Document:

Exhibit
      10.1

    

    

     

    

    

    AGREEMENT

    

    CONCERNING
      THE AGREEMENT AND PLAN OF MERGER

    

    BY
      AND AMONG

    

    MYCOM
      GROUP, INC.,

    

    MYCOM
      ACQUISITION CORPORATION,

    a
      wholly owned subsidiary of Mycom Group, Inc.,

     

    AND

    

    VERITAS
      SOLUTIONS, INC., 

    

    THE
      SECURITY HOLDERS OF VERITAS
      SOLUTIONS, INC. AND

    

    SECURE
      ASSET REPORTING SERVICES, INC.

    a
      wholly subsidiary of Veritas Solutions Inc.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    AGREEMENT
      AND PLAN OF MERGER

    

    THIS
      AGREEMENT AND PLAN OF MERGER (“Agreement”)
      is
      made this 28th
      day of
      August, 2007 (the “Closing
      Date”),
      by
      and between Mycom Group, Inc. a Nevada corporation (“Mycom”),
      Mycom
      Acquisition Corporation, a Nevada corporation and a wholly owned subsidiary
      of
      Mycom (“MergerCo”),
      Veritas Solutions, Inc., a Washington corporation (“VSI”),
      the
      security holders of VSI (the “VSI
      Security Holders”)
      who
      are listed on Exhibit
      1.2
      attached
      hereto and Secure Asset Reporting Services Inc., an Alaska corporation and
      a
      wholly owned subsidiary of VSI (“SARS”).

    

    WHEREAS,
      VSI and SARS wishes to merge with and into MergerCo with MergerCo being the
      surviving corporation (the “Merger”);

    

    WHEREAS,
      VSI desires to exchange all of the Shares (defined below) held by VSI Security
      Holders for newly issued unregistered shares of common stock of Mycom;

    

    WHEREAS,
      Mycom agrees to reserve the Remaining Shares (defined below) for issuance upon
      the close of the Financing (also defined below);

    

    WHEREAS,
      it is the intention of the parties that the Merger shall qualify as a
      transaction in securities exempt from registration or qualification under the
      Securities Act of 1933, as amended (the “Securities
      Act”),
      and
      under the applicable securities laws of each state or jurisdiction where the
      VSI
      Security Holders reside; and

    

    WHEREAS,
      the
      board
      of directors of VSI, SARS, MergerCo each deem it to be in the best interests
      of
      VSI, SARS and MergerCo and their respective shareholders to consummate the
      Merger, as a result of which MergerCo shall acquire all of the assets of VSI
      and
      its respective subsidiaries.

    

    NOW,
      THEREFORE, in consideration of the mutual promises, covenants and
      representations contained herein, the parties hereto agree as
      follows:

    

    ARTICLE
      I

    The
      Merger

    

    1.1 The
      Merger. At
      the
      Effective Time (defined below) and subject to and upon the terms and conditions
      of this Agreement, VSI and SARS shall merge with and into MergerCo in accordance
      with the provisions of the Washington Business Corporations Act (the
“WBCA”),
      the
      Nevada Business Associations; Securities; Commodities Act (the “NBA”)
      and
      the Alaska Business Corporations Act (“ABCA”),
      the
      separate corporate existence of VSI and SARS shall cease and MergerCo shall
      continue as the surviving entity. The Effective Time of the Merger shall occur
      upon the filing of the Articles of Merger (defined below) executed in accordance
      with the applicable provisions of the WBCA, NBA and the ABCA with the
      Secretaries of State of the States of Washington, Nevada and Alaska, or at
      such
      later time as may be agreed to by VSI, SARS and MergerCo and specified in the
      Articles of Merger subject to the satisfaction or waiver of each of the
      conditions set forth in Section 4. Provided that this Agreement has not been
      terminated, the parties will cause the Articles of Merger to be filed on the
      Closing Date. The “Effective
      Time”
shall
      mean the date upon which the Merger of VSI and SARS into MergerCo shall be
      consummated pursuant to the filing of the Articles of Merger with the
      Secretaries of State of the States of Washington, Nevada and Alaska.
“Articles
      of Merger”
      shall
      mean the certificate of merger of VSI and SARS with and into MergerCo with
      MergerCo as the surviving corporation pursuant to the WBCA, ABCA and
      NBA.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (a) Upon
      the
      terms and subject to the conditions set forth in this Agreement and in
      accordance with the WBCA, NBA and ABCA, at the Effective Time all VSI Shares
      shall be converted into the right to receive the shares of Mycom from
      MergerCo.

    

    (b) Exchange
      Agent. The Otto Law Group, PLLC shall act as the exchange agent (the
“Exchange
      Agent”)
      for
      the purpose of exchanging the VSI Shares for shares of Mycom common
      stock.

    

    1.2 Issuance
      of Securities.
      Subject
      to the terms and conditions of this Agreement, MergerCo agrees to issue and
      exchange Mycom common stock for one hundred percent (100%) of the Shares
      (defined below) held by the VSI Security Holders on a one-for-one basis.
      MergerCo shall reserve the Remaining Shares (defined below) for issuance upon
      completion of the Financing (defined below), also on a one-for-one basis. Mycom,
      with MergerCo, shall direct its transfer agent, Corporate Stock Transfer, Inc.
      to exchange its common stock with the VSI Security Holders for the Shares on
      the
      Closing Date, pursuant to the schedule set forth in Exhibit
      1.2,
      and to
      reserve the Remaining Shares (defined below). 

    

     (a) As
      of
      August 20, 2007, VSI shall have twenty-four million eight hundred sixteen
      thousand six hundred twelve (24,816,612) shares outstanding (“VSI
      Outstanding”).

    

    (b) As
      of the
      Closing Date, VSI has (i) one (1) share of 8% cumulative series A convertible
      preferred stock, the principal amount of Nine Hundred Forty-Nine Thousand Nine
      Hundred Eight Dollars and Eighty-Three Cents ($949,908.83) (ii) one hundred
      forty thousand (140,000) shares of 8% cumulative series B convertible preferred
      stock that shall mandatorily convert into one hundred forty-nine thousand three
      hundred thirty-three (149,333) shares of VSI common stock at the Closing
      (collectively, the “Converted
      Preferred Shares”).
      The
      VSI Outstanding and the Converted Preferred Shares equal an aggregate total
      amount of twenty-four million nine hundred sixty-five thousand nine hundred
      forty-five (24,965,945) shares and shall collectively be referred to as the
      “Shares.”

    

    (c) As
      of the
      Closing Date, Mycom shall have a total of one million five hundred thousand
      ninety-five (1,500,095) shares of common stock and zero shares of preferred
      stock issued and outstanding. Upon issuance of the Shares and the Remaining
      Shares, Mycom shall have a total of thirty-five million one hundred twenty-six
      thousand forty (35,126,040) shares of common stock outstanding and one share
      of
      series A convertible preferred stock outstanding.

     

    1.3 Exemption
      from Registration.
      The
      parties hereto intend that all MergerCo common stock to be issued to the VSI
      Security Holders, as well as the Remaining Shares, when issued, shall be exempt
      from the registration requirements of the Securities Act of 1933, as amended
      (the “Securities Act”),
      pursuant to Section 506 and/or Regulation D of the Securities Act and rules
      and
      regulations promulgated thereunder. 

     

    
      
        
        

      

      
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    1.4 Effect
      of Merger. The
      Merger shall have the effect set forth in Section 23B.11.090 of the WBCA, Title
      10, Chapter 5 of the ABCA and Title 7 of the NBA. Without limiting the
      generality of the foregoing, and subject thereto, at the Effective Time, all
      the
      properties, rights, privileges, powers and franchises of VSI, SARS, MergerCo
      shall vest in MergerCo (the “Surviving
      Entity”),
      and
      all debts, liabilities and duties of VSI, SARS and MergerCo shall become the
      debts, liabilities and duties of the Surviving Entity.

    

    1.5 Certificate
      Of Incorporation and Bylaws; Directors And Officers.
      Prior
      to the Effective Time of the Merger:

    

    (a) The
      Certificate of Incorporation of MergerCo shall be the Certificate of
      Incorporation of the Surviving Entity following the Merger. The Bylaws of
      MergerCo shall be the Bylaws of Surviving Entity following the
      Merger.

    

    (b) On
      the
      Closing Date, the Surviving Entity shall appoint the following individuals
      to
      its Board of Directors: Stephen K. Bannon, Chairman, Clayton Shelver, Jeremy
      Johnson and David M. Otto. Such members of the Board of Directors shall serve
      until the earlier of their death, resignation or removal. 

    

    (c) On
      the
      Closing Date, Earnest Mathis, Jr. shall (i) resign as Chief Executive Officer
      and Secretary of Mycom and MergerCo and (ii) Mycom and the Surviving Entity
      shall appoint the following individuals to the following positions: Clayton
      Shelver, Chief Executive Officer, Jeremy Johnson, Chief Technology Officer,
      David M. Otto, Secretary and Robert Lear, Chief Operating Officer (the
“New
      Officers”).
      The
      New Officers shall serve until the earlier of their death, resignation or
      removal.

    

    (d) On
      the
      Closing Date, Mycom shall appoint David M. Otto to its Board of Directors.
      Mr.
      Otto shall serve until the earlier of their death, resignation or
      removal.

     

    1.6 Further
      Actions.
      

    

    (a) If,
      at
      any time after the Effective Time, the Surviving Entity or Mycom considers
      or is
      advised that any deeds, bills of sale, assignments, assurances or any other
      actions or things are necessary or desirable to vest, perfect or confirm (of
      record or otherwise) in the Surviving Entity its right, title or interest in,
      to
      or under any of the rights, properties, or assets of VSI, or otherwise to carry
      out the intent and purposes of this Agreement, the officers and directors of
      the
      Surviving Entity will be authorized to execute and deliver, in the name and
      on
      behalf of each of VSI, all such deeds, bills of sale, assignments and assurances
      and to take and do, in the name and on behalf of VSI, all such other actions
      and
      things as the Board of Directors of the Surviving Entity may determine to be
      necessary or desirable to vest, perfect or confirm any and all right, title
      and
      interest in, to and under such rights, properties or assets in the Surviving
      Entity or otherwise to carry out the intent and purposes of this
      Agreement.

     

    
      
        
        

      

      
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    (b) Termination
      of Merger. In the event VSI Security Holders demand dissenter’s rights that
      result in VSI repurchasing shares of common stock that are cumulatively in
      excess of One Hundred Thousand Dollars ($100,000), the Merger will be
      terminated, unless the parties waive such term.

    

    1.7  Restrictions
      on Resale.
      The
      Shares will not be registered under the Securities Act, or the securities laws
      of any state, and cannot be transferred, hypothecated, sold or otherwise
      disposed of until: (i) a registration statement with respect to such securities
      is declared effective under the Securities Act, or (ii) Mycom receives an
      opinion of counsel for the stockholder, reasonably satisfactory to counsel
      for
      Mycom, that an exemption from the registration requirements of the Securities
      Act is available. 

    

    The
      certificates representing the Shares, when exchanged, and the Remaining Shares,
      when issued, pursuant to this Agreement shall contain a legend substantially
      as
      follows:

    

    “THE
      SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
      HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A REGISTRATION STATEMENT WITH
      RESPECT THERETO IS DECLARED EFFECTIVE UNDER SUCH ACT, OR DOT VN, INC. RECEIVES
      AN OPINION OF COUNSEL FOR THE HOLDER REASONABLY SATISFACTORY TO COUNSEL FOR
      MYCOM GROUP, INC. THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
      ACT IS AVAILABLE.”

    

    1.8 Exchange
      of Certificates.

    

    (a) After
      the
      Effective Time and pursuant to a customary letter of transmittal or other
      instructional form provided by the Exchange Agent to the VSI Security Holders,
      the VSI Security Holders shall be able to surrender all their shares to the
      Exchange Agent, and the VSI Security Holders shall be entitled upon such
      surrender to receive in exchange therefor certificates representing the
      proportionate number of shares of common stock into which the Mycom securities
      theretofore represented by the stock transfer forms so surrendered shall have
      been exchanged pursuant to this Agreement. Until so surrendered, each
      outstanding certificate, which, prior to the Effective Time, represented VSI
      securities, shall be deemed for all corporate purpose, subject to the further
      provisions of this Article I, to evidence the ownership of the number of whole
      shares for which such VSI Shares have been so exchanged. No dividend payable
      to
      holders of VSI securities of record as of any date subsequent to the Effective
      Time shall be paid to the owner of any certificate which, prior to the Effective
      Time, represented VSI Shares, until such certificate or certificates
      representing all the relevant VSI Shares, together with a stock transfer form,
      are surrendered as provided in this Article I or pursuant to letters of
      transmittal or other instructions with respect to lost certificates provided
      by
      the Exchange Agent.

     

    
      
        
        

      

      
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    (b) All
      Mycom
      shares for which the Shares shall have been exchanged pursuant to this Article
      I
      shall be deemed to have been issued in full satisfaction of all rights
      pertaining to the Shares.

    

    (c) On
      the
      Effective Date, the stock transfer book of VSI shall be deemed to be closed
      and
      no transfer of VSI Shares shall thereafter be recorded thereon. 

     

    ARTICLE
      II

    Representations
      and Warranties of VSI and SARS

    

    VSI
      and
      its wholly owned subsidiary, SARS, hereby represent and warrant to Mycom and
      its
      wholly owned subsidiary, MergerCo, that:

    

    2.1 Organization.
      VSI is
      a corporation duly organized, validly existing and in good standing under the
      laws of Washington, has all necessary corporate powers to own its properties
      and
      to carry on its business as now owned and operated by it, and is duly qualified
      to do business and is in good standing in each of the states where its business
      requires qualification. SARS is a corporation duly organized, validly existing
      and in good standing under the laws of Alaska, has all necessary corporate
      powers to own its properties and to carry on its business as now owned and
      operated by it, and is duly qualified to do business and is in good standing
      in
      each of the states where its business requires qualification.

    

    2.2 Capital.
      Upon
      the close of VSI’s current private placement of its securities with Regal
      Securities Corp. (the “Financing”),
      an
      additional eight million six hundred sixty thousand (8,660,000) shares of VSI
      common stock are expected to be issuable (the “Remaining
      Shares”).
      .
      Upon the Closing Date, a total of four million eight hundred forty thousand
      (4,840,000) shares of VSI common stock are issuable in connection with the
      Financing. Except for the securities listed on Exhibit
      2.2
      attached
      hereto, there are no outstanding subscriptions, options, rights, warrants,
      debentures, instruments, convertible securities or other agreements or
      commitments obligating VSI to issue any additional VSI securities of any
      class.

    

    2.3 Subsidiaries.
      VSI
      currently owns the following subsidiaries: (i) Secure Asset Reporting Services,
      Inc., an Alaska corporation; and (ii) ESL Wireless, Inc., a Washington
      corporation.

    

    2.4 Directors
      and Executive Officers.
      The
      names and titles of the directors and executive officers of VSI are as follows:
      

    

    
      	
              Name

            	 	
              Position

            
	 	 	 
	
              Clayton
                Shelver 

            	 	
              Director
                and Chief Executive Officer 

            
	 	 	 
	
              Steven
                K. Bannon

            	 	
              Chairman

            
	 	 	 
	
              David
                M. Otto

            	 	
              Director
                and Secretary

            
	 	 	 
	
              Jeremy
                Johnson

            	 	
              Director
                and Chief Technology Officer

            
	 	 	 
	
              Cecil
                Whitlock

            	 	
              Chief
                Financial Officer

            
	 	 	 
	
              Robert
                Lear

            	 	
              Chief
                Operating Officer

            

    

     

    
      
        
        

      

      
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    The
      names
      and titles of the director and executive officers of SARS are as
      follows:

    

    
      	
              Name

            	 	
              Position

            
	 	 	 
	
              Clayton
                Shelver 

            	 	
              Director
                and Chief Executive Officer 

            
	 	 	 
	
              Jeremy
                Johnson

            	 	
              Director
                and Chief Technology Officer

            
	 	 	 
	
              Rich
                Loretta

            	 	
              Director

            
	 	 	 
	
              Robert
                Lear

            	 	
              Chief
                Operating Officer

            
	 	 	 
	
              Larry
                Shelver

            	 	
              Director

            

    

     

    2.5 Financial
      Statements.
      On or
      before the Closing Date, VSI shall provide Mycom with unaudited financial
      statements of VSI for the six months ended June 30, 2007 and audited financials
      for the year ended September 30, 2006 (the “VSI
      Financial Statements”).
      The
      VSI Financial Statements are attached hereto as Exhibit
      2.5.
      The VSI
      Financial Statements will be prepared in accordance with generally accepted
      accounting principles and practices consistently followed by VSI throughout
      the
      periods indicated,
      and fairly present the financial position of VSI as of the date of the balance
      sheets included in the VSI Financial Statements and the results of operations
      for the periods indicated.
      

    

    2.6 Absence
      of Changes.
      Since
June
      30,
      2007,
      there
      has not been any material change in the financial condition or operations of
      VSI
      and SARS, except as contemplated by this Agreement. As used throughout this
      Agreement, “material” means: Any change or effect (or development that, insofar
      as can be reasonably foreseen, is likely to result in any change or effect)
      that
      causes substantial increase or diminution in the business, properties, assets,
      condition (financial or otherwise) or results of operations of a party. Taken
      as
      a whole, material change shall not include changes in national or international
      economic conditions or industry conditions generally; changes or possible
      changes in statutes and regulations applicable to a party; or the loss of
      employees, customers or suppliers by a party as a direct or indirect consequence
      of any announcement relating to this transaction.

    

    2.7 Absence
      of Undisclosed Liabilities.
      As of
June
      30,
      2007,
      VSI and
      SARS did not have any material debt, liability or obligation of any nature,
      whether accrued, absolute, contingent or otherwise, and whether due or to become
      due, that is not reflected in the VSI Financial Statements.

    

    2.8 Tax
      Returns.
      VSI and
      SARS have filed all federal, state and local tax returns required by law and
      have paid all taxes, assessments and penalties due and payable. The provisions
      for taxes, if any, reflected in Exhibit
      2.8
      are
      adequate for the periods indicated. There are no present disputes as to taxes
      of
      any nature payable by VSI or SARS.

     

    
      
        
        

      

      
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    2.9 Investigation
      of Financial Condition.
      Without
      in any manner reducing or otherwise mitigating the representations contained
      herein, Mycom, MergerCo, its legal counsel and accountants shall have the
      opportunity to meet with VSI’s accountants and attorneys to discuss the
      financial condition of VSI and SARS during reasonable business hours and in
      a
      manner that does not interfere with the normal operation of VSI’s and SARS’
business. VSI and SARS shall make available to Mycom and MergerCo all books
      and
      records of VSI and SARS.

    

    2.10 Intellectual
      Property Rights.
      VSI
      and/or SARS owns or has the right to use all trademarks, service marks, trade
      names, copyrights and patents material to its business.

     

    2.11 Compliance
      with Laws.
      To the
      best of VSI’s and SARS’ knowledge, VSI and SARS has complied with, and is not in
      violation of, applicable federal, state or local statutes, laws and regulations,
      including federal and state securities laws, except where such non-compliance
      would not have a material adverse impact upon its business or
      properties.

    

    2.12 Litigation.
      VSI and
      SARS is not a defendant in any suit, action, arbitration or legal,
      administrative or other proceeding, or governmental investigation which is
      pending or, to the best knowledge of VSI and SARS, threatened against or
      affecting VSI or SARS or its business, assets or financial condition. VSI and
      SARS is not in default with respect to any order, writ, injunction or decree
      of
      any federal, state, local or foreign court, department, agency or
      instrumentality applicable to it. VSI and SARS are not engaged in any material
      litigation to recover monies due to it.

    

    2.13 Authority.
      The
      Boards of Directors of VSI and SARS have authorized the execution of this
      Agreement and the consummation of the transactions contemplated herein, and
      VSI
      and SARS have full power and authority to execute, deliver and perform this
      Agreement, and this Agreement is a legal, valid and binding obligation of VSI
      and SARS and is enforceable in accordance with its terms and conditions. A
      majority of VSI Security Holders has agreed to and has approved the terms of
      this Agreement and the exchange of securities contemplated hereby. 

    

    2.14 Ability
      to Carry Out Obligations.
      The
      execution and delivery of this Agreement by VSI and SARS and the performance
      by
      VSI and SARS of its obligations hereunder in the time and manner contemplated
      will not cause, constitute or conflict with or result in (a) any breach or
      violation of any of the provisions of or constitute a default under any license,
      indenture, mortgage, instrument, article of incorporation, bylaw, or other
      agreement or instrument to which VSI and SARS is a party, or by which it may
      be
      bound, nor will any consents or authorizations of any party other than those
      hereto be required, (b) an event that would permit any party to any agreement
      or
      instrument to terminate it or to accelerate the maturity of any indebtedness
      or
      other obligation of VSI and SARS, or (c) an event that would result in the
      creation or imposition of any lien, charge or encumbrance on any asset of VSI
      or
      SARS.

     

    
      
        
        

      

      
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    2.15 Full
      Disclosure.
      None of
      the representations and warranties made by VSI and SARS herein or in any
      exhibit, certificate or memorandum furnished or to be furnished by VSI, or
      on
      its behalf, contains or will contain any untrue statement of material fact
      or
      omit any material fact the omission of which would be misleading.

    

    2.16 Assets.
      VSI
      and
      SARS’ assets are fully included in Exhibit
      2.16
      and are
      not subject to any claims or encumbrances except as indicated in Exhibit
      2.16.

    

    2.17 Material
      Contracts.
      VSI and
      SARS’ material contracts are attached hereto as Exhibit
      2.17.
      

    

    2.18 Indemnification.
      VSI and
      SARS agree to indemnify, defend and hold Mycom and MergerCo harmless against
      and
      in respect of any and all claims, demands, losses, costs, expenses, obligations,
      liabilities, damages, recoveries and deficiencies, including interest, penalties
      and reasonable attorney fees asserted by third parties against Mycom or MergerCo
      which arise out of, or result from (i) any breach by VSI or SARS in performing
      any of its covenants or agreements under this Agreement or in any schedule,
      certificate, exhibit or other instrument furnished or to be furnished by VSI
      and
      SARS under this Agreement, (ii) a failure of any representation or warranty
      in
      this Article II or (iii) any untrue statement made by VSI or SARS in this
      Agreement.

    

    2.19 Criminal
      or Civil Acts.
      For the
      period of five (5) years prior to the execution of this Agreement, no current
      executive officer, director or principal stockholder of VSI and SARS have been
      convicted of a felony crime, filed for personal bankruptcy, been the subject
      of
      a Commission or NASD judgment or decree, or is currently the subject to any
      investigation in connection with a felony crime or Commission or NASD
      proceeding.

    

    2.20
       Restricted
      Securities.
      VSI,
      SARS and the VSI Security Holders acknowledge that all of the Mycom shares
      issued by Mycom are restricted securities and none of such securities may be
      sold or publicly traded except in accordance with the provisions of the
      Securities Act.

     

    ARTICLE
      III

    Representations
      and Warranties of Mycom and MergerCo

    

    Mycom
      and
      its wholly owned subsidiary, MergerCo, represents and warrants to VSI and its
      wholly owned subsidiary, SARS, that:

    

    3.1 Organization.
      Mycom
      is a corporation duly organized, validly existing and in good standing under
      the
      laws of Nevada, has all necessary corporate powers to carry on its business,
      and
      is duly qualified to do business and is in good standing in each of the states
      where its business requires qualification. MergerCo is a corporation duly
      organized, validly existing and in good standing under the laws of Nevada,
      has
      all necessary corporate powers to carry on its business, and is duly qualified
      to do business and is in good standing in each of the states where its business
      requires qualification.

     

    
      
        
        

      

      
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    3.2 Capital.
      The
      authorized capital stock of Mycom consists of ninety million (90,000,000) shares
      of $0.01 par value common stock, of which one million five hundred thousand
      ninety-five (1,500,095) shares are currently outstanding and will be outstanding
      on the Closing Date, and zero (0) shares of $0.01 par value preferred stock,
      none of which are outstanding. All of the outstanding common stock is duly
      and
      validly issued, fully paid and non-assessable. There are no outstanding
      subscriptions, options, rights, warrants, debentures, instruments, convertible
      securities or other agreements or commitments obligating Mycom to issue any
      additional shares of its capital stock of any class.

    

    3.3 Subsidiaries.
      Mycom
      currently owns the following subsidiary: Mycom Acquisition Corporation, a Nevada
      corporation.

    

    3.4 Directors
      and Officers.
      The
      name and title of the director and executive officer of Mycom and MergerCo
      are
      as follows: 

    

    
      	
              Name

            	 	
              Position

            
	
              Earnest
                Mathis, Jr.

            	 	
              Director
                and Chief Executive Officer

            

    

     

    3.5 Financial
      Statements.
      Exhibit
      3.5
      attached
      hereto consists of the audited financial statements of Mycom for the year ended
      December 31, 2006 (the “Mycom
      Financial Statements”)
      and
      for the quarter ended June 30, 2007. The Mycom Financial Statements have been
      prepared in accordance with generally accepted accounting principles and
      practices consistently followed by Mycom throughout the period indicated, and
      fairly present the financial position of Mycom as of the date of the balance
      sheet included in the Mycom Financial Statements and the results of operations
      for the period indicated. 

    

    3.6 Absence
      of Changes.
      Since
      June 30, 2007, there has not been any material change in the financial condition
      or operations of Mycom and MergerCo, except as contemplated by this Agreement.
      As used throughout this Agreement, “material” means: Any change or effect (or
      development that, insofar as can be reasonably foreseen, is likely to result
      in
      any change or effect) that causes substantial increase or diminution in the
      business, properties, assets, condition (financial or otherwise) or results
      of
      operations of a party. Taken as a whole, material change shall not include
      changes in national or international economic conditions or industry conditions
      generally; changes or possible changes in statutes and regulations applicable
      to
      a party; or the loss of employees, customers or suppliers by a party as a direct
      or indirect consequence of any announcement relating to this
      transaction.

    

    3.7 Absence
      of Undisclosed Liabilities.
      As of
      June 30, 2007, Mycom and MergerCo did not have any material debt, liability
      or
      obligation of any nature, whether accrued, absolute, contingent or otherwise,
      and whether due or to become due, that is not reflected in the Mycom Financial
      Statements.

    

    3.8 Tax
      Returns.
      Mycom
      and MergerCo have filed all federal, state and local tax returns required by
      law
      and have paid all taxes, assessments and penalties due and payable. The
      provisions for taxes, if any, reflected in Exhibit
      3.8
      are
      adequate for the periods indicated. There are no present disputes as to taxes
      of
      any nature payable by Mycom and MergerCo.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    3.9 Investigation
      of Financial Condition.
      Without
      in any manner reducing or otherwise mitigating the representations contained
      herein, VSI, SARS, its legal counsel and accountants shall have the opportunity
      to meet with Mycom’s and MergerCo’s accountants and attorneys to discuss the
      financial condition of Mycom and MergerCo during reasonable business hours
      and
      in a manner that does not interfere with the normal operation of Mycom’s and
      MergerCo’s business. Mycom and MergerCo shall make available to VSI and SARS all
      books and records of Mycom and MergerCo.

    

    3.10 Intellectual
      Property Rights.
      Mycom
      and MergerCo have no trademarks, service marks, trade names, copyrights or
      patents material to its business.

     

    3.11 Compliance
      with Laws.
      To the
      best of Mycom’s and MergerCo’s knowledge, Mycom and MergerCo have complied with,
      and is not in violation of, applicable federal, state or local statutes, laws
      and regulations, including federal and state securities laws, except where
      such
      non-compliance would not have a material adverse impact upon its business or
      properties.

    

    3.12 Litigation.
      Mycom
      is not a defendant in any suit, action, arbitration or legal, administrative
      or
      other proceeding, or governmental investigation which is pending or, to the
      best
      knowledge of Mycom and MergerCo, threatened against or affecting Mycom and
      MergerCo or its business, assets or financial condition. Mycom and MergerCo
      are
      not in default with respect to any order, writ, injunction or decree of any
      federal, state, local or foreign court, department, agency or instrumentality
      applicable to it. Mycom and MergerCo are not engaged in any material litigation
      to recover monies due to it.

    

    3.13 Authority.
      The
      Boards of Directors of Mycom and MergerCo have authorized the execution of
      this
      Agreement and the consummation of the transactions contemplated herein, and
      Mycom and MergerCo have full power and authority to execute, deliver and perform
      this Agreement, and this Agreement is a legal, valid and binding obligation
      of
      Mycom and MergerCo and is enforceable in accordance with its terms and
      conditions. 

    

    3.14 Ability
      to Carry Out Obligations.
      The
      execution and delivery of this Agreement by Mycom and MergerCo and the
      performance by Mycom and MergerCo of its obligations hereunder in the time
      and
      manner contemplated will not cause, constitute or conflict with or result in
      (a)
      any breach or violation of any of the provisions of or constitute a default
      under any license, indenture, mortgage, instrument, article of incorporation,
      bylaw, or other agreement or instrument to which Mycom or MergerCo is a party,
      or by which it may be bound, nor will any consents
      or authorizations of any party other than those hereto be required, (b) an
      event
      that would permit any party to any agreement or instrument to terminate it
      or to
      accelerate the maturity of any indebtedness or other obligation of
      Mycom
      and
      MergerCo,
      or (c)
      an event that would result in the creation or imposition of any lien, charge
      or
      encumbrance on any asset of Mycom
      and
      MergerCo.

    

    3.15 Full
      Disclosure.
      None of
      the representations and warranties made by Mycom and MergerCo herein or in
      any
      exhibit, certificate or memorandum furnished or to be furnished by Mycom, or
      on
      its behalf, contains or will contain any untrue statement of material fact
      or
      omit any material fact the omission of which would be misleading.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    3.16 Assets.
      Mycom
      and MergerCo’s assets are fully included in Exhibit
      3.16
      and are
      not subject to any claims or encumbrances except as indicated in Exhibit
      3.16.

    

    3.17 Material
      Contracts.
      Mycom
      and MergerCo do not have any material contracts.

    

    3.18 Indemnification.
      Mycom
      and MergerCo agree to indemnify, defend and hold VSI and SARS harmless against
      and in respect of any and all claims, demands, losses, costs, expenses,
      obligations, liabilities, damages, recoveries and deficiencies, including
      interest, penalties and reasonable attorney fees asserted by third parties
      against VSI and SARS which arise out of, or result from (i) any breach by Mycom
      and MergerCo in performing any of its covenants or agreements under this
      Agreement or in any schedule, certificate, exhibit or other instrument furnished
      or to be furnished by Mycom and MergerCo under this Agreement, (ii) a failure
      of
      any representation or warranty in this Article III or (iii) any untrue statement
      made by Mycom and MergerCo in this Agreement.

    

    3.19 Criminal
      or Civil Acts.
      For the
      period of five (5) years prior to the execution of this Agreement, no current
      executive officer, director or principal stockholder of Mycom and MergerCo
      have
      been convicted of a felony crime, filed for personal bankruptcy, been the
      subject of a Commission or NASD judgment or decree, or is currently the subject
      to any investigation in connection with a felony crime or Commission or NASD
      proceeding.

     

    ARTICLE
      IV

    Covenants
      Prior to the Closing Date

    

    4.1 Investigative
      Rights.
      Prior
      to the Closing Date, each party shall provide to the other party, and such
      other
      party’s counsel, accountants, auditors and other authorized representatives,
      full access during normal business hours and upon reasonable advance written
      notice to all of each party’s properties, books, contracts, commitments and
      records for the purpose of examining the same. Each party shall furnish the
      other party with all information concerning each party’s affairs as the other
      party may reasonably request. If during the investigative period one party
      learns that a representation of the other party was not accurate, no such claim
      may be asserted by the party so learning that a representation of the other
      party was not accurate.

    

    4.2 Conduct
      of Business.
      Prior
      to the Closing Date, each party shall conduct its business in the normal course
      and shall not sell, pledge or assign any assets without the prior written
      approval of the other party, except in the normal course of business. No party
      shall amend its Articles of Incorporation or Bylaws (except as may be described
      in this Agreement), declare dividends, redeem or sell stock or other securities.
      No party shall enter into negotiations with any third party or complete any
      transaction with a third party involving the sale of any of its assets or the
      exchange of any of its common stock.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    4.3 Confidential
      Information.
      Each
      party will treat all non-public, confidential and trade secret information
      received from the other party as confidential, and such party shall not disclose
      or use such information in a manner contrary to the purposes of this Agreement.
      Moreover, all such information shall be returned to the other party in the
      event
      this Agreement is terminated.

    

    4.4 Notice
      of Non-Compliance.
      Each
      party shall give prompt notice to the other party of any representation or
      warranty made by it in this Agreement becoming untrue or inaccurate in any
      respect or the failure by it to comply with or satisfy in any material respect
      any covenant, condition or agreement to be complied with or satisfied by it
      under this Agreement.

     

    ARTICLE
      V 

    Conditions
      Precedent to Mycom’s and MergerCo’s Performance

    

    5.1 Conditions.
      Mycom
      and
      MergerCo’s
      obligations hereunder shall be subject to the satisfaction at or before the
      Closing Date of all the conditions set forth in this Article V.
      Mycom
      and
      MergerCo
      may
      waive any or all of these conditions in whole or in part without prior notice;
      provided, however, that no such waiver of a condition shall constitute a waiver
      by Mycom and
      MergerCo
      of any
      other condition of or any of Mycom’s
      and
      MergerCo’s
      other
      rights or remedies, at law or in equity, if VSI and SARS shall be in default
      of
      any of its representations, warranties or covenants under this
      Agreement.

    

    5.2 Accuracy
      of Representations.
      Except
      as otherwise permitted by this Agreement, all representations and warranties
      by
      VSI and SARS in this Agreement or in any written statement that shall be
      delivered to Mycom and MergerCo by VSI and SARS under this Agreement shall
      be
      true and accurate on and as of the Closing Date as though made at that
      time.

    

    5.3 Performance.
      VSI and
      SARS shall have performed, satisfied and complied with all covenants, agreements
      and conditions required by this Agreement to be performed or complied with
      by it
      on or before the Closing Date.

    

    5.4 Absence
      of Litigation.
      No
      action, suit or proceeding, including injunctive actions, before any court
      or
      any governmental body or authority, pertaining to the transaction contemplated
      by this Agreement or to its consummation, shall have been instituted or
      threatened against VSI or SARS on or before the Closing Date.

    

    5.5 Officer’s
      Certificate.
      VSI and
      SARS shall have delivered to Mycom and MergerCo a certificate dated the Closing
      Date signed by the Chief Executive Officer of VSI and SARS certifying that
      each
      of the conditions specified in this Article has been fulfilled and that all
      of
      the representations set forth in Article II are true and correct as of the
      Closing Date.

    

    5.6 Corporate
      Action.
      VSI and
      SARS shall have obtained the approval of the VSI Security Holders for the
      transaction contemplated by this Agreement.

     

    5.7 Acceptance
      of Financial Statements.
      Mycom
      and MergerCo shall have reviewed and in its sole discretion accepted, prior
      to
      the Closing Date, the VSI Financial Statements as set forth in Exhibit
      2.5.

    

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    

    ARTICLE
      VI

    Conditions
      Precedent to VSI’s and SARS’ Performance

    

    6.1 Conditions.
      VSI’s
      and SARS’ obligations hereunder shall be subject to the satisfaction at or
      before the Closing Date of all the conditions set forth in this Article VI.
      VSI
      and SARS may waive any or all of these conditions in whole or in part without
      prior notice; provided, however, that no such waiver of a condition shall
      constitute a waiver by VSI and SARS of any other condition of or any of VSI’s
      and SARS’ rights or remedies, at law or in equity, if Mycom and MergerCo shall
      be in default of any of its representations, warranties or covenants under
      this
      Agreement.

    

    6.2 Accuracy
      of Representations.
      Except
      as otherwise permitted by this Agreement, all representations and warranties
      by
      Mycom and MergerCo in this Agreement or in any written statement that shall
      be
      delivered to VSI and SARS by Mycom and MergerCo under this Agreement shall
      be
      true and accurate on and as of the Closing Date as though made at that
      time.

    

    6.3 Performance.
      Mycom
      and MergerCo shall have performed, satisfied and complied with all covenants,
      agreements and conditions required by this Agreement to be performed or complied
      with by it on or before the Closing Date.

    

    6.4 Absence
      of Litigation.
      No
      action, suit or proceeding before any court or any governmental body or
      authority, pertaining to the transaction contemplated by this Agreement or
      to
      its consummation, shall have been instituted or threatened against Mycom on
      or
      before the Closing Date.

    

    6.5 Officer’s
      Certificate.
      Mycom
      and MergerCo shall have delivered to VSI and SARS a certificate dated the
      Closing Date signed by the Chief Executive Officer of Mycom and MergerCo
      certifying that each of the conditions specified in this Article has been
      fulfilled and that all of the representations set forth in Article III are
      true
      and correct as of the Closing Date.

    

    6.6 Payment
      of Liabilities.
      On
      or
      before the Closing Date, Mycom and MergerCo shall have paid any outstanding
      obligations and liabilities of Mycom and MergerCo through the Closing Date,
      including obligations created subsequent to the execution of this
      Agreement.

    

    6.7 Directors
      of Mycom.
      On the
      Closing Date, the Board of Directors of Mycom shall appoint David M. Otto to
      Mycom’s and MergerCo’s Board of Directors.

    

    6.8 Directors
      of MergerCo.
      On the
      Closing Date, the Board of Directors of MergerCo shall elect the Board of
      Directors of VSI, as set forth in Section 2.4 above, and MergerCo’s existing
      Board of Directors shall resign.

     

    6.9 Officers
      of Mycom and MergerCo.
      On the
      Closing Date, the Board of Directors of Mycom and MergerCo shall elect the
      officers of VSI, as set forth in Section 2.4 above, and Mycom’s existing
      executive officers shall resign.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      VII

    Closing

    

    7.1 Closing.
      The
      closing of this Agreement shall be held at the offices of The Otto Law Group,
      PLLC or at any mutually agreeable place on or prior to August 31, 2007, unless
      extended by mutual agreement. At the closing:

    

    (a)  VSI
      and
      SARS shall deliver to MergerCo and Mycom (i) copies all exhibits required by
      VSI
      and/or SARS to provide in accordance with this Agreement, (ii)
      the
      officer’s certificates described in Section 5.5, (iii)
      signed minutes of its board of directors and the VSI Security Holders approving
      this Agreement, and (iv) signed minutes of SARS’ board of directors and
      shareholder approving this Agreement..

    

    (b)
       MergerCo
      and Mycom shall deliver to VSI and SARS (i)
      copies of all exhibits required by MergerCo and/or its parent, Mycom, to provide
      in accordance with this Agreement, (ii) the
      officer’s certificates described in Section 6.5, (iii) signed minutes of its
      board of directors and shareholders, if necessary, approving this
      Agreement,
      and
(iv)
      signed minutes of Mycom’s board of directors approving this agreement and
      authorizing the issuance of shares to MergerCo for VSI.

    

    ARTICLE
      VIII

    Covenants
      Subsequent to the Closing Date

    

    8.1 Registration
      and Listing.
      Following the Closing Date, Mycom and/or MergerCo shall: 

    

    (a)  Continue
      Mycom’s common stock quotation on the Electronic Over-the-Counter Bulletin Board
      system;

     

    (b)  Comply
      with the Form 8-K requirements of the Securities Exchange Act of 1934 (the
      “Exchange
      Act”),
      including the timely preparation and filing of audited financial statements
      as
      required by Form 8-K;

     

    (c)  Promptly
      retain a qualified investor and public relations firm; and

     

    (d)  Clear
      any
      Exchange Act Rule 144 sales of Mycom common stock offered by any Mycom common
      stockholder including affiliates or former affiliates of Mycom within
      forty-eight (48) hours of the filing of the Notice of Sale pursuant to Rule
      144.

     

    8.2  Corporate
      Action.
      Mycom
      shall take steps necessary to amend its Articles of Incorporation and change
      its
      name to “SARS, Corp.” and cause the amount of authorized shares to increase to
      the total aggregate amount to five hundred fifty million (550,000,000). MergerCo
      shall take steps necessary to amend its Articles of Incorporation and change
      its
      name to “Secure Asset Reporting Services, Inc.” and cause the amount of
      authorized shares, if necessary, to increase the total aggregate amount to
      five
      hundred fifty million (550,000,000).

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    8.3  Mycom
      shall file a registration statement with the SEC within sixty (60) days of
      the
      close of the VSI Financing, registering (i) all shares of restricted Mycom
      common stock that were outstanding prior to the Closing Date; (ii) all the
      shares of common stock issued by VSI in connection with the Financing; and
      (iii)
      all the shares of common stock underlying warrants issued by VSI in connection
      with the Financing. Mycom shall use its best
      efforts to cause the registration statement to be declared effective by the
      SEC
      as soon as practicable thereafter, but in any event not later than one hundred
      fifty (150) days after the Closing. The amount of common stock included in
      a
      registration statement filed remains subject, however, to the right of VSI
      and
      any underwriters to reduce the number of shares proposed to be registered
      pro-rata in view of market conditions or legal considerations, pursuant to
      Rule
      415 of the Exchange Act, which may limit the total number of shares included
      on
      a registration statement to thirty percent (30%) of the then issued and
      outstanding common stock of Mycom.

     

    8.4  The
      stock
      transfer agent shall be Pacific Stock Transfer, Inc. (“Pacific
      Stock”).
      Mycom
      shall take all steps necessary to engage Pacific Stock to become the transfer
      agent for Mycom and the Surviving Entity.

     

    
    

    ARTICLE
      IX

    Miscellaneous

    

    9.1 Captions
      and Headings.
      The
      Article and Section headings throughout this Agreement are for convenience
      and
      reference only and shall not define, limit or add to the meaning of any
      provision of this Agreement.

    

    9.2 No
      Oral Change.
      This
      Agreement and any provision hereof may not be waived, changed, modified or
      discharged orally, but only by an agreement in writing signed by the party
      against whom enforcement of any such waiver, change, modification or discharge
      is sought.

    

    9.3 Non-Waiver.
      The
      failure of any party to insist in any one or more cases upon the performance
      of
      any of the provisions, covenants or conditions of this Agreement or to exercise
      any option herein contained shall not be construed as a waiver or relinquishment
      for the future of any such provisions, covenants or conditions. No waiver by
      any
      party of one breach by another party shall be construed as a waiver with respect
      to any other subsequent breach.

    

    9.4 Time
      of Essence.
      Time is
      of the essence of this Agreement and of each and every provision
      hereof.

    

    9.5 Entire
      Agreement.
      This
      Agreement contains the entire Agreement and understanding between the parties
      hereto and supersedes all prior agreements and understandings.

    

    9.6 Choice
      of Law.
      This
      Agreement and its application shall be governed by the laws of the state of
      Nevada.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    9.7 Counterparts.
      This
      Agreement may be executed simultaneously in one or more counterparts, each
      of
      which shall be deemed an original, but all of which together shall constitute
      one and the same instrument.

    

    9.8 Notices.
      All
      notices, requests, demands and other communications under this Agreement shall
      be in writing and shall be deemed to have been duly given on the date of service
      if served personally on the party to whom notice is to be given, or on the
      third
      day after mailing if mailed to the party to whom notice is to be given, by
      first
      class mail, registered or certified, postage prepaid, and properly addressed
      as
      follows:

    

    
      	
            	         
              Mycom/MergerCo:	
              Mycom
                Group, Inc.

              
                2560
                  W. Main Street, Suite 200

                Littleton,
                  CO 80120

                Attn:
                  Earnest Mathis, Jr., Chief Executive Officer 

              

            

    

     
      

    
      
        	
              	         
                VSI/SARS:	
                
                  Veritas
                    Solutions, Inc.

                  601
                    108th
                    Avenue NE, Suite 1908

                  Bellevue,
                    WA 98004

                  Attn:
                    Clayton Shelver, Chief Executive
                    Officer

                

              

      

       
        
        
          
            	
                  	         
                    With a copy to:	
                    
                      The
                        Otto Law Group, PLLC 
                        601
                          Union Street, Suite 4500

                        Seattle,
                          Washington 98101

                        Attn:
                          David Otto  

                      

                    

                  

          

           
            

        

      

    

    9.9 Binding
      Effect.
      This
      Agreement shall inure to and be binding upon the heirs, executors, personal
      representatives, successors and assigns of each of the parties to this
      Agreement.

    

    9.10 Mutual
      Cooperation.
      The
      parties hereto shall cooperate with each other to achieve the purpose of this
      Agreement and shall execute such other and further documents and take such
      other
      and further actions as may be necessary or convenient to effect the transaction
      described herein.

    

    9.11 Finders.
      There
      are no finders in connection with this transaction.

    

    9.12 Announcements.
      The
      parties will consult and cooperate with each other as to the timing and content
      of any public announcements regarding this Agreement. 

    

    9.13 Expenses.
      Each
      party will bear their own expenses, including legal fees incurred in connection
      with this Agreement. The VSI Security Holders shall not be responsible for
      any
      costs incurred in connection with the transaction contemplated by this
      Agreement.

    

    9.14 Survival
      of Representations and Warranties.
      The
      representations, warranties, covenants and agreements of the parties set forth
      in this Agreement or in any instrument, certificate, opinion or other writing
      providing for in it, shall survive the Closing Date.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    9.15 Exhibits.
      As of
      the execution hereof, the parties have provided each other with the exhibits
      described herein. Any material changes to the exhibits shall be immediately
      disclosed to the other party.

     

    9.16 Termination,
      Amendment and Waiver.
      

    

    (a)
       Termination.
      This
      Agreement may be terminated at any time prior to the Closing Date, whether
      before or after approval of matters presented in connection with the share
      exchange by the stockholders of VSI:

    

    (1) By
      mutual
      written consent of VSI and SARS and Mycom and MergerCo;

    

    (2) By
      either
      VSI and SARS or Mycom and MergerCo;

     

    
      	 	
              (i)

            	
              If
                any court of competent jurisdiction or any governmental, administrative
                or
                regulatory authority, agency or body shall have issued an order,
                decree or
                ruling or taken any other action permanently enjoining, restraining
                or
                otherwise prohibiting the transactions contemplated by this Agreement;
                or

            

    

    

    
      	 	
              (ii)

            	
              If
                the transaction shall not have been consummated on or before August
                31,
                2007, unless the failure to consummate the transaction is the result
                of a
                material breach of this Agreement by the party seeking to terminate
                this
                Agreement.

            

    

    

    (3) By
      VSI
      and SARS, if Mycom or MergerCo breaches any of its representations or warranties
      hereof or fails to perform in any material respect any of its covenants,
      agreements or obligations under this Agreement; and 

    

    (4) By
      Mycom
      and MergerCo, if VSI or SARS breaches any of its representations or warranties
      hereof or fails to perform in any material respect any of its covenants,
      agreements or obligations under this Agreement.

    

    (b)
       Effect
      of Termination.
      In the
      event of termination of this Agreement by either Mycom and MergerCo or VSI
      and
      SARS, as provided herein, this Agreement shall forthwith become void and have
      no
      effect, without any liability or obligation on the part of VSI and SARS or
      Mycom
      and MergerCo, and such termination shall not relieve any party hereto for any
      intentional breach prior to such termination by a party hereto of any of its
      representations or warranties or any of its covenants or agreements set forth
      in
      this Agreement.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    (c)
       Extension;
      Waiver.
      At any
      time prior to the Closing Date, the parties may, to the extent legally allowed,
      (a) extend the time for the performance of any of the obligation of the other
      acts of the other parties, (b) waive any inaccuracies in the representations
      and
      warranties contained herein or in any document delivered pursuant hereto or
      waive compliance with any of the agreements or conditions contained herein.
      Any
      agreement on the part of a party to any such extension or waiver shall be valid
      only if set forth in an instrument in writing signed on behalf of such party.
      The failure of any party to this Agreement to assert any of its rights under
      this Agreement or otherwise shall not constitute a waiver of such
      rights.

     

    (d)
       Procedure
      for Termination, Amendment, Extension or Waiver.
      A
      termination of this Agreement, an amendment of this Agreement or an extension
      or
      waiver shall, in order to be effective, require in the case of VSI and SARS
      or
      Mycom and MergerCo, action by its respective Board of Directors or the duly
      authorized designee of such Board of Directors.

    

    [Remainder
      of Page Intentionally Blank; Signature Page Follows]

     

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    In
      witness whereof, the parties have executed this Agreement concerning the
      exchange of securities on the date indicated above.

    

    

    MYCOM
      GROUP, INC.       

    

    

    By:                                                                           
      

    Earnest
      Mathis, Jr.    

    Chief
      Executive Officer     

    

    

    MYCOM
      ACQUISITION CORPORATION

    

    

    

    By:                                                                           
      
Earnest
      Mathis, Jr. 

    Chief
      Executive Officer

    

    

    VERITAS
      SOLUTIONS, INC.  

    

    

    

    By:                                                                           
      

    Clayton
      Shelver

    Chief
      Executive Officer

    

    

    SECURE
      ASSET REPORTING SERVICES, INC.

    

    

    

    By:                                                                           
      

    Clayton
      Shelver

    Chief
      Executive Officer

    

    

    
      
        
        

      

      
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        100Unassociated Document

     

    EXHIBIT
      10.1

     

     

     

    LOAN
      AGREEMENT

     

     

    DATED
      AS OF AUGUST 31, 2007 

     

     

    BY
      AND BETWEEN 

     

     

    SPORT
      CHALET, INC.,

    A
      DELAWARE CORPORATION,

    AS
      THE BORROWER

     

    AND
      

     

    BANK
      OF AMERICA, N.A.,

     

     

    AS
      THE BANK

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    TABLE
      OF CONTENTS

     

    

      
        	
                Section 

              	 	 	
                Page

              
	 	 	 	 
	
                1.

              	
                LINE
                  OF CREDIT AMOUNT AND TERMS

              	
                1

              
	 	 	 
	 	
                1.1

              	
                Line
                  of Credit Amount

              	
                1

              
	 	 	 	 
	 	
                1.2

              	
                Availability
                  Period

              	
                1

              
	 	 	 	 
	 	
                1.3

              	
                Repayment
                  Terms

              	
                1

              
	 	 	 	 
	 	
                1.4

              	
                Interest
                  Rate

              	
                1

              
	 	 	 	 
	 	
                1.5

              	
                Optional
                  Interest Rates

              	
                2

              
	 	 	 	 
	 	
                1.6

              	
                Applicable
                  Rate

              	
                2

              
	 	 	 	 
	 	
                1.7

              	
                Letters
                  of Credit

              	
                3

              
	 	 	 	 
	
                2.

              	
                OPTIONAL
                  INTEREST RATES

              	
                3

              
	 	 	 	 
	 	
                2.1

              	
                Optional
                  Rates

              	
                3

              
	 	 	 	 
	 	
                2.2

              	
                LIBOR
                  Rate

              	
                4

              
	 	 	 	 
	
                3.

              	
                FEES
                  AND EXPENSES

              	
                5

              
	 	 	 
	 	
                3.1

              	
                Fees

              	
                5

              
	 	 	 	 
	 	
                3.2

              	
                Expenses

              	
                5

              
	 	 	 	 
	 	
                3.3

              	
                Reimbursement
                  Costs

              	
                5

              
	 	 	 	 
	
                4.

              	
                COLLATERAL

              	
                5

              
	 	 	 
	 	
                4.1

              	
                Personal
                  Property

              	
                5

              

      

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	 	 	 	 
	
                5.

              	
                DISBURSEMENTS,
                  PAYMENTS AND COSTS

              	
                5

              
	 	 	 	 
	 	
                5.1

              	
                Requests
                  for Credit

              	
                6

              
	 	 	 	 
	 	
                5.2

              	
                Disbursements
                  and Payments

              	
                6

              
	 	 	 	 
	 	
                5.3

              	
                Telephone
                  and Telefax Authorization

              	
                6

              
	 	 	 	 
	 	
                5.4

              	
                Direct
                  Debit (Pre-Billing)

              	
                6

              
	 	 	 	 
	 	
                5.5

              	
                Banking
                  Days

              	
                7

              
	 	 	 	 
	 	
                5.6

              	
                Interest
                  Calculation

              	
                7

              
	 	 	 	 
	 	
                5.7

              	
                Default
                  Rate

              	
                7

              
	 	 	 	 
	 	
                5.8

              	
                Taxes

              	
                7

              
	 	 	 	 
	 	
                5.9

              	
                Additional
                  Costs

              	
                7

              
	 	 	 	 
	
                6.

              	
                CONDITIONS

              	
                8

              
	 	 	
                 

              
	 	
                6.1

              	
                Authorizations

              	
                8

              
	 	 	 	 
	 	
                6.2

              	
                Governing
                  Documents

              	
                8

              
	 	 	 	 
	 	
                6.3

              	
                Security
                  Agreements

              	
                8

              
	 	 	 	 
	 	
                6.4

              	
                Perfection
                  and Evidence of Priority

              	
                8

              
	 	 	 	 
	 	
                6.5

              	
                Payment
                  of Fees

              	
                8

              
	 	 	 	 
	 	
                6.6

              	
                Good
                  Standing

              	
                8

              
	 	 	 	 
	 	
                6.7

              	
                Legal
                  Opinion

              	
                8

              
	 	 	 	 
	 	
                6.8

              	
                Insurance

              	
                8

              
	 	 	 	 
	 	
                6.9

              	
                Other
                  Required Items

              	
                8

              
	 	 	 	 
	
                7.

              	
                REPRESENTATIONS
                  AND WARRANTIES

              	
                8

              
	 	 	 	 
	 	
                7.1

              	
                Formation

              	
                8

              
	 	 	 	 
	 	
                7.2

              	
                Authorization

              	
                9

              
	 	 	 	 
	 	
                7.3

              	
                Enforceable
                  Agreement

              	
                9

              
	 	 	 	 
	 	
                7.4

              	
                Good
                  Standing

              	
                9

              
	 	 	 	 
	 	
                7.5

              	
                No
                  Conflicts

              	
                9

              
	 	 	 	 
	 	
                7.6

              	
                Financial
                  Information

              	
                9

              
	 	 	 	 
	 	
                7.7

              	
                Lawsuits

              	
                9

              
	 	 	 	 
	 	
                7.8

              	
                Collateral

              	
                9

              

      

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	
                 

              	 	 	 
	 	
                7.9

              	
                Permits,
                  Franchises

              	
                10

              
	 	 	 	 
	 	
                7.10

              	
                Other
                  Obligations

              	
                10

              
	 	 	 	 
	 	
                7.11

              	
                Tax
                  Matters

              	
                10

              
	 	 	 	 
	 	
                7.12

              	
                No
                  Event of Default

              	
                10

              
	 	 	 	 
	 	
                7.13

              	
                Insurance

              	
                10

              
	 	 	 	 
	 	
                7.14

              	
                ERISA
                  Plans

              	
                10

              
	 	 	 	 
	 	
                7.15

              	
                Location
                  of Borrower

              	
                11

              
	 	 	 	 
	
                8.

              	
                COVENANTS

              	
                11

              
	 	 	 
	 	
                8.1

              	
                Use
                  of Proceeds

              	
                11

              
	 	 	 	 
	 	
                8.2

              	
                Financial
                  Information

              	
                12

              
	 	 	 	 
	 	
                8.3

              	
                Funded
                  Debt to EBITDA Ratio

              	
                13

              
	 	 	 	 
	 	
                8.4

              	
                Fixed
                  Charge Coverage Ratio

              	
                13

              
	 	 	 	
                 

              
	 	
                8.5

              	
                Bank
                  as Principal Depository

              	
                13

              
	 	 	 	
                 

              
	 	
                8.6

              	
                Other
                  Debts

              	
                13

              
	 	 	 	
                 

              
	 	
                8.7

              	
                Other
                  Liens

              	
                14

              
	 	 	 	
                 

              
	 	
                8.8

              	
                Maintenance
                  of Assets

              	
                14

              
	 	 	 	
                 

              
	 	
                8.9

              	
                Investments

              	
                14

              
	 	 	 	
                 

              
	 	
                8.10

              	
                Loans

              	
                14

              
	 	 	 	
                 

              
	 	
                8.11

              	
                Change
                  of Ownership

              	
                14

              
	 	 	 	
                 

              
	 	
                8.12

              	
                Additional
                  Negative Covenants

              	
                15

              
	 	 	 	
                 

              
	 	
                8.13

              	
                Notices
                  to Bank

              	
                15

              
	 	 	 	
                 

              
	 	
                8.14

              	
                Insurance

              	
                16

              
	 	 	 	
                 

              
	 	
                8.15

              	
                Compliance
                  with Laws

              	
                16

              
	 	 	 	
                 

              
	 	
                8.16

              	
                ERISA
                  Plans

              	
                16

              
	 	 	 	
                 

              
	 	
                8.17

              	
                Books
                  and Records

              	
                16

              

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	 	 	 	
                 

              
	 	
                8.18

              	
                Audits

              	
                16

              
	 	 	 	
                 

              
	 	
                8.19

              	
                Perfection
                  of Liens

              	
                17

              
	 	 	 	
                 

              
	 	
                8.20

              	
                Cooperation

              	
                17

              
	 	 	 	
                 

              
	 	
                8.21

              	
                Indemnity
                  Regarding Use of Real Property

              	
                17

              
	 	 	 	
                 

              
	
                9.

              	
                HAZARDOUS
                  SUBSTANCES

              	
                17

              
	 	 	
                 

              
	 	
                9.1

              	
                Indemnity
                  Regarding Hazardous Substances

              	
                17

              
	 	 	 	
                 

              
	 	
                9.2

              	
                Compliance
                  Regarding Hazardous Substances

              	
                17

              
	 	 	 	
                 

              
	 	
                9.3

              	
                Notices
                  Regarding Hazardous Substances

              	
                17

              
	 	 	 	
                 

              
	 	
                9.4

              	
                Site
                  Visits, Observations and Testing

              	
                18

              
	 	 	 	
                 

              
	 	
                9.5

              	
                Definition
                  of Hazardous Substances

              	
                18

              
	 	 	 	
                 

              
	 	
                9.6

              	
                Continuing
                  Obligation

              	
                18

              
	 	 	 	
                 

              
	
                10.

              	
                DEFAULT
                  AND REMEDIES

              	
                18

              
	 	 	
                 

              
	 	
                10.1

              	
                Failure
                  to Pay

              	
                18

              
	 	 	 	
                 

              
	 	
                10.2

              	
                Other
                  Bank Agreements

              	
                19

              
	 	 	 	
                 

              
	 	
                10.3

              	
                Cross-default

              	
                19

              
	 	 	 	
                 

              
	 	
                10.4

              	
                False
                  Information

              	
                19

              
	 	 	 	
                 

              
	 	
                10.5

              	
                Bankruptcy

              	
                19

              
	 	 	 	
                 

              
	 	
                10.6

              	
                Receivers

              	
                19

              
	 	 	 	
                 

              
	 	
                10.7

              	
                Lien
                  Priority

              	
                19

              
	 	 	 	
                 

              
	 	
                10.8

              	
                Judgments

              	
                19

              
	 	 	 	
                 

              
	 	
                10.9

              	
                Material
                  Adverse Change

              	
                19

              
	 	 	 	
                 

              
	 	
                10.10

              	
                Government
                  Action

              	
                20

              
	 	 	 	
                 

              
	 	
                10.11

              	
                Default
                  under Related Documents

              	
                20

              
	 	 	 	
                 

              
	 	
                10.12

              	
                Other
                  Breach Under Agreement

              	
                20

              

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	 	 	 	
                 

              
	
                11.

              	
                ENFORCING
                  THIS AGREEMENT; MISCELLANEOUS

              	
                20

              
	 	 	
                 

              
	 	
                11.1

              	
                GAAP

              	
                20

              
	 	 	 	
                 

              
	 	
                11.2

              	
                California
                  Law

              	
                20

              
	 	 	 	
                 

              
	 	
                11.3

              	
                Successors
                  and Assigns

              	
                20

              
	 	 	 	
                 

              
	 	
                11.4

              	
                Dispute
                  Resolution Provision

              	
                20

              
	 	 	 	
                 

              
	 	
                11.5

              	
                Severability;
                  Waivers

              	
                22

              
	 	 	 	
                 

              
	 	
                11.6

              	
                Attorneys’
                  Fees

              	
                22

              
	 	 	 	
                 

              
	 	
                11.7

              	
                One
                  Agreement

              	
                23

              
	 	 	 	
                 

              
	 	
                11.8

              	
                Indemnification

              	
                23

              
	 	 	 	 
	 	
                11.9

              	
                Notices

              	
                23

              
	 	 	 	 
	 	
                11.10

              	
                Headings

              	
                23

              
	 	 	 	 
	 	
                11.11

              	
                Counterparts

              	
                24

              
	 	 	 	 
	 	
                11.12

              	
                Prior
                  Agreement Superseded

              	
                24

              

      

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    LOAN
      AGREEMENT

     

    This
      Agreement dated as of August 31, 2007, is between BANK OF AMERICA, N.A. (the
      “Bank”)
      and
      SPORT CHALET, INC., a Delaware corporation (the “Borrower”).

    line
      of
      credit amount and terms

     

    Line
      of Credit Amount.

     

    
      	
              (a)

            	
              During
                the availability period described below, the Bank will provide a
                line of
                credit to the Borrower. The amount of the line of credit (the
                “Commitment”)
                is the amount indicated for each period set forth
                below:

            

    

     

    
      	
              Period 

            	Amount
	 	 
	During each period of
              	 
	October 1 to December 31 of each
              year 	$40,000,000
	 	 
	During each period of
              	 
	January 1 to September 30 of each
              year 	$30,000,000

    

     

    
      	 	
              provided,
                however, that the outstanding principal balance of advances under
                the line
                of credit plus the outstanding amounts of any letters of credit,
                including
                amounts drawn on letters of credit and not yet reimbursed, shall
                not
                exceed at any time the lesser of (i) 45% of the Borrower’s net inventory
                at cost (which will be determined utilizing the first-in-first-out
                (FIFO)
                method, based upon the retail method of accounting and utilizing
                the
                Borrower’s costs) and (ii) the Commitment. The Borrower shall from time to
                time prepay advances to the extent necessary to comply with the foregoing
                limitation.

            

    

    
      	 	 

      	
              (b)

            	
              This
                is a revolving line of credit. During the availability period, the
                Borrower may repay principal amounts and reborrow
                them.

            

    

     

    
      	
              (c)

            	
              The
                Borrower agrees not to permit the principal balance outstanding to
                exceed
                the Commitment. If the Borrower exceeds this limit, the Borrower
                will
                immediately pay the excess to the Bank upon the Bank’s
                demand.

            

    

     

    Availability
      Period.

     

    The
      line
      of credit is available between the date of this Agreement and September 30,
      2012, or such earlier date as the availability may terminate as provided in
      this
      Agreement (the “Expiration
      Date”).

    Repayment
      Terms. 

     

    
      	
              (a)

            	
              The
                Borrower will pay interest on August 31, 2007, and then on the last
                day of
                each month thereafter until payment in full of all principal, interest,
                and other amounts outstanding under this
                facility.

            

    

    
      	
              (b)

            	
              The
                Borrower will repay in full any principal, interest or other charges
                outstanding under this facility no later than the Expiration
                Date.

            

    

    
      	
              (c)

            	
              The
                Borrower may prepay the loan in full or in part at any time. The
                prepayment will be applied to the most remote payment of principal
                due
                under this Agreement.

            

    

    Interest
      Rate. 

     

    
      	
              (a)

            	
              The
                interest rate is a rate per year equal to the Bank’s Prime Rate
                plus
                the Applicable Rate as defined
                below.

            

    

    
      	
              (b)

            	
              The
                Prime Rate is the rate of interest publicly announced from time to
                time by
                the Bank as its Prime Rate. The Prime Rate is set by the Bank based
                on
                various factors, including the Bank’s costs and desired return, general
                economic conditions and other factors, and is used as a reference
                point
                for pricing some loans. The Bank may price loans to its customers
                at,
                above, or below the Prime Rate. Any change in the Prime Rate shall
                take
                effect at the opening of business on the day specified in the public
                announcement of a change in the Bank’s Prime
                Rate.

            

    

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    Optional
      Interest Rates. 

     

    Instead
      of the interest rate based on the rate stated in the paragraph entitled
“Interest Rate” above, the Borrower may elect the optional interest rates listed
      below for this line of credit during interest periods agreed to by the Bank
      and
      the Borrower. The optional interest rates shall be subject to the terms and
      conditions described later in this Agreement. Any principal amount bearing
      interest at an optional rate under this Agreement is referred to as a “Portion.”
The following optional interest rate is available: the LIBOR Rate plus the
      Applicable Rate as defined below.

    Applicable
      Rate. 

     

    The
      “Applicable
      Rate”
shall
      be the following amounts per annum, based upon the Funded Debt to EBITDA Ratio
      (as defined in the “Covenants” section of this Agreement), as set forth in the
      most recent compliance certificate (or, if no compliance certificate is
      required, the Borrower’s most recent financial statements) received by the Bank
      as required in the Covenants section; provided, however, that, until the Bank
      receives the first compliance certificate or financial statement, such amounts
      shall be those indicated for pricing level 2 set forth below:

    
      	
              Applicable
                Rate

              (in
                percentage points per annum)

            
	
              Pricing
                

              Level

            	
              Funded
                Debt to

              EBITDA
                Ratio

            	
              Base
                Rate

            	
              LIBOR
                Rate

            	
              Standby
                Letters of 

              Credit

            	
              Unused

               Commitment

               Fee

            
	
              1

            	
              Greater
                than or equal to

              1.25
                to 1.0

            	
              -0.25%

            	
              +1.25%

            	
              +1.25%

            	
              +0.20%

            
	
              2

            	
              Less
                than

              1.25
                to 1.0

            	
              -0.25%

            	
              +1.00%

            	
              +1.00%

            	
              +0.20%

            

    

    

    The
      Applicable Rate shall be in effect from the date the most recent compliance
      certificate or financial statement is received by the Bank until the date the
      next compliance certificate or financial statement is received; provided,
      however, that if the Borrower fails to timely deliver the next compliance
      certificate or financial statement, the Applicable Rate from the date such
      compliance certificate or financial statement was due until the date such
      compliance certificate or financial statement is received by the Bank shall
      be
      the highest pricing level set forth above.

    If,
      as a
      result of any restatement of or other adjustment to the financial statements
      of
      the Borrower or for any other reason, the Borrower or the Bank determines that
      (i) the Funded Debt to EBITDA Ratio as calculated by the Borrower as of any
      applicable date was inaccurate and (ii) a proper calculation of the Funded
      Debt
      to EBITDA Ratio would have resulted in higher pricing for such period, the
      Borrower shall immediately and retroactively be obligated to pay to the Bank,
      promptly on demand by the Bank (or, after the occurrence of an actual or deemed
      entry of an order for relief with respect to the Borrower under the Bankruptcy
      Code of the United States, automatically and without further action by the
      Bank), an amount equal to the excess of the amount of interest and fees that
      should have been paid for such period over the amount of interest and fees
      actually paid for such period. This paragraph shall not limit any other rights
      of the Bank hereunder. The Borrower’s obligations under this paragraph shall
      survive the termination of the Commitment and the repayment of all other amounts
      hereunder.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    Letters
      of Credit. 

     

    
      	
              (a)

            	
              During
                the availability period, at the request of the Borrower, the Bank
                will
                issue:

            

    

    
      	 	
              (i)

            	
              Commercial
                letters of credit with a maximum maturity of up to 120 days but not
                to
                extend beyond the Expiration Date. Each commercial letter of credit
                will
                require drafts payable at sight.

            

    

    
      	 	
              (ii)

            	
              Standby
                letters of credit with a maximum maturity of up to 365 days but not
                to
                extend beyond the Expiration Date. The standby letters of credit
                may
                include a provision providing that the maturity date will be automatically
                extended each year for an additional year unless the Bank gives written
                notice to the contrary; provided, however, that each letter of credit
                must
                include a final maturity date which will not be subject to automatic
                extension.

            

    

    
      	
              (b)

            	
              The
                amount of the letters of credit outstanding at any one time (including
                the
                drawn and unreimbursed amounts of the letters of credit) may not
                exceed
                Ten Million Dollars ($10,000,000).

            

    

    
      	
              (c)

            	
              In
                calculating the principal amount outstanding under the Commitment,
                the
                calculation shall include the amount of any
                letters of credit outstanding, including amounts drawn on any letters
                of
                credit and not yet reimbursed.

            

    

    (d) The
      following letters of credit are outstanding from the Bank for the account of
      the
      Borrower:

     

    
      	Letter of Credit Number	Amount
	3055786 	$343,000
	3063442 	$1,800,000

    

       
As
      of the
      date of this Agreement, these letters of credit shall be deemed to be
      outstanding under this Agreement, and shall be subject to all the terms and
      conditions stated in this Agreement.

    
      	
              (e)

            	
              The
                Borrower agrees:

            

    

    
      	 	
              (i)

            	
              Any
                sum drawn under a letter of credit may, at the option of the Bank,
                be
                added to the principal amount outstanding under this Agreement. The
                amount
                will bear interest and be due as described elsewhere in this
                Agreement.

            

    

    
      	 	
              (ii)

            	
              If
                there is a default under this Agreement, to immediately prepay and
                make
                the Bank whole for any outstanding letters of
                credit.

            

    

    
      	 	
              (iii)

            	
              The
                issuance of any letter of credit and any amendment to a letter of
                credit
                is subject to the Bank’s written approval and must be in form and content
                satisfactory to the Bank and in favor of a beneficiary acceptable
                to the
                Bank.

            

    

    
      	 	
              (iv)

            	
              To
                sign the Bank’s form Application and Agreement for Commercial Letter of
                Credit or Application and Agreement for Standby Letter of Credit,
                as
                applicable.

            

    

    
      	 	
              (v)

            	
              To
                pay any issuance and/or other fees that the Bank notifies the Borrower
                will be charged for issuing and processing letters of credit for
                the
                Borrower.

            

    

    
      	 	
              (vi)

            	
              To
                allow the Bank to automatically charge its checking account for applicable
                fees, discounts, and other charges.

            

    

    
      	 	
              (vii)

            	
              To
                pay the Bank a non-refundable fee equal to the Applicable Rate per
                annum
                of the outstanding undrawn amount of each standby letter of credit,
                payable annually in advance on the date of issuance of such letter
                of
                credit, and on each anniversary thereof on which such letter of credit
                remains outstanding, in each case calculated on the basis of the
                face
                amount outstanding on the day the fee is calculated. If there is
                a default
                under this Agreement, at the Bank’s option, the amount of the fee shall be
                increased by 2.00% per annum, effective starting on the day the Bank
                provides notice of the increase to the
                Borrower.

            

    

    OPTIONAL
      INTEREST RATES

     

    Optional
      Rates. 

     

    Each
      optional interest rate is a rate per year. Interest will be paid on August
      31,
      2007, and then on the last day of each month thereafter until payment in full
      of
      any principal, interest or other amounts outstanding under this Agreement.
      No
      Portion will be converted to a different interest rate during the applicable
      interest period. Upon the occurrence of an event of default under this
      Agreement, the Bank may terminate the availability of optional interest rates
      for interest periods commencing after the default occurs. At the end of any
      interest period, the interest rate will revert to the rate stated in the
      paragraph(s) entitled “Interest Rate” above, unless the Borrower has designated
      another optional interest rate for the Portion.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    LIBOR
      Rate.

     

    The
      election of LIBOR Rates shall be subject to the following terms and
      requirements:

     

    
      	
              (a)

            	
              The
                interest period during which the LIBOR Rate will be in effect will
                be one
                or two weeks or one, two, three, or six months. The first day of
                the
                interest period must be a day other than a Saturday or a Sunday on
                which
                banks are open for business in New York and London and dealing in
                offshore
                dollars (a “LIBOR
                Banking Day”).
                The last day of the interest period and the actual number of days
                during
                the interest period will be determined by the Bank using the practices
                of
                the London inter-bank market.

            

    

    
      	
              (b)

            	
              Each
                LIBOR Rate Portion will be for an amount not less than One Hundred
                Thousand Dollars ($100,000).

            

    

    
      	
              (c)

            	
              The
                “LIBOR
                Rate”
                means the interest rate determined by the following formula. (All
                amounts
                in the calculation will be determined by the Bank as of the first
                day of
                the interest period.)

            

    

    LIBOR
      Rate = London
      Inter-Bank Offered Rate

    (1.00
      -
      Reserve Percentage)

    Where,

    
      	 	
              (i)

            	
              “London
                Inter-Bank Offered Rate” means, for any applicable interest period, the
                rate per annum equal to the British Bankers Association LIBOR Rate
                (“BBA
                LIBOR”), as published by Reuters (or other commercially available source
                providing quotations of BBA LIBOR as selected by the Bank from time
                to
                time) at approximately 11:00 a.m. London time two (2) London Banking
                Days
                before the commencement of the interest period, for U.S. Dollar deposits
                (for delivery on the first day of such interest period) with a term
                equivalent to such interest period. If such rate is not available
                at such
                time for any reason, then the rate for that interest period will
                be
                determined by such alternate method as reasonably selected by the
                Bank. A
                “London Banking Day” is a day on which banks in London are open for
                business and dealing in offshore
                dollars.

            

    

    
      	 	
              (ii)

            	
              “Reserve
                Percentage” means the total of the maximum reserve percentages for
                determining the reserves to be maintained by member banks of the
                Federal
                Reserve System for Eurocurrency Liabilities, as defined in Federal
                Reserve
                Board Regulation D, rounded upward to the nearest 1/100 of one percent.
                The percentage will be expressed as a decimal, and will include,
                but not
                be limited to, marginal, emergency, supplemental, special, and other
                reserve percentages.

            

    

    
      	
              (d)

            	
              The
                Borrower shall irrevocably request a LIBOR Rate Portion no later
                than
                12:00 noon Los Angeles time on the LIBOR Banking Day preceding the
                day on
                which the London Inter-Bank Offered Rate will be set, as specified
                above.
                For example, if there are no intervening holidays or weekend days
                in any
                of the relevant locations, the request must be made at least three
                days
                before the LIBOR Rate takes effect.

            

    

    
      	
              (e)

            	
              The
                Bank will have no obligation to accept an election for a LIBOR Rate
                Portion if any of the following described events has occurred and
                is
                continuing:

            

    

    
      	 	
              (i)

            	
              Dollar
                deposits in the principal amount, and for periods equal to the interest
                period, of a LIBOR Rate Portion are not available in the London inter-bank
                market; or

            

    

    
      	 	
              (ii)

            	
              the
                LIBOR Rate does not accurately reflect the cost of a LIBOR Rate
                Portion.

            

    

    
    

     

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

       

    

     

    
      	
              (f)

            	
              Each
                prepayment of a LIBOR Rate Portion, whether voluntary, by reason
                of
                acceleration or otherwise, will be accompanied by the amount of accrued
                interest on the amount prepaid and a prepayment fee as described
                below. A
                “prepayment” is a payment of an amount on a date earlier than the
                scheduled payment date for such amount as required by this
                Agreement.

            

    

    
      	
              (g)

            	
              The
                prepayment fee shall be in an amount sufficient to compensate the
                Bank for
                any loss, cost or expense incurred by it as a result of the prepayment,
                including any loss of anticipated profits
                and any loss or expense arising from the liquidation or reemployment
                of
                funds obtained by it to maintain such Portion or from fees payable
                to
                terminate the deposits from which such funds were obtained.
                The Borrower shall also pay any customary administrative fees charged
                by
                the Bank in connection with the foregoing. For
                purposes of this paragraph, the
                Bank
                shall be deemed to have funded each Portion by a matching deposit
                or other
                borrowing in the applicable interbank market, whether or not such
                Portion
                was in fact so funded.

            

    

     

    FEES
      AND
      EXPENSES

     

    Fees. 

     

     

    
      	(a) 	Unused Commitment Fee.
              The Borrower agrees to pay a fee on any difference between the Commitment
              and the amount of credit it actually uses, determined by the average
              of
              the daily amount of credit outstanding during the specified period.
              The
              fee will be calculated at the Applicable Rate. The calculation of credit
              outstanding shall include the undrawn amount of letters of
              credit. 
              This fee is due on August 31, 2007, and on the last day of each following
              month until the expiration of the availability
              period.

      	
              (b)

            	
              Interest
                Compounding.
                At the Bank’s sole option in each instance, any interest, fees or costs
                which are not paid when due under this Agreement shall bear interest
                from
                the due date at the Bank’s Reference Rate plus 1.00 percentage point. This
                may result in compounding of
                interest.

            

    

    Expenses. 

     

    The
      Borrower agrees to immediately repay the Bank for expenses that include, but
      are
      not limited to, filing, recording and search fees, appraisal fees, title report
      fees, and documentation fees.

    Reimbursement
      Costs. 

     

    
      	
              (a)

            	
              The
                Borrower agrees to reimburse the Bank for any expenses it incurs
                in the
                preparation of this Agreement and any agreement or instrument required
                by
                this Agreement. Expenses include, but are not limited to, reasonable
                attorneys’ fees, including any allocated costs of the Bank’s in-house
                counsel to the extent permitted by applicable
                law.

            

    

    
      	
              (b)

            	
              The
                Borrower agrees to reimburse the Bank for the cost of periodic field
                examinations of the Borrower’s books, records and collateral, and
                appraisals of the collateral, at such intervals as the Bank may reasonably
                require. The actions described in this paragraph may be performed
                by
                employees of the Bank or by independent appraisers. The maximum amount
                which the Borrower will be required to reimburse the Bank for each
                field
                examination or appraisal will be limited to Ten Thousand Dollars
                ($10,000); provided that such limitation shall not apply to any field
                examination or appraisal if, at any time during the conduct of such
                field
                examination or appraisal, an Event of Default exists hereunder.
                

            

    

    COLLATERAL

     

    Personal
      Property. 

     

    The
      Borrower hereby grants a security interest in all of the Borrower’s accounts,
      inventory, and equipment (as each term is used in the California Uniform
      Commercial Code) now owned or owned in the future by the Borrower to secure
      the
      Borrower’s obligations to the Bank under this Agreement. The collateral is
      further defined in security agreement(s) executed by the owners of the
      collateral. In addition, all personal property collateral owned by the Borrower
      securing this Agreement shall also secure all other present and future
      obligations of the Borrower to the Bank (excluding any consumer credit covered
      by the federal Truth in Lending law, unless the Borrower has otherwise agreed
      in
      writing or received written notice thereof). All personal property collateral
      securing any other present or future obligations of the Borrower to the Bank
      shall also secure this Agreement.

    disbursements,
      payments and costs

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    Requests
      for Credit.

     

    Each
      request for an extension of credit will be made in writing in a manner
      acceptable to the Bank, or by another means acceptable to the Bank.

     

    Disbursements
      and Payments. 

     

    
      	
              (a)

            	
              Each
                payment by the Borrower will be made in U.S. Dollars and immediately
                available funds by direct debit to a deposit account as specified
                below
                or, for payments not required to be made by direct debit, by mail
                to the
                address shown on the Borrower’s statement or at one of the Bank’s banking
                centers in the United States.

            

    

     

    
      	
              (b)

            	
              Each
                disbursement by the Bank and each payment by the Borrower will be
                evidenced by records kept by the Bank. In addition, the Bank may,
                at its
                discretion, require the Borrower to sign one or more promissory
                notes.

            

    

    Telephone
      and Telefax Authorization. 

     

    
      	
              (a)

            	
              The
                Bank may honor telephone or telefax instructions for advances or
                repayments or for the designation of optional interest rates and
                telefax
                requests for the issuance of letters of credit given, or purported
                to be
                given, by any one of the individuals authorized to sign loan agreements
                on
                behalf of the Borrower, or any other individual designated by any
                one of
                such authorized signers.

            

      	(b) 	Advances will be deposited in and repayments will
              be
              withdrawn from account number 14593- 05000
              with the Bank owned by the Borrower.

    

    
      	 	 

      	
              (c)

            	
              The
                Borrower will indemnify and hold the Bank harmless from all liability,
                loss, and costs in connection with any act resulting from telephone
                or
                telefax instructions the Bank reasonably believes are made by any
                individual authorized by the Borrower to give such instructions.
                This
                paragraph will survive this Agreement’s termination, and will benefit the
                Bank and its officers, employees, and
                agents.

            

    

    Direct
      Debit (Pre-Billing). 

     

    
      	
              (a)

            	
              The
                Borrower agrees that the Bank will debit deposit account number
                14593-05000 owned by the Borrower, or such other of the Borrower’s
                accounts with the Bank as designated in writing by the Borrower (the
                “Designated
                Account”)
                on the date each payment of principal and interest and any fees from
                the
                Borrower becomes due (the “Due
                Date”).

            

    

     

    
      	
              (b)

            	
              Prior
                to each Due Date, the Bank will mail to the Borrower a statement
                of the
                amounts that will be due on that Due Date (the “Billed
                Amount”).
                The bill will be mailed a
                specified number of calendar days prior to the Due Date, which number
                of
                days will be mutually agreed from time to time by the Bank and the
                Borrower. The
                calculations in the bill will be made on the assumption that no new
                extensions of credit or payments will be made between the date of
                the
                billing statement and the Due Date, and that there will be no changes
                in
                the applicable interest rate.

            

    

    
    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    
      	
              (c)

            	
              The
                Bank will debit the Designated Account for the Billed Amount, regardless
                of the actual amount due on that date (the “Accrued
                Amount”).
                If the Billed Amount debited to the Designated Account differs from
                the
                Accrued Amount, the discrepancy will be treated as
                follows:

            

    

    
      	 	
              (i)

            	
              If
                the Billed Amount is less than the Accrued Amount, the Billed Amount
                for
                the following Due Date will be increased by the amount of the discrepancy.
                The Borrower will not be in default by reason of any such
                discrepancy.

            

    

    
      	 	
              (ii)

            	
              If
                the Billed Amount is more than the Accrued Amount, the Billed Amount
                for
                the following Due Date will be decreased by the amount of the
                discrepancy.

            

    

    Regardless
      of any such discrepancy, interest will continue to accrue based on the actual
      amount of principal outstanding without compounding. The Bank will not pay
      the
      Borrower interest on any overpayment.

    
      	
              (d)

            	
              The
                Borrower will maintain sufficient funds in the Designated Account
                to cover
                each debit. If there are insufficient funds in the Designated Account
                on
                the date the Bank enters any debit authorized by this Agreement,
                the Bank
                may reverse the debit.

            

    

    Banking
      Days. 

     

    Unless
      otherwise provided in this Agreement, a banking day is a day other than a
      Saturday, Sunday or other day on which commercial banks are authorized to close,
      or are in fact closed, in the state where the Bank’s lending office is located,
      and, if such day relates to amounts bearing interest at an offshore rate (if
      any), means any such day on which dealings in dollar deposits are conducted
      among banks in the offshore dollar interbank market. All payments and
      disbursements which would be due on a day which is not a banking day will be
      due
      on the next banking day. All payments received on a day which is not a banking
      day will be applied to the credit on the next banking day.

    Interest
      Calculation. 

     

    Except
      as
      otherwise stated in this Agreement, all interest and fees, if any, will be
      computed on the basis of a 360-day year and the actual number of days elapsed.
      This results in more interest or a higher fee than if a 365-day year is used.
      Installments of principal which are not paid when due under this Agreement
      shall
      continue to bear interest until paid.

    Default
      Rate. 

     

    Upon
      the
      occurrence of any default or after maturity or after judgment has been rendered
      on any obligation under this Agreement, all amounts outstanding under this
      Agreement, including any interest, fees, or costs which are not paid when due,
      will at the option of the Bank bear interest at a rate which is 2.00 percentage
      point(s) higher than the rate of interest otherwise provided under this
      Agreement. This may result in compounding of interest. This will not constitute
      a waiver of any default.

    Taxes.

     

    If
      any
      payments to the Bank under this Agreement are made from outside the United
      States, the Borrower will not deduct any foreign taxes from any payments it
      makes to the Bank. If any such taxes are imposed on any payments made by the
      Borrower (including payments under this paragraph), the Borrower will pay the
      taxes and will also pay to the Bank, at the time interest is paid, any
      additional amount which the Bank specifies as necessary to preserve the
      after-tax yield the Bank would have received if such taxes had not been imposed.
      The Borrower will confirm that it has paid the taxes by giving the Bank official
      tax receipts (or notarized copies) within thirty (30) days after the due
      date.

    Additional
      Costs. 

     

    The
      Borrower will pay the Bank, on demand, for the Bank’s costs or losses arising
      from any statute or regulation, or any request or requirement of a regulatory
      agency which is applicable to all national banks or a class of all national
      banks. The costs and losses will be allocated to the loan in a manner determined
      by the Bank, using any reasonable method. The costs include the
      following:

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (a)
      any
      reserve or deposit requirements; and 

    (b)
      any
      capital requirements relating to the Bank’s assets and commitments for
      credit.

    CONDITIONS

     

    Before
      the Bank is required to extend any credit to the Borrower under this Agreement,
      it must receive any documents and other items it may reasonably require, in
      form
      and content acceptable to the Bank, including any items specifically listed
      below.

    Authorizations. 

     

    Evidence
      that the execution, delivery and performance by the Borrower and any instrument
      or agreement required under this Agreement have been duly
      authorized.

    Governing
      Documents. 

     

    A
      copy of
      the Borrower’s organizational documents.

    Security
      Agreements. 

     

    Signed
      original security agreements covering the personal property collateral which
      the
      Bank requires.

    Perfection
      and Evidence of Priority. 

     

    Evidence
      that the security interests and liens in favor of the Bank are valid,
      enforceable, properly perfected in a manner acceptable to the Bank and prior
      to
      all others’ rights and interests, except those the Bank consents to in writing
      in its discretion.

    Payment
      of Fees. 

     

    Payment
      of all fees and other amounts due and owing to the Bank, including without
      limitation payment of all accrued and unpaid expenses incurred by the Bank
      as
      required by the paragraph entitled “Reimbursement Costs”.

    Good
      Standing. 

     

    Certificates
      of good standing for the Borrower from its state of formation and from any
      other
      state in which the Borrower is required to qualify to conduct its
      business.

     

    Intentionally
      Omitted. 

     

    Insurance. 

     

    Evidence
      of insurance coverage, as required in the “Covenants” section of this
      Agreement.

     

    Other
      Required Items. 

     

    Any
      other
      items the Bank reasonably requires.

    REPRESENTATIONS
      AND WARRANTIES

     

    When
      the
      Borrower signs this Agreement, and until the Bank is repaid in full, the
      Borrower makes the following representations and warranties. Each request for
      an
      extension of credit constitutes a renewal of these representations and
      warranties as of the date of the request:

     

    Formation. 

     

    The
      Borrower is duly formed and existing under the laws of the state or other
      jurisdiction where organized.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    Authorization. 

     

    This
      Agreement, and any instrument or agreement required hereunder, are within the
      Borrower’s powers, have been duly authorized, and do not conflict with any of
      its organizational papers.

     

    Enforceable
      Agreement. 

     

    This
      Agreement is a legal, valid and binding agreement of the Borrower, enforceable
      against the Borrower in accordance with its terms, and any instrument or
      agreement required hereunder, when executed and delivered, will be similarly
      legal, valid, binding and enforceable.

     

    Good
      Standing. 

     

    In
      each
      state in which the Borrower does business, it is properly licensed, in good
      standing, and, where required, in compliance with fictitious name statutes,
      except where the failure to be so licensed, in goods standing, or in compliance
      would not have a material adverse effect on the Borrower’s financial condition,
      business or operations.

     

    No
      Conflicts. 

     

    This
      Agreement does not conflict with any law, agreement, or obligation by which
      the
      Borrower is bound, except where any such conflict would not have a material
      adverse effect on the Borrower’s financial condition, business or
      operations.

     

    Financial
      Information. 

     

    All
      financial and other information that has been or will be supplied to the Bank
      is
      sufficiently complete to give the Bank accurate knowledge of the Borrower’s (and
      any guarantor’s) financial condition, including all material contingent
      liabilities. Since the date of the most recent financial statement provided
      to
      the Bank, there has been no material adverse change in the business condition
      (financial or otherwise), operations, properties or prospects of the Borrower
      (or any guarantor).

     

    Lawsuits. 

     

    To
      the
      best of the Borrower’s knowledge, there is no lawsuit, tax claim or other
      dispute pending or threatened against the Borrower which, if lost, would impair
      the Borrower’s financial condition or ability to repay the loan, except as have
      been disclosed in writing to the Bank.

     

    Collateral. 

     

    All
      collateral required in this Agreement is owned by the grantor of the security
      interest free of any title defects or any liens or interests of others, except
      Permitted Liens.

     

    “Permitted
      Liens”
means:
      (a) liens for taxes not yet payable or liens for taxes (in an amount not to
      exceed One Hundred Thousand Dollars ($100,000) being contested in good faith
      by
      appropriate proceedings diligently pursued, provided that a reserve or other
      appropriate provision, if any, as shall be required by generally accepted
      accounting principles (“GAAP”) shall have been made therefor on the Borrower’s
      financial statements and that a stay of enforcement of any such lien is in
      effect); (b) liens in favor of the Bank or its affiliates; (c) mechanics and
      materialmen’s liens securing debt not yet past due; (d) liens in connection with
      worker’s compensation or other unemployment insurance incurred in the ordinary
      course of the Borrower’s business; (e) liens created by deposits of cash to
      secure performance of bids, tenders, leases (to the extent permitted under
      this
      Agreement), or trade contracts, incurred in the ordinary course of business
      of
      the Borrower and not in connection with the borrowing of money; (f) liens
      arising by reason of cash deposit for surety or appeal bonds in the ordinary
      course of business of the Borrower; (g) liens of or resulting from any judgment
      or award, the time for the appeal of the petition for rehearing of which has
      not
      yet expired, or in respect of which a stay of execution pending such appeal
      or
      proceeding for review has been secured; (h) with respect to any real property
      owned or occupied by the Borrower; easements, rights or way, zoning and similar
      covenants and restrictions and similar encumbrances which customarily exist
      on
      properties of corporations engaged in similar activities and similarly situated
      and which in any event do not materially interfere with or impair the use or
      operation of the collateral by the Borrower or the value of the Bank’s security
      interest therein, or materially interfere with the Bank’s ordinary conduct of
      the business of the Borrower; and (i) purchase money security interests and
      liens under capital leases to the extent that the acquisition or lease of the
      underlying asset was not prohibited hereunder, the security interest for liens
      only encumbers the asset purchased or leased, and so long as the security
      interest or lien only secures the purchase price of the asset.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    Permits,
      Franchises. 

     

    The
      Borrower possesses all permits, memberships, franchises, contracts and licenses
      required and all trademark rights, trade name rights, patent rights, copyrights,
      and fictitious name rights necessary to enable it to conduct the business in
      which it is now engaged.

     

    Other
      Obligations. 

     

    The
      Borrower is not in default on any obligation for borrowed money, any purchase
      money obligation or any other material lease, commitment, contract, instrument
      or obligation, which default would have a material adverse effect on the
      Borrower’s financial condition, business or operations.

     

    Tax
      Matters. 

     

    The
      Borrower has no knowledge of any pending assessments or adjustments of its
      income tax for any year and all taxes due have been paid.

     

    No
      Event of Default. 

     

    There
      is
      no event which is, or with notice or lapse of time or both would be, a default
      under this Agreement.

     

    Insurance. 

     

    The
      Borrower has obtained, and maintained in effect, the insurance coverage required
      in the “Covenants” section of this Agreement.

     

    ERISA
      Plans.

     

    
      	
              (a)

            	
              Each
                Plan (other than a multiemployer plan) is in compliance in all material
                respects with the applicable provisions of ERISA, the Code and other
                federal or state law. Each Plan has received a favorable determination
                letter from the IRS and to the best knowledge of the Borrower, nothing
                has
                occurred which would cause the loss of such qualification. The Borrower
                has fulfilled its obligations, if any, under the minimum funding
                standards
                of ERISA and the Code with respect to each Plan, and has not incurred
                any
                liability with respect to any Plan under Title IV of
                ERISA.

            

    

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    
      	
              (b)

            	
              There
                are no claims, lawsuits or actions (including by any governmental
                authority), and there has been no prohibited transaction or violation
                of
                the fiduciary responsibility rules, with respect to any Plan which
                has
                resulted or could reasonably be expected to result in a material
                adverse
                effect.

            

    

    

    
      	
              (c)

            	
              With
                respect to any Plan subject to Title IV of
                ERISA:

            

    

    

    
      	 	
              (i)

            	
              No
                reportable event has occurred under Section 4043(c) of ERISA for
                which the
                PBGC requires 30-day notice.

            

    

    

    
      	 	
              (ii)

            	
              No
                action by the Borrower or any ERISA Affiliate to terminate or withdraw
                from any Plan has been taken and no notice of intent to terminate
                a Plan
                has been filed under Section 4041 of
                ERISA.

            

    

    

    
      	 	
              (iii)

            	
              No
                termination proceeding has been commenced with respect to a Plan
                under
                Section 4042 of ERISA, and no event has occurred or condition exists
                which
                might constitute grounds for the commencement of such a
                proceeding.

            

    

     

    
      
        	
                (d)

              	
                The
                  following terms have the meanings indicated for purposes of this
                  Agreement:

              

      

       

    

    
      	 	
              (i)

            	
              “Code”
                means the Internal Revenue Code of 1986, as amended from time to
                time.

            

    

    

    
      	 	
              (ii)

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

            

    

    

    
      	 	
              (iii)

            	
              “ERISA
                Affiliate”
                means any trade or business (whether or not incorporated) under common
                control with the Borrower within the meaning of Section 414(b) or
                (c) of
                the Code.

            

    

    

    
      	 	
              (iv)

            	
              “PBGC”
                means the Pension Benefit Guaranty
                Corporation.

            

    

     

    
      
        	
              	(v) 	
                “Plan”
                  means a pension, profit-sharing, or stock bonus plan intended to
                  qualify
                  under Section 401(a) of the Code, maintained or contributed to
                  by the
                  Borrower or any ERISA Affiliate, including any multiemployer plan
                  within
                  the meaning of Section 4001(a)(3) of
                  ERISA.

              

      

    

    

    Location
      of Borrower.

     

    The
      Borrower’s chief executive office is located at the address listed under the
      Borrower's signature hereto.

     

    COVENANTS

     

    The
      Borrower agrees, so long as credit is available under this Agreement and until
      the Bank is repaid in full:

     

    Use
      of Proceeds. 

     

    
      
        	
                (a)

              	
                To
                  use the proceeds of this lien of credit only for general corporate
                  purposes.

              

      

       

    

    
      	
              (b)

            	
              The
                proceeds of the credit extended under this Loan Agreement may not
                be used
                directly or indirectly to purchase or carry any “margin stock” as that
                term is defined in Regulation U of the Board of Governors of the
                Federal
                Reserve System, or extend credit to or invest in other parties for
                the
                purpose of purchasing or carrying any such “margin stock,” or to reduce or
                retire any indebtedness incurred for such
                purpose.

            

    

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    Financial
      Information. 

     

    To
      provide the following financial information and statements in form and content
      acceptable to the Bank, and such additional information as requested by the
      Bank
      from time to time. The Bank reserves the right, upon written notice to the
      Borrower, to require the Borrower to deliver financial information and
      statements to the Bank more frequently than otherwise provided below, and to
      use
      such additional information and statements to measure any applicable financial
      covenants in this Agreement.

     

    
      	
              (a)

            	
              Within
                120 days of the fiscal year end, the annual financial statements
                of the
                Borrower, certified and dated by an authorized financial officer.
                These
                financial statements must be audited (with an opinion satisfactory
                to the
                Bank) by a Certified Public Accountant acceptable to the Bank. The
                statements shall be prepared on a consolidated
                basis.

            

    

    
      	
              (b)

            	
              Within
                60 days of the end of each of the Borrower’s fiscal quarters (excluding
                the last fiscal quarter in each fiscal year), quarterly financial
                statements of the Borrower, certified and dated by an authorized
                financial
                officer. These financial statements may be company-prepared. The
                statements shall be prepared on a consolidated
                basis.

            

    

    
      	
              (c)

            	
              Promptly
                upon the Bank’s request, copies of any management letters and
                correspondence relating to management letters, sent or received by
                the
                Borrower to or from the Borrower’s auditor. If no management letter is
                prepared, the Bank may, in its discretion, request a letter from
                such
                auditor stating that no deficiencies were noted that would otherwise
                be
                addressed in a management letter.

            

    

    
      	
              (d)

            	
              Promptly
                upon the Bank’s request, copies of the federal income tax return of the
                Borrower and copies of any extensions of the filing
                date.

            

    

    
      	
              (e)

            	
              Copies
                of the Form 10-K Annual Report, Form 10-Q Quarterly Report and Form
                8-K
                Current Report for the Borrower within 30 days after the date of
                filing
                with the Securities and Exchange
                Commission.

            

    

    
      	
              (f)

            	
              Annual
                financial projections covering a time period acceptable to the Bank
                and
                specifying the assumptions used in creating the projections. The
                projections shall be provided to the Bank no sooner than 90 days
                prior to
                the end of each fiscal year and no later than 30 days after the end
                of
                each fiscal year.

            

    

    
      	
              (g)

            	
              Within
                120 days of the end of each fiscal year and within 60 days of the
                end of
                each of the Borrower’s fiscal quarters (excluding the last fiscal quarter
                in each fiscal year), a
                compliance certificate of the Borrower, signed by an authorized financial
                officer and setting forth (i) the information and computations (in
                sufficient detail) to establish that the Borrower is in compliance
                with
                all financial covenants at the end of the period covered by the financial
                statements then being furnished, (ii) whether there existed as of
                the date
                of such financial statements and whether there exists as of the date
                of
                the certificate, any default under this Agreement and, if any such
                default
                exists, specifying the nature thereof and the action the Borrower
                is
                taking and proposes to take with respect thereto, and (iii) a calculation
                of the Borrower’s net inventory at cost (determined utilizing the
                first-in-first-out (FIFO) method, based upon the retail method of
                accounting and utilizing the Borrower’s costs), multiplied by the
                percentage set forth in the proviso to Section 1.1(a)
                above.

            

    

    
      	
              (i)

            	
              Promptly
                upon the Bank’s request, such other books, records, statements, lists of
                property and accounts, budgets, forecasts or reports as to the Borrower
                and as to each guarantor of the Borrower’s obligations to the Bank as the
                Bank may request.

            

    

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Funded
      Debt to EBITDA Ratio. 

     

    To
      maintain on a consolidated basis a ratio of Funded Debt to EBITDA not exceeding
      1.75:1.0. This ratio will be calculated at the end of each reporting period
      for
      which the Bank requires financial statements, using the results of the
      twelve-month period ending with that reporting period.

     

    “Funded
      Debt”
means
      all outstanding liabilities for borrowed money and other interest-bearing
      liabilities, including current and long term debt and the undrawn amount of
      all
      letters of credit outstanding hereunder.

     

    “EBITDA”
means
      net income, less income or plus loss from discontinued operations and
      extraordinary items, plus income taxes, plus interest expense, plus
      depreciation, depletion, and amortization, plus all other non-cash charges
      to
      the extent not expected to require cash payment by the Borrower prior to the
      Expiration Date. 

     

    Fixed
      Charge Coverage Ratio. 

     

    To
      maintain on a consolidated basis a Fixed Charge Coverage Ratio of at least
      1.15:1.0. This ratio will be calculated at the end of each reporting period
      for
      which the Bank requires financial statements, using the results of the
      twelve-month period ending with that reporting period. 

    “Fixed
      Charge Coverage Ratio”
means
      the ratio of (a) the sum of EBITDA, plus operating lease expense, plus rent
      expense, minus income tax, minus dividends, withdrawals and other loans to
      officers to the extent permitted hereunder, minus other distributions, to (b)
      the sum of operating interest expense, lease expense, rent expense, the current
      portion of long term debt, the current portion of capitalized lease obligations
      and Maintenance CAPEX. The current portion of long-term liabilities will be
      measured as of the last day of the calculation period.

     

    “EBITDA”
means
      net income, less income or plus loss from discontinued operations and
      extraordinary items, plus income taxes, plus interest expense, plus
      depreciation, depletion, and amortization.

     

    “Maintenance
      CAPEX”
means
      the greater of (a) the product of $145,000, multiplied by the number of the
      Borrower’s open store locations as of the last day of the measurement period, or
      (b) actual non-financed maintenance capital expenditures.

     

    Bank
      as Principal Depository. 

     

    To
      maintain the Bank as its principal depository bank, including for the
      maintenance of business, cash management, operating and administrative deposit
      accounts.

     

    Other
      Debts. 

     

    Not
      to
      have outstanding or incur any direct or contingent liabilities or lease
      obligations (other than those to the Bank), or become liable for the liabilities
      of others, without the Bank’s written consent. This does not
      prohibit:

     

    
      	
              (a)

            	
              Acquiring
                goods, supplies, or merchandise on normal trade
                credit.

            

    

    
      	
              (b)

            	
              Endorsing
                negotiable instruments received in the usual course of
                business.

            

    

    
      	
              (c)

            	
              Obtaining
                surety bonds in the usual course of
                business.

            

    

    
      	
              (d)

            	
              Additional
                lease obligations incurred in connection with the opening of new
                retail
                store locations on arm’s length terms not materially less favorable to the
                Borrower than market.

            

    

    
      	
              (e)

            	
              Additional
                debts and lease obligations for business purposes which do not exceed
                a
                total principal amount of Five Hundred Thousand Dollars ($500,000)
                outstanding at any one time.

            

    

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    Other
      Liens. 

     

    Not
      to
      create, assume, or allow any security interest or lien (including judicial
      liens) on property the Borrower now or later owns, except Permitted
      Liens.

     

    Maintenance
      of Assets. 

     

    
      	
              (a)

            	
              Not
                to sell, assign, lease, transfer or otherwise dispose of any part
                of the
                Borrower’s business or the Borrower’s assets except (x) in the ordinary
                course of the Borrower’s business and (y) equipment that, in the
                aggregate during any 12 month period, has a fair market or book value
                (whichever is more) of $500,000 or
                less.

            

    

     

    
      	
              (b)

            	
              Not
                to sell, assign, lease, transfer or otherwise dispose of any assets
                for
                less than fair market value, or enter into any agreement to do
                so.

            

    

     

    
      	
              (c)

            	
              Not
                to enter into any sale and leaseback agreement covering any of its
                fixed
                assets.

            

    

    
      	
              (d)

            	
              To
                maintain and preserve all rights, privileges, and franchises the
                Borrower
                now has.

            

    

    
      	
              (e)

            	
              To
                make any repairs, renewals, or replacements to keep the Borrower’s
                properties in good working condition.
                [

            

    

    Investments. 

     

    Not
      to
      have any existing, or make any new, investments in any individual or entity,
      or
      make any capital contributions or other transfers of assets to any individual
      or
      entity, except for:

     

    
      	
              (a)

            	
              Investments
                in the Borrower’s current
                subsidiaries.

            

    

    
      	
              (b)

            	
              Investments
                in any of the following:

            

    

    
      	 	
              (i)

            	
              certificates
                of deposit;

            

    

    
      	 	
              (ii)

            	
              U.S.
                treasury bills and other obligations of the federal
                government;

            

    

    
      	 	
              (iii)

            	
              readily
                marketable securities (including commercial paper, but excluding
                restricted stock and stock subject to the provisions of Rule 144
                of the
                Securities and Exchange
                Commission).

            

    

    
      	
              (c)

            	
              Other
                investments that do not exceed an aggregate amount of Five Hundred
                Thousand Dollars ($500,000) outstanding at any one
                time.

            

    

    Loans. 

     

    Not
      to
      make any loans, advances or other extensions of credit to any individual or
      entity, except for:

     

    
      	
              (a)

            	
              Extensions
                of credit in the nature of accounts receivable or notes receivable
                arising
                from the sale or lease of goods or services in the ordinary course
                of
                business to non-affiliated
                entities.

            

    

    
      	
              (b)

            	
              Extensions
                of credit to officers and employees of the Borrower that do not exceed
                an
                aggregate amount of Five Hundred Thousand Dollars ($500,000) outstanding
                at any one time.

            

    

    Change
      of Ownership. 

     

    Not
      to permit a Change of Control to occur.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    “Change
      of Control”
      means: 

     

    (a)
      any
“person”
      or
“group”
      (as such
      terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of
      1934, but excluding any employee benefit plan of such person or its
      subsidiaries, and any person or entity acting in its capacity as trustee, agent
      or other fiduciary or administrator of any such plan) other than the Equity
      Investors becomes the “beneficial
      owner”
      (as
      defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934,
      except that a person or group shall be deemed to have “beneficial
      ownership”
      of all
      securities that such person or group has the right to acquire, whether such
      right is exercisable immediately or only after the passage of time (such right,
      an “option
      right”)),
      directly or indirectly, of 25% or more of the equity securities of the Borrower
      entitled to vote for members of the board of directors or equivalent governing
      body of the Borrower on a fully-diluted basis (and taking into account all
      such
      securities that such “person”
      or
“group”
      has the
      right to acquire pursuant to any option right); or

    (b) during
      any period of 12 consecutive months, a majority of the members of the board
      of
      directors or other equivalent governing body of the Borrower cease to be
      composed of individuals (i) who were members of that board or equivalent
      governing body on the first day of such period, (ii) whose election or
      nomination to that board or equivalent governing body was approved by
      individuals referred to in clause (i) above constituting at the time of such
      election or nomination at least a majority of that board or equivalent governing
      body or (iii) whose election or nomination to that board or other equivalent
      governing body was approved by individuals referred to in clauses (i) and (ii)
      above constituting at the time of such election or nomination at least a
      majority of that board or equivalent governing body (excluding, in the case
      of
      both clause (ii) and clause (iii), any individual whose initial nomination
      for,
      or assumption of office as, a member of that board or equivalent governing
      body
      occurs as a result of an actual or threatened solicitation of proxies or
      consents for the election or removal of one or more directors by any person
      or
      group other than a solicitation for the election of one or more directors by
      or
      on behalf of the board of directors); or

    (c) any
      Person or two or more Persons acting in concert shall have acquired by contract
      or otherwise, or shall have entered into a contract or arrangement that, upon
      consummation thereof, will result in its or their acquisition of the power
      to
      exercise, directly or indirectly, a controlling influence over the management
      or
      policies of the Borrower, or control over the equity securities of the Borrower
      entitled to vote for members of the board of directors or equivalent governing
      body of the Borrower on a fully-diluted basis (and taking into account all
      such
      securities that such Person or Persons have the right to acquire pursuant to
      any
      option right) representing 25% or more of the combined voting power of such
      securities.

    Additional
      Negative Covenants. 

     

    Not
      to,
      without the Bank’s written consent:

     

    
      	
              (a)

            	
              Enter
                into any consolidation, merger, or other combination, or become a
                partner
                in a partnership, a member of a joint venture, or a member of a limited
                liability company.

            

    

     

    
      	
              (b)

            	
              Acquire
                or purchase a business or its
                assets

            

    

    
      	
              (c)

            	
              Engage
                in any business activities substantially different from the Borrower’s
                present business.

            

    

    Notices
      to Bank. 

     

    To
      promptly notify the Bank in writing of:

     

    
      	
              (a)

            	
              Any
                lawsuit over One Million Dollars ($1,000,000) against the Borrower
                (or any
                guarantor).

            

    

    
      	
              (b)

            	
              Any
                substantial dispute between any governmental authority and the Borrower
                (or any guarantor).

            

    

    
      	
              (c)

            	
              Any
                event of default under this Agreement, or any event which, with notice
                or
                lapse of time or both, would constitute an event of
                default.

            

    

    
      	
              (d)

            	
              Any
                material adverse change in the Borrower’s (or any guarantor’s) business
                condition (financial or otherwise), operations, properties or prospects,
                or ability to repay the credit.

            

    

    
      	
              (e)

            	
              Any
                change in the Borrower’s name, legal structure, place of business, or
                chief executive office if the Borrower has more than one place of
                business.

            

    

    
      	
              (f)

            	
              Any
                actual contingent liabilities of the Borrower (or any guarantor),
                and any
                such contingent liabilities which are reasonably foreseeable, where
                such
                liabilities are in excess of One Million Dollars ($1,000,000) in
                the
                aggregate.

            

    

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    Insurance. 

     

    
      	
              (a)

            	
              General
                Business Insurance.
                To maintain insurance satisfactory to the Bank as to amount, nature
                and
                carrier covering property damage (including loss of use and occupancy)
                to
                any of the Borrower’s properties, business interruption insurance, public
                liability insurance including coverage for contractual liability,
                product
                liability and workers’ compensation, and any other insurance which is
                usual for the Borrower’s business. Each policy shall provide for at least
                thirty (30) days prior notice to the Bank of any cancellation
                thereof.

            

    

    
      	
              (b)

            	
              Insurance
                Covering Collateral.
                To maintain all risk property damage insurance policies covering
                the
                tangible property comprising the collateral. Each insurance policy
                must be
                in an amount acceptable to the Bank. The insurance must be issued
                by an
                insurance company acceptable to the Bank and must include a lender’s loss
                payable endorsement in favor of the Bank in a form acceptable to
                the
                Bank.

            

    

    
      	
              (c)

            	
              Evidence
                of Insurance.
                Upon the request of the Bank, to deliver to the Bank a copy of each
                insurance policy, or, if permitted by the Bank, a certificate of
                insurance
                listing all insurance in force.

            

    

    Compliance
      with Laws. 

     

    To
      comply
      with the laws (including any fictitious or trade name statute), regulations,
      and
      orders of any government body with authority over the Borrower’s business. The
      Bank shall have no obligation to make any advance to the Borrower except in
      compliance with all applicable laws and regulations and the Borrower shall
      fully
      cooperate with the Bank in complying with all such applicable laws and
      regulations.

     

    ERISA
      Plans. 

     

    Promptly
      during each year, to pay and cause any subsidiaries to pay contributions
      adequate to meet at least the minimum funding standards under ERISA with respect
      to each and every Plan; file each annual report required to be filed pursuant
      to
      ERISA in connection with each Plan for each year; and notify the Bank within
      ten
      (10) days of the occurrence of any Reportable Event that might constitute
      grounds for termination of any capital Plan by the Pension Benefit Guaranty
      Corporation or for the appointment by the appropriate United States District
      Court of a trustee to administer any Plan. “ERISA” means the Employee Retirement
      Income Security Act of 1974, as amended from time to time. Capitalized terms
      in
      this paragraph shall have the meanings defined within ERISA.

     

    Books
      and Records. 

     

    To
      maintain adequate books and records.

     

    Audits. 

     

    To
      allow
      the Bank and its agents to inspect the Borrower’s properties and examine, audit,
      and make copies of books and records at any reasonable time, subject to the
      limitation on reimbursement of expenses set forth in Section 3.3(b) above.
      If
      any of the Borrower’s properties, books or records are in the possession of a
      third party, the Borrower authorizes that third party to permit the Bank or
      its
      agents to have access to perform inspections or audits and to respond to the
      Bank’s requests for information concerning such properties, books and
      records.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    Perfection
      of Liens. 

     

    To
      help
      the Bank perfect and protect its security interests and liens, and reimburse
      it
      for related costs it incurs to protect its security interests and
      liens.

     

    Cooperation. 

     

    To
      take
      any action reasonably requested by the Bank to carry out the intent of this
      Agreement.

     

    Indemnity
      Regarding Use of Real Property. 

     

    To
      indemnify, defend with counsel acceptable to the Bank, and hold the Bank
      harmless from and against all liabilities, claims, actions, damages, costs
      and
      expenses (including all legal fees and expenses of Bank’s counsel) arising out
      of or resulting from the construction of any improvements on the real property,
      or the ownership, operation, or use of the real property, whether such claims
      are based on theories of derivative liability, comparative negligence or
      otherwise. The Borrower’s obligations to the Bank under this Paragraph shall
      survive termination of this Agreement and repayment of the Borrower’s
      obligations to the Bank under this Agreement.

     

    HAZARDOUS
      SUBSTANCES

     

    
    

    Indemnity
      Regarding Hazardous Substances. 

     

    The
      Borrower will indemnify and hold harmless the Bank from any loss or liability
      the Bank incurs in connection with or as a result of this Agreement, which
      directly or indirectly arises out of the use, generation, manufacture,
      production, storage, release, threatened release, discharge, disposal or
      presence of a hazardous substance. This indemnity will apply whether the
      hazardous substance is on, under or about the Borrower’s property or operations
      or property leased to the Borrower. The indemnity includes but is not limited
      to
      attorneys’ fees (including the reasonable estimate of the allocated cost of
      in-house counsel and staff). The indemnity extends to the Bank, its parent,
      subsidiaries and all of their directors, officers, employees, agents,
      successors, attorneys and assigns.

     

    Compliance
      Regarding Hazardous Substances. 

     

    The
      Borrower represents and warrants that the Borrower has complied with all current
      and future laws, regulations and ordinances or other requirements of any
      governmental authority relating to or imposing liability or standards of conduct
      concerning protection of health or the environment or hazardous
      substances.

     

    Notices
      Regarding Hazardous Substances. 

     

    Until
      full repayment of the loan, the Borrower will promptly notify the Bank in
      writing of any threatened or pending investigation of the Borrower or its
      operations by any governmental agency under any current or future law,
      regulation or ordinance pertaining to any hazardous substance.

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

    Site
      Visits, Observations and Testing. 

     

    The
      Bank
      and its agents and representatives will have the right at any reasonable time,
      after giving reasonable notice to the Borrower, to enter and visit any locations
      where the collateral securing this Agreement (the “Collateral”)
      is
      located for the purposes of observing the Collateral, taking and removing
      environmental samples, and conducting tests. The Borrower shall reimburse the
      Bank on demand for the costs of any such environmental investigation and
      testing. The Bank will make reasonable efforts during any site visit,
      observation or testing conducted pursuant this paragraph to avoid interfering
      with the Borrower’s use of the Collateral. The Bank is under no duty to observe
      the Collateral or to conduct tests, and any such acts by the Bank will be solely
      for the purposes of protecting the Bank’s security and preserving the Bank’s
      rights under this Agreement. No site visit, observation or testing or any report
      or findings made as a result thereof (“Environmental
      Report”)
      (i)
      will result in a waiver of any default of the Borrower; (ii) impose any
      liability on the Bank; or (iii) be a representation or warranty of any kind
      regarding the Collateral (including its condition or value or compliance with
      any laws) or the Environmental Report (including its accuracy or completeness).
      In the event the Bank has a duty or obligation under applicable laws,
      regulations or other requirements to disclose an Environmental Report to the
      Borrower or any other party, the Borrower authorizes the Bank to make such
      a
      disclosure. The Bank may also disclose an Environmental Report to any regulatory
      authority, and to any other parties as necessary or appropriate in the Bank’s
      judgment. The Borrower further understands and agrees that any Environmental
      Report or other information regarding a site visit, observation or testing
      that
      is disclosed to the Borrower by the Bank or its agents and representatives
      is to
      be evaluated (including any reporting or other disclosure obligations of the
      Borrower) by the Borrower without advice or assistance from the
      Bank.

     

    Definition
      of Hazardous Substances. 

     

    “Hazardous
      substances”
means
      any substance, material or waste that is or becomes designated or regulated
      as
“toxic,” “hazardous,” “pollutant,” or “contaminant” or a similar designation or
      regulation under any current or future federal, state or local law (whether
      under common law, statute, regulation or otherwise) or judicial or
      administrative interpretation of such, including without limitation petroleum
      or
      natural gas.

     

    Continuing
      Obligation. 

     

    The
      Borrower’s obligations to the Bank under this Article, except the obligation to
      give notices to the Bank, shall survive termination of this Agreement and
      repayment of the Borrower’s obligations to the Bank under this
      Agreement.

    default
      and remedies

     

    If
      any of
      the following events of default occurs, the Bank may do one or more of the
      following: declare the Borrower in default, stop making any additional credit
      available to the Borrower, and require the Borrower to repay its entire debt
      immediately and without prior notice. If an event which, with notice or the
      passage of time, will constitute an event of default has occurred and is
      continuing, the Bank has no obligation to make advances or extend additional
      credit under this Agreement. In addition, if any event of default occurs, the
      Bank shall have all rights, powers and remedies available under any instruments
      and agreements required by or executed in connection with this Agreement, as
      well as all rights and remedies available at law or in equity. If an event
      of
      default occurs under the paragraph entitled “Bankruptcy,” below, with respect to
      the Borrower, then the entire debt outstanding under this Agreement will
      automatically be due immediately.

     

    Failure
      to Pay. 

     

    The
      Borrower fails to make a payment under this Agreement when due.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    Other
      Bank Agreements. 

     

    Any
      default occurs under any other agreement the Borrower (or any Obligor) or any
      of
      the Borrower’s related entities or affiliates has with the Bank or any affiliate
      of the Bank in the amount of Five Hundred Thousand Dollars ($500,000) or more
      in
      the aggregate if the default consists of failing to make a payment when due
      or
      gives the Bank or such affiliate of the Bank the right to accelerate the
      obligation.. For purposes of this Agreement, “Obligor”
shall
      mean any guarantor or any party pledging collateral to the Bank.

     

    Cross-default. 

     

    Any
      default occurs under any agreement in connection with any credit the Borrower
      (or any Obligor) or any of the Borrower’s related entities or affiliates has
      obtained from anyone else or which the Borrower (or any Obligor) or any of
      the
      Borrower’s related entities or affiliates has guaranteed in the amount of Five
      Hundred Thousand Dollars ($500,000) or more in the aggregate if the default
      consists of failing to make a payment when due or gives the other lender the
      right to accelerate the obligation.

    False
      Information. 

     

    The
      Borrower or any Obligor has given or hereafter gives the Bank information or
      representations that are false or misleading in any material
      respect.

    Bankruptcy. 

     

    The
      Borrower, any Obligor, or any general partner of the Borrower or of any Obligor
      files a bankruptcy petition, a bankruptcy petition is filed against any of
      the
      foregoing parties, or the Borrower, any Obligor, or any general partner of
      the
      Borrower or of any Obligor makes a general assignment for the benefit of
      creditors.

     

    Receivers. 

     

    A
      receiver or similar official is appointed for a substantial portion of the
      Borrower’s or any Obligor’s business, or the business is terminated, or, if any
      Obligor is anything other than a natural person, such Obligor is liquidated
      or
      dissolved.

     

    Lien
      Priority. 

     

    The
      Bank
      fails to have an enforceable first lien (except for any prior liens to which
      the
      Bank has consented in writing) on or security interest in any property given
      as
      security for this Agreement (or any guaranty).

     

    Judgments. 

     

    Any
      judgments or arbitration awards are entered against the Borrower or any Obligor,
      or the Borrower or any Obligor enters into any settlement agreements with
      respect to any litigation or arbitration, in an aggregate amount of Five Hundred
      Thousand Dollars ($500,000) or more in excess of any insurance
      coverage.

     

    Material
      Adverse Change. 

     

    A
      material adverse change occurs, or is reasonably likely to occur, in the
      Borrower’s (or any Obligor’s) business condition (financial or otherwise),
      operations, properties or prospects, or ability to repay the
      credit.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    Government
      Action. 

     

    Any
      government authority takes action that the Bank believes materially adversely
      affects the Borrower’s or any Obligor’s financial condition or ability to
      repay.

     

    Default
      under Related Documents. 

     

    Any
      default occurs under any guaranty, subordination agreement, security agreement,
      deed of trust, mortgage, or other document required by or delivered in
      connection with this Agreement or any such document is no longer in effect,
      or
      any guarantor purports to revoke or disavow the guaranty.

     

    Other
      Breach Under Agreement.

     

    A
      default
      occurs under any other term or condition of this Agreement not specifically
      referred to in this Article. This includes any failure or anticipated failure
      by
      the Borrower (or any other party named in the Covenants section) to comply
      with
      any financial covenants set forth in this Agreement, whether such failure is
      evidenced by financial statements delivered to the Bank or is otherwise known
      to
      the Borrower or the Bank. If, in the Bank’s sole opinion, the breach is capable
      of being remedied, the breach will not be considered an event of default under
      this Agreement for a period of thirty (30) days after the date on which the
      Bank
      gives written notice of the breach to the Borrower; provided, however, that
      the
      Bank will not be obligated to extend any additional credit to the Borrower
      during that period.

     

    enforcing
      this agreement; miscellaneous

     

    GAAP. 

     

    Except
      as
      otherwise stated in this Agreement, all financial information provided to the
      Bank and all financial covenants will be made under generally accepted
      accounting principles, consistently applied.

     

    California
      Law. 

     

    This
      Agreement is governed by California law.

     

    Successors
      and Assigns. 

     

    This
      Agreement is binding on the Borrower’s and the Bank’s successors and assignees.
      The Borrower agrees that it may not assign this Agreement without the Bank’s
      prior consent. The Bank may sell participations in or assign this loan, and
      may
      exchange information about the Borrower (including, without limitation, any
      information regarding any hazardous substances) with actual or potential
      participants or assignees. If a participation is sold or the loan is assigned,
      the purchaser will have the right of set-off against the Borrower.

    Dispute
      Resolution Provision. 

     

    This
      paragraph, including the subparagraphs below, is referred to as the
“Dispute
      Resolution Provision”.
      

    This
      Dispute Resolution Provision is a material inducement for the parties entering
      into this agreement.

    
      	
              (a)

            	
              This
                Dispute Resolution Provision concerns the resolution of any controversies
                or claims between the parties, whether arising in contract, tort
                or by
                statute, including but not limited to controversies or claims that
                arise
                out of or relate to: (i) this agreement (including any renewals,
                extensions or modifications); or (ii) any document related to this
                agreement (collectively a “Claim”).
                For the purposes of this Dispute Resolution Provision only, the term
                “parties” shall include any parent corporation, subsidiary or affiliate of
                the Bank involved in the servicing, management or administration
                of any
                obligation described or evidenced by this
                agreement.

            

    

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    
      	
              (b)

            	
              At
                the request of any party to this agreement, any Claim shall be resolved
                by
                binding arbitration in accordance with the Federal Arbitration Act
                (Title
                9, U.S. Code) (the “Act”).
                The Act will apply even though this agreement provides that it is
                governed
                by the law of a specified state.

            

    

     

    
      	
              (c)

            	
              Arbitration
                proceedings will be determined in accordance with the Act, the
                then-current rules and procedures for the arbitration of financial
                services disputes of the American Arbitration Association or any
                successor
                thereof (“AAA”),
                and the terms of this Dispute Resolution Provision. In the event
                of any
                inconsistency, the terms of this Dispute Resolution Provision shall
                control. If AAA is unwilling or unable to (i) serve as the provider
                of
                arbitration or (ii) enforce any provision of this arbitration clause,
                the
                Bank may designate another arbitration organization with similar
                procedures to serve as the provider of
                arbitration.

            

    

    
      	
              (d)

            	
              The
                arbitration shall be administered by AAA and conducted, unless otherwise
                required by law, in any U.S. state where real or tangible personal
                property collateral for this credit is located or if there is no
                such
                collateral, in the state specified in the governing law section of
                this
                agreement. All Claims shall be determined by one arbitrator; however,
                if
                Claims exceed Five Million Dollars ($5,000,000), upon the request
                of any
                party, the Claims shall be decided by three arbitrators. All arbitration
                hearings shall commence within ninety (90) days of the demand for
                arbitration and close within ninety (90) days of commencement and
                the
                award of the arbitrator(s) shall be issued within thirty (30) days
                of the
                close of the hearing. However, the arbitrator(s), upon a showing
                of good
                cause, may extend the commencement of the hearing for up to an additional
                sixty (60) days. The arbitrator(s) shall provide a concise written
                statement of reasons for the award. The arbitration award may be
                submitted
                to any court having jurisdiction to be confirmed and have judgment
                entered
                and enforced.

            

    

    
      	
              (e)

            	
              The
                arbitrator(s) will give effect to statutes of limitation in determining
                any Claim and may dismiss the arbitration on the basis that the Claim
                is
                barred. For purposes of the application of any statutes of limitation,
                the
                service on AAA under applicable AAA rules of a notice of Claim is
                the
                equivalent of the filing of a lawsuit. Any dispute concerning this
                arbitration provision or whether a Claim is arbitrable shall be determined
                by the arbitrator(s), except as set forth at subparagraph (j) of
                this
                Dispute Resolution Provision. The arbitrator(s) shall have the power
                to
                award legal fees pursuant to the terms of this
                agreement.

            

    

    
      	
              (f)

            	
              The
                procedure described above will not apply if the Claim, at the time
                of the
                proposed submission to arbitration, arises from or relates to an
                obligation to the Bank secured by real property. In this case, all
                of the
                parties to this agreement must consent to submission of the Claim
                to
                arbitration.

            

    

     

    
      	
              (g)

            	
              To
                the extent any Claims are not arbitrated, to the extent permitted
                by law
                the Claims shall be resolved in court by a judge without a jury,
                except
                any Claims which are brought in California state court shall be determined
                by judicial reference as described
                below.

            

    

     

    
      	
              (h)

            	
              Any
                Claim which is not arbitrated and which is brought in California
                state
                court will be resolved by a general reference to a referee (or a
                panel of
                referees) as provided in California Code of Civil Procedure Section
                638.
                The referee (or presiding referee of the panel) shall be a retired
                Judge
                or Justice. The referee (or panel of referees) shall be selected
                by mutual
                written agreement of the parties. If the parties do not agree, the
                referee
                shall be selected by the Presiding Judge of the Court (or his or
                her
                representative) as provided in California Code of Civil Procedure
                Section
                638 and the following related sections. The referee shall determine
                all
                issues in accordance with existing California law and the California
                rules
                of evidence and civil procedure. The referee shall be empowered to
                enter
                equitable as well as legal relief, provide all temporary or provisional
                remedies, enter equitable orders that will be binding on the parties
                and
                rule on any motion which would be authorized in a trial, including
                without
                limitation motions for summary judgment or summary adjudication .
                The
                award that results from the decision of the referee(s) will be entered
                as
                a judgment in the court that appointed the referee, in accordance
                with the
                provisions of California Code of Civil Procedure Sections 644(a)
                and 645.
                The parties reserve the right to seek appellate review of any judgment
                or
                order, including but not limited to, orders pertaining to class
                certification, to the same extent permitted in a court of
                law.

            

    

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    
    

    
      	
              (i)

            	
              This
                Dispute Resolution Provision does not limit the right of any party
                to: (i)
                exercise self-help remedies, such as but not limited to, setoff;
                (ii)
                initiate judicial or non-judicial foreclosure against any real or
                personal
                property collateral; (iii) exercise any judicial or power of sale
                rights,
                or (iv) act in a court of law to obtain an interim remedy, such as
                but not
                limited to, injunctive relief, writ of possession or appointment
                of a
                receiver, or additional or supplementary remedies. The filing of
                a court
                action is not intended to constitute a waiver of the right of any
                party,
                including the suing party, thereafter to require submittal of the
                Claim to
                arbitration or judicial reference.

            

    

    
      	
              (j)

            	
              Any
                arbitration, judicial reference or trial by a judge of any Claim
                will take
                place on an individual basis without resort to any form of class
                or
                representative action (the “Class Action Waiver”). Regardless of anything
                else in this Dispute Resolution Provision, the validity and effect
                of the
                Class Action Waiver may be determined only by a court or referee
                and not
                by an arbitrator. The parties to this Agreement acknowledge that
                the Class
                Action Waiver is material and essential to the arbitration of any
                disputes
                between the parties and is nonseverable from the agreement to arbitrate
                Claims. If the Class Action Waiver is limited, voided or found
                unenforceable, then the parties’ agreement to arbitrate shall be null and
                void with respect to such proceeding, subject to the right to appeal
                the
                limitation or invalidation of the Class Action Waiver. The
                Parties acknowledge and agree that under no circumstances will a
                class
                action be arbitrated.

            

    

    
      	
              (k)

            	
              By
                agreeing to binding arbitration or judicial reference, the parties
                irrevocably and voluntarily waive any right they may have to a trial
                by
                jury as permitted by law in respect of any Claim. Furthermore, without
                intending in any way to limit this Dispute Resolution Provision,
                to the
                extent any Claim is not arbitrated or submitted to judicial reference,
                the
                parties irrevocably and voluntarily waive any right they may have
                to a
                trial by jury to the extent permitted by law in respect of such Claim.
                This waiver of jury trial shall remain in effect even if the Class
                Action
                Waiver is limited, voided or found unenforceable. WHETHER
                THE CLAIM IS DECIDED BY ARBITRATION, BY JUDICIAL REFERENCE, OR BY
                TRIAL BY
                A JUDGE, THE PARTIES AGREE AND UNDERSTAND THAT THE EFFECT OF THIS
                AGREEMENT IS THAT THEY ARE GIVING UP THE RIGHT TO TRIAL BY JURY TO
                THE
                EXTENT PERMITTED BY LAW.

            

    

    Severability;
      Waivers. 

     

    If
      any
      part of this Agreement is not enforceable, the rest of the Agreement may be
      enforced. The Bank retains all rights, even if it makes a loan after default.
      If
      the Bank waives a default, it may enforce a later default. Any consent or waiver
      under this Agreement must be in writing.

     

    Attorneys’
      Fees. 

     

    The
      Borrower shall reimburse the Bank for any reasonable costs and attorneys’ fees
      incurred by the Bank in connection with the enforcement or preservation of
      any
      rights or remedies under this Agreement and any other documents executed in
      connection with this Agreement, and in connection with any amendment, waiver,
      “workout” or restructuring under this Agreement. In the event of a lawsuit or
      arbitration proceeding, the prevailing party is entitled to recover costs and
      reasonable attorneys’ fees incurred in connection with the lawsuit or
      arbitration proceeding, as determined by the court or arbitrator. In the event
      that any case is commenced by or against the Borrower under the Bankruptcy
      Code
      (Title 11, United States Code) or any similar or successor statute, the Bank
      is
      entitled to recover costs and reasonable attorneys’ fees incurred by the Bank
      related to the preservation, protection, or enforcement of any rights of the
      Bank in such a case. As used in this paragraph, “attorneys’ fees” includes the
      allocated costs of the Bank’s in-house counsel.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    One
      Agreement. 

     

    This
      Agreement and any related security or other agreements required by this
      Agreement, collectively:

     

    
      	
              (a)

            	
              represent
                the sum of the understandings and agreements between the Bank and
                the
                Borrower concerning this credit;

            

    

    
      	
              (b)

            	
              replace
                any prior oral or written agreements between the Bank and the Borrower
                concerning this credit; and

            

    

    
      	
              (c)

            	
              are
                intended by the Bank and the Borrower as the final, complete and
                exclusive
                statement of the terms agreed to by
                them.

            

    

    In
      the
      event of any conflict between this Agreement and any other agreements required
      by this Agreement, this Agreement will prevail. Any reference in any related
      document to a “promissory note” or a “note” executed by the Borrower and dated
      as of the date of this Agreement shall be deemed to refer to this Agreement,
      as
      now in effect or as hereafter amended, renewed, or restated.

     

    Indemnification.

     

    The
      Borrower will indemnify and hold the Bank harmless from any loss, liability,
      damages, judgments, and costs of any kind relating to or arising directly or
      indirectly out of (a) this Agreement or any document required hereunder, (b)
      any
      credit extended or committed by the Bank to the Borrower hereunder, and (c)
      any
      litigation or proceeding related to or arising out of this Agreement, any such
      document, or any such credit. This indemnity includes but is not limited to
      attorneys’ fees (including the allocated cost of in-house counsel). This
      indemnity extends to the Bank, its parent, subsidiaries and all of their
      directors, officers, employees, agents, successors, attorneys, and assigns.
      This
      indemnity will survive repayment of the Borrower’s obligations to the Bank. All
      sums due to the Bank hereunder shall be obligations of the Borrower, due and
      payable immediately without demand.

     

    Notices. 

     

    Unless
      otherwise provided in this Agreement or in another agreement between the Bank
      and the Borrower, all notices required under this Agreement shall be personally
      delivered or sent by first class mail, postage prepaid, or by overnight courier,
      to the addresses on the signature page of this Agreement, or sent by facsimile
      to the fax numbers listed on the signature page, or to such other addresses
      as
      the Bank and the Borrower may specify from time to time in writing. Notices
      and
      other communications shall
      be
      effective (i) if mailed, upon the earlier of receipt or five (5) days after
      deposit in the U.S. mail, first class, postage prepaid, (ii) if telecopied,
      when
      transmitted, or (iii) if hand-delivered, by courier or otherwise (including
      telegram, lettergram or mailgram), when delivered.

    Headings. 

     

    Article
      and paragraph headings are for reference only and shall not affect the
      interpretation or meaning of any provisions of this Agreement.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    Counterparts. 

     

    This
      Agreement may be executed in as many counterparts as necessary or convenient,
      and by the different parties on separate counterparts each of which, when so
      executed, shall be deemed an original but all such counterparts shall constitute
      but one and the same agreement.

     

    Prior
      Agreement Superseded. 

     

    This
      Agreement supersedes the Business Loan Agreement entered into as of June 19,
      1998, between the Bank and the Borrower (as the same has been previously
      amended), and any credit outstanding thereunder shall be deemed to be
      outstanding under this Agreement.

     

    Confidential
      Information.

     

    The
      Bank
      agrees to maintain the confidentiality of all information identified as
“confidential” or “secret” by the Borrower and provided to it by or on behalf of
      the Borrower, under or in connection with this Agreement. Neither the Bank
      nor
      any of its affiliates shall use such information other than in connection with
      or in enforcement of this Agreement and any other agreement require hereunder,
      except to the extent that such information (i) was or becomes generally
      available to the public other than as a result of disclosure by the Bank, or
      (ii) was or becomes available on a non-confidential basis from a source other
      than the Borrower or any of its subsidiaries or affiliates, provided that such
      source is not bound by a confidentiality agreement with the Borrower known
      to
      the Bank; provided, however, that the Bank may disclose such information (A)
      at
      the request or pursuant to any requirement of any public authority to which
      the
      Bank is subject or in connection with an examination of the Bank by any such
      public authority; (B) pursuant to subpoena or other court process; (C) when
      required to do so in accordance with the provisions of any applicable
      requirement of law; (D) with notice to the Borrower, to the extent reasonably
      required in connection with any litigation or proceeding to which the Bank
      of
      its affiliates may be party and which arises out of or in connection with the
      transactions contemplated by this Agreement; (E) to the extent reasonably
      required in connection with the exercise of any remedy hereunder or under any
      other agreement required hereunder; (F) to the Bank’s independent auditors,
      accountants, attorneys and other professional advisors; (G) to any affiliate
      of
      the Bank, or to any participant or assignee, actual or potential, provided
      that
      such affiliate, participant, or assignee agrees to keep such information
      confidential to the same extent required of the Bank hereunder; and (H) as
      expressly permitted under the terms of any other document or agreement regarding
      confidentiality to which the Borrower is party or is deemed to be a party with
      the Bank.

     

    

    [Signature
      Page Follows]

     

    
      
        
        

      

      
        24

        
          

        

      

       

    

    
      This
        Agreement is executed as of the date stated at the top of the first
        page.

       

      
        	BANK OF AMERICA, N.A. 	SPORT CHALET, INC.
	 	 
	By:
                \s\
                Matthew Koenig	By:\s\
                Howard Kaminsky
	Name: Matthew Koenig  	
                Name:
                  Howard Kaminsky

              
	Title: Senior Vice President	Title: Executive Vice President -
                Finance,
                
	 	
                Chief
                  Financial Officer

              
	 	 
	Address where notices to	Address where notices to
	the Bank are to be sent:	the Borrower are to be sent:
	 	 
	Bank of America, N.A.	One
                Sport Chalet Drive
	333 S. Hope Street, Suite 1300	La
                Canada, California 91011 
	Los Angeles, CA 90071	Attention: Howard Kaminsky
	Attn: Matthew Koenig 	Telephone:
                (818) 949-5300
	Facsimile: (213) 621-3612 	Facsimile: (818)
                949-5301

      

      

      USA
        PATRIOT ACT NOTICE.
        FEDERAL
        LAW REQUIRES ALL FINANCIAL INSTITUTIONS TO OBTAIN, VERIFY AND RECORD INFORMATION
        THAT IDENTIFIES EACH PERSON WHO OPENS AN ACCOUNT OR OBTAINS A LOAN. THE BANK
        WILL ASK FOR THE BORROWER’S LEGAL NAME, ADDRESS, TAX ID NUMBER OR SOCIAL
        SECURITY NUMBER AND OTHER IDENTIFYING INFORMATION. THE BANK MAY ALSO ASK
        FOR
        ADDITIONAL INFORMATION OR DOCUMENTATION OR TAKE OTHER ACTIONS REASONABLY
        NECESSARY TO VERIFY THE IDENTITY OF THE BORROWER, GUARANTORS OR OTHER RELATED
        PERSONS.

       

      
        
          
          

        

        
          25

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