Document:

Exhibit
10.1

 

CHEVY CHASE BANK

PROMISSORY
NOTE

 

	
  Principal

  	
   

  	
  Loan Date

  	
   

  	
  Maturity

  	
   

  	
  Loan No

  	
   

  	
  Call / Coll

  	
   

  	
  Account

  	
   

  	
  Officer

  	
   

  	
  Initials

  
	
  $

  	
  250,000.00

  	
   

  	
  03-09-2004

  	
   

  	
  03-01-2005

  	
   

  	
  9001

  	
   

  	
  4A0/8120

  	
   

  	
  0120535

  	
   

  	
  40536

  	
   

  	
   

  
																

 

References in the shaded area are for
Lender’s use only and do not limit the applicability of this document to any
particular loan or item.  Any item above
containing ***** has been omitted due to text length limitations.

 

	
  Borrower: 

  	
  PRECISION AUTO CARE, INC. 

  	
  Lender:

  	
   

  	
  Chevy Chase Bank, F.S.B.

  
	
   

  	
  748 Miller Drive,
  S.E.

  	
   

  	
   

  	
  Business Banking

  
	
   

  	
  Leesburg, VA
  20175

  	
   

  	
   

  	
  7501 Wisconsin Avenue, 12th Floor

  
	
   

  	
   

  	
   

  	
   

  	
  Bethesda, MD 20814

  

 

	
  Principal Amount:   $250,000.00

  	
   

  	
  Initial Rate:   4.000%

  	
   

  	
  Date of Note:   March 9,
  2004

  

 

PROMISE TO PAY. PRECISION AUTO CARE, INC. (“Borrower”)
promises to pay to Chevy Chase Bank, F.S.B. (“Lender”), or order, in lawful
money of the United States of America, the principal amount of Two Hundred
Fifty Thousand & 00/100 Dollars ($250,000.00) or so much as may be
outstanding, together with interest on the unpaid outstanding principal balance
of each advance. Interest shall be calculated from the date of each advance
until repayment of each advance.

 

PAYMENT. Borrower will pay this loan in one payment of all
outstanding principal plus all accrued unpaid interest on March 1, 2005. In
addition, Borrower will pay regular monthly payments of all
accrued unpaid interest due as of each payment date, beginning April 1, 2004,
with all subsequent interest payments to be due on the same day of each month
after that. Unless otherwise agreed or required by applicable law, payments
will be applied first to any unpaid collection costs; then to any late charges;
then to any accrued unpaid interest; and then to principal. The annual interest
rate for this Note is computed on a 365/360 basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender’s address
shown above or at such other place as Lender may designate in writing.

 

VARIABLE INTEREST RATE. The
interest rate on this Note is subject to change from time to time based on
changes in an independent index which is the highest Prime Rate as
published in the Money Rates Section of The Wall Street Journal (the “Index”).
The Index is not necessarily the lowest rate charged by Lender on its loans. If
the Index becomes unavailable during the term of this loan, Lender may
designate a substitute Index after notice to Borrower. Lender will tell
Borrower the current Index rate upon Borrower’s request The interest rate
change will not occur more often than each day. Borrower understands that
Lender may make loans based on other rates as well. The Index currently is 4.000% per annum. The interest rate to be  applied to the unpaid
principal balance of this Note will be at a rate equal to the Index, resulting
in an initial rate of 4.000% per annum.

NOTICE:
Under no circumstances will the interest rate on this Note be more than the
maximum rate allowed by applicable law.

 

PREPAYMENT. Borrower agrees that all loan
fees and other prepaid finance charges are earned fully as of the date of the
loan and will not be subject to refund upon early payment (whether voluntary or
as a result of default), except as otherwise required by law. Except for the
foregoing, Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in writing,
relieve Borrower of Borrower’s obligation to continue to make payments of
accrued unpaid interest. Rather, early payments will reduce the principal
balance due. Borrower agrees not to send Lender payments marked “paid in full”,
“without recourse”, or similar language. If Borrower sends such a payment,
Lender may accept it without losing any of Lender’s rights under this Note, and
Borrower will remain obligated to pay any further amount owed to Lender. All
written communications concerning disputed amounts, including any check or
other payment instrument that indicates that the payment constitutes “payment
in full” of the amount owed or that is tendered with other conditions or
limitations or as full satisfaction of a disputed amount must be mailed or delivered
to: Chevy Chase Bank, F.S.B.; Business Banking; 7501 Wisconsin Avenue, 12th
Floor; Bethesda, MD 20814.

 

LATE CHARGE. If a payment is 15 days or more
late, Borrower will be charged 5.000% of the
regularly scheduled payment or $2.00, whichever is greater.

 

INTEREST AFTER DEFAULT. Upon
default, including failure to pay upon final maturity, Lender, at its option,
may, if permitted under applicable law, increase the variable interest
rate on this Note to 3.000 percentage points over the Index. The interest rate
will not exceed the maximum rate permitted by applicable law.

 

DEFAULT. Each of the following shall
constitute an event of default (“Event of Default”) under this Note:

 

Payment Default.
Borrower fails to make any payment when due under this Note.

 

Other Defaults.
Borrower fails to comply with or to perform any other term, obligation,
covenant or condition contained in this Note or in any of the related documents
or to comply with or to perform any term, obligation, covenant or condition
contained in any other agreement between Lender and Borrower.

 

Default in Favor of
Third Parties. Borrower or any Grantor defaults under
any loan, extension of credit, security agreement. purchase or sales agreement,
or any other agreement, in favor of any other creditor or person that may
materially affect any of Borrower’s property or Borrower’s ability to repay
this Note or perform Borrower’s obligations under this Note or any of the
related documents.

 

False Statements. Any
warranty, representation or statement made or furnished to Lender by Borrower
or on Borrower’s behalf under this Note or the related documents is false
or misleading in any material respect, either now or at the time made or
furnished or becomes false or misleading at any time thereafter.

 

Insolvency. The
dissolution or termination of Borrower’s existence as a going business, or a
trustee or receiver is appointed for Borrower or for all or a substantial
portion of the assets of Borrower, or Borrower makes a general assignment for
the benefit of Borrower’s creditors, or Borrower files for bankruptcy, or an
involuntary bankruptcy petition is filed against Borrower and such involuntary
petition remains undismissed for sixty (60) days.

 

Creditor or Forfeiture
Proceedings. Commencement of foreclosure or forfeiture proceedings,
whether by judicial proceeding, self-help, repossession or any other method, by
any creditor of Borrower or by any governmental agency against any collateral
securing the loan. This includes a garnishment of any of Borrower’s accounts,
including deposit accounts, with Lender. However, this Event of Default shall
not apply if there is a good faith dispute by Borrower as to the validity or
reasonableness of the claim which is the basis of the creditor or forfeiture
proceeding and if Borrower gives Lender written notice of the creditor or
forfeiture proceeding and deposits with Lender monies or a surety bond for the
creditor or forfeiture proceeding, in an amount determined by Lender, in its
sole discretion, as being an adequate reserve or bond for the dispute.

 

Events Affecting
Guarantor. Any of the preceding events occurs with respect to any
guarantor, endorser, surety, or accommodation party of any of the indebtedness
or any guarantor, endorser, surety, or accommodation party dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
guaranty of the indebtedness evidenced by this Note. In the event of a death,
Lender, at its option, may, but shall not be required to, permit the
guarantor’s estate to assume unconditionally the obligations arising under the
guaranty in a manner satisfactory to Lender, and, in doing so, cure any Event
of Default.

 

Change In Ownership. Any
change in ownership of twenty-five percent (25%) or more of the common stock of
Borrower. 

 

Adverse Change. A
material adverse change occurs in Borrower’s financial condition, or Lender
believes the prospect of payment or performance of this Note is impaired.

 

Cure Provisions. If any
default, other than a default in payment is curable and if Borrower has not
been given a notice of a breach of the same provision of this Note within the
preceding twelve (12) months, it may be cured (and no event, of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (1) cures the default within fifteen (15) days; or (2) if
the cure requires more than fifteen (15) days, immediately initiates steps
which Lender deems in Lender’s sole discretion to be sufficient to cure the
default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.

 

LENDER’S RIGHTS. Upon default, Lender may declare
the entire unpaid principal balance on this Note and all accrued unpaid interest,
together with all other applicable fees, costs and charges, if any, immediately
due and payable, and then Borrower will pay that amount.

 

ATTORNEYS’ FEES; EXPENSES.
Subject to any limits under applicable law, upon default, Borrower agrees to
pay Lender’s attorneys’ fees equal to 15.000% of the principal balance due on
the loan and all of Lender’s other collection expenses, whether or not there is
a lawsuit, including without limitation legal expenses for bankruptcy
proceedings.

 

JURY WAIVER. LENDER AND BORROWER EACH HEREBY WAIVE TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO WHICH LENDER OR BORROWER MAY BE PARTIES,
ARISING OUT OF, OR IN ANY WAY PERTAINING TO, THIS NOTE. IT IS AGREED THAT THIS
WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES
TO SUCH ACTIONS OR PROCEEDINGS. THIS WAIVER IS KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY LENDER AND BORROWER, AND LENDER AND BORROWER EACH HEREBY
REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. BORROWER FURTHER REPRESENTS THAT BORROWER HAS BEEN

 

 

REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF
THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF BORROWER’S OWN FREE WILL,
AND THAT BORROWER HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

 

GOVERNING LAW. This Note will be governed by, construed and
enforced in accordance with federal law and the laws of the State of Maryland.
This Note has been accepted by Lender in the State of Maryland.

 

CONFESSED JUDGMENT. UPON THE OCCURRENCE OF A DEFAULT, BORROWER HEREBY
AUTHORIZES ANY ATTORNEY DESIGNATED LENDER OR ANY CLERK OF ANY COURT OF RECORD
TO APPEAR FOR BORROWER IN ANY COURT OF RECORD AND CONFESS JUDGMENT WITHOUT
PRIOR HEARING AGAINST BORROWER IN FAVOR OF LENDER FOR, AND IN THE AMOUNT OF,
THE UNPAID BALANCE OF THE PRINCIPAL AMOUNT OF THIS NOTE, ALL INTEREST ACCRUED
AND UNPAID THEREON, ALL OTHER AMOUNTS PAYABLE BY BORROWER TO LENDER UNDER THE
TERMS OF THIS NOTE OR ANY OTHER AGREEMENT, DOCUMENTS, INSTRUMENT EVIDENCING,
SECURING OR GUARANTYING THE OBLIGATIONS EVIDENCED BY THIS NOTE, COSTS OF SUIT,
AND ATTORNEYS’ FEES OF FIFTEEN PERCENT (15%) OF THE UNPAID BALANCE OF THE
PRINCIPAL AMOUNT OF THIS NOTE AND INTEREST THEN DUE HEREUNDER.

 

Borrower hereby releases, tothe extent permitted by applicable law, all errors and all rights of
exemption, appeal. stay of execution,  inquisition, and other rights to which Borrower may otherwise
be entitled under the laws of the United States or of any state or possession
of the United States now in force and which may hereafter be enacted. The
authority and power to appear for and enter judgment against Borrower shall not
be exhausted by one or more exercises thereof or by any imperfect exercise
thereof and shall not be extinguished by any judgment entered pursuant thereto.
Such authority may be exercised on one or more occasions or from time to time
in the same or different jurisdictions as often as Lender shall deem necessary
or desirable, for all of which this Note shall be a sufficient warrant.

 

DISHONORED ITEM FEE. Borrower will pay a fee to
Lender of $20.00 if Borrower makes a payment on Borrower’s loan and the check
with which Borrower pays is dishonored on the second presentment.

 

RIGHT OF SETOFF. To the extent permitted by
applicable law, Lender reserves a right of setoff in all Borrower’s accounts
with Lender (whether checking, savings, or some other account). This includes
all accounts Borrower holds jointly with someone else and all accounts Borrower
may open in the future. However, this does not include any IRA or Keogh
accounts, or any trust accounts for which setoff would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to
charge or setoff all sums owing on the indebtedness against any and all such
accounts, and, at Lender’s option, to administratively freeze all such accounts
to allow Lender to protect Lender’s charge and setoff rights provided in this
paragraph.

 

LINE OF CREDIT. This Note evidences a revolving
line of credit. Advances under this Note may be requested only in writing by
Borrower or as provided in this paragraph. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender’s
office shown above. The following persons currently are authorized, except as
provided in this paragraph, to request advances and authorize payments under
the line of credit until Lender receives from Borrower, at Lender’s address shown
above, written notice of revocation of their authority: Robert R. Falconi, President of PRECISION AUTO CARE,
INC.; Douglas V. Krueger, Controller of PRECISION AUTO CARE, INC.; and
Frederick F. Simmons, Senior Vice President of PRECISION AUTO CARE, INC. All
advance requests must be signed by any two (2) of above authorized persons.
Borrower agrees to be liable for all sums either: (A) advanced in accordance
with the instructions of an authorized person or (B) credited to any of
Borrower’s accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by lender’s
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (A) Borrower or any guarantor
is in default under the terms of this Note or any agreement that Borrower or
any guarantor has with Lender, including any agreement made in connection with
the signing of this Note; (B) Borrower or any guarantor ceases doing business
or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such guarantor’s guarantee of this Note or any other
loan with Lender; or (D) Borrower has applied funds provided pursuant to this
Note for purposes other than those authorized by Lender.

 

CLARIFICATION OF GOVERNING LAW.
Notwithstanding anything to the contrary in any of the documents, the parties
agree that federal law governs the Agreement or Promissory Note, as the case
may be, and Maryland law will apply only to the extent it is not otherwise
superceded or preempted by federal law.

 

CONSENT TO JURISDICTION.
Borrower irrevocably submits to the jurisdiction of any state or federal court
sitting in the State of Maryland over any suit, action, or proceeding arising
out of or relating to this Note. Borrower irrevocably waives, to the fullest
extent permitted by law, any objection that Borrower may now or hereafter have
to the laying of venue of any such suit, action, or proceeding brought in any
such court and any claim that any such suit, action, or proceeding brought in
any such court has been brought in an inconvenient forum. Final judgment in any
such suit, action, or proceeding brought in any such court shall be conclusive
and binding upon Borrower and may be enforced in any court in which Borrower is
subject to jurisdiction by a suit upon such judgment provided that service of
process is effected upon Borrower as provided in this Note or as otherwise
permitted by applicable law.

 

SUCCESSOR INTERESTS. The terms of this Note shall be
binding upon Borrower, and upon Borrower’s heirs, personal representatives,
successors and assigns, and shall inure to the benefit of Lender and its
successors and assigns.

 

GENERAL PROVISIONS. If any part of this Note cannot
be enforced, this fact will not affect the rest of the Note. Borrower does not
agree or intend to pay, and Lender does not agree or intend to contract for,
charge, collect, take, reserve or receive (collectively referred to herein as
“charge or collect”), any amount in the nature of interest or in the nature of
a fee for this loan, which would in any way or event (including demand,
prepayment, or acceleration) cause Lender to charge or collect more for this
loan than the maximum Lender would be permitted to charge or collect by federal
law or the law of the State of Maryland (as applicable). Any such excess
interest or unauthorized fee shall, instead of anything stated to the contrary,
be applied first to reduce the principal balance of this loan, and when the principal
has been paid in full, be refunded to Borrower. Lender may delay or forgo
enforcing any of its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses this Note, to
the extent allowed by law, waive presentment, demand for payment, and notice of
dishonor. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan or release any party or guarantor or collateral; or
impair, fall to realize upon or perfect Lender’s security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that lender may
modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made.

 

APPLICABLE LENDING LAW. This
loan is being made under the terms and provisions of Subtitle 9 of Title 12 of
the Maryland Commercial Law Article.

 

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL
THE PROVISIONS OF THIS NOTE, INCLUDING THE [ILLEGIBLE] INTEREST RATE
PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.

 

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS
PROMISSORY NOTE.

 

THIS NOTE IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS
NOTE IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT
ACCORDING TO LAW.

 

BORROWER:

 

 

PRECISION AUTO CARE INC.

 

 

	
  By:

  	
  /s/ Robert R.
  Falconi

  	
  (Seal)

  	
   

  	
  By:

  	
  /s/ Douglas
  V. Krueger

  	
  (Seal)

  
	
  Robert R. Falconi, President of PRECISION
  AUTO

  CARE, INC.

  	
   

  	
  Douglas V. Krueger, Controller of PRECISION

  AUTO CARE, INC.

  

 

[ILLEGIBLE]

 

2

 

CORPORATE RESOLUTION
TO BORROW /  GRANT COLLATERAL /

SUBORDINATE DEBT

 

	
  Principal

  	
   

  	
  Loan Date

  	
   

  	
  Maturity

  	
   

  	
  Loan No

  	
   

  	
  Call / Coll

  	
   

  	
  Amount

  	
   

  	
  Officer

  	
   

  	
  Initials

  
	
  $

  	
  250,000.00

  	
   

  	
  03-09-2004

  	
   

  	
  03-01-2005

  	
   

  	
  9001

  	
   

  	
  4A0/8120

  	
   

  	
  0120535

  	
   

  	
  40536

  	
   

  	
   

  
																

 

References in the shaded area are for
Lender’s use only and do not limit the applicability of this document to any
particular loan or item.  Any item above
containing ***** has been omitted due to text length limitations.

 

	
  Corporation:

  	
  PRECISION AUTO CARE,
  INC.

  	
  Lender:

  	
  Chevy Chase Bank, F.S.B.

  
	
   

  	
  748 Miller Drive, S.E.

  	
   

  	
  Business Banking

  
	
   

  	
  Leesburg, VA 20175

  	
   

  	
  7501 Wisconsin Avenue, 12th Floor

  
	
   

  	
   

  	
   

  	
  Bethesda, MD 20814

  

 

I, THE UNDERSIGNED, DO HEREBY CERTIFY THAT:

 

THE CORPORATION’S EXISTENCE. The
complete and correct name of the Corporation is PRECISION AUTO CARE, INC.
(“Corporation”). The Corporation is a corporation for profit which is, and at
all times shall be, duly organized, validly existing, and in good standing
under and by virtue of the laws of the Commonwealth of Virginia. The
Corporation is duly authorized to transact business in all other states in
which the Corporation is doing business, having obtained all necessary filings,
governmental licenses and approvals for each state in which the Corporation is
doing business. Specifically, the Corporation is, and at all times shall be,
duly qualified as a foreign corporation in all states in which the failure to
so qualify would have a material adverse effect on its business or financial
condition. The Corporation has the full power and authority to own its
properties and to transact the business in which it is presently engaged or
presently proposes to engage. The Corporation maintains an office at 748 Miller
Drive, S.E., Leesburg, VA 20175. Unless the Corporation has designated
otherwise in writing, the principal office is the office at which the
Corporation keeps its books and records. The Corporation will notify Lender
prior to any change in the location of the Corporation’s state of organization
or any change in the Corporation’s name. The Corporation shall do all things
necessary to preserve and to keep in full force and effect its existence;
rights and privileges, and shall comply with all regulations, rules,
ordinances, statutes, orders and decrees of any governmental or
quasi-governmental authority or court applicable to the Corporation and the
Corporation’s business activities.

 

RESOLUTIONS ADOPTED. At a meeting of the Directors of
the Corporation, or if the Corporation is a close corporation having no Board
of Directors then at a meeting of the Corporation’s shareholders, duly called
and held on March 9, 2004, at
which a quorum was present and voting, or by other duly
authorized action in lieu of a meeting, the resolutions set forth in this
Resolution were adopted.

 

OFFICERS. The following named persons are
officers of PRECISION AUTO CARE, INC.:

 

	
  NAMES

  	
   

  	
  TITLES

  	
   

  	
  AUTHORIZED

  	
   

  	
   

  	
   

  	
  ACTUAL SIGNATURES

  
	
  Robert R. Falconi

  	
   

  	
  President

  	
   

  	
  Y

  	
   

  	
  X

  	
   

  	
  /s/
  Robert R. Falconi

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Douglas V. Krueger

  	
   

  	
  Controller

  	
   

  	
  Y

  	
   

  	
  X

  	
   

  	
  /s/
  Douglas V. Krueger

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Frederick F. Simmons

  	
   

  	
  Senior Vice President

  	
   

  	
  Y

  	
   

  	
  X

  	
   

  	
  /s/
  Frederick F. Simmons

  

 

ACTIONS AUTHORIZED. Any two (2) of the authorized
persons listed above may enter into any agreements of any nature with Lender,
and those agreements will bind the Corporation. Specifically, but without
limitation, any two (2) of such authorized persons are authorized, empowered,
and directed to do the following for and on behalf of the Corporation:

 

Borrow Money. To
borrow, as a cosigner or otherwise, from time to time from Lender, on such
terms as may be agreed upon between the Corporation and Lender, such sum or
sums of money as in their judgment should be borrowed, without limitation.

 

Execute Notes. To
execute and deliver to Lender the promissory note or notes, or other evidence
of the Corporation’s credit accommodations, on Lender’s forms, at such rates of
interest and on such terms as may be agreed upon, evidencing the sums of money
so borrowed or any of the Corporation’s indebtedness to Lender, and also to
execute and deliver to Lender one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for one or more of the notes,
any portion of the notes, or any other evidence of credit accommodations.

 

Grant Security. To
mortgage, pledge, transfer, endorse, hypothecate, or otherwise encumber and
deliver to Lender any property now or hereafter belonging to the Corporation or
in which the Corporation now or hereafter may have an interest, including
without limitation all of the Corporation’s real property and all of the
Corporation’s personal property (tangible or intangible), as security for the
payment of any loans or credit accommodations so obtained, any promissory notes
so executed (including any amendments to or modifications, renewals, and
extensions of such promissory notes), or any other or further indebtedness of
the Corporation to Lender at any time owing, however the same may be evidenced.
Such property may be mortgaged, pledged, transferred, endorsed, hypothecated or
encumbered at the time such loans are obtained or such indebtedness is
incurred, or at any other time or times, and may be either in addition to or in
lieu of any property theretofore mortgaged, pledged, transferred, endorsed,
hypothecated or encumbered.

 

Execute Security
Documents. To execute and deliver to Lender the forms of mortgage,
deed of trust, pledge agreement, hypothecation agreement, and other security
agreements and financing statements which Lender may require and which shall
evidence the terms and conditions under and pursuant to which such liens and
encumbrances, or any of them, are given; and also to execute and deliver to
Lender any other written instruments, any chattel paper, or any other
collateral, of any kind or nature, which Lender may deem necessary or proper in
connection with or pertaining to the giving of the liens and encumbrances.
Notwithstanding the foregoing, anyone of the above authorized persons may
execute, deliver, or record financing statements.

 

Subordination. To
subordinate, in all respects, any and all present and future indebtedness,
obligations, liabilities, claims, rights, and demands of any kind which may be
owed, now or hereafter, from any person or entity to the Corporation to all
present and future indebtedness, obligations, liabilities, claims, rights, and
demands of any kind which may be owed, now or hereafter, from such person or
entity to Lender (“Subordinated Indebtedness”), together with subordination by
the Corporation of any and all security interests of any kind, whether now
existing or hereafter acquired, securing payment or performance of the
Subordinated Indebtedness; all on such subordination terms as may be agreed upon
between the
Corporation’s Officers and Lender and in such amounts as in their judgment
should be subordinated.

 

Negotiate Items. To
draw, endorse, and discount with Lender all drafts, trade acceptances,
promissory notes, or other evidences of indebtedness payable to or belonging to
the Corporation or in which the Corporation may have an interest, and either to
receive cash for the same or to cause such proceeds to be credited to the
Corporation’s account with Lender, or to cause such other disposition of the
proceeds derived therefrom as they may deem advisable.

 

Further Acts. In the
case of lines of credit, to designate additional or alternate individuals as
being authorized to request advances under such lines, and in all cases, to do
and perform such other acts and things, to pay any and all fees and costs, and
to execute and deliver such other documents and agreements, including agreements waiving the right to a trial by
jury and confessing judgment against the Corporation, as the
officers may in their discretion deem reasonably necessary or proper in order
to carry into effect the provisions of this Resolution. The following persons
currently are authorized, except as provided in this paragraph, to request
advances and authorize payments under the line of credit until Lender receives
from the Corporation, at Lender’s address shown above, written notice of
revocation of their authority: Robert R.  Falconi, President of
PRECISION AUTO CARE, INC.; Douglas V. Krueger, Controller of PRECISION AUTO
CARE, INC.; and Frederick F. Simmons, Senior Vice President of PRECISION AUTO
CARE, INC. All advance requests must be signed by any two (2) of above
authorized persons.

 

ASSUMED BUSINESS NAMES. The
Corporation has filed or recorded all documents or filings required by law
relating to all assumed business names used by the Corporation. Excluding the
name of the Corporation, the following is a complete list of all assumed
business names under which the Corporation does business: None.

 

NOTICES TO LENDER. The Corporation will promptly
notify Lender in writing at Lender’s address shown above (or such other
addresses as Lender may designate from time to time) prior to any (A) change in
the Corporation’s name; (B) change in the Corporation’s assumed business
name(s); (C) change in the management of the Corporation; (D) change in the
authorized signer(s); (E) change in the Corporation’s principal office address;
(F) change in the Corporation’s state of organization; (G) conversion of the
Corporation to a new or different type of business entity; or (H) change in any
other aspect of the Corporation that directly or indirectly relates to any
agreements between the Corporation and Lender. No change in the Corporation’s
name or state of organization will take effect until after Lender has received
notice.

 

CERTIFICATION CONCERNING OFFICERS AND RESOLUTIONS. The
officers named above are duly elected, appointed, or employed by or for the
Corporation, as the case may be, and occupy the positions set opposite their
respective names. This Resolution now stands of record on the books of the
Corporation, is in full force and effect, and has not been modified or revoked
in any manner whatsoever.

 

CONTINUING VALIDITY. Any and all acts authorized
pursuant to this Resolution and performed prior to the passage of .this
Resolution are hereby ratified and approved. 
This Resolution shall be continuing, shall remain in full force and
effect and Lender may rely on it until written notice of its [ILLEGIBLE] have been
delivered to and received by Lender at Lender’s address shown above (or such
addresses as Lender may designate from

 

 

time to
time). Any such notice shall not affect any of the Corporation’s agreements or
commitments in effect at the time notice is given.

 

IN TESTIMONY WHEREOF, I have hereunto set my hand, affixed
the seal of the Corporation and attest that the signatures set opposite the
names listed above are their genuine signatures.

 

I have read all the provisions of this Resolution, and I
personally and on behalf of the Corporation certify that all statements
[ILLEGIBLE] representations made in this Resolution are true and correct. This
Corporate Resolution to Borrow /Grant Collateral / Subordinate Debt dated March 9, 2004.

 

THIS RESOLUTION IS GIVEN UNDER SEAL AND IT IS INTENDED THAT
THIS RESOLUTION IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED
INSTRUMENT ACCORDING TO LAW.

 

	
   

  	
  CERTIFIED TO AND ATTESTED BY:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  CORPORATE

  	
  X

  	
  /s/ Fredrick F. Simmons

  	
  (Seal)

  
	
   

  	
   

  	
  Fredrick F. Simmons, Secretary

  
	
  SEAL

  	
   

  	
   

  	
   

  
					

 

NOTE:
If the officers signing this Resolution are designated by the foregoing
document as one of the officers authorized to act on the Corporation’s behalf,
it is advisable to have this Resolution signed by atleast one non-authorized
officer of the Corporation.

 

[ILLEGIBLE]

 

2

 

CHEVY CHASE BANK

DISBURSEMENT REQUEST
AND AUTHORIZATION

 

	
  Principal

  	
   

  	
  Loan Date

  	
   

  	
  Maturity

  	
   

  	
  Loan No

  	
   

  	
  Call / Coll

  	
   

  	
  Account

  	
   

  	
  Officer

  	
   

  	
  Initials

  
	
  $

  	
  250,000.00

  	
   

  	
  03-09-2004

  	
   

  	
  03-01-2005

  	
   

  	
  9001

  	
   

  	
  4A0/8120

  	
   

  	
  0120535

  	
   

  	
  40536

  	
   

  	
   

  
																

 

References in the shaded area are for
Lender’s use only and do not limit the applicability of this document to any
particular loan or item.  Any item above
containing ***** has been omitted due to text length limitations.

 

	
  Borrower:

  	
   

  	
  PRECISION AUTO CARE, INC.

  	
   

  	
  Lender:

  	
   

  	
  Chevy Chase Bank, F.S.B.

  
	
   

  	
   

  	
  748 Miller Drive, S.E.

  	
   

  	
   

  	
   

  	
  Business Banking

  
	
   

  	
   

  	
  Leesburg, VA 20175

  	
   

  	
   

  	
   

  	
  7501 Wisconsin Avenue, 12th Floor

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Bethesda, MD 20814

  

 

 

LOAN TYPE. This
is a Variable Rate Nondisclosable Revolving Line of Credit Loan to a
Corporation for $250,000.00 due on March 1, 2005. The reference rate (highest
Prime Rate as published in the Money Rates Section of The Wall Street Journal,
currently 4.000%), resulting in an initial rate of 4.000.

 

PRIMARY PURPOSE OF
LOAN. The primary purpose of this loan is for:

 

o            Personal, Family, or Household Purposes or Personal
Investment.

ý            Business (Including Real Estate Investment).

 

SPECIFIC PURPOSE. The
specific purpose of this loan is: Working Capital.

 

DISBURSEMENT
INSTRUCTIONS. Borrower understands that no loan
proceeds will be disbursed until all of Lender’s conditions for making the loan
have been satisfied. Please disburse the loan proceeds of $250,000.00 as
follows:

 

	
  Undisbursed Funds:

  	
   

  	
  $

  	
  250,000.00

  
	
   

  	
   

  	
   

  
	
  Note Principal:

  	
   

  	
  $

  	
  250,000.00

  

 

CHARGES PAID IN CASH.
Borrower has paid or will pay in cash as agreed the following charges:

 

	
  Prepaid Finance Charges Paid In Cash:

  	
   

  	
  $

  	
  2,150.00

  
	
  $ 1,250.00
  Commitment Fee (0.5% p.a.)

  	
   

  	
   

  
	
  $ 400.00 Documentation Fee

  	
   

  	
   

  
	
  $ 500.00 Lien Searches

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Total Charges Paid in Cash:

  	
   

  	
  $

  	
  2,150.00

  

 

AUTOMATIC PAYMENTS.
Borrower hereby authorizes Lender automatically to deduct from Borrower’s
account numbered 500-431567-1 the amount of any loan payment. If the funds in
the account are insufficient to cover any payment, Lender shall not be
obligated to advance funds to cover the payment, at any time and for any
reason, Borrower or Lender may voluntarily terminate Automatic Payments.

 

FINANCIAL CONDITION.
BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND WARRANTS TO LENDER THAT
THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE HAS BEEN NO
MATERIAL ADVERSE CHANGE IN BORROWER’S FINANCIAL CONDITION AS DISCLOSED IN
BORROWER’S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS AUTHORIZATION IS
DATED MARCH 9, 2004.

 

THIS AGREEMENT IS
GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE
AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.

 

BORROWER:

 

 

PRECISION AUTO CARE
INC.

 

	
  By:

  	
  /s/ Robert R.
  Falconi

  	
  (Seal)

  	
  By:

  	
  /s/ Douglas V.
  Krueger

  	
  (Seal)

  
	
   

  	
  Robert R. Falconi, President of PRECISION AUTO CARE, INC.

  	
   

  	
   

  	
  Douglas V. Krueger, Controller of PRECISION AUTO

  CARE INC.

  

 

[ILLEGIBLE]

 

CHEVY
CHASE BANK

BUSINESS LOAN
AGREEMENT (ASSET BASED)

 

	
  Principal

  	
   

  	
  Loan Date

  	
   

  	
  Maturity

  	
   

  	
  Loan No

  	
   

  	
  Call / Coll

  	
   

  	
  Account

  	
   

  	
  Officer

  	
   

  	
  Initials

  
	
  $

  	
  250,000.00

  	
   

  	
  03-09-2004

  	
   

  	
  03-01-2005

  	
   

  	
  9001

  	
   

  	
  4A0/8120

  	
   

  	
  0120535

  	
   

  	
  40536

  	
   

  	
   

  
																

 

References in the shaded area are for
Lender’s use only and do not limit the applicability of this document to any
particular loan or item. Any item above containing ***** has been omitted due
to text length limitations.

 

	
  Borrower:

  	
   

  	
  PRECISION AUTO CARE, INC.

  	
   

  	
  Lender:

  	
   

  	
  Chevy Chase Bank, F.S.B.

  
	
   

  	
   

  	
  748 Miller Drive, S.E.

  	
   

  	
   

  	
   

  	
  Business Banking

  
	
   

  	
   

  	
  Leesburg, VA 20175

  	
   

  	
   

  	
   

  	
  7501 Wisconsin Avenue, 12th Floor

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Bethesda, MD 20814

  

 

THIS BUSINESS LOAN AGREEMENT (ASSET BASED) dated March 9,
2004, is made and executed between PRECISION AUTO CARE, INC. (“Borrower”) and
Chevy Chase Bank, F.S.B. (“Lender”) on the following terms and conditions.
Borrower has received prior commercial loans from Lender or has applied to
Lender for a commercial loan or loans or other financial accommodations,
including those which may be described on any exhibit or schedule attached to
this Agreement (“Loan”). Borrower understands and agrees that: (A) in granting,
renewing, or extending any Loan, Lender is relying upon Borrower’s
representations, warranties, and agreements as set forth in this Agreement; (B)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender’s sole judgment and discretion; and (C) all such Loans shall
be and remain subject to the terms and conditions of this Agreement.

 

TERM. This Agreement shall be effective as
of March 9, 2004, and shall continue in full force and effect until such time
as all of Borrower’s Loans in favor of Lender have been paid in full, including
principal, interest, costs, expenses, attorneys’ fees, and other fees and
charges, or until March 1, 2005.

 

LINE OF CREDIT. Lender agrees to make Advances
to Borrower from time to time from the date of this Agreement to the Expiration
Date, provided the aggregate amount of such Advances outstanding at any time
does not exceed the Borrowing Base. Within the foregoing limits, Borrower may
borrow, partially or wholly prepay, and reborrow under this Agreement as
follows:

 

Conditions Precedent
to Each Advance. Lender’s obligation to make any
Advance to or for the account of Borrower under this Agreement is subject to
the following conditions precedent, with all documents, instruments, opinions,
reports, and other items required under this Agreement to be in form and
substance satisfactory to Lender:

 

(1)
Lender shall have received evidence that this Agreement and all Related
Documents have been duly authorized, executed, and delivered by Borrower to
Lender.

 

(2)
Lender shall have received such opinions of counsel, supplemental opinions, and
documents as Lender may request.

 

(3)
The security interests in the Collateral shall have been duly authorized,
created, and perfected with first lien priority and shall be in full force and
effect.

 

(4)
All guaranties required by Lender for the credit facility(ies) shall have been
executed by each Guarantor, delivered to Lender, and be in  full
force and effect.

 

(5)
Lender, at its option and for its sole benefit, shall have conducted an audit
of Borrower’s Accounts, books, records, and operations, and Lender shall be
satisfied as to their condition.

 

(6)
Borrower shall have paid to Lender all fees, costs, and expenses specified in
this Agreement and the Related Documents as are then due and payable.

 

(7)
There shall not exist at the time of any Advance a condition which would
constitute an Event of Default under this Agreement, and Borrower shall have
delivered to Lender the compliance certificate called for in the paragraph
below titled “Compliance Certificate.”

 

Making Loan Advances.
Advances under this credit facility, as well as directions for payment from
Borrower’s accounts, may be requested orally or in writing by authorized persons.
Lender may, but need not, require that all oral requests be confirmed in
writing. Each Advance shall be conclusively deemed to have been made at the
request of and for the benefit of Borrower (1) when credited to any deposit
account of Borrower maintained with Lender or (2) when advanced in accordance
with the instructions of an authorized person. Lender, at its option, may set a
cutoff time, after which all requests for Advances will be treated as having
been requested on the next succeeding Business Day.

 

Mandatory Loan
Repayments. If at any time the aggregate principal amount of the
outstanding Advances shall exceed the applicable Borrowing Base, Borrower,
immediately upon written or oral notice from Lender, shall pay to Lender an
amount equal to the difference between the outstanding principal balance of the
Advances and the Borrowing Base. On the Expiration Date, Borrower shall pay to
Lender in full the aggregate unpaid principal amount of all Advances then
outstanding and all accrued unpaid interest, together with all other applicable
fees, costs and charges, if any, not yet paid.

 

Loan Account. Lender
shall maintain on its books a record of account in which Lender shall make
entries for each Advance and such other debits and credits as shall be appropriate
in connection with the credit facility. Lender shall provide Borrower with
periodic statements of Borrower’s account, which statements shall be considered
to be correct and conclusively binding on Borrower unless Borrower notifies
Lender to the contrary within thirty (30) days after Borrower’s receipt of any
such statement which Borrower deems to be incorrect.

 

COLLATERAL. To secure payment of the Primary
Credit Facility and performance of all other Loan, obligations and duties owed
by Borrower to Lender, Borrower (and others, if required) shall grant to Lender
Security Interests in such property and assets as Lender may require. Lender’s
Security Interests in the Collateral shall be continuing liens and shall
include the proceeds and products of the Collateral, including without
limitation the proceeds of any insurance. With respect to the Collateral,
Borrower agrees and represents and warrants to Lender:

 

Perfection of Security
Interests. Borrower agrees to execute all documents perfecting
Lender’s Security Interest and to take whatever actions are requested by Lender
to perfect and continue Lender’s Security Interests in the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of the documents
evidencing or constituting the Collateral, and Borrower will note Lender’s
interest upon any and all chattel paper and instruments if not delivered to
Lender for possession by Lender. Contemporaneous with the execution of this
Agreement, Borrower will execute one or more UCC financing statements and any
similar statements as may be required by applicable law, and Lender will file
such financing statements and all such similar statements in the appropriate
location or locations. Borrower hereby appoints Lender as its irrevocable attorney-in-fact
for the purpose of executing any documents necessary to perfect or to continue
any Security Interest. Lender may at any time, and without further
authorization from Borrower, file a carbon, photograph, facsimile, or other
reproduction of any financing statement for use as a financing statement.
Borrower will reimburse Lender for all expenses for the perfection,
termination, and the continuation of the perfection of Lender’s security
interest in the Collateral. Borrower promptly will notify Lender before any
change in Borrower’s name including any change to the assumed business names of
Borrower. Borrower also promptly will notify Lender before any change in
Borrower’s Social Security Number or Employer Identification Number. Borrower
further agrees to notify Lender in writing prior to any change in address or
location of Borrower’s principal governance office or should Borrower merge or
consolidate with any other entity.

 

Collateral Records.
Borrower does now, and at all times hereafter shall, keep correct and accurate
records of the Collateral, all of which records shall be available to Lender or
Lender’s representative upon demand for inspection and copying at any
reasonable time. With respect to the Accounts, Borrower agrees to keep and
maintain such records as Lender may require, including without limitation
information concerning Eligible Accounts and Account balances and agings.
Records related to Accounts (Receivables) are or will be located at 748 Miller
Drive, S.E., Leesburg, VA 20175. The above is an accurate and complete list of
all locations at which Borrower keeps or maintains business records concerning
Borrower’s collateral.

 

Collateral Schedules.
Concurrently with the execution and delivery of this Agreement, Borrower shall
execute and deliver to Lender schedules of Accounts and schedules of Eligible
Accounts in form and substance satisfactory to the Lender. Thereafter
supplemental schedules shall be delivered according to the following schedule:
With respect to Eligible Accounts, schedules shall be delivered in a form
satisfactory to Lender, together with a statement listing all of Borrower’s
accounts receivable with agings, with each advance and within fifteen (15) days
after the end of each month if there is an outstanding balance under the Note.
For purposes hereof, the aforementioned schedules are sometimes also referred
to as Borrowing Base Certificates.

 

Representations and
Warranties Concerning Accounts. With respect to the Accounts,
Borrower represents and warrants to Lender: (1) Each Account represented by
Borrower to be an Eligible Account for purposes of this Agreement conforms to
the requirements of the definition of an Eligible Account: (2) All Account
information listed on schedules delivered to Lender will be true and correct,
subject to immaterial variance; and (3) Lender, its assigns, or agents shall
have the right at any time and at Borrower’s expense to inspect, examine, and
audit Borrower’s records and to confirm with Account Debtors the accuracy of
such Accounts

 

Remittance Account.
Borrower agrees that Lender may at any time require Borrower to institute
procedures whereby the payments and other proceeds of the Accounts shall be
paid by the Account Debtors under a remittance account or lock box arrangement
with Lender, or Lender’s

 

 

agent,
or with one or more financial institutions designated by Lender. Borrower
further agrees that, if no Event of Default exists under this Agreement, any
and all of such funds received under such a remittance account or lock box
arrangement shall, at Lender’s sole election and discretion, either be (1) paid
or turned over to Borrower; (2) deposited into one or more accounts for the
benefit of Borrower (which deposit  accounts shall be subject to a
security assignment in favor of Lender); (3) deposited into one or more
accounts for the joint benefit of Borrower and Lender (which deposit accounts
shall likewise be subject to a security assignment in favor of Lender); (4)
paid or turned over to Lender to applied to the Indebtedness in such order and
priority as Lender may determine within its sole discretion; or (5) any
combination of the foregoing as Lender shall determine from time to time.
Borrower further agrees that, should one or more Events of Default exist, any
and all funds received under such a remittance account or lock box arrangement
shall be paid or turned over to Lender to be applied to the Indebtedness, again
in such order and priority as Lender may determine within its sole discretion.

 

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender’s
obligation to make the initial Advance and each subsequent Advance under this
Agreement shall be subject to the fulfillment to Lender’s satisfaction of all
of the conditions set forth in this Agreement and in the Related Documents.

 

Loan Documents.
Borrower shall provide to Lender the following documents for the Loan: (1) the
Note; (2) Security Agreements granting to Lender security interests in the
Collateral; (3) financing statements and all other documents perfecting
Lender’s Security interests; (4) evidence of insurance as required below; (5)
together with all such Related Documents as Lender may require for the Loan;
all in form and substance satisfactory to Lender and Lender’s
counsel.

 

Borrower’s
Authorization. Borrower shall have provided in form
and substance satisfactory to Lender property certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents. In addition, Borrower shall have provided such other
resolutions, authorizations, documents and instruments as Lender or its
counsel, may require.

 

Fees and Expenses
Under This Agreement. Borrower shall have paid to Lender all
fees, costs, and expenses specified in this Agreement and the Related Documents
as are then due and payable.

 

Representations and
Warranties. The representations and warranties set forth in this
Agreement, in the Related Documents, and in any document or certificate
delivered to Lender under this Agreement are true and correct.

 

No Event of Default. There
shall not exist at the time of any Advance a condition which would constitute
an Event of Default under this Agreement or under any Related Document.

 

REPRESENTATlONS AND WARRANTlES.
Borrower represents and warrants to Lender, as of the date of this Agreement,
as of the date of each disbursement of loan proceeds, as of the date of any
renewal, extension or modification of any Loan, and at all times any
Indebtedness exists:

 

Organization.
Borrower is a corporation for profit which is, and at all times shall be, duly
organized, validly existing, and in good standing under and by virtue of the
laws of the Commonwealth of Virginia. Borrower is duly authorized to transact
business in all other states in which Borrower is doing business, having
obtained all necessary filings, governmental licenses and approvals for each
state in which Borrower is doing business. Specifically, Borrower is, and at
all times shall be, duly qualified as a foreign corporation in all states in
which the failure to so qualify would have a material adverse effect on its
business or financial condition. Borrower has the full power and authority to
own its properties and to transact the business in which it is presently
engaged or presently proposes to engage. Borrower maintains an office at 748
Miller Drive, S.E., Leesburg, VA 20175. Unless Borrower has designated
otherwise in writing, the principal office is the office at which Borrower
keeps its books and records including its records concerning the Collateral.
Borrower will notify Lender prior to any change in the location of Borrower’s
state of organization, any change in Borrower’s name. Borrower shall do all
things necessary to preserve and to keep in full force and effect its
existence, rights and privileges, and shall comply with all regulations, rules,
ordinances, statutes, orders and decrees of any governmental or
quasi-governmental authority or court applicable to Borrower and Borrower’s
business activities.

 

Assumed Business
Names. Borrower has filed or recorded all documents or filings
required by law relating to all assumed business names used by Borrower.
Excluding the name of Borrower, the following is a complete list of all assumed
business names under which Borrower does business: None.

 

Authorization.
Borrower’s execution, delivery, and performance of this Agreement and all the
Related Documents have been duly authorized by all necessary action by Borrower
and do not conflict with, result in a violation of, or constitute a default
under (1) any provision of (a) Borrower’s articles of incorporation or
organization, or bylaws, or (b) any agreement or other instrument binding upon
Borrower or (2) any law, governmental regulation, court decree, or order
applicable to Borrower or to Borrower’s properties.

 

Financial Information. Each
of Borrower’s financial statements supplied to Lender truly and completely
disclosed Borrower’s financial condition as of the date of the statement, and
there has been no material adverse change in Borrower’s financial condition
subsequent to the date of the most recent financial statement supplied to
Lender. Borrower has no material contingent obligations except as disclosed in
such financial statements.

 

Legal Effect. This
Agreement constitutes, and any Instrument or agreement Borrower is required to
give under this Agreement when delivered will constitute legal, valid, and
binding obligations of Borrower enforceable against Borrower in accordance with
their respective terms.

 

Properties. Except
as contemplated by this Agreement or as previously disclosed in Borrower’s
financial statements or in writing to Lender and as accepted by Lender, and
except for property tax liens for taxes not presently due and payable, Borrower
owns and has good title to all of Borrower’s properties free and clear of all
Security Interests, and has not executed any security documents or financing
statements relating to such properties. All of Borrower’s properties are titled
in Borrower’s legal name, and Borrower has not used or filed a financing
statement under any other name for at least the last five (5) years.

 

Hazardous Substances. Except
as disclosed to and acknowledged by Lender in writing, Borrower represents and
warrants that: (1) During the period of Borrower’s ownership of Borrower’s
Collateral, there has been no use, generation, manufacture, storage, treatment,
disposal, release or threatened release of any Hazardous Substance by any
person on, under, about or from any of the Collateral. (2) Borrower has no
knowledge of, or reason to believe that there has been (a) any breach or violation
of any Environmental Laws; (b) any use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any Hazardous Substance
on, under, about or from the Collateral by any prior owners or occupants of any
of the Collateral; or (c) any actual or threatened litigation or claims of any
kind by any person relating to such matters. (3) Neither Borrower nor any
tenant, contractor, agent or other authorized user of any of the Collateral
shall use, generate, manufacture, store, treat. dispose of or release any
Hazardous Substance on, under, about or from any of the Collateral; and any
such activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without limitation
all Environmental Laws Borrower authorizes Lender and its agents to enter upon
the Collateral to make such inspections and tests as Lender may deem
appropriate determine compliance of the Collateral with this section of
the Agreement. Any inspections or tests made by Lender shall be at Borrower
expense and for Lender’s purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any other
person. The representations and warranties contained herein are based on
Borrower’s due diligence in investigating the Collateral for hazardous waste
and Hazardous Substances. Borrower hereby (1) releases and waives any future
claims against Lender for indemnity or contribution in the event Borrower becomes
liable for cleanup or other costs under any such laws, and (2) agrees to
indemnify and hold harmless lender against any and all claims, losses,
liabilities, damages, penalties, and expenses which Lender may directly or
indirectly sustain or suffer resulting from a breach of this section of the
Agreement or as a consequence of any use, generation, manufacture, storage,
disposal, release or threatened release of a hazardous waste or substance on
the Collateral. The provisions of this section of the Agreement, including the
obligation to indemnify, shall survive the payment of the Indebtedness and the
termination, expiration or satisfaction of this Agreement and shall not be
affected by Lender’s acquisition of any interest in any of the Collateral,
whether by foreclosure or otherwise.

 

Litigation and Claims. No
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Borrower is pending or threatened,
and no other event has occurred which may materially adversely affect
Borrower’s financial condition or properties, other than litigation, claims, or
other events, if any, that have been disclosed to and acknowledged by Lender in
writing.

 

Taxes. To the
best of Borrower’s knowledge, all of Borrower’s tax returns and reports that
are or were required to be filed, have been filed, and all taxes, assessments
and other governmental charges have been paid in full, except those presently
being or to be contested by Borrower in good faith in the ordinary course of
business and for which adequate reserves have been provided.

 

Lien Priority. Unless
otherwise previously disclosed to Lender in writing, Borrower has not entered
into or granted any Security Agreements, permitted the filing or attachment of
any Security Interests on or affecting any of the Collateral directly or
indirectly securing repayment of Borrower’s Loan and Note, that would be prior
or that may in any way be superior to Lender’s Security Interests and rights in
and to such Collateral.

 

Binding Effect. This
Agreement. the Note, all Security Agreements (if any), and all Related
Documents are .binding upon the signers thereof, as well as upon their
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.

 

AFFIRMATlVE COVENANTS.
Borrower covenants and agrees with Lender that, so long as this Agreement
remains in effect, Borrower will:

 

Notices of Claims and
Litigation. Promptly inform Lender in writing of (1) all material
adverse changes in Borrower’s financial condition, and (2) all existing and all
threatened litigation, claims, investigations, administrative proceedings or
similar actions affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of any
Guarantor.

 

Financial Records.
Maintain its books and records in accordance with GAAP applied on a consistent
basis and permit Lender to examine and

 

2

 

audit
Borrower’s books and records at all reasonable times.

 

Financial Statements.
Furnish Lender with the following:

 

Annual Statements. As
soon as available, but in no event later than one-hundred-twenty (120) days
after the end of each fiscal year, Borrower’s balance sheet and Income
statement for the year ended, audited by a certified public accountant
satisfactory to Lender.

 

Interim Statements. As
soon as available, but in no event later than thirty (45) days after the end of
each fiscal quarter, Borrower’s balance sheet and profit and loss statement for
the period ended, prepared by Borrower.

 

All
financial reports required to be provided under this Agreement shall be
prepared in accordance with GAAP, applied on a consistent basis, and certified
by Borrower as being true and correct.

 

Additional
Information. Furnish such additional information and
statements, as Lender may request from time to time.

 

Financial
Covenants and Ratios. Comply with the following covenants and
ratios:

 

Other
Requirements.

 

(i)  Profitability Requirement. Maintain a
positive Net Profit.

 

(ii)  Debt Service Coverage. Maintain Debt
Service Coverage ratio of not less than 1.250 to 1.000. Debt Service Coverage
is defined as EBITDA divided by current maturities of long term debt plus
interest expense and shall be evaluated quarterly. EBITDA is defined as
Borrower’s Earnings Before Interest, Taxes, Depreciation and Amortization and
calculated on an annualized basis using 3 quarters of FY2004 at fiscal quarter
end of March 31, 2004 and on a rolling 12-month basis thereafter, beginning
June 30, 2004.

 

(iii)  Leverage Ratio. Maintain a Leverage Ratio
not in excess of 1.500 to 1.000. Leverage Ratio is defined as Borrower’s total
funded debt divided by EBITDA.

 

The
above mentioned covenants and ratios will be evaluated at end of each fiscal
quarter.

 

Except
as provided above, all computations made to determine compliance with the
requirements contained in this paragraph shall be made in accordance with
generally accepted accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.

 

Insurance.
Maintain fire and other risk insurance, public liability insurance, and such
other insurance as Lender may require with respect to Borrower’s properties and
operations, in form, amounts, coverages and with insurance companies acceptable
to Lender. Borrower, upon request of Lender, will deliver to Lender from time
to time the policies or certificates of insurance in form satisfactory to
Lender, including stipulations that coverages will not be cancelled or
diminished without at least thirty (30) days prior written notice to Lender.
Each insurance policy also shall include an endorsement providing that coverage
in favor of Lender will not be impaired in any way by any act, omission or
default of Borrower or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such lender’s loss payable or other
endorsements as Lender may require.

 

Insurance Reports.
Furnish to Lender, upon request of Lender, reports on each existing insurance
policy showing such information as Lender may reasonably request, including
without limitation the following: (1) the name of the insurer; (2) the risks
insured; (3) the amount of the policy; (4) the properties insured; (5) the then
current property values on the basis of which insurance has been obtained, and
the manner of determining those values; and (6) the expiration date of the
policy. In addition, upon request of Lender (however not more often than
annually), Borrower will have an independent appraiser satisfactory to Lender
determine, as applicable, the actual cash value or replacement cost of any
Collateral. The cost of such appraisal shall be paid by Borrower.

 

Other Agreements. Comply
with all terms and conditions of all other agreements, whether now or hereafter
existing, between Borrower and any other party and notify Lender immediately in
writing of any default in connection with any other such agreements.

 

Loan Proceeds. Use
all Loan proceeds solely for Borrower’s business operations, unless
specifically consented to the contrary by Lender in writing.

 

Taxes, Charges and
Liens. Pay and discharge when due all of its indebtedness and
obligations, including without limitation all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any of Borrower’s properties, income, or profits.

 

Performance.
Perform and comply, in a timely manner, with all terms, conditions, and
provisions set forth in this Agreement, in the Related Documents, and in all
other instruments and agreements between Borrower and Lender. Borrower shall
notify Lender immediately in writing of any default in connection with any
agreement.

 

Operations.
Maintain executive and management personnel with substantially the same
qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner.

 

Environmental Studies.
Promptly conduct and complete, at Borrower’s expense, all such investigations,
studies, samplings and testings as may be requested by Lender or any
governmental authority relative to any substance, or any waste or by-product of
any substance defined as toxic or a hazardous substance under applicable
federal, state, or local law, rule, regulation, order or directive, at or
affecting any property or any facility owned, leased or used by Borrower.

 

Compliance with
Governmental Requirements. Comply with all laws,
ordinances, and regulations, now or hereafter in effect, of all governmental
authorities applicable to the conduct of Borrower’s properties, businesses and
operations, and to the use or occupancy of the Collateral, including without
limitation, the Americans With Disabilities Act. Borrower may contest in good
faith any such law, ordinance, or regulation and withhold compliance during any
proceeding, including appropriate appeals, so long as Borrower has notified
Lender in writing prior to doing so and so long as, in Lender’s
sole opinion, Lender’s interests in the Collateral are not jeopardized. Lender
may require Borrower to post adequate security or a surety bond, satisfactory
to Lender, to protect Lender’s interest

 

Inspection. Permit
employees or agents of Lender at any reasonable time to inspect any and all
Collateral for the Loan or Loans and Borrower’s other properties and to examine
or audit Borrower’s books, accounts, and records and to make copies and
memoranda of Borrower’s books, accounts, and records. If Borrower now or at any
time hereafter maintains any records (including without limitation computer
generated records and computer software programs for the generation of such
records) in the possession of a third party, Borrower, upon request of Lender,
shall notify such party to permit Lender free access to such records at all
reasonable times and to provide Lender with copies of any records it may
request, all at Borrower’s expense.

 

Compliance
Certificates. Unless waived in writing by Lender,
provide Lender within thirty (30) days after the end of each fiscal quarter,
with a certificate executed by Borrower’s chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of the date of
the certificate and further certifying that, as of the date of the certificate,
no Event of Default exists under this Agreement.

 

Environmental
Compliance and Reports. Borrower shall comply in all respects
with any and all Environmental Laws; not cause or permit to exist, as a result
of an intentional or unintentional action or omission on Borrower’s part or on
the part of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the conditions of
a permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or omission
on Borrower’s part in connection with any environmental activity whether or not
there is damage to the environment and/or other natural resources.

 

Additional Assurances. Make,
execute and deliver to Lender such promissory notes, mortgages, deeds of trust,
security agreements, assignments, financing statements, instruments, documents
and other agreements as Lender or its attorneys may reasonably request to
evidence and secure the Loans and to perfect all Security Interests.

 

RECOVERY OF ADDITIONAL COSTS. If the
imposition of or any change in any law, rule, regulation or guideline, or the
interpretation or application of any thereof by any court or administrative or
governmental authority (including any request or policy not having the force of
law) shall impose, modify or make applicable any taxes (except federal, state
or local income or franchise taxes imposed on Lender), reserve requirements,
capital adequacy requirements or other obligations which would (A) increase the
cost to Lender for extending or maintaining the credit facilities to which this
Agreement relates, (B) reduce the amounts payable to Lender under this
Agreement or the Related Documents, or (C) reduce the rate of return on
Lender’s capital as a consequence of Lender’s obligations with respect to the
credit facilities to which this Agreement relates, then Borrower agrees to pay
Lender such additional amounts as will compensate Lender therefor, within five
(5) days after Lender’s written demand for such payment, which demand shall be
accompanied by an explanation of such imposition or charge and a calculation in
reasonable detail of the additional amounts payable by Borrower, which
explanation and calculations shall be conclusive in the absence of manifest
error.

 

LENDER’S EXPENDITURES.  If any action or proceeding is commenced
that would materially affect Lender’s interest in the Collateral or if Borrower

 

3

 

fails
to comply with any provision of this Agreement or any Related Documents,
including but not limited to Borrower’s failure to discharge or pay when due
any amounts Borrower is required to discharge or pay under this Agreement or
any Related Documents. Lender on Borrower’s behalf may (but shall not be
obligated to) take any action that Lender deems appropriate, including but not
limited to discharging or paying all taxes, liens, security interests,
encumbrances and other claims, at any time levied or placed on any Collateral
and paying all costs for insuring, maintaining and preserving any Collateral.
All such expenditures incurred or paid by Lender for such purposes will then
bear interest at the rate charged under the Note from date incurred or paid by
Lender to the date of repayment by Borrower. All such expenses will become a
part of the Indebtedness and, at Lender’s option, will (A) be payable on
demand; or (B) be added to the balance of the Note and be apportioned among and
be payable with any installment payments to become due during either (1) the
term of any applicable insurance policy; or (2) the remaining term of the Note.

 

NEGATlVE COVENANTS. 
Borrower covenants and agrees with Lender that while this Agreement is
in effect, Borrower shall not, without the prior written consent of Lender:

 

Indebtedness and
Liens.  (1) Except for
trade debt incurred in the normal course of business and indebtedness to Lender
contemplated by this Agreement, create, incur or assume indebtedness for
borrowed money, including capital leases, (2) sell, transfer, mortgage, assign,
pledge, lease, grant a security interest in, or encumber any of Borrower’s
assets (except as allowed as Permitted Liens), or (3) sell with recourse any of
Borrower’s accounts, except to Lender.

 

Continuity of
Operations.  (1) Engage in any
business activities substantially different than those in which Borrower is
presently engaged, (2) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change its name, dissolve or transfer or
sell Collateral out of the ordinary course of business, or (3) pay any
dividends on Borrower’s stock (other than dividends payable in its stock),
provided, however that notwithstanding the foregoing, but only so long as no
Event of Default has occurred and is continuing or would result from the payment
of dividends, if Borrower is a “Subchapter S Corporation” (as defined in the
Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on
its stock to its shareholders from time to time in amounts necessary to enable
the shareholders to pay income taxes and make estimated income tax payments to
satisfy their liabilities under federal and state law which arise solely from
their status as Shareholders of a Subchapter S Corporation because of their
ownership of shares of Borrower’s stock, or purchase or retire any of
Borrower’s outstanding shares or alter or amend Borrower’s capital
structure.

 

Loans, Acquisitions
and Guaranties. 
(1) Loan, invest in or advance money or assets to any other person,
enterprise or entity, (2) purchase, create or acquire any interest in any other
enterprise or entity, or (3) incur any obligation as surety or guarantor other
than in the ordinary course of business.

 

Agreements.  Borrower will not enter into any agreement
containing any provisions which would be violated or breached by the
performance of Borrower’s obligations under this Agreement or in connection
herewith.

 

CESSATION OF ADVANCES.  If Lender has made any commitment to make
any Loan to Borrower, whether under this Agreement or under any other agreement,
Lender shall have no obligation to make Loan Advances or to disburse Loan
proceeds if: (A) Borrower or any Guarantor is in default under the terms of
this Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies,
becomes incompetent or becomes insolvent, files a petition in bankruptcy or
similar proceedings, or is adjudged a bankrupt; (C) there occurs a material
adverse change in Borrower’s financial condition, in the financial condition of
any Guarantor, or in the value of any Collateral securing any Loan; or (D) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor’s guaranty of Loan or any other loan with Lender.

 

RIGHT OF SETOFF. 
To the extent permitted by applicable law, Lender reserves a right of
setoff in all Borrower’s accounts with Lender (whether checking, savings, or
some other account).  This includes all
accounts Borrower holds jointly with someone else and all accounts Borrower may
open in the future.  However, this does
not include any IRA or Keogh accounts, or any trust accounts for which setoff
would be prohibited by law.  Borrower authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all sums
owing on the indebtedness against any and all such accounts, and, at Lender’s
option, to administratively freeze all such accounts to allow Lender to protect
Lender’s charge and setoff rights provided in this paragraph.

 

DEFAULT. 
Each of the following shall constitute an Event of Default under this
Agreement:

 

Payment Default.  Borrower fails to make any payment when due
under the Loan.

 

Other Defaults.  Borrower fails to comply with or to perform
any other term, obligation, covenant or condition contained in this Agreement
or in any
of the Related Documents or to comply with or to perform any term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.

 

Default In Favor of
Third Parties. 
Borrower or any Grantor defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower’s or any Grantor’s property or Borrower’s or any Grantor’s ability to
repay the Loans or perform their respective obligations under this Agreement or
any of the Related Documents.

 

False Statements.  Any warranty, representation or statement
made or furnished to Lender by Borrower or on Borrower’s behalf under this
Agreement or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished or becomes false or
misleading at any time thereafter.

 

Insolvency.  The dissolution or termination of Borrower’s
existence as a going business, or a trustee or receiver is appointed for
Borrower or for all or a substantial portion of the assets of Borrower, or
Borrower makes a general assignment for the benefit of Borrower’s creditors, or
Borrower files for bankruptcy, or an involuntary bankruptcy petition is filed
against Borrower and such involuntary petition remains undismissed for sixty
(60) days.

 

Defective
Collateralization. 
This Agreement or any of the Related Documents ceases to be in full
force and effect (including failure of any collateral document to create a
valid and perfected security interest or lien) at any time and for any reason.

 

Creditor or Forfeiture
Proceedings.  Commencement of
foreclosure or forfeiture proceedings, whether by judicial proceeding,
self-help, repossession or any other method, by any creditor of Borrower or by
any governmental agency against any collateral securing the Loan.  This includes a garnishment of any of
Borrower’s accounts, including deposit accounts, with Lender.  However, this Event of Default shall not
apply if there is a good faith dispute by Borrower as to the validity or
reasonableness of the claim which is the basis of the creditor or forfeiture
proceeding and if Borrower gives Lender written notice of the creditor or
forfeiture proceeding and deposits with Lender monies or a surety bond for the
creditor or forfeiture proceeding, in an amount determined by Lender, in its
sole discretion, as being an adequate reserve or bond for the dispute.

 

Events Affecting
Guarantor.  Any of the
preceding events occurs with respect to any Guarantor of any of the
Indebtedness or any Guarantor dies or becomes incompetent, or revokes or
disputes the validity of, or liability under, any Guaranty of the
Indebtedness.  In the event of a death,
Lender, at its option, may, but shall not be required to, permit the
Guarantor’s estate to assume unconditionally the obligations arising under the
guaranty in a manner satisfactory to Lender, and, in doing so, cure any Event
of Default.

 

Change In Ownership.  Any change in ownership of twenty-five
percent (25%) or more of the common stock of Borrower.

 

Adverse Change.  A material adverse change occurs in
Borrower’s financial condition, or Lender believes the prospect of payment or
performance of the Loan is impaired.

 

Right to Cure.  If any default, other than a default on
Indebtedness, is curable and if Borrower or Grantor, as the case may be, has
not been given a notice of a similar default within the preceding twelve (12)
months, it may be cured (and no Event of Default will have occurred) if
Borrower or Grantor, as the case may be, after receiving written notice from
Lender demanding cure of such default: (1) cure the default within fifteen (15)
days; or (2) if the cure requires more than fifteen (15) days, immediately
initiate steps which Lender deems in Lender’s sole discretion to be sufficient
to cure the default and thereafter continue and compete all reasonable and
necessary steps sufficient to produce compliance as soon as reasonably practical.

 

EFFECT OF AN EVENT OF DEFAULT.  If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately [ILLEGIBLE] terminate (including
any obligation to make further Loan Advances or disbursements), and, at
Lender’s option, all sums owing in connection with the Loans, including all
principal, interest, and all other fees, costs and charges, if any, will become
immediately due and payable, all without notice of any kind to Borrower, except
that in the case of an Event of Default of the type described in the
“Insolvency” subsection above, such acceleration shall be automatic and not
optional. In addition, Lender shall have all the rights and remedies provided
in the Related Documents or available at law, in equity, or otherwise. Except
as may be prohibited by applicable law, all of Lender’s rights and remedies
shall be cumulative and may be exercised singularly or concurrently. Election
by Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an obligation
of Borrower or of any Grantor shall not affect Lender’s right to declare a
default and to exercise its rights and remedies.

 

PRIMARY DEPOSIT RELATlONSHIP.  Borrower hereby agrees to maintain with the
Lender its primary operating accounts, including general disbursing, payroll
and overnight investing, as applicable.

 

CLEAN-UP PROVISION. 
During the term of the Line of Credit, Borrower shall pay the
outstanding principal balance to a zero balance, which zero

 

4

 

balance
shall be maintained for a period of thirty (30) consecutive days.

 

MISCELLANEOUS PROVISIONS.  The following miscellaneous provisions are a
part of this Agreement:

 

Amendments.  This Agreement, together with any Related
Documents, constitutes the entire understanding and agreement of the parties as
to the matters
set forth in this Agreement.  No
alteration of or amendment to, this Agreement shall be effective unless given
in writing and signed by the party or parties sought to be charged
or bound by the alteration or amendment.

 

Attorneys’ Fees; Expenses.  Borrower agrees that if Lender hires an
attorney to help enforce this Agreement, Borrower will pay, subject to any
limits under applicable law, Lender’s attorneys’ fees equal to 15.000%  of the principal balance due on the Loan
and all of  Lender’s other
collection expenses, whether or not there is a lawsuit and including without
limitation additional legal expenses for bankruptcy proceedings.

 

Caption Headings.  Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Agreement.

 

Consent to
Jurisdiction. 
Borrower irrevocably submits to the jurisdiction of any state or federal
court sitting in the State of Maryland over any suit, action, or proceeding
arising out of or relating to this Agreement. 
Borrower irrevocably waives, to the fullest extent permitted by law, any
objection that Borrower may now or hereafter have to the laying of venue of any
such suit, action, or proceeding brought in any such court and any claim that
any such suit, action, or proceeding brought in any such court has been brought
in an inconvenient forum.  Final
judgment in any such suit, action, or proceeding brought in any such court
shall be conclusive and binding upon Borrower and may be enforced in any court
in which Borrower is subject to jurisdiction by a suit upon such judgment
provided that service of process is effected upon Borrower as provided in this
Agreement or as otherwise permitted by applicable law.

 

Consent to Loan
Participation. 
Borrower agrees and consents to Lender’s sale or transfer, whether now
or later, of one or more participation interests in the Loan to one or more
purchasers, whether related or unrelated to Lender.  Lender may provide, without any limitation whatsoever, to any one
or more purchasers, or potential purchasers, any information or knowledge
Lender may have about Borrower or about any other matter relating to the Loan,
and Borrower hereby waives any rights to privacy Borrower may have with respect
to such matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any such
participation interests will be considered as the absolute owners of such
interests in the Loan and will have all the rights granted under the
participation agreement or agreements governing the sale of such participation
interests. Borrower further waives all rights of offset or counterclaim that it
may have now or later against Lender or against any purchaser of such a
participation interest and unconditionally agrees that either Lender or such
purchaser may enforce Borrower’s obligation under the Loan irrespective of the
failure or insolvency of any holder of any interest in the Loan. Borrower
further agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses that
Borrower may have against Lender.

 

Governing Law.  This Agreement will be governed by,
construed and enforced in accordance with federal law and the laws of the State
of Maryland.  This Agreement has been
accepted by Lender in the State of Maryland.

 

JURY WAIVER.  LENDER AND BORROWER EACH HEREBY WAIVE TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO WHICH LENDER OR BORROWER MAY BE PARTIES,
ARISING OUT OF, OR IN ANY WAY PERTAINING TO, THIS AGREEMENT.  IT IS AGREED THAT THIS WAIVER CONSTITUTES A
WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS.  THIS WAIVER IS KNOWINGLY,
WILLINGLY AND VOLUNTARILY MADE BY LENDER AND BORROWER, AND LENDER AND BORROWER
EACH HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE
BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY
MODIFY OR NULLIFY ITS EFFECT.  BORROWER
FURTHER REPRESENTS THAT BORROWER HAS BEEN REPRESENTED IN THE SIGNING OF THIS
AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED
OF BORROWER’S OWN FREE WILL, AND THAT BORROWER HAS HAD THE OPPORTUNITY TO
DISCUSS THIS WAIVER WITH COUNSEL.

 

No Waiver by Lender.  Lender shall not be deemed to have waived
any rights under this Agreement unless such waiver is given in writing and
signed by Lender.  No delay or omission
on the part of Lender in exercising any right shall operate as a waiver of such
right or any other right.  A waiver by
Lender of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender’s right otherwise to demand strict compliance with that
provision or any other provision of this Agreement.  No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor, shall constitute a
waiver of any of Lender’s rights or of any of Borrower’s or any Grantor’s
obligations as to any future transactions. 
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is required and
in all cases such consent may be granted or withheld in the sole discretion of
Lender.

 

Notices.  Any notice required to be given under this
Agreement shall be given in writing, and shall be effective when actually
delivered, if hand delivered, when actually received by telefacsimile (unless
otherwise required by law), when deposited with a nationally recognized
overnight courier, or, if mailed, when deposited in the United States mail, as
first class, certified or registered mail postage prepaid, directed to the
addresses shown near the beginning of this Agreement.  Any party may change its address for notices under this Agreement
by giving formal written notice to the other parties, specifying that the
purpose of the notice is to change the party’s address.  For notice purposes, Borrower agrees to keep
Lender informed at all times of Borrower’s current address.  Unless otherwise provided or required by
law, if there is more than one Borrower, any notice given by Lender to any
Borrower is deemed to be notice given to all Borrowers.

 

Severability.  If a court of competent jurisdiction finds
any provision of this Agreement to be illegal, invalid, or unenforceable as to
any circumstance, that finding shall not make the offending provision illegal,
invalid, or unenforceable as to any other circumstance.  If feasible, the offending provision shall
be considered modified so that it becomes legal, valid and enforceable.  If the offending provision cannot be so
modified, it shall be considered deleted from this Agreement, Unless
otherwise required by law, the illegality, invalidity, or unenforceability of
any provision of this Agreement
shall not affect the legality, validity or enforceability of any other provision of this Agreement.

 

Subsidiaries and
Affiliates of Borrower.  To the extent the context of any provisions of this Agreement
makes it appropriate, including without limitation any representation, warranty
or covenant, the word “Borrower” as used in this Agreement shall include all of
Borrower’s subsidiaries and affiliates. 
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other financial
accommodation to any of Borrower’s subsidiaries or affiliates.

 

Successors and
Assigns.  All covenants and
agreements by or on behalf of Borrower contained in this Agreement or any
Related Documents shall bind Borrower’s successors and assigns and shall inure
to the benefit of Lender and its successors and assigns.  Borrower shall not, however, have the right
to assign Borrower’s rights under this Agreement or any interest therein,
without the prior written consent of Lender.

 

Survival of
Representations and Warranties. 
Borrower understands and agrees that in extending Loan Advances, Lender
is relying on all representations, warranties, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement or the Related Documents.  Borrower further agrees that regardless of
any investigation made by Lender, all such representations, warranties and
covenants will survive the extension of Loan Advances and delivery to Lender of
the Related Documents, shall be continuing in nature, shall be deemed made and
redated by Borrower at the time each Loan Advance is made, and shall remain in
full force and effect until such time as Borrower’s Indebtedness shall be paid
in full, or until this Agreement shall be terminated in the manner provided
above, whichever is the last to occur.

 

Time is of the
Essence.  Time is of the
essence in the performance of this Agreement.

 

DEFINITIONS. 
The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money
of the United States of America. Words and terms used in the singular shall
include the plural, and the plural shall include the singular, as the context
may require. Words and terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code.
Accounting words and terms not otherwise defined in this Agreement shall have
the meanings assigned to them in accordance with generally accepted accounting
principles as in effect on the date of this Agreement:

 

Account.  The word “Account” means a trade account,
account receivable, other receivable, or other right to payment for goods sold
or services rendered owing to Borrower (or to a third party grantor acceptable
to Lender).

 

Advance.  The word “Advance” means a disbursement of
Loan funds made, or to be made, to Borrower or on Borrower’s behalf under the
terms and conditions of this Agreement.

 

Agreement.  The word “Agreement” means this Business
Loan Agreement (Asset Based), as this Business Loan Agreement (Asset Based) may
be amended or modified from time to time, together with all exhibits and
schedules attached to this Business Loan Agreement (Asset Based) from time to time.

 

Borrower.  The word “Borrower” means PRECISION AUTO
CARE, INC. and includes all co-signers and co-makers signing the Note.

 

Borrowing Base.  The words “Borrowing Base” mean, as
determined by Lender from time to time, the lesser of (1) $250,000.00 or (2)
70.000% of the aggregate amount of Eligible Accounts (not to exceed in
corresponding Loan amount based on Eligible Accounts $250,000.00).

 

Business Day.  The words “Business Day” mean a day on which
commercial banks are open in the State of Maryland.

 

5

 

Collateral. 
The word “Collateral” means all property and assets granted as
collateral security for a Loan, whether real or personal property, whether
granted directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security Interest, mortgage, collateral
mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage,
collateral chattel mortgage, chattel trust, factor’s lien, equipment trust,
conditional sale, trust receipt, lien, charge, lien or title retention
contract, lease or consignment intended as a security device [ILLEGIBLE] any
other security or lien interest whatsoever, whether created by law, contract,
or otherwise. The word Collateral also Includes without limitations”  all collateral described in the
Collateral section of this Agreement.

 

Eligible Accounts. 
The words “Eligible Accounts” mean at any time, all of Borrower’s
Accounts which contain selling terms and conditions acceptable to Lender. The
net amount of any Eligible Account against which Borrower may borrow shall
exclude all returns, discounts, credits, and offsets of any nature. Unless
otherwise agreed to by Lender in writing, Eligible Accounts do not include:

 

(1)          Accounts with respect to which
the Account Debtor is employee or agent of Borrower.

(2)          Accounts with respect to which
the Account Debtor is a subsidiary of, or affiliated with Borrower or its
shareholders, officers, or directors.

(3)          Accounts with respect to which
goods are placed on consignment, guaranteed sale, or other terms by reason of
which the payment by the Account Debtor may be conditional.

(4)          Accounts with respect to which
the Account Debtor is not a resident of the United States, except to the extent
such Accounts are supported by insurance, bonds or other assurances
satisfactory to Lender.

(5)          Accounts with respect to which
Borrower is or may become liable to the Account Debtor for goods sold or
services rendered by the Account Debtor to Borrower.

(6)          Accounts which are
subject to dispute, counterclaim, or setoff.

(7)          Accounts with respect to which
the goods have not been shipped or delivered, or the services have not been
rendered, to the Account Debtor.

(8)          Accounts with respect to which
Lender, in its sole discretion, deems the creditworthiness or financial
condition of the Account Debtor to be unsatisfactory.

(9)          Accounts of any Account Debtor
who has filed or has had filed against it a petition in bankruptcy or an
application for relief under any provision of any state or federal bankruptcy,
insolvency, or debtor-in-relief acts; or who has had appointed a trustee,
custodian, or receiver for the assets of such Account Debtor; or who has made an
assignment for the benefit of creditors or has become insolvent or fails
generally to pay its debts (including its payrolls) as such debts become due.

(10)    Accounts with respect to which
the Account Debtor is the United States government or any department or agency
of the United States.

(11)    Accounts which have not been paid
in full within ninety (90) days
from the invoice date.

 

Environmental Laws. 
The words “Environmental Laws” mean any and all state, federal and local
statutes, regulations and ordinances relating to the protection of human health
or the environment, including without limitation the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, 42
U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments and
Reauthorization Act of 1986, L No. 99-499 (“SARA”), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other
applicable state or federal laws, rules, or regulations adopted pursuant
thereto.

 

Event of Default.  The words “Event of Default” mean any of the events of default set
forth in this Agreement in the default section of this Agreement.

 

Expiration Date. 
The words “Expiration Date” mean the date of termination of Lender’s
commitment to lend under this Agreement 

 

GAAP. 
The word “GAAP” means generally accepted accounting principles.

 

Grantor. 
The word “Grantor” means each and all of the persons or entities
granting a Security Interest in any Collateral for the Loan, and their personal
representatives, successors and assigns.

 

Guarantor. 
The word “Guarantor” means any guarantor, surety, or accommodation party
of any or all of the Loan.

 

Guaranty. 
The word “Guaranty” means the guaranty from Guarantor to Lender,
including without limitation a guaranty of all or part of the Note.

 

Hazardous Substances.  The words “Hazardous Substances” mean
materials that, because of their quantity, concentration or physical, chemicalor
infectious characteristics, may cause or pose a present or potential hazard to
human health or the environment when improperly used, treated, stored, disposed
of, generated, manufactured, transported or otherwise handled. The words
“Hazardous Substances” are used in their very broadest sense and include
without limitation any and all hazardous or toxic substances, materials or
waste as defined by or listed under the Environmental Laws. The term “Hazardous
Substances” also includes, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos.

 

Indebtedness. 
The word “Indebtedness” means the indebtedness evidenced by the Note or
Related Documents, including all principal and interest together with all other
indebtedness and costs and expenses for which Borrower is responsible under
this Agreement or under any of the Related Documents.

 

Lender. 
The word “Lender” means Chevy Chase Bank, F.S.B., its successors and
assigns.

 

Loan. 
The word “Loan” means any and all loans and financial accommodations
from Lender to Borrower whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations described
herein or described on any exhibit or schedule attached to this Agreement from
time to time.

 

Note. 
The word “Note” means the Note executed by PRECISION AUTO CARE, INC. in
the principal amount of $250,000.00 dated March 9, 2004, together with all
modifications of and renewals, replacements, and substitutions for the note or
credit agreement.

 

Permitted Liens. 
The words “Permitted Liens” mean (1) liens and security interests
securing Indebtedness owed by Borrower to Lender; (2) liens for taxes,
assessments, or similar charges either not yet due or being contested in good
faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other
like liens arising in the ordinary course of business and securing obligations
which are not yet delinquent; [ILLEGIBLE] purchase money liens or purchase
money security interests upon or in any property acquired or held by Borrower
in the ordinary course of business to secure indebtedness outstanding on the
date of this Agreement or permitted to be incurred under the paragraph of this
Agreement, titled “Indebtedness and Liens”; (5) liens and security interests
which, as of the date of this Agreement, have been disclosed to and approved by
the Lender in writing; and (6) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower’s assets.

 

Primary Credit Facility.  The words “Primary Credit Facility” mean the
credit facility described in the Line of Credit section of this Agreement.

 

Related Documents. 
The words “Related Documents” mean all promissory notes, credit
agreements, loan agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, security deeds, collateral mortgages,
and all other instruments, agreements and documents, whether now or hereafter
existing, executed in connection with the Loan.

 

Security Agreement. 
The words “Security Agreement” mean and include without limitation any
agreements, promises, covenants, arrangements, understandings or other
agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.

 

Security Interest. 
The words “Security Interest” mean, without limitation, any and all
types of collateral security, present and future, whether in the form of a
lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment,
pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel
trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device,
or any other security or lien interest whatsoever whether created by law,
contract, or otherwise.

 

6

 

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
BUSINESS LOAN AGREEMENT (ASSET BASED) AND BORROWER AGREES TO ITS TERMS.  THIS BUSINESS LOAN AGREEMENT (ASSET BASED)
IS DATED MARCH 9, 2004.

 

AGREEMENT IS
GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE
AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.

 

BORROWER:

 

 

PRECISION AUTO CARE, INC.

 

	
  By:

  	
  /s/ Robert R.
  Falconi

  	
  (Seal)

  	
  By:

  	
  /s/ Douglas
  V. Krueger

  	
  (Seal)

  
	
   

  	
  Robert R. Falconi, President of PRECISION AUTO CARE, INC.

  	
   

  	
   

  	
  Douglas V. Krueger, Controller of PRECISION AUTO

  CARE, INC.

  

 

LENDER:

 

 

CHEVY CHASE BANK, F.S.B.

 

 

	
  By:

  	
   

  	
  (Seal)

  
	
  Authorized
  Signer

  	
   

  

 

[ILLEGIBLE]

 

7

 

CHEVY CHASE BANK

COMMERCIAL SECURITY
AGREEMENT

 

References in the shaded area are for
Lender’s use only and do not limit the applicability of this document to any
particular loan or item.  Any item above
containing has been omitted due to text length limitations.

 

	
  Grantor:

  	
   

  	
  PRECISION AUTO CARE, INC.

  	
   

  	
  Lender:

  	
   

  	
  Chevy Chase Bank, F.S.B.

  
	
   

  	
   

  	
  748 Miller Drive, S.E.

  	
   

  	
   

  	
   

  	
  Business Banking

  
	
   

  	
   

  	
  Leesburg, VA 20175

  	
   

  	
   

  	
   

  	
  7501 Wisconsin Avenue, 12th Floor

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Bethesda, MD 20814

  

 

THIS COMMERCIAL SECURITY AGREEMENT dated
March 9, 2004, is made and executed between PRECISION
AUTO CARE, INC. (“Grantor”) and Chevy Chase Bank, F.S.B. (“Lender”).

 

GRANT OF SECURITY INTEREST.  For valuable consideration, Grantor grants
to Lender a security interest in the Collateral to secure the indebtedness and
agrees that Lender shall have the rights stated in this Agreement with respect
to the Collateral, in addition to all other rights which Lender may have by
law.

 

COLLATERAL DESCRIPTION.  The word “Collateral” as used in this
Agreement means the following described property, whether now owned or
hereafter acquired, whether now existing or hereafter arising, and wherever
located, in which Grantor is giving to Lender a security interest for the
payment of the indebtedness and performance of all other obligations under the
Note and this Agreement:

 

ALL INVENTORY, CHATTEL PAPER,
ACCOUNTS, EQUIPMENT AND GENERAL INTANGIBLES

 

In
addition, the word “Collateral” also includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:

 

(A)        All accessions, attachments,
accessories, tools, parts, supplies, replacements of and additions to any of
the collateral described herein, whether added now or later.

 

(B)         All products and produce of any of the
property described in this Collateral section.

 

(C)         All accounts, general intangibles,
instruments, rents, monies, payments, and all other rights, arising out of a
sale, lease, consignment or other disposition of any of the property described
in this Collateral section.

 

(D)         All proceeds (including insurance
proceeds) from the sale, destruction, loss, or other disposition of any of the
property described in this Collateral section, and sums due from a third party
who has damaged or destroyed the Collateral or from that party’s insurer,
whether due to judgment, settlement or other process.

 

(E)         All records and data relating to any of
the property described in this Collateral section, whether in the form of a
writing, photograph, microfilm,  microfiche, or electronic media,
together with all of Grantor’s right, title, and interest in and to all
computer software required to utilize, create, maintain, and process any such
records or data on electronic media.

 

Despite
any other provision of this Agreement, Lender is not granted, and will not
have, a nonpurchase money security interest in household goods, to the extent
such a security interest would be prohibited by applicable law.  In addition, if because of the type of any
Property, Lender is required to give a notice of the right to cancel under
Truth in Lending for the indebtedness, then Lender will not have a security
interest in such Collateral unless and until such a notice is given.

 

CROSS-COLLATERALIZATION.  In addition to the Note, this Agreement
secures all obligations, debts and liabilities, plus interest thereon, of
Grantor to Lender, or any one or more of them, as well as all claims by Lender
against Grantor or any one or more of them, whether now existing or hereafter
arising, whether related or unrelated to the purpose of the Note, whether
voluntary or otherwise, whether due or not due, direct or indirect, determined
or undetermined, absolute or contingent, liquidated or unliquidated whether
Grantor may be liable individually or jointly with others, whether obligated as
guarantor, surety, accommodation party or otherwise, and whether recovery upon
such amounts may be or hereafter may become barred by any statute of
limitations, and whether the obligation to repay such amounts may be or
hereafter may become otherwise unenforceable.

 

RIGHT OF SETOFF. 
To the extent permitted by applicable law, Lender reserves a right of
setoff in all Grantor’s accounts with Lender (whether checking, savings, or
some other account).  This includes all
accounts Grantor holds jointly with someone else and all accounts Grantor may
open in the future.  However, this does
not include any IRA or Keogh accounts, or any trust accounts for which setoff
would be prohibited by law.  Grantor
authorizes Lender, to the extent permitted by applicable law, to charge or
setoff all sums owing on the indebtedness against any and all such accounts,
and, at Lender’s option, to administratively freeze all such accounts to allow
Lender to protect Lender’s charge and setoff rights provided in this paragraph.

 

GRANTOR’S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE
COLLATERAL With respect to the Collateral, Grantor represents and
promises to Lender that:

 

Perfection of Security
Interest.  Grantor agrees to
take whatever actions are requested by Lender to perfect and continue Lender’s
security interest in the Collateral. 
Upon request of Lender, Grantor will deliver to Lender any and all of
the documents evidencing or constituting the Collateral, and Grantor will note
Lender’s interest upon any and all chattel paper and instruments if not
delivered to Lender for possession by Lender. 
This is a continuing Security Agreement and will continue in effect even
though all or any part of the indebtedness is paid in full and even though for
a period of time Grantor may not be indebted to Lender.

 

Notices to Lender.  Grantor will promptly notify Lender in
writing at Lender’s address shown above (or such other addresses as Lender may
designate from time to time) prior to any (1) change in Grantor’s name; (2)
change in Grantor’s assumed business name(s); (3) change in the management of
the Corporation Grantor; (4) change in the authorized signer(s); (5) change in
Grantor’s principal office address; (6) change in Grantor’s state of
organization; (7) conversion of Grantor to a new or different type of business
entity; or (8) change in any other aspect of Grantor that directly or
indirectly relates to any agreements between Grantor and Lender.  No change in Grantor’s name or state of
organization will take effect until after Lender has received notice.

 

No Violation.  The execution and delivery of this Agreement
will not violate any law or agreement governing Grantor or to which Grantor is
a party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.

 

Enforceability of
Collateral.  To the extent the
Collateral consists of accounts, chattel paper, or general intangibles, as
defined by the Uniform Commercial Code, the Collateral is enforceable in
accordance with its terms, is genuine, and fully complies with all applicable
laws and regulations concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear to
be on the Collateral.  At the time any
account becomes subject to a security interest in favor of Lender, the account
shall be a good and valid account representing an undisputed, bona fide
indebtedness incurred by the account debtor, for merchandise held subject to
delivery instructions or previously shipped or delivered pursuant to a contract
of sale, or for services previously performed by Grantor with or for the
account debtor.  So long as this
Agreement remains in effect, Grantor shall not, without Lender’s prior written
consent, compromise, settle, adjust, or extend payment under or with regard to
any such Accounts.  There shall be no setoffs
or counterclaims against any of the Collateral, and no agreement shall have
been made under which any deductions or discounts may be claimed concerning the
Collateral except those disclosed to Lender in writing.

 

Location of the
Collateral.  Except in the
ordinary course of Grantor’s business, Grantor agrees to keep the Collateral
(or to the extent the Collateral consists of intangible property such as
accounts or general intangibles, the records concerning the Collateral) at
Grantor’s address shown above or at such other locations as are acceptable to
Lender.  Upon Lender’s request, Grantor
will deliver to Lender in form satisfactory to Lender a schedule of real
properties and Collateral locations relating to Grantor’s operations, including
without limitation the following: (1) all real property Grantor owns or is
purchasing; (2) all real property Grantor is renting or leasing; (3) all
storage facilities Grantor owns, rents, leases, or uses; and (4) all other
properties where Collateral is or may be located.

 

Removal of the
Collateral.  Except in the
ordinary course of Grantor’s business, including the sales of inventory,
Grantor shall not remove the Collateral from its existing location without
Lender’s prior written consent.  To the
extent that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require application for
certificates of title for the vehicles outside the State of Maryland, without
Lender’s prior written consent.  Grantor
shall, whenever requested, advise Lender of the exact location of the
Collateral.

 

Transactions Involving
Collateral.  Except for
inventory sold or accounts collected in the ordinary course of Grantor’s
business, or as otherwise provided for in this Agreement, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.  While Grantor is not in default under this
Agreement, Grantor may sell inventory, but only in the ordinary course of its
business and only to buyers who qualify as a buyer in the ordinary course of
business.  A sale in the ordinary course
of Grantor’s business does not include a transfer in partial or total
satisfaction of a debt

 

 

or
any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise permit
the Collateral to be subject to any lien, security Interest, encumbrance, or
charge, other than the security interest provided for in this Agreement,
without the prior written consent of Lender. This includes security interests
even if junior in right to the security interests granted under this Agreement.
Unless waived by Lender, all proceeds from any disposition of the Collateral
(for whatever reason) shall be held in trust for Lender and shall not be
commingled with any other funds; provided;- however, this requirement shall not
constitute consent by Lender to any sale or other disposition. Upon receipt
Grantor shall immediately to  any such proceeds to Lender.

 

Title.
Grantor represents and warrants to Lender that Grantor holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than those
which reflect the security interest created by this Agreement or to which
Lender has specifically consented. Grantor shall defend Lender’s rights in the
Collateral against the claims and demands of all other persons.

 

Repairs and
Maintenance. Grantor agrees to keep and maintain, and to cause others to
keep and maintain, the Collateral in good order, repair and condition at all
times while this Agreement remains in effect Grantor further agrees to pay when
due all claims for work done on, or services rendered or material furnished in
connection with the Collateral so that no lien or encumbrance may ever attach
to or be filed against the Collateral.

 

Inspection of
Collateral. Lender and Lender’s designated representatives and agents
shall have the right at all reasonable times to examine and inspect the Collateral
wherever located.

 

Taxes, Assessments and
Liens. Grantor will pay when due all taxes, assessments and liens
upon this Collateral, its use or operation, upon this Agreement, upon any
promissory note or notes evidencing the Indebtedness, or upon any of the other
Related Documents. Grantor may withhold any such payment or may elect to
contest any lien if Grantor is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as Lender’s interest in
the Collateral is not jeopardized in Lender’s sole opinion. If the Collateral
is subjected to a lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient corporate surety bond or
other security satisfactory to Lender in an amount adequate to provide for the
discharge of the lien plus any interest, costs, attorneys’ fees or other
charges that could accrue as a result of foreclosure or sale of the Collateral.
In any contest Grantor shall defend itself and lender and shall satisfy any
final adverse judgment before enforcement against the Collateral. Grantor shall
name Lender as an additional obligee under any surety bond furnished in thecontest
proceedings. Grantor further agrees to furnish Lender with evidence that such
taxes, assessments, and governmental and other charges have been paid in full
and in a timely manner. Grantor may withhold any such payment or may elect to
contest any lien if Grantor is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as lender’s interest in
the Collateral is not jeopardized.

 

Compliance with
Governmental Requirements. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral, Including all laws or
regulations relating to the undue erosion of highly-erodible land or relating
to the conversion of wetlands for the production of an agricultural product or
commodity. Grantor may contest in good faith any such law, ordinance or
regulation and withhold compliance during any proceeding, including appropriate
appeals, so long as Lender’s interest in the Collateral, in Lender’s opinion,
is not jeopardized.

 

Hazardous Substances.
Grantor represents and warrants that the Collateral never has been, and never
will be so long as this Agreement remains a lien on the Collateral, used in
violation of any Environmental Laws or for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
Hazardous Substance. The representations and warranties contained herein are
based on Grantor’s due diligence in Investigating the Collateral for Hazardous
Substances. Grantor hereby (1) releases and waives any future claims against
Lender for Indemnity or contribution in the event Grantor becomes liable for
cleanup or other costs under any Environmental Laws, and (2) agrees to
Indemnify and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This obligation to
indemnify shall survive the payment of the Indebtedness and the satisfaction of
this Agreement

 

Maintenance of
Casualty Insurance. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with respect
to the Collateral, in form, amounts, coverages and basis acceptable to Lender
and issued by a company or companies acceptable to Lender. Grantor, upon
request of Lender, will deliver to Lender from time to time the policies or
certificates of Insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least thirty (30) days’ prior written notice to Lender and not including any
disclaimer of the Insurer’s liability for failure to give such a notice. Each
insurance policy also shall include an endorsement providing that coverage in
favor of Lender will not be impaired in any way by any act, omission or default
of Grantor or any other person. In connection with all policies covering assets
in which Lender holds or is offered a security Interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require. If
Grantor at any time fails to obtain or maintain any Insurance as required under
this Agreement, Lender may (but shall not be obligated to) obtain such
insurance as Lender deems appropriate, including if Lender so chooses “single
interest insurance,” which will cover only Lender’s interest in the Collateral.

 

Application of
Insurance Proceeds. Grantor shall promptly notify Lender
of any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All proceeds
of any insurance on the Collateral, including accrued proceeds thereon, shall
be held by lender as part of the Collateral. If Lender consents to repair or
replacement of the damaged or destroyed Collateral, Lender shall, upon
satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds
for the reasonable cost of repair or restoration. If Lender does not consent to
repair or replacement of the Collateral, Lender shall retain a sufficient
amount of the proceeds to pay all of the Indebtedness, and shall pay the
balance to Grantor. Any proceeds which have not been disbursed within six (6)
months after their receipt and which Grantor has not committed to the repair or
restoration of the Collateral shall be used to prepay the Indebtedness.

 

Insurance Reports.
Grantor, upon request of Lender, shall furnish to Lender reports on each
existing policy of Insurance showing such Information as Lender may reasonably
request Including the following: (1) the name of the insurer; (2) the risks
Insured; (3) the amount of the policy; (4) the property Insured; (5) the then
current value on the basis of which Insurance has been obtained and the manner
of determining that value; and (6) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more often than
annually) have an Independent appraiser satisfactory to Lender determine, as
applicable, the cash value or replacement cost of the Collateral.

 

Financing Statements.
Grantor authorizes Lender to file a UCC financing statement, or alternatively,
a copy of this Agreement to perfect Lender’s security interest. At Lender’s
request, Grantor additionally agrees to sign all other documents that are
necessary to perfect, protect, and continue Lender’s security interest in the
Property. Grantor will pay all filing fees, title transfer fees, and other fees
and costs involved unless prohibited by law or unless Lender is required by law
to pay such fees and costs. Grantor irrevocably appoints Lender to execute
documents necessary to transfer title if there is a default. Lender may file a
copy of this Agreement as a financing statement. If Grantor changes Grantor’s
name address, or the name or address of any person granting a security interest
under this Agreement changes, Grantor will promptly notify the Lender of such
change.

 

GRANTOR’S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until
default and except as otherwise provided below with respect to accounts,
Grantor may have possession of the tangible personal property and beneficial
use of all the Collateral and may use it in any lawful manner not inconsistent
with this Agreement or the Related Documents, provided that Grantor’s right to
possession and beneficial use shall not apply to any Collateral where
possession of the Collateral by Lender Is required by law to perfect Lender’s
security interest in such Collateral. Until otherwise notified by Lender,
Grantor may collect any of the Collateral consisting of accounts. At any time
and even though no Event of Default exists, Lender may exercise its rights to
collect the accounts and to notify account debtors to make payments directly to
Lender for application to the Indebtedness. If Lender at any time has
possession of any Collateral, whether before or after an Event of Default,
lender shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if Lender takes such action for that purpose as
Grantor shall request or as Lender, in Lender’s sole discretion shall deem
appropriate under the circumstances, but failure to honor any request by
Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.

 

LENDER’S EXPENDITURES. If any
action or proceeding Is commenced that would materially affect Lender’s
interest in the Collateral or if Grantor fails to comply with any provision of
this Agreement or any Related Documents, including but not limited to Grantor’s
failure to discharge or pay when due any amounts Grantor is required to
discharge or pay under this Agreement or any Related Documents, Lender on
Grantor’s behalf may (but shall not be obligated to) take any action that
Lender deems appropriate, including but not limited to discharging or paying
all taxes, liens, security interests, encumbrances and other claims, at any
time levied or placed on the Collateral and paying all costs for insuring,
maintaining and preserving the Collateral. All such expenditures incurred or
paid by Lender for such purposes will then bear interest at the rate charged
under the Note from the date incurred or paid by Lender to the date of
repayment by Grantor. All such expenses will become a part of the Indebtedness
and, at Lender’s option, will (A) be payable on demand; or (B) be added to the
balance of the Note and be apportioned among and be payable with any
installment payments to become due during either (1) the term of any applicable
Insurance policy; or (2) the remaining term of the Note. The Agreement also
will secure payment of these amounts. Such right shall be in addition to all
other rights and remedies to which lender may be entitled upon Default.

 

DEFAULT. Each of the following shall
constitute an Event of Default under this Agreement:

 

Payment Default.
Grantor fails to make any payment when due under the Indebtedness.

 

Other Defaults.
Grantor fails to comply with or to perform any other term, obligation, covenant
or condition contained in this Agreement or in any of the
Related Documents or to comply with or to perform any term, obligation,
covenant or condition contained in any other agreement between Lender and
Grantor.

 

2

 

Default In Favor of
Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Grantor’s property or Grantor’s or any
Grantor’s ability to repay the Indebtedness or perform their respective
obligations under this Agreement or any of the Related Documents.

 

False Statements. Any
warranty, representation or statement made or furnished to Lender by Grantor or
on Grantor’s behalf under this Agreement or the Related Documents is false or
misleading in any material respect, either now or at the time made or furnished
or becomes false or misleading at any time thereafter.

 

Defective
Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any collateral
document to create a valid and perfected security interest or lien) at any time
and for any reason.

 

Insolvency. The
dissolution or termination of Grantor’s existence as a going business, the
insolvency of Grantor, the appointment of a receiver for any part of Grantor’s
property, any assignment for the benefit of creditors, any type of creditor
workout, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Grantor.

 

Creditor or Forfeiture
Proceedings. Commencement of foreclosure or forfeiture proceedings,
whether by judicial proceeding, self-help, repossession or any other method, by
any creditor of Grantor or by any governmental agency against any collateral
securing the Indebtedness. This includes a garnishment of any of Grantor’s
accounts, including deposit accounts, with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Grantor as to the
validity or reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a surety
bond for the creditor or forfeiture proceeding, in an amount determined by
Lender, in its sole discretion, as being an adequate reserve or bond for the
dispute.

 

Events Affecting
Guarantor. Any of the preceding events occurs with respect to
guarantor, endorser, surety, or accommodation party of any of the Indebtedness
or guarantor, endorser, surety, or accommodation party dies or becomes
incompetent or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness.

 

Adverse Change. A
material adverse change occurs in Grantor’s financial condition, or Lender
believes the prospect of payment or performance of the Indebtedness is
impaired.

 

Cure Provisions. If any
default, other than a default in payment is curable and if Grantor has not been
given a notice of a breach of the same provision of this Agreement within the
preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Grantor, after receiving written notice from Lender demanding
cure of such default: (1) cures the default within fifteen (15) days; or (2) if
the cure requires more than fifteen (15) days, immediately initiates steps
which Lender deems in Lender’s sole discretion to be sufficient to cure the
default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.

 

RIGHTS AND REMEDIES ON DEFAULT. If an
Event of Default occurs under this Agreement, at any time thereafter, Lender
shall have all the rights of a secured party under the Maryland Uniform
Commercial Code. In addition and without limitation, Lender may exercise any
one or more of the following rights and remedies:

 

Accelerate
Indebtedness. Lender may declare the entire
Indebtedness, including any prepayment penalty which Grantor would be required
to pay, immediately due and payable, without notice of any kind to Grantor.

 

Assemble Collateral. Lender
may require Grantor to deliver to Lender all or any portion of the Collateral
and any and all certificates of title and other documents relating to the
Collateral. Lender may require Grantor to assemble the Collateral and make it
available to Lender at a place to be designated by Lender. Lender also shall
have full power to enter upon the property of Grantor to take possession of and
remove the Collateral. If the Collateral contains other goods not covered by
this Agreement at the time of repossession, Grantor agrees Lender may take such
other goods, provided that Lender makes reasonable efforts to return them to
Grantor after repossession.

 

Sell the Collateral. Lender
shall have full power to sell, lease, transfer, or otherwise deal with the
Collateral or proceeds thereof in Lender’s own name or that of Grantor. Lender
may sell the Collateral at public auction or private sale. Unless the
Collateral threatens to decline speedily in value or is of a type customarily
sold on a recognized market, Lender will give Grantor, and other persons as
required by law, reasonable notice of the time and place of any public sale, or
the time after which any private sale or any other disposition of the
Collateral is to be made. However, no notice need be provided to any person
who, after Event of Default occurs, enters into and authenticates an agreement
waiving that person’s right to notification of sale. The requirements of
reasonable notice shall be met if such notice is given at least ten (10) days
before the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall be
payable on demand, with interest at the Note rate from date of expenditure
until repaid.

 

Appoint Receiver.
Without notice to Grantor, Lender shall have the right to have a receiver
appointed to take possession of all or any part of the Collateral, with the
power to protect and preserve the Collateral, to operate the Collateral, and to
collect the Rents from the Collateral and apply the proceeds, over and above
the cost of the receivership, against the Indebtedness and Grantor hereby
consents to the appointment of such a receiver. The receiver may serve without
bond if permitted by law. Lender’s right to the appointment of a receiver shall
exist whether or not the apparent value of the Collateral exceeds the
Indebtedness by a substantial amount and whether or not such receivership is
incidental to a proposed sale of the Collateral or otherwise. Employment by
Lender shall not disqualify a person from serving as a receiver.

 

Collect Revenues,
Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in Lender’s discretion transfer any
Collateral into Lender’s own name or that of Lender’s nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as security
for the Indebtedness or apply it to payment of the Indebtedness in such order
of preference as Lender may determine. Insofar as the Collateral consists of
accounts, general intangibles, insurance policies, instruments, chattel paper,
choses in action, or similar property, Lender may demand, collect, receipt for,
settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as
Lender may determine, whether or not Indebtedness or Collateral is then due.
For these purposes, Lender may, on behalf of and in the name of Grantor,
receive, open and dispose of mail addressed to Grantor; change any address to
which mail and payments are to be sent; and endorse notes, checks, drafts,
money orders, documents of title, instruments and items pertaining to payment,
shipment, or storage of any Collateral. To facilitate collection, Lender may
notify account debtors and obligors on any Collateral to make payments directly
to Lender.

 

Obtain Deficiency. If
Lender chooses to sell any or all of the Collateral, Lender may obtain a
judgment against Grantor for any deficiency remaining on the Indebtedness due
to Lender after application of all amounts received from the exercise of the
rights provided in this Agreement. Grantor shall be liable for a deficiency
even if the transaction described in this subsection is a sale of accounts or
chattel paper.

 

Other Rights and
Remedies. Lender shall have all the rights and remedies of a secured
creditor under the provisions of the Uniform Commercial Code,
as may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law, in
equity, or otherwise.

 

Election of Remedies. Except
as may be prohibited by applicable law, all of Lender’s rights and remedies,
whether evidenced by this Agreement, the Related Documents, or by any other
writing, shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor’s failure to perform,
shall not affect Lender’s right to declare a default and exercise its remedies.

 

MISCELLANEOUS PROVISIONS. The
following miscellaneous provisions are a part of this Agreement:

 

Amendments. This
Agreement, together with any Related Documents, constitutes the entire
understanding and agreement, of the parties as to the matters set forth in this
Agreement. No alteration of or amendment to this Agreement shall be effective
unless given in writing and signed by the party or parties sought to be charged
or bound by the alteration or amendment.

 

Attorneys’ Fees;
Expenses. Grantor agrees that if Lender hires an attorney to help
enforce this Agreement, Grantor will pay, subject to any limits under
applicable law, Lender’s attorneys’ fees equal to 15.000% of the principal
balance due on the Indebtedness and all of Lender’s other collection
expenses, whether or not there is a lawsuit and including without limitation
additional legal expenses for bankruptcy proceedings.

 

Caption Headings.
Caption headings in this Agreement are for convenience purposes only and are
not to be used to interpret or define the provisions of this Agreement.

 

Governing Law.  This Agreement will be governed by, construed and
enforced in accordance with federal law and the laws of the State of Maryland.
This Agreement has been accepted by Lender in the State of Maryland.

 

JURY WAIVER LENDER AND
GRANTOR EACH HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH
LENDER OR GRANTOR MAY BE PARTIES, ARISING OUT OF, OR IN ANY WAY PERTAINING TO,
THIS AGREEMENT. IT IS AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY
JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS. THIS
WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY LENDER AND GRANTOR, AND
LENDER AND GRANTOR EACH HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR
OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY
OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. GRANTOR FURTHER REPRESENTS THAT
GRANTOR HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING
OF THIS WAIVER BY INDEPENDENT

 

3

 

LEGAL COUNSEL.
SELECTED OF GRANTOR’S OWN FREE WILL, AND THAT GRANTOR HAS HAD THE OPPORTUNITY
TO DISCUSS THIS WAIVER WITH COUNSEL

 

No Waiver by Lender. Lender
shall not be deemed to have waived any rights under this Agreement unless such
waiver is given in writing and. signed by Lender. No delay or omission on the
part of Lender in exercising any right shall operate as a waiver of such right
or any other right of waiver by Lender of a provision of this Agreement shall
not prejudice or constitute a waiver of Lender’s right otherwise to demand such
compliance with that provision or any other provision of this Agreement. No
prior waiver by Lender, nor any course of dealing between Lender and Grantor,
shall constitute a waiver of any of Lender’s rights or of any of Grantor’s
obligations as to any future transactions. Whenever the consent of Lender is
required under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.

 

Notices. Any
notice required to be given under this Agreement shall be given in writing, and
shall be effective when actually delivered, if hand delivered, when actually
received by telefacsimile (unless otherwise required by law), when deposited
with a nationally recognized overnight courier, or, if mailed, when
deposited in the United States mail, as first class, certified or registered
mail postage prepaid, directed to the addresses shown near the beginning of
this Agreement. Any party may change its address for notices under this
Agreement by giving formal written notice to the other parties, specifying that
the purpose of the notice is to change the party’s address. For notice
purposes, Grantor agrees to keep Lender informed at all times of Grantor’s
current address. Unless otherwise provided or required by law, if there is more
than one Grantor, any notice given by Lender to any Grantor is deemed to be
notice given to all Grantors.

 

Power of Attorney.
Grantor hereby appoints Lender as Grantor’s irrevocable attorney-in-fact for
the purpose of executing any documents necessary to perfect, amend, or to
continue the security interest granted in this Agreement or to demand
termination of filings of other secured parties. Lender may at any time, and
without further authorization from Grantor, file a carbon, photographic or
other reproduction of any financing statement or of this Agreement for use as a
financing statement. Grantor will reimburse Lender for all expenses for the
perfection and the continuation of the perfection of Lender’s security interest
in the Collateral.

 

Severability. If a
court of competent jurisdiction finds any provision of this Agreement to be
illegal, invalid, or unenforceable as to any circumstance, that finding shall
not make the offending provision illegal, invalid, or unenforceable as to any
other circumstance. If feasible, the offending provision shall be considered
modified so that it becomes legal, valid and enforceable. If the offending
provision cannot be so modified, it shall be considered deleted from
this Agreement. Unless otherwise required by law, the illegality, invalidity,
or unenforceability of any provision of this Agreement shall not affect the
legality, validity or enforceability of any other provision of this Agreement.

 

Successors and
Assigns. Subject to any limitations stated in this Agreement on
transfer of Grantor’s interest, this Agreement shall be binding upon and inure
to the benefit of the parties, their heirs, personal representatives,
successors and assigns. If ownership of the Collateral becomes vested in a
person other than Grantor, Lender, without notice to Grantor, may deal with
Grantor’s successors with reference to this Agreement and the indebtedness by
way of forbearance or extension without releasing Grantor from the obligations
of this Agreement or liability under the indebtedness.

 

Survival of
Representations and Warranties. All representations, warranties,
and agreements made by Grantor In this Agreement shall survive the execution
and delivery of this Agreement, shall be continuing in nature, and shall remain
in full force and effect until such time as Grantor’s indebtedness shall be
paid in full.

 

Time is of the
Essence. Time is of the essence in the performance of this
Agreement.

 

DEFINITIONS. The following capitalized words
and terms shall have the following meanings when used in this Agreement.  Unless specifically stated to the contrary,
all references to dollar amounts shall mean amounts in lawful money of the
United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code:

 

Agreement. The
word “Agreement” means this Commercial Security Agreement, as this Commercial
Security Agreement may be amended or modified from time to time, together with
all exhibits and schedules attached to this Commercial Security Agreement from
time to time.

 

Borrower. The
word “Borrower” means PRECISION AUTO CARE, INC. and includes all co-signers and
co-makers signing the Note.

 

Collateral. The
word “Collateral” means all of Grantor’s right, title and interest in and to
all the Collateral as described in the Collateral Description section of this
Agreement.

 

Default. The
word “Default” means the Default set forth in this Agreement in the section
titled “Default”.

 

Environmental Laws. The
words “Environmental Laws” mean any and all state, federal and local statutes,
regulations and ordinances relating to the protection of human health or the
environment, including without limitation the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C.
Section 9601, et seq. (“CERCLA”). the Superfund Amendments and Reauthorization
Act of 1986, Pub. L. No. 99-499 (“SARA”), the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or
federal laws, rules, or regulations adopted pursuant thereto.

 

Event of Default. The
words “Event of Default” mean any of the events of default set forth in this
Agreement in the default section of this Agreement.

 

Grantor. The
word “Grantor” means PRECISION AUTO CARE, INC..

 

Guaranty. The
word “Guaranty” means the guaranty from guarantor, endorser, surety, or
accommodation party to Lender, including without limitation a guaranty of all
or part of the Note.

 

Hazardous Substances. The
words “Hazardous Substances” mean materials that, because of their quantity,
concentration or physical, chemical or infectious characteristics, may cause or
pose a present or potential hazard to human health or the environment when
improperly used, treated, stored, disposed of, generated, manufactured,
transported or otherwise handled. The words “Hazardous Substances” are used in
their very broadest sense and include without limitation any and all hazardous
or toxic substances, materials or waste as defined by or listed under the
Environmental Laws. The term “Hazardous Substances” also includes, without
limitation, petroleum and petroleum by-products or any fraction thereof and
asbestos.

 

Indebtedness. The
word “Indebtedness” means the indebtedness evidenced by the Note or Related
Documents, including all principal and  interest
together with all other indebtedness and costs and expenses for which Grantor
is responsible under this Agreement or under any of the Related Documents.
Specifically, without limitation, indebtedness includes all amounts that may be
indirectly secured by the Cross-Collateralization provision of this Agreement.

 

Lender. The
word “Lender” means Chevy Chase Bank, F.S.B., its successors and assigns.

 

Note. The
word “Note” means the Note executed by PRECISION AUTO CARE, INC. in the principal
amount of $250,000.00 dated March 9, 2004, together with all modifications of
and renewals, replacements, and substitutions for the note or credit agreement.

 

Property. The
word “Property” means all of Grantor’s right, title and interest in and to all
the Property as described in the “Collateral Description” section of this
Agreement.

 

Related Documents. The
words “Related Documents” mean all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, security deeds, collateral mortgages, and all other
instruments, agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.

 

GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS
COMMERCIAL SECURITY AGREEMENT AND AGREES TO [ILLEGIBLE] TERMS. THIS AGREEMENT
IS DATED MARCH 9, 2004.

 

THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT
THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED
INSTRUMENT ACCORDING TO LAW.

 

4

 

GRANTOR:

 

 

PRECISION AUTO CARE, INC.

 

	
  By:

  	
  /s/ Robert R.
  Falconi

  	
  (Seal)

  	
  By:

  	
  /s/ Douglas
  V. Krueger

  	
  (Seal)

  
	
   

  	
  Robert R. Falconi, President of PRECISION AUTO CARE, INC.

  	
   

  	
   

  	
  Douglas V. Krueger, Controller of PRECISION AUTO

  CARE, INC.

  

 

LENDER:

 

 

CHEVY CHASE BANK, F.S.B.

 

 

	
  X

  	
   

  	
   

  
	
  Authorized
  Signer

  	
   

  

 

[ILLEGIBLE]

 

5Exhibit 4(b)(5)

 

SECOND AMENDMENT TO 

FIRST AMENDED AND RESTATED CREDIT AGREEMENT

 

Reference is made to First Amended and Restated Credit Agreement dated
as of March 31, 2003, as amended by the First Amendment to First Amended and
Restated Credit Agreement dated as of July 31, 2003 (collectively the
“Agreement”), between GATEWAY PIPELINE COMPANY, a Texas corporation and GATEWAY
PROCESSING COMPANY, a Texas corporation (collectively “Borrowers”), GATEWAY
ENERGY CORPORATION, a Texas corporation (“Guarantor”) and SOUTHWEST BANK OF
TEXAS, N. A., a national banking association (the “Lender”), pursuant to which
the Borrowers amended and restated, upon the terms and conditions therein
stated, a One Million Five Hundred Thousand Dollar ($1,500,000.00) credit
facility (“Loan”) with a Maturity Date of December 31, 2005,  subject to  the conditions and covenants
in the Agreement and Loan Documents.

 

RECITALS:

 

A             The Borrowers: (a)
reported that the current ratio of Current Assets to Current Liabilities as of
the end of the Third Quarter of 2003 was 0.96, instead of 1.0, as required
pursuant to Section 6.29 of the Credit Agreement and (b) requested the
Lender to waive compliance with the current ratio covenant for the Third
Quarter of 2003.

 

B.            The Lender has
approved Borrowers’ request, subject to the conditions and covenants specified
in this Second Amendment to First Amended and Restated Credit Agreement (the
“Amendment”) and in the Loan Documents to be delivered in connection herewith
or pursuant hereto.

 

THEREFORE, the
Borrowers and the Lender hereby agree as follows, intending to be legally
bound:

 

Section 1.               Definitions.  All capitalized terms shall have the meaning
assigned to them in the Agreement, except as added, restated or otherwise
defined herein below:

 

(a)           Agreement.  The definition of Agreement is hereby
restated as follows:

 

“Agreement
means the First Amended and Restated Credit Agreement, as amended by the
Amendments, including the Schedules

 

1

 

and Exhibits thereto,
respectively, as the same may be amended or supplemented from time to time.”

 

(b)   Amendment.  The definition of Amendment is hereby
restated as follows:

 

“Amendments
mean the (i) First Amendment to First Amended and Restated Credit Agreement
delivered as of July 31, 2003 by Borrowers and Guarantor to Lender and (ii) the
Second Amendment to First Amended and Restated Credit Agreement dated as of
November 15, 2003 by Borrowers and Guarantor to Lender.”

 

(c)           Guarantor
Subordination. The following definition of Guarantor Subordination is
hereby added to the Agreement.

 

“Guarantor Subordination means an agreement in form and
substance acceptable to Lender, and any amendment, extension, modification,
renewal or supplement thereof, delivered or to be delivered by Guarantor, as
the subordinated creditor, to the Lender, as the senior creditor, expressly
subordinating all Liens and Rights that the Borrowers or Guarantor may now or
hereafter have with respect to certain inter-company debts as referred to therein.”

 

(d)           Loan
Documents.  The definition of Loan
Documents is hereby restated as follows:

 

“Loan
Documents means (a) the Agreement, as amended by the Amendments and any
certificates delivered in connection therewith, respectively, (b) any and all
promissory notes (including, without limitation, the Note issued pursuant to
the First Amendment to First Amended and Restated Credit Agreement delivered as
of July 31, 2003), the Security Documents, the Guarantor Subordination and any
and other agreements in favor of Lender now or hereafter delivered pursuant to
the Agreement and (c) all future renewals, extensions, rearrangements or
restatements of, or amendments or supplements to, any of the foregoing.”

 

Each of the foregoing definitions as used in the Loan Documents shall
include the definition or exhibit as amended or restated hereby.

 

Section 2.   Amendments.  The Agreement is hereby amended and restated
as follows:

 

(a)           Section 6.24
of the Agreement is hereby amended and restated as follows:

 

“0.1         Restrictions on
Debt.  Borrowers and Guarantor will
not incur, create, assume, or permit to exist any Debt, except:

 

(a)           the Obligations;

 

2

 

(b)           existing Debt
described on Schedule 6.24 hereto or inter-company debt as
disclosed in writing by the Borrowers to Lender from time to time;

 

(c)           Debt secured by
Permitted Liens; and

 

(d)           Extensions, renewals
and refinancings of Debt described in clauses (b) and (c) above, without
any increase in the outstanding principal amount thereof, provided that the
other terms and conditions of such extension, renewal or refinancing are not
materially more onerous than the existing terms and conditions of such Debt.

 

“The
Borrowers may make payments of principal and interest to the Guarantor with
respect to the inter-company debts from time to time; provided that (a)
no Default exists under or with respect to any of the Loan Documents or the
obligations prior to the time that any payment is made, (b) the Borrowers have
either (1) cash liquidity in excess of Three Hundred Seventy Thousand Five
Hundred and NO/100ths Dollars ($370, 500.00), or (2) cash payments of monthly
expense and Debt repayment obligations owing by them of at least Three Hundred
Seventy Thousand Five Hundred and NO/100ths Dollars ($370, 500.00), provided
that this applies only to items that are due and payable during the specific
month in question and not to accruals that are payable after the current month,
or (3) any combination of the preceding sub-clauses (1) and (2) totaling Three
Hundred Seventy Thousand Five Hundred and NO/100ths Dollars ($370, 500.00), and
(c) a Default would not otherwise arise or result from any payment of
inter-company debt by the Borrowers to the Guarantor. “

 

Section 3. Waiver.
Contemporaneously herewith, the Lender has delivered a limited waiver the
Borrowers’ compliance with the current ratio covenant set forth in Section
6.29 of the Agreement as of the end of the Third Quarter of 2003 resulting
from the distribution or payment of cash by the Borrowers to the Guarantor
during the Third Quarter of 2003, in consideration of a reduction of
non-current inter-company payables owed by the Borrowers to the Guarantor. The
Borrowers and Guarantor acknowledge that the delivery of the waiver, this
amendment and the other Loan Documents pursuant thereto or in connection
therewith will produce a material, direct and substantial benefit to the
Borrowers and the Guarantor.

 

Section 4. Conditions Precedent.  Borrowers acknowledge that the Lender’s obligations under this
Amendment are conditioned upon Borrowers’ and Guarantor’s compliance with the
conditions precedent set forth in Section 4 of the Agreement including,
without limitation, delivery of Security Documents, material contracts, lien
searches, evidence of title to Collateral and environmental information.

 

Section 5.               Representations.  The Borrowers represent and warrant that all
of the representations and warranties contained in the Agreement and all
instruments and documents executed pursuant thereto or contemplated thereby are
true and correct in all material respects on and as of this date, except (a)
such representations that relate solely to an earlier date and that were true
and correct on such earlier date, and (b) the breach or inaccuracy of representations
and warranties about which the Lender has been notified in writing prior to the
date of this Amendment.

 

3

 

Section 6.               Continued
Force and Effect.  Except as
specifically amended herein, all of the terms and conditions of the Agreement
and all documents executed in connection therewith or contemplated thereby are
and remain in full force and effect in accordance with their respective
terms.  All of the terms used herein
have the same meanings as set out in the Agreement, unless amended hereby or
unless the context clearly requires otherwise. 
References in the Agreement to the “Agreement,” the “Credit Agreement”,
“hereof”, “herein” and words of similar import shall be deemed to be references
to the Agreement as amended hereby.  Any
reference in the Note or any of the Security Documents to the “Agreement” or
the “Credit Agreement” shall be deemed to be references to the Agreement as
amended through the date hereof.

 

Section 7.               Severability.  In the event any one or more provisions
contained in the Agreement or this Amendment should be held to be invalid,
illegal or unenforceable in any respect, the validity, enforceability and
legality of the remaining provisions contained herein and therein shall not be
affected in any way or impaired thereby and shall be enforceable in accordance
with their respective terms.

 

Section 8.               Expenses.  The Borrowers agree to pay (a) a work fee of
Five Hundred no/100ths Dollars ($500.00) to Lender and (b) all out-of-pocket costs
and expenses (including reasonable fees and expenses of legal counsel) of the
Lender in connection with the preparation and enforcement of this Amendment.

 

Section 9.               Acknowledgment.  The Borrowers ratify and confirm that the
Agreement, and the other Loan Documents executed in connection therewith, or
pursuant thereto, are and remain in full force and effect in accordance with
their respective terms and that the Collateral is unimpaired by this
Amendment.  The officers of each of the
Borrowers executing this Amendment, or any Loan Documents executed in
connection with or contemplated by this Amendment, represent and warrant that
they have full power and authority to execute and deliver this Amendment and
the Loan Documents on behalf of each of the Borrowers, that such execution and
delivery has been duly authorized by the Board of Directors of each of the
Borrowers pursuant to resolutions previously delivered to the Lender on March
31, 2003 and July 31, 2003, in connection with the execution and delivery of
the Agreement, are and remain in full force and effect and have not been
altered, amended or repealed in anywise.

 

Section 10.             Governing
Law.  This Amendment shall be
governed by and construed in accordance with the laws of the State of Texas
and, to the extent applicable, by federal law.

 

Section 11.             Affirmation
of Security Interest.  The Borrowers
hereby confirm and agree that (a) any and all Liens granted to or for the
benefit of, or Collateral now or hereafter held by, the Lender as security for
payment and performance of the Note is hereby renewed and carried forth to
secure payment and performance of all of the Obligations; and (b) the Security
Documents are and remain legal, valid and binding obligations of the parties
thereto, enforceable in accordance with their respective terms.

 

Section
12.             ARBITRATION. THE BORROWERS,
GUARANTOR AND LENDER AGREE THAT ALL DISPUTES, CLAIMS AND CONTROVERSIES BETWEEN
THEM, OR ANY OF THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, WHETHER INDIVIDUAL,
JOINT OR CLASS IN NATURE, ARISING FROM THIS

 

4

 

AMENDMENT
OR ANY OF THE OTHER LOAN DOCUMENTS (INCLUDING CONTRACT AND TORT DISPUTES) SHALL
BE ARBITRATED PURSUANT TO THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION
UPON THE REQUEST OF ANY PARTY. NO ACT TO TAKE OR DISPOSE OF ANY COLLATERAL
SECURING THE OBLIGATIONS SHALL CONSTITUTE A WAIVER OF THIS ARBITRATION
PROVISION OR BE PROHIBITED BY THIS ARBITRATION PROVISION. THE FOREGOING
INCLUDES OBTAINING INJUNCTIVE RELIEF OR A TEMPORARY RESTRAINING ORDER; INVOKING
A POWER OF SALE UNDER ANY OF THE SECURITY DOCUMENTS; OBTAINING A WRIT OF
ATTACHMENT OR THE IMPOSITION OF A RECEIVER; OR EXERCISING ANY RIGHTS RELATING
TO PERSONAL PROPERTY, INCLUDING TAKING OR DISPOSING OF SUCH PROPERTY WITH OR WITHOUT
JUDICIAL PROCESS PURSUANT TO ARTICLE 9 OF THE UCC. ANY DISPUTES, CLAIMS AND
CONTROVERSIES CONCERNING THE LAWFULNESS OR REASONABLENESS OF ANY ACT OR
EXERCISE OF ANY RIGHTS OR ANY RIGHT RELATING TO THE COLLATERAL SECURING THE
OBLIGATIONS (INCLUDING, WITHOUT LIMITATION, ANY CLAIM TO RESCIND, REFORM OR
OTHERWISE MODIFY ANY AGREEMENT RELATING TO THE COLLATERAL SECURING THE
OBLIGATIONS) SHALL ALSO BE ARBITRATED; PROVIDED THAT NO ARBITRATOR SHALL HAVE
THE RIGHT OR POWER TOENJOIN OR RESTRAIN ANY ACT OF ANY PARTY.  JUDGMENT UPON ANY AWARD RENDERED BY ANY
ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION; PROVIDED THAT
NOTHING CONTAINED HEREIN SHALL BE DEEMED TO BE A WAIVER BY LENDER OF THE
PROTECTIONS AFFORDED TO THE LENDER UNDER 12 USC § 91, TEX. FIN. CODE § 59.007,
OR THE LAWS OF ANY OTHER STATE (TO THE EXTENT APPLICABLE TO THE LENDER) OR ANY
OTHER PROTECTION PROVIDED TO THE LENDER BY THE LAWS OF THE STATE OF TEXAS OR
THE UNITED STATES. THE STATUTE OF LIMITATIONS, OR ESTOPPEL, LACHES, WAIVER OR
SIMILAR DOCTRINES THAT WOULD OTHERWISE BE APPLICABLE IN AN ACTION BROUGHT BY A
PARTY SHALL BE APPLICABLE IN ANY ARBITRATION PROCEEDING AND THE COMMENCEMENT OF
ANY ARBITRATION PROCEEDING SHALL BE DEEMED THE COMMENCEMENT OF AN ACTION FOR
THESE PURPOSES. THE FEDERAL ARBITRATION ACT SHALL APPLY TO THE CONSTRUCTION,
INTERPRETATION AND ENFORCEMENT OF THIS ARBITRATION PROVISION. IF THE FEDERAL
ARBITRATION ACT IS INAPPLICABLE TO ANY SUCH DISPUTE, CLAIM OR CONTROVERSY FOR
ANY REASON, THE ARBITRATION SHALL BE CONDUCTED PURSUANT TO THE TEXAS GENERAL
ARBITRATION ACT, THIS ARBITRATION PROVISION AND THE COMMERCIAL ARBITRATION
RULES OF THE AMERICAN ARBITRATION ASSOCIATION.

 

Section 13.             JURISDICTION AND VENUE.
SUBJECT TO THE PROVISIONS OF SECTION 12, ALL ACTIONS OR PROCEEDINGS WITH
RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF RELATED
TO OR FROM THIS AMENDMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE LITIGATED,
AT THE SOLE DISCRETION AND ELECTION OF THE LENDER, IN THE COURTS HAVING SITUS
IN HOUSTON, HARRIS COUNTY, TEXAS. IN THAT REGARD, THE BORROWERS AND GUARANTOR
HEREBY SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED
IN HOUSTON,

 

5

 

HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY
RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY
LITIGATION BROUGHT AGAINST IT BY THE LENDER IN ACCORDANCEWITH THIS SECTION.

 

Section 14.             Notice
and Acknowledgment of No Oral Agreements. 
To the extent allowed by law, the parties hereto agree to be bound by
the terms of the following notice:

 

NOTICE:  THIS AGREEMENT AND ALL OTHER DOCUMENTS
RELATING TO THIS LOAN CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

 

THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES RELATING TO THIS LOAN.

 

EXECUTED
effective as of November 15, 2003.

 

	
  Address:

  	
  BORROWERS:

  
	
   

  	
   

  
	
  One Allen
  Center

  	
  GATEWAY
  PIPELINE COMPANY

  
	
  500 Dallas
  Street, Suite 2615

  	
   

  
	
  Houston,
  Texas 77002

  	
  By:

  	
   

  	
   

  
	
  Phone:  (713) 336-0844

  	
   

  	
  Michael T. Fadden, President

  
	
  Fax:  (713) 336-0855

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
  GATEWAY
  PROCESSING COMPANY

  
	
   

  	
   

  	
   

  
	
  One Allen
  Center

  	
  By:

  	
   

  	
   

  
	
  500 Dallas
  Street, Suite 2615

  	
   

  	
  Michael T. Fadden, President

  
	
  Houston,
  Texas 77002

  	
   

  	
   

  
	
  Phone:  (713) 336-0844

  	
   

  	
   

  
	
  Fax:  (713) 336-0855

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
  SOUTHWEST
  BANK OF TEXAS, N.A.

  
	
   

  	
   

  
	
  5 Post Oak
  Park Office Building

  	
   

  	
   

  
	
  4400 Post
  Oak Parkway

  	
  By:

  	
   

  	
   

  
	
  Houston,
  Texas 77027

  	
  Name:

  	
  Ken Batson

  
	
  Mail:

  	
  Title:

  	
  Assistant
  Vice President - Energy

  
	
  P. O. Box
  27459

  	
  Lending

  
	
  Houston,
  Texas 77227-7459

  	
   

  
	
  Phone:  (713) 232-1247

  	
   

  
	
  Fax:  (713) 561-0345

  	
   

  
					

 

6

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