of the final determination of such adjustments by wire transfer of immediately available funds.  Any such payment shall be made to such account or accounts as may be designated by Buyer or the Operating Companies, as the case may be, at least two (2) Business Days prior to the date that such payment is to be made.

(g)

Notwithstanding anything to the contrary in this Agreement, Buyer’s right to audit and adjust the Closing Date Payment shall be limited solely to the audit and adjustment, if any, of the Net Operating Working Capital and Estimated Net Operating Working Capital Adjustment and the Additional Net Operating Working Capital Adjustment as of the Closing Date.

3.2

Earn-Out Payments.  The Purchase Price shall be increased by: (1) an amount equal to 1.5 multiplied by every $1.00 of Adjusted EBITDA for the year ending December 31, 2008 in excess of $10,000,000 (the “2008 Earn-Out Payment”) plus (2) an amount equal to 2.37 multiplied by every $1.00 of Adjusted EBITDA for the year ending December 31, 2009 in excess of $10,000,000 (the “2009 Earn-Out Payment” and together with the 2008 Earn-Out Payment, the “Earn-Out Payments”).  For clarification, there can be no assurance that the Earn-Out Payments will be earned.  The Earn-Out Payments, if any, shall be paid only if actually earned pursuant to this Section 3.2 and Section 3.3 hereof.

3.3

Calculation of Earn-Out Payments.  The determination of the Earn-out Payments, if any, to be paid pursuant to Section 3.2 shall be made pursuant to the following provisions:

(a)

No later than March 31, 2009 and March 31, 2010, respectively, Buyer shall in good faith prepare or cause to be prepared and shall deliver to Holdings and the ESOP Trust a calculation of EBITDA for the years ending December 31, 2008 and December 31, 2009, respectively, as well as a calculation of the Adjusted EBITDA for the year ending December 31, 2008 and December 31, 2009, respectively (for each year, the “EBITDA Calculations”).  Holdings, the ESOP Trust and their respective representatives shall be permitted to review the 

19

working papers of Buyer and of its certified public accountants related to the EBITDA Calculations, and shall have access during normal business hours upon reasonable notice to all relevant books and records and employees of the Business in order to review the calculation of the EBITDA Calculations.

(b)

Holdings and the ESOP Trust will have a period of sixty days (60) following the delivery of the EBITDA Calculations for the years ending December 31, 2008 and December 31, 2009, as the case may be, to notify Buyer of any disagreements with such EBITDA Calculations.  Any such notice shall be accompanied by supporting documentation containing reasonable detail.  Failure to notify Buyer within such 60-day period shall be deemed acceptance of such EBITDA Calculations.  In the event Holdings and/or the ESOP Trust timely notifies Buyer of any disagreement, each of Holdings, the ESOP Trust and the Buyer agrees that it will attempt in good faith to resolve such disagreement.  If within sixty (60) days after delivery to Buyer of the notification by Holdings and/or the ESOP Trust of a disagreement, the parties are unable to resolve such disagreement, either Holdings and/or the ESOP Trust, on the one hand, or Buyer, on the other hand, shall have the right to submit the determination of such matters to the Independent Auditor whose decision shall be delivered to Buyer, Holdings and the ESOP Trust within sixty (60) days of the submission to the Independent Auditor and shall be binding on the parties.  The cost of the Independent Auditor shall be paid by the party whose aggregate estimate of the disputed amount or amounts, as the case may be, differs most greatly from the determination of the Independent Auditor.

(c)

 

Any cash payment to be made pursuant to Section 3.3 shall be paid within five (5) Business Days of the final determination of such amount by wire transfer of immediately available funds.  Any such payment shall be made to such account or accounts as may be designated by Holdings at least two (2) Business Days prior to the date that such payment is to be made.

(d)

 

For the purpose of calculating Adjusted EBITDA to determine the Earn-Out Payments, (i) there shall not be any allocation of corporate overhead to the Business without the prior written consent of Holdings (which shall not be unreasonably withheld or delayed) other than for items required to bring the Company into compliance with applicable laws; (ii) there shall not be any allocation of expenses in connection with Buyer’s compliance with the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder; (iii) the expenses related to insurance coverage of the Business provided under the Buyer’s insurance programs shall not exceed the actual costs for such benefits in 2007 except for inflationary cost increases; (iv) with respect to calculating the matching component expense for the 401(k) plan, the Business shall recognize an amount equal to the annualized 2008 matching component expense of the 401(k) Component, plus 50% of the incremental annualized expense, if any, incurred by Buyer during the respective fiscal year relating to the matching component of the 401(k) Component for employees of the Business after the Closing; (v) there shall not be any allocation of expenses incurred by any party in connection with this Agreement, including independent auditor fees pursuant to Section 3.1, attorneys’ fees or similar expenses, provided, however, that this clause (v) shall not apply to the liabilities of any underlying claims; (vi) except with the prior approval of Holdings, there shall not be any allocation of expenses or accruals in connection with any change in the organization, maintenance, operation, actuarial reserve 

20

methods or policies, or capitalization, of Jamestown, other than to comply with any CIMA statutory regulations or requirements applicable to the operation of Jamestown as conducted on the Closing Date; (vii) there shall not be any allocation of expenses in connection with any severance payment or termination payment to Jim Ginter, Anne Anderson or Michael Pretiger pursuant to any Employment Agreement with Buyer; and (viii) any amounts excluded from the calculation of Earn-Out Payments pursuant to the last sentence of Section 9.2 hereof shall be excluded from the calculation of Earn-Out Payments.

3.4

Reconciliation of Excess Cash.  

(a)

No more than five (5) Business Days prior to the Closing Date, and not less than two (2) days prior to the Closing, Holdings shall cause Global Captive Management, Ltd. to deliver the Nearest Jamestown Balance Sheet to Buyer, setting forth an estimate of Excess Cash as of the date of the Nearest Jamestown Balance Sheet (the “Estimated Excess Cash”).

(b)

Buyer will have a period of sixty (60) days following the Closing to notify Holdings of any disagreements with the Nearest Jamestown Balance Sheet and Estimated Excess Cash.  Buyer and its representatives shall be permitted to review the working papers of Global Captive Management, Ltd. related to the Nearest Jamestown Balance Sheet and Estimated Excess Cash.

(c)

Any such notice of disagreement shall be accompanied by supporting documentation, including the Nearest Jamestown Balance Sheet and a schedule of adjustments (the “Jamestown Adjustment Schedule”), setting forth a calculation of the adjustments, if any, to be made to the nearest Jamestown Balance Sheet and the calculation of Estimated Excess Cash.  Failure to notify Holdings within such 60 day period shall be deemed acceptance of the Nearest Jamestown Balance Sheet and Estimated Excess Cash.  In the event Buyer timely notifies Holdings of any disagreement, each of Holdings and Buyer agrees that it will attempt in good faith to resolve such disagreement.  Holdings and its representatives shall be permitted to review the working papers related to Buyer’s calculation of the Nearest Jamestown Balance Sheet and the calculation of Estimated Excess Cash.

(d)

If within 45 days after delivery to Holdings of the notification by Buyer of a disagreement, the Parties are unable to resolve such disagreement, either Holdings, on the one hand, or Buyer, on the other hand, shall have the right to submit the determination of such matters to the Independent Auditor, whose decision shall be delivered to Buyer and Holdings within sixty (60) days of the submission to the Independent Auditor and shall be binding on the parties.  The cost of the Independent Auditor shall be paid by the party whose aggregate estimate of the disputed amount or amounts, as the case may be, differs most greatly from the determination of the Independent Auditor.

(e)

If it is determined pursuant to this Section 3.4 that the Estimated Excess Cash was greater than the Estimated Excess Cash number provided in Section 3.4(a) above, Buyer shall pay to Holdings fifty-eight percent (58%) of such excess.  If it is determined pursuant to this Section 3.4 that the Estimated Excess Cash was less than the Estimated Excess 

21

Cash number provided in Section 3.4(a) above, Holdings shall pay to Buyer in cash fifty-eight percent (58%) of such shortfall.

(f)

Any cash payment to be made as a result of the adjustments made in accordance with this Section 3.4 shall be paid within five (5) Business Days of the final determination of such adjustments by wire transfer of immediately available funds.  Any such payment shall be made to such account or accounts as may be designated by Buyer or Holdings, as the case may be, at least two (2) Business Days prior to the date that such payment is to be made.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANIES

The Operating Companies, jointly and severally, represent and warrant to Buyer and the ESOP Trust as follows (all such representations and warranties are qualified by the Disclosure Schedule attached to this Agreement as Exhibit F):

4.1

Organization and Qualification.  Each of the Companies is duly organized, validly existing and in good standing in the jurisdiction set forth on Schedule 4.1 of the Disclosure Schedule, with full power and authority to own, lease and operate its assets and Properties and carry on its business as presently owned or conducted.  Each of the Companies is licensed or qualified to transact business and is in good standing as a foreign corporation in each jurisdiction in which, because of its business conducted there or the nature of its assets or Properties there, it would be required to be so licensed or qualified, except where the failure to be so licensed, qualified or in good standing in the aggregate would not reasonably be expected to have a Material Adverse Effect.  Each such jurisdiction is set forth on Schedule 4.1 of the Disclosure Schedule.   

4.2

Authority; No Breach.

(a)

Each Company has all requisite power and authority to execute and deliver this Agreement and the Operative Documents to which it is a party, and to perform, carry out and consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance of this Agreement and the Operative Documents to which it is a party have been duly authorized by all necessary action on the part of each such Company.  This Agreement has been duly executed and delivered by each of the Companies and the Operative Documents to which it is a party shall be, when executed and delivered by it, duly executed and delivered.  This Agreement constitutes, and the Operative Documents to which each Company is a party shall constitute, when executed and delivered by it, such Company’s legal, valid and binding obligation, enforceable against it in accordance with its terms.

(b)

Except as set forth on Schedule 4.2(b) of the Disclosure Schedule, neither the execution and delivery of this Agreement or any Operative Document by any of the Companies nor the consummation of any of the transactions contemplated herein or therein, nor the full performance by any Company of its obligations hereunder or thereunder do or will:

22

(i)

violate any provision of the articles or certificate of incorporation or by-laws or other constituent documents of any such Company;

(ii)

conflict with, result in a breach or violation of, or constitute a default under (or an event which, with or without notice, lapse of time or both, would constitute a default) or result in the invalidity of, or accelerate the performance required by or cause or give rise to any right of acceleration or termination of any right or obligation pursuant to any agreement or commitment to which any Company, or any Subsidiary is a party or by which any Company (or any of its respective assets or Properties) is subject or bound;

(iii)

result in the creation of, or give any third party the right to create, any Encumbrance upon the Shares or any Purchased Assets; 

(iv)

conflict with, violate, result in a breach of or constitute a default under any writ, injunction, statute, law, ordinance, rule, regulation, judgment, award, Permit, decree, order, or process of any Governmental Entity to which any Company or Purchased Assets of any of the foregoing are subject; 

(v)

terminate or modify, or give any third party the right to terminate or modify, the provisions or terms of any Contract to which any Company is a party or by which any Company (or any of their respective assets or Properties) is subject or bound; 

(vi)

require any Company to obtain any Consent required pursuant to Section 2.5 hereof; or 

(vii)

result in or give to any Person any additional rights or entitlement to increased, additional, accelerated or guaranteed payments under any contract or agreement to which any Company is a party or by which any of its respective Properties is subject or bound.

4.3

Securities and Ownership; Subsidiaries.  

(a)

The authorized and outstanding security interests of each Company and the owners of all such interests (of record and beneficially) are set forth on Schedule 4.3(a) of the Disclosure Schedule.  Except as set forth in Schedule 4.3(a) of the Disclosure Schedule, no preferred stock, bonds, debentures, notes, debt instruments, evidences of Indebtedness, convertible securities, warrants, options, or other rights to acquire securities of any kind, of any Company are authorized, issued or outstanding.  

(b)

The authorized and outstanding shares of each class of capital stock of Jamestown are set forth on Schedule 4.3(b) of the Disclosure Schedule. All such shares are owned beneficially and of record by Holdings.  As of the Closing the only shares of capital stock of Jamestown issued and outstanding will be the Shares.  All such Shares are duly authorized, validly issued, fully paid and non-assessable, not subject to any preemptive or similar right, and were sold in accordance with all applicable securities laws.  No preferred interests, bonds, debentures, notes, debt instruments, evidences of Indebtedness, convertible securities, warrants, options, or other rights to acquire securities of any kind of Jamestown are authorized, issued or outstanding.  At the Closing, Holdings is transferring the Shares to Buyer free and clear of any 

23

Encumbrances.  Jamestown has not issued any securities in violation of any preemptive or similar rights.  There are no outstanding (i) securities convertible into or exchangeable for any shares of capital stock or other securities of Jamestown; (ii) subscriptions, options, “phantom” stock rights, warrants, calls, commitments, preemptive rights or other rights of any kind (absolute, contingent or otherwise) entitling any party to acquire or otherwise receive from Jamestown any shares of capital stock or other securities or receive or exercise any benefits or rights similar to any rights enjoyed by or inuring to the holder of capital stock of Jamestown; (iii) contracts, commitments, agreements, understandings or arrangements of any kind relating to the issuance of any membership or other interests, convertible or exchangeable securities, or any subscriptions, options, warrants or similar rights of Jamestown or granting to any Person any right to participate in the equity or income of Jamestown or to participate in or direct the election of any director or officer of Jamestown or the manner in which any shares of capital stock or other securities of Jamestown are voted; or (iv) rights of any Person to be paid as if he, she or it were a holder of equity or shares of capital stock of Jamestown or securities convertible into or exchangeable for equity or shares of capital stock of Jamestown, including, without limitation, “phantom” stock and stock appreciation rights.  Except as set forth on Schedule 4.3(b) of the Disclosure Schedule, there are no shares of capital stock or other securities of Jamestown reserved for issuance for any purpose and Jamestown is not a party to any voting agreements, voting trusts, proxies or other agreements, instruments or understandings with respect to the voting of any shares of the capital stock or other securities of Jamestown, or any agreement with respect to the transferability, purchase or redemption of any shares of capital stock or other securities of Jamestown.

(c)

Except as set forth on Schedule 4.3(c) of the Disclosure Schedule, none of the Companies has any Subsidiaries, owns any interest in any other Person or owns, Directly or Indirectly, any economic, voting or other ownership interest in any Person.

4.4

Financial Statements.  (a)  The Operating Companies have heretofore delivered to Buyer true, correct and complete copies of the Financial Statements.  The Financial Statements have been prepared from the books and records of the Companies are true, correct, accurate and complete in all material respects, and present fairly (i) the consolidated financial position of the Companies at the dates thereof and (ii) the consolidated results of operations, shareholders’ equity and cash flows of the Companies for the periods then ended, in each case in accordance with GAAP applied on a consistent basis throughout the periods covered, subject, in the case of interim financial statements, to normal recurring year-end adjustments and the absence of notes.  The books and records of the Companies are accurate and complete in all material respects, have been maintained in accordance with good business practices and reflect all financial transactions of the Companies that are required to be reflected in accordance with GAAP.  Except as set forth on Schedule 4.4 of the Disclosure Schedule, all reserves established by the Companies are set forth in the Financial Statements and are adequate and there are no loss contingencies that are required to be accrued by Statement of Financial Accounting Standard No. 5 of the Financial Accounting Standards Board which are not provided for in the balance sheets contained in the Financial Statements.

(b)

None of the Companies has been advised by the registered public accounting firm that audited the Financial Statements of any significant deficiency or material 

24

weakness in such Company's internal control over financial reporting; provided that the Operating Companies make no representation or warranty as to the ability of any Company to comply with federal, state, GAAP or other guidelines or requirements concerning the adequacy of internal controls, including but not limited to SEC Final Rule: Management's Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, SEC, 17 CFR PARTS 210, 228, 229, 240, 249, 270 and 274.  

4.5

Interests of Related Persons.  Except as set forth on Schedule 4.5 of the Disclosure Schedule, none of the Companies, nor any if its respective shareholders, officers, directors, or any Relative, or Affiliate of any Company (collectively, the “Related Persons”):

(i)

owns any interest in any Person (other than the beneficial ownership for investment purposes of 2% or less of any class of equity securities of any Person which is registered under Section 12 of the Exchange Act) which is a competitor in the Business, a supplier or customer of the Companies or any Subsidiary or serves as an officer, member, director, employee or consultant for any such Person;

(ii)

owns, in whole or in part, any Property, used in connection with the business of the Companies or any Subsidiary;

(iii)

has an interest in any contract or agreement pertaining to the business of the Companies or any Subsidiary; or

(iv)

has any Contracts with the Companies or any Subsidiary.

4.6

Absence of Undisclosed Liabilities.  Except as set forth on Schedule 4.6 of the Disclosure Schedule, the Companies do not have any liabilities, losses or obligations of any nature (whether absolute, known or unknown, accrued, fixed, contingent, liquidated, unliquidated, due or to become due, or otherwise), except for (i) liabilities included or reflected in the Financial Statements and adequately reserved against therein in accordance with GAAP, or (ii) liabilities or performance obligations arising subsequent to the Balance Sheet Date in the Ordinary Course of Business (and not as a result of a breach or default by the Companies).  None of the Operating Companies knows of any basis for the assertion against the Companies of any liability, loss or obligation of any nature (whether absolute, known or unknown, accrued, fixed, contingent, liquidated, unliquidated, due or to become due, or otherwise) except for the liabilities of the type set forth in clauses (i) and (ii) of the immediately preceding sentence.

4.7

Absence of Certain Changes or Events.  Except as set forth on Schedule 4.7 of the Disclosure Schedule, since December 31, 2007, the business of the Companies has been conducted only in the Ordinary Course of Business.  Without limiting the generality of the foregoing, except as set forth on Schedule 4.7 of the Disclosure Schedule, since December 31, 2007, none of the Companies has:

(a)

suffered any Material Adverse Effect, and no fact or condition exists or, to the Knowledge of the Operating Companies, is contemplated or threatened that might reasonably be expected to cause a Material Adverse Effect in the future;

25

(b)

suffered any material damage, destruction or casualty loss (whether or not covered by insurance) or condemnation, taking or other proceeding;

(c)

entered into or adopted any new, or increased benefits under, or renewed, amended or terminated any existing, Plan, except as required to comply with applicable law, or changed or committed to change (including any change pursuant to any equity bonus, pension, profit-sharing or other plan, commitment, policy or arrangement) the compensation payable or to become payable to any of its officers, directors, employees, agents, consultants or other service providers, or made any pension, retirement, profit sharing, bonus or other employee welfare or benefit payment or contribution, other than payments or contributions required by the governing documents of the foregoing;

(d)

except as set forth on Schedule 4.7(d) of the Disclosure Schedule, made or proposed any change in its accounting or tax methods, principles or practices, except for such changes which are required by GAAP (or by law) and are set forth on Schedule 4.7(d) of the Disclosure Schedule;

(e)

authorized, declared, set aside or paid any dividend or other distribution, except for Excess Cash;

(f)

Directly or Indirectly redeemed, purchased or otherwise acquired any of its security interests or authorized any stock or other split, reclassification or recapitalization or otherwise changed the terms or provisions of any of its security interests;

(g)

incurred any Indebtedness or other liability (whether known or unknown, absolute, accrued, fixed, contingent, liquidated, unliquidated or otherwise, and whether due or to become due), except for liabilities reflected in its Financial Statements or incurred after the Balance Sheet Date in the Ordinary Course of Business;

(h)

paid, discharged or satisfied any claim, liability or obligation other than the payment, discharge or satisfaction of liabilities and obligations incurred in the Ordinary Course of Business and consistent with past practice;

(i)

(A) prepaid any obligation having a fixed maturity of more than ninety (90) days from the date such obligation was issued or incurred, or (B) not paid when due, any account payable, or sought the extension of the payment date of any account payable;

(j)

permitted or allowed any of its Property or assets to be subjected to any Encumbrance;

(k)

canceled any debts or waived any claims or rights other than in the Ordinary Course of Business;

(l)

sold, transferred, or otherwise disposed of any of its Properties, except in the Ordinary Course of Business;

26

(m)

disposed of, abandoned or to the Knowledge of any Operating Company, permitted to lapse, any rights to the use of any Company Rights, or disposed of or disclosed, or permitted to be disclosed (except as necessary in the conduct of its business), to any Person other than representatives of Buyer, any Trade Secret;

(n)

made any capital expenditures or commitments in excess of $50,000 in the aggregate for repairs or additions to property, plant, equipment or tangible capital assets; 

(o)

terminated or amended or suffered the termination or amendment of any Contract pursuant to which any Company would receive from any Person(s) or pay to any Person(s) more than $50,000, individually or in the aggregate, in any calendar year; 

(p)

amended the articles or certificate of incorporation or by-laws of any Company;

(q)

terminated or suffered loss of the employment, services or benefits of any officers or management level employees;

(r)

loaned to, or entered into a transaction with, any of the directors, officers, and Employees of any Company except in the Ordinary Course of Business;

(s)

entered into any agreement that materially limits or restricts any Company from engaging or competing in any line of business or in any geographic area or location; or

(t)

agreed, whether in writing or otherwise, to take any action described in this Section 4.7.

4.8

Taxes.  

(a)

Except as set forth on Schedule 4.8(a) of the Disclosure Schedule, each of the Companies has duly, timely and properly filed when due, all federal, state, local, foreign and other Tax Returns with respect to its sales, income, business or operations (including, without limitation, any consolidated Tax Returns in which it is included) in those jurisdictions identified on Schedule 4.8(a) of the Disclosure Schedule and such Tax Returns are, in all material respects, true, correct, complete and accurate and disclose all Taxes required to be paid by the Companies in such jurisdictions.  The Companies have duly paid all Taxes due in those jurisdictions identified on Schedule 4.8(a) of the Disclosure Schedule whether or not shown on a Tax Return.  True, complete and correct copies of all of the Tax Returns of the Companies for the past three (3) fiscal years have been previously provided to Buyer.  No jurisdiction in which any Company does not file Tax Returns has claimed that such Company is liable to file Tax Returns in that jurisdiction.

(b)

Except as provided in Schedule 4.6 of the Disclosure Schedule, all amounts required on the date hereof to be withheld by the Companies from customers or from or on behalf of Employees and others for income, social security, unemployment insurance and other Taxes have been collected or withheld and either paid to the appropriate Governmental Entity or set aside and, to the extent required by law, held in accounts for such purpose.

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(c)

Except as set forth on Schedule 4.8(c) of the Disclosure Schedule, (i) there currently are no (nor have there been within the last three (3) years any) pending or, to the Knowledge of any Company, threatened actions or proceedings (including, without limitation, audit proceedings) by any applicable taxing authority for the assessment, collection, adjustment or deficiency of any material Taxes against any Company, and (ii) none of the Companies or any Subsidiary has received any notice of deficiency or assessment from any federal, state, local or foreign taxing authority with respect to material liabilities for Taxes of any Company and, to the Knowledge of the Companies, there are no existing or prior facts, circumstances or conditions that could reasonably be expected to form the basis for such an action or proceeding or such a notice of deficiency or assessment.  Except as set forth on Schedule 4.8(c) of the Disclosure Schedule, no power of attorney has been executed by, or on behalf of, any Company with respect to any matter relating to Taxes which is currently in force.  Except as set forth on Schedule 4.8(c) of the Disclosure Schedule, there are no outstanding agreements or waivers extending the statutory period of limitation applicable to any assessment or audit of any Tax or Tax Return of any Company for any period.  The Tax Returns of each of the Companies have been examined by the applicable taxing authority for the respective periods set forth on Schedule 4.8(c) of the Disclosure Schedule, and all deficiencies asserted as a result of such examinations (or as a result of any examination of the returns for earlier fiscal years) have been paid or finally settled.

(d)

None of the Companies has taken any action that would have the effect of deferring any Tax liability of any Company with respect to the sales, income, business or operations of any Company from a period ending on or prior to the Closing Date to a period ending after the Closing Date except for the election of S status under the Code by the Operating Companies.  There are no deferred Taxes owed by any Company other than any net recognized built-in gain of the Operating Companies in connection with the Contemplated Transactions.

(e)

No amount that could be received (whether in cash or property or the vesting of property), as a result of the consummation of the Contemplated Transactions, by any Employee, officer, director, shareholder or other service provider of the Companies or the Business under any Plan or otherwise would not be deductible by reason of Section 280G of the Code or would be subject to an excise tax under Section 4999 of the Code.  Neither the Companies nor the Business has any indemnity obligation on or after the Closing for any Taxes imposed under Section 4999 or 409A of the Code.

(f)

None of the Companies has (i) been a party to any consolidated Tax Return of any group of which one of the Companies has not been the parent corporation, or (ii) any liability or obligation to make any payment to any taxing authority or to its Affiliates on account of Taxes for any period ending on or prior to the Closing Date imposed under Section 1.1502-6 of the Income Tax Regulations or any similar provision of state or local laws or the provision of any Tax sharing agreements.  None of the Companies is a party to any Tax sharing agreements.

(g)

None of the Companies is currently the beneficiary of any extension of time within which to file any federal Tax Return other than for calendar year end 2007.  There 

28

are no Encumbrances for Taxes upon the assets of the Companies except for statutory liens for current Taxes not yet due.

(h)

The Companies are not required to account for differences between the amounts of the book basis and the tax basis of assets on the books of the Companies for federal income tax purposes.  None of the Companies will be required to recognize for income tax purposes in a taxable year beginning on or after the Closing Date any amount of income or gain which it would have been required to recognize under the accrual method of accounting for tax purposes in a tax period ending on or before the Closing Date as a result of the installment method of accounting, the completed contract method of accounting, the cash method of accounting or a change in method of accounting.

(i)

 None of the Companies is or has been a United States real property holding company (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(1)(ii) of the Code.

(j)

Except for Jamestown, none of the Companies is a “foreign person” as that term is used in the Treasury Regulation Section 1.1445-2.

(k)

None of the Companies has been required to make any adjustment pursuant to IRC Section 481(a) or any similar provision of state, local or foreign tax law by reason of any change in any accounting methods, and there is no application pending with any Governmental Entity requesting permission for any change in any of its accounting methods for Tax purposes.  To the Companies’ Knowledge, no Governmental Entity has proposed any such adjustment or change in accounting method.

(l)

The Companies have not distributed stock of another Person, or had another Person distribute their stock, in a transaction that purported or was intended to be governed in whole or in part by IRC Section 355 or Section 361.

(m)

The Companies have not participated in a “reportable transaction” as described in Treas. Reg. §1.6011-4;

(n)

Each Person treated as an independent contractor by any Company is and has been properly classified as such under all applicable laws, rules and regulations as in existence on the date hereof except as described in Schedule 4.6 of the Disclosure Schedule; and 

(o)

None of the Companies will be required to include in income for a period following the Closing an amount arising in a pre-Closing period, because of the use of the cash, installment, completed contract, long-term contract or other method of accounting.

4.9

Assets.

(a)

The Companies have good marketable and freely transferable title to all the Purchased Assets, including, without limitation, the properties and assets (tangible and intangible) reflected in the Financial Statements at the Balance Sheet Date, free and clear of all Encumbrances, except for Encumbrances set forth on Schedule 4.9(a) of the Disclosure 

29

Schedule.  At the Closing, Buyer shall acquire good, marketable and freely transferable title to the Purchased Assets, free and clear of any Encumbrance.

(b)

None of the Companies owns any Real Property.  Schedule 4.9(b) of the Disclosure Schedule contains a complete and correct list of all Real Property leased by the Companies.  The Companies enjoy peaceful possession of all such property.  The Companies have previously delivered to Buyer true, complete and correct copies of all lease documents relating to such property.  All lease documents are unmodified, valid, binding and enforceable in accordance with their terms and are in full force and effect, and subject to required Consents in connection with the leases listed on Schedule 4.9(b) of the Disclosure Schedule, will continue to be legal, valid, binding, enforceable and in full force and effect on identical terms after the Closing.  All work required to be done by any Company as a tenant on such Real Property has been duly and timely performed.  To the Knowledge of any Company, no event has occurred which constitutes or, with the passing of time or giving of notice, or both, would constitute, a default under any such lease document.

(c)

To the Knowledge of the Operating Companies, no Real Property leased by any Company is subject to any rights of way, building use restrictions, easements, reservations or limitations which would restrict Buyer from conducting the Business after the Closing in the same manner as conducted on the Closing Date.  The Operating Companies have not received written or posted notice of any pending condemnation or special assessment by any Governmental Entity that would result in the taking or all or any part of the Real Property and would materially affect the current use of any parcel of the Real Property.

(d)

All physical Properties and tangible Purchased Assets of the Companies (whether leased or owned) are in good operating condition and repair (ordinary wear and tear excepted) and are adequate for the uses to which they are being put and constitute all those necessary to operate the Business of the Companies as it is currently conducted and in accordance with recent historical practice, and are located on the Property of the Companies (except to the extent such assets are used or located off-Property by telecommuting Employees.  During the past twelve (12) months there has not been any significant interruption in the operations of the Companies due to the operating condition of such physical Properties.  Schedule 4.9(d) of the Disclosure Schedule sets forth a true and complete list of all equipment and other tangible assets owned by the Companies having an original cost in excess of $25,000 and regularly and customarily used by the Companies in the operations of their business.

(e)

To the actual knowledge of the Operating Companies (without due diligence or investigation), all Real Property leased by the Companies is in material compliance with any applicable health and safety laws, including the Americans with Disabilities Act and the Occupational Safety and Health Act, and none of the Operating Companies has received notification of any alleged violation.  

4.10

Intellectual Property.  

(a)

The Companies are the owner of all right, title and interest in and to each of the following that are being used in the Business of the Companies as currently conducted, and/or have been or are being developed or acquired for potential use in the Business of the 

30

Companies and/or that are promoted, sold, licensed or otherwise distributed by the Companies to any third parties:

(i)

all computer programs and databases and their associated system and user documentation (collectively, the “Company Software Products”) set forth on Schedule 4.10(a)(i) of the Disclosure Schedule;

(ii)

all copyrights and copyright registrations and applications for registrations are set forth on Schedule 4.10(a)(ii) of the Disclosure Schedule (collectively, the “Copyrights”);

(iii)

all patents and patent applications set forth on Schedule 4.10(a)(iii) of the Disclosure Schedule (collectively, the “Patents”);

(iv)

all registered trademarks, registered service marks and registered trade names (collectively the “Marks”), and the registrations of, and/or applications to register, any one or more of the Marks in federal, state or foreign jurisdictions set forth on Schedule 4.10(a)(iv) of the Disclosure Schedule; 

(v)

all Trade Secrets; and

(vi)

all registered internet domain names presently used by any of the Companies in connection with the Business as set forth on Schedule 4.10(a)(vi) of the Disclosure Schedule (collectively, “Domain Names”).

The items referred to in this Section 4.10(a) are herein referred to collectively as the “Company Intellectual Property Rights.”  

(b)

Schedule 4.10(b) of the Disclosure Schedule sets forth a list of all license and similar agreements between any Company and third Party, under which such Company is granted rights to the use, reproduction, distribution, manufacture, sale or licensing of items embodying the patent, copyright, Trade Secret, trademark or other proprietary rights of such third parties (collectively, the “Company License Rights”).  To the extent any such Company License Rights are assigned to Buyer, the Buyer will not, as a result of the execution and delivery of this Agreement or any Operative Document or the consummation of the Contemplated Transactions be in violation of or lose any rights pursuant to any license and similar agreements described in Schedule 4.10(b) of the Disclosure Schedule.  Except as set forth on Schedule 4.10(b) of the Disclosure Schedule, no Person is entitled to any royalty, fee and/or other payment or other consideration of whatever nature with respect to the Company License Rights or Company Intellectual Property Rights.  The Company License Rights and the Company Intellectual Property Rights are sometimes collectively referred to as the “Company Rights”.  The Company Rights constitute all such rights necessary to operate the Business of the Companies as it is currently conducted.

(c)

Schedule 4.10(c) of the Disclosure Schedule sets forth a list of all agreements under which any Company, or its respective Affiliates has granted any rights of whatever nature to third parties of, to or under the Company Rights.  All such rights granted have 

31

been and are non-exclusive.  True, correct and complete copies of all such agreements have been delivered or made available to Buyer.

(d)

No claims with respect to the Company Rights have been asserted or, to the Knowledge of the Companies, are threatened by any Person against the Companies, nor do the Companies have actual Knowledge of any valid grounds for any bona fide claims against the use by any Company of any Company Rights.  To the Knowledge of the Companies, as of the date hereof, there has not been and there is not any infringement, misappropriation or any other unauthorized use of any of the Company Rights by any third party, Employee, consultant or former Employee or consultant of any Company, except as described on Schedule 4.10(a)(vi) of the Disclosure Schedule.

(e)

Except as set forth on Schedule 4.10(e) of the Disclosure Schedule, all Marks, and all registrations of, and/or applications to register, such Marks as described in Section 4.10(a)(iv) and all Domain Names as described in Section 4.10(a)(vi) are valid, enforceable and subsisting.

(f)

None of the Companies has, by reason of its use, license, sale or other distribution of the Company Rights or otherwise, been alleged to have infringed upon, violated, misappropriated or misused any intellectual property right or other proprietary right (including, without limitation, any patent right, copyright, trade name or Trade Secret) of any third party.

(g)

No Company Rights are subject to any order restricting in any manner the use or licensing thereof by any Company.  The Companies have not entered into any agreement to indemnify and/or hold harmless any other Person from or against any cause of action, charge or other claim of infringement of any third party intellectual property rights other than pursuant to any Company License Rights.  The Companies have not entered into any agreement granting any third party the right to bring infringement actions, or otherwise to enforce rights with respect to any Company Rights or, except as disclosed in Schedule 4.10(g) of the Disclosure Schedule, with respect to any Company License Rights.  

(h)

Whenever used in this Agreement: (i) “Company Computer Systems” means all the computer systems of the Companies including, without limitation, all mainframes, PC’s and other work stations, peripherals and other components, and the Company Software Products; (ii) “Licensed Software Products” means any software products licensed by third parties to the Companies, including, without limitation, the software products disclosed on Schedule 4.10(a)(i) or Schedule 4.10(b) of the Disclosure Schedule; (iii) “Licensed Computer Systems” means all mainframes, PC’s and other work stations, peripherals and other components, and the Licensed Software Products; and (iv) “Computer Systems” collectively refers to Company Computer Systems and Licensed Computer Systems.

(i)

Except as disclosed in Schedule 4.10(i) of the Disclosure Schedule, each of the Licensed Software Products and the Company Software Products, to the Knowledge of the Companies, conforms substantially to the functional and operational specifications set forth in the respective user manuals and other documentation for each such software product.  Except as disclosed in Schedule 4.10(i) of the Disclosure Schedule, the Companies own and have possession of all such technical documentation, software tools (including by way of example and 

32

not limitation, all source code, compilers, system documentation, statements of principles of operation and schematics, as applicable) for each of the Company Software Products.

(j)

Since January 1, 2003, all employees and consultants of the Companies as of the Closing Date who have created or developed any Company’s Intellectual Property Rights have signed written agreements that are valid and enforceable containing a confidentiality provision protecting the Trade Secrets of the respective Company and assigning to such Company his or her intellectual property rights in such intellectual property developed within the scope of his or her employment or engagement (as applicable) with such Company, except as set forth on Schedule 4.10(j) of the Disclosure Schedules.

4.11

Accounts Receivable.  Except as set forth on Schedule 4.11 of the Disclosure Schedule, all of the accounts, notes and other receivables of the Companies represent sales actually made in the Ordinary Course of Business for goods or services delivered or rendered in bona fide arm’s-length transactions, constitute only valid, undisputed claims, and have not been extended or rolled over in order to make them current and will be collected at their recorded amounts net of reserves for non collectibility reflected on the Financial Statements in accordance with GAAP.  Except as set forth in Schedule 4.11 of the Disclosure Schedule, no such account, note or other receivable has been assigned or pledged to any Person.

4.12

Contracts and Commitments.  Except as set forth on Schedule 4.12 of the Disclosure Schedule:

(a)

The Companies do not have any Contracts which either individually or in conjunction with other Contracts with the same party, and in connection with the same matter, relate to commitments in excess of $25,000 per annum or are otherwise material to their business, operations or prospects;

(b)

To the Knowledge of the Companies, no Contract or bid is anticipated to result in any loss to any Company upon completion or performance thereof, and no Contract or bid is at prices materially above or below the usual prices of the Companies for the same or similar products or services;

(c)

The Companies do not have any outstanding Contracts or arrangements (i) providing for the payment of any salary, bonus or commission based on sales or earnings, (ii) with an employee consultant or other service provider of any Company, including contracts providing for employment, consulting, deferred compensation or benefit plans or agreements to an employee, that has aggregate annual payments in excess of $100,000 and is not terminable on sixty (60) days notice or less or (iii) with any Related Person;

(d)

The Companies do not have any Contracts with an independent contractor or consultant that has aggregate annual payments in excess of $100,000 and is not terminable on sixty (60) days notice or less without penalty, liability or premium of any type, including, without limitation, severance or termination pay;

(e)

The Companies do not have any Contracts relating to Company Rights (other than Company License Rights for off-the-shelf software);

33

(f)

The Companies do not have any Contracts pursuant to which they have guaranteed any obligations of other persons or made any agreements to acquire or guarantee any obligations of or indemnify or hold harmless other Persons other than in connection with the acquisition of the Companies by the ESOP Trust, Contracts not on the Operating Companies’ standard forms or Permanent Placement Agreements with clients, the Guaranty of Jamestown in favor of Medical Protective, and such other Indebtedness as listed on Schedule 4.12(k) of the Disclosure Schedule;

(g)

The Companies do not have any Contract which provides for contingent payments or earn-outs other than this Agreement and the Performance Share Plans of the Companies and Employment Agreements with Ken Shumard, Anne Anderson, Jim Ginter and Michael Pretiger;

(h)

The Companies do not have any (i) employee non-competition agreements, or (ii) agreements or policies that contain any severance or termination pay liabilities or obligations other than Employment Agreements with Ken Shumard, Anne Anderson, Jim Ginter and Michael Pretiger and the Performance Share Plans;

(i)

The Companies do not have any collective bargaining or union Contracts;

(j)

The Companies are not restricted by any Contract from carrying on their businesses as currently conducted anywhere in the world;

(k)

The Companies do not have any obligations for Indebtedness other than as set forth on Schedule 4.12(k) of the Disclosure Schedule;

(l)

The Companies do not have any outstanding loans to any Person (other than travel and entertainment advances to Employees in the Ordinary Course of Business);

(m)

The Operating Companies and Jamestown do not have a power of attorney outstanding or any obligations or liabilities as guarantor, surety, co-signor, endorser, co-maker, indemnitor or otherwise in respect of the obligation of any other Person, except as disclosed in Sections 4.8(c) and 4.12(f);

(n)

None of the Companies are a party to any partnership or joint venture agreement whether or not a separate legal entity is created thereby;

(o)

None of the Companies are a party to any Contract (i) relating to the lease or similar arrangement of any machinery, equipment, motor vehicles, furniture, fixture or similar property except as identified on Schedule 4.12(a) of the Disclosure Schedule, (ii) to which any federal, state or local Governmental Entity or authority is a party, (iii) pursuant to which any Company is or may be obligated to make payments, contingent or otherwise, on account of or arising out of prior acquisitions or sales of businesses, assets or stock of other Persons, (iv) relating to the sale or other disposition of any of its assets, Property or other rights except pursuant to the Performance Share Plans of the Companies, or (v) that would obligate any Company to repair, replace, accept the return of or make any refund in respect of any product or 

34

service sold or performed by any Company other than pursuant to any Permanent Placement Contract;

(p)

None of Companies are in breach or default, and to the Knowledge of the Operating Companies, there is no basis for any valid claim or breach or default, under any material Contract to which any Company is a party or by which any Company or any of it respective assets are bound and, to the Knowledge of the Companies, there exists no event or condition which (whether with or without notice, lapse of time, or both) would constitute a default thereunder, give rise to a right to accelerate, modify or terminate any provision thereof or give rise to any Encumbrance on its Property or a right to any additional or guaranteed payments; and to the Knowledge of the Companies, no other party to any such Contract is in breach or default thereof other than for delinquent or past due amounts for which adequate reserves have been established in the Financial Statements in accordance with GAAP; 

(q)

None of the Companies’ agreements to provide goods and services are subject to any agreement that restricts the respective Company’s ability to change the price charged for such goods or services other than restrictions under Federal Supply Schedule Contracts regarding “economic price adjustments”; and

(r)

Each contract and agreement referred to in Schedule 4.12 of the Disclosure Schedule is valid and in full force and effect and constitutes a legal, valid and binding obligation of the applicable Company and, to the Knowledge of the Companies, the other parties thereto, enforceable in accordance with its terms, and will not cease to be valid and in full force and effect after the Closing Date, except to the extent any such Contract requires Consent that will not be procured pursuant to Section 2.5 hereof; accurate and complete copies thereof, together with all amendments thereto, have been heretofore delivered or made available to Buyer of all Contracts not on the Operating Companies’ standard forms.

4.13

Customers, Subcontractors and Suppliers.

(a)

Schedule 4.13(a) of the Disclosure Schedule contains a true and complete list of the 84 largest customers of the Companies in order of dollar volume of services provided during fiscal year ending 2007 and during the four-month period ended April 30, 2008, showing the total services provided in dollar volume to each such customer during each such period.

(b)

Schedule 4.13(b) of the Disclosure Schedule contains a true and complete list of the  25 largest suppliers of the Companies in order of dollar volume of purchases during fiscal year ending 2007 and during the four-month period ended April 30, 2008, showing the total purchases in dollars derived from each such supplier during each such period.

(c)

Except as set forth on Schedule 4.13(c) of the Disclosure Schedule:

(i)

There has not been any material adverse change and, to the Knowledge of the Companies, there are no facts which may reasonably be expected to indicate that any material adverse change may occur in the business relationship of any Company with any customer or supplier named on Schedules 4.13(a) or 4.13(b) of the Disclosure Schedule or any other material customer, subcontractor or supplier.

35

(ii)

The Companies have not engaged in any disputes with any customers or suppliers named on Schedules 4.13(a) or 4.13(b) of the Disclosure Schedule outside the Ordinary Course of Business during the past twelve (12) months and the Companies do not have any Knowledge that any such customer, subcontractor or supplier intends to discontinue or adversely modify their relationship with any Company after the Closing Date.  In addition, with respect to any customers or suppliers named on Schedules 4.13(a) or 4.13(b) of the Disclosure Schedule, the Companies do not have any Knowledge that any customer or group of customers of any Company is materially dissatisfied with such Company.  During the two year period prior to the date hereof none of the Companies has granted any rebate or discount to any customer other than volume discounts granted in the Ordinary Course of Business consistent with past practice.

(d)

A list of all of the sales representatives and agents of the Companies for the past two (2) years is set forth on Schedule 4.13(d) of the Disclosure Schedule.  The Companies are not engaged in any material disputes with any of such sales representatives or agents and to the Knowledge of the Companies, no such material disputes are threatened.

4.14

Insurance.  

(a)

The Companies have delivered or made available to Buyer:

(i)

true and correct copies of all policies of insurance to which the any Company is a party or under which any Company, or any officer or director of any Company, is or has been covered at any time within three (3) years preceding the date of this Agreement; and

(ii)

true and complete copies of all pending applications for policies of insurance.

(b)

Schedule 4.14(b) of the Disclosure Schedule contains a true and complete list of:

(i)

any self-insurance arrangement by or affecting any Company, including any reserves established thereunder;

(ii)

all insurance policies (excluding the life policy on Ken Shumard to be transferred to him prior to Closing including, but not limited to, liability, property and casualty, workers compensation, directors and officers liability, surety bonds, key man or corporate owned life insurance, vehicular and other insurance policies and contracts) covering any Company or otherwise held by or on behalf of it, or any aspect of its assets or business, indicating the type of coverage, name of insured, the insurer, the amount of coverage, the deductibles, the premium, the expiration date, and other material terms thereof and the aggregate amounts paid thereunder;

(iii)

any Contract, other than a policy for insurance, for the transfer or sharing of any risk by any Company; and

36

(iv)

all obligations of the Companies to third parties with respect to insurance (including such obligations under leases and service agreements but excluding certificates or other instruments naming such party as an additional insured or providing minimum levels of coverage or as required by any Lease) and identifies the policy under which such coverage is provided.

(c)

Except as set forth on Schedule 4.14(c) of the Disclosure Schedule, there are no pending claims under any of the foregoing.  The Companies do not know of any reason why any of such insurance policies will be terminated, suspended, modified or amended, or not renewed on substantially identical terms (including, without limitation, premium costs), or will require alteration of any equipment or any improvements to Real Property occupied by or leased to or by any Company, or the purchase of additional equipment, or the modification of any of the methods of doing business.  Schedule 4.14(c) of the Disclosure Schedule also identifies the workers’ compensation and unemployment insurance ratings of the Companies with respect to Employees.  No party to any such insurance policy is in default with respect thereto, nor does any condition exist that with notice or lapse of time or both would constitute such a default by any party thereunder.  None of the Companies have failed to give any notice or present any claim under any such insurance policy in due or timely fashion or as required thereby in a manner which may jeopardize full recovery thereunder.  Complete and accurate copies of all such policies and related documentation have previously been delivered or made available to Buyer.

(d)

The loss reserves of Jamestown have been and are in compliance with the statutory requirements of CIMA using a 75% confidence level as required thereby and have been evaluated by an independent actuarial firm using actuarial methods that are typical and ordinary for the risks insured.  The Companies do not, on the Closing Date, have any actual knowledge of any reason that would reasonably indicate that the aggregate loss reserves of Jamestown as of the Closing Date are insufficient in any material respect to pay the aggregate amount of all claims incurred prior to the Closing Date for which Jamestown is liable; with the disclaimer that the Companies do not guaranty or warrant the actual financial loss or gain of Jamestown with respect to all or any claims incurred prior to Closing and further disclaimer that the loss or liability with respect to any individual claim or claims incurred prior to the Closing, whether known or included in the estimate of incurred but not reported claims on the Closing Date, may exceed the amount of the current or estimated loss reserve for such individual claim or claims.  

4.15

Litigation, etc.  Except as set forth on Schedule 4.15 of the Disclosure Schedule, there has not been in the thirty-six (36) months prior to the date hereof, nor is there currently, any claim, action, suit, inquiry, proceeding or investigation of any kind or nature whatsoever, by or before any court or Governmental Entity or other regulatory or administrative agency or commission or tribunal pending or, to the Knowledge of the Companies, threatened against or involving or potentially involving any Company or its business, assets, Properties, shareholders, officers or directors, or which questions or challenges the validity of this Agreement or any action taken or to be taken by the Companies pursuant to this Agreement or in connection with the Contemplated Transactions; and, to the Knowledge of the Companies, there is no valid basis for any such claim, action, suit, inquiry, proceeding or investigation.  None of the Companies are subject to any outstanding judgment, order, decree or legal requirement which 

37

involves more than $50,000.  The Companies have delivered or made available to Buyer accurate and complete case summaries relating to any of the foregoing.

4.16

Compliance with Law; Necessary Authorizations; Securities Matters.

(a)

Except as set forth on Schedule 4.16(a) of the Disclosure Schedule, each Company is duly complying and has duly complied at all times with all applicable laws, rules, regulations, orders, building and other codes, zoning and other ordinances, Permits, authorizations, judgments and decrees of all Governmental Entities, in respect of its Business, operations and Properties except where the failure to so comply would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.  Except as disclosed on Schedule 4.16(a) of the Disclosure Schedule, none of the Companies, or, to the Knowledge of the Companies, any of their respective shareholders, officers, directors or Employees is the subject of any investigation by any Governmental Entity relating to the Business of the Companies

(b)

Except as set forth on Schedule 4.16(b) of the Disclosure Schedule, the Companies have duly obtained all Permits, concessions, grants, franchises, licenses and other governmental authorizations, Consents, and approvals necessary for the conduct of their Business on the date hereof, except where the failure to so obtain would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect; each of the foregoing is set forth on Schedule 4.16(b) of the Disclosure Schedule and is in full force and effect and is, except as set forth on Schedule 4.16(b) of the Disclosure Schedule, freely assignable to Buyer; each Company and is in compliance with all material terms of all the foregoing; there are no proceedings pending or, to the Knowledge of the Companies, threatened which may result in the revocation, cancellation, suspension or modification thereof, and the Companies do not have any Knowledge of any basis therefor.  Other than the Consent of CIMA, the consummation of the Contemplated Transactions will not result in the revocation, cancellation, suspension or modification nor require the any Company or Buyer to make any filing or take any action in order to maintain the validity of any item listed on Schedule 4.16(b) of the Disclosure Schedule.

(c)

None of the Companies has entered into any settlement agreement with any Governmental Entity, or with respect to any litigation involving a Governmental Entity.

4.17

Environmental Matters.  

(a)

All of the operations of the Companies comply and have at all times complied, in all material respects, with all applicable Environmental Laws, and the Companies are not subject to any Environmental Liabilities.  None of the Companies or, to the Knowledge of the Companies, any other Person, has engaged in, authorized, allowed or suffered any operations or activities upon any of the Real Property for the purpose of or in any way involving the handling, manufacture, treatment, processing, storage, use, generation, release, discharge, spilling, emission, dumping or disposal of any Hazardous Substances at, on, under or from the Real Property, except in compliance with all applicable Environmental Laws.  

38

(b)

To the Knowledge of the Companies, none of the Real Property or any assets of any Company contain any Hazardous Substances in, on, over, under or at such Real Property in concentrations or amounts which would violate Environmental Laws would be reasonably likely to result in the imposition of an Environmental Liability on any Operating Company under any Lease, including any liability or obligation for the assessment, investigation, corrective action, remediation or monitoring of Hazardous Substances in, on, over, under or at the Real Property.  The Companies have not received any notice or claim, whether oral or written, from any Governmental Entity or third party of any actual or threatened Environmental Liabilities with respect to the Real Property, any assets of the Companies or the conduct of the Business.

(c)

To the Knowledge of the Companies, there are no conditions existing at any Real Property or with respect to the Business or any other assets of the Companies, that require, or which with the giving of notice or the passage of time or both may require monitoring, assessment, investigation, remedial or corrective action, or removal or closure pursuant to the Environmental Laws.

(d)

The Companies have provided to Buyer all environmental reports, assessments, audits, studies, investigations, data and other written environmental information in their custody, possession or control concerning their assets, the Business and the Real Property.

4.18

Labor Matters.  The Companies are not a party to or bound by any collective bargaining agreement and there are no labor unions, works councils or other organizations representing, purporting to represent or attempting to represent any Employee.  No strike, slowdown, picketing, work stoppage, concerted refusal to work overtime or other similar labor activity has occurred, been threatened or, to the Knowledge of the Companies, is anticipated with respect to any Employee.  There are no labor disputes currently subject to any grievance procedure, arbitration or litigation and there is no representation petition pending, threatened or, to the Knowledge of the Companies, anticipated with respect to any Employee.  The Companies have not engaged in any unfair labor practice within the meaning of the National Labor Relations Act.  Except as set forth on Schedule 4.18 of the Disclosure Schedule, the Companies are in compliance in all material respects with all applicable laws relating to employment and employment practices, workers’ compensation, terms and conditions of employment, worker classification, worker safety, wages and hours, civil rights, discrimination, immigration, collective bargaining, and the Worker Adjustment and Retraining Notification Act.  Except as set forth on Schedule 4.18 of the Disclosure Schedule, there have been no claims of harassment, discrimination, retaliatory act or similar actions against any Employee at any time during the past four (4) years and, to the Knowledge of the Companies, no facts exist that could reasonably be expected to give rise to such claims or actions.

4.19

Employee Benefit Plans.  

(a)

Schedule 4.19(a) of the Disclosure Schedule sets forth a true and complete list of all Plans.  No Plan is mandated by a government other than the United States or is subject to the laws of a jurisdiction outside the United States.  The Companies have made available to Buyer:  (i) copies of all material documents setting forth the terms of each Plan, including all amendments thereto and all related trust documents; (ii) the three (3) most recent 

39

annual reports (Form Series 5500), if any, required under ERISA or the Code in connection with each Plan; (iii) the most recent actuarial reports (if applicable) for all Plans; (iv) the most recent summary plan description, if any, required under ERISA with respect to each Plan; (v) all material written contracts, instruments or agreements relating to each Plan, including administrative service agreements and group insurance contracts; (vi) the most recent IRS determination or opinion letter issued with respect to each Plan intended to be qualified under Section 401(a) of the Code; and (vii) all filings under the IRS’ Employee Plans Compliance Resolution System Program or any of its predecessors or the Department of Labor Delinquent Filer Program.

(b)

None of the Companies, any of their respective ERISA Affiliates or any of their respective predecessors has ever contributed to, contributes to, has ever been required to contribute to, or otherwise participated in or participates in or in any way, directly or indirectly, has any liability with respect to any plan subject to Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA, including, without limitation, any “multiemployer plan” (within the meaning of Sections 3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code) or any “single-employer plan” (within the meaning of Section 4001(a)(15) of ERISA) which is subject to Sections 4063, 4064 or 4069 of ERISA.

(c)

Each Plan intended to qualify under Section 401(a) of the Code is qualified and has received a determination letter (or for any Plan that is not the ESOP, the prototype form plan document on which such Plan is based has received an opinion letter or advisory letter) from the IRS upon which it may rely regarding its qualified status under the Code and with respect to the ESOP, upon which it may rely regarding its qualified status under the Code and status as an “employee stock ownership plan” under Sections 409 and 4975(e)(7) of the Code, and nothing has occurred, whether by action or by failure to act, that caused or could reasonably be expected to cause the loss of such status or the imposition of any penalty or material Tax liability.  

(d)

All payments required by each Plan or by applicable law (including, without limitation, all contributions, insurance premiums or inter-company charges) with respect to all prior periods have been made or provided for by the Companies or the Business in accordance with the provisions of each of the Plans, applicable law and GAAP.  Each Plan complies in form and operation in all material respects with its terms and applicable law, including, without limitation, ERISA and the Code.  No non-exempt “prohibited transaction,” within the meaning of Section 4975 of the Code and Section 406 of ERISA, has occurred with respect to the Plans that could reasonably be expected to result in a material Tax or penalty on any Company, and the consummation of the Contemplated Transactions will not give rise to any such prohibited transaction.

(e)

No proceeding has been threatened, asserted, instituted or, to the Knowledge of the Companies, is anticipated against any of the Plans (other than non-material routine claims for benefits and appeals of such claims), any trustee or fiduciaries thereof, or any of the assets of any trust of any of the Plans.  No Plan is under, and the Companies have not received any notice of, an audit or investigation by the IRS, Department of Labor or any other 

40

Governmental Entity, and no such completed audit, if any, has resulted in the imposition of any Tax or penalty.

(f)

No Plan provides post-retirement health and welfare benefits to any current or former employee of the Business, except as required under Section 4980B of the Code, Part 6 of Title I of ERISA or any other applicable law.  With respect to each Plan that is funded mostly or partially through an insurance policy, none of the Companies nor any ERISA Affiliate has any liability in the nature of a retroactive rate adjustment, loss sharing arrangement or other actual or contingent liabilities arising wholly or partially out of events occurring on or before the Closing Date.

(g)

Except as set forth on Schedule 4.19(g) of the Disclosure Schedule, the consummation of the Contemplated Transactions alone, or in combination with any other event, including a termination of any Employee, director, stockholder or other service provider of the Business (whether current, former or retired) or their beneficiaries, will not give rise to any liability under any Plan, including, without limitation, liability for severance pay, unemployment compensation, termination pay or withdrawal liability, or accelerate the time of payment or vesting or increase the amount of compensation or benefits due to any Employee, director, stockholder or other service provider of the Business (whether current, former or retired) or their beneficiaries.

(h)

None of the Companies has made any promises or commitments, whether legally binding or not, to create any additional Plan, agreement or arrangement, or to modify or change in any material way any existing Plan other than such Plan amendments to the ESOP as may be approved by the Board of Directors prior to Closing.  Each Plan may be amended, terminated, modified or otherwise revised, other than with respect to the nondiscrimination rules and benefits protected under Sections 401(a)(4) and 411(d), respectively, of the Code, on and after the Closing Date, without further material liability to the Business (excluding ordinary administrative expenses, routine claims for benefits and distributions on termination of the ESOP).

(i)

Except as set forth on Schedule 4.19(i) of the Disclosure Schedule, none of the Companies has unfunded liabilities pursuant to any Plan that is not intended to be qualified under Section 401(a) of the Code and is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA, a nonqualified deferred compensation plan or an excess benefit plan.  Each Plan that is a “nonqualified deferred compensation plan” (as defined under Section 409A(d)(1) of the Code) has been operated and administered in good faith compliance with Section 409A of the Code from the period beginning January 1, 2005 through the date hereof.

(j)

Any individual who performs services for the Business and who is not treated as an employee for United States federal income tax purposes by the Companies or the Business is not an employee under applicable law as of the Closing Date or for any purpose including, without limitation, for Tax withholding purposes or Plan purposes, except as disclosed on Schedule 4.6 of the Disclosure Schedule.  The Business has no liability by reason of an individual who performs or performed services for the Business in any capacity being improperly excluded from participating in a Plan.  Each employee of the Business has been properly classified as “exempt” or “non-exempt” under applicable law.  No individual who 

41

performs services for any of the Operating Companies is employed by an employee leasing company or similar organization, except for periodic use of temporary staffing companies.

(k)

Schedule 4.19(k) of the Disclosure Schedule contains a list, as of December 31, 2007, of the aggregate number of shares allocated and unallocated and held in the suspense account under the ESOP.  The ESOP Trustee has been properly appointed as the trustee of the ESOP Trust.

4.20

Employees.

(a)

Schedule 4.20(a) of the Disclosure Schedule contains a complete and accurate list of the following information for each employee and/or director of each Company, including each employee on leave of absence or layoff status: employer; name; job title; current compensation paid or payable and any change in compensation since January 1, 2007; and service credited for purposes of vesting and eligibility to participate under the Plans.

(b)

Except as set forth on Schedule 4.20(b) of the Disclosure Schedule, no employee or director of the Companies is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, non competition, or proprietary rights agreement, between such employee or director and any other Person that in any way adversely affects or will affect (i) the performance of his duties as an employee or director of the respective Company, or (ii) the ability of any Company to conduct its business.

4.21

Business Generally.  To the Knowledge of the Companies, no events or transactions have occurred which could reasonably be expected to have a Material Adverse Effect. 

4.22

Questionable Payments.  None of the Companies or any shareholder, director, officer, agent, employee, or any other Person acting on behalf of any Company has, Directly or Indirectly, used any Company funds for unlawful contributions, gifts, entertainment, or other unlawful expenses; made any unlawful payment to government officials or employees or to political parties or campaigns; established or maintained any unlawful fund of corporate monies or other assets; made or received any bribe, or any unlawful rebate, payoff, influence payment, kickback or other payment; given any favor or gift which is not deductible for federal income tax purposes; or made any bribe, kickback, or other payment of a similar or comparable nature, to any governmental or non-governmental Person, regardless of form, whether in money, property, or services, to obtain favorable treatment in securing business or to obtain special concessions, or to pay for favorable treatment for business or for special concessions secured.

4.23

Finders.  Other than as set forth on Schedule 4.23 of the Disclosure Schedule, no person is entitled to receive from any of the Companies any finder’s fee, brokerage or other commission in connection with this Agreement or the sale and purchase of all or part of the Companies’ assets and Properties.  None of the Companies or any of its respective shareholders, directors or officers, has taken any action that, Directly or Indirectly, would obligate Buyer to anyone acting as broker, finder, financial advisor or in any similar capacity in connection with this Agreement or any of the Contemplated Transactions.  

42

4.24

Bank Accounts.  Schedule 4.24 of the Disclosure Schedule contains a true and complete list of (a) the names and locations of all banks, trust companies, securities brokers and other financial institutions at which any Company (other than Holdings) has an account or safe deposit box or maintains a banking, custodial, trading or other similar relationship, (b) a true and complete list and description of each such account, box and relationship and (c) the name of every Person authorized to draw thereon or having access thereto.

4.25

Jamestown.  Jamestown represents and warrants that it:

(a)

holds an unrestricted Class B insurance license in the Cayman Islands;

(b)

is in material compliance with the applicable laws, rules and regulations of CIMA, and has not received any notice or communication, formal or informal, from CIMA regarding any actual, alleged or potential violation of or failure to comply with any law, rule or regulation of CIMA;

(c)

has secured a twenty-year exemption from any system of taxation that may subsequently be enacted in the Cayman Islands;

(d)

has avoided conducting business within any U.S. state or federal district of the United States in such a manner as to subject Jamestown to the regulatory or tax jurisdiction of such state or district;

(e)

has not been notified by any U.S. insurance regulatory agency, including the insurance commissioner or similar officer of any U.S. state or federal district, that it is being investigated for any unauthorized insurance activities or has, in the view of that office, committed any violations of any state insurance law;

(f)

has avoided conducting business within the United States in such a manner as to subject it to U.S. federal income taxation as a result of Jamestown’s own actions (separate and apart from taxation as a result of its ownership by U.S. taxpayers);

(g)

has not been notified by the IRS that it has been determined to be conducting a trade or business in the U.S. and is thereby subject to U.S. federal income taxation as a result of Jamestown’s own actions (separate and apart from taxation as a result of its ownership by U.S. taxpayers); 

(h)

the only reported claims against Jamestown on the date of signing of this Agreement are on Schedule 4.25(h) of the Disclosure Schedule.

4.26

Disclosure.  No representation or warranty by the Companies in this Agreement to Buyer or any of its representatives by or on behalf of the Companies, pursuant to this Agreement, the Disclosure Schedule or any supplement to the Disclosure Schedule, any certificates delivered hereunder contains or will contain any untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements contained therein in light of the circumstances under which it was made, not false or misleading.  

43

All copies of Contracts and other documents made available to Buyer or any of its representatives pursuant hereto are complete and accurate.

4.27

Treasury Forms.  All necessary filings of the U.S. Treasury Form 90-22.1 regarding a financial interest in, or signature or other authority over, a foreign financial account have been made for all applicable years with respect to the operation of Jamestown and its ownership of a foreign financial account.  Such filings have been made, as applicable, by or on behalf of Holdings, MDA, and those officers or employees of MDA or Holdings who possessed signature or other authority within the definitions of the Treasury Form 90-22.1.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE ESOP TRUST

The ESOP Trust hereby represents and warrants to Buyer as follows:

5.1

Organization.  The ESOP Trust is a trust duly organized, validly existing and in good standing under the laws of the State of Illinois.

5.2

Authority Relative to this Agreement; No Violation.  The ESOP Trustee:

(a)

is a fiduciary of the ESOP as described in Section 3(21)(A) of ERISA and is independent of all other parties to the Contemplated Transactions;

(b)

is vested with the authority to act on behalf of the ESOP to the extent specified in the ESOP Trust and except as otherwise provided under ERISA with respect to the responsibilities of the Board of Directors as “appointing fiduciaries”; and

(c)

has the power and authority to act on behalf of the ESOP Trust, to execute and deliver this Agreement in its capacity as ESOP Trustee for, and on behalf of, the ESOP Trust, to consummate the Contemplated Transactions and to carry out fully its obligations hereunder.

The execution and delivery of this Agreement and the consummation of the Contemplated Transactions have been duly and validly authorized by the ESOP Trustee; and, except as required by Section 7.17 no other proceedings on the part of the ESOP, the ESOP Trust or the ESOP Trustee are necessary to authorize this Agreement and the Contemplated Transactions.  This Agreement has been duly and validly executed and delivered by the ESOP Trustee solely in its capacity as trustee for, and on behalf of, the ESOP Trust and not in its individual or corporate capacity and, assuming this Agreement has been duly and validly executed and delivered by the other parties hereto, this Agreement constitutes the legal, valid and binding agreements of the ESOP Trust, enforceable against the ESOP Trust in accordance with its terms (except insofar as enforceability may be limited by the provisions of Section 7.17  or by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally, or by principles governing the availability of equitable remedies).  No governmental authorization is required to be made or obtained by the ESOP Trust for the execution and delivery by the ESOP Trustee of this Agreement or the consummation by the ESOP Trust of the Contemplated Transactions.  No governmental authorization or other Consent 

44

is required in connection with executing or carrying out this Agreement; and, except as required by Section 7.17, neither the ESOP Trustee nor the ESOP Trust is subject to or obligated under any charter, bylaw, contract or any governmental license, franchise or permit, or subject to any order or decree, which would be breached or violated, or cause a default or acceleration (with or without notice or lapse of time, or both), by its executing or carrying out this Agreement.

5.3

Conflicts, etc.  Except as set forth on Schedule 5.3 of the Disclosure Schedule and as required by Section 7.17, none of the execution and delivery by the ESOP Trustee in its capacity as trustee for, and on behalf of, the ESOP Trust, of this Agreement, the performance by the ESOP Trustee in its capacity as trustee for the ESOP Trust, of its obligations hereunder and the consummation of the Contemplated Transactions: 

(a)

conflicts with or violates any provision of the ESOP or ESOP Trust;

(b)

conflicts with, results in (with or without due notice or lapse of time or both) a material breach of, constitutes (with or without due notice or lapse of time or both) a material default under, results in the acceleration of, creates in any party the right to accelerate, terminate, modify or cancel, or results in the loss of any material rights, privileges, options or alternatives under, any instrument, contract, agreement, arrangement or understanding to which the ESOP Trust is a party or by which the ESOP Trust is bound or to which any of its respective properties or assets is subject;

(c)

results in the imposition of any lien upon the assets of the ESOP Trust; or

(d)

violates in any material respect any law applicable to the ESOP or the ESOP Trust or any of the properties or assets of the ESOP Trust.

5.4

Title.  The ESOP Trust is the record owner of all of the assets of the ESOP Trust; and, except as set forth on Schedule 5.4 of the Disclosure Schedule, the ESOP Trust has good and valid title to all such assets, free and clear of all liens.    

5.5

Investigations; Litigation.  No Governmental Entity has notified Holdings or the ESOP Trustee of an intention to conduct an investigation or a review of the ESOP or the ESOP Trust by the Governmental Entity, and no investigation or review by any Governmental Entity with respect to the ESOP or the ESOP Trust is pending.  There are no actions, suits or proceedings pending (or, to the Knowledge of the ESOP Trust, threatened) against or by the ESOP or the ESOP Trust before any Governmental Entity or third party, which would be reasonably likely to have a Material Adverse Effect on the ESOP or the ESOP Trust.

5.6

Legal Counsel; Independent Financial Advisor.  The ESOP Trustee has retained independent legal counsel knowledgeable in matters regarding ERISA fiduciary responsibilities to advise the ESOP Trustee regarding this Agreement and the Contemplated Transactions. The ESOP Trustee has also retained an independent financial advisor knowledgeable in matters regarding ESOPs to advise the ESOP Trustee regarding the financial fairness of the Contemplated Transactions.  The ESOP Trustee has preliminarily concluded that, as of the date of this Agreement, (a) the Contemplated Transactions are prudent and in the  interest of the participants and the consideration to be received by the ESOP Trustee is in the 

45

interest of and fair to the ESOP from a financial point of view, and (b) the Contemplated Transactions are consistent with ERISA or the Code, including the fiduciary duty rules under ERISA, and do not constitute a non-exempt prohibited transaction under ERISA and the Code, including that the consideration to be received by the ESOP Trust in the Contemplated Transactions is not less than adequate consideration as defined in Section 3(18)(B) of ERISA.

5.7

Opinion of Financial Advisor.  The ESOP Trustee has received a preliminary opinion from its financial advisor, which is in the form annexed hereto as Exhibit I to the effect that:  

(a)

the consideration to be received by the ESOP Trust in the Contemplated Transactions is not less than “adequate consideration” (as defined in Section 3(18)(B) of ERISA), and

(b)

the Contemplated Transactions, including the sale of the Purchased Assets and the Shares, are fair to the ESOP from a financial point of view (the “Preliminary Opinion”).  The Preliminary Opinion is effective as of the date hereof.  Subject to a satisfactory review of the Companies by the financial advisor which covers the period beginning on the day after the date hereof and ending on the Closing Date, unless there is a Material Adverse Effect, the financial advisor will issue a final opinion, dated as of the Closing Date, in substantially the same form as the Preliminary Opinion.  

(c)

The opinion of the financial advisor will be made:

(i)

solely to the ESOP Trustee, and

(ii)

cannot be relied upon by any other Person, for any purpose, other than the ESOP Trustee.

5.8

No Brokers.  Neither the ESOP Trust nor the ESOP Trustee has any liability of any kind to any broker, finder, agent or other Person for any commission, fee or similar compensation with respect to the Contemplated Transactions.

5.9

Excise Taxes.  The consummation of the transactions contemplated by this Agreement will not give rise to an excise tax under Section 4975 or 4978 of the Code.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants to the Companies and the ESOP Trust as follows:

6.1

Organization and Qualification.  Buyer is duly organized, validly existing and in good standing in its jurisdiction of organization.

46

6.2

Authority; No Breach.  

(a)

Buyer has all requisite power and authority to execute and deliver this Agreement and the Operative Documents to which it is a party, and to perform, carry out and consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance of this Agreement and the Operative Documents to which it is a party have been duly authorized by all necessary action on the part of Buyer.  This Agreement has been duly executed and delivered by Buyer and the Operative Documents to which it is a party shall be, when executed and delivered by Buyer, duly executed and delivered by Buyer.  This Agreement constitutes, and the Operative Documents to which Buyer is a party shall constitute, when executed and delivered by Buyer, Buyer’s legal, valid and binding obligation, enforceable against Buyer in accordance with its terms.  

(b)

Neither the execution and delivery of this Agreement or any Operative Document by Buyer nor the consummation of any of the transactions contemplated herein or therein, nor the full performance by Buyer of its obligations hereunder or thereunder do or will at the Closing:  (i) violate any provision of its certificate of incorporation, by-laws or other governing documentation; (ii) conflict with, result in a breach or violation of, or constitute a default under (or an event which, with or without notice, lapse of time or both, would constitute a default) or result in the invalidity of, or accelerate the performance required by or cause or give rise to any right of acceleration or termination of any right or obligation pursuant to any agreement or commitment to which it is a party or by which any of its assets or properties is subject or bound; (iii) conflict with, violate, result in a breach of or constitute a default under any writ, injunction, statute, law, ordinance, rule, regulation, judgment, award, permit, decree, order, or process of any Governmental Entity to which Buyer or any of its assets or properties is subject; (iv) require Buyer or any Company to obtain any Consent.

6.3

Certain Proceedings.  There is no action, suit, inquiry, proceeding or investigation of any kind or nature whatsoever, by or before any court or Governmental Entity or other regulatory or administrative agency or commission or tribunal pending against or involving Buyer that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions.  To Buyer’s knowledge, no such action, suit, inquiry, proceeding or investigation has been threatened.

6.4

Finders.  Buyer has not taken any action that, Directly or Indirectly, would obligate any Company to pay a fee to anyone acting as a broker, finder, financial advisor or in any similar capacity in connection with this Agreement or any of the transactions contemplated hereby. 

6.5

Buyer's Investigation.

(a)

Buyer acknowledges and agrees that it is consummating the Contemplated Transactions without any representation or warranty, express or implied, by any Person, except for the representations and warranties of the Operating Companies expressly set forth ARTICLE IV and the representations and warranties of the ESOP Trust expressly set forth on ARTICLE V, and as and to the extent required by this Agreement to be set forth in the Disclosure Schedules.

47

(b)

In connection with Buyer's investigation of the Companies, the Companies prepared and made available to Buyer and its Representatives certain projections, including projected statements of operating revenues and income from operations of the Companies.  Buyer acknowledges that (i) there are uncertainties inherent in attempting to make such estimates, projections and other forecasts and plans, (ii) Buyer is familiar with such uncertainties, (iii) Buyer has not relied on any such estimates, projections and other forecasts and plans so furnished to it, and (iv) none of the Companies have prepared, confirmed, represented, warranted, approved or in any way affirmed, commented on or validated any such estimates, projections or other forecasts or plans.

6.6

Litigation and Actions Pending.  There is no litigation, action, suit, investigation, judgment, injunction, decree, writ, rulings or proceeding pending or, to the Knowledge of Buyer, threatened against Buyer or any of its properties, in or before any Government Entity with respect to execution, delivery or performance of this Agreement or any Operative Document.

6.7

Compliance with Laws.  Buyer is in material compliance with all applicable laws, rules and regulations that are applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets, except where the failure to be in such compliance would not reasonably be expected to have a Material Adverse Effect on Buyer.

6.8

Net Worth.  Immediately after the consummation of the Contemplated Transactions, Buyer will have positive net worth (calculated in accordance with generally accepted accounting principles), will not be insolvent (as defined under the U.S. Bankruptcy Code) and will have adequate capitalization to pay its debts as they mature.

ARTICLE VII

COVENANTS

7.1

Conduct of the Business.  

(a)

Except as set forth on Schedule 7.1 of the Disclosure Schedule, from the date hereof and until the Closing Date, except as contemplated by this Agreement or expressly consented to by an instrument in writing signed by Buyer, Companies will:  

(i)

conduct their business and operations only in the Ordinary Course of Business, consistent with past practice, except for the assignment of certain life insurance on Kenneth Shumard to him prior to Closing; 

(ii)

maintain and preserve their Properties in good repair, order and condition, including, without limitation, performing, in a manner and on a basis consistent with past practice, all periodic maintenance and necessary reconditioning;

(iii)

preserve their business operations and organizations intact;

(iv)

keep available the services of their current officers, managers and satisfactorily performing Employees;

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(v)

preserve their current advantageous business relationships, including, without limitation, the goodwill of their customers, subcontractors, and suppliers and others having business relationships with it;

(vi)

pay when due, all accounts payable; 

(vii)

not grant any equity award or any increase in the rate or terms of compensation payable, or to become payable to any of their shareholders, directors, officers, managers or Employees other than pursuant to any existing Plan or arrangement;

(viii)

not hire any new Employees, except in the Ordinary Course of Business consistent with past practice so long as such hiring is with respect to Employees with an annual base salary and incentive compensation opportunity not to exceed $50,000;

(ix)

not pay or agree to pay any pension, retirement allowance, termination or severance pay, bonus or other employee benefit not required by any existing Plan to any Employee, officer, director or other service provider of the Business, whether past or present;

(x)

except as required to ensure that any Plan is not then out of compliance with applicable law, not enter into or adopt any new, or increase benefits under or, except as otherwise provided or authorized by this Agreement, renew, amend or terminate any existing, Plan;

(xi)

not enter into any agreement or make any other commitment involving an amount in excess of $50,000 except in the Ordinary Course of Business;

(xii)

not, Directly or Indirectly, redeem, purchase or otherwise acquire any of their shares of capital stock or authorize any stock split or recapitalization, and

(xiii)

other than with respect to a dividend of Excess Cash from Jamestown, not declare or pay any dividend.

Without limiting the generality of the foregoing, and, except as contemplated in this Agreement, prior to the Closing Date, the Companies will use all Reasonable Efforts to cause the Companies not take any action which would result in the incorrectness as of the Closing Date of any representation and warranty contained in ARTICLE IV without the prior written consent of Buyer.

(b)

During the Earn-Out Period, Buyer agrees to:

(i)

leave the Companies’ business structure substantially intact and autonomous;

(ii)

operate the Business in a manner consistent with past practices except for changes needed to bring the Business into compliance with applicable laws and except for such changes with regard to Jamestown as have been approved by Holdings and CIMA prior to Closing; and 

49

(iii)

appoint Anne Anderson and Michael Pretiger as directors of Jamestown or any successor organization or entity of Jamestown.

7.2

Company Records.  Prior to the Closing Date, the Companies shall afford Buyer and its attorneys, accountants and representatives, free and full access to the Companies’ business, books, records and Employees, and shall provide to Buyer and its representatives such additional financial and operating data and other information as Buyer shall from time to time reasonably request.

7.3

Filings and Authorizations.  The Companies and Buyer, as promptly as practicable, (i) shall make, or cause to be made, all such filings and submissions under laws, rules and regulations applicable to it or their Affiliates, as may be required to consummate the Contemplated Transactions, in accordance with the terms of this Agreement, (ii) shall use Reasonable Efforts to obtain, or cause to be obtained, all Consents necessary to be obtained by it or their Affiliates, in order to consummate the Contemplated Transactions, and (iii) shall use all Reasonable Efforts to take, or cause to be taken, all other actions necessary, proper or advisable in order for it or them to fulfill its or their obligations hereunder.  The Companies and Buyer shall coordinate and cooperate with one another in exchanging such information and supplying such reasonable assistance as may be reasonably requested by each in connection with the foregoing.

7.4

Discussions with Others.  From the date hereof until the Closing Date or the termination of this Agreement pursuant to Section 11.1 hereof, none of the Companies, the ESOP Trust their respective officers, directors, Employees or representatives will solicit or enter into discussions or negotiations with any party other than Buyer or encourage, facilitate, initiate or participate in any discussions with any party other than Buyer, with regard to a purchase and sale of any portion of the securities or ownership interests of any Company, any material portion of the assets of any Company or any merger or consolidation of any Company with any third party.

7.5

Insurance.  Prior to the Closing, each of the Companies shall cause Buyer to be named as a third party insured with respect to the Companies’ director and officer/fiduciary insurance policy and EPLI insurance policy, and shall not permit such policies to terminate prior to the termination date set forth on each of such policies.  

7.6

Cash Collections.  All payments received after the Closing by any Operating Company in connection with or arising out of the Business, the Purchased Assets or the Assumed Liabilities for any period after the Closing Date shall be promptly paid over to Buyer (without right of set-off) as promptly as practicable but in no event more than one (1) Business Day after receipt.  Any such payment or reimbursement shall:  (i) be held by the Person receiving it in trust for Buyer, (ii) be paid over to Buyer without right of set-off as promptly as practicable, and (iii) not constitute property of any Operating Company or such Person.  The Operating Companies shall cooperate with Buyer to cause all future payments and reimbursements by any third-party for any period after the Closing Date to be promptly paid directly to Buyer or its designee.

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7.7

Updating Schedules.  The Operating Companies and ESOP Trust shall promptly supplement or amend the various Schedules to this Agreement to reflect events and circumstances that occur between the date of this Agreement and Closing, which, if existing, occurring or known on the date of this Agreement, would have been required to be set forth or described in such Schedules or which are necessary to correct any information in such Schedules which has been rendered inaccurate by such events and circumstances; provided, however, if such Operating Company’s or ESOP Trust’s supplementation or amendment of a Schedule based upon events or circumstances that occur between the date of this Agreement and the Closing Date gives rise to an event which could result in a Claim for damages or breach by the Buyer, or causes a failure of any closing condition set forth in ARTICLE VIII of this Agreement, then the Buyer shall have the right (i) to terminate this Agreement in accordance with  Section 11.1 hereof or (ii) consummate the Contemplated Transactions, it being understood that the Operating Companies shall indemnify Buyer for such supplemented or amended matters under the same terms and conditions set forth in ARTICLE IX hereof.

7.8

Use of Names of the Companies.  Effective as of immediately after the Closing each of the Companies shall: (i) change its name to a name reasonably satisfactory to Buyer that does not include the name “MDA”, “Medical Doctor Associates”, “MDA Holdings”, “Credent Verification and Licensing”, “Credent”, “Allied Health” or any derivation thereof, (ii) shall make such filings necessary to withdraw its right to use “MDA”, “Medical Doctor Associates”, “MDA Holdings”, “Credent Verification and Licensing”, “Credent”, “Allied Health” or any derivation thereof as an assumed name in any jurisdiction, and (iii) cease using the name “MDA”, “Medical Doctor Associates”, “MDA Holdings”, “Credent Verification and Licensing”, “Credent”, “Allied Health” or any derivation thereof.

7.9

Discharge of Excluded Liabilities.  At or prior to the Closing, each of the Companies shall discharge all obligations and liabilities relating to the Excluded Liabilities that are then due and payable or are set forth on Schedule 7.9 of the Disclosure Schedule (including all Indebtedness set forth in Schedule 7.9 of the Disclosure Schedule).  

7.10

Payroll Reporting and Withholding.  With respect to each Employee who becomes an employee of Buyer, Buyer shall adopt (i) the “standard procedure” for preparing and filing IRS Forms W-2 (Wage and Tax Statements), as described in Revenue Procedure 2004-53.  Under this procedure, Buyer as the successor employer shall provide Forms W-2 to such employees reflecting all wages paid and taxes withheld by Buyer as the successor employer for the portion of the calendar year beginning on the day after the Closing Date.  The Companies as the predecessor employers shall provide Forms W-2 to such employees reflecting all wages paid and taxes withheld by the Companies for the portion of the calendar year beginning January 1, 2008 and ending on the Closing Date.  Buyer shall adopt the “standard procedure” of Rev. Proc. 2004-53 for purposes of IRS Forms W-4 (Employee’s Withholding Allowance Certificate) and W-5 (Earned Income Credit Advance Payment Certificate).  Under this procedure, Buyer shall keep on file the Forms W-4 and W-5 provided by such employees for the period required by applicable law concerning record retention.  Buyer shall obtain new IRS Forms W-4 and W-5 with respect to such employees.  

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7.11

Employment.  

(a)

Buyer will make offers of employment to all employees of the Companies other than the employees listed on Schedule 7.11 of the Disclosure Schedule having substantially similar compensation terms (salary and bonus) that they received as of immediately prior to the Closing; provided, however, that such offers of employment shall be contingent on the Closing actually occurring.  Buyer will also provide benefits to such employees who commence employment with Buyer which, when taken as a whole, are substantially the same as the benefits provided by the Companies to such employees immediately prior to the Closing, other than benefits attributable to the ESOP.  Transferred Employees will receive full credit for their service with the Operating Companies prior to the Closing Date for purposes of eligibility and, to the extent applicable, vesting, under Buyer’s Employee Benefit Plans, solely to the extent past service was recognized and properly accrued for such Transferred Employees under the comparable Plans immediately prior to the Closing, and to the extent past service is credited under such Plans for similarly situated Employees of Buyer.  Notwithstanding the foregoing, nothing in this Section 7.11 shall be construed to require crediting of service that would result in (i) duplication of benefits, (ii) service credit for benefit accruals under any Employee Benefit Plan, or (iii) service credit under a newly established plan for which prior service is not taken into account for employees of Buyer and its subsidiaries generally.  Notwithstanding the foregoing, nothing herein shall be construed as to prevent Buyer from terminating the employment of any Transferred Employee at any time after the Closing Date for any reason (or no reason), except as otherwise set forth in a written employment agreement executed by Buyer and such Employee.  The Companies shall deliver to Buyer as of the Closing Date all personnel files relating to any Employee who becomes an employee of Buyer.

(b)

Notwithstanding anything in this Section 7.11 to the contrary, nothing contained herein, whether express or implied, shall be treated as an amendment or other modification of any Employee Benefit Plan maintained by Buyer or any of its Affiliates, or shall limit the right of Buyer to amend, terminate or otherwise modify any Employee Benefit Plan maintained by Buyer or any of its Affiliates following the Closing Date.  If (i) a party other than the parties hereto makes a claim or takes other action to enforce any provision in this Agreement as an amendment to any Employee Benefit Plan maintained by Buyer or any of its Affiliates, and (ii) such provision is deemed to be an amendment to such Employee Benefit Plan maintained by Buyer or any of its Affiliates even though not explicitly designated as such in this Agreement, then, solely with respect to the Employee Benefit Plan maintained by Buyer or any of its Affiliates at issue, such provision shall lapse retroactively and shall have no amendatory effect with respect thereto.

(c)

The parties hereto acknowledge and agree that all provisions contained in this Section 7.11 are included for the sole benefit of the parties hereto, and that nothing in this Agreement, whether express or implied, shall create any third party beneficiary or other rights (i) in any other Person, including, without limitation, any Employee who becomes an employee of Buyer, any participant in any Employee Benefit Plan maintained by Buyer or any of its Affiliates, or any dependent or beneficiary thereof, or (ii) to continued employment with Buyer or any of its Affiliates.

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7.12

Misdirected Inquiries and Solicitations.  At any time after the Closing, if the Operating Companies or any of their Affiliates receives any inquiries or orders from customers or prospects relating to the Business or, if the Operating Companies or any of their Affiliates receives any solicitations relating to the Business from customers or prospects, the Operating Companies shall promptly refer such inquirer or solicitor to the management of Buyer, and notify Buyer of such inquiry or solicitation, with details to the extent known.

7.13

Employee Benefit Plans.

(a)

On the Closing Date, the Operating Companies’ sponsorship of each Plan that is a medical, disability or welfare benefit plan is set forth in Schedule 7.13(a) of the Disclosure Schedule and will be transferred to Buyer by Holdings or the appropriate Company.  Buyer will continue such Plans set forth in Schedule 7.13(a) of the Disclosure Schedule until such time as Transferred Employees are enrolled in Buyer’s medical, disability and welfare benefit plans.

(b)

Any liability for continuation coverage mandated by the Consolidated Omnibus Budget Reconciliation Action (“COBRA”) arising out of the transfer of sponsorship or the termination of any Plans will be assumed by Buyer.

(c)

Holdings will spin off the 401(k) Component and terminate the same effective as of the Closing Date, as described in Section 7.13(e) hereof.  After the spin-off, Holdings will continue to sponsor the ESOP as described in Section 7.13(d) hereof.

(d)

Holdings shall continue to sponsor the ESOP until such time as all amounts owed to the ESOP Trust under this Agreement have been distributed to participants.  Holdings will “freeze” the ESOP as of the Closing Date.  Holdings will terminate the ESOP as of a date determined by its board of directors.  At the appropriate time as determined by such board, Holdings will file an application with the IRS for a determination letter to the effect that the termination of the ESOP will not affect its tax qualified status.  Until all benefits under the ESOP are distributed, Holdings will take all actions necessary to maintain the ESOP’s qualified status under Code Section 401(a) and the ESOP Trust’s tax exempt status under Section 501(a).  Until all shares of Holdings’ stock held by the ESOP are redeemed, Holdings will take all action necessary to maintain the status of the ESOP as an “employee stock ownership plan” as described in Code Section 4975(e)(7).  Holdings shall timely file or cause to be filed an annual return (IRS Form 5500) for the ESOP for each plan year for which such return is required by applicable law to be filed.

(e)

Prior to the Closing, the board of directors of Holdings shall adopt resolutions that provide for the spin off and termination of the 401(k) Component, effective on the Closing Date.  Upon termination of the 401(k) Component, Holdings shall file or cause to be filed an application with the IRS for a determination letter to the effect that the spin off and termination of the 401(k) Component will not affect its tax-exempt status.  Following receipt of such letter, Holdings shall cause all 401(k) Component assets to be distributed to participants in accordance with the distribution provisions thereof.  Holdings shall timely file or cause to be filed any annual return (IRS Form 5500) for the 401(k) Component for each plan year for which such return is required by law to be filed.

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7.14

Transfer Taxes.  All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement shall be borne fifty percent (50%) by Buyer, on the one hand, and fifty percent (50%) by the Operating Companies, on the other hand when due, and the Operating Companies shall file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees, and, if required by applicable law, the Operating Companies shall join in the execution of any such Tax Returns and other documentation.

7.15

Bulk Transfer.  The Buyer and the Operating Companies hereto agree to waive compliance with any bulk transfer law applicable to any of the transactions contemplated hereby.  

7.16

Further Assurances.  The parties hereto shall from time to time after the Closing Date execute and deliver such additional instruments and documents, as any party hereto may reasonably request to consummate the Contemplated Transactions.  

7.17

ESOP Participant Approval.  Not less than thirty (30) days prior to the Closing Date, the Companies will provide to ESOP participants such written disclosure materials (the “Disclosure Statement”) regarding the Contemplated Transactions as the Companies determine in their discretion, subject to review and comment by Buyer and the ESOP Trustee as provided herein.  The Disclosure Statement will include voting instruction information to the ESOP participants regarding their right to instruct the ESOP Trustee to vote the shares of Holdings allocated to their ESOP accounts as to the approval or disapproval of the sale by the Operating Companies of the Purchased Assets.  Such Disclosure Statement will:

(a)

accurately describe in all material respects the Contemplated Transactions;

(b)

provide information about the Companies, Buyer and the Contemplated Transactions which, taken as a whole, is sufficient to enable the ESOP participants to make an informed decision; 

(c)

state the position of the Board of Directors of Holdings with respect to the Contemplated Transactions; and

(d)

describe the preliminary fairness opinion referred to in Section 5.7 hereof.

The Companies shall provide Buyer and the ESOP Trustee with a reasonable opportunity to review and comment on the Disclosure Statement, as well as any amendment thereof or supplement thereto, prior to its finalization, and the Disclosure Statement will not be distributed to the ESOP participants until it is in form and substance reasonably satisfactory to Buyer and the ESOP Trustee.  The Disclosure Statement (as the same may be amended or supplemented from time to time) will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances in which they will be made, not misleading.  The ESOP Trustee will prepare a letter of transmittal and a form of voting instruction, in form and substance reasonably satisfactory to Companies and Buyer, to accompany the mailing of the Disclosure Statement to the ESOP participants.  The 

54

letter of transmittal will explain the role of the ESOP Trustee in connection with the solicitation of instructions, the process by which confidential voting instructions are to be provided to the ESOP Trustee, the voting instruction process, applicable provisions of the ESOP Trust documents and the consequences of failing to provide instructions.  The letter of transmittal will be silent as to any recommendation that ESOP participants approve or disapprove the sale of the Purchased Assets and Shares to Buyer pursuant to this Agreement. Within ten (10) Business Days following the execution of this Agreement (or within one (1) Business Day of the receipt by the Companies and the ESOP Trustee of Buyer’s approval of the Disclosure Statement, if later, provided that the Disclosure Statement is provided to Buyer and the ESOP Trustee within ten (10) Business Days following the execution of this Agreement), the Companies will arrange for the mailing, by first-class U.S. mail, of the Disclosure Statement and the letter of transmittal to all of the ESOP participants and shall provide Buyer and the ESOP Trustee with a copy of these materials.  The ESOP participants shall have 30 calendar days to return their voting instructions to the ESOP Trustee.  Neither Buyer or the Companies nor any of their officers, directors, Employees, agents or consultants shall interfere or attempt to interfere with or influence or attempt to influence any ESOP participant with respect to his or her decision with respect to voting instructions.  Except to the extent required by applicable law, all individual voting instructions shall remain strictly confidential and shall not be disclosed to any Person.  Unless otherwise required by ERISA, the ESOP Trustee shall vote the shares of Holdings stock held by the ESOP Trust in accordance with and subject to the provisions of this Section 7.17 and the procedures and limitations provided in the ESOP.

7.18

Indemnification; Directors and Officers Insurance.

(a)

From and after the Closing Date, Buyer shall cause Jamestown to indemnify and hold harmless each present and former director and officer (in each case, for acts or failures to act in such capacity) (the “Indemnified Parties”), against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities (collectively, “Costs”) incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the Closing Date, whether asserted or claimed prior to, at or after the Closing Date (including any matters arising in connection with the Contemplated Transactions), to the fullest extent permitted by applicable law and the governing documents of Jamestown, except to the extent such Costs were incurred as a result of such Indemnified Party’s gross negligence, willful misconduct or breach of this Agreement

(b)

The Operating Companies shall (i) maintain the existing directors and officers liability insurance policy until such time as all indemnification obligations in favor of Buyer pursuant to ARTICLE IV hereof have expired or, at its election, purchase a three-year tail prepaid insurance policy prior to the Closing Date on terms and conditions no less advantageous to the Indemnified Parties than the existing directors and officers liability insurance maintained by or for the benefit of Jamestown prior to the Closing Date and maintain such policy in full force and effect, for its full term, and continue to honor its obligations thereunder and (ii) cause Buyer to be named as a third party insured with respect to such insurance policy.

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(c)

Jamestown shall (i) purchase a three-year tail prepaid insurance policy prior to the Closing Date on terms and conditions no less advantageous to the Indemnified Parties than the existing directors and officers liability insurance maintained by or for the benefit of Jamestown prior to the Closing Date and maintain such policy in full force and effect, for its full term, and continue to honor its obligations thereunder and (ii) cause Buyer to be named as a third party insured with respect to such insurance policy.

(d)

The Operating Companies shall (i) maintain the existing employment practices liability insurance of the Operating Companies or, at its election, purchase a three-year tail prepaid insurance policy prior to the Closing Date on terms and conditions no less advantageous to the Indemnified Parties than the existing employment practices liability insurance maintained by or for the benefit of Operating Companies prior to the Closing Date and maintain such policy in full force and effect, for its full term, and continue to honor its obligations thereunder and (ii) cause Buyer to be named as a third party insured with respect to such insurance policy.

7.19

Non-Disclosure.  

(a)

The parties to this Agreement, and any director, officer, manager, member,  partner, employee, agent, consultant, advisor or other representative of such party, including legal counsel, accountants and financial advisors (“Party Representative”), shall hold and keep confidential all confidential information of the other party for a period of three (3) years after the Closing and all trade secrets of the other party for so long as such information is protected as ‘trade secrets’ under applicable law, provided, however, that such restriction on disclosure of confidential information does not apply to information which: (i) is in the public domain through no action on the part of the receiving party; or (ii) was in possession of the receiving party at the time of disclosure by the disclosing party; or (iii) is hereafter received by the receiving party from a third party who the receiving party reasonably and in good faith believes is not subject to any confidentiality or non-disclosure obligations to the disclosing party.

(b)

Failure to mark any of the confidential information or trade secrets as non-public, proprietary or confidential shall not affect its status as confidential information and trade secrets under the terms of this Agreement.

(c)

None of the parties or their respective Party Representatives shall, without the prior written consent of the disclosing party, disclose or use any such confidential information or trade secrets, in whole or in part, except in connection with the Contemplated Transactions.  Unless otherwise required by law, none of the parties shall disclose any confidential information or trade secrets acquired as a result of this Agreement to any Person, other than to its Party Representatives, and such other Persons (such as bankers and lessors) with whom it must communicate to consummate the Contemplated Transactions, all of whom must also agree to keep the confidential information and trade secrets confidential.  If the Closing does not occur, each party will destroy or return to the disclosing party all copies of documents that contain that party’s confidential information or trade secrets. In no event shall the foregoing confidentiality provisions apply to Buyer after the Closing to the extent of confidential information and trade secrets that are a part of the Purchased Assets.

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7.20

Tax Returns.  The Companies agree to file all tax returns and pay all Taxes relating to such tax returns set forth on Schedule 7.20 of the Disclosure Schedule.

7.21

Guaranty of Cross Country.  Cross Country, by executing this Agreement, hereby unconditionally and irrevocably guarantees to the Operating Companies the timely payment and performance by Buyer of its obligations under and pursuant to the terms of this Agreement and the terms of the Escrow Agreement.  The guaranty provided hereby is a guaranty of payment and not merely of collection.  If Buyer does not remit any funds when due to the Operating Companies, then upon three (3) business days written notice from the Operating Companies to Cross Country, either directly or through the Buyer or another Affiliate, Cross Country shall  immediately remit to the Operating Companies the amount due.  Cross Country hereby waives (i) any notices (other than a notice of default as described above), (ii) any consents, extensions, indulgences or other action or inaction under or in respect of this Agreement,  (iii) any failure, omission or delay on the part of the Operating Companies to enforce, assert or otherwise exercise against Buyer any right, power or remedy available to the Operating Companies under this Agreement, and (iv) to the fullest extent permitted by law, any and all other defenses or benefits that may be derived from or afforded by applicable law limiting the liability of or exonerating guarantors or sureties.   Without limiting the generality of the foregoing, Cross Country consents to the taking of, or failure to take, any action which might in any manner or to any extent vary the risks of Cross Country under this guaranty or which, but for the provisions of this sentence, might operate as a discharge of Cross Country. Notwithstanding anything herein to the contrary, Cross Country may assert any defenses to this guaranty that Buyer has or may have.  The obligations of Cross Country hereunder are those of a primary obligor, and not merely as surety, and are independent of the obligations of the Buyer, and a separate action may be brought against Cross Country to enforce this guaranty whether or not the Buyer or any other person or entity is joined as a party.  Cross Country shall not exercise any right of subrogation, contribution, indemnity, reimbursement or similar rights with respect to any payments it makes under this guaranty until all obligations of the Buyer to the Operating Companies and and any amounts payable under this guaranty have been indefeasibly paid and performed in full.

7.22

Buyer’s Pursuit of Financing.  Buyer agrees to use its commercially reasonable efforts to obtain financing for the Contemplated Transactions on commercially reasonable terms and conditions and in an amount sufficient to pay the Closing Date Payment.

7.23

Jamestown Business Plan.  Prior to any contact, Directly or Indirectly, by Buyer with CIMA concerning the Contemplated Transactions and within twenty (20) Business Days from the date of this Agreement, Buyer shall deliver to the Companies and the ESOP Trust a written business plan in reasonable detail and describing any changes to be made in the operation, maintenance, domicile, reserve methods, incorporation or reincorporation or any other aspect of Jamestown on or after the Closing until the end of the Earn-Out Period.  Buyer agrees that such business plan shall be in form and substance reasonably acceptable to the Companies and the ESOP Trust prior to any contact, Directly or Indirectly, by Buyer with CIMA concerning the Contemplated Transactions and that all such Buyer contact with CIMA, whether Direct or Indirect, shall be held in the presence (physical or electronic) of such officers, directors, attorneys or other agents of Jamestown as Jamestown may specify.

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7.24

Mutual Cooperation; Information for Reports.  

(a)

After the Closing, the Operating Companies and Buyer shall cooperate with each other as reasonably requested between them, at the expense of the requesting party, in the connection with the prosecution or defense of any claims or other matters relating to the Business or the Purchased Assets.  Such cooperation shall include the furnishing of testimony and other evidence as reasonably requested, permitting access to employees during normal business hours, upon reasonable notice and without undue interruption and providing information, if known, as to the whereabouts of former employees.

(b)

At the reasonable request and expense of Holdings or the ESOP Trust, Buyer shall provide to Holdings or the ESOP Trust on a timely basis, in such form as Holdings or the ESOP Trust may reasonably request, such information relating to the Operating Companies and Business for periods ending on or prior to the Closing Date as Holdings or the ESOP Trust may require in order to enable them to prepare financial, Tax and other reports, filings and statements for such periods.

(c)

Holdings shall reimburse Buyer for reasonable out of pocket expenses in connection with information or further cooperation of Buyer furnished pursuant to this Section 7.24, including, but not limited to, in the case of depositions, testimony, court appearances, out-of-town meetings, responses to interrogatories, document discovery efforts and the like pursuant to clause (a) above, the wages of Buyer employees involved in such efforts at an agreed upon daily or hourly rate.

ARTICLE VIII

CONDITIONS TO CLOSING

8.1

Conditions Precedent to Obligations of Buyer.  The obligation of Buyer under this Agreement to consummate the Contemplated Transactions on the Closing Date shall be subject to the satisfaction, at or prior to the Closing Date, of all of the following conditions, any one or more of which may be waived by Buyer:

(a)

Representations and Warranties Accurate.  The representations and warranties of the Companies and the ESOP Trust contained in this Agreement which are qualified as to materiality shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects, as of the date of this Agreement and as of the Closing Date with the same force and effect as though made on and as of the Closing Date.

(b)

Performance by the Companies and the ESOP Trust.  Each Company and the ESOP Trust shall have performed and complied in all material respects with all covenants and agreements required to be performed or complied with by it hereunder on or prior to the Closing Date.

(c)

Consents.  All Consents required in connection with the consummation of the Contemplated Transactions and the Closing (including those of landlords, mortgagees, 

58

customers, secured parties or other third parties set forth on Schedule 8.1(c) of the Disclosure Schedule) shall have been duly obtained, made or given and shall be in full force and effect, without the imposition upon Buyer, its Affiliates or the Business of any condition, restriction or required undertaking; and any waiting period applicable to the consummation of the transactions contemplated hereby under the HSR Act or similar antitrust regulations of any Governmental Entity shall have expired or been terminated; provided, however, Buyer and Companies shall share the expenses incurred with respect to any consent required by the HSR Act.  

(d)

No Legal Prohibition.  No suit, action, investigation, inquiry or other proceeding by any Governmental Entity or other Person shall have been instituted or threatened which arises out of or relates to this Agreement, or the transactions contemplated hereby and no injunction, order, decree or judgment shall have been issued and be in effect or threatened to be issued by any Governmental Entity of competent jurisdiction, and no statute, rule or regulation shall have been enacted or promulgated by any Governmental Entity and be in effect, which in each case restrains or prohibits the consummation of the transactions contemplated hereby.

(e)

Certificate.  Buyer shall have received a certificate, dated the Closing Date, signed by each Company to the effect that the conditions set forth in Sections 8.1(a), 8.1(b), and 8.1(c) have been satisfied.

(f)

Opinion of Counsel to the Companies and the ESOP Trustee.  Buyer shall have received an opinion, dated the Closing Date, from McGuireWoods LLP, counsel to the Companies, and Krieg DeVault LLC, counsel to the ESOP Trustee, substantially in the forms annexed hereto as Exhibit J and Exhibit K, respectively; Ogier Group, L.P., Cayman Islands counsel to Jamestown, shall deliver to Buyer an opinion, dated the Closing Date, that is reasonably acceptable to the parties.

(g)

No Material Adverse Change.  No event, loss, damage, condition or state of facts of any kind shall have occurred or shall exist which has a Material Adverse Effect or can reasonably be expected to have a Material Adverse Effect on the Business or Purchased Assets.

(h)

Execution of Employment Agreements.  Buyer and/or one of its Affiliates, on the one hand, and each of Jim Ginter, Anne Anderson and Michael Pretiger, on the other, shall have executed and delivered employment agreements substantially in the forms annexed hereto as Exhibit L hereto.  

(i)

Execution of Business Protection Agreements.  The Transferred Employees (other than Mike Pretiger, Anne Anderson, Jim Ginter and Kenneth Shumard) shall have executed and delivered Business Protection Agreements in substantially the forms annexed as Exhibit M hereto.  Kenneth Shumard shall have executed and delivered a Non-Competition Agreement substantially in the form annexed as Exhibit N hereto.

(j)

Buyer Financing.  Buyer shall have received financing for the Contemplated Transactions in an amount and on commercially reasonable terms and conditions satisfactory to Buyer in its sole and absolute discretion.

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(k)

Deliveries.  Holdings shall have delivered to Buyer the Shares, and the Operating Companies shall have delivered to Buyer an Assignment and Assumption Agreement, An Assignment of Leases, and Assignment of Company Intellectual Property Rights and a Bill of Sale as to the Purchased Assets, each free and clear of all Encumbrances.

(l)

Certificate of Non-Foreign Status.  Each Operating Company shall deliver to Buyer a certificate of non-foreign status as provided for in Treasury Regulations section 1.1445-2(b)(2).

(m)

Transfer to Buyer.  All Permits and Assumed Contracts shall have been transferred to Buyer.

(n)

Litigation.  There shall have been no pending or threatened litigation, claim, action, suit, inquiry, proceeding or investigation of any kind or nature whatsoever, against or involving or potentially involving Companies or their Business, assets, Properties, officers or directors which, in the sole opinion of Buyer has or could have any Material Adverse Effect on the Business or the consummation of the Contemplated Transactions and/or the enjoyment of the benefits thereof.

(o)

Release of Encumbrances.  All Encumbrances on the Purchased Assets and the Shares shall have been released and the Indebtedness shall have been paid in full.

(p)

Insurance.  The Operating Companies’ insurance provider prior to the Closing, Medical Protective, shall have entered into an agreement with Buyer or one of its Affiliates pursuant to which Medical Protective will provide continued insurance coverage of MDA, its independent contractors, Allied and its Employees and its independent contractors, which insurance coverage shall have the terms and conditions of the arrangement between them and Medical Protective as of the date hereof. 

(q)

CIMA Approval.  CIMA and any related governing authority shall have approved the transfer of the Shares to Buyer or one of its Affiliates approved by Holdings.

(r)

Additional Documents, etc.  There shall have been delivered to Buyer the Bill of Sale, Assignment and Assumption Agreement, the Assignment of Company Intellectual Property Rights, the Assignment of Leases, the Escrow Agreement, the forms to be filed after Closing necessary to change the name of each of the Operating Companies in every jurisdiction in which it does business, and each of the other agreements, documents, certificates and other items set forth on Schedule 8.1(r) of the Disclosure Schedule, including the number of paid-time-off and vacation days accrued for all Transferred Employees as of the Closing Date.

(s)

Reaffirmation of Fairness Opinion.  There shall have been delivered to Buyer a copy of the opinion of the financial advisor to the ESOP Trustee, addressed to the ESOP Trustee and for its sole benefit, as of the Closing Date to the effect that the Contemplated Transactions are fair to the ESOP from a financial point of view and that the consideration to be received by the ESOP Trust in the Contemplated Transactions for the Purchased Assets is “adequate consideration”, as defined in Section 3(18)(B) of ERISA.

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(t)

ESOP Trustee Reaffirmation of Conclusion.  The ESOP Trustee shall have delivered a letter to Buyer reaffirming its conclusions set forth in Section 5.6.

(u)

ESOP Trustee Authorization.  Buyer shall have received a copy of the resolutions duly adopted by the board of directors or fiduciary committee of the ESOP Trustee authorizing the execution, delivery and performance by the ESOP Trustee of this Agreement, certified by a duly authorized officer of the ESOP Trustee.

(v)

Shumard Employment.  The employment agreement between the Company and Kenneth Shumard existing prior to the Closing shall have been modified as set forth on Exhibit O hereto and assigned to Buyer.

(w) 

ESOP Participant Votes.  There shall have been delivered to Buyer a copy of the aggregate ESOP participant votes to approve the Contemplated Transactions as set forth in Section 7.17 hereof.

8.2

Conditions Precedent to Obligations of Operating Companies and ESOP Trust.  The obligations of the Operating Companies and ESOP Trust under this Agreement to consummate the Contemplated Transactions on the Closing Date shall be subject to the satisfaction, at or prior to the Closing Date, of all of the following conditions, any one or more of which may be waived by the Operating Companies and ESOP Trust.

(a)

Representations and Warranties Accurate.  The representations and warranties of Buyer contained in this Agreement which are qualified as to materiality shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects, as of the date of this Agreement and as of the Closing Date with the same force and effect as though made on and as of the Closing Date.

(b)

Performance by Buyer.  Buyer shall have performed and complied in all material respects with all covenants and agreements required to be performed or complied with by it hereunder on or prior to the Closing Date.

(c)

No Legal Prohibition.  No suit, action, investigation, inquiry or other proceeding by any Governmental Entity or other Person shall have been instituted or threatened which arises out of or relates to this Agreement or the transactions contemplated hereby and no injunction, order, decree or judgment shall have been issued and be in effect or threatened to be issued by any Governmental Entity of competent jurisdiction, and no statute, rule or regulation shall have been enacted or promulgated by any Governmental Entity and be in effect, which in each case restrains or prohibits the consummation of the transactions contemplated hereby.

(d)

Certificate.  The Companies and the ESOP Trust shall have received a certificate, dated the Closing Date, signed on behalf of Buyer by an officer of Buyer, to the effect that the conditions set forth in Sections 8.2(a), 8.2(b) and 8.2(c) have been satisfied.

(e)

Reaffirmation of Fairness Opinion.  There shall have been delivered to the Companies and the ESOP Trust a copy of the opinion of the financial advisor to the ESOP Trustee, addressed to the ESOP Trustee and for its sole benefit, as of immediately prior to the 

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Closing that the Contemplated Transactions are fair to the ESOP from a financial point of view and that the transaction consideration is “adequate consideration”, as defined in Section 3(18)(B) of ERISA for the Purchased Assets.

(f)

Jamestown Business Plan; CIMA Approval.  Buyer shall have delivered the Jamestown business plan described in Section 7.23 hereof regarding any changes as to Jamestown (beyond any election under section 953 of the Code) to the Companies and the ESOP Trust, which shall be in form and substance acceptable to the Companies and the ESOP Trust. CIMA and any related governing authority shall have approved such business plan, the transfer of the Shares to Buyer or one of its Affiliates (approved by Holdings), the reduction of capital of Jamestown to a level of 20% of current year premiums, and a distribution by Jamestown to Holdings prior to Closing of all Excess Cash above such required capital level.

(g)

Additional Documents, etc.  There shall have been delivered to the Companies the Assignment and Assumption Agreement, Bill of Sale, the Escrow Agreement and each of the other agreements, documents and other items set forth on Schedule 8.2(g) of the Disclosure Schedule to be delivered to the Companies.

(h)

Shareholder Approval.  The Contemplated Transactions shall have been approved by the ESOP Trust, as the sole shareholder of Holdings.

ARTICLE IX

INDEMNIFICATION

9.1

Survival of Representations and Warranties.  All representations and warranties contained in ARTICLE IV and ARTICLE V shall survive the Closing and shall remain in full force and effect until and including the 549th consecutive day immediately following the Closing Date (the “Final Claims Date”); provided, however, that (i) the representations and warranties contained in Section 4.8 (Taxes) shall remain in full force and effect until and including the 1096th consecutive day immediately following the date on which the Companies file the last of the tax returns as certified by an officer or agent of Holdings (the “Tax Survival Date) listed on Schedule 7.20 of the Disclosure Schedule, and (ii) the representations and warranties contained in Sections 4.3(b) (Securities and Ownership; Subsidiaries) and the last sentence of 4.9(a) (Assets) shall remain in full force and effect indefinitely. Notwithstanding the foregoing, any representation or warranty that would otherwise terminate in accordance with the immediately preceding sentence will continue to survive with respect to any Claim if Buyer notifies Holdings of a claim specifying the factual basis of the Claim in reasonable detail to the extent then known by Buyer prior to the applicable expiration date, until the Claim has been satisfied or otherwise resolved. 

9.2

Indemnification by the Operating Companies.  From and after the Closing, the Operating Companies, jointly and severally, shall indemnify and hold Buyer and its directors, officers, employees, shareholders, members, partners, agents, Affiliates, successors and assigns (collectively “Buyer Claimants” and individually “Buyer Claimant”) harmless from and defend each of them from and against any and all demands, claims, actions, liabilities, losses, costs, damages or expenses whatsoever including, without limitation, reasonable attorneys’ fees and expenses (and costs and reasonable attorneys’ fees in respect of any suit to enforce this 

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provision) (collectively, “Claims”) asserted against, imposed upon or incurred by Buyer Claimants resulting from or arising out of (i) any alleged inaccuracy or breach of any representation or warranty of the ESOP Trust or Company contained in this Agreement or Operative Document to which it is a party, or any claim by a third party which, if true, would constitute such inaccuracy or breach; (ii) any breach of any covenant or obligation of any Company or the ESOP Trust  contained in this Agreement or any Operative Document; and (iii) any liability of or relating to the ESOP Trust or the Companies other than Assumed Liabilities.  Notwithstanding anything contained herein to the contrary, but subject to the last sentence of this Section 9.2: (A) No Company shall be required to indemnify a Buyer Claimant under clause (i) of this Section 9.2 unless the aggregate cumulative sum of all Claims for which indemnity would otherwise be due under clause (i) of this Section 9.2 exceeds $1,500,000 (the Deductible”), and then only for the amount by which the aggregate cumulative sum of all Claims exceeds $1,500,000, (B) the Companies’ aggregate maximum liability for any and all Claims by Buyer in connection with the Contemplated Transactions, including indemnification under this Section 9.2, shall not exceed the Escrow Amount available at any time under the Escrow Agreement.  The Escrow Amount shall be released as and to the extent provided in the Escrow Agreement.  The limitations set forth in foregoing clauses (A) and (B) shall not apply to Claims arising from any inaccuracy or breach of the representations or warranties contained in Section 4.3(b) and the last sentence of Section 4.9(a).  The Buyer Claimants shall not be entitled to count against the Deductible or seek indemnification for Claims to the extent that the items giving rise to such Claims were used in calculating the Earn-Out Payments pursuant to Sections 3.2 and 3.3 above and, to the extent that any items or amounts have been applied against the Deductible or subject to a Claim for indemnification by the Buyer Claimants (whether or not the Buyer Claimants have prevailed on such application against the Deductible or Claim for indemnification), such amounts may not be used in calculating the Earn-Out Payments, it being the intent of the parties that Buyer shall have the right to elect one remedy only (indemnity or an Earn-Out Payment adjustment) with respect to any such item or amount.

9.3

Indemnification by Buyer.  Buyer shall indemnify and hold the ESOP Trust and each Company and its respective directors, officers, employees, shareholders, members, partners, agents, Affiliates, successors and assigns (collectively “Seller Claimants” and individually “Seller Claimant”) harmless from and defend each of them from and against any and all Claims asserted against, imposed upon or incurred by the Seller Claimants resulting from or arising out of (i) any alleged inaccuracy or breach of any representation or warranty of Buyer contained in this Agreement or any Operative Document, or any claim by a third party which, if true, would constitute such inaccuracy or breach; (ii) any breach of any covenant or obligation of Buyer contained in this Agreement or any Operative Document; (iii) any Assumed Liability; (iv) the operation of the Business or ownership of the Purchased Assets on or after the Closing Date; and/or (v) a 953(d) tax election by Buyer after the Closing Date regarding Jamestown that negatively impacts Holdings tax liabilities incurred prior to the Closing Date.  Notwithstanding anything contained herein to the contrary; (A) Buyer shall not be required to indemnify a Seller Claimant under clause (i) of the first sentence of this Section 9.3 unless the aggregate cumulative sum of all Claims for which indemnity would otherwise be due under clause (i) of the first sentence of this Section 9.3 exceeds $1,500,000, and then only for the amount by which the aggregate cumulative sum of all Claims exceeds $1,500,000, and (B) in addition, Buyer’s aggregate maximum liability for indemnification under clause (i) of the first 

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sentence of this Section 9.3 shall not exceed the Escrow Amount available at any time under the Escrow Agreement.

9.4

Terms and Conditions of Indemnification.  The respective obligations and liabilities of the Operating Companies and Buyer to indemnify pursuant to this ARTICLE IX shall be subject to the following terms and conditions:

(a)

The party seeking indemnification (the “Claimant”) must give the other party or parties, as the case may be (the “Indemnitor”), prompt written notice of any such Claim.  The Claimant’s failure to give prompt notice, however, shall not serve to eliminate or limit the Claimant’s right to indemnification hereunder except to the extent such failure materially prejudices the rights of the Indemnitor.

(b)

The respective obligations and liabilities of the Companies and Buyer to indemnify pursuant to this ARTICLE IX in respect of any Claim by a third party shall be subject to the following additional terms and conditions:

(i)

The Indemnitor shall have the right to undertake, by counsel or other representatives of its own choosing reasonably satisfactory to Claimant, the defense, compromise, and settlement of such Claim.

(ii)

In the event that the Indemnitor shall elect not to undertake such defense, or within ten (10) days after notice of any such Claim from the Claimant shall fail to defend, the Claimant shall have the right to undertake the defense, compromise or settlement of such Claim, by counsel or other representatives of its own choosing, on behalf of and for the account and risk of the Indemnitor.

(iii)

Notwithstanding anything in this Section 9.4 to the contrary, (A) if there is a reasonable probability that a Claim may materially and adversely affect the Claimant other than as a result of money damages or other money payments, the Claimant shall have the right, to participate in the defense, compromise or settlement of the Claim, (B) the Indemnitor shall not, without the Claimant’s written consent, settle or compromise any Claim or consent to entry of any judgment which does not include as an unconditional term thereof the giving by the claiming party or the plaintiff to the Claimant of a release from all liability in respect of such Claim, and (C) in the event that the Indemnitor undertakes defense of any Claim, the Claimant by counsel or other representative of its own choosing and at its sole cost and expense, shall have the right to consult with the Indemnitor and its counsel or other representatives concerning such Claim and the Indemnitor and the Claimant and their respective counsel or other representatives shall cooperate with respect to such Claim, subject to the execution and delivery of a mutually satisfactory joint defense agreement.  

(c)

If a Claimant incurs a tax liability as a result of the receipt of an indemnification payment under this ARTICLE IX, the Indemnitor shall indemnify the Claimant for that tax liability and for any tax liability incurred by the Claimant with respect to a payment pursuant to this sentence.

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(d)

Any payment made in respect of indemnification under this ARTICLE IX shall be treated for all purposes, and shall constitute, an adjustment to the Purchase Price.

(e)

BUYER AND COMPANIES AGREE THAT UNDER NO CIRCUMSTANCES SHALL ANY PARTY TO THIS AGREEMENT, OR ITS AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS BE RESPONSIBLE (AS A RESULT OF INDEMNITY CLAIM OR OTHERWISE) FOR ANY PUNITIVE CLAIMS OR DAMAGES ARISING IN CONNECTION WITH THIS AGREEMENT OR ANY OPERATIVE DOCUMENT, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGES EXCEPT TO THE EXTENT THE INDEMNIFIED PARTY IS LIABLE FOR SUCH DAMAGES TO ANY THIRD PARTY (EXCLUDING ANY AFFILIATE OF A PARTY TO THIS AGREEMENT).

(f)

Third Party Contribution.  The amount of any and all Claims for which indemnification is provided pursuant to this Agreement shall be reduced by any amounts actually received by the Claimant under insurance policies in effect relating to such Claims. In the event that any claim for indemnification asserted under this Agreement is, or may be, the subject of insurance coverage of Buyer or any Company or other right to indemnification or contribution from any third party (a “Third Party Contributor”), each of the Claimant and Indemnitor shall promptly notify the applicable insurance carrier of such claim and shall also promptly notify any potential Third Party Contributor.  Claimant and Indemnitor shall pursue, at the sole cost and expense of the Indemnitor, such claims diligently and shall reasonably cooperate, at the sole cost and expense of the Indemnitor, with each such insurance carrier and Third Party Contributor.

(g)

Tax Benefits/Costs.  The amount of any and all Claims for which indemnification is provided pursuant to this Agreement shall be (i) increased to take account of any net Tax cost incurred by the Claimant arising from the receipt of indemnity payments hereunder, and (ii) reduced to take account of any net Tax benefit actually realized by the Claimant arising from the incurrence or payment of any such Claims; provided, however, that any net Tax cost incurred and any net Tax benefit realized shall be attributable to those Claims taken into account on a Tax return for a year not later than the year in which the indemnity payment is made. In computing the amount of any such Tax cost or Tax benefit, the Claimant shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt of any indemnity payment hereunder or the incurrence or payment of any and all Claims.

(h)

Claim Against Escrow.  Except as otherwise specifically provided in the last sentence of Section 9.2(a) as to Claims against the Operating Companies arising from any inaccuracy or breach of the representations or warranties contained in Section 4.3(b) and the last sentence of Section 4.9(a), and except for Claims under Sections 2.9, 3.1(e), 3.4 and 7.24, any Claims to which Buyer may be entitled to indemnification under or in connection with this Agreement shall be satisfied solely and exclusively out of the Escrow Amount available under the Escrow Agreement and Buyer hereby waives any right to recoup such Claims from any Company or the ESOP Trust.

(i)

Exclusive Remedy.  Upon and after the Closing, the provisions of ARTICLE IX of this Agreement represent the sole and exclusive remedy available to any party 

65

to this Agreement for any breach, misstatement or omission by any other party relating to any representation or warranty contained herein or a certificate delivered hereunder or for any breach by any other party of any covenant or agreement required to be performed contained herein or under a certificate delivered hereunder and with respect to any claim for indemnification or Claims against any other party hereto and, except with respect to Claims as a result of fraud (which are expressly not waived), each party hereby unconditionally waives any other rights that it may have at law or in equity for any misstatement or omission by any other party from any representation or warranty contained herein or a certificate delivered hereunder or for any breach by any other party of any covenant or agreement required to be performed prior to the Closing contained herein or under a certificate delivered hereunder.  For purposes of this Agreement, “fraud” shall be defined in accordance with the laws of the State of New York.

9.5

Qualifications.  Notwithstanding anything to the contrary in this Agreement, for purposes of the indemnification provisions in this ARTICLE IX, the determination of (i) whether any representation warranty or covenant has been breached and (ii) the amount of any damages shall be made without giving effect to any “Material Adverse Effect” qualification or any materiality or similar qualification contained in the representations, warranties, covenants or agreements herein.  Solely with respect to Claims arising as a result of a breach of the representations and warranties set forth in Section 4.14(d), Buyer’s remedies shall be limited to actual out-of-pocket damages.

ARTICLE X

TAX MATTERS

10.1

Tax Payments.

(a)

The Operating Companies shall pay all Taxes payable with respect to the operation of the Companies for all periods ending on or prior to the Closing Date or the portion of a period up to the Closing Date that includes (but does not end on) the Closing Date, including all Taxes (i) imposed on or payable by the Companies with respect to any taxable period or portion thereof that ends on or before the Closing Date, (ii) imposed on or payable by the Companies under Treasury Regulation 1.1502-6 (or any similar state, local or foreign law) by reason of the Companies having been included in any consolidated, affiliated, consolidated or unitary group, and (iii) relating to any payments required to be made after the Closing Date under any Tax indemnity, Tax sharing or Tax allocation agreement (whether or not in writing) entered into prior to the Closing Date.

(b)

To the extent not otherwise provided for under applicable law, Taxes attributable to the taxable year or period of the Companies beginning on or before and ending after the Closing Date, shall be apportioned to the period ending on the Closing Date and to the period beginning on the day after the Closing Date by means of a closing of the books and records of such Companies as of the close of business on the Closing Date.  To the extent not susceptible to such allocation, then Taxes shall be apportioned on the basis of elapsed days unless such Tax is transaction-based, in which case such Tax shall be apportioned to the period in which the related transaction occurred/occurs. 

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(c)

Buyer shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for Jamestown for all periods ending on or prior to the Closing Date which are filed after the Closing Date.  A reasonable time before any such Tax Return is due to be filed, Buyer shall provide a draft to Holdings.  If Holdings disagrees with any item on the return, Buyer and Holdings shall confer and seek to reach agreement, and, if they cannot agree, the matter shall be referred to an Independent Auditor, and the decision of the Independent Auditor shall be final and binding on Buyer and Holdings.  The cost of the Independent Auditor shall be paid by the party whose aggregate estimate of the disputed amount or amounts, as the case may be, differs most greatly from the determination of the Independent Auditor.

(d)

Buyer and Holdings shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns and any audit, litigation or other proceeding with respect to Taxes.  Such cooperation shall include the retention and (upon the other party’s request and at the expense of the requesting party) the provision of records and information reasonably relevant to any such audit, litigation, or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.  Buyer and Holdings agree (A) to retain all books and records with respect to Tax matters pertinent to Holdings relating to any taxable period beginning before the Closing Date until expiration of the statute of limitations (and, to the extent notified by Buyer or Holdings, any extensions thereof) of the respective taxable periods, and to abide by all reasonable record retention agreements entered into with any taxing authority, and (B) to give the other party reasonable written notice prior to destroying or discarding any such books and records and, if the other party so requests.  Jamestown shall allow Holdings to take possession of such books and records.  Buyer and Holdings further agree, upon request, to use Reasonable Efforts to obtain any certificate or other document from any Governmental Entity or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including with respect to the transactions contemplated hereby).

(e)

All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement shall be paid 50% by the Operating Companies and 50% by Buyer when due, and Buyer shall file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees.

10.2

Audits.

(a)

Except as otherwise provided in this ARTICLE X, with respect to any issue that may affect the Tax liabilities of any Company for taxable periods ending on or prior to the Closing Date, each of Buyer and the Operating Companies shall promptly notify the other in writing within ten (10) Business Days from its receipt of notice of (i) any pending Tax audits or assessments of any Company, and (ii) any pending Tax audits or assessments of any Company or the ESOP Trust relating to any Company.

(b)

The Operating Companies shall have the right to represent the interests of any Company in any Tax audit or administrative or court proceeding to the extent relating to Taxes pertaining to periods preceding the Closing Date, and to employ counsel (reasonably satisfactory to Buyer) of their choice at the expense of the Operating Companies, provided that 

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the Operating Companies shall (i) provide Buyer with all notices from, and correspondences with, any taxing authority, keep Buyer informed and consult with Buyer with respect to any issue relating to such audit or proceeding and permit Buyer to participate therein, and (ii) take no action that may have an adverse effect on the Tax liability of Buyer pertaining to periods following the Closing Date without the prior written consent of Buyer (which shall not be unreasonably withheld or delayed.  Notwithstanding the preceding sentence, Buyer shall have the right to represent the interests of any Company in any Tax audit or administrative or court proceeding for which the Operating Companies fail or elect not to represent the interests of such Company, and to employ counsel of their choice at the Operating Companies’ expense.  Buyer and the Operating Companies shall cooperate, and Buyer shall cause the Companies to cooperate with the Operating Companies with respect to any Tax audit or administrative or court proceeding relating to Taxes referred to in the first sentence of this Section 10.2(b); provided that the party requesting said assistance shall pay any reasonable out-of-pocket costs and expenses incurred by the party providing such assistance.

ARTICLE XI

MISCELLANEOUS

11.1

Termination.  This Agreement may be terminated, and the transactions contemplated herein may be abandoned:

(a)

any time before the Closing, by mutual written agreement of the Operating Companies and Buyer;

(b)

any time before the Closing, by Holdings, on the one hand, and Buyer, on the other hand, (i) in the event of a material breach hereof by any non-terminating party if such non-terminating party fails to cure such breach within five (5) Business Days following notification thereof by the terminating party or (ii) upon notification to the non-terminating party by the terminating party that the satisfaction of any condition to the terminating party’s obligations under this Agreement becomes impossible or impracticable with the use of commercially reasonable efforts if the failure of such condition to be satisfied is not caused by a breach hereof by the terminating party; or

(c)

any time after October 17, 2008 by Holdings, on the one hand, and Buyer, on the other hand, upon notification to the non-terminating party by the terminating party if the Closing shall not have occurred on or before such date and such failure to consummate is not caused by a breach of this Agreement by the terminating party.

11.2

Effect of Termination.  If this Agreement is validly terminated pursuant to Section 11.1, this Agreement will forthwith become null and void, and there will be no liability or obligation on the part of any party (or any of their respective officers, directors, employees, partners, agents or other representatives or Affiliates), except as provided in the next succeeding sentence with respect to liability of the Companies, and except that the provisions with respect to expenses in Section 11.3 and public and private announcements in Section 11.14 will continue to apply following any such termination.  Notwithstanding any other provision in this Agreement to the contrary, upon termination of this Agreement pursuant to Section 11.1(b) or Section 11.1(c), the Companies will remain liable to Buyer for any breach of this Agreement by any 

68

Company existing at the time of such termination, and Buyer will remain liable to the Companies for any breach of this Agreement by Buyer existing at the time of such termination, and the Companies, on the one hand, or Buyer, on the other hand, may seek such remedies, including damages and reasonable fees of attorneys, against the other with respect to any such breach as are provided in this Agreement or as are otherwise available at law or in equity.

11.3

Expenses.  Each party hereto shall each pay its own legal, accounting, due diligence and finders expenses incurred in connection with this Agreement and the Contemplated Transactions hereby and the Companies shall pay all such expenses of the Companies.  Buyer and the Operating Companies will share the expenses incurred with respect to any consent required by the HSR Act.

11.4

Amendment.  This Agreement may not be modified, amended, altered or supplemented except by a written agreement executed by Buyer, Holdings and the ESOP Trustee.

11.5

Entire Agreement.  This Agreement, together with the Exhibits and Schedules hereto and the instruments and other documents delivered pursuant to this Agreement, contain the entire agreement of the parties relating to the subject matter hereof, and supersede all prior agreements, understandings, representations, warranties and covenants of any kind between the parties.  All others are specifically waived.

11.6

Waivers.  Waiver by any party of any breach of or failure to comply with any provision of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or a waiver of any other breach of, or failure to comply with, any other provision of this Agreement.  No waiver of any such breach or failure or of any term or condition of this Agreement shall be effective unless in a written notice signed by the waiving party and delivered, in the manner required for notices generally, to each affected party.

11.7

Notices.  All notices and other communications hereunder shall be validly given or made if in writing, (i) when delivered personally (by courier service or otherwise), (ii) when sent by telecopy, or (iii) when actually received if mailed by first-class certified or registered United States mail or recognized overnight courier service, postage-prepaid and return receipt requested, and all legal process with regard hereto shall be validly served when served in accordance with applicable law, in each case to the address of the party to receive such notice or other communication set forth below, or at such other address as any party hereto may from time to time advise the other parties pursuant to this Subsection:

If to the Companies: 

Medical Doctor Associates

145 Technology Parkway, N.W.

Norcross, Georgia 30092

Attention:  Michael Pretiger

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with a copy to:

McGuire Woods LLP

1170 Peachtree Street, N.E.

Atlanta, Georgia 30309 

Telephone:  (404) 443-5713

Facsimile:   (404) 443-5768

Attention:  W. Dennis Summers, Esq.

If to the ESOP Trust :

First Bankers Trust Services, Inc.

2321 Kochs Lane

Quincy, IL  62305

Telephone : (217) 228-8060

Attn: Brian A. Ippensen, President

With a copy to :

Krieg DeVault LLP

One Indiana Square 

Suite 2800

Indianapolis IN 46204-2079

Telephone: 317-238-6218

Telecopier: 317-636-1507

Attn:  Stephen D. Smith, Esq.

If to Buyer:

StoneCo H, Inc.

c/o Cross Country Healthcare, Inc.

6551 Park of Commerce Blvd. N.W.

Boca Raton, Florida 33487

Telephone: (800) 440-5790

Telecopier: (800) 565-9774

Attention:  Susan E. Ball, Esq., General Counsel

with a copy to:

Proskauer Rose LLP

1585 Broadway

New York, New York 10036

Telephone:  (212) 969-3330

Telecopier:  (212) 969-2900

Attention:  Stephen W. Rubin, Esq.

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11.8

Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same document.  Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto.  The exchange of copies and signature pages of this Agreement and any amendments thereto by facsimile or Portable Document Format (PDF) transmission (with evidence of confirmed receipt) shall constitute effective execution and delivery of this Agreement and any amendment thereto as to the parties and may be used in lieu of the original Agreement or amendment for all purposes.  Signatures of the parties transmitted by facsimile or Portable Document Format (PDF) shall be deemed to be their original signatures for all purposes.

11.9

Governing Law.  Except to the extent preempted by ERISA, this Agreement shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-14-1 of the New York General Obligation Law, applicable to agreements made and to be performed entirely within such State, without regard to the conflicts of law principles of such State.  Each of the parties hereto hereby irrevocably waives personal service of process and consents to service of process by certified or registered mail, return receipt requested addressed to such party at its address set forth in Section 11.7.  Each of the parties hereto hereby consents to the exclusive jurisdiction of the United States District Court for the Northern District of Georgia and of any Georgia state court sitting in Atlanta, Georgia for the purposes of all legal proceedings arising out of or relating to this Agreement or the Contemplated Transactions.  Each party hereto irrevocably waives, to the fullest extent permitted by law, any objection which he or it may now or hereafter have to the laying of venue in any such court or that any such proceeding which is brought in accordance with this Section has been brought in an inconvenient forum.  Subject to applicable law, process in any such proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court.  Nothing herein shall affect the right of any party to serve legal process in any other manner permitted by law or at equity or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.  Each Company and the ESOP Trust agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Unless prohibited by applicable law or the court referred to in the third sentence of this Section 11.9, the non-prevailing party in any legal proceedings relating to this Agreement or the Contemplated Transactions shall reimburse the prevailing party for all costs and expenses (including legal fees) incurred by the prevailing party with respect to such legal proceedings.

11.10

Binding Effect; Third Party Beneficiaries; Assignment.  This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective legal representatives, successors and permitted assigns.  Except as expressly set forth herein, nothing expressed or referred to in this Agreement is intended or shall by construed to give any Person other than the parties to this Agreement, or their respective legal representatives, successors and permitted assigns, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein.  None of the parties may assign either this Agreement nor any of its rights hereunder, other than any right to payment of a liquidated sum, nor delegate any of its obligations hereunder, without the prior written consent of 

71

the other parties, except that Buyer may assign its rights under this Agreement to any Affiliate or to any Person providing financing for the transaction contemplated hereby.

11.11

Severability.  Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction, and any such provision, to the extent invalid or unenforceable, shall be replaced by a valid and enforceable provision which comes closest to the intention of the parties underlying such invalid or unenforceable provision.

11.12

Headings; Interpretation.  The headings contained in this Agreement are for reference purposes only and shall not modify define, limit, expand or otherwise affect in any way the meaning or interpretation of this Agreement.  The use of any gender herein shall be deemed to be or include the other genders and the use of the singular herein shall be deemed to be or include the plural (and vice versa), wherever appropriate.  In this Agreement, unless a contrary intention appears, (i) the words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision, and to any certificates delivered pursuant hereto; (ii) reference to any Article or Section means such Article or Section hereof; and (iii) “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding such term.  

11.13

No Agency.  No party hereto shall be deemed hereunder to be an agent of, or partner or joint venturer with, any other party hereto.

11.14

Public and Private Announcements.  Prior to Closing, neither Buyer nor any Company will issue or cause the publication of any press release or otherwise make any public and/or private statement with respect to the transactions contemplated hereby without the prior written consent of the parties hereto, provided, that any party hereto may make a public and/or private announcement to the extent required by law, judicial process or the rules, regulations or interpretations of the Securities and Exchange Commission or any national securities exchange.

11.15

Knowledge.  For the purposes of this Agreement, the terms “knowledge of Operating Companies” or “knowledge of the Companies” words of like import mean the knowledge after reasonable investigation of any of Kenneth Shumard, Jim Ginter, Anne Anderson and Michael Pretiger obtained in his or her capacity as an officer, director, of the Companies.

11.16

Accounting Terms.  Any accounting terms used in this Agreement shall, unless otherwise defined in this Agreement, have the meaning ascribed thereto by GAAP.

11.17

Representation of any Company Post-Closing.  Each of the parties to this Agreement hereby agrees, on its own behalf and on behalf of its directors, members, partners, officers, employees and Affiliates, that McGuireWoods LLP may serve as counsel to each and any of the Companies and their respective Affiliates (individually and collectively, “Shareholder Group”) in connection with the negotiation, preparation, execution and delivery 

72

of this Agreement and the consummation of the Contemplated Transactions, and that, following consummation of the Contemplated Transactions, McGuireWoods LLP (or any successor) may serve as counsel to any member of the Shareholder Group or any director, member, partner, officer, employee or Affiliate of Shareholder Group, in connection with any litigation, claim or obligation arising out of or relating to this Agreement or the Contemplated Transactions notwithstanding such representation, and each of the parties hereto hereby consents thereto and waives any conflict of interest arising therefrom, and each of such parties shall cause any Affiliate thereof to consent to waive any conflict of interest arising from such representation.

[SIGNATURE PAGES FOLLOW]

73

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

STONECO H, INC.

By:  /s/  Victor Kalafa______________________

Name:  Victor Kalafa

Title:  Executive Vice President

MDA HOLDINGS, INC.

By:  _/s/  Kenneth Shumard__________________

Name:  Kenneth Shumard

Title: Chairman

MEDICAL DOCTOR ASSOCIATES, INC.

By:___/s/  James E. Ginter___________________

Name:  James E. Ginter

Title:  President

ALLIED HEALTH GROUP, INC.

By:__/s/  James E. Ginter_____________________

Name:  James E. Ginter

Title:  President

CREDENT VERIFICATION AND LICENSING SERVICES, INC.

By:_/s/  Anne B. Anderson___________________

Name:  Anne B. Anderson

Title:  President

JAMESTOWN INDEMNITY, LTD.

By:  ___/s/  Anne B. Anderson_________________

Name:  Anne B. Anderson

Title:  President

FIRST BANKERS TRUST SERVICES, INC., not in its individual or corporate capacity but solely as its capacity as ESOP Trustee

By:  __/s/  Brian Ippensen____________________

Name:  Brian Ippensen

Title:  

CROSS COUNTRY HEALTHCARE, INC.,

solely with respect to Section 7.21 hereof

By:___/s/  Joseph A. Boshart __________________

Name:  Joseph A. Boshart

Title:  President and Chief Executive Officer

TABLE OF CONTENTS

	
	Page

	ARTICLE I

DEFINITIONS

1

	ARTICLE II

SALE AND PURCHASE; CLOSING

11

	2.1

Purchase of Assets

11

	2.2

Excluded Assets

13

	2.3

Assumed Liabilities

14

	2.4

Excluded Liabilities

14

	2.5

Contract Consents

16

	2.6

Purchase of Shares

16

	2.7

Consideration

16

	2.8

Escrow Amount

16

	2.9

Purchase Price Adjustment Escrow Amount

17

	2.10

The Closing

17

	2.11

Allocation of Purchase Price

17

	ARTICLE III

PURCHASE PRICE ADJUSTMENTS

18

	3.1

Net Operating Working Capital Adjustments.

18

	3.2

Earn-Out Payments

19

	3.3

Calculation of Earn-Out Payments

19

	3.4

Reconciliation of Excess Cash.

21

	ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANIES

22

	4.1

Organization and Qualification

22

	4.2

Authority; No Breach.

22

	4.3

Securities and Ownership; Subsidiaries.

23

	4.4

Financial Statements

24

	4.5

Interests of Related Persons

25

	4.6

Absence of Undisclosed Liabilities

25

	4.7

Absence of Certain Changes or Events

25

	4.8

Taxes.

27

	4.9

Assets.

29

	4.10

Intellectual Property.

30

	4.11

Accounts Receivable

33

	4.12

Contracts and Commitments

33

	4.13

Customers, Subcontractors and Suppliers.

35

	4.14

Insurance.

36

	4.15

Litigation, etc

37

	4.16

Compliance with Law; Necessary Authorizations; Securities Matters.

38

	4.17

Environmental Matters.

38

	4.18

Labor Matters

39

	4.19

Employee Benefit Plans.

39

	4.20

Employees.

42

	4.21

Business Generally

42

	4.22

Questionable Payments

42

	4.23

Finders

42

	
	4.24

Bank Accounts

43

	4.25

Jamestown

43

	4.26

Disclosure

43

	4.27

Treasury Forms

44

	ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE ESOP TRUST

44

	5.1

Organization

44

	5.2

Authority Relative to this Agreement; No Violation

44

	5.3

Conflicts, etc

45

	5.4

Title

45

	5.5

Investigations; Litigation

45

	5.6

Legal Counsel; Independent Financial Advisor

45

	5.7

Opinion of Financial Advisor

46

	5.8

No Brokers

46

	5.9

Excise Taxes

46

	ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF BUYER

46

	6.1

Organization and Qualification

46

	6.2

Authority; No Breach.

47

	6.3

Certain Proceedings

47

	6.4

Finders

47

	6.5

Buyer's Investigation.

47

	6.6

Litigation and Actions Pending

48

	6.7

Compliance with Laws

48

	6.8

Net Worth

48

	ARTICLE VII

COVENANTS

48

	7.1

Conduct of the Business.

48

	7.2

Company Records

50

	7.3

Filings and Authorizations

50

	7.4

Discussions with Others

50

	7.5

Insurance

50

	7.6

Cash Collections

50

	7.7

Updating Schedules

51

	7.8

Use of Names of the Companies

51

	7.9

Discharge of Excluded Liabilities

51

	7.10

Payroll Reporting and Withholding

51

	7.11

Employment.

52

	7.12

Misdirected Inquiries and Solicitations

53

	7.13

Employee Benefit Plans.

53

	7.14

Transfer Taxes

54

	7.15

Bulk Transfer

54

	7.16

Further Assurances

54

	7.17

ESOP Participant Approval

54

	7.18

Indemnification; Directors and Officers Insurance.

55

	7.19

Non-Disclosure.

56

	7.20

Tax Returns

57

	7.21

Guaranty of Cross Country

57

	7.22

Buyer’s Pursuit of Financing

57

	
	7.23

Jamestown Business Plan

57

	7.24

Mutual Cooperation; Information for Reports.

58

	ARTICLE VIII

CONDITIONS TO CLOSING

58

	8.1

Conditions Precedent to Obligations of Buyer

58

	8.2

Conditions Precedent to Obligations of Operating Companies 

	and ESOP Trust

61

	ARTICLE IX

INDEMNIFICATION

62

	9.1

Survival of Representations and Warranties

62

	9.2

Indemnification by the Operating Companies

62

	9.3

Indemnification by Buyer

63

	9.4

Terms and Conditions of Indemnification

64

	9.5

Qualifications

66

	ARTICLE X

TAX MATTERS

66

	10.1

Tax Payments.

66

	10.2

Audits.

67

	ARTICLE XI

MISCELLANEOUS

68

	11.1

Termination

68

	11.2

Effect of Termination

68

	11.3

Expenses

69

	11.4

Amendment

69

	11.5

Entire Agreement

69

	11.6

Waivers

69

	11.7

Notices

69

	11.8

Counterparts

71

	11.9

Governing Law

71

	11.10

Binding Effect; Third Party Beneficiaries; Assignment

71

	11.11

Severability

72

	11.12

Headings; Interpretation

72

	11.13

No Agency

72

	11.14

Public and Private Announcements

72

	11.15

Knowledge

72

	11.16

Accounting Terms

72

	11.17

Representation of any Company Post-Closing

72

	
	EXHIBITS

	Exhibit A 

Adjusted EBITDA

	Exhibit B 

Assignment and Assumption Agreement  

	Exhibit C 

Assignment of Company Intellectual Property Rights

	Exhibit D 

Assignment of Leases

	Exhibit E 

Bill of Sale

	Exhibit F 

Disclosure Schedule

	Exhibit G 

Net Operating Working Capital

	Exhibit H 

Escrow Agreement

	Exhibit I 

Fairness Opinion

	Exhibit J 

Opinion of Counsel for the Companies

	Exhibit K 

Opinion of Counsel for the ESOP Trustee

	Exhibit L 

Employment Agreements

	Exhibit M

Business Protection Agreements – Transferred Employees

	Exhibit N

Shumard Non-Competition Agreements 

	Exhibit O

Shumard Employment AgreementEXHIBIT 4

EXHIBIT 4.1

LOAN AND SECURITY AGREEMENT

This LOAN AND SECURITY AGREEMENT dated as of July 22, 2008 (the “Agreement”), is executed by and between PARLUX FRAGRANCES, INC., a Delaware corporation (“PFI”), which has its chief executive office located at 5900 North Andrews Avenue, Suite 500, Fort Lauderdale, Florida 33309, PARLUX LTD., a New York corporation (“LTD.”), which has its chief executive office located at 5900 North Andrews Avenue, Suite 500, Fort Lauderdale, Florida 33309 (individually and/or collectively, the “Borrower”), and REGIONS BANK, an Alabama banking corporation (the “Bank”), whose address is 100 S.E. Third Avenue, 17th Floor, Fort Lauderdale, Florida 33394.

R E C I T A L S:

A.

The Borrower desires to borrow funds and obtain other financial accommodations from the Bank.

B.

Pursuant to the Borrower’s request, the Bank is willing to extend such financial accommodations to the Borrower under the terms and conditions set forth herein.

NOW THEREFORE, in consideration of the premises, and the mutual covenants and agreements set forth herein, the Borrower agrees to borrow from the Bank, and the Bank agrees to lend to the Borrower, subject to and upon the following terms and conditions:

A G R E E M E N T S:

Section 1.

DEFINITIONS.

1.1.

Defined Terms.  For the purposes of this Agreement, the following capitalized words and phrases shall have the meanings set forth below.

“Affiliate” of any Person shall mean (a) any other Person which, directly or indirectly, controls or is controlled by or is under common control with such Person, (b) any officer or director of such Person, and (c) with respect to the Bank, any entity administered or managed by the Bank, or an Affiliate or investment advisor thereof and which is engaged in making, purchasing, holding or otherwise investing in commercial loans.  A Person shall be deemed to be “controlled by” any other Person if such Person possesses, directly or indirectly, power to direct or cause the direction of the management and policies of such Person whether by contract, ownership of voting securities, membership interests or otherwise.

“Applicable Margin” shall mean two percent (2.00%) per annum in the case of LIBOR Loans, and zero percent (0%) per annum in the case of Prime Loans.

“Bank Product Agreements” shall mean those certain agreements entered into from time to time by the Borrower or any Subsidiary with the Bank or any Affiliate of the Bank concerning Bank Products.

“Bank Product Obligations” shall mean all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by the Borrower or any Subsidiary to the Bank or any Affiliate of the Bank pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising.

“Bank Products” shall mean any service or facility extended to the Borrower or any Subsidiary by the Bank or any Affiliate of the Bank, including:  (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH transactions, (f) cash management, including controlled disbursement, accounts or services, or (g) Hedging Agreements.

“Bankruptcy Code” shall mean the United States Bankruptcy Code, as now existing or hereafter amended.

“Borrowing Base Amount” shall mean:

(a)

an amount equal to eighty percent (80%) of the net amount (after deduction of such Reserves and allowances as the Bank deems reasonably proper and necessary) of all Eligible Accounts, excluding Eligible Accounts of Perfumania, plus

(b)

an amount equal to the lesser of (i) $5,000,000.00, or (ii) sixty-five percent (65%) of the net amount (after deduction of such Reserves and allowances as the Bank deems reasonably proper and necessary) of all Eligible Accounts of Perfumania, plus

(c)

an amount equal to the lesser of (i) (A) for the period of time from December 1 through July 31, $10,000,000.00, and (B) for the period of time from August 1 through November 30, $15,000,000.00 or (ii) fifty percent (50%) of the lower of cost or market value (after deduction of such Reserves and allowances as the Bank deems reasonably proper and necessary) of all Eligible Inventory.

Notwithstanding the foregoing, in no event shall the amount derived in subsection (c) above exceed $2,500,000.00 of Eligible Inventory consisting of Raw Materials.

“Borrowing Base Certificate” shall mean a certificate to be signed by the Borrower certifying to the accuracy of the Borrowing Base Amount in form and substance satisfactory to the Bank.

“Business Day” shall mean any day other than a Saturday, Sunday or a legal holiday on which banks are authorized or required to be closed for the conduct of commercial banking business in Fort Lauderdale, Florida.

“Capital Expenditures” shall mean all expenditures (including Capitalized Lease Obligations) which, in accordance with GAAP, would be required to be capitalized and shown on the consolidated balance sheet of the Borrower, but excluding expenditures made in connection with the replacement, substitution or restoration of assets to the extent financed (i) from insurance proceeds (or other similar recoveries) paid on account of the loss of or damage to the assets being replaced or restored or (ii) with awards of compensation arising from the taking by eminent domain or condemnation of the assets being replaced.

“Capital Lease” shall mean, as to any Person, a lease of any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, by such Person, as lessee, that is, or should be, in accordance with Financial Accounting Standards Board Statement No. 13, as amended from time to time, or, if such statement is not then in effect, such statement of GAAP as may be applicable, recorded as a “capital lease” on the financial statements of such Person prepared in accordance with GAAP.

“Capital Securities” shall mean, with respect to any Person, all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person’s capital, whether now outstanding or issued or acquired after the date hereof, including common shares, preferred shares, membership interests in a limited liability company, limited or general partnership interests in a partnership or any other equivalent of such ownership interest.

“Capitalized Lease Obligations” shall mean, as to any Person, all rental obligations of such Person, as lessee under a Capital Lease which are or will be required to be capitalized on the books of such Person.

“Cash Equivalent Investment” shall mean, at any time, (a) any evidence of Debt, maturing not more than one year after such time, issued or guaranteed by the United States government or any agency thereof, (b) commercial paper, maturing not more than one year from the date of issue, or corporate demand notes, in each case (unless issued by the Bank or its holding company) rated at least A-l by Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. or P-l by Moody’s Investors Service, Inc., (c) any certificate of deposit, time deposit or banker’s acceptance, maturing not more than one year after such time, or any overnight Federal Funds transaction that is issued or sold by the Bank or its holding company (or by a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $250,000,000.00), (d) 

any repurchase agreement entered into with the Bank, or other commercial banking institution of the nature referred to in clause (c), which (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c) above, and (ii) has a market value at the time such repurchase agreement is entered into of not less than one hundred percent (100%) of the repurchase obligation of the Bank, or other commercial banking institution, thereunder, (e) money market accounts or mutual funds which invest exclusively in assets satisfying the foregoing requirements, and (f) other short term liquid investments approved in writing by the Bank.

“Change in Control” shall mean any Person or group of Persons (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended), other than Glenn H. Nussdorf, Steven Nussdorf, or any of their Affiliates, shall obtain ownership or control in one or more series of transactions of more than fifty percent (50%) of the common stock or fifty percent (50%) of the voting power of PFI entitled to vote in the election of members of the board of directors of PFI.  

“Collateral” shall have the meaning set forth in Section 6.1 hereof.

“Collateral Access Agreement” shall mean an agreement in form and substance reasonably satisfactory to the Bank pursuant to which a mortgagee or lessor of real property on which Collateral is stored or otherwise located, or a warehouseman, processor or other bailee of Inventory or other property owned by the Borrower or any Subsidiary, acknowledges the Liens of the Bank and, in the case of any such agreement with a mortgagee or lessor, permits the Bank reasonable access to and use of such real property following the occurrence and during the continuance of an Event of Default to assemble, complete and sell any collateral stored or otherwise located thereon.

“Contingent Liability” and “Contingent Liabilities” shall mean, respectively, each obligation and liability of the Borrower and all such obligations and liabilities of the Borrower incurred pursuant to any agreement, undertaking or arrangement by which the Borrower:  (a) guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, dividend, obligation or other liability of any other Person in any manner (other than by endorsement of instruments in the course of collection), including any indebtedness, dividend or other obligation which may be issued or incurred at some future time; (b) guarantees the payment of dividends or other distributions upon the shares or ownership interest of any other Person; (c) undertakes or agrees (whether contingently or otherwise) with a third party:  (i) to purchase, repurchase, or otherwise acquire any indebtedness, obligation or liability of any other Person or any property or assets constituting security therefor, (ii) to advance or provide funds for the payment or discharge of any indebtedness, obligation or liability of any other Person (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level of income, working capital or other financial condition of any other Person, or (iii) to make payment to any other Person other than for value received; (d) agrees with a third party to lease property 

or to purchase securities, property or services from such other Person with the purpose or intent of assuring the owner of such indebtedness or obligation of the ability of such other Person to make payment of the indebtedness or obligation; (e) induces the issuance of any letter of credit for the benefit of such other Person; or (f) undertakes or agrees otherwise to assure a creditor of another Person against loss.  The amount of any Contingent Liability shall (subject to any limitation set forth herein) be deemed to be the principal amount guaranteed or supported by the Borrower.

“Contract Rate” shall mean a fluctuating per annum rate of interest equal to One Month LIBOR, plus the relevant Applicable Margin, provided, however, that in the event the One Month LIBOR is unavailable as a result of Bank’s good faith determination of the occurrence of one or more events (including, without limitation, (i) governmental authority asserted that it is unlawful to make loans bearing interest at One Month LIBOR, or (ii) circumstances affecting the market used to fund the loans make it impracticable for Bank to determine the One Month LIBOR), the Contract Rate shall be a fluctuating per annum rate of interest equal to the Prime Rate, plus the relevant Applicable Margin.  The One Month LIBOR Rate shall be adjusted by Bank, as necessary, at the end of each Business Day during the term of this Agreement.  Bank shall not be required to notify Borrower of any adjustment in the One Month LIBOR Rate; however, Borrower may request a quote of the prevailing Contract Rate on any Business Day.

“Date of Reference” means, on any Business Day, a date which is two (2) Eurodollar Banking Days prior to the Business Day in question.

“Debt” shall mean, as to any Person, without duplication, (a) the principal amount of all obligations of such Person in respect of borrowed money, whether or not evidenced by bonds, debentures, notes or similar instruments; (b) all obligations to pay the deferred purchase price of property or services; (c) all obligations, contingent or otherwise, with respect to the maximum face amount of all letters of credit (whether or not drawn), bankers’ acceptances and similar obligations issued for the account of such Person (including the Letters of Credit), and all unpaid drawings in respect of such letters of credit, bankers’ acceptances and similar obligations; (d) all indebtedness secured by any Lien on any property owned by such Person, whether or not such indebtedness has been assumed by such Person (provided, however, if such Person has not assumed or otherwise become liable in respect of such indebtedness, such indebtedness shall be deemed to be in an amount equal to the fair market value of the property subject to such Lien at the time of determination); (e) the aggregate amount of all Capitalized Lease Obligations of such Person; (f) all Contingent Liabilities of such Person, whether or not reflected on its balance sheet; (g) all Hedging Obligations of such Person; (h) all Debt of any partnership of which such Person is a general partner; and (i) all monetary obligations of such Person under (i) a so-called synthetic, off-balance sheet or tax retention lease, or (ii) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).  Notwithstanding the foregoing, 

Debt shall not include trade payables and accrued expenses incurred by such Person in accordance with customary practices and in the ordinary course of business of such Person.

“Default Rate” shall mean a fluctuating per annum rate of interest equal to the LIBOR Rate plus six percent (6.0%) per annum. Overdue interest, fees and other amounts shall bear interest at a fluctuating per annum rate of interest equal to the LIBOR Rate plus six percent (6.0%) per annum.

“Depreciation” shall mean the total amounts added to depreciation, amortization, obsolescence, valuation and other proper reserves, as reflected on the Borrower’s financial statements and determined in accordance with GAAP.

“EBITDA” shall mean, for any period, the sum of the following: (a) Net Income, plus (b) Interest Charges, plus (c) income taxes payable or accrued, plus (d) Depreciation, plus (e) amortization, plus (f) non-cash expenses related to the issuance of options and warrants.

“Eligible Account” and “Eligible Accounts” shall mean each Account and all such Accounts (exclusive of sales, excise or other similar taxes) owing to the Borrower or any Subsidiary which meets each of the following requirements:

(a)

it is genuine in all respects and has arisen in the ordinary course of the Borrower’s business from (i) the performance of services by the Borrower or the applicable Subsidiary, which services have been fully performed, acknowledged and accepted by the account debtor or (ii) the sale, license, assignment, or lease of Goods by the Borrower, including C.O.D. sales, which Goods have been completed in accordance with the account debtor’s specifications (if any) and delivered to and accepted by the account debtor, and the Borrower or the applicable Subsidiary has possession of, or has delivered to the Bank at the Bank’s request, shipping and delivery receipts evidencing such delivery;

(b)

it is subject to a perfected, first priority Lien in favor of the Bank and is not subject to any other assignment, claim or Lien;

(c)

it is the valid, legally enforceable and unconditional obligation of the account debtor with respect thereto, and is not subject to the fulfillment of any condition whatsoever or any counterclaim, credit (except as provided in subsection (h) of this definition), trade or volume discount, allowance, discount, rebate or adjustment by the account debtor with respect thereto provided that any Account shall only be ineligible to the extent of such discount, allowance, rebate as adjustment, or to any claim by such account debtor denying liability thereunder in whole or in part and the account debtor has not refused to accept and/or has not returned or offered to return any of the Goods or services which are the subject of such Account;

(d)

the account debtor with respect thereto is a resident or citizen of, and is located within, the United States, Canada or Puerto Rico, unless the sale of goods or services giving rise to such Account is on letter of credit, banker’s acceptance or other credit support terms reasonably satisfactory to the Bank;

(e)

it is not an Account arising from a “sale on approval”, “sale or return”, “consignment”, “guaranteed sale” or “bill and hold”, or are subject to any other repurchase or return agreement;

(f)

it is not an Account with respect to which possession and/or control of the goods sold giving rise thereto is held, maintained or retained by the Borrower or any Subsidiary (or by any agent or custodian of the Borrower or any Subsidiary) for the account of, or subject to, further and/or future direction from the account debtor with respect thereto;

(g)

it has not arisen out of contracts with the United States or any department, agency or instrumentality thereof, unless the Borrower has assigned its right to payment of such Account to the Bank pursuant to the Assignment of Claims Act of 1940, and evidence (satisfactory to the Bank) of such assignment has been delivered to the Bank, or any state, county, city or other governmental body, or any department, agency or instrumentality thereof;

(h)

if the Borrower maintains a credit limit for an account debtor, the aggregate dollar amount of Accounts due from such account debtor, including such Account, does not exceed such credit limit;

(i)

if the Account is evidenced by chattel paper or an instrument, the originals of such chattel paper or instrument shall have been endorsed and/or assigned and delivered to the Bank or, in the case of electronic chattel paper, shall be in the control of the Bank, in each case in a manner satisfactory to the Bank;

(j)

such Account is evidenced by an invoice delivered to the related account debtor and is not more than (i) sixty (60) days past the due date thereof, or (ii) ninety (90) days past the original invoice date thereof, in each case according to the original terms of sale;

(k)

it is not an Account with respect to an account debtor that is located in any jurisdiction which has adopted a statute or other requirement with respect to which any Person that obtains business from within such jurisdiction must file a notice of business activities report or make any other required filings in a timely manner in order to enforce its claims in such jurisdiction’s courts unless (i) such notice of business activities report has been duly and timely filed or the Borrower or the applicable Subsidiary is exempt from filing such report and has provided the Bank with satisfactory evidence of such exemption or (ii) the 

failure to make such filings may be cured retroactively by the Borrower or the applicable Subsidiary for a nominal fee;

(l)

the account debtor with respect thereto is not the Borrower or an Affiliate of the Borrower;

(m)

such Account does not arise out of a contract or order which, by its enforceable terms, forbids or makes void or unenforceable the assignment thereof by the Borrower or any Subsidiary to the Bank and is not unassignable to the Bank for any other reason;

(n)

there is no bankruptcy, insolvency or liquidation proceeding pending by or against the account debtor with respect thereto, nor has the account debtor suspended business, made a general assignment for the benefit of creditors or failed to pay its debts generally as they come due, and/or no condition or event has occurred having a Material Adverse Effect on the account debtor which would require the Accounts of such account debtor to be deemed uncollectible in accordance with GAAP;

(o)

it is not owed by an account debtor (other than Perfumania) with respect to which twenty-five percent (25%) or more of the aggregate amount of outstanding Accounts owed at such time by such account debtor is classified as ineligible under clause (j) of this definition;

(p)

it is not owed by Perfumania with respect to which fifty percent (50%) or more of the aggregate amount of outstanding Accounts owed at such time by Perfumania is classified as ineligible under clause (j) of this definition;

(q)

if the aggregate amount of all Accounts owed by the account debtor thereon exceeds twenty-five percent (25%) of the aggregate amount of all Accounts at such time, then all Accounts owed by such account debtor in excess of such amount shall be deemed ineligible; and

(r)

the representations and warranties in the Loan Documents pertaining to such Account are not true and correct.

An Account which is at any time an Eligible Account, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Account.  Further, with respect to any Account, if the Bank at any time hereafter determines in its reasonable discretion that the prospect of payment or performance by the account debtor with respect thereto is materially impaired for any reason whatsoever, such Account shall cease to be an Eligible Account after notice of such determination is given to the Borrower.

“Eligible Inventory” shall mean all Inventory of the Borrower or any Subsidiary which meets each of the following requirements:

(a)

it is subject to a perfected, first priority Lien in favor of the Bank and is not subject to any other assignment, claim or Lien (other than Permitted Liens);

(b)

it is salable and not slow-moving, obsolete or discontinued, as determined in the reasonable discretion of the Bank;

(c)

it is in the possession and control of the Borrower or any Subsidiary and it is stored and held in facilities owned by the Borrower or any Subsidiary or, if such facilities are not so owned, the Bank is in possession of a Collateral Access Agreement with respect thereto;

(d)

it is not Inventory produced in violation of the Fair Labor Standards Act and subject to the “hot goods” provisions contained in Title 29 U.S.C. §215;

(e)

it is not subject to any agreement or license which would restrict the Bank’s ability to sell or otherwise dispose of such Inventory;

(f)

it is located in the United States or in any territory or possession of the United States that has adopted Article 9 of the Uniform Commercial Code;

(g)

it is not “in transit” to the Borrower or any Subsidiary or held by the Borrower or any Subsidiary on consignment; 

(h)

it is not “work-in-progress” Inventory;

(i)

it is not identified to any purchase order or contract to the extent progress or advance payments are received with respect to such Inventory; 

(j)

it does not breach any of the representations, warranties or covenants pertaining to Inventory set forth in the Loan Documents; and

(k)

the Bank shall not have determined in its reasonable discretion that it is unacceptable due to age, type, category, quality, quantity and/or any other reason whatsoever.

Inventory which is at any time Eligible Inventory but which subsequently fails to meet any of the foregoing requirements shall forthwith cease to be Eligible Inventory.

“Employee Plan” includes any pension, stock bonus, employee stock ownership plan, retirement, profit sharing, deferred compensation, stock option, bonus or other incentive plan, whether qualified or nonqualified, or any disability, medical, dental or other health plan, life insurance or other death benefit plan, vacation benefit plan, severance plan or other employee benefit plan or arrangement, including those pension, 

profit-sharing and retirement plans of the Borrower described from time to time in the financial statements of the Borrower and any pension plan, welfare plan, Defined Benefit Pension Plans (as defined in ERISA) or any multi-employer plan, maintained or administered by the Borrower or to which the Borrower is a party or may have any liability or by which the Borrower is bound.

“Environmental Laws” shall mean all present or future federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative or judicial orders, consent agreements, licenses, authorizations and permits of, and agreements with, any governmental authority, in each case relating to any matter arising out of or relating to public health and safety, or pollution or protection of the environment or workplace, including any of the foregoing relating to the presence, use, production, generation, handling, transport, treatment, storage, disposal, distribution, discharge, emission, release, threatened release, control or cleanup of any Hazardous Substance.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

“Eurodollar Banking Day” means the day on which banks in the London Interbank Market deal in United States dollar deposits and on which banking institutions are generally open for domestic and international business in Fort Lauderdale, Florida and in New York City.

“Event of Default” shall mean any of the events or conditions which are set forth in Section 11 hereof.

“Federal Funds Rate” shall mean, for any day, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Bank from three Federal funds brokers of recognized standing selected by the Bank.  The Bank’s determination of such rate shall be binding and conclusive absent manifest error.

“Funded Debt” shall mean all indebtedness for borrowed money, purchase money indebtedness and indebtedness with respect to capital lease obligations, including each renewal or extension, if any, in whole or in part.

“GAAP” shall mean generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), 

which are applicable to the circumstances as of the date of determination, provided, however, that interim financial statements or reports shall be deemed in compliance with GAAP despite the absence of footnotes and fiscal year-end adjustments as required by GAAP.

“Hazardous Substances” shall mean (a) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, dielectric fluid containing levels of polychlorinated biphenyls, radon gas and mold; (b) any chemicals, materials, pollutant or substances defined as or included in the definition of “hazardous substances”, “hazardous waste”, “hazardous materials”, “extremely hazardous substances”, “restricted hazardous waste”, “toxic substances”, “toxic pollutants”, “contaminants”, “pollutants” or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, the exposure to, or release of which is prohibited, limited or regulated by any governmental authority or for which any duty or standard of care is imposed pursuant to, any Environmental Law.

“Hedging Agreement” shall mean any interest rate, currency or commodity swap agreement, cap agreement or collar agreement, and any other agreement or arrangement designed to protect a Person against fluctuations in interest rates, currency exchange rates or commodity prices.

“Hedging Obligation” shall mean, with respect to any Person, any liability of such Person under any Hedging Agreement.

“Indemnified Party” and “Indemnified Parties” shall mean, respectively, each of the Bank and any parent corporation, Affiliate or Subsidiary of the Bank, and each of their respective officers, directors, employees, attorneys and agents, and all of such parties and entities.

“Intellectual Property” shall mean the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, patents, service marks and trademarks, and all registrations and applications for registration therefor and all licensees thereof, trade names, domain names, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

“Interest Charges” shall mean, for any period, the sum of:  (a) all interest, charges and related expenses payable with respect to that fiscal period to a lender in connection with borrowed money or the deferred purchase price of assets that are treated as interest in accordance with GAAP, plus (b) the portion of Capitalized Lease Obligations with respect to that fiscal period that should be treated as interest in accordance with GAAP, plus (c) all charges paid or payable (without duplication) during that period with respect to any Hedging Agreements.

“Investment” shall mean, with respect to any Person, any investment in another Person, whether by acquisition of any debt or equity security, by making any loan or advance, by becoming obligated with respect to a Contingent Liability in respect of obligations of such other Person (other than travel and similar advances to employees in the ordinary course of business).

“Letter of Credit” and “Letters of Credit” shall mean, respectively, a letter of credit and all such letters of credit issued by the Bank, in its sole discretion, upon the execution and delivery by the Borrower and the acceptance by the Bank of a Master Letter of Credit Agreement and a Letter of Credit Application, as set forth in Section 2.6 of this Agreement.

“Letter of Credit Application” shall mean, with respect to any request for the issuance of a Letter of Credit, a letter of credit application in the form being used by the Bank at the time of such request for the type of Letter of Credit requested which shall contain items reasonably consistent with the terms of the Loan Documents.

“Letter of Credit Commitment” shall mean an amount equal to $1,000,000.00.

“Letter of Credit Maturity Date” shall mean the Revolving Loan Maturity Date.

“Letter of Credit Obligations” shall mean, at any time, an amount equal to the aggregate of the original face amounts of all Letters of Credit minus the sum of (i) the amount of any reductions in the original face amount of any Letter of Credit which did not result from a draw thereunder, (ii) the amount of any payments made by the Bank with respect to any draws made under a Letter of Credit for which the Borrower has reimbursed the Bank, (iii) the amount of any payments made by the Bank with respect to any draws made under a Letter of Credit which have been converted to a Revolving Loan as set forth in Section 2.6, and (iv) the portion of any issued but expired Letter of Credit which has not been drawn by the beneficiary thereunder.  For purposes of determining the outstanding Letter of Credit Obligations at any time, the Bank’s acceptance of a draft drawn on the Bank pursuant to a Letter of Credit shall constitute a draw on the applicable Letter of Credit at the time of such acceptance.

“Liabilities” shall mean at all times all liabilities of the Borrower that would be shown as such on a balance sheet of the Borrower prepared in accordance with GAAP.

“LIBOR Loan” or “LIBOR Loans” shall mean that portion, and collectively those portions, of the aggregate outstanding principal balance of the Loans that bear interest at the LIBOR Rate.

“LIBOR Rate” shall mean the relevant Contract Rate equal to the One Month LIBOR plus the Applicable Margin.

“Lien” shall mean, with respect to any Person, any interest granted by such Person in any real or personal property, asset or other right owned or being purchased or acquired by such Person (including an interest in respect of a Capital Lease) which secures payment or performance of any obligation and shall include any mortgage, lien, encumbrance, title retention lien, charge or other security interest of any kind, whether arising by contract, as a matter of law, by judicial process or otherwise.

“Loans” shall mean, collectively, all Revolving Loans made by the Bank to the Borrower and all Letter of Credit Obligations, under and pursuant to this Agreement.

“Loan Documents” shall mean each of the agreements, documents, instruments and certificates set forth in Section 3.1 hereof, and any and all such other instruments, documents, certificates and agreements from time to time executed and delivered by the Borrower, or any of its Subsidiaries for the benefit of the Bank pursuant to any of the foregoing, and all amendments, restatements, supplements and other modifications thereto.

“Master Letter of Credit Agreement” shall mean, at any time, with respect to the issuance of Letters of Credit, a Master Letter of Credit Agreement in the form being used by the Bank at such time which shall contain terms reasonably consistent with the terms of the Loan Documents.

“Material Adverse Effect” shall mean (a) a material adverse change in, or a material adverse effect upon, the assets, business, properties, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries taken as a whole, (b) a material impairment of the ability of the Borrower and its Subsidiaries to perform any of the Obligations under any of the Loan Documents, or (c) a material adverse effect on (i) all or substantially all of the Collateral,  (ii) the legality, validity, binding effect or enforceability against the Borrower and its Subsidiaries of any of the Loan Documents, (iii) the perfection or priority of any Lien granted to the Bank under any Loan Document, or (iv) the rights or remedies of the Bank under any Loan Document.

“Net Income” shall mean, with respect to the Borrower and its Subsidiaries for any period, the consolidated net income (or loss) of the Borrower and its Subsidiaries for such period as determined in accordance with GAAP, excluding any extraordinary gains and any gains from discontinued operations, but without giving effect to any gain resulting from any reappraisal or write-up of any asset.  

“Non-Excluded Taxes” shall have the meaning set forth in Section 2.7(a) hereof.

“Note” shall mean, the Revolving Note, as the same may be amended, modified, increased or extended from time to time.

“Obligations” shall mean the Loans, as evidenced by any Note, all interest accrued thereon (including interest which would be payable as post-petition in connection with any bankruptcy or similar proceeding, whether or not permitted as a claim thereunder), any fees due the Bank hereunder, any expenses incurred by the Bank hereunder, including without limitation, all liabilities and obligations under this Agreement, under any other Loan Document, any reimbursement obligations of the Borrower in respect of Letters of Credit and surety bonds, all Hedging Obligations of the Borrower which are owed to the Bank or any Affiliate of the Bank, and all Bank Product Obligations of the Borrower, and any and all other liabilities and obligations owed by the Borrower to the Bank from time to time, howsoever created, arising or evidenced, whether direct or indirect, joint or several, absolute or contingent, now or hereafter existing, or due or to become due, together with any and all renewals, extensions, restatements or replacements of any of the foregoing.

“Obligor” shall mean the Borrower, any Subsidiary of the Borrower, any guarantor, accommodation endorser, third party pledgor, or any other party liable to the Bank or its Affiliates with respect to the Obligations.

“One Month LIBOR” shall mean a per annum rate of interest (rounded upwards, if necessary, to the next higher 1/16 of 1%) determined by Bank and equal to the average rate per annum at which deposits (denominated in United States dollars) in an amount similar to the principal amount of that Loan and with a maturity of one (1) month are offered at 11:00 a.m. London time (or as soon thereafter as practicable) on the Date of Reference by banking institutions in the London, United Kingdom market, as such interest rate is referenced and reported by the British Bankers Association on Reuters Screen LIBOR01 Page or, if the same is unavailable, any other generally accepted authoritative source of such interest rate as Bank may reference from time to time.

“Organizational Identification Number” means, with respect to Borrower, the organizational identification number assigned to Borrower by the applicable governmental unit or agency of the jurisdiction of organization of the Borrower.

“Other Taxes” shall mean any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from the execution, delivery, enforcement or registration of, or otherwise with respect to, this Agreement or any of the other Loan Documents (other than recurring intangible taxes).

“Permitted Liens” shall mean (a) Liens for Taxes, assessments or other governmental charges not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and, in each case, for which it maintains adequate reserves in accordance with GAAP and in respect of which no Lien has been filed; (b) Liens arising in the ordinary course of business (such as (i) Liens of carriers, warehousemen, mechanics and materialmen and other similar Liens imposed by law, and (ii) Liens in the form of deposits or pledges incurred in connection with worker’s compensation, unemployment compensation and other types of social security (excluding Liens arising under ERISA) or in connection with surety bonds, bids, 

performance bonds and similar obligations) for sums not overdue or being contested in good faith by appropriate proceedings and not involving any advances or borrowed money or the deferred purchase price of property or services, which do not in the aggregate materially detract from the value of the property or assets of the Borrower or materially impair the use thereof in the operation of the Borrower’s business and, in each case, for which it maintains adequate reserves in accordance with GAAP and in respect of which no Lien has been filed; (c) Liens described on Schedule 9.2 as of the Closing Date; (d) attachments, appeal bonds, judgments and other similar Liens, for sums not exceeding Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) arising in connection with court proceedings, provided the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings and to the extent such judgments or awards do not constitute an Event of Default under Section 11.8 hereof; (e) easements, rights of way, restrictions, minor defects or irregularities in title and other similar Liens not interfering in any material respect with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (f) subject to the limitation set forth in Section 9.1, Liens arising in connection with Capitalized Lease Obligations (and attaching only to the property being leased) and purchase money Debt (and attaching only to the Property being purchased); (g) subject to the limitation set forth in Section 9.1, Liens that constitute purchase money security interests on any property securing Debt incurred for the purpose of financing all or any part of the cost of acquiring such property, provided that any such Lien attaches to such property within twenty (20) days of the acquisition thereof and attaches solely to the property so acquired; and (h) Liens granted to the Bank hereunder and under the Loan Documents.

“Person” shall mean any natural person, partnership, limited liability company, corporation, trust, joint venture, joint stock company, association, unincorporated organization, government or agency or political subdivision thereof, or other entity, whether acting in an individual, fiduciary or other capacity.

“Prime Loan” or “Prime Loans” shall mean that portion, and collectively, those portions of the aggregate outstanding principal balance of the Loans that bear interest at the Prime Rate plus the Applicable Margin per annum.

“Prime Rate” shall mean the fluctuating per annum rate of interest which at any time, and from time to time, shall be most recently publicly announced by the Bank as its Prime Rate, which is not intended to be the Bank’s lowest or most favorable rate of interest at any one time.  The effective date of any change in the Prime Rate shall for purposes hereof be the date the Prime Rate is changed by the Bank automatically and immediately.  The Bank shall not be obligated to give notice of any change in the Prime Rate.

 

 

“Raw Materials” shall mean all fragrance oils and bulk (oils mixed with alcohol or lotion).

“Regulatory Change” shall mean the introduction of, or any change in any applicable law, treaty, rule, or regulation or in the interpretation or administration thereof by any governmental authority or any central bank or other fiscal, monetary or other authority having jurisdiction over the Bank or the lending office of the Bank making the Loan.

“Reserves” shall mean as of any date of determination, such amounts as Bank may from time to time establish and revise in good faith reducing the amount of Revolving Loans and Letters of Credit which would otherwise be available to Borrower under the lending formula(s) provided for herein:  (i) to reflect events, conditions, contingencies or risks which, as determined by Bank in good faith, adversely affect, or would have a reasonable likelihood of adversely affecting, either (1) the Collateral or any other property which is security for the Obligations, its value or the amount that might be received by Bank from the sale or other disposition or realization upon such Collateral, or (2) the assets, business or prospects of Borrower or (3) the security interests and other rights of Bank in the Collateral (including the enforceability, perfection and priority thereof) or (ii) to reflect Bank's good faith belief that any collateral report or financial information furnished by or on behalf of Borrower to Bank is or may have been incomplete, inaccurate or misleading in any material respect or (iii) to reflect outstanding Letters of Credit as provided in Section 2.6 hereof or (iv) in respect of any state of facts which Bank determines in good faith constitutes an Unmatured Event of Default or an Event of Default. Without limiting the generality of the foregoing, Reserves may, at Bank’s option in its reasonable discretion, be established to reflect: dilution with respect to the Eligible Accounts (based on the ratio of the aggregate amount of non-cash reductions in Eligible Accounts for any trailing twelve-month period to the aggregate dollar amount of the sales of Borrower for such period) as calculated by Bank for such period is or is reasonably anticipated to be greater than five percent (5%); returns, discounts, claims, credits and allowances of any nature that are not paid pursuant to the reduction of Eligible Accounts; sales, excise or similar taxes included in the amount of any Eligible Accounts reported to Lender; a change in the turnover, age or mix of the categories of Inventory that adversely affects the aggregate value of all Inventory; amounts due or to become due (not in excess of three (3) months) to owners and lessors of premises where any Collateral is located, other than for those locations where Bank has received a Collateral Access Agreement that Bank has accepted in writing.  The amount of any Reserve established by Bank shall have a reasonable relationship to the event, condition or other matter which is the basis for such reserve as determined by Bank in good faith and to the extent that such Reserve is in respect of amounts that may be payable to third parties Bank may, at its option, deduct such Reserve from the Revolving Loan Commitment, at any time that such limit is less than the amount of the Borrowing Base Amount.

 

“Revolving Interest Rate” shall mean the LIBOR Rate or the Prime Rate, as selected by PFI, plus the Applicable Margin.

“Revolving Loan” and “Revolving Loans” shall mean, respectively, each direct advance and the aggregate of all such direct advances made by the Bank to the 

Borrower under and pursuant to this Agreement, as set forth in Section 2.1 of this Agreement.

“Revolving Loan Availability” shall mean, at any time, an amount equal to the lesser of (a) the Revolving Loan Commitment minus the Letter of Credit Obligations, or (b) the Borrowing Base Amount minus the Letter of Credit Obligations.  

“Revolving Loan Commitment” shall mean Twenty Million and 00/100 Dollars ($20,000,000.00).

“Revolving Loan Maturity Date” shall mean July 22, 2010, unless extended by the Bank pursuant to any modification, extension or renewal note executed by the Borrower and accepted by the Bank in its sole and absolute discretion in substitution for the Revolving Note.

“Revolving Note” shall mean that certain Revolving Promissory Note. in the form prepared by and acceptable to the Bank, dated as of the date hereof, in the amount of the Revolving Loan Commitment and maturing on the Revolving Loan Maturity Date, duly executed by the Borrower and payable to the order of the Bank, together with any and all renewal, extension, modification or replacement notes executed by the Borrower and delivered to the Bank and given in substitution therefor.

“Subordinated Debt” shall mean that portion of the Debt of the Borrower approved by the Bank in writing from time to time, which shall be subordinated to the Obligations in a manner satisfactory to the Bank.  

“Subsidiary” and “Subsidiaries” shall mean, respectively, with respect to any Person, each and all such corporations, partnerships, limited partnerships, limited liability companies, limited liability partnerships, joint ventures or other entities of which or in which such Person owns, directly or indirectly, such number of outstanding Capital Securities as have more than fifty percent (50.00%) of the ordinary voting power for the election of directors or other managers of such corporation, partnership, limited liability company or other entity.  Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of the Borrower.

“Taxes” shall mean any and all present and future taxes, duties, levies, imposts, deductions, assessments, charges or withholdings, and any and all liabilities (including interest and penalties and other additions to taxes) with respect to the foregoing.

“UCC” shall mean the Uniform Commercial Code in effect in the State of Florida from time to time.

“United States Treasury Securities” means actively traded United States Treasury bonds, bills and notes. 

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

“Voidable Transfer” shall have the meaning set forth in Section 13.21 hereof. 

“Wholly-Owned Subsidiary” shall mean any Subsidiary of which or in which the Borrower owns, directly or indirectly, one hundred percent (100%) of the Capital Securities of such Subsidiary.

1.2.

Accounting Terms.  Any accounting terms used in this Agreement which are not specifically defined herein shall have the meanings customarily given them in accordance with GAAP.  Calculations and determinations of financial and accounting terms used and not otherwise specifically defined hereunder and the preparation of financial statements to be furnished to the Bank pursuant hereto shall be made and prepared, both as to classification of items and as to amount, in accordance with sound accounting practices and GAAP as used in the preparation of the financial statements of the Borrower on the date of this Agreement.  If any changes in accounting principles or practices from those used in the preparation of the financial statements are hereafter occasioned by the promulgation of rules, regulations, pronouncements and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or any successor thereto or agencies with similar functions), which results in a material change in the method of accounting in the financial statements required to be furnished to the Bank hereunder or in the calculation of financial covenants, standards or terms contained in this Agreement, the parties hereto agree to enter into good faith negotiations to amend such provisions so as equitably to reflect such changes to the end that the criteria for evaluating the financial condition and performance of the Borrower will be the same after such changes as they were before such changes; and if the parties fail to agree on the amendment of such provisions, the Borrower will furnish financial statements in accordance with such changes, but shall provide calculations for all financial covenants, perform all financial covenants and otherwise observe all financial standards and terms in accordance with applicable accounting principles and practices in effect immediately prior to such changes.  Calculations with respect to financial covenants required to be stated in accordance with applicable accounting principles and practices in effect immediately prior to such changes shall be reviewed and certified by the Borrower’s accountants.

1.3.

Other Terms Defined in UCC.  All other capitalized words and phrases used herein and not otherwise specifically defined herein shall have the respective meanings assigned to such terms in the UCC, to the extent the same are used or defined therein.

1.4.

Other Interpretive Provisions.

(a)

The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.  Whenever the context so requires, the neuter gender includes the masculine and feminine, the single number includes the plural, and vice versa, and in particular the word “Borrower” shall be so construed.

(b)

Section and Schedule references are to this Agreement unless otherwise specified.  The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.

(c)

The term “including” is not limiting, and means “including, without limitation”.

(d)

In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”, and the word “through” means “to and including”.

(e)

Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement and the other Loan Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, supplements and other modifications thereto, but only to the extent such amendments, restatements, supplements and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation shall be construed as including all statutory and regulatory provisions amending, replacing, supplementing or interpreting such statute or regulation.

(f)

To the extent any of the provisions of the other Loan Documents are inconsistent with the terms of this Agreement, the provisions of this Agreement shall govern.

(g)

This Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters.  All such limitations, tests and measurements are cumulative and each shall be performed in accordance with its terms.

Section 2.

COMMITMENT OF THE BANK.

2.1.

Revolving Loans.

(a)

Revolving Loan Commitment.  Subject to the terms and conditions of this Agreement and the other Loan Documents, and in reliance upon the representations and warranties of the Borrower set forth herein and in the other Loan Documents, the Bank agrees to make such Revolving Loans at such times as 

the Borrower may from time to time request until, but not including, the Revolving Loan Maturity Date, and in such amounts as the Borrower may from time to time request, provided, however, that the aggregate principal balance of all Revolving Loans outstanding at any time shall not exceed the Revolving Loan Availability.  Revolving Loans made by the Bank may be repaid and, subject to the terms and conditions hereof, borrowed again up to, but not including the Revolving Loan Maturity Date unless the Revolving Loans are otherwise accelerated, terminated or extended as provided in this Agreement.  The Revolving Loans shall be used by the Borrower for the purposes of (a) refinancing Borrower’s existing indebtedness; and (b) providing for the working capital requirements and general corporate purposes of the Borrower.  

(b)

Revolving Loan Interest and Payments.  Except as otherwise provided in this Section 2.1(b), the principal amount of the Revolving Loans outstanding from time to time shall bear interest at the applicable Revolving Interest Rate as selected by PFI.  Accrued and unpaid interest on the unpaid principal balance of all Revolving Loans outstanding from time to time, shall be due and payable monthly, in arrears, commencing on August 1, 2008 and continuing on the first day of each calendar month thereafter, and on the Revolving Loan Maturity Date.  From and after maturity, or after the occurrence and during the continuation of an Event of Default, interest on the outstanding principal balance of the Revolving Loans, at the option of the Bank, may accrue at the Default Rate and shall be payable upon demand from the Bank.  

(c)

Revolving Loan Principal Payments.

(i)

Revolving Loan Mandatory Payments.  All Revolving Loans hereunder shall be repaid by the Borrower on the Revolving Loan Maturity Date, unless payable sooner pursuant to the provisions of this Agreement.  In the event the aggregate outstanding principal balance of all Revolving Loans and Letter of Credit Obligations hereunder exceeds the Revolving Loan Availability, the Borrower shall, without notice or demand of any kind, immediately make such repayments of the Revolving Loans or take such other actions as are satisfactory to the Bank as shall be necessary to eliminate such excess.  

2.2.

Intentionally deleted.

2.3.

Additional LIBOR Loan Provisions.

(a)

Intentionally deleted.

(b)

LIBOR Unavailability; Continuation.  If the Bank determines in good faith (which determination shall be conclusive, absent manifest error) that (i) the making or maintenance of any LIBOR Loan would violate any applicable law, rule, regulation or directive, whether or not having the force of law, (ii) United 

States dollar deposits in the principal amount for funding any LIBOR Loan are not available in the London Interbank Eurodollar market in the ordinary course of business, (iii) by reason of circumstances affecting the London Interbank Eurodollar market, adequate and fair means do not exist for ascertaining the LIBOR Rate to be applicable to the relevant LIBOR Loan, or (iv) the LIBOR Rate does not accurately reflect the cost to the Bank of a LIBOR Loan, the Bank shall promptly notify the Borrower thereof and, so long as the foregoing conditions continue, none of the Loans may be advanced as a LIBOR Loan thereafter.  

(c)

Regulatory Change.  In addition, if, after the date hereof, a Regulatory Change shall, in the reasonable determination of the Bank, make it unlawful for the Bank to make or maintain the LIBOR Loans, then the Bank shall promptly notify the Borrower and none of the Loans may be advanced as a LIBOR Loan thereafter.  In addition, each existing LIBOR Loan shall be immediately converted to a Prime Loan on the last Business Day of the month or on such earlier date as required by law, all without further demand, presentment, protest or notice of any kind, all of which are hereby waived by the Borrower.

(d)

LIBOR Indemnity.  If any Regulatory Change, or compliance by the Bank or any Person controlling the Bank with any request or directive of any governmental authority, central bank or comparable agency (whether or not having the force of law) shall (a) impose, modify or deem applicable any assessment, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of or loans by, or any other acquisition of funds or disbursements by, the Bank; (b) subject the Bank or any LIBOR Loan to any tax, duty, charge, stamp tax or fee or change the basis of taxation of payments to the Bank of principal or interest due from the Borrower to the Bank hereunder (other than a change in the taxation of the overall net income of the Bank); or (c) impose on the Bank any other condition regarding such LIBOR Loan or the Bank’s funding thereof, and the Bank shall determine (which determination shall be conclusive, absent manifest error) that the result of the foregoing is to increase the cost to, or to impose a cost on, the Bank or such controlling Person of making or maintaining such LIBOR Loan or to reduce the amount of principal or interest received by the Bank hereunder, then the Borrower shall pay to the Bank or such controlling Person, on demand, such additional amounts as the Bank shall, from time to time, determine are sufficient to compensate and indemnify the Bank for such increased cost or reduced amount.  Bank shall provide to Borrower a written computation of such costs in reasonable detail.

2.4.

Interest and Fee Computation; Collection of Funds.  Except as otherwise set forth herein, all interest and fees shall be calculated on the basis of a year consisting of 360 days and shall be paid for the actual number of days elapsed.  Principal payments submitted in funds not immediately available shall continue to bear interest until collected.  If any payment to be made by the Borrower hereunder or under any Note shall become due on a day other than a Business Day, such payment shall be made on the next 

succeeding Business Day and such extension of time shall be included in computing any interest in respect of such payment.  Notwithstanding anything to the contrary contained herein, the final payment due under any of the Loans must be made by wire transfer or other immediately available funds.  All payments made by the Borrower hereunder or under any of the Loan Documents shall be made without setoff, counterclaim, or other defense.  To the extent permitted by applicable law, all payments hereunder or under any of the Loan Documents (including any payment of principal, interest, or fees) to, or for the benefit, of any Person shall be made by the Borrower free and clear of, and without deduction or withholding for, or account of, any taxes now or hereinafter imposed by any taxing authority.

2.5.

Late Charge. If any payment of interest or principal due hereunder is not made within ten (10) days after such payment is due in accordance with the terms hereof, then, in addition to the payment of the amount so due, the Borrower shall pay to the Bank a “late charge” of five cents for each whole dollar so overdue to defray part of the cost of collection and handling such late payment. The Borrower agrees that the damages to be sustained by the Bank for the detriment caused by any late payment are extremely difficult and impractical to ascertain, and that the amount of five cents for each one dollar due is a reasonable estimate of such damages, does not constitute interest, and is not a penalty.

2.6.

Letters of Credit.  Subject to the terms and conditions of this Agreement and upon (i) the execution by the Borrower and the Bank of a Master Letter of Credit Agreement (together with all amendments, modifications and restatements thereof, the “Master Letter of Credit Agreement”), and (ii) the execution and delivery by the Borrower, of a Letter of Credit Application, the Bank agrees to issue for the account of the Borrower such Letters of Credit in the standard form of the Bank and otherwise in form and substance acceptable to the Bank, from time to time during the term of this Agreement, provided that the Letter of Credit Obligations may not at any time exceed the Letter of Credit Commitment and provided further, that no Letter of Credit shall have an expiration date later than the Letter of Credit Maturity Date.  The amount of any payments made by the Bank with respect to draws made by a beneficiary under a Letter of Credit for which the Borrower has failed to reimburse the Bank upon the earlier of (i) the Bank’s demand for repayment, or (ii) five (5) days from the date of such payment to such beneficiary by the Bank, shall be deemed to have been converted to a Revolving Loan as of the date such payment was made by the Bank to such beneficiary.  Upon the occurrence of an Event of a Default and at the option of the Bank, all Letter of Credit Obligations shall be converted to Revolving Loans consisting of Prime Loans, all without demand, presentment, protest or notice of any kind, all of which are hereby waived by the Borrower. To the extent the provisions of the Master Letter of Credit Agreement differ from, or are inconsistent with, the terms of this Agreement, the provisions of this Agreement shall govern.

2.7.

Taxes.

(a)

All payments made by the Borrower under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any governmental authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Bank as a result of a present or former connection between the Bank and the jurisdiction of the governmental authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Bank having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Loan Document).  If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings (collectively, “Non-Excluded Taxes”) or Other Taxes are required to be withheld from any amounts payable to the Bank hereunder, the amounts so payable to the Bank shall be increased to the extent necessary to yield to the Bank (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, provided, however, that the Borrower shall not be required to increase any such amounts payable to the Bank with respect to any Non-Excluded Taxes that are attributable to the Bank’s failure to comply with the requirements of subsection 2.7(c).

(b)

The Borrower shall pay any Other Taxes to the relevant governmental authority in accordance with applicable law.

(c)

At the request of the Borrower and at the Borrower’s sole cost, the Bank shall take reasonable steps to (i) contest its liability for any Non-Excluded Taxes or Other Taxes that have not been paid, or (ii) seek a refund of any Non-Excluded Taxes or Other Taxes that have been paid.

(d)

Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Bank a certified copy of an original official receipt received by the Borrower showing payment thereof.  If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Bank the required receipts or other required documentary evidence or if any governmental authority seeks to collect a Non-Excluded Tax or Other Tax directly from the Bank for any other reason, the Borrower shall indemnify the Bank on an after-tax basis for any incremental taxes, interest or penalties that may become payable by the Bank.

(e)

The agreements in this Section shall survive the satisfaction and payment of the Obligations and the termination of this Agreement.

2.8.

All Loans to Constitute Single Obligation.  The Loans shall constitute one general obligation of the Borrower, and shall be secured by Bank’s priority security 

interest in and Lien upon all of the Collateral and by all other security interests, Liens, claims and encumbrances heretofore, now or at any time or times hereafter granted by the Borrower and/or any Subsidiary to Bank.

Section 3.

CONDITIONS OF BORROWING.

Notwithstanding any other provision of this Agreement, the Bank shall not be required to make any Loan, if any of the following conditions shall have occurred.

3.1.

Loan Documents.  The Borrower shall have failed to execute and deliver to the Bank any of the following Loan Documents, all of which must be satisfactory to the Bank in form, substance and execution:

(a)

Loan Agreement.  Two copies of this Agreement duly executed by the Borrower.

(b)

Revolving Note.  A Revolving Note duly executed by the Borrower.

(c)

Collateral Access Agreement.  On or before August 31, 2008, Borrower shall use reasonable efforts to obtain Collateral Access Agreements dated as of the date of this Agreement, from the owner, lessor or mortgagee, as the case may be, of any real estate whereon any portion of the Collateral with a value in excess of $100,000.00 (as determined by Bank in its sole and absolute discretion) is stored or otherwise located, in form acceptable to the Bank.

(d)

Leased Property. In the case of any leased real property, on or before August 31, 2008, a consent, in form and substance satisfactory to the Bank, from the owner and/or mortgagor of such leased real property subordinating any landlord’s Lien in respect of personal property kept at the premises subject to such lease.

(e)

Patent and Trademark Security Agreement.  Two copies of a Patent and Trademark Security Agreement from PFI in favor of Bank with respect to all patents and trademarks owned by PFI.

(f)

Borrowing Base Certificate.  A Borrowing Base Certificate in the form attached as Exhibit 3.1(g), certified as accurate by the Borrower.

(g)

Search Results; Lien Terminations.  Copies of UCC search reports dated such a date as is reasonably acceptable to the Bank, listing all effective financing statements which name the Borrower and any of its domestic Subsidiaries, under its present names and any previous names, as debtors, together with (i) copies of such financing statements, (ii) payoff letters evidencing repayment in full of all existing Debt to be repaid with the Loans, the termination of all agreements relating thereto and the release of all Liens granted in 

connection therewith, with UCC or other appropriate termination statements and documents effective to evidence the foregoing (other than Permitted Liens), and (iii) such other UCC termination statements as the Bank may reasonably request.

(h)

Organizational and Authorization Document.  Copies of (i) the Articles of Incorporation and Bylaws of the Borrower; (ii) resolutions of the board of the Borrower and each of its domestic Subsidiaries approving and authorizing such Person’s execution, delivery and performance of the Loan Documents to which it is party and the transactions contemplated thereby; (iii) signature and incumbency certificates of the officers of the Borrower and each of its domestic Subsidiaries, executing any of the Loan Documents, each of which the Borrower hereby certifies to be true and complete, and in full force and effect without modification, it being understood that the Bank may conclusively rely on each such document and certificate until formally advised by the Borrower of any changes therein; and (iv) good standing certificates in the state of incorporation of the Borrower  and each of its domestic Subsidiaries and in each other state requested by the Bank.

(i)

Insurance.  Evidence satisfactory to the Bank of the existence of insurance required to be maintained pursuant to Section 8.6, together with evidence that the Bank has been named as a lender’s loss payee.

(j)

Borrower Information Certificate.  A Borrower Information Certificate in the form attached hereto as Exhibit “A”, certified as accurate by the Borrower.

(k)

Additional Documents.  Such other certificates, financial statements, schedules, resolutions, opinions of counsel, notes and other documents which are provided for hereunder or which the Bank shall reasonably require.

3.2.

Event of Default.  Any Event of Default, or Unmatured Event of Default shall have occurred and be continuing.

3.3.

Material Adverse Effect.  Other than disclosed to the Bank by PFI in writing, since March 31, 2008, there shall have occurred an event having a Material Adverse Effect upon the Borrower.

3.4.

Litigation.  Other than as disclosed to the Bank in writing, any litigation or governmental proceeding shall have been instituted against the Borrower or any of its officers or shareholders having a Material Adverse Effect upon the Borrower.

3.5.

Representations and Warranties.  Any representation or warranty of the Borrower contained herein or in any Loan Document shall be untrue or incorrect as of the date of any Loan as though made on such date, except to the extent such representation or warranty expressly relates to an earlier date.

3.6.

Commitment Fee.  The Borrower shall have failed to pay to the Bank a commitment fee in the amount of Seventy-Five Thousand and 00/100 Dollars ($75,000.00) in connection with the Loan, payable on or before the execution of this Agreement by the Bank.

Section 4.

NOTES EVIDENCING LOANS.

4.1.

Revolving Note.  The Revolving Loans and the Letter of Credit Obligations shall be evidenced by the Revolving Note.  At the time of the initial disbursement of a Revolving Loan and at each time any additional Revolving Loan shall be requested hereunder or a repayment made in whole or in part thereon, a notation thereof shall be made on the books and records of the Bank.  All amounts recorded shall be, absent manifest error, conclusive and binding evidence of (i) the principal amount of the Revolving Loans advanced hereunder and the amount of all Letter of Credit Obligations, (ii) any accrued and unpaid interest owing on the Revolving Loans, and (iii) all amounts repaid on the Revolving Loans or the Letter of Credit Obligations.  The failure to record any such amount or any error in recording such amounts shall not, however, limit or otherwise affect the obligations of the Borrower under the Revolving Note to repay the principal amount of the Revolving Loans, together with all interest accruing thereon.

Section 5.

MANNER OF BORROWING.

5.1.

Borrowing Procedures.  Each Revolving Loan may be advanced as a LIBOR Loan.  Each Loan shall be made available to the Borrower upon any written, verbal, electronic, telephonic or telecopy loan request which the Bank in good faith believes to emanate from a properly authorized representative of the Borrower, whether or not that is in fact the case.  Each such request shall be effective upon receipt by the Bank, shall be irrevocable, and shall specify the date, amount and type of borrowing date of funding.  The proceeds of each Loan shall be made available at the office of the Bank by credit to the account of the Borrower or by other means requested by the Borrower and acceptable to the Bank.  The Borrower does hereby irrevocably confirm, ratify and approve all such advances by the Bank and does hereby indemnify the Bank against losses and expenses (including court costs, attorneys’ and paralegals’ fees) and shall hold the Bank harmless with respect thereto.

5.2.

LIBOR Conversion and Continuation Procedures.  Each LIBOR Loan shall automatically renew at the then current LIBOR Rate unless the Borrower, pursuant to a subsequent written notice received by the Bank at least ten (10) Business Days prior to such conversion, shall elect to convert all or a portion of such LIBOR Loan to a Prime Loan.  

5.3.

Letters of Credit.  All Letters of Credit shall bear such application, issuance, renewal, negotiation and other customary administrative fees and charges, as charged by the Bank or otherwise payable pursuant to the Master Letter of Credit 

Agreement.  In addition to the foregoing, each standby Letters of Credit issued under and pursuant to this Agreement shall bear an annual issuance fee equal to one and one-quarter of one percent (1.25%) of the face amount of such standby Letter of Credit, payable by the Borrower prior to the issuance by the Bank of such Letter of Credit and annually thereafter, until (i) such Letter of Credit has expired or has been returned to the Bank, or (ii) the Bank has paid the beneficiary thereunder the full face amount of such Letter of Credit.

5.4.

Automatic Debit.  In order to effectuate the timely payment of any of the Obligations when due, the Borrower hereby irrevocably authorizes and directs the Bank, at the Bank’s option, to (a) debit the amount of the Obligations to any ordinary deposit account of the Borrower, or (b) make a Revolving Loan hereunder to pay the amount of the Obligations.  For purposes hereof, the Borrower hereby acknowledges that the initial account at Bank to be debited for repayment of the Obligations is Account No. 0097494852.

5.5.

Discretionary Disbursements.  The Bank, in its sole and absolute discretion, may immediately upon notice to the Borrower, disburse any or all proceeds of the Loans made or available to the Borrower pursuant to this Agreement to pay any out-of-pocket fees, costs, expenses or other amounts required to be paid by the Borrower hereunder and not so paid after the same are due and payable.  All monies so disbursed shall be a part of the Obligations, payable by the Borrower on demand from the Bank.  Bank shall provide copies of invoices and reasonable documentation supporting the computation of such amounts.

Section 6.

SECURITY FOR THE OBLIGATIONS.

6.1.

Security for Obligations.  As security for the payment and performance of the Obligations, the Borrower does hereby pledge, assign, transfer, deliver and grant to the Bank, for its own benefit and as agent for its Affiliates, a continuing and unconditional first priority security interest in and to any and all property of the Borrower, of any kind or description, tangible or intangible, wheresoever located and whether now existing or hereafter arising or acquired, including the following (all of which property, along with the products and proceeds therefrom, are individually and collectively referred to as the “Collateral”):

(a)

all property of, or for the account of, the Borrower now or hereafter coming into the possession, control or custody of, or in transit to, the Bank or any agent or bailee for the Bank or any parent, Affiliate or Subsidiary of the Bank or any participant with the Bank in the Loans (whether for safekeeping, deposit, collection, custody, pledge, transmission or otherwise), including all earnings, dividends, interest, or other rights in connection therewith and the products and proceeds therefrom, including the proceeds of insurance thereon; and

(b)

the additional property of the Borrower, whether now existing or hereafter arising or acquired, and wherever now or hereafter located, together with all additions and accessions thereto, substitutions, betterments and replacements therefor, products and Proceeds therefrom, and all of the Borrower’s books and records and recorded data relating thereto (regardless of the medium of recording or storage), together with all of the Borrower’s right, title and interest in and to all computer software required to utilize, create, maintain and process any such records or data on electronic media, identified and set forth as follows:

(i)

All Accounts and all Goods whose sale, lease or other disposition by the Borrower has given rise to Accounts and have been returned to, or repossessed or stopped in transit by, the Borrower, or rejected or refused by an account debtor;

(ii)

All Inventory, including raw materials, work-in-process and finished goods;

(iii)

All Goods (other than Inventory), including embedded software, Equipment, vehicles, furniture and Fixtures;

(iv)

All Software and computer programs, trademarks, patents, licensing agreements and other General Intangibles;

(v)

All Securities, Investment Property, Financial Assets and Deposit Accounts;

(vi)

All Chattel Paper, Electronic Chattel Paper, Instruments, Documents, Letter of Credit Rights, all proceeds of letters of credit, Health-Care-Insurance Receivables, Supporting Obligations, notes secured by real estate, Commercial Tort and General Intangibles, including Payment Intangibles; and

(vii)

All Proceeds (whether Cash Proceeds or Noncash Proceeds) of the foregoing property, including all insurance policies and proceeds of insurance payable by reason of loss or damage to the foregoing property, including unearned premiums, and of eminent domain or condemnation awards.

6.2.

Possession and Transfer of Collateral.  Unless an Event of Default exists hereunder, the Borrower shall be entitled to possession or use of the Collateral (other than Instruments or Documents, Tangible Chattel Paper, Investment Property consisting of certificated securities and other Collateral required to be delivered to the Bank pursuant to this Section 6).  The cancellation or surrender of any Note, upon payment or otherwise, shall not affect the right of the Bank to retain the Collateral for any other of the Obligations.  

6.3.

Financing Statements.  The Borrower shall, at the Bank’s request, at any time and from time to time, execute and deliver to the Bank such financing statements, amendments and other documents and do such acts as the Bank deems reasonably necessary in order to establish and maintain valid, attached and perfected first priority security interests in the Collateral in favor of the Bank, free and clear of all Liens and claims and rights of third parties whatsoever, except Permitted Liens.  The Borrower hereby irrevocably authorizes the Bank at any time, and from time to time, to file in any jurisdiction any initial financing statements and amendments thereto without the signature of the Borrower that (a) indicate the Collateral (i) is comprised of all assets of the Borrower or words of similar effect, regardless of whether any particular asset comprising a part of the Collateral falls within the scope of Article 9 of the Uniform Commercial Code of the jurisdiction wherein such financing statement or amendment is filed, or (ii) as being of an equal or lesser scope or within greater detail as the grant of the security interest set forth herein, and (b) contain any other information required by Section 5 of Article 9 of the Uniform Commercial Code of the jurisdiction wherein such financing statement or amendment is filed regarding the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether the Borrower is an organization, the type of organization and any Organizational Identification Number issued to the Borrower, and (ii) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of the real property to which the Collateral relates.  The Borrower hereby agrees that a photocopy or other reproduction of this Agreement is sufficient for filing as a financing statement and the Borrower authorizes the Bank to file this Agreement as a financing statement in any jurisdiction.  The Borrower agrees to furnish any such information to the Bank promptly upon request.  The Borrower further ratifies and affirms its authorization for any financing statements and/or amendments thereto, executed and filed by the Bank in any jurisdiction prior to the date of this Agreement.  In addition, the Borrower shall make appropriate entries on its books and records disclosing the Bank’s security interests in the Collateral.

6.4.

Intentionally deleted.

6.5.

Preservation of the Collateral.  The Bank may, but is not required, to take such actions from time to time as the Bank deems appropriate to maintain or protect the Collateral.  The Bank shall have exercised reasonable care in the custody and preservation of the Collateral if the Bank takes such action as the Borrower shall reasonably request in writing which is not inconsistent with the Bank’s status as a secured party, but the failure of the Bank to comply with any such request shall not be deemed a failure to exercise reasonable care; provided, however, the Bank’s responsibility for the safekeeping of the Collateral shall (i) be deemed reasonable if such Collateral is accorded treatment substantially equal to that which the Bank accords its own property, and (ii) not extend to matters beyond the control of the Bank, including acts of God, war, insurrection, riot or governmental actions.  In addition, any failure of the Bank to preserve or protect any rights with respect to the Collateral against prior or third parties, or to do any act with respect to preservation of the Collateral, not so requested by the Borrower, shall not be deemed a failure to exercise reasonable care in the custody or 

preservation of the Collateral.  The Borrower shall have the sole responsibility for taking such action as may be necessary, from time to time, to preserve all rights of the Borrower and the Bank in the Collateral against prior or third parties.  Without limiting the generality of the foregoing, where Collateral consists in whole or in part of securities, the Borrower represents to, and covenants with, the Bank that the Borrower has made arrangements for keeping informed of changes or potential changes affecting the securities (including rights to convert or subscribe, payment of dividends, reorganization or other exchanges, tender offers and voting rights), and the Borrower agrees that the Bank shall have no responsibility or liability for informing the Borrower of any such or other changes or potential changes or for taking any action or omitting to take any action with respect thereto.

6.6.

Other Actions as to any and all Collateral.  The Borrower further agrees to take any other action reasonably requested by the Bank to ensure the attachment, perfection and first priority of (subject to Permitted Liens), and the ability of the Bank to enforce, the Bank’s security interest in any and all of the Collateral, including (a) causing the Bank’s name to be noted as secured party on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of the bank to enforce, the Bank’s security interest in such Collateral, (b) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of the Bank to enforce, the Bank’s security interest in such Collateral, (c) obtaining governmental and other third party consents and approvals, including any consent of any licensor, lessor or other Person obligated on Collateral, (d) obtaining waivers from mortgagees and landlords in form and substance satisfactory to the Bank, and (e) taking all actions required by the UCC in effect from time to time or by other law, as applicable in any relevant UCC jurisdiction, or by other law as applicable in any foreign jurisdiction.  The Borrower further agrees to indemnify and hold the Bank harmless against claims of any Persons not a party to this Agreement (other than Permitted Lienholders) concerning disputes arising over the Collateral.

6.7.

Collateral in the Possession of a Warehouseman or Bailee.  If any of the Collateral with a value in excess of $100,000.00 at any time is in the possession of a warehouseman or bailee, the Borrower shall promptly notify the Bank thereof, and shall promptly obtain a Collateral Access Agreement.  The Bank agrees with the Borrower that the Bank shall not give any instructions to such warehouseman or bailee pursuant to such Collateral Access Agreement unless an Event of Default has occurred and is continuing, or would occur after taking into account any action by the Borrower with respect to the warehouseman or bailee.

6.8.

Intentionally deleted.

6.9.

Commercial Tort Claims.  If the Borrower shall at any time hold or acquire a Commercial Tort Claim (with a value in excess of $10,000.00 if no Unmatured Event of Default or Event of Default exists, or $1.00 otherwise), the Borrower shall immediately notify the Bank in writing signed by the Borrower of the details thereof and 

grant to the Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, in each case in form and substance satisfactory to the Bank, and shall execute any amendments hereto deemed reasonably necessary by the Bank to perfect its security interest in such Commercial Tort Claim.

6.10.

Electronic Chattel Paper and Transferable Records.  If the Borrower at any time holds or acquires an interest in any electronic chattel paper or any “transferable record”, as that term is defined in Section 201 of the federal Electronic Signatures in Global and National Commerce Act, or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction, the Borrower shall promptly notify the Bank thereof and, at the request of the Bank, shall take such action as the Bank may reasonably request to vest in the Bank control under Section 9-105 of the UCC of such electronic chattel paper or control under Section 201 of the federal Electronic Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record.  The Bank agrees with the Borrower that the Bank will arrange, pursuant to procedures satisfactory to the Bank and so long as such procedures will not result in the Bank’s loss of control, for the Borrower to make alterations to the electronic chattel paper or transferable record permitted under Section 9-105 of the UCC or, as the case may be, Section 201 of the federal Electronic Signatures in Global and National Commerce Act or Section 16 of the Uniform Electronic Transactions Act for a party in control to make without loss of control.

Section 7.

REPRESENTATIONS AND WARRANTIES.

To induce the Bank to make the Loans, the Borrower makes the following representations and warranties to the Bank, each of which shall survive the execution and delivery of this Agreement:

7.1.

Borrower Organization and Name.  PFI is a corporation duly organized, existing and in good standing under the laws of the State of Delaware, with full and adequate power to carry on and conduct its business as presently conducted, LTD is a corporation duly organized, existing and in good standing under the laws of the State of New York, with full and adequate power to carry on and conduct its business as presently conducted, and each Subsidiary is validly existing and in good standing under the laws of the jurisdiction of its organization.  The Borrower and each Subsidiary is duly licensed or qualified in all foreign jurisdictions wherein the nature of its activities require such qualification or licensing, except for such jurisdictions where the failure to so qualify would not have a Material Adverse Effect.  The exact legal name of the Borrower is as set forth in the first paragraph of this Agreement, and the Borrower currently does not conduct, nor has it during the last five (5) years conducted, business under any other name or trade name.

7.2.

Authorization.  The Borrower has full right, power and authority to enter into this Agreement, to make the borrowings and execute and deliver the Loan Documents as provided herein and to perform all of its duties and obligations under this 

Agreement and the other Loan Documents.  The execution and delivery of this Agreement and the other Loan Documents will not, nor will the observance or performance of any of the matters and things herein or therein set forth, violate or contravene any provision of law or of the articles of incorporation or bylaws of the Borrower.  All necessary and appropriate action has been taken on the part of the Borrower to authorize the execution and delivery of this Agreement and the Loan Documents.

7.3.

Validity and Binding Nature.  This Agreement and the other Loan Documents are the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms, subject to bankruptcy, insolvency and similar laws affecting the enforceability of creditors’ rights generally and to general principles of equity.

7.4.

Consent; Absence of Breach.  The execution, delivery and performance of this Agreement, the other Loan Documents and any other documents or instruments to be executed and delivered by the Borrower in connection with the Loans, and the borrowings by the Borrower hereunder, do not and will not (a) require any consent, approval, authorization of, or filings with, notice to or other act by or in respect of, any governmental authority or any other Person (other than any consent or approval which has been obtained and is in full force and effect); (b) conflict with (i) any provision of law or any applicable regulation, order, writ, injunction or decree of any court or governmental authority, (ii) the articles of incorporation or bylaws of the Borrower, or (iii) any material agreement, indenture, instrument or other document, or any judgment, order or decree, which is binding upon the Borrower or any of its respective properties or assets; or (c) require, or result in, the creation or imposition of any Lien on any asset of Borrower or any of its Subsidiaries, other than Liens in favor of the Bank created pursuant to this Agreement.

7.5.

Ownership of Properties; Liens.  The Borrower is the sole owner all of its properties and assets, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, trade names, service marks and copyrights), free and clear of all Liens, charges and claims (including infringement claims with respect to patents, trademarks, service marks, copyrights and the like), other than Permitted Liens.

7.6.

Equity Ownership.  All issued and outstanding Capital Securities of each Subsidiary of PFI are duly authorized and validly issued, fully paid, non-assessable, and free and clear of all Liens other than those in favor of the Bank, if any, and such securities were issued in compliance with all applicable state and federal laws concerning the issuance of securities.  As of the date hereof, there are no pre-emptive or other outstanding rights, options, warrants, conversion rights or other similar agreements or understandings for the purchase or acquisition of any Capital Securities of any Subsidiary of PFI.

7.7.

Intellectual Property.  The Borrower owns and possesses or has a license or other right to use all Intellectual Property, as are necessary for the conduct of the 

businesses of the Borrower, without any infringement upon rights of others which could reasonably be expected to have a Material Adverse Effect upon the Borrower, and no material claim has been asserted and is pending by any Person challenging or questioning the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property nor does the Borrower know of any valid basis for any such claim.

7.8.

Financial Statements.  All financial statements submitted to the Bank have been prepared in accordance with GAAP on a basis, except as otherwise noted therein, consistent with the previous fiscal year and present fairly the financial condition of PFI and the results of the operations for PFI as of such date and for the periods indicated.  Since the date of the most recent financial statement submitted by PFI to the Bank, there has been no change in the financial condition or in the assets or liabilities of PFI having a Material Adverse Effect on PFI.

7.9.

Litigation and Contingent Liabilities.  There is no litigation, arbitration proceeding, demand, charge, claim, petition or governmental investigation or proceeding pending, or, threatened in writing, against the Borrower, which, if adversely determined, might reasonably be expected to have a Material Adverse Effect upon the Borrower, except as set forth in Schedule 7.9.  Other than any liability incident to such litigation or proceedings, the Borrower has no material guarantee obligations, contingent liabilities, liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, including any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are not fully-reflected or fully reserved for in the most recent audited financial statements delivered pursuant to subsection 8.8(a) or fully-reflected or fully reserved for in the most recent monthly financial statements delivered pursuant to subsection 8.8(b) and not permitted by Section 9.1.

7.10.

Event of Default.  No Event of Default or Unmatured Event of Default exists or would result from the incurrence by the Borrower of any of the Obligations hereunder or under any of the other Loan Document, and the Borrower is not in default, after the expiration of any applicable grace or cure period), under any other contract or agreement in excess of $250,000.00 to which it is party.

7.11.

Adverse Circumstances.  Except as disclosed to Bank in writing, since March 31, 2008, no condition, circumstance, event, agreement, document, instrument, restriction, litigation or proceeding (or threatened litigation or proceeding or basis therefor) exists which (a) would have a Material Adverse Effect upon the Borrower, or (b) would constitute an Event of Default or an Unmatured Event of Default.

7.12.

Environmental Laws and Hazardous Substances.  The Borrower has not generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Substances, on or off any of the premises of the Borrower (whether or not owned by it) in any manner which at any time violates any Environmental Law or any license, permit, certificate, approval or similar authorization thereunder which violation could reasonably be expected to result in a Material Adverse 

Effect.  The Borrower will comply in all material respects with all Environmental Laws and will obtain all licenses, permits certificates, approvals and similar authorizations thereunder.  There has been no investigation, proceeding, complaint, order, directive, claim, citation or notice by any governmental authority or any other Person, nor is any pending or, to the best of the Borrower’s knowledge, threatened in writing, and the Borrower shall immediately notify the Bank upon becoming aware of any such investigation, proceeding, complaint, order, directive, claim, citation or notice, and shall take prompt and appropriate actions to respond thereto, with respect to any non-compliance with, or violation of, the requirements of any Environmental Law by the Borrower or the release, spill or discharge, threatened or actual, of any Hazardous Material or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Material or any other environmental, health or safety matter, which affects the Borrower or its business, operations or assets or any properties at which the Borrower has transported, stored or disposed of any Hazardous Substances.  The Borrower has no material liability, contingent or otherwise, in connection with a release, spill or discharge, threatened or actual, of any Hazardous Substances or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Material.  The Borrower further agrees to allow the Bank or its agent access to the properties of the Borrower and its Subsidiaries to confirm compliance with all Environmental Laws, and the Borrower shall, following determination by the Bank that there is non-compliance, or any condition which requires any action by or on behalf of the Borrower in order to avoid any non-compliance, with any Environmental Law, at the Borrower’s sole expense, cause an independent environmental engineer acceptable to the Bank to conduct such tests of the relevant site as are appropriate, and prepare and deliver a report setting forth the result of such tests, a proposed plan for remediation and an estimate of the costs thereof.

7.13.

Solvency, etc.  As of the date hereof, and immediately prior to and after giving effect to the issuance of each Letter of Credit and each Loan hereunder and the use of the proceeds thereof, (a) the fair value of the Borrower’s assets is greater than the amount of its liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated as required under the Section 548 of the Bankruptcy Code, (b) the present fair saleable value of the Borrower’s assets is not less than the amount that will be required to pay the probable liability on its debts as they become absolute and matured, (c) the Borrower is able to realize upon its assets and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business, (d) the Borrower does not intend to, and does not believe that it will, incur debts or liabilities beyond its ability to pay as such debts and liabilities mature, and (e) the Borrower is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which its property would constitute unreasonably small capital.

7.14.

ERISA Obligations.  All Employee Plans of the Borrower meet the minimum funding standards of Section 302 of ERISA and 412 of the Internal Revenue Code where applicable, and each such Employee Plan that is intended to be qualified within the meaning of Section 401 of the Internal Revenue Code of 1986 is qualified.  No 

withdrawal liability has been incurred under any such Employee Plans and no “Reportable Event” or “Prohibited Transaction” (as such terms are defined in ERISA), has occurred with respect to any such Employee Plans, unless approved by the appropriate governmental agencies.  The Borrower has promptly paid and discharged all obligations and liabilities arising under the Employee Retirement Income Security Act of 1974 (“ERISA”) of a character which if unpaid or unperformed might result in the imposition of a Lien against any of its properties or assets.

7.15.

Labor Relations.  Except as could not reasonably be expected to have a Material Adverse Effect, (i) there are no strikes, lockouts or other labor disputes against the Borrower or, threatened, (ii) hours worked by and payment made to employees of the Borrower have not been in violation of the Fair Labor Standards Act or any other applicable law, and (ii) no unfair labor practice complaint is pending against the Borrower or, threatened in writing before any governmental authority.

7.16.

Security Interest.  This Agreement creates a valid security interest in favor of the Bank in the Collateral and, when properly perfected by filing in the appropriate jurisdictions, or by possession or Control of such Collateral by the Bank or delivery of such Collateral to the Bank, shall constitute a valid, perfected, first-priority security interest in such Collateral.

7.17.

Lending Relationship.  The relationship hereby created between the Borrower and the Bank is and has been conducted on an open and arm’s length basis in which no fiduciary relationship exists, and the Borrower has not relied and is not relying on any such fiduciary relationship in executing this Agreement and in consummating the Loans.  The Bank represents that it will receive any Note payable to its order as evidence of a bank loan.

7.18.

Business Loan.  The Loans, including interest rate, fees and charges as contemplated hereby, (i) are an exempted transaction under the Truth In Lending Act, 12 U.S.C. 1601 et seq., as amended from time to time, and (ii) do not, and when disbursed shall not, violate the provisions of the Florida usury laws, any consumer credit laws or the usury laws of the State of Florida.

7.19.

Taxes.  The Borrower has timely filed all tax returns and reports required by law to have been filed by it and has paid all taxes, governmental charges and assessments due and payable with respect to such returns, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books, or which are insured against or bonded over to the reasonable satisfaction of the Bank and the contesting of such payment does not create a Lien on the Collateral which is not a Permitted Lien.  There is no controversy or objection pending, or to the knowledge of Borrower, threatened in writing in respect of any tax returns of the Borrower.  The Borrower has made adequate reserves on its books and records in accordance with GAAP for all taxes that have accrued but which are not yet due and payable.

7.20.

Compliance with Regulations T, U and X.  No portion of the proceeds of the Loans shall be used by the Borrower, or any Affiliate of the Borrower, either directly or indirectly, for the purpose of purchasing or carrying any margin stock, within the meaning of Regulation T, Regulation U or Regulation X as adopted by the Board of Governors of the Federal Reserve System or any successor thereto.

7.21.

Governmental Regulation.  The Borrower and its Subsidiaries are not, or after giving effect to any loan, will not be, subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the ICC Termination Act of 1995 or the Investment Company Act of 1940 or to any federal or state statute or regulation limiting its ability to incur indebtedness for borrowed money.

7.22.

Bank Accounts.  All Deposit Accounts and operating bank accounts of the Borrower and its Subsidiaries are located at the Bank and the Borrower has no other Deposit Accounts except those listed on Exhibit “A” attached hereto.

7.23.

Place of Business.  The principal place of business of the Borrower and the location of the books and records of the Borrower, and the location of all Collateral, if other than at such principal place of business, is as set forth on Exhibit “A” attached hereto and made a part hereof, and the Borrower shall promptly notify the Bank of any change in such location.  

7.24.

Complete Information.  This Agreement and all financial statements, schedules, certificates, confirmations, agreements, contracts, and other materials and written information heretofore or contemporaneously herewith furnished in writing by the Borrower to the Bank for purposes of, or in connection with, this Agreement and the transactions contemplated hereby is, and all written information hereafter furnished by or on behalf of the Borrower to the Bank pursuant hereto or in connection herewith will be, true and accurate in every material respect on the date as of which such information is dated or certified, and none of such information taken as a whole is or will be incomplete by omitting to state any material fact necessary to make such information not misleading in light of the circumstances under which made (it being recognized by the Bank that any projections and forecasts provided by the Borrower are based on good faith estimates and assumptions believed by the Borrower to be reasonable as of the date of the applicable projections or assumptions and that actual results during the period or periods covered by any such projections and forecasts may differ from projected or forecasted results).

Section 8.

AFFIRMATIVE COVENANTS.

8.1.

Compliance with Bank Regulatory Requirements; Increased Costs.  If the Bank shall reasonably determine that any Regulatory Change, or compliance by the Bank or any Person controlling the Bank with any request or directive (whether or not having the force of law) of any governmental authority, central bank or comparable agency has or would have the effect of reducing the rate of return on the Bank’s or such controlling Person’s capital as a consequence of the Bank’s obligations hereunder or under any 

Letter of Credit to a level below that which the Bank or such controlling Person could have achieved but for such Regulatory Change or compliance (taking into consideration the Bank’s or such controlling Person’s policies with respect to capital adequacy) by an amount deemed by the Bank or such controlling Person to be material or would otherwise reduce the amount of any sum received or receivable by the Bank under this Agreement or under any Note with respect thereto, then from time to time, upon demand by the Bank (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail), the Borrower shall pay directly to the Bank or such controlling Person such additional amount as will compensate the Bank for such increased cost or such reduction, so long as such amounts have accrued on or after the day which is one hundred eighty days (180) days prior to the date on which the Bank first made demand therefor.

8.2.

Borrower Existence.  The Borrower shall at all times (a) preserve and maintain its existence and good standing in the jurisdiction of its organization, (b) preserve and maintain its qualification to do business and good standing in each jurisdiction where the nature of its business makes such qualification necessary (other than such jurisdictions in which the failure to be qualified or in good standing could not reasonably be expected to have a Material Adverse Effect), and (c) continue as a going concern in the business which the Borrower is presently conducting.  If the Borrower does not have an Organizational Identification Number and later obtains one, the Borrower shall promptly notify the Bank of such Organizational Identification Number.

8.3.

Use of Proceeds; Compliance With Laws.  The Borrower shall use the proceeds of the Loans to: (a) refinance Borrower’s existing indebtedness; and (b) provide for the working capital requirements and general corporate purposes of the Borrower not in contravention of any requirements of law and not in violation of this Agreement, and shall comply, and cause each Subsidiary to comply, in all respects, including the conduct of its business and operations and the use of its properties and assets, with all applicable laws, rules, regulations, decrees, orders, judgments, licenses and permits, except where failure to comply could not reasonably be expected to have a Material Adverse Effect.  In addition, and without limiting the foregoing sentence, the Borrower shall (a) ensure, and cause each Subsidiary to ensure, that no person who owns a controlling interest in or otherwise controls the Borrower or any Subsidiary is or shall be listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by the Office of Foreign Assets Control (“OFAC”), the Department of the Treasury or included in any Executive Orders, (b) not use or permit the use of the proceeds of the Loans to violate any of the foreign asset control regulations of OFAC or any enabling statute or Executive Order relating thereto, and (c) comply, and cause each Subsidiary to comply, with all applicable Bank Secrecy Act (“BSA”) laws and regulations, as amended.

8.4.

Payment of Taxes and Liabilities.  The Borrower shall pay, and cause each Subsidiary to pay, and discharge, prior to delinquency and before penalties accrue thereon, all property and other taxes, and all governmental charges or levies against it or any of the Collateral, as well as claims of any kind which, if unpaid, could become a Lien on any of its property; provided that the foregoing shall not require the Borrower or any 

Subsidiary to pay any such tax or charge so long as it shall contest the validity thereof in good faith by appropriate proceedings and shall set aside on its books adequate reserves with respect thereto in accordance with GAAP and, in the case of a claim which could become a Lien on any of the Collateral, such contest proceedings stay the foreclosure of such Lien or the sale of any portion of the Collateral to satisfy such claim.

8.5.

Maintain Property.  The Borrower shall at all times maintain, preserve and keep its plant, properties and Equipment, including any Collateral, in good repair, working order and condition, and shall from time to time make all needful and proper repairs, renewals, replacements, and additions thereto so that at all times the efficiency thereof shall be reasonably preserved and maintained.  The Borrower shall permit the Bank to examine and inspect such plant, properties and Equipment, including any Collateral, at all reasonable times upon reasonable prior notice to the Borrower.

8.6.

Maintain Insurance.  The Borrower shall at all times maintain, and cause each Subsidiary to maintain, with insurance companies reasonably acceptable to the Bank, such insurance coverage as may be required by any law or governmental regulation or court decree or order applicable to it and such other insurance, to such extent and in such amounts and against such hazards and liabilities, including employers’, public and professional liability risks, as is customarily maintained by companies similarly situated.  The Borrower shall furnish to the Bank a certificate setting forth in reasonable detail the nature and extent of all insurance maintained by the Borrower, which shall be reasonably acceptable in all respects to the Bank. The Borrower shall cause each issuer of an insurance policy to provide the Bank with an endorsement (i) showing the Bank as lender’s loss payee with respect to each policy of property or casualty insurance; and (ii) providing that thirty (30) days notice will be given to the Bank prior to any cancellation of, material reduction or change in coverage provided by or other material modification to such policy.  The Borrower shall execute and deliver to the Bank a collateral assignment, in form and substance satisfactory to the Bank, of each business interruption insurance policy maintained by the Borrower.

In the event the Borrower either fails to provide the Bank with evidence of the insurance coverage required by this Section or at any time hereafter shall fail to obtain or maintain any of the policies of insurance required above, or to pay any premium in whole or in part relating thereto, then the Bank, without waiving or releasing any obligation or default by the Borrower hereunder, may at any time (but shall be under no obligation to so act), obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto, which the Bank deems advisable.  This insurance coverage (a) may, but need not, protect the Borrower’s interests in such property, including the Collateral, and (b) may not pay any claim made by, or against, the Borrower in connection with such property, including the Collateral. The Borrower may later cancel any such insurance purchased by the Bank, but only after providing the Bank with evidence that the Borrower has obtained the insurance coverage required by this Section.  If the Bank purchases insurance for the Collateral, the Borrower will be responsible for the costs of that insurance, including interest and any other charges that may be imposed with the placement of the insurance, until the effective date of the 

cancellation or expiration of the insurance.  The costs of the insurance may be added to the principal amount of the Loans owing hereunder.  The costs of the insurance may be more than the cost of the insurance the Borrower may be able to obtain on its own.

8.7.

ERISA Liabilities; Employee Plans.  The Borrower shall (i) keep in full force and effect any and all Employee Plans which are presently in existence or may, from time to time, come into existence under ERISA, and not withdraw from any such Employee Plans, unless such withdrawal can be effected or such Employee Plans can be terminated without liability to the Borrower; (ii) make contributions to all of such Employee Plans in a timely manner and in a sufficient amount to comply with the standards of ERISA; including the minimum funding standards of ERISA; (iii) comply with all material requirements of ERISA which relate to such Employee Plans; (iv) notify the Bank immediately upon receipt by the Borrower of any notice concerning the imposition of any withdrawal liability or of the institution of any proceeding or other action which may result in the termination of any such Employee Plans or the appointment of a trustee to administer such Employee Plans; (v) promptly advise the Bank of the occurrence of any “Reportable Event” or “Prohibited Transaction” (as such terms are defined in ERISA), with respect to any such Employee Plans; and (vi) amend any Employee Plan that is intended to be qualified within the meaning of Section 401 of the Internal Revenue Code of 1986 to the extent necessary to keep the Employee Plan qualified, and to cause the Employee Plan to be administered and operated in a manner that does not cause the Employee Plan to lose its qualified status.

8.8.

Financial Statements.  The Borrower shall at all times maintain a standard and modern system of accounting, on the accrual basis of accounting and in all respects in accordance with GAAP, and shall furnish to the Bank or its authorized representatives such information regarding the business affairs, operations and financial condition of the Borrower, including:

(a)

promptly when available, and in any event, within ninety (90) days after the close of each of its fiscal years, a copy of (i) the annual audited financial statements of the Borrower and its Subsidiaries, including consolidated balance sheet, statement of income and retained earnings, statement of cash flows for the fiscal year then ended and such other information (including nonfinancial information) as the Bank may request, in reasonable detail, prepared and certified without adverse reference to going concern value and without qualification by an independent auditor of recognized standing, selected by the Borrower and reasonably acceptable to the Bank, (ii) a consolidating balance sheet of the Borrower and its Subsidiaries as of the end of each of its fiscal years and consolidating statements of earnings and cash flows for the Borrower and its Subsidiaries for each of its fiscal years, certified as true and correct by the Borrower’s treasurer or chief financial officer, and (iii) a report detailing any changes in shareholders’ equity; and

(b)

promptly when available, and in any event, within forty-five (45) days following the end of each fiscal quarter, a copy of the consolidated and 

consolidating financial statements of the Borrower and its Subsidiaries regarding such month, including balance sheet, statement of income and retained earnings, statement of cash flows for the month then ended and such other information (including nonfinancial information) as the Bank may request, in reasonable detail, prepared and certified as true and correct by the Borrower’s treasurer or chief financial officer; and

(c)

within ten (10) days after the filing due date (as such date may be extended in accordance with properly granted extensions) each year, a signed copy of the complete income tax returns filed with the Internal Revenue Service by the Borrower.

No change with respect to such accounting principles shall be made by the Borrower without giving prior notification to the Bank.  The Borrower represents and warrants to the Bank that the financial statements delivered to the Bank at or prior to the execution and delivery of this Agreement and to be delivered at all times thereafter accurately reflect and will accurately reflect the financial condition of the Borrower.  The Bank shall have the right at all times during business hours to, upon reasonable prior notice to the Borrower, inspect the books and records of the Borrower and make extracts therefrom.

8.9.

Projections.  The Borrower shall deliver, not later than the thirtieth (30th) day after the commencement of each fiscal year, Projections to Bank for Borrower for such fiscal year. "Projections" means Borrower's forecasted consolidated (i) balance sheets, (ii) profit and loss statements, (iii) cash flow statements, and (iv) Borrowing Base availability calculations, all prepared on a month by month basis and on a consistent basis with Borrower's historical financial statements, together with appropriate supporting details and a statement of underlying assumptions.

8.10.

Supplemental Financial Statements.  The Borrower shall immediately upon receipt thereof, provide to the Bank copies of interim and supplemental reports if any, submitted to the Borrower by independent accountants in connection with any interim audit or review of the books of the Borrower.

8.11.

Borrowing Base Certificate.  The Borrower shall, (a) within thirty (30) days after the end of each month, and (b) at any time the Borrower shall request a Loan hereunder, deliver to the Bank a Borrowing Base Certificate in the form attached as Exhibit 3.1(g) dated as of the last Business Day of such month, certified as true and correct by an authorized representative of the Borrower and acceptable to the Bank in its reasonable discretion, provided, however, at any time an Event of Default exists, the Bank may require the Borrower to deliver Borrowing Base Certificates more frequently.

8.12.

Aged Accounts Schedule. The Borrower shall, within thirty (30) days after the end of each month, deliver to the Bank an aged schedule of the Accounts of the Borrower, listing the name and amount due from each account debtor and showing the aggregate amounts due from the invoice date: (a) 0-30 days, (b) 30-60 days, (c) 61-90 

days and more than 90 days, and certified as accurate by the Borrower’s treasurer or chief financial officer. 

8.13.

Inventory Reports. The Borrower shall, within thirty (30) days after the end of each month, deliver to the Bank an inventory report, certified as accurate by the Borrower’s treasurer or chief financial officer and within such time as the Bank may specify, such other schedules and reports as the Bank may require. 

8.14.

Accounts Payable Agings. The Borrower shall, within thirty (30) days after the end of each month, deliver to the Bank an aging of accounts payable (including the amounts owing to owners and lessors of leased premises, warehouses, processors, and other third parties from time to time in possession of any Collateral) certified as accurate by the Borrower’s treasurer or chief financial officer and within such time as the Bank may specify, such other schedules and reports as the Bank may require.

8.15.

Covenant Compliance Certificate.  The Borrower shall, contemporaneously with the furnishing of the financial statements pursuant to Section 8.8(b), deliver to the Bank a duly completed compliance certificate, dated the date of such financial statements and certified as true and correct by an appropriate officer of the Borrower, containing a computation of each of the financial covenants set forth in Section 10 and stating that the Borrower has not become aware of any Event of Default or Unmatured Event of Default that has occurred and is continuing or, if there is any such Event of Default or Unmatured Event of Default describing it and the steps, if any, being taken to cure it.

8.16.

Field Audits.  The Borrower shall permit the Bank to inspect the Inventory, other tangible assets and/or other business operations of the Borrower, to perform appraisals of the Equipment of the Borrower, and to inspect, audit, check and make copies of, and extracts from, the books, records, computer data, computer programs, journals, orders, receipts, correspondence and other data relating to Inventory, Accounts and any other Collateral, the results of which must be satisfactory to the Bank in the Bank’s sole and absolute discretion.  All such inspections or audits by the Bank shall be at the Borrower’s sole expense.  Unless an Event of Default has occurred or unless required by banking regulations, Borrower shall not be required to reimburse Bank for more than one inspection per annum in connection with such inspection. 

8.17.

Other Reports.  The Borrower shall, within such period of time as the Bank may specify, deliver to the Bank such other schedules and reports concerning the Borrower as the Bank may reasonably request.

8.18.

Collateral Records.  The Borrower shall keep full and accurate books and records relating to the Collateral and shall mark such books and records to indicate the Bank’s Lien in the Collateral, including placing a legend, in form and content acceptable to the Bank, on all Chattel Paper created by the Borrower indicating that the Bank has a Lien in such Chattel Paper.

8.19.

Intellectual Property.  The Borrower shall maintain, preserve and renew all Intellectual Property reasonably necessary for the conduct of its business as and where the same is currently located as heretofore or as hereafter conducted by it.

8.20.

Notice of Proceedings.  The Borrower, promptly upon becoming aware, shall give written notice to the Bank of any litigation, arbitration or governmental investigation or proceeding not previously disclosed by the Borrower to the Bank which has been instituted or, to the knowledge of the Borrower, is threatened in writing against the Borrower or any of its Subsidiaries or to which any of their respective properties is subject which might reasonably be expected to have a Material Adverse Effect.

8.21.

Notice of Event of Default or Material Adverse Effect.  The Borrower shall, immediately after the commencement thereof, give notice to the Bank in writing of the occurrence of any Event of Default or any Unmatured Event of Default, or the occurrence of any condition or event having a Material Adverse Effect.

8.22.

Environmental Matters.  If any release or threatened release or other disposal of Hazardous Substances shall occur or shall have occurred on any real property or any other assets of the Borrower, the Borrower shall cause the prompt containment and removal of such Hazardous Substances and the remediation of such real property or other assets as necessary to comply with all Environmental Laws and to preserve the value of such real property or other assets.  Without limiting the generality of the foregoing, the Borrower shall comply with any Federal or state judicial or administrative order requiring the performance at any real property of the Borrower of activities in response to the release or threatened release of a Hazardous Substance.  To the extent that the transportation of Hazardous Substances is permitted by this Agreement, the Borrower shall dispose of such Hazardous Substances, or of any other wastes, only at licensed disposal facilities operating in compliance with Environmental Laws. 

8.23.

Further Assurances.  The Borrower shall take such actions as are reasonably necessary or as the Bank may reasonably request from time to time to ensure that the Obligations under the Loan Documents are secured by substantially all of the assets of the Borrower, in each case as the Bank may determine, including (a) the execution and delivery of security agreements, pledge agreements, financing statements and other documents, and the filing or recording of any of the foregoing, and (b) the delivery of certificated securities and other collateral with respect to which perfection is obtained by possession.

8.24.

Banking Relationship.  The Borrower covenants and agrees, at all times during the term of this Agreement, to utilize the Bank as its primary bank of account and depository for all financial services, including all receipts, disbursements, cash management and related service; provided that the Borrower shall have no obligation to make any Cash Equivalent Investments through or with Bank or any of Bank’s Affiliates.   

8.25.

Non-Utilization Fee.  The Borrower agrees to pay to the Bank a non-utilization fee equal to one-fifth of one percent (0.20%) of the total of (a) the Revolving 

Loan Commitment, minus (b) the sum of (i) the daily average of the aggregate principal amount of all Revolving Loans outstanding, plus (ii) the daily average of the aggregate amount of the Letter of Credit Obligations, which non-utilization fee shall be (A) calculated on the basis of a year consisting of 360 days, (B) paid for the actual number of days elapsed, and (C) payable quarterly in arrears on the last day of each fiscal quarter, commencing on September 30, 2008, and on the Revolving Loan Maturity Date. 

Section 9.

NEGATIVE COVENANTS.

9.1.

Debt.  The Borrower shall not, without the prior written consent of Bank, create, assume, incur or have outstanding any Debt (including purchase money indebtedness), or become liable, whether as endorser, guarantor, surety or otherwise, for any debt or obligation of any other Person, except:

(a)

the Obligations under this Agreement and the other Loan Documents;

(b)

obligations of the Borrower for Taxes, assessments, municipal or other governmental charges;

(c)

obligations of the Borrower for accounts payable, other than for money borrowed, incurred in the ordinary course of business;

(d)

Subordinated Debt;

(e)

Hedging Obligations incurred in favor of the Bank or an Affiliate thereof for bona fide hedging purposes and not for speculation;

(f)

Debt described on Schedule 9.1 and any extension, renewal or refinancing thereof so long as the principal amount thereof is not increased;

(g)

guarantees of the obligations of any Obligor otherwise permitted to be incurred hereunder;

(h)

purchase money indebtedness in an aggregate amount not to exceed $250,000.00 in the aggregate at any time outstanding;

(i)

Debt incurred to finance capital expenditures, including capital lease obligations, in any fiscal year not to exceed in excess of $1,100,000.00 in the aggregate; and

(j)

Unsecured Debt not to exceed $100,000.00 in the aggregate at any time outstanding.

9.2.

Encumbrances.  The Borrower shall not, either directly or indirectly, create, assume, incur or suffer or permit to exist any Lien or charge of any kind or 

character upon any asset of the Borrower, whether owned at the date hereof or hereafter acquired, except for Permitted Liens.

9.3.

Investments.  The Borrower shall not, without the prior written consent of Bank, make or have outstanding any Investment, except:

(a)

contributions by the Borrower to the capital of any Subsidiary which have granted a first perfected security interest in all of its/their assets in favor of the Bank, or by any Subsidiary to the capital of any other domestic Wholly-Owned Subsidiary;

(b)

Investments constituting Debt permitted by Section 9.1;

(c)

Contingent Liabilities constituting Debt permitted by Section 9.1 or Liens permitted by Section 9.2;

(d)

Cash Equivalent Investments;

(e)

Bank deposits in the ordinary course of business;

(f)

Investments in securities of account debtors received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such account debtors; 

(g)

Investments listed on Schedule 9.3 as of the Closing Date; and

(h)

Investments in foreign Subsidiaries and non-wholly owned Subsidiaries not to exceed $250,000.00 in the aggregate at any time outstanding.

provided, however, that (i) any Investment which when made complies with the requirements of the definition of the term “Cash Equivalent Investment” may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; and (ii) no Investment otherwise permitted by subsections (b) or (c) shall be permitted to be made if, immediately before or after giving effect thereto, any Event of Default or Unmatured Event of Default exists.

9.4.

Transfer; Merger; Sales.  The Borrower shall not and shall not permit any Subsidiary to, whether in one transaction or a series of related transactions, (a) be a party to any merger or consolidation, or purchase or otherwise acquire all or substantially all of the assets or any Capital Securities of any class of, or any partnership or joint venture interest in, any other Person, except for (i) any such merger, consolidation, sale, transfer, conveyance, lease or assignment of or by any Wholly-Owned Subsidiary into the Borrower or into any other domestic Wholly-Owned Subsidiary; (ii) any such purchase or other acquisition by the Borrower or any domestic Wholly-Owned Subsidiary of the assets or equity interests of any Wholly-Owned Subsidiary, or (b) sell or assign, with or without recourse, any receivables, or (c) sell, assign (by operation of law or otherwise), 

license, lease or otherwise dispose of, or grant any option with respect to any of the Collateral without the Bank’s prior written consent, except:

(a)

 

the sale or disposition of Inventory in the ordinary course of business;

(b)

 

the sale or disposition of obsolete assets no longer used or usable in the business of Borrower or any of its Subsidiaries;

(c)

 

The transfer of assets to the Borrower or any wholly-owned Subsidiary;

(d)

 

the sale or discount without recourse of accounts receivable arising in the ordinary course of business in connection with the compromise or collection thereof;

(e)

 

the disposition of any Hedging Agreement;

(f)

 

the sale of any investments permitted under Section 9.3 hereof; and

(g)

 

the sale of any property, business  or assets acquired in any acquisition permitted hereunder.

9.5.

Issuance of Capital Securities.  The Borrower shall not permit any Subsidiary to issue any Capital Securities other than any issuance of Capital Securities by a Subsidiary to the Borrower or another Subsidiary.

9.6.

Change of Location.  The Borrower will not remove or permit the Collateral to be removed from such location without the prior written consent of the Bank, (i) except for sales or dispositions permitted by Section 9.4, or (ii) provided Borrower delivers to Bank a signed Collateral Access Agreement or landlord subordination agreement in form satisfactory to Bank.   In the event that Borrower maintains Collateral in any location for which Borrower has not provided to Bank, and Bank has not approved a Collateral Access Agreement or landlord subordination agreement, such Collateral shall not be included within the calculation of the Borrowing Base Amount.

9.7.

Distributions.  The Borrower shall not, and shall not permit any Subsidiary to, (a) make any distribution or dividend (other than stock dividends), whether in cash or otherwise, to any of its equityholders, (b) purchase or redeem any of its equity interests or any warrants, options or other rights in respect thereof in excess of $25,000.00 in the aggregate (other than cashless exercise of stock options and repurchase of Capital Stock of former officers and employees), (c) pay any management fees or similar fees to any of its equityholders or any Affiliate thereof (d) pay or prepay interest on, principal of, premium, if any, redemption, conversion, exchange, purchase, retirement, defeasance, sinking fund or any other payment in respect of any Subordinated Debt, except in 

accordance with the terms thereof and any subordination agreement related thereto, or (e) set aside funds for any of the foregoing.  Notwithstanding the foregoing, any Subsidiary may pay dividends or make other distributions to the Borrower or to a Subsidiary on a pro rata basis.

9.8.

Transactions with Affiliates. The  Borrower shall not, directly or indirectly, enter into or permit to exist any transaction with any of its Affiliates or with any director, officer or employee of the Borrower other than transactions upon fair and reasonable terms approved by the board of directors of Borrower, the economic terms of which are fully disclosed to the Bank and are no less favorable to the Borrower than would be obtained in a comparable arm’s length transaction with a Person that is not an Affiliate of the Borrower.

9.9.

Unconditional Purchase Obligations.  The Borrower shall not, and shall not permit any Subsidiary, to enter into or be a party to any contract for the purchase of materials, supplies or other property or services if such contract requires that payment be made by it regardless of whether delivery is ever made of such materials, supplies or other property or services.

9.10.

Cancellation of Debt.  The Borrower shall not, and shall not permit any Subsidiary, to cancel any claim or debt owing to it, except for reasonable consideration or in the ordinary course of business.

9.11.

Inconsistent Agreements.  The Borrower shall not, and shall not permit any Subsidiary to, enter into any agreement containing any provision which would, taking into account the effect of applicable law (a) be violated or breached by any borrowing by the Borrower hereunder or by the performance by the Borrower or any Subsidiary of any of its Obligations hereunder or under any other Loan Document, (b) prohibit the Borrower or any Subsidiary from granting to the Bank a Lien on any of its assets or (c) create or permit to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i) pay dividends or make other distributions to the Borrower or any other Subsidiary, or pay any Debt owed to the Borrower or any other Subsidiary, (ii) make loans or advances to the Borrower or any other Subsidiary, or (iii) transfer any of its assets or properties to the Borrower or any other Subsidiary, other than (A) customary restrictions and conditions contained in agreements relating to the sale of all or a substantial part of the assets of any Subsidiary pending such sale, provided that such restrictions and conditions apply only to the Subsidiary to be sold and such sale is permitted hereunder, (B) restrictions or conditions imposed by any agreement relating to purchase money Debt, Capital Leases and other secured Debt permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Debt, and (C) customary provisions in leases and other contracts restricting the assignment thereof.

9.12.

Use of Proceeds.  Neither the Borrower nor any of its Subsidiaries or Affiliates shall use any portion of the proceeds of the Loans, either directly or indirectly, 

for the purpose of purchasing any securities underwritten by the Bank, or any Affiliate of the Bank.

9.13.

Bank Accounts.  The Borrower shall not establish any new Deposit Accounts or other bank accounts, other than Deposit Accounts or other bank accounts established at or with the Bank (other than accounts through which Cash Equivalent Investments are made), without the prior written consent of the Bank.

9.14.

Business Activities; Change of Legal Status and Organizational Documents.  The Borrower shall not, and shall not permit any Subsidiary to (a) engage in any line of business other than the businesses engaged in on the date hereof and businesses reasonably ancillary, related or complimentary thereto, (b) change its name, its Organizational Identification Number, if it has one, its type of organization, its jurisdiction of organization or other legal structure, or (b) permit its charter, bylaws or other organizational documents to be amended or modified in any way which could reasonably be expected to materially adversely affect the interests of the Bank.

 

Section 10.

FINANCIAL COVENANTS. 

10.1.

Fixed Charge Coverage.  As of the end of each fiscal quarter of the Borrower, the Borrower shall maintain a ratio of (a) the sum of (i) EBITDA, less (ii) any non-cash gains, less (iii) cash taxes paid, less (iv) any dividends and distributions, to (b) the sum of (i) the current portion of long-term Debt paid during such period plus (ii) lease expense plus (iii) Interest expense, of not less than 1.50 to 1.00.  Compliance with this covenant shall be measured on a trailing twelve (12) months basis upon Bank’s receipt of Borrower’s annual and quarterly financial statements required herein beginning with Borrower’s fiscal quarter ended September 30, 2008.

10.2.

Funded Debt to EBITDA.  As of the end of each fiscal quarter, the Borrower and its Subsidiaries shall maintain a ratio of Funded Debt to EBITDA for such fiscal quarter of not greater than 2.50 to 1.00.  Compliance with this covenant shall be measured upon Bank’s receipt of Borrower’s annual and quarterly financial statements required herein beginning with Borrower’s fiscal quarter ended September 30, 2008.

Section 11.

EVENTS OF DEFAULT.

The Borrower, without notice or demand of any kind, shall be in default under this Agreement upon the occurrence of any of the following events (each an “Event of Default”).

11.1.

Nonpayment of Obligations.  Any amount of principal or interest due and owing on the Revolving Note shall not be paid when due and such failure continues for three (3) or more days, or any of the other Obligations is not paid when due and such failure to pay continues for five (5) or more days after written notice by Bank to Borrower.

11.2.

Misrepresentation.  Any oral or written warranty, representation, certificate or statement of any Obligor in this Agreement, the other Loan Documents or any other agreement with the Bank shall be false when made or at any time thereafter, or if any financial data or any other information now or hereafter furnished to the Bank by or on behalf of any Obligor in satisfaction of such Obligor’s obligations under the Loan Documents shall prove to be false, inaccurate or misleading in any material respect.

11.3.

Nonperformance.  Any failure to perform or default in the performance of any covenant, condition or agreement contained in this Agreement, or in the other Loan Documents or any other agreement with the Bank and such failure continues for thirty (30) days after the earlier of the date on which Bank notifies Borrower of such failure or Borrower becomes aware of such failure.

11.4.

Intentionally deleted.

11.5.

Default under Other Debt.  Any payment default by any Obligor in the payment of any Debt with an outstanding principal amount in excess of $250,000.00 beyond any period of grace provided with respect thereto shall occur, or an Event of Default in the performance of any other term, condition or covenant contained in any agreement (including any capital or operating lease or any agreement in connection with the deferred purchase price of property) under which any such obligation is created, the effect of which default is to cause or permit the holder of such obligation (or the other party to such other agreement) to cause such obligation in an amount in excess of $250,000.00 to become due prior to its stated maturity or terminate such other agreement.

11.6.

Intentionally deleted.

11.7.

Bankruptcy, Insolvency, etc.  Any Obligor becomes insolvent or generally fails to pay, or admits in writing its inability or refusal to pay, debts as they become due; or any Obligor applies for, consents to, or acquiesces in the appointment of a trustee, receiver or other custodian for such Obligor or any property thereof, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for any Obligor or for a substantial part of the property of any thereof; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is commenced in respect of any Obligor which is not dismissed within sixty (60) days; or any Obligor takes any action to authorize, or in furtherance of, any of the foregoing.

11.8.

Judgments.  The entry of any final judgment, decree, levy, attachment, garnishment or other process, or the filing of any Lien with a value of $250,000.00 or more against any Obligor or any Collateral, which is not fully covered by insurance (subject to ordinary course deductibles) or which is not bonded over, stayed or dismissed within forty-five (45) days after the entry thereof.

11.9.

Change in Control.  The occurrence of any Change in Control.

11.10.

Intentionally deleted.

11.11.

Material Adverse Effect.  The occurrence of any development, condition or event which has a Material Adverse Effect on the Borrower.

11.12.

Subordinated Debt.  The subordination provisions of any Subordinated Debt shall for any reason be revoked or invalid or otherwise cease to be in full force and effect.  The Borrower shall contest in any manner, or any other holder thereof shall contest in any judicial proceeding, the validity or enforceability of any Subordination Agreement or deny that it has any further liability or obligation thereunder, or the Obligations shall for any reason not have the priority contemplated by the subordination provisions of the Subordinated Debt.

Section 12.

REMEDIES.

Upon the occurrence and continuance of an Event of Default, the Bank shall have all rights, powers and remedies set forth in the Loan Documents, in any written agreement or instrument (other than this Agreement or the Loan Documents) relating to any of the Obligations or any security therefor, as a secured party under the UCC or as otherwise provided at law or in equity.  Without limiting the generality of the foregoing, the Bank may, at its option upon the occurrence of an Event of Default, declare its commitments to the Borrower to be terminated and all Obligations to be immediately due and payable, provided, however, that upon the occurrence of an Event of Default under Section 11.7, all commitments of the Bank to the Borrower shall immediately terminate and all Obligations shall be automatically due and payable, all without demand, notice or further action of any kind required on the part of the Bank.  To the extent permitted by law, the Borrower hereby waives any and all presentment, demand, notice of dishonor, protest, and all other notices and demands in connection with the enforcement of Bank’s rights under the Loan Documents, and hereby consents to, and waives notice of release, with or without consideration, of any of the Borrower or of any Collateral, notwithstanding anything contained herein or in the Loan Documents to the contrary.  In addition to the foregoing:

12.1.

Possession and Assembly of Collateral.  The Bank may, without notice, demand or legal process of any kind, take possession of any or all of the Collateral (in addition to Collateral of which the Bank already has possession), wherever it may be found, and for that purpose may pursue the same wherever it may be found, and may at any time enter into any of the Borrower’s premises where any of the Collateral may be or is supposed to be, and search for, take possession of, remove, keep and store any of the Collateral until the same shall be sold or otherwise disposed of and the Bank shall have the right to store and conduct a sale of the same in any of the Borrower’s premises without cost to the Bank.  At the Bank’s request, the Borrower will, at the Borrower’s sole expense, assemble the Collateral and make it available to the Bank at a place or 

places to be designated by the Bank which is reasonably convenient to the Bank and the Borrower.

12.2.

Sale of Collateral.  The Bank may sell any or all of the Collateral at public or private sale, upon such terms and conditions as the Bank may deem proper, and the Bank may purchase any or all of the Collateral at any such sale.  The Borrower acknowledges that the Bank may be unable to effect a public sale of all or any portion of the Collateral because of certain legal and/or practical restrictions and provisions which may be applicable to the Collateral and, therefore, may be compelled to resort to one or more private sales to a restricted group of offerees and purchasers.  The Borrower consents to any such private sale so made even though at places and upon terms less favorable than if the Collateral were sold at public sale.  The Bank shall have no obligation to clean-up or otherwise prepare the Collateral for sale.  The Bank may apply the net proceeds, after deducting all costs, expenses, attorneys’ and paralegals’ fees incurred or paid at any time in the collection, protection and sale of the Collateral and the Obligations, to the payment of any Note and/or any of the other Obligations, returning the excess proceeds, if any, to the Borrower.  The Borrower shall remain liable for any amount remaining unpaid after such application, with interest at the Default Rate.  Any notification of intended disposition of the Collateral required by law shall be conclusively deemed reasonably and properly given if given by the Bank at least ten (10) calendar days before the date of such disposition.  The Borrower hereby confirms, approves and ratifies all acts and deeds of the Bank relating to the foregoing, and each part thereof, and expressly waives any and all claims of any nature, kind or description which it has or may hereafter have against the Bank or its representatives, by reason of taking, selling or collecting any portion of the Collateral.  The Borrower consents to releases of the Collateral at any time (including prior to default) and to sales of the Collateral in groups, parcels or portions, or as an entirety, as the Bank shall deem appropriate.  The Borrower expressly absolves the Bank from any loss or decline in market value of any Collateral by reason of delay in the enforcement or assertion or nonenforcement of any rights or remedies under this Agreement.

12.3.

Standards for Exercising Remedies.  To the extent that applicable law imposes duties on the Bank to exercise remedies in a commercially reasonable manner, the Borrower acknowledges and agrees that it is not commercially unreasonable for the Bank (a) to fail to incur expenses reasonably deemed significant by the Bank to prepare Collateral for disposition or otherwise to complete raw material or work-in-process into finished goods or other finished products for disposition, (b) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (c) to fail to exercise collection remedies against account debtors or other Persons obligated on Collateral or to remove liens or encumbrances on or any adverse claims against Collateral, (d) to exercise collection remedies against account debtors and other Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (e) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (f) to contact other Persons, whether or not in 

the same business as the Borrower, for expressions of interest in acquiring all or any portion of the Collateral, (g) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized nature, (h) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (i) to dispose of assets in wholesale rather than retail markets, (j) to disclaim disposition warranties, including any warranties of title, (k) to purchase insurance or credit enhancements to insure the Bank against risks of loss, collection or disposition of Collateral or to provide to the Bank a guaranteed return from the collection or disposition of Collateral, or (l) to the extent deemed appropriate by the Bank, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Bank in the collection or disposition of any of the Collateral.  The Borrower acknowledges that the purpose of this section is to provide non-exhaustive indications of what actions or omissions by the Bank would not be commercially unreasonable in the Bank’s exercise of remedies against the Collateral and that other actions or omissions by the Bank shall not be deemed commercially unreasonable solely on account of not being indicated in this section.  Without limitation upon the foregoing, nothing contained in this section shall be construed to grant any rights to the Borrower or to impose any duties on the Bank that would not have been granted or imposed by this Agreement or by applicable law in the absence of this section.

12.4.

UCC and Offset Rights.  The Bank may exercise, from time to time, any and all rights and remedies available to it under the UCC or under any other applicable law in addition to, and not in lieu of, any rights and remedies expressly granted in this Agreement or in any other agreements between any Obligor and the Bank, and may, without demand or notice of any kind, appropriate and apply toward the payment of such of the Obligations, whether matured or unmatured, including costs of collection and attorneys’ and paralegals’ fees, and in such order of application as the Bank may, from time to time, elect, any indebtedness of the Bank to any Obligor, however created or arising, including balances, credits, deposits, accounts or moneys of such Obligor in the possession, control or custody of, or in transit to the Bank.  The Borrower, on behalf of itself and each Obligor, hereby waives the benefit of any law that would otherwise restrict or limit the Bank in the exercise of its right, which is hereby acknowledged, to appropriate at any time hereafter any such indebtedness owing from the Bank to any Obligor.

12.5.

Additional Remedies.  The Bank shall have the right and power to:

(a)

instruct the Borrower, at its own expense, to notify any parties obligated on any of the Collateral, including any account debtors, to make payment directly to the Bank of any amounts due or to become due thereunder, or the Bank may directly notify such obligors of the security interest of the Bank, and/or of the assignment to the Bank of the Collateral and direct such obligors to make payment to the Bank of any amounts due or to become due with respect thereto, and thereafter, collect any such amounts due on the Collateral directly from such Persons obligated thereon;

(b)

enforce collection of any of the Collateral, including any Accounts, by suit or otherwise, or make any compromise or settlement with respect to any of the Collateral, or surrender, release or exchange all or any part thereof, or compromise, extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder;

(c)

take possession or control of any proceeds and products of any of the Collateral, including the proceeds of insurance thereon;

(d)

extend, renew or modify for one or more periods (whether or not longer than the original period) any Note, any other of the Obligations, any obligation of any nature of any other obligor with respect to any Note or any of the Obligations;

(e)

grant releases, compromises or indulgences with respect to any Note, any of the Obligations, any extension or renewal of any of the Obligations, any security therefor, or to any other obligor with respect to any Note or any of the Obligations;

(f)

transfer the whole or any part of securities which may constitute Collateral into the name of the Bank or the Bank’s nominee without disclosing, if the Bank so desires, that such securities so transferred are subject to the security interest of the Bank, and any corporation, association, or any of the managers or trustees of any trust issuing any of such securities, or any transfer agent, shall not be bound to inquire, in the event that the Bank or such nominee makes any further transfer of such securities, or any portion thereof, as to whether the Bank or such nominee has the right to make such further transfer, and shall not be liable for transferring the same;

(g)

vote the Collateral;

(h)

make an election with respect to the Collateral under Section 1111 of the Bankruptcy Code or take action under Section 364 or any other section of the Bankruptcy Code; provided, however, that any such action of the Bank as set forth herein shall not, in any manner whatsoever, impair or affect the liability of the Borrower hereunder, nor prejudice, waive, nor be construed to impair, affect, prejudice or waive the Bank’s rights and remedies at law, in equity or by statute, nor release, discharge, nor be construed to release or discharge, the Borrower, any guarantor or other Person liable to the Bank for the Obligations; and

(i)

at any time, and from time to time, accept additions to, releases, reductions, exchanges or substitution of the Collateral, without in any way altering, impairing, diminishing or affecting the provisions of this Agreement, the Loan Documents, or any of the other Obligations, or the Bank’s rights hereunder, under any Note or under any of the other Obligations.

The Borrower hereby ratifies and confirms whatever the Bank may do with respect to the Collateral and agrees that the Bank shall not be liable for any error of judgment or mistakes of fact or law with respect to actions taken in connection with the Collateral.

12.6.

Attorney-in-Fact.  Upon the occurrence and continuance of an Event of Default, the Borrower hereby irrevocably makes, constitutes and appoints the Bank (and any officer of the Bank or any Person designated by the Bank for that purpose) as the Borrower’s true and lawful proxy and attorney-in-fact (and agent-in-fact) in the Borrower’s name, place and stead, with full power of substitution, to (i) take such actions as are permitted in this Agreement, (ii) execute such financing statements and other documents and to do such other acts as the Bank may require to perfect and preserve the Bank’s security interest in, and to enforce such interests in the Collateral, and (iii) carry out any remedy provided for in this Agreement, including endorsing the Borrower’s name to checks, drafts, instruments and other items of payment, and proceeds of the Collateral, executing change of address forms with the postmaster of the United States Post Office serving the address of the Borrower, changing the address of the Borrower to that of the Bank, opening all envelopes addressed to the Borrower and applying any payments contained therein to the Obligations.  The Borrower hereby acknowledges that the constitution and appointment of such proxy and attorney-in-fact are coupled with an interest and are irrevocable.  The Borrower hereby ratifies and confirms all that such attorney-in-fact may do or cause to be done by virtue of any provision of this Agreement.

12.7.

No Marshaling.  The Bank shall not be required to marshal any present or future collateral security (including this Agreement and the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order.  To the extent that it lawfully may, the Borrower hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of the Bank’s rights under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, the Borrower hereby irrevocably waives the benefits of all such laws.

12.8.

Application of Proceeds.  The Bank will within three (3) Business Days after receipt of cash or solvent credits from collection of items of payment, proceeds of Collateral or any other source, apply the whole or any part thereof against the Obligations secured hereby.  The Bank shall further have the exclusive right to determine how, when and what application of such payments and such credits shall be made on the Obligations, and such determination shall be conclusive upon the Borrower.  Any proceeds of any disposition by the Bank of all or any part of the Collateral may be first applied by the Bank to the payment of expenses incurred by the Bank in connection with the Collateral, including attorneys’ fees and legal expenses as provided for in Section 13 hereof.

12.9.

No Waiver.  No Event of Default shall be waived by the Bank except in writing. No failure or delay on the part of the Bank in exercising any right, power or remedy hereunder shall operate as a waiver of the exercise of the same or any other right at any other time; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder.  There shall be no obligation on the part of the Bank to exercise any remedy available to the Bank in any order.  The remedies provided for herein are cumulative and not exclusive of any remedies provided at law or in equity.  The Borrower agrees that in the event that the Borrower fails to perform, observe or discharge any of its Obligations or liabilities under this Agreement or any other agreements with the Bank, no remedy of law will provide adequate relief to the Bank, and further agrees that the Bank shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.

12.10.

Letters of Credit.  With respect to all Letters of Credit for which presentment for honor shall not have occurred at the time of an acceleration pursuant to this Section 12, the Borrower shall at such time deposit in a cash collateral account opened by the Bank an amount equal to the Letter of Credit Obligations then outstanding.  Amounts held in such cash collateral account shall be applied by the Bank to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay the Obligations, in such order of application as the Bank may, in its sole discretion, from time to time elect.  After all such Letters of Credit shall have expired or been fully drawn upon, all commitments to make Loans hereunder have terminated and all other Obligations have been indefeasibly satisfied and paid in full in cash, the balance, if any, in such cash collateral account shall be returned to the Borrower or such other Person as may be lawfully entitled thereto.

Section 13.

MISCELLANEOUS.

13.1.

Obligations Absolute.  None of the following shall affect the Obligations of the Borrower to the Bank under this Agreement or the Bank’s rights with respect to the Collateral:

(a)

acceptance or retention by the Bank of other property or any interest in property as security for the Obligations;

(b)

release by the Bank of any of the Borrower or any part of the Collateral or of any party liable with respect to the Obligations;

(c)

release, extension, renewal, modification or substitution by the Bank of any Note, or any note evidencing any of the Obligations, or the compromise of the liability of the Obligations; or

(d)

failure of the Bank to resort to any other security or to pursue the Borrower or any other obligor liable for any of the Obligations before resorting to remedies against the Collateral.

13.2.

Entire Agreement.  This Agreement and the other Loan Documents (i) are valid, binding and enforceable against the Borrower and the Bank in accordance with their respective provisions and no conditions exist as to their legal effectiveness; (ii) constitute the entire agreement between the parties with respect to the subject matter hereof and thereof; and (iii) are the final expression of the intentions of the Borrower and the Bank.  No promises, either expressed or implied, exist between the Borrower and the Bank, unless contained herein or therein.  This Agreement, together with the other Loan Documents, supersedes all negotiations, representations, warranties, commitments, term sheets, discussions, negotiations, offers or contracts (of any kind or nature, whether oral or written) prior to or contemporaneous with the execution hereof with respect to any matter, directly or indirectly related to the terms of this Agreement and the other Loan Documents.  This Agreement and the other Loan Documents are the result of negotiations among the Bank, the Borrower and the other parties thereto, and have been reviewed (or have had the opportunity to be reviewed) by counsel to all such parties, and are the products of all parties.  Accordingly, this Agreement and the other Loan Documents shall not be construed more strictly against the Bank merely because of the Bank’s involvement in their preparation.

13.3.

Amendments; Waivers.  No delay on the part of the Bank in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by the Bank of any right, power or remedy preclude other or further exercise thereof, or the exercise of any other right, power or remedy.  No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or the other Loan Documents shall in any event be effective unless the same shall be in writing and acknowledged by the Bank, and then any such amendment, modification, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

13.4.

WAIVER OF DEFENSES.  THE BORROWER, ON BEHALF OF ITSELF AND ANY OF THE OBLIGORS, AGREES NOT TO ASSERT ANY DEFENSE, CAUSE OF ACTION, COUNTERCLAIM (EXCEPT COMPULSORY COUNTERCLAIMS) OR SETOFF WHICH THE BORROWER MAY NOW HAVE OR HEREAFTER MAY HAVE TO ANY ACTION BY THE BANK IN ENFORCING THIS AGREEMENT.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK GRANTING ANY FINANCIAL ACCOMMODATION TO THE BORROWER.

13.5.

FORUM SELECTION AND CONSENT TO JURISDICTION.  ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF FLORIDA OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA; PROVIDED THAT NOTHING IN THIS 

AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE BANK FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION.  THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF FLORIDA AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE.  THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF FLORIDA.  THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

13.6.

WAIVER OF JURY TRIAL.  THE BANK AND THE BORROWER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT, ANY OF THE OTHER OBLIGATIONS, THE COLLATERAL, OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, OR ANY COURSE OF CONDUCT OR COURSE OF DEALING IN WHICH THE BANK AND THE BORROWER ARE ADVERSE PARTIES, AND EACH AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK GRANTING ANY FINANCIAL ACCOMMODATION TO THE BORROWER.

13.7.

Assignability.  The Bank may at any time assign the Bank’s rights in this Agreement, the other Loan Documents, the Obligations, or any part thereof and transfer the Bank’s rights in any or all of the Collateral, and the Bank thereafter shall be relieved from all liability with respect to such Collateral.  In addition, the Bank may at any time sell one or more participations in the Loans.  The Borrower may not sell or assign this Agreement, or any other agreement with the Bank or any portion thereof, either voluntarily or by operation of law, without the prior written consent of the Bank.  This Agreement shall be binding upon the Bank and the Borrower and their respective legal representatives and successors.  All references herein to the Borrower shall be deemed to include any successors, whether immediate or remote.  In the case of a joint venture or partnership, the term “Borrower” shall be deemed to include all joint venturers or partners thereof, who shall be jointly and severally liable hereunder.

13.8.

Confirmations.  The Borrower and the Bank agree from time to time, upon written request received by it from the other, to confirm to the other in writing the aggregate unpaid principal amount of the Loans then outstanding under such Note.

13.9.

Confidentiality.  The Bank agrees to use commercially reasonable efforts (equivalent to the efforts the Bank applies to maintain the confidentiality of its own confidential information) to maintain as confidential all information provided to it by the Borrower, including all information designated as confidential, except that the Bank may disclose such information (a) to Persons employed or engaged by the Bank in evaluating, approving, structuring or administering the Loans; (b) to any assignee or participant or potential assignee or participant that has agreed to comply with the covenant contained in this Section 13.9 (and any such assignee or participant or potential assignee or participant may disclose such information to Persons employed or engaged by them as described in clause (a) above); (c) as required or requested by any federal or state regulatory authority or examiner, or any insurance industry association, or as reasonably believed by the Bank to be compelled by any court decree, subpoena or legal or administrative order or process; (d) as, on the advice of the Bank’s counsel, is required by law; (e) in connection with the exercise of any right or remedy under the Loan Documents or in connection with any litigation to which the Bank is a party; (f) to any nationally recognized rating agency that requires access to information about the Bank’s investment portfolio in connection with ratings issued with respect to the Bank; (g) to any Affiliate of the Bank who may provide Bank Products to the Borrower or any Subsidiary, or (h) that ceases to be confidential through no fault of the Bank.

13.10.

Binding Effect.  This Agreement shall become effective upon execution by the Borrower and the Bank.  If this Agreement is not dated or contains any blanks when executed by the Borrower, the Bank is hereby authorized, without notice to the Borrower, to date this Agreement as of the date when it was executed by the Borrower, and to complete any such blanks according to the terms upon which this Agreement is executed.

13.11.

Governing Law.  This Agreement, the Loan Documents and any Note shall be delivered and accepted in and shall be deemed to be contracts made under and governed by the internal laws of the State of Florida (but giving effect to federal laws applicable to national banks) applicable to contracts made and to be performed entirely within such state, without regard to conflict of laws principles.

13.12.

Enforceability.  Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by, unenforceable or invalid under any jurisdiction, such provision shall as to such jurisdiction, be severable and be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

13.13.

Survival of Borrower Representations.  All covenants, agreements, representations and warranties made by the Borrower herein shall, notwithstanding any investigation by the Bank, be deemed material and relied upon by the Bank and shall survive the making and execution of this Agreement and the Loan Documents and the issuance of any Note, and shall be deemed to be continuing representations and warranties until such time as the Borrower has fulfilled all of its Obligations to the Bank, and the Bank has been indefeasibly paid in full in cash.  The Bank, in extending financial accommodations to the Borrower, is expressly acting and relying on the aforesaid representations and warranties.

13.14.

Extensions of Bank’s Commitment.  This Agreement shall secure and govern the terms of (i) any extensions or renewals of the Bank’s commitment hereunder, and (ii) any replacement note executed by the Borrower and accepted by the Bank in its sole and absolute discretion in substitution for any Note.

13.15.

Time of Essence.  Time is of the essence in making payments of all amounts due the Bank under this Agreement and in the performance and observance by the Borrower of each covenant, agreement, provision and term of this Agreement.

13.16.

Counterparts; Facsimile Signatures.  This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement.  Receipt of an executed signature page to this Agreement by facsimile or other electronic transmission shall constitute effective delivery thereof.  Electronic records of executed Loan Documents maintained by the Bank shall deemed to be originals thereof.

13.17.

Notices.  Except as otherwise provided herein, the Borrower waives all notices and demands in connection with the enforcement of the Bank’s rights hereunder.  All notices, requests, demands and other communications provided for hereunder shall be in writing and addressed as follows:

		
	To the Borrower:

	PARLUX FRAGRANCES, INC.

5900 North Andrews Avenue, Suite 500

Fort Lauderdale, Florida 33309

Attention: Raymond J. Balsys, Chief Financial Officer

	To the Bank:

	REGIONS BANK

100 S.E. Third Avenue, 17th Floor

Fort Lauderdale, Florida 33394

Attention: Vanessa C. Civalero, Senior Vice President

or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this subsection. All notices addressed as above shall be deemed to have been properly given (i) if served in person, upon acceptance or refusal of delivery; (ii) if mailed by certified or registered mail, return receipt requested, postage prepaid, on the third (3rd) day following the day such notice is deposited in any post office station or letter box; or (iii) if sent by recognized overnight courier, on the first (1st) day following the day such notice is delivered to such carrier.  No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.

13.18.

Release of Claims Against Bank.  In consideration of the Bank making the Loans, the Borrower and all other Obligors do each hereby release and discharge the Bank of and from any and all claims, harm, injury, and damage of any and every kind, known or unknown, legal or equitable, which any Obligor may have against the Bank from the date of their respective first contact with the Bank until the date of this Loan Agreement, including any claim arising from any reports (environmental reports, surveys, appraisals, etc.) prepared by any parties hired or recommended by the Bank.  The Borrower and all other Obligors confirm to Bank that they have reviewed the effect of this release with competent legal counsel of their choice, or have been afforded the opportunity to do so, prior to execution of this Agreement and the Loan Documents and do each acknowledge and agree that the Bank is relying upon this release in extending the Loans to the Borrower.

13.19.

Costs, Fees and Expenses.  The Borrower shall pay or reimburse the Bank for all reasonable out-of-pocket costs, fees and expenses incurred by the Bank or for which the Bank becomes obligated in connection with the negotiation, preparation, consummation, collection of the Obligations or enforcement of this Agreement,  the other Loan Documents and all other documents provided for herein or delivered or to be delivered hereunder or in connection herewith (including any amendment, supplement or waiver to any Loan Document), or during any workout, restructuring or negotiations in respect thereof, including reasonable consultants’ fees and attorneys’ fees and time charges of counsel to the Bank, which shall also include attorneys’ fees and time charges of attorneys who may be employees of the Bank or any Affiliate of the Bank, plus costs and expenses of such attorneys or of the Bank; search fees, costs and expenses; and all taxes payable in connection with this Agreement or the other Loan Documents, whether or not the transaction contemplated hereby shall be consummated.  In furtherance of the foregoing, the Borrower shall pay any and all stamp and other taxes, UCC search fees, filing fees and other costs and expenses in connection with the execution and delivery of this Agreement, any Note and the other Loan Documents to be delivered hereunder, and agrees to save and hold the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such costs and expenses.  That portion of the Obligations consisting of costs, expenses or advances to be reimbursed by the Borrower to the Bank pursuant to this Agreement or the other Loan Documents which are not paid on or prior to the date hereof shall be payable by the Borrower to the Bank on demand.  If at any time or times hereafter the Bank: (a) employs 

counsel for advice or other representation (i) with respect to this Agreement or the other Loan Documents (other than any assignment or participation of this Agreement or the other Loan Documents without the Borrower’s consent), (ii) to represent the Bank in any litigation, contest, dispute, suit or proceeding or to commence, defend, or intervene or to take any other action in or with respect to any litigation, contest, dispute, suit, or proceeding (whether instituted by the Bank, the Borrower, or any other Person) in any way or respect relating to this Agreement or the other Loan Documents (other than relating to any participation hereof by Bank) or the Borrower’s business or affairs, or (iii) to enforce any rights of the Bank against the Borrower or any other Person that may be obligated to the Bank by virtue of this Agreement or the other Loan Documents; (b) takes any action to protect, collect, sell, liquidate, or otherwise dispose of any of the Collateral; and/or (c) attempts to or enforces any of the Bank’s rights or remedies under the Agreement or the other Loan Documents, the costs and expenses incurred by the Bank in any manner or way with respect to the foregoing, shall be part of the Obligations, payable by the Borrower to the Bank on demand.

13.20.

Indemnification.  The Borrower agrees to defend (with counsel satisfactory to the Bank), protect, indemnify, exonerate and hold harmless each Indemnified Party from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims and out-of-pocket costs, expenses and distributions of any kind or nature (including the disbursements and the reasonable fees of counsel for each Indemnified Party thereto, which shall also include, without limitation, reasonable attorneys’ fees and time charges of attorneys who may be employees of any Indemnified Party), which may be imposed on, incurred by, or asserted against, any Indemnified Party (whether direct, indirect or consequential and whether based on any federal, state or local laws or regulations, including securities laws, Environmental Laws, commercial laws and regulations, under common law or in equity, or based on contract or otherwise) in any manner relating to or arising out of this Agreement or any of the Loan Documents, or any act, event or transaction related or attendant thereto, the preparation, execution and delivery of this Agreement and the Loan Documents, including the making or issuance and management of the Loans, the use or intended use of the proceeds of the Loans, the enforcement of the Bank’s rights and remedies under this Agreement, the Loan Documents, any Note, any other instruments and documents delivered hereunder, or under any other agreement between the Borrower and the Bank; provided, however, that the Borrower shall not have any obligations hereunder to any Indemnified Party with respect to matters determined by a court of competent jurisdiction by final and nonappealable judgment to have been caused by or resulting from the willful misconduct or gross negligence of such Indemnified Party.  To the extent that the undertaking to indemnify set forth in the preceding sentence may be unenforceable because it violates any law or public policy, the Borrower shall satisfy such undertaking to the maximum extent permitted by applicable law.  Any liability, obligation, loss, damage, penalty, cost or expense covered by this indemnity shall be paid to each Indemnified Party on demand, and failing prompt payment, together with interest thereon at the Default Rate from the date incurred by each Indemnified Party until paid by the Borrower, shall be added to the Obligations of the Borrower and be secured by the 

Collateral.  The provisions of this Section shall survive the satisfaction and payment of the other Obligations and the termination of this Agreement.

13.21.

Revival and Reinstatement of Obligations.  If the incurrence or payment of the Obligations by any Obligor or the transfer to the Bank of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors’ rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a “Voidable Transfer”), and if the Bank is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that the Bank is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of the Bank, the Obligations shall automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made.

13.22.

Customer Identification - USA Patriot Act Notice.  The Bank hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56, signed into law October 26, 2001) (the “Act”), and the Bank’s policies and practices, the Bank is required to obtain, verify and record certain information and documentation that identifies the Borrower, which information includes the name and address of the Borrower and such other information that will allow the Bank to identify the Borrower in accordance with the Act.

[CONTINUES ON FOLLOWING PAGE] 

IN WITNESS WHEREOF, the Borrower and the Bank have executed this Loan and Security Agreement as of the date first above written.

			
	         

	PARLUX FRAGRANCES, INC.,

	 
	a Delaware corporation

	 
	 
	 

	 
	By:  

	/s/ Raymond J. Balsys

	 
	 
	Raymond J. Balsys

Chief Financial Officer

	 
	 

	 
	 
	 

	 
	 
	 

	         

	PARLUX LTD.,

	 
	a New York corporation

	 
	 
	 

	 
	By:  

	/s/ Raymond J. Balsys

	 
	 
	Raymond J. Balsys

Chief Financial Officer

	 
	 

	 
	 
	 

	

	 

	 
	Agreed and accepted:

	         

	REGIONS BANK,

	 
	an Alabama banking corporation

	 
	 
	 

	 
	By:  

	/s/ Vanessa C. Civalero

	 
	 
	Vanessa C. Civalero 

Senior Vice President

	 
	 

STATE OF FLORIDA

    )

    ):SS

COUNTY OF BROWARD

    )

The forgoing instrument was sworn to, subscribed and acknowledged before me this _22nd____ day of July, 2008, by Raymond J. Balsys, as the Chief Financial Officer of PARLUX FRAGRANCES, INC., a Delaware corporation, on behalf of the corporation. He is personally known to me or has produced a driver license as identification and did take an oath.

			
	 
	/s/ Carole Ramsay

	 
	Print or Stamp Name:

	Carole Ramsay

	 
	Notary Public, State of Florida at Large

Commission No:

	 

	 
	My Commission Expires:

	 

STATE OF FLORIDA

    )

    ):SS

COUNTY OF BROWARD

    )

The forgoing instrument was sworn to, subscribed and acknowledged before me this _22nd____ day of July, 2008, by Raymond J. Balsys, as the Chief Financial Officer of PARLUX LTD., a New York corporation, on behalf of the corporation. He is personally known to me or has produced a driver license as identification and did take an oath.

			
	 
	/s/ Carole Ramsay

	 
	Print or Stamp Name:

	Carole Ramsay

	 
	Notary Public, State of Florida at Large

Commission No:

	 

	 
	My Commission Expires:

	 

STATE OF FLORIDA

    )

    ):SS

COUNTY OF 

BROWARD

    )

The forgoing instrument was sworn to, subscribed and acknowledged before me this _22nd____ day of July, 2008, by Vanessa C. Civalero, as the Senior Vice President of REGIONS BANK, an Alabama banking corporation, on behalf of the bank.  She is personally known to me or has produced a driver license as identification and did take an oath.

			
	 
	/s/ Carole Ramsay

	 
	Print or Stamp Name:

	Carole Ramsay

	 
	Notary Public, State of Florida at Large

Commission No:

	 

	 
	My Commission Expires:

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