Document:

ex10_1.htm

     

    Exhibit
      10.1

     

     

     

     

     

     

     

     
      
        

      

    

     

     

    

     

    

     

    CREDIT
      AGREEMENT

     

    

    Dated
      as
      of October 30, 2007

    

    Between

    

    NATIONAL
      HEALTHCARE CORPORATION

    

    and

    

    BANK
      OF AMERICA, N.A.

    

    $75,000,000

    

    

     

     

     

     

     

    
      
        

      

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    TABLE
      OF CONTENTS

    

    
      	
              Section

            	 	 	 	
              Page

            
	 	 	 	 	 
	
              Article
                1. DEFINITIONS AND ACCOUNTING TERMS

            	
              1

            
	 	
              1.01    Defined
                Terms

            	
              1

            
	 	
              1.02    Other
                Interpretive Provisions

            	 	
              15

            
	 	
              1.03    Accounting
                Terms

            	 	 	
              15

            
	 	
              1.04    Rounding

            	 	 	
              16

            
	 	
              1.05    References
                to Agreements and Laws

            	 	
              16

            
	 	
              1.06    Times
                of Day

            	 	 	
              16

            
	 	
              1.07    Letter
                of Credit Amounts

            	 	 	
              16

            
	
              Article
                2. THE COMMITMENT AND CREDIT EXTENSIONS

            	
              16

            
	 	
              2.01    Loans

            	 	 	
              16

            
	 	
              2.02    Borrowings,
                Conversions and Continuations of Loans

            	
              17

            
	 	
              2.03    Letters
                of Credit

            	 	 	
              18

            
	 	
              2.04    Prepayments

            	 	 	
              23

            
	 	
              2.05    Termination
                or Reduction of Commitment.

            	
              23

            
	 	
              2.06    Repayment
                of Loans

            	 	 	
              24

            
	 	
              2.07    Interest.

            	 	 	 
	 	
              2.08    [Reserved]

            	 	 	
              24

            
	 	
              2.09    Computation
                of Interest and Fees

            	 	
              24

            
	 	
              2.10    Evidence
                of Debt

            	 	 	
              25

            
	 	
              2.11    Payments
                Generally

            	 	 	
              25

            
	 	
              2.12    Extension
                of Maturity Date

            	 	
              25

            
	
              Article
                3. TAXES, YIELD PROTECTION AND ILLEGALITY

            	
              26

            
	 	
              3.01    Taxes

            	 	 	
              26

            
	 	
              3.02    Illegality

            	 	 	
              27

            
	 	
              3.03    Inability
                to Determine Eurodollar Rate

            	 	
              27

            
	 	
              3.04    Increased
                Cost and Reduced Return; Capital Adequacy

            	
              27

            
	 	
              3.05    Funding
                Losses

            	 	 	
              28

            
	 	
              3.06    Requests
                for Compensation

            	 	
              28

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	 	
              3.07    Survival

            	 	 	
              29

            
	
              Article
                4. CONDITIONS PRECEDENT TO CREDIT EXTENSIONS

            	
              29

            
	 	
              4.01    Conditions
                of Initial Credit Extension

            	 	
              29

            
	 	
              4.02    Conditions
                to all Credit Extensions

            	 	
              30

            
	
              Article
                5. REPRESENTATIONS AND WARRANTIES

            	 	
              31

            
	 	
              5.01    Existence,
                Qualification and Power; Compliance with Laws

            	
              31

            
	 	
              5.02    Authorization;
                No Contravention

            	 	
              31

            
	 	
              5.03    Governmental
                Authorization; Other Consents

            	 
	 	
              5.04    Binding
                Effect

            	 	 	
              32

            
	 	
              5.05    Financial
                Statements; No Material Adverse Effect

            	
              32

            
	 	
              5.06    Litigation

            	 	 	
              32

            
	 	
              5.07    No
                Default

            	 	 	
              33

            
	 	
              5.08    Ownership
                of Property; Liens

            	 	
              33

            
	 	
              5.09    Environmental
                Compliance

            	 	
              33

            
	 	
              5.10    Insurance

            	 	 	
              33

            
	 	
              5.11    Taxes

            	 	 	
              33

            
	 	
              5.12    ERISA
                Compliance

            	 	 	
              33

            
	 	
              5.13    Subsidiaries

            	 	 	
              34

            
	 	
              5.14    Margin
                Regulations; Investment Company Act

            	
              34

            
	 	
              5.15    Disclosure

            	 	 	
              34

            
	 	
              5.16    Compliance
                with Laws

            	 	 	
              35

            
	 	
              5.17    Intellectual
                Property; Licenses, Etc

            	 	
              35

            
	 	
              5.18    Certain
                Subsidiaries

            	 	 	
              35

            
	
              Article
                6. AFFIRMATIVE COVENANTS

            	 	
              35

            
	 	
              6.01    Financial
                Statements

            	 	 	
              35

            
	 	
              6.02    Certificates;
                Other Information

            	 	 	
              36

            
	 	
              6.03    Notices

            	 	 	
              37

            
	 	
              6.04    Payment
                of Obligations

            	 	 	
              37

            
	 	
              6.05    Preservation
                of Existence, Etc

            	 	
              38

            
	 	
              6.06    Maintenance
                of Properties

            	
              38

            
	 	 	 	 	 
	 	
              6.07    Maintenance
                of Insurance

            	 	
              38

            

    

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

    

    
      	 	
              6.08    Compliance
                with Laws

            	 	 	
              38

            
	 	
              6.09    Books
                and Records

            	 	 	
              38

            
	 	
              6.10    Inspection
                Rights

            	 	 	
              39

            
	 	
              6.11    Use
                of Proceeds

            	 	 	
              39

            
	 	
              6.12    Additional
                Guarantors

            	 	 	
              39

            
	 	
              6.13    Termination
                of Commitment and Prepayment

            	
              39

            
	
              Article
                7. NEGATIVE COVENANTS

            	 	
              39

            
	 	
              7.01    Liens

            	 	 	
              39

            
	 	
              7.02    Investments

            	 	 	
              41

            
	 	
              7.03    Indebtedness

            	 	 	
              42

            
	 	
              7.04    Fundamental
                Changes

            	 	 	
              43

            
	 	
              7.05    Dispositions

            	 	 	
              43

            
	 	
              7.06    Restricted
                Payments

            	 	 	
              44

            
	 	
              7.07    Change
                in Nature of Business

            	 	
              45

            
	 	
              7.08    Transactions
                with Affiliates

            	 	
              45

            
	 	
              7.09    Burdensome
                Agreements

            	 	 	
              45

            
	 	
              7.10    Use
                of Proceeds

            	 	 	
              45

            
	 	
              7.11    Equity
                Interests of Premier Group and Premier Plus

            	
              45

            
	
              Article
                8. EVENTS OF DEFAULT AND REMEDIES

            	 	
              45

            
	 	
              8.01    Events
                of Default

            	 	 	
              45

            
	 	
              8.02    Remedies
                Upon Event of Default

            	 	
              48

            
	 	
              8.03    Application
                of Funds

            	 	 	
              48

            
	
              Article
                9. MISCELLANEOUS

            	 	
              48

            
	 	
              9.01    Amendments;
                Etc

            	 	 	
              48

            
	 	
              9.02    Notices
                and Other Communications; Facsimile Copies

            	
              48

            
	 	
              9.03    No
                Waiver; Cumulative Remedies

            	 	
              50

            
	 	
              9.04    Attorney
                Costs, Expenses and Taxes

            	 	
              50

            
	 	
              9.05    Indemnification
                by the Borrower

            	 	
              50

            
	 	
              9.06    Payments
                Set Aside

            	 	 	
              51

            
	 	 	 	 	 
	 	
              9.07    Successors
                and Assigns.

            	 	 	
              51

            
	 	
              9.08    Confidentiality

            	 	 	
              53

            

    

    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

    

    
      	 	
              9.09    Set-off

            	 	 	
              54

            
	 	
              9.10    Interest
                Rate and Loan Charge Limitations

            	
              54

            
	 	
              9.11    Counterparts

            	 	 	
              54

            
	 	
              9.12    Integration

            	 	 	
              54

            
	 	
              9.13    Survival
                of Representations and Warranties

            	
              55

            
	 	
              9.14    Severability

            	
               

            	 	
              55

            
	 	
              9.15    Governing
                Law

            	 	 	
              55

            
	 	
              9.16    Waiver
                of Right to Trial by Jury

            	 	
              56

            
	 	
              9.17    USA
                Patriot Act Notice

            	 	 	
              56

            
	 	
              9.18    Time
                of the Essence

            	 	 	
              56

            
	 	
              9.19    Entire
                Agreement

            	 	 	
              56

            
	 	 	 	 	 
	 	
              SIGNATURES

            	 	 	
              S-1

            
	 	 	 	 	 
	
              SCHEDULES

            	 	 	 
	 	 	 	 	 
	 	
              5.06    Litigation

            	 	 
	 	
              5.13    Subsidiaries
                and Other Equity Investments

            	 
	 	
              7.01    Existing
                Liens

            	 	 
	 	
              7.02    Existing
                Investments

            	 	 
	 	
              7.03    Existing
                Indebtedness

            	 	 
	 	
              9.02    Notice
                Addresses and Lending Office

            	 	 
	 	 	 	 	 
	
              EXHIBITS

            	 	 	 
	 	 	 	 	 
	
              Form
                of

            	 	 	 
	 	 	 	 	 
	
              A    Loan
                Notice

            	 	 	 
	
              B    Note

              C    Guaranty

              D    Pledge
                and Security Agreement

              E    Opinion
                Matters

            	 	 	 
	 	 	 
	 	 	 
	 	 	 

    

     

     

    
 

    
      
        
        

      

      
        iv

        
          

        

      

      
        
        

      

    

    CREDIT
      AGREEMENT

    

    THIS
      CREDIT AGREEMENT
      ("Agreement") is entered into as of October 30, 2007, by and between
      NATIONAL HEALTHCARE CORPORATION, a Delaware corporation (the "Borrower")
      and BANK OF AMERICA, N.A., a national banking association (the
      "Lender").

    

    The
      Borrower has requested that the
      Lender provide a revolving credit facility, and the Lender is willing to do
      so
      on the terms and conditions set forth herein.

    

    In
      consideration of the mutual
      covenants and agreements herein contained, the parties hereto covenant and
      agree
      as follows:

    

    ARTICLE
      1.

    DEFINITIONS
      AND ACCOUNTING TERMS

     

    1.01  Defined
      Terms.  As
      used in this Agreement, the following terms shall have the meanings set forth
      below:

     

    "Affiliate"
      means, with respect to any Person, another Person that directly, or indirectly
      through one or more intermediaries, Controls or is Controlled by or is under
      common Control with the Person specified.  "Control" means the
      possession, directly or indirectly, of the power to direct or cause the
      direction of the management or policies of a Person, whether through the ability
      to exercise voting power, by contract or
      otherwise.  "Controlling" and "Controlled" have meanings
      correlative thereto.  Without limiting the generality of the
      foregoing, a Person shall be deemed to be Controlled by another Person if such
      other Person possesses, directly or indirectly, power to vote 10% or more of
      the
      securities having ordinary voting power for the election of directors, managing
      general partners or the equivalent.

     

    "Agreement"
      means this Credit Agreement.

     

    "Applicable
      Rate" means a per annum rate equal to:

    

    (a)           with
      respect to Base Rate Loans, 0.00%;

    

    (b)           with
      respect to Eurodollar Rate Loans, 0.25%; and

     

    (c)           with
      respect to Letters of Credit, 0.25%.

     

    "ApprovedFund"
      has the meaning specified in Section 9.07(f).

     

    "Attorney
      Costs" means and includes all fees, expenses and disbursements of any law
      firm or other external counsel.

     

    "Attributable
      Indebtedness" means, on any date, (a)  in respect of any capital lease
      of any Person, the capitalized amount thereof that would appear on a balance
      sheet of such Person prepared as of such date in accordance with GAAP, and
      (b) in respect of any Synthetic Lease Obligation, the capitalized amount of
      the remaining lease payments under the relevant lease that

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    would
      appear on a balance sheet of such Person prepared as of such date in accordance
      with GAAP if such lease were accounted for as a capital lease.

     

    "Audited
      Financial Statements" means the audited consolidated balance sheet of the
      Borrower and its Subsidiaries for the fiscal year ended December 31, 2006,
      and
      the related consolidated statements of income or operations, shareholders'
      equity and cash flows for such fiscal year of the Borrower and its Subsidiaries,
      including the notes thereto.

     

    "Availability
      Period" means the period from and including the Closing Date to the earlier
      of (a) the Maturity Date and (b) the date of termination of the
      Commitment.

     

    "Base
      Rate" means for any day a fluctuating rate per annum equal to the higher of
      (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest
      in effect for such day as publicly announced from time to time by the Lender
      as
      its "prime rate."  The "prime rate" is a rate set by the Lender based
      upon various factors including the Lender's costs and desired return, general
      economic conditions and other factors, and is used as a reference point for
      pricing some loans, which may be priced at, above, or below such announced
      rate.  Any change in such rate announced by the Lender shall take
      effect at the opening of business on the day specified in the public
      announcement of such change.

     

    "Base
      Rate Loan" means a Loan that bears interest based on the Base
      Rate.

     

    "Borrower"
      has the meaning specified in the introductory paragraph hereto.

     

    "Business
      Day" means any day other than a Saturday, Sunday or other day on which
      commercial banks are authorized to close under the Laws of, or are in fact
      closed in, the state where the Lending Office is located and, if such day
      relates to any Eurodollar Rate Loan, means any such day on which dealings in
      Dollar deposits are conducted by and between banks in the London interbank
      eurodollar market.

     

    "Cash
      Collateralize" has the meaning specified in
Section 2.03(f).

     

    "Change
      of Control" means, with respect to any Person, an event or series of events
      by which:

     

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

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

     

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

     

    "Closing
      Date" means the first date all the conditions precedent in
Section 4.01 are satisfied or waived by the Lender.

     

    "Code"
      means the Internal Revenue Code of 1986.

     

    "Collateral"
      has the meaning specified in the Pledge and Security Agreement.

     

    "Commitment"
      means the obligation of the Lender to make Loans and L/C Credit Extensions
      hereunder in an aggregate principal amount at any one time not to exceed
      $75,000,000, as such amount may be adjusted from time to time in accordance
      with
      this Agreement.

     

    "Consolidated
      NHR" has the meaning specified in the definition of "NHR
      Acquisition".

     

    "Contractual
      Obligation" means, as to any Person, any provision of any security issued by
      such Person or of any agreement, instrument or other undertaking to which such
      Person is a party or by which it or any of its property is bound.

     

    "Control"
      has the meaning specified in the definition of "Affiliate".

     

    "Credit
      Extension" means each of the following: (a) a borrowing of a Loan and
      (b) an L/C Credit Extension.

     

    "Debtor
      Relief Laws" means the Bankruptcy Code of the United States, and all other
      liquidation, conservatorship, bankruptcy, assignment for the benefit of
      creditors, moratorium, rearrangement, receivership, insolvency, reorganization,
      or similar debtor relief Laws of the United States or other applicable
      jurisdictions from time to time in effect and affecting the rights of creditors
      generally.

     

    "Davis
      Acquisition Sub" has the meaning specified in the definition of "NHR
      Acquisition".

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

     

    "Default"
      means any event or condition that constitutes an Event of Default or that,
      with
      the giving of any notice, the passage of time, or both, would be an Event of
      Default.

     

    "Default
      Rate" means an interest rate equal to (a) the Base Rate plus
      (b) the Applicable Rate, if any, applicable to Base Rate Loans plus
      (c) 2% per annum; provided, however, that with respect to a
      Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the
      interest rate (including any Applicable Rate) otherwise applicable to such
      Loan
      plus 2% per annum, in each case to the fullest extent permitted by applicable
      Laws.

     

    "Disposition"
      or "Dispose" means the sale, transfer, license, lease or other
      disposition (including any sale and leaseback transaction) of any property
      by
      any Person, including any sale, assignment, transfer or other disposal, with
      or
      without recourse, of any notes or accounts receivable or any rights and claims
      associated therewith.

     

    "Dollar"
      and "$" mean lawful money of the United States.

     

    "Domestic
      Subsidiary" means any Subsidiary that is organized under the laws of any
      political subdivision of the United States.

     

    "Eligible
      Assignee" has the meaning specified in
Section 9.07(f).

     

    "Environmental
      Laws" means any and all Federal, state, local, and foreign statutes, laws,
      regulations, ordinances, rules, judgments, orders, decrees, permits,
      concessions, grants, franchises, licenses, agreements or governmental
      restrictions relating to pollution and the protection of the environment or
      the
      release of any materials into the environment, including those related to
      hazardous substances or wastes, air emissions and discharges to waste or public
      systems.

     

    "Environmental
      Liability" means any liability, contingent or otherwise (including any
      liability for damages, costs of environmental remediation, fines, penalties
      or
      indemnities), of the Borrower, any other Loan Party or any of their respective
      Subsidiaries directly or indirectly resulting from or based upon
      (a) violation of any Environmental Law, (b) the generation, use,
      handling, transportation, storage, treatment or disposal of any Hazardous
      Materials, (c) exposure to any Hazardous Materials, (d) the release or
      threatened release of any Hazardous Materials into the environment or
      (e) any contract, agreement or other consensual arrangement pursuant to
      which liability is assumed or imposed with respect to any of the
      foregoing.

     

    "Equity
      Interests" means any and all shares, interests, participations or other
      equivalents (however designated) of capital stock of a corporation, any and
      all
      equivalent ownership interests in a Person other than a corporation, including
      partnership interests and membership interests, and any and all warrants, rights
      or options to purchase or other arrangements or rights to acquire any of the
      foregoing.

     

    "ERISA"
      means the Employee Retirement Income Security Act of 1974.

     

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

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    Sections 414(m)
      and (o) of the Code for purposes of provisions relating to Section 412 of
      the Code).

     

    "ERISA
      Event" means (a) a Reportable Event with respect to a Pension Plan;
      (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan
      subject to Section 4063 of ERISA during a plan year in which it was a
      substantial employer (as defined in Section 4001(a)(2) of ERISA) or a
      cessation of operations that is treated as such a withdrawal under
      Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the
      Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that
      a
      Multiemployer Plan is in reorganization; (d) the filing of a notice of
      intent to terminate, the treatment of a Plan amendment as a termination under
      Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the
      PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or
      condition that constitutes grounds under Section 4042 of ERISA for the
      termination of, or the appointment of a trustee to administer, any Pension
      Plan
      or Multiemployer Plan; or (f) the imposition of any liability under
      Title IV of ERISA, other than for PBGC premiums due but not delinquent
      under Section 4007 of ERISA, upon the Borrower or any ERISA
      Affiliate.

     

    "Eurodollar
      Base Rate" has the meaning specified in the definition of Eurodollar
      Rate.

     

    "Eurodollar
      Rate" means for any Interest Period with respect to any Eurodollar Rate
      Loan, a rate per annum determined by the Lender pursuant to the following
      formula:

     

    
      	
              Eurodollar
                Rate    =

            	
                               Eurodollar
                Base Rate

              1.00
                – Eurodollar Reserve Percentage

            

    

     

    where:

     

    "Eurodollar
      Base Rate" means, for such Interest Period, the rate per annum equal to the
      British Bankers Association LIBOR Rate ("BBA LIBOR"), as published by
      Reuters (or other commercially available source providing quotations of BBA
      LIBOR as determined by the Lender from time to time) at approximately
      11:00 a.m., London time, two Business Days prior to the first day of such
      Interest Period, for Dollar deposits (for delivery on the first day of such
      Interest Period) with a term equivalent to such Interest Period, rounded upward,
      if necessary, to a whole multiple of 1/100 of 1%.  If such rate is not
      available at such time for any reason, then the "Eurodollar Base Rate"
      for such Interest Period shall be the rate per annum determined by the Lender
      to
      be the rate at which deposits in Dollars for delivery on the first day of such
      Interest Period in same day funds in the approximate amount of the Eurodollar
      Rate Loan being made, continued or converted by Lender and with a term
      equivalent to such Interest Period would be offered by Lender's London Branch
      to
      major banks in the London interbank eurodollar market at their request at
      approximately 11:00 a.m. (London time) two Business Days prior to the
      commencement of such Interest Period.

     

    "Eurodollar
      Reserve Percentage" means, for any day during any Interest Period, the
      reserve percentage (expressed as a decimal, carried out to five decimal places)
      in effect on such day applicable to the Lender under regulations issued from
      time to time by the FRB for determining the maximum reserve requirement
      (including any emergency,

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    supplemental
      or other marginal reserve requirement) with respect to Eurocurrency funding
      (currently referred to as "Eurocurrency liabilities").  The Eurodollar
      Rate for each outstanding Eurodollar Rate Loan shall be adjusted automatically
      as of the effective date of any change in the Eurodollar Reserve
      Percentage.

     

    "Eurodollar
      Rate Loan" means a Loan that bears interest based on the Eurodollar
      Rate.

     

    "Eurodollar
      Reserve Percentage" has the meaning specified in the definition of
      Eurodollar Rate.

     

    "Event
      of Default" has the meaning specified in
Section 8.01.

     

    "Excluded
      Grantors" means City Corporation, a Tennessee corporation, NHC
      Healthcare/Lake City, Inc., a Florida corporation, and NHC Healthcare/Pensacola,
      Inc., a Florida corporation.

     

    "Facility"
      means a nursing home, home healthcare, long term rehabilitation, assisted
      living, outpatient rehabilitation, senior living, senior care or hospice
      facility, or a rehabilitation facility operated in partnership with a sports
      medicine healthcare provider.

     

    "Federal
      Funds Rate" means, for any day,
      the
      rate per annum equal to the weighted average of the rates on overnight Federal
      funds transactions with members of the Federal Reserve System arranged by
      Federal funds brokers on such day, as published by the Federal Reserve Bank
      of
      New York on the Business Day next succeeding such day; provided that
      (a) if such day is not a Business Day, the Federal Funds Rate for such day
      shall be such rate on such transactions on the next preceding Business Day
      as so
      published on the next succeeding Business Day, and (b) if no such rate is
      so published on such next succeeding Business Day, the Federal Funds Rate for
      such day shall be the average rate (rounded upward, if necessary, to a whole
      multiple of 1/100 of 1%) charged to the Lender on such day on such transactions
      as determined by the Lender.

     

    "Foreign
      Subsidiary" means any Subsidiary that is not a Domestic
      Subsidiary.

     

    "FRB"
      means the Board of Governors of the Federal Reserve System of the United
      States.

     

    "Fund"
      has the meaning specified in Section 9.07(f).

     

    "GAAP"
      means generally accepted accounting principles in the United States set forth
      in
      the opinions and pronouncements of the Accounting Principles Board and the
      American Institute of Certified Public Accountants and statements and
      pronouncements of the Financial Accounting Standards Board, or such other
      principles as may be approved by a significant segment of the accounting
      profession in the United States, that are applicable to the circumstances as
      of
      the date of determination, consistently applied.

     

    "Governmental
      Authority" means any nation or government, any state or other political
      subdivision thereof, any agency, authority, instrumentality, regulatory body,
      court,

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    administrative
      tribunal, central bank or other entity exercising executive, legislative,
      judicial, taxing, regulatory or administrative powers or functions of or
      pertaining to government.

     

    "Guarantors"
      means, individually and collectively, the Subsidiaries of the Borrower named
      below, together with each other Person that hereafter becomes a Guarantor in
      accordance with the terms and conditions of this Agreement, including
Section 6.12.  On the date of this Agreement, the
      Guarantors are:

     

    
      	
              Name
                of Guarantor

            	 	
              Jurisdiction
                of Organization

            
	 	 	 
	
              NHC/Delaware,
                Inc.

            	 	
              Delaware

            
	
              NHC/OP,
                L.P.

            	 	
              Delaware

            
	
              NHC
                Delaware Investments Inc.

            	 	
              Delaware

            
	
              City
                Corporation

            	 	
              Tennessee

            
	
              NHC
                Healthcare/Lake City, Inc.

            	 	
              Florida

            
	
              NHC
                Healthcare/Pensacola, Inc.

            	 	
              Florida

            

    

    

    "Guaranty"
      means the Guaranty made by the Guarantors in favor of the Lender, substantially
      in the form of Exhibit C.

     

    "Guarantee"
      means, as to any Person, any (a) any obligation, contingent or otherwise,
      of such Person guaranteeing or having the economic effect of guaranteeing any
      Indebtedness or other obligation payable or performable by another Person (the
      "primary obligor") in any manner, whether directly or indirectly, and
      including any obligation of such Person, direct or indirect, (i) to
      purchase or pay (or advance or supply funds for the purchase or payment of)
      such
      Indebtedness or other obligation, (ii) to purchase or lease property,
      securities or services for the purpose of assuring the obligee in respect of
      such Indebtedness or other obligation of the payment or performance of such
      Indebtedness or other obligation, (iii) to maintain working capital, equity
      capital or any other financial statement condition or liquidity or level of
      income or cash flow of the primary obligor so as to enable the primary obligor
      to pay such Indebtedness or other obligation, or (iv) entered into for the
      purpose of assuring in any other manner the obligee in respect of such
      Indebtedness or other obligation of the payment or performance thereof or to
      protect such obligee against loss in respect thereof (in whole or in part),
      or
      (b) any Lien on any assets of such Person securing any Indebtedness or
      other obligation of any other Person, whether or not such Indebtedness or other
      obligation is assumed by such Person.  The amount of any Guarantee
      shall be deemed to be an amount equal to the stated or determinable amount
      of
      the related primary obligation, or portion thereof, in respect of which such
      Guarantee is made or, if not stated or determinable, the maximum reasonably
      anticipated liability in respect thereof as determined by the guaranteeing
      Person in good faith.  The term "Guarantee" as a verb has a
      corresponding meaning.

     

    "Hazardous
      Materials" means all explosive or radioactive substances or wastes and all
      hazardous or toxic substances, wastes or other pollutants, including petroleum
      or petroleum distillates, asbestos or asbestos-containing materials,
      polychlorinated biphenyls, radon gas, infectious or medical wastes and all
      other
      substances or wastes of any nature regulated pursuant to any Environmental
      Law.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    

     

    "Honor
      Date" has the meaning specified in
Section 2.03(c)(i).

     

    "Indebtedness"
      means, as to any Person at a particular time, without duplication, all of the
      following, whether or not included as indebtedness or liabilities in accordance
      with GAAP:

     

    (a)           all
      obligations of such Person for borrowed money and all obligations of such Person
      evidenced by bonds, debentures, notes, loan agreements or other similar
      instruments;

     

    (b)           all
      direct or contingent obligations of such Person arising under letters of credit
      (including standby and commercial), bankers' acceptances, bank guaranties,
      surety bonds and similar instruments;

     

    (c)           net
      obligations of such Person under any Swap Contract;

     

    (d)           all
      obligations of such Person to pay the deferred purchase price of property or
      services (other than trade accounts payable in the ordinary course of
      business);

     

    (e)           indebtedness
      (excluding prepaid interest thereon) secured by a Lien on property owned or
      being purchased by such Person (including indebtedness arising under conditional
      sales or other title retention agreements), whether or not such indebtedness
      shall have been assumed by such Person or is limited in recourse;

     

    (f)           capital
      leases and Synthetic Lease Obligations; and

     

    (g)           all
      Guarantees of such Person in respect of any of the foregoing.

     

    For
      all
      purposes hereof, the Indebtedness of any Person shall include the Indebtedness
      of any partnership or joint venture (other than a joint venture that is itself
      a
      corporation or limited liability company) in which such Person is a general
      partner or a joint venturer, unless such Indebtedness is expressly made
      non-recourse to such Person.  The amount of any net obligation under
      any Swap Contract on any date shall be deemed to be the Swap Termination Value
      thereof as of such date.  The amount of any capital lease or Synthetic
      Lease Obligation as of any date shall be deemed to be the amount of Attributable
      Indebtedness in respect thereof as of such date.

     

    "Indemnified
      Liabilities" has the meaning specified in
      Section 9.05.

     

    "Indemnitees"
      has the meaning specified in Section 9.05.

     

    "Interest
      Payment Date" means, (a) as to any Eurodollar Rate Loan, the last day
      of each Interest Period applicable to such Loan and the Maturity Date;
provided, however, that if any Interest Period for a Eurodollar
      Rate Loan exceeds three months, the respective dates that fall every three
      months after the beginning of such Interest Period shall also be Interest
      Payment Dates; and (b) as to any Base Rate Loan, the last Business Day of
      each March, June, September and December and the Maturity Date.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

     

    "Interest
      Period" means, as to each Eurodollar Rate Loan, the period commencing on the
      date such Eurodollar Rate Loan is disbursed or converted to or continued as
      a
      Eurodollar Rate Loan and ending on the date one, two, three or six months
      thereafter, as selected by the Borrower in its Loan Notice; provided
      that:

     

    (i)           any
      Interest Period that would otherwise end on a day that is not a Business Day
      (or
      on a day for which there is no numerically corresponding day in the calendar
      month at the end of such Interest Period) shall be extended to the next
      succeeding Business Day; and

     

    (ii)           no
      Interest Period shall extend beyond the Maturity Date.

     

    "Investment"
      means, as to any Person, any direct or indirect acquisition or investment by
      such Person, whether by means of (a) the purchase or other acquisition of
      capital stock or other securities of another Person, (b) a loan, advance or
      capital contribution to, Guarantee or assumption of debt of, or purchase or
      other acquisition of any other debt or equity participation or interest in,
      another Person, including any partnership or joint venture interest in such
      other Person, or (c) the purchase or other acquisition (in one transaction
      or a series of transactions) of assets of another Person that constitute a
      business unit.

     

    "IP
      Rights" has the meaning specified in Section 5.17.

     

    "IRS"
      means the United States Internal Revenue Service.

     

    "Laws"
      means, collectively, all international, foreign, Federal, state and local
      statutes, treaties, rules, guidelines, regulations, ordinances, codes and
      administrative or judicial precedents or authorities, including the
      interpretation or administration thereof by any Governmental Authority charged
      with the enforcement, interpretation or administration thereof, and all
      applicable administrative orders, directed duties, requests, licenses,
      authorizations and permits of, and agreements with, any Governmental Authority,
      in each case whether or not having the force of law.

     

    "L/C
      Credit Extension" means, with respect to any Letter of Credit, the issuance
      thereof or extension of the expiry date thereof, or the renewal or increase
      of
      the amount thereof.

     

    "L/C
      Obligations" means, as at any date of determination, the aggregate undrawn
      amount of all outstanding Letters of Credit plus the aggregate of all
      unreimbursed drawings under all Letters of Credit.

     

    "Lending
      Office" means the office or offices of the Lender described as such on
Schedule 9.02, or such other office or offices as the Lender may
      from time to time notify the Borrower.

     

    "Letter
      of Credit" means a standby letter of credit issued hereunder.

     

    "Letter
      of Credit Application" means an application and agreement for the issuance
      or amendment of a Letter of Credit in the form from time to time in use by
      the
      Lender.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    

     

    "Letter
      of Credit Expiration Date" means the day that is seven days prior to the
      Maturity Date then in effect (or, if such day is not a Business Day, the next
      preceding Business Day).

     

    "Letter
      of Credit Sublimit" means an amount equal to $5,000,000.  The
      Letter of Credit Sublimit is part of, and not in addition to, the
      Commitment.

     

    "Lien"
      means any mortgage, pledge, hypothecation, assignment, deposit arrangement,
      encumbrance, lien (statutory or other), charge, or preference, priority or
      other
      security interest or preferential arrangement of any kind or nature whatsoever
      (including any conditional sale or other title retention agreement, and any
      financing lease having substantially the same economic effect as any of the
      foregoing).

     

    "Loan"
      has the meaning specified in Section 2.01.

     

    "Loan
      Documents" means this Agreement, any Note, the Guaranty, the Pledge and
      Security Agreement and any Swap Contracts between a Loan Party and the Lender
      or
      an Affiliate of the Lender that relate to the Obligations or a portion
      thereof.

     

    "Loan
      Notice" means a notice of (a)  a borrowing of a Loan, (b) a
      conversion of a Loan from one Type to the other, or (c) a continuation of a
      Eurodollar Rate Loan as the same Type, pursuant to Section 2.02(a),
      which, if in writing, shall be substantially in the form of
Exhibit A.

     

    "Loan
      Parties" means, collectively, the Borrower and each Guarantor.

     

    "Material
      Adverse Effect" means (a) a material adverse change in, or a material
      adverse effect upon, the operations, business, properties, liabilities (actual
      or contingent), condition (financial or otherwise) of the Borrower or the
      Borrower and its Subsidiaries taken as a whole; (b) a material impairment
      of the ability of any Loan Party to perform its obligations under any Loan
      Document to which it is a party; or (c) a material adverse effect upon the
      legality, validity, binding effect or enforceability against any Loan Party
      of
      any Loan Document to which it is a party.

     

    "Maturity
      Date" means the later of (a) the day that is 364 days after the Closing Date
      and (b) if maturity is extended pursuant to Section 2.12, such
      extended maturity date as determined pursuant to such Section.

     

    "Multiemployer
      Plan" means any employee benefit plan of the type described in
      Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate
      makes or is obligated to make contributions, or during the preceding five plan
      years, has made or been obligated to make contributions.

     

    "NHR
      Acquisition" means the consummation of the transactions that are the subject
      of or contemplated by the NHR Acquisition Agreement, including:

     

    (1)         The
      consolidation of National Health Realty, Inc., a Maryland corporation, with
      its
      wholly-owned subsidiary New NHR, Inc., a Maryland corporation, with the
      consolidated company thereafter being named and known as "National Health
      Realty, Inc.", a Maryland corporation ("Consolidated NHR").

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    

     

    (2)         The
      merger of NHR/Delaware, Inc., a Delaware corporation and a wholly-owned
      subsidiary of Consolidated NHR, with and into Consolidated NHR with the result
      that Consolidated NHR is the surviving Person.

     

    (3)         The
      merger of Consolidated NHR with and into Davis Acquisition Sub LLC, a Delaware
      limited liability company ("Davis Acquisition Sub"), with the result that
      Davis Acquisition Sub is the surviving Person.

     

    (4)         The
      merger of NHR/OP with and into Davis Acquisition Sub, with the result that
      Davis
      Acquisition Sub is the surviving Person.

     

    "NHR
      Acquisition Agreement" means the Agreement and Plan of Merger dated
      December 20, 2006, as amended by Amendment and Waiver No. 1 to
      Agreement and Plan of Mergers dated April 6, 2007 and by Amendment
      No. 2 to Agreement and Plan of Merger dated August 3, 2007, all by and
      among Davis Acquisition Sub, NHC/OP, the Borrower and National Health Realty,
      Inc., a Maryland corporation.

     

    "NHC/OP"
      means NHC/OP, L.P., a Delaware limited partnership.

     

    "NHR/OP"
      means NHR/OP, L.P., a Delaware limited partnership.

     

    "Note"
      means a promissory note made by the Borrower in favor of the Lender evidencing
      Loans made by the Lender, substantially in the form of
Exhibit B.

     

    "Obligations"
      means all advances to, and debts, liabilities, obligations, covenants and duties
      of, any Loan Party arising under any Loan Document or otherwise with respect
      to
      any Loan or Letter of Credit, whether direct or indirect (including those
      acquired by assumption), absolute or contingent, due or to become due, now
      existing or hereafter arising and including interest and fees that accrue after
      the commencement by or against any Loan Party or any Subsidiary thereof of
      any
      proceeding under any Debtor Relief Laws naming such Person as the debtor in
      such
      proceeding, regardless of whether such interest and fees are allowed claims
      in
      such proceeding.

     

    "Organization
      Documents" means, (a) with respect to any corporation, the charter,
      certificate of incorporation or articles of incorporation and the bylaws (or
      equivalent or comparable constitutive documents with respect to any non-U.S.
      jurisdiction); (b) with respect to any limited liability company, the
      certificate or articles of formation or organization and operating agreement;
      and (c) with respect to any partnership, joint venture, trust or other form
      of business entity, the partnership, joint venture or other applicable agreement
      of formation or organization and any agreement, instrument, filing or notice
      with respect thereto filed in connection with its formation or organization
      with
      the applicable Governmental Authority in the jurisdiction of its formation
      or
      organization and, if applicable, any certificate or articles of formation or
      organization of such entity.

     

    "Outstanding
      Amount" means (i) with respect to Loans on any date, the aggregate
      outstanding principal amount thereof after giving effect to any borrowings
      and
      prepayments or repayments of Loans occurring on such date; and (ii) with
      respect to any L/C Obligations on any date, the amount of such L/C Obligations
      on such date after giving effect to any L/C Credit

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    Extension
      occurring on such date and any other changes in the aggregate amount of the
      L/C
      Obligations as of such date, including as a result of any reimbursements of
      outstanding unpaid drawings under any Letters of Credit or any reductions in
      the
      maximum amount available for drawing under Letters of Credit taking effect
      on
      such date.

     

    "Participant"
      has the meaning specified in Section 9.07(c).

     

    "PBGC"
      means the Pension Benefit Guaranty Corporation.

     

    "Pension
      Plan" means any "employee pension benefit plan" (as such term is defined in
      Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to
      Title IV of ERISA and is sponsored or maintained by the Borrower or any
      ERISA Affiliate or to which the Borrower or any ERISA Affiliate contributes
      or
      has an obligation to contribute, or in the case of a multiple employer or other
      plan described in Section 4064(a) of ERISA, has made contributions at any
      time during the immediately preceding five plan years.

     

    "Permitted
      Liens" means Liens permitted by Section 7.01.

     

    "Person"
      means any natural person, corporation, limited liability company, trust, joint
      venture, association, company, partnership, Governmental Authority or other
      entity.

     

    "Plan"
      means any "employee benefit plan" (as such term is defined in Section 3(3)
      of ERISA) established by the Borrower or, with respect to any such plan that
      is
      subject to Section 412 of the Code or Title IV of ERISA, any ERISA
      Affiliate.

     

    "Pledge
      and Security Agreement" means the Pledge and Security Agreement made by the
      Loan Parties (other than the Excluded Grantors) in favor of the Lender,
      substantially in the form of Exhibit D.

     

    "Post-Acquisition
      NHR" means National Health Realty, LLC, a Delaware limited liability company
      that formerly was known as Davis Acquisition Sub LLC, a Delaware limited
      liability company.

     

    "Premier
      Group" means Premier Group Insurance Company, a Tennessee
      corporation.

     

    "Premier
      Plus" means Premier Plus Insurance Company, Ltd., an exempted company
      incorporated in the Cayman Islands with limited liability.

     

    "Reportable
      Event" means any of the events set forth in Section 4043(c) of ERISA,
      other than events for which the 30-day notice period has been
      waived.

     

    "Request
      for Credit Extension" means  (a) with respect to a borrowing,
      conversion or continuation of a Loan, a Loan Notice, and (b) with respect
      to an L/C Credit Extension, a Letter of Credit Application.

     

    "Required
      Guarantor" means (i) each Guarantor identified by name in the
      definition of "Guarantor" hereinabove set forth, (ii) upon consummation of
      the NHR Acquisition, Post-Acquisition NHR, and (iii) each existing and
      future direct Subsidiary of the Borrower other than

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (a) FMSC,
      Inc., a Florida corporation, (b) National Healthcare Center of Fort
      Oglethorpe, L.P., a Tennessee limited partnership, (c) Premier Group, and
      (d) Premier Plus.

     

    "Responsible
      Officer" means (i) for the Borrower, its chief executive officer,
      president, senior vice president and controller, senior vice president and
      treasurer or secretary, and (ii) for each other Loan
      Party, its chief executive officer, president, chief financial officer, chief
      accounting officer, treasurer, assistant treasurer or secretary, as
      applicable.  Any document delivered hereunder that is signed by a
      Responsible Officer of a Loan Party shall be conclusively presumed to have
      been
      authorized by all necessary corporate, partnership or other action on the part
      of such Loan Party and such Responsible Officer shall be conclusively presumed
      to have acted on behalf of such Loan Party.

     

    "Restricted
      Payment" means any dividend or other distribution (whether in cash,
      securities or other property) with respect to any capital stock or other equity
      interest of the Borrower or any Subsidiary, or any payment (whether in cash,
      securities or other property), including any sinking fund or similar deposit,
      on
      account of the purchase, redemption, retirement, acquisition, cancellation
      or
      termination of any such capital stock or other equity interest or of any option,
      warrant or other right to acquire any such capital stock or other equity
      interest.

     

    "Royal
      Health Acquisition" means the purchase by Borrower or NHC/OP of the Equity
      Interests of the Persons (or all or substantially all of the assets of such
      Persons; provided that the Facility described in clause (v)
      below may be excluded) that are controlled by James Mamary and his Affiliates,
      that operate under the name "Royal Health Group" (see www.royalhealthgroup.com)
      and that collectively own and operate five Facilities in Massachusetts providing
      long-term care and related rehabilitation services named (i) Royal
      Megansett Nursing & Retirement Home (North Falmouth), (ii) Royal
      Nursing Center (downtown Falmouth), (iii) Cape Code Nursing &
Rehabilitation Center (Bourne), (iv) Taber Street Nursing &
Rehabilitation Center (New Bedford), and (v) The Royal at Harwich Village
      (Harwich).

     

    "SEC"
      means the Securities and Exchange Commission, or any Governmental Authority
      succeeding to any of its principal functions.

     

    "Single-Asset
      Nursing Home Subsidiary" shall mean a Subsidiary of NHC/OP that owns,
      leases, operates or manages a single Facility and that has no other material
      assets other than those that relate solely and directly to the ownership,
      leasing, operation or management, as applicable, of that Facility.

     

    "Subsidiary"
      of a Person means a corporation, partnership, joint venture, limited liability
      company or other business entity of which a majority of the shares of securities
      or other interests having ordinary voting power for the election of directors
      or
      other governing body (other than securities or interests having such power
      only
      by reason of the happening of a contingency) are at the time beneficially owned,
      or the management of which is otherwise controlled, directly, or indirectly
      through one or more intermediaries, or both, by such Person.  Unless
      otherwise specified, all references herein to a "Subsidiary" or to
      "Subsidiaries" shall refer to a Subsidiary or Subsidiaries of the
      Borrower.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    

     

    "Swap
      Contract" means (a) any and all rate swap transactions, basis swaps,
      credit derivative transactions, forward rate transactions, commodity swaps,
      commodity options, forward commodity contracts, equity or equity index swaps
      or
      options, bond or bond price or bond index swaps or options or forward bond
      or
      forward bond price or forward bond index transactions, interest rate options,
      forward foreign exchange transactions, cap transactions, floor transactions,
      collar transactions, currency swap transactions, cross-currency rate swap
      transactions, currency options, spot contracts, or any other similar
      transactions or any combination of any of the foregoing (including any options
      to enter into any of the foregoing), whether or not any such transaction is
      governed by or subject to any master agreement, and (b) any and all
      transactions of any kind, and the related confirmations, that are subject to
      the
      terms and conditions of, or governed by, any form of master agreement published
      by the International Swaps and Derivatives Association, Inc., any International
      Foreign Exchange Master Agreement, or any other master agreement (any such
      master agreement, together with any related schedules, a "Master
      Agreement"), including any such obligations or liabilities under any Master
      Agreement.

     

    "Swap
      Termination Value" means, in respect of any one or more Swap Contracts,
      after taking into account the effect of any legally enforceable netting
      agreement relating to such Swap Contracts, (a) for any date on or after the
      date such Swap Contracts have been closed out and termination value(s)
      determined in accordance therewith, such termination value(s), and (b) for
      any date prior to the date referenced in clause (a), the amount(s)
      determined as the mark-to-market value(s) for such Swap Contracts, as determined
      based upon one or more mid-market or other readily available quotations provided
      by any recognized dealer in such Swap Contracts (which may include the Lender
      or
      any Affiliate of the Lender).

     

    "Synthetic
      Lease Obligation" means the monetary obligation of a Person under (a) a
      so-called "synthetic" lease, including any off balance sheet or tax retention
      lease that would be characterized as, or under GAAP would receive the same
      accounting treatment as, a so-called "synthetic" lease, or (b) an agreement
      for the use or possession of property creating obligations that do not appear
      on
      the balance sheet of such Person but which, upon the insolvency or bankruptcy
      of
      such Person, would be characterized as the indebtedness of such Person (without
      regard to accounting treatment).

     

    "Threshold
      Amount" means $10,000,000.

     

    "Total
      Outstandings" means the aggregate Outstanding Amount of all Loans and all
      L/C Obligations.

     

    "Type"
      means, with respect to a Loan, its character as a Base Rate Loan or a Eurodollar
      Rate Loan.

     

    "Unfunded
      Pension Liability" means the excess of a Pension Plan's benefit liabilities
      under Section 4001(a)(16) of ERISA, over the current value of that Pension
      Plan's assets, determined in accordance with the assumptions used for funding
      the Pension Plan pursuant to Section 412 of the Code for the applicable
      plan year.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    

     

    "Uninsured
      Liabilities" shall mean any losses, damages, costs, expenses or liabilities
      (including any losses, damages, costs, expenses or liabilities resulting from
      property damage or casualty, general liability, professional liability, workers'
      compensation and business interruption claims) incurred by the Borrower or
      any
      Subsidiary that are not covered by insurance but with respect to which insurance
      coverage is available to Persons engaged in the same or similar business as
      the
      Borrower and its Subsidiaries.

     

    "United
      States" and "U.S." mean the United States of America.

     

    1.02  Other
      Interpretive Provisions.  With
      reference to this Agreement and each other Loan Document, unless otherwise
      specified herein or in such other Loan Document:

     

    (a)  The
      meanings of defined terms are equally applicable to the singular and plural
      forms of the defined terms.

     

    (b)  (i)           The
      words "herein," "hereto," "hereof" and "hereunder"
      and words of similar import when used in any Loan Document shall refer to such
      Loan Document as a whole and not to any particular provision
      thereof.

     

    (ii)           Article,
      Section, Exhibit and Schedule references are to the Loan Document in which
      such
      reference appears.

    

    (iii)           The
      terms "include", "includes" and "including" are by way of
      example and not limitation.

    

    (iv)           Unless
      the context clearly indicates otherwise, the disjunctive "or" includes
      the conjunctive "and".

    

    (v)           The
      term "documents" includes any and all instruments, documents, agreements,
      certificates, notices, reports, financial statements and other writings, however
      evidenced, whether in physical or electronic form.

    

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

     

    (d)  Section
      headings herein and in the other Loan Documents are included for convenience
      of
      reference only and shall not affect the interpretation of this Agreement or
      any
      other Loan Document.

     

    1.03  Accounting
      Terms.

     

    (a)  All
      accounting terms not specifically or completely defined herein shall be
      construed in conformity with, and all financial data (including financial ratios
      and other financial calculations) required to be submitted pursuant to this
      Agreement shall be prepared in conformity with, GAAP applied on a consistent
      basis, as in effect from time to time, applied in a manner consistent with
      that
      used in preparing the Audited Financial Statements, except as otherwise
      specifically prescribed herein.

     

    
      
        
        

      

      
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    (b)  If
      at any
      time any change in GAAP would affect the computation of any financial ratio
      or
      requirement set forth in any Loan Document, and either the Borrower or the
      Lender shall so request, the Lender and the Borrower shall negotiate in good
      faith to amend such ratio or requirement to preserve the original intent thereof
      in light of such change in GAAP (subject to the approval of the Lender),
provided that until so amended, (i) such ratio or requirement shall
      continue to be computed in accordance with GAAP prior to such change therein
      and
      (ii) the Borrower shall provide to the Lender financial statements and
      other documents required under this Agreement or as reasonably requested
      hereunder setting forth a reconciliation between calculations of such ratio
      or
      requirement made before and after giving effect to such change in
      GAAP.

     

    1.04  Rounding.  Any
      financial ratios required to be maintained by the Borrower pursuant to this
      Agreement shall be calculated by dividing the appropriate component by the
      other
      component, carrying the result to one place more than the number of places
      by
      which such ratio is expressed herein and rounding the result up or down to
      the
      nearest number (with a rounding-up if there is no nearest number).

     

    1.05  References
      to Agreements and Laws.  Unless
      otherwise expressly provided herein, (a) references to Organization
      Documents, agreements (including the Loan Documents) and other contractual
      instruments shall be deemed to include all subsequent amendments, restatements,
      extensions, supplements and other modifications thereto, but only to the extent
      that such amendments, restatements, extensions, supplements and other
      modifications are not prohibited by any Loan Document, and (b) references
      to any Law shall refer to such law as in effect from time to time and shall
      include all statutory and regulatory provisions consolidating, amending,
      replacing, supplementing or interpreting such Law.

     

    1.06  Times
      of Day.  Unless
      otherwise specified, all references herein to times of day shall be references
      to Central time (daylight or standard, as applicable).

     

    1.07  Letter
      of Credit Amounts.  Unless
      otherwise specified, all references herein to the amount of a Letter of Credit
      at any time shall be deemed to mean the stated amount of such Letter of Credit
      after giving effect to all increases thereof contemplated by such Letter of
      Credit or the Letter of Credit Application therefor.

     

    ARTICLE
      2.

    THE
      COMMITMENT AND CREDIT EXTENSIONS

     

    2.01  Loans.

     

    (a)  Subject
      to the terms and conditions set forth herein, the Lender agrees to make loans
      (each such loan, a "Loan") to the Borrower from time to time, on any
      Business Day during the Availability Period, in an aggregate amount not to
      exceed at any time outstanding the amount of the Commitment; provided,
      however, that after giving effect to any borrowing, the Total Outstandings
      shall not exceed the Commitment.  Within the limits of the Commitment,
      and subject to the other terms and conditions hereof, the Borrower may borrow
      under this Section 2.01, prepay under Section 2.04,
      and

     

    
      
        
        

      

      
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    reborrow
      under this Section 2.01.  A Loan may be a Base Rate Loan
      or a Eurodollar Rate Loan, as further provided herein.

     

    (b)  Notwithstanding
      the foregoing or any other provision of this Agreement that may be to the
      contrary, prior to the time that the NHR Acquisition has been fully consummated
      and Post-Acquisition NHR has complied with the requirements of
Section 6.12, (i) the Total Outstandings shall not exceed
      $25,000,000, and (ii) the proceeds of Loans shall be used solely for the
      purpose of paying the cash portion of the Merger Consideration (as defined
      in
      the NHR Acquisition Agreement) and paying fees, costs and expenses incurred
      in
      connection with the consummation of the transactions that are the subject of
      the
      NHR Acquisition Agreement.

     

    2.02  Borrowings,
      Conversions and Continuations of Loans.

     

    (a)  Each
      borrowing, each conversion of a Loan from one Type to the other, and each
      continuation of a Eurodollar Rate Loan shall be made upon the Borrower's
      irrevocable notice to the Lender, which may be given by
      telephone.  Each such notice must be received by the Lender not later
      than 12:00 noon (i) three Business Days prior to the requested date of any
      borrowing of, conversion to or continuation of a Eurodollar Rate Loan or of
      any
      conversion of a Eurodollar Rate Loan to a Base Rate Loan, and (ii) on the
      requested date of any borrowing of a Base Rate Loan.  Notwithstanding
      anything to the contrary contained herein, but subject to the provisions of
      Section 9.02(d), any such telephonic notice may be given by an
      individual who has been authorized in writing to do so by a Responsible Officer
      of the Borrower.  Each such telephonic notice must be confirmed
      promptly by delivery to the Lender of a written Loan Notice, appropriately
      completed and signed by a Responsible Officer of the Borrower.  Each
      borrowing of, conversion to or continuation of a Eurodollar Rate Loan shall
      be
      in a principal amount of $250,000 or a whole multiple of $50,000 in excess
      thereof.  Except as provided in Section 2.03(c), each
      borrowing of or conversion to a Base Rate Loan shall be in a principal amount
      of
      $100,000 or a whole multiple of $50,000 in excess thereof.  Each Loan
      Notice (whether telephonic or written) shall specify (i) whether the
      Borrower is requesting a borrowing, a conversion of a Loan from one Type to
      the
      other, or a continuation of a Eurodollar Rate Loan, (ii) the requested date
      of the borrowing, conversion or continuation, as the case may be (which shall
      be
      a Business Day), (iii) the principal amount of the Loan to be borrowed,
      converted or continued, (iv) the Type of Loan to be borrowed or to which an
      existing Loan is to be converted, and (v) if applicable, the duration of
      the Interest Period with respect thereto.  If the Borrower fails to
      specify a Type of Loan in a Loan Notice or if the Borrower fails to give a
      timely notice requesting a conversion or continuation, then the applicable
      Loan
      shall be made as, or converted to, a Base Rate Loan.  Any such
      automatic conversion to a Base Rate Loan shall be effective as of the last
      day
      of the Interest Period then in effect with respect to the applicable Eurodollar
      Rate Loan.  If the Borrower requests a borrowing of, conversion to, or
      continuation of a Eurodollar Rate Loan in any such Loan Notice, but fails to
      specify an Interest Period, it will be deemed to have specified an Interest
      Period of one month.

     

    (b)  Upon
      satisfaction of the applicable conditions set forth in Section 4.02
      (and, if a borrowing is the initial Credit Extension, Section 4.01),
      the Lender shall make

     

    
      
        
        

      

      
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    the
      proceeds of each Loan available to the Borrower either by (i) crediting the
      account of the Borrower on the books of the Lender with the amount of such
      proceeds or (ii) wire transfer of such proceeds, in each case in accordance
      with instructions provided to (and reasonably acceptable to) the Lender by
      the
      Borrower; provided, however, that if on the date of the Loan Notice with
      respect to such borrowing is given, there are drawings under Letters of Credit
      that have not been reimbursed by the Borrower, then the proceeds of such
      borrowing shall be applied, first, to the payment in full of any such
      unreimbursed drawings, and second, to the Borrower as provided
      above.

     

    (c)  Except
      as
      otherwise provided herein, a Eurodollar Rate Loan may be continued or converted
      only on the last day of an Interest Period for such Eurodollar Rate
      Loan.  During the existence of a Default, no Loan may be requested as,
      converted to or continued as Eurodollar Rate Loans without the consent of the
      Lender.

     

    (d)  The
      Lender shall promptly notify the Borrower of the interest rate applicable to
      any
      Interest Period for a Eurodollar Rate Loan upon determination of such interest
      rate.  The determination of the Eurodollar Rate by the Lender shall be
      conclusive in the absence of manifest error.

     

    (e)  After
      giving effect to all borrowings, all conversions of Loans from one Type to
      the
      other, and all continuations of Loans as the same Type, there shall not be
      more
      than thirty Interest Periods in effect.

     

    2.03  Letters
      of Credit.

     

    (a)  The
      Letter of Credit Commitment.

     

    (i)  Subject
      to the terms and conditions set forth herein, the Lender agrees (A) from
      time to time on any Business Day during the period from the Closing Date until
      the Letter of Credit Expiration Date, to issue Letters of Credit for the account
      of the Borrower or a Subsidiary specified by the Borrower, and to amend Letters
      of Credit previously issued by it, in accordance with subsection (b)
      below, and (B) to honor drafts under the Letters of Credit; provided
      that the Lender shall not be obligated to make any L/C Credit Extension with
      respect to any Letter of Credit if as of the date of such L/C Credit Extension,
      (y) the Total Outstandings would exceed the Commitment or (z) the
      Outstanding Amount of the L/C Obligations would exceed the Letter of Credit
      Sublimit.  Within the foregoing limits, and subject to the terms and
      conditions hereof, the Borrower's ability to obtain Letters of Credit shall
      be
      fully revolving, and accordingly the Borrower may, during the foregoing period,
      obtain Letters of Credit to replace Letters of Credit that have expired or
      that
      have been drawn upon and reimbursed.

     

    (ii)  The
      Lender shall be under no obligation to issue any Letter of Credit
      if:

     

    (A)  any
      order, judgment or decree of any Governmental Authority or arbitrator shall
      by
      its terms purport to enjoin or restrain the Lender from issuing such Letter
      of
      Credit, or any Law applicable to the Lender or any request or

     

    
      
        
        

      

      
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    directive
      (whether or not having the force of law) from any Governmental Authority with
      jurisdiction over the Lender shall prohibit, or request that the Lender refrain
      from, the issuance of letters of credit generally or such Letter of Credit
      in
      particular or shall impose upon the Lender with respect to such Letter of Credit
      any restriction, reserve or capital requirement (for which the Lender is not
      otherwise compensated hereunder) not in effect on the Closing Date, or shall
      impose upon the Lender any unreimbursed loss, cost or expense that was not
      applicable on the Closing Date and that the Lender in good faith deems material
      to it;

     

    (B)  [Reserved];

     

    (C)  the
      expiry date of such requested Letter of Credit would occur after the Letter
      of
      Credit Expiration Date (unless the requested Letter of Credit will be Cash
      Collateralized);

     

    (D)  the
      issuance of such Letter of Credit would violate one or more policies of the
      Lender; or

     

    (E)  such
      Letter of Credit is in an initial amount less than $100,000, or is to be used
      for a purpose other than general corporate purposes of the Borrower and its
      Subsidiaries or is to be denominated in a currency other than
      Dollars.

     

    (iii)  Notwithstanding
      the foregoing or any other provision of this Agreement that may be to the
      contrary, the Lender shall be under no obligation to issue any Letter of Credit
      unless the NHR Acquisition has been fully consummated and Post-Acquisition
      NHR
      has complied with the requirements of Section 6.12.

     

    (iv)  The
      Lender shall be under no obligation to amend any Letter of Credit if
      (A) the Lender would have no obligation at such time to issue such Letter
      of Credit in its amended form under the terms hereof, or (B) the
      beneficiary of such Letter of Credit does not accept the proposed amendment
      to
      such Letter of Credit.

     

    (b)  Procedures
      for Issuance and Amendment of Letters of Credit.

     

    (i)  Each
      Letter of Credit shall be issued or amended, as the case may be, upon the
      request of the Borrower delivered to the Lender in the form of a Letter of
      Credit Application, appropriately completed and signed by a Responsible Officer
      of the Borrower.  Such L/C Application must be received by the Lender
      not later than 12:00 noon, at least two Business Days (or such later date and
      time as the Lender may agree in a particular instance in its sole discretion)
      prior to the proposed issuance date or date of amendment, as the case may
      be.  In the case of a request for an initial issuance of a Letter of
      Credit, such Letter of Credit Application shall specify in form and detail
      satisfactory to the Lender: (A) the proposed issuance date of the requested
      Letter of Credit (which shall be a Business Day); (B) the amount thereof;
      (C) the expiry date thereof;

     

    
      
        
        

      

      
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    (D) the
      name and address of the beneficiary thereof; (E) the documents to be
      presented by such beneficiary in case of any drawing thereunder; (F) the
      full text of any certificate to be presented by such beneficiary in case of
      any
      drawing thereunder; and (G) such other matters as the Lender may
      require.  In the case of a request for an amendment of any outstanding
      Letter of Credit, such Letter of Credit Application shall specify in form and
      detail satisfactory to the Lender (A) the Letter of Credit to be amended;
      (B) the proposed date of amendment thereof (which shall be a Business Day);
      (C) the nature of the proposed amendment; and (D) such other matters
      as the Lender may require.

     

    (ii)  Upon
      the
      Lender's determination that the requested issuance or amendment is permitted
      in
      accordance with the terms hereof, then, subject to the terms and conditions
      hereof, the Lender shall, on the requested date, issue a Letter of Credit for
      the account of the Borrower or enter into the applicable amendment, as the
      case
      may be, in each case in accordance with the Lender's usual and customary
      business practices.

     

    (iii)  Promptly
      after its delivery of any Letter of Credit or any amendment to a Letter of
      Credit to an advising bank with respect thereto or to the beneficiary thereof,
      the Lender will also deliver to the Borrower a true and complete copy of such
      Letter of Credit or amendment.

     

    (c)  Drawings
      and Reimbursements.

     

    (i)  Upon
      receipt from the beneficiary of any Letter of Credit of any notice of a drawing
      under such Letter of Credit, the Lender shall notify the Borrower
      thereof.  Not later than 12:00 noon on the date of any payment by the
      Lender under a Letter of Credit (each such date, an "Honor Date"), the
      Borrower shall reimburse the Lender in an amount equal to the amount of such
      drawing.  If the Borrower fails to so reimburse the Lender, the
      Borrower shall be deemed to have requested a borrowing of a Base Rate Loan
      to be
      disbursed on the Honor Date in an amount equal to the amount of such
      unreimbursed drawing, without regard to the minimum and multiples specified
      in
Section 2.02 for the principal amount of Base Rate Loans, but
      subject to the amount of the unutilized portion of the Commitment and the
      conditions set forth in Section 4.02 (other than the delivery of a
      Loan Notice).

     

    (ii)  If
      the
      Borrower fails to reimburse the Lender for any drawing under any Letter of
      Credit (whether by means of a borrowing or otherwise), such unreimbursed amount
      shall be due and payable on demand (together with interest) and shall bear
      interest at the Default Rate.

     

    (d)  Obligations
      Absolute.  The obligation of the Borrower to reimburse the Lender
      for each drawing under each Letter of Credit shall be absolute, unconditional
      and irrevocable, and shall be paid strictly in accordance with the terms of
      this
      Agreement under all circumstances, including the following:

     

    
      
        
        

      

      
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    (i)  any
      lack
      of validity or enforceability of such Letter of Credit, this Agreement, or
      any
      other agreement or instrument relating thereto;

     

    (ii)  the
      existence of any claim, counterclaim, set-off, defense or other right that
      the
      Borrower may have at any time against any beneficiary or any transferee of
      such
      Letter of Credit (or any Person for whom any such beneficiary or any such
      transferee may be acting), the Lender or any other Person, whether in connection
      with this Agreement, the transactions contemplated hereby or by such Letter
      of
      Credit or any agreement or instrument relating thereto, or any unrelated
      transaction;

     

    (iii)  any
      draft, demand, certificate or other document presented under such Letter of
      Credit proving to be forged, fraudulent, invalid or insufficient in any respect
      or any statement therein being untrue or inaccurate in any respect; or any
      loss
      or delay in the transmission or otherwise of any document required in order
      to
      make a drawing under such Letter of Credit;

     

    (iv)  any
      payment by the Lender under such Letter of Credit against presentation of a
      draft or certificate that does not strictly comply with the terms of such Letter
      of Credit; or any payment made by the Lender under such Letter of Credit to
      any
      Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee
      for the benefit of creditors, liquidator, receiver or other representative
      of or
      successor to any beneficiary or any transferee of such Letter of Credit,
      including any arising in connection with any proceeding under any Debtor Relief
      Law; or

     

    (v)  any
      other
      circumstance or happening whatsoever, whether or not similar to any of the
      foregoing, including any other circumstance that might otherwise constitute
      a
      defense available to, or a discharge of, the Borrower.

     

    The
      Borrower shall promptly examine a
      copy of each Letter of Credit and each amendment thereto that is delivered
      to it
      and, in the event of any claim of noncompliance with the Borrower's instructions
      or other irregularity, the Borrower will immediately notify the
      Lender.  The Borrower shall be conclusively deemed to have waived any
      such claim against the Lender and its correspondents unless such notice is
      given
      as aforesaid.

    

    (e)  Role
      of Lender.  The Borrower agrees that, in paying any drawing under
      a Letter of Credit, the Lender shall not have any responsibility to obtain
      any
      document (other than any sight draft, certificates and documents expressly
      required by the Letter of Credit) or to ascertain or inquire as to the validity
      or accuracy of any such document or the authority of the Person executing or
      delivering any such document.  The Borrower hereby assumes all risks
      of the acts or omissions of any beneficiary or transferee with respect to its
      use of any Letter of Credit; provided, however, that this assumption is
      not intended to, and shall not, preclude the Borrower's pursuing such rights
      and
      remedies as it may have against the beneficiary or transferee at law or under
      any other agreement.  None of the Lender, any of its Affiliates, any
      of the respective officers, directors, employees, agents or attorneys-in-fact
      of
      the Lender and its Affiliates, nor any of the

     

    
      
        
        

      

      
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    respective
      correspondents, participants or assignees of the Lender shall be liable or
      responsible for any of the matters described in clauses (i) through
(v) of Section 2.03(d); provided, however, that
      anything in such clauses to the contrary notwithstanding, the Borrower may
      have
      a claim against the Lender, and the Lender may be liable to the Borrower, to
      the
      extent, but only to the extent, of any direct, as opposed to consequential
      or
      exemplary, damages suffered by the Borrower that the Borrower proves were caused
      by the Lender's willful misconduct or gross negligence or the Lender's willful
      failure to pay under any Letter of Credit after the presentation to it by the
      beneficiary of a sight draft and certificate(s) strictly complying with the
      terms and conditions of a Letter of Credit.  In furtherance and not in
      limitation of the foregoing, the Lender may accept documents that appear on
      their face to be in order, without responsibility for further investigation,
      regardless of any notice or information to the contrary, and the Lender shall
      not be responsible for the validity or sufficiency of any instrument
      transferring or assigning or purporting to transfer or assign a Letter of Credit
      or the rights or benefits thereunder or proceeds thereof, in whole or in part,
      which may prove to be invalid or ineffective for any reason.

     

    (f)  Cash
      Collateral.  Upon the request of the Lender, (i) if the
      Lender has honored any full or partial drawing request under any Letter of
      Credit and such drawing has not been reimbursed on the applicable Honor Date
      (whether by means of a borrowing or otherwise), or (ii) if, as of the
      Letter of Credit Expiration Date, any Letter of Credit may for any reason remain
      outstanding and partially or wholly undrawn, the Borrower shall immediately
      Cash
      Collateralize the then Outstanding Amount of all L/C Obligations (in an amount
      equal to such Outstanding Amount determined as of the applicable Honor Date
      or
      the Letter of Credit Expiration Date, as the case may be).  For
      purposes hereof, "Cash Collateralize" means to pledge and deposit with or
      deliver to the Lender, as collateral for the L/C Obligations, cash or deposit
      account balances pursuant to documentation in form and substance satisfactory
      to
      the Lender.  Derivatives of such term have corresponding
      meanings.  The Borrower hereby grants to the Lender a security
      interest in all such cash, deposit accounts and all balances therein and all
      proceeds of the foregoing.  Cash collateral shall be maintained in
      blocked, non-interest bearing deposit accounts at the Lender.

     

    (g)  Applicability
      of ISP98 and UCP.  Unless otherwise expressly agreed by the Lender
      and the Borrower when a Letter of Credit is issued, (i) the rules of the
      "International Standby Practices 1998" published by the Institute of
      International Banking Law & Practice (or such later version thereof as may
      be in effect at the time of issuance) shall apply to each standby Letter of
      Credit, and (ii) the rules of the Uniform Customs and Practice for
      Documentary Credits, as most recently published by the International Chamber
      of
      Commerce (the "ICC") at the time of issuance (including the ICC decision
      published by the Commission on Banking Technique and Practice on April 6,
      1998 regarding the European single currency (euro)) shall apply to each
      commercial Letter of Credit.

     

    (h)  Letter
      of Credit Fees.  The Borrower shall pay to the Lender a Letter of
      Credit fee for each Letter of Credit equal to the Applicable Rate times the
      daily maximum amount available to be drawn under such Letter of Credit (whether
      or not such maximum

     

    
      
        
        

      

      
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    amount
      is
      then in effect under such Letter of Credit).  Such letter of credit
      fees shall be computed on a quarterly basis in arrears.  Such letter
      of credit fees shall be due and payable on the first Business Day after the
      end
      of each March, June, September and December, commencing with the first such
      date
      to occur after the issuance of such Letter of Credit, on the Letter of Credit
      Expiration Date and thereafter on demand.  If there is any change in
      the Applicable Rate during any quarter, the daily maximum amount of each Letter
      of Credit shall be computed and multiplied by the Applicable Rate separately
      for
      each period during such quarter that such Applicable Rate was in
      effect.

     

    (i)  Documentary
      and Processing Charges Payable to Lender.  The Borrower shall pay
      to the Lender the customary issuance, presentation, amendment and other
      processing fees, and other standard costs and charges, of the Lender relating
      to
      letters of credit as from time to time in effect.  Such customary fees
      and standard costs and charges are due and payable on demand and are
      nonrefundable.

     

    (j)  Conflict
      with Letter of Credit Application.  In the event of any conflict
      between the terms hereof and the terms of any Letter of Credit Application,
      the
      terms hereof shall control.

     

    2.04  Prepayments.

     

    (a)  The
      Borrower may, upon notice to the Lender, at any time or from time to time
      voluntarily prepay any Loan in whole or in part without premium or penalty;
      provided that (i) such notice must be received by the Lender not
      later than 12:00 noon (A) three Business Days prior to any date of
      prepayment of a Eurodollar Rate Loan, and (B) on the date of prepayment of
      a Base Rate Loan; (ii) any prepayment of a Eurodollar Rate Loan shall be in
      a principal amount of  $250,000 or a whole multiple of $50,000 in
      excess thereof; and (iii) any prepayment of a Base Rate Loan shall be in a
      principal amount of $100,000 or a whole multiple of $50,000 in excess thereof
      or, in each case, if less, the entire principal amount thereof then
      outstanding.  Each such notice shall specify the date and amount of
      such prepayment and the Type(s) of Loan(s) to be prepaid.  If such
      notice is given by the Borrower, the Borrower shall make such prepayment and
      the
      payment amount specified in such notice shall be due and payable on the date
      specified therein.  Any prepayment of a Eurodollar Rate Loan shall be
      accompanied by all accrued interest thereon, together with any additional
      amounts required pursuant to Section 3.05.

     

    (b)  If
      for
      any reason the Total Outstandings at any time exceed the Commitment then in
      effect, the Borrower shall immediately prepay Loans or Cash Collateralize the
      L/C Obligations in an aggregate amount equal to such excess; provided,
      however, that the Borrower shall not be required to Cash Collateralize the
      L/C Obligations pursuant to this Section 2.04(b) unless after the
      prepayment in full of the Loans the Total Outstandings exceed the Commitment
      then in effect.

     

    2.05  Termination
      or Reduction of Commitment.  The Borrower may, upon notice to
      the Lender, terminate the Commitment, or from time to time permanently reduce
      the Commitment; provided that (i) any such notice shall be received
      by the Lender not later than 12:00 noon, five Business Days prior to the date
      of
      termination or reduction, (ii) any such partial

     

    
      
        
        

      

      
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    reduction
      shall be in an aggregate amount of $250,000 or any whole multiple of $50,000
      in
      excess thereof, (iii) the Borrower shall not terminate or reduce the
      Commitment if, after giving effect thereto and to any concurrent prepayments
      hereunder, the Total Outstandings would exceed the Commitment, and (iv) if,
      after giving effect to any reduction of the Commitment, the Letter of Credit
      Sublimit exceeds the amount of the Commitment, such Sublimit shall be
      automatically reduced by the amount of such excess.  Any
      fees accrued until the effective date of any termination of the Commitment
      shall
      be paid on the effective date of such termination.

     

    2.06  Repayment
      of Loans.  The
      Borrower shall repay to the Lender on the Maturity Date the aggregate principal
      amount of Loans outstanding on such date.

     

    2.07  Interest.

     

    (a)  Subject
      to the provisions of subsection (b) below, (i) each Eurodollar
      Rate Loan shall bear interest on the outstanding principal amount thereof for
      each Interest Period at a rate per annum equal to the Eurodollar Rate for such
      Interest Period plus the Applicable Rate; and (ii) each Base Rate Loan
      shall bear interest on the outstanding principal amount thereof from the
      applicable borrowing date at a rate per annum equal to the Base Rate plus the
      Applicable Rate.

     

    (b)  If
      any
      amount payable by the Borrower under any Loan Document is not paid when due
      (without regard to any applicable grace periods), whether at stated maturity,
      by
      acceleration or otherwise, such amount shall thereafter bear interest at a
      fluctuating interest rate per annum at all times equal to the Default Rate
      to
      the fullest extent permitted by applicable Laws.  Furthermore, while
      any Event of Default exists, the Borrower shall pay interest on the principal
      amount of all outstanding Obligations hereunder at a fluctuating interest rate
      per annum at all times equal to the Default Rate to the fullest extent permitted
      by applicable Laws.  Accrued and unpaid interest on past due amounts
      (including interest on past due interest) shall be due and payable upon
      demand.

     

    (c)  Interest
      on each Loan shall be due and payable in arrears on each Interest Payment Date
      applicable thereto and at such other times as may be specified
      herein.  Interest hereunder shall be due and payable in accordance
      with the terms hereof before and after judgment, and before and after the
      commencement of any proceeding under any Debtor Relief Law.

     

    2.08  [Reserved].

     

    2.09  Computation
      of Interest and Fees.  All
      computations of interest for Base Rate Loans when the Base Rate is determined
      by
      the Lender's "prime rate" shall be made on the basis of a year of 365 or 366
      days, as the case may be, and actual days elapsed.  All other
      computations of fees and interest shall be made on the basis of a 360-day year
      and actual days elapsed (which results in more fees or interest, as applicable,
      being paid than if computed on the basis of a 365-day year).  Interest
      shall accrue on each Loan for the day on which the Loan is made, and shall
      not
      accrue on a Loan, or any portion thereof, for the day on which the Loan or
      such
      portion is paid, provided that any Loan that is repaid on the same day on
      which it is made shall, subject to Section 2.11(a), bear interest
      for one day.

     

    
      
        
        

      

      
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    2.10  Evidence
      of Debt.  The
      Credit Extensions made by the Lender shall be evidenced by one or more accounts
      or records maintained by the Lender in the ordinary course of
      business.  The accounts or records maintained by the Lender shall be
      conclusive absent manifest error of the amount of the Credit Extensions made
      by
      the Lender to the Borrower and the interest and payments thereon. Any failure
      to
      so record or any error in doing so shall not, however, limit or otherwise affect
      the obligation of the Borrower hereunder to pay any amount owing with respect
      to
      the Obligations.  Upon the request of the Lender, the Borrower shall
      execute and deliver to the Lender a Note, which shall evidence the Lender's
      Loans in addition to such accounts or records.  The Lender may attach
      schedules to the Note and endorse thereon the date, Type, amount and maturity
      of
      each Loan and payments with respect thereto.

     

    2.11  Payments
      Generally.

     

    (a)  All
      payments to be made by the Borrower shall be made without condition or deduction
      for any counterclaim, defense, recoupment or setoff.  Except as
      otherwise expressly provided herein, all payments by the Borrower hereunder
      shall be made to the Lender at the applicable Lending Office in Dollars and
      in
      immediately available funds not later than 2:00 p.m. on the date specified
      herein.  All payments received by the Lender after 2:00 p.m. shall be
      deemed received on the next succeeding Business Day and any applicable interest
      or fee shall continue to accrue.

     

    (b)  If
      any
      payment to be made by the Borrower shall come due on a day other than a Business
      Day, payment shall be made on the next following Business Day, and such
      extension of time shall be reflected in computing interest or fees, as the
      case
      may be.

     

    (c)  Nothing
      herein shall be deemed to obligate the Lender to obtain the funds for any Loan
      in any particular place or manner or to constitute a representation by the
      Lender that it has obtained or will obtain the funds for any Loan in any
      particular place or manner.

     

    2.12  Extension
      of Maturity Date.

     

    (a)  Not
      earlier than 120 days prior to, nor later than 90 days prior to, the Maturity
      Date then in effect, the Borrower may, upon notice to the Lender, request a
      364-day extension of the Maturity Date then in effect.  Not later than
      30 days after Lender's receipt of such notice, the Lender shall notify the
      Borrower whether or not it consents to such extension (which consent may be
      given or withheld in the Lender's sole and absolute discretion) and shall
      indicate in such notice any terms and conditions to be included as a part of
      such extension or to be met or satisfied for such extension to be
      effective.  If the Lender fails to respond within the above time
      period, it shall be deemed not to have consented to such extension.

     

    (b)  If
      the
      Lender consents to such extension and any conditions specified by Lender for
      the
      effectiveness of such extension have been met or satisfied, the Maturity Date
      shall be extended to a date 364 days from the Maturity Date then in effect,
      effective as of the Maturity Date then in effect (such existing Maturity Date
      being the "Extension Effective Date").  As one of the
      conditions precedent to such extension, the Borrower

     

    
      
        
        

      

      
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    shall
      deliver to the Lender a certificate of each Loan Party dated as of the Extension
      Effective Date signed by a Responsible Officer of such Loan Party
      (i) certifying and attaching the resolutions adopted by such Loan Party
      approving or consenting to such extension and (ii) in the case of the
      Borrower, certifying that, before and after giving effect to such extension,
      (A) the representations and warranties contained in Article 5
      and the other Loan Documents are true and correct on and as of the Extension
      Effective Date, except to the extent that such representations and warranties
      specifically refer to an earlier date, in which case they are true and correct
      as of such earlier date, and except that for purposes of this
Section 2.12, the representations and warranties contained in
subsections (a) and (b) of Section 5.05 shall be
      deemed to refer to the most recent statements furnished pursuant to
subsections (a) and (b), respectively, of
Section 6.01, and (B) no Default exists.

     

    ARTICLE
      3.

    TAXES,
      YIELD PROTECTION AND ILLEGALITY

     

    3.01  Taxes.

     

    (a)  Any
      and
      all payments by the Borrower to or for the account of the Lender under any
      Loan
      Document shall be made free and clear of and without deduction for any and
      all
      present or future taxes, duties, levies, imposts, deductions, assessments,
      fees,
      withholdings or similar charges, and all liabilities with respect thereto,
      excluding taxes imposed on or measured by its overall net income, and
      franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction
      (or any political subdivision thereof) under the Laws of which the Lender is
      organized or maintains a lending office (all such non-excluded taxes, duties,
      levies, imposts, deductions, assessments, fees, withholdings or similar charges,
      and liabilities being hereinafter referred to as "Taxes").  If
      the Borrower shall be required by any Laws to deduct any Taxes from or in
      respect of any sum payable under any Loan Document to the Lender, (i) the
      sum payable shall be increased as necessary so that after making all required
      deductions (including deductions applicable to additional sums payable under
      this Section), the Lender receives an amount equal to the sum it would have
      received had no such deductions been made, (ii) the Borrower shall make
      such deductions, (iii) the Borrower shall pay the full amount deducted to
      the relevant taxation authority or other authority in accordance with applicable
      Laws, and (iv) within 30 days after the date of such payment, the Borrower
      shall furnish to the Lender the original or a certified copy of a receipt
      evidencing payment thereof.

     

    (b)  In
      addition, the Borrower agrees to pay any and all present or future stamp, court
      or documentary taxes and any other excise or property taxes or charges or
      similar levies that arise from any payment made under any Loan Document or
      from
      the execution, delivery, performance, enforcement or registration of, or
      otherwise with respect to, any Loan Document (hereinafter referred to as
      "Other Taxes").

     

    (c)  If
      the
      Borrower shall be required to deduct or pay any Taxes or Other Taxes from or
      in
      respect of any sum payable under any Loan Document to the Lender, the Borrower
      shall also pay to the Lender, at the time interest is paid, such additional
      amount that the Lender specifies is necessary to preserve the after-tax yield
      (after factoring in all

     

    
      
        
        

      

      
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    taxes,
      including taxes imposed on or measured by net income) that the Lender would
      have
      received if such Taxes or Other Taxes had not been imposed.

     

    (d)  The
      Borrower agrees to indemnify the Lender for (i) the full amount of Taxes
      and Other Taxes (including any Taxes or Other Taxes imposed or asserted by
      any
      jurisdiction on amounts payable under this Section) paid by the Lender,
      (ii) amounts payable under Section 3.01(c) and (iii) any
      liability (including additions to tax, penalties, interest and expenses) arising
      therefrom or with respect thereto, in each case whether or not such Taxes or
      Other Taxes were correctly or legally imposed or asserted by the relevant
      Governmental Authority.  Payment under this subsection (d)
      shall be made within 30 days after the date the Lender makes a demand
      therefor.

     

    3.02  Illegality.  If
      the Lender determines that any Law has made it unlawful, or that any
      Governmental Authority has asserted that it is unlawful, for the Lender or
      its
      Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine
      or charge interest rates based upon the Eurodollar Rate, then, on notice thereof
      by the Lender to the Borrower, any obligation of the Lender to make or continue
      Eurodollar Rate Loans or to convert Base Rate Loans to Eurodollar Rate Loans
      shall be suspended until the Lender notifies the Borrower that the circumstances
      giving rise to such determination no longer exist.  Upon receipt of
      such notice, the Borrower shall, upon demand from the Lender, prepay or, if
      applicable, convert all Eurodollar Rate Loans to Base Rate Loans, either on
      the
      last day of the Interest Period therefor, if the Lender may lawfully continue
      to
      maintain such Eurodollar Rate Loans to such day, or immediately, if the Lender
      may not lawfully continue to maintain such Eurodollar Rate
      Loans.  Upon any such prepayment or conversion, the Borrower shall
      also pay accrued interest on the amount so prepaid or converted.  The
      Lender agrees to designate a different Lending Office if such designation will
      avoid the need for such notice and will not, in the good faith judgment of
      the
      Lender, otherwise be materially disadvantageous to the Lender.

     

    3.03  Inability
      to Determine Eurodollar Rate.  If
      the Lender determines that for any reason adequate and reasonable means do
      not
      exist for determining the Eurodollar Base Rate for any requested Interest Period
      with respect to a proposed Eurodollar Rate Loan, or that the Eurodollar Base
      Rate for any requested Interest Period with respect to a proposed Eurodollar
      Rate Loan does not adequately and fairly reflect the cost to the Lender of
      funding such Loan, the Lender will promptly so notify the
      Borrower.  Thereafter, the obligation of the Lender to make or
      maintain Eurodollar Rate Loans shall be suspended until the Lender revokes
      such
      notice.  Upon receipt of such notice, the Borrower may revoke any
      pending request for a borrowing of, conversion to or continuation of a
      Eurodollar Rate Loan or, failing that, will be deemed to have converted such
      request into a request for a borrowing of a Base Rate Loan in the amount
      specified therein.

     

    3.04  Increased
      Cost and Reduced Return; Capital Adequacy.

     

    (a)  If
      the
      Lender reasonably determines that as a result of the introduction of or any
      change in or in the interpretation of any Law, or the Lender's compliance
      therewith, there shall be any increase in the cost to the Lender of agreeing
      to
      make or making, funding or maintaining Eurodollar Rate Loans or issuing Letters
      of Credit, or a reduction in the amount received or receivable by the Lender
      in
      connection with any of

     

    
      
        
        

      

      
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    the
      foregoing (excluding for purposes of this subsection (a) any such
      increased costs or reduction in amount resulting from (i) Taxes or Other
      Taxes (as to which Section 3.01 shall govern), (ii) changes in
      the basis of taxation of overall net income or overall gross income by the
      United States or any foreign jurisdiction or any political subdivision of either
      thereof under the Laws of which the Lender is organized or has its Lending
      Office, and (iii) reserve requirements utilized in the determination of the
      Eurodollar Rate), then from time to time upon demand of the Lender, the Borrower
      shall pay to the Lender such additional amounts as will compensate the Lender
      for such increased cost or reduction.

     

    (b)  If
      the
      Lender reasonably determines that the introduction of any Law regarding capital
      adequacy or any change therein or in the interpretation thereof, or compliance
      by the Lender (or its Lending Office) therewith, has the effect of reducing
      the
      rate of return on the capital of the Lender or any corporation controlling
      the
      Lender as a consequence of the Lender's obligations hereunder (taking into
      consideration its policies with respect to capital adequacy and the Lender's
      desired return on capital), then from time to time upon demand of the Lender,
      the Borrower shall pay to the Lender such additional amounts as will compensate
      the Lender for such reduction.

     

    3.05  Funding
      Losses.  Upon
      demand of the Lender from time to time, the Borrower shall promptly compensate
      the Lender for and hold the Lender harmless from any loss, cost or expense
      incurred by it as a result of:

     

    (a)  any
      continuation, conversion, payment or prepayment of any Loan other than a Base
      Rate Loan on a day other than the last day of the Interest Period for such
      Loan
      (whether voluntary, mandatory, automatic, by reason of acceleration, or
      otherwise); or

     

    (b)  any
      failure by the Borrower (for a reason other than the failure of the Lender
      to
      make a Loan) to prepay, borrow, continue or convert any Loan other than a Base
      Rate Loan on the date or in the amount notified by the Borrower,

     

    including
      any loss of anticipated profits and any loss or expense arising from the
      liquidation or reemployment of funds obtained by it to maintain such Loan or
      from fees payable to terminate the deposits from which such funds were
      obtained.  The Borrower shall also pay any customary administrative
      fees charged by the Lender in connection with the foregoing.

    

    For
      purposes of calculating amounts payable by the Borrower to the Lender under
      this
Section 3.05, the Lender shall be deemed to have funded each
      Eurodollar Rate Loan at the Eurodollar Base Rate used in determining the
      Eurodollar Rate for such Loan by a matching deposit or other borrowing in the
      London interbank eurodollar market for a comparable amount and for a comparable
      period, whether or not such Eurodollar Rate Loan was in fact so
      funded.

    

    3.06  Requests
      for Compensation.  A
      certificate of the Lender claiming compensation under this Article 3
      and setting forth the additional amount or amounts to be paid to it hereunder
      shall be conclusive in the absence of manifest error.  In determining
      such amount, the Lender may use any reasonable averaging and attribution
      methods.  Failure or delay on the part of the Lender to demand
      compensation  pursuant to this Article 3 shall not
      constitute a waiver of

     

    
      
        
        

      

      
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    Lender's
      right to demand such compensation; provided, however, that the
      Borrower shall not be required to compensate the Lender under this
Article 3 for any amounts incurred more than six (6) months
      prior to the date the Lender notifies the Borrower of its claim for such
      compensation, but if the circumstances giving rise to such claim have a
      retroactive effect, then such six-month period shall be extended to include
      the
      period of such retroactive effect.

     

    3.07  Survival.  Subject
      to Section 3.06, all of the Borrower's obligations under this
Article 3 shall survive termination of the Commitment and repayment
      of all Obligations hereunder.

     

    ARTICLE
      4.

    CONDITIONS
      PRECEDENT TO CREDIT EXTENSIONS

     

    4.01  Conditions
      of Initial Credit Extension.  The
      obligation of the Lender to make its initial Credit Extension hereunder is
      subject to satisfaction of the following conditions precedent:

     

    (a)  The
      Lender's receipt of the following, each of which shall be originals or
      facsimiles (followed promptly by originals) unless otherwise specified, each
      properly executed by a Responsible Officer of the signing Loan Party, each
      dated
      the Closing Date (or, in the case of certificates of governmental officials,
      a
      recent date before the Closing Date) and each in form and substance satisfactory
      to the Lender and its legal counsel:

     

    (i)  executed
      counterparts of this Agreement, the Guaranty and the Pledge and Security
      Agreement, sufficient in number for distribution to the Lender and the
      Borrower;

     

    (ii)  if
      requested by the Lender, a Note executed by the Borrower;

     

    (iii)  such
      certificates of resolutions or other action, incumbency certificates or other
      certificates of Responsible Officers of each Loan Party as the Lender may
      require evidencing the identity, authority and capacity of each Responsible
      Officer thereof authorized to act as a Responsible Officer in connection with
      this Agreement and the other Loan Documents to which such Loan Party is a
      party;

     

    (iv)  such
      documents and certifications as the Lender may reasonably require to evidence
      that each Loan Party is duly organized or formed and is validly existing, in
      good standing and qualified to engage in business in each jurisdiction where
      its
      ownership, lease or operation of properties or the conduct of its business
      requires such qualification, except to the extent that failure to do so could
      not reasonably be expected to have a Material Adverse Effect;

     

    (v)  a
      favorable opinion of Stites & Harbison, PLLC, counsel to the Loan Parties,
      addressed to the Lender, as to the matters set forth in Exhibit E
      and such other matters concerning the Loan Parties and the Loan Documents as
      the
      Lender may reasonably request;

     

    
      
        
        

      

      
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    (vi)  a
      certificate of a Responsible Officer of the Borrower either (A) attaching
      copies of all consents, licenses and approvals required in connection with
      the
      execution, delivery and performance by any Loan Party and the validity against
      such Loan Party of the Loan Documents to which it is a party, and such consents,
      licenses and approvals shall be in full force and effect, or (B) stating
      that no such consents, licenses or approvals are so required;

     

    (vii)  a
      certificate signed by a Responsible Officer of the Borrower certifying
      (A) that the conditions specified in Sections 4.02(a) and
(b) have been satisfied, and (B) that there has been no event or
      circumstance since the date of the Audited Financial Statements that has had
      or
      could be reasonably expected to have, either individually or in the aggregate,
      a
      Material Adverse Effect;

     

    (viii)  evidence
      that all insurance required to be maintained pursuant to the Loan Documents
      has
      been obtained and is in effect; and

     

    (ix)  such
      other assurances, certificates, documents, consents or opinions as the Lender
      reasonably may require.

     

    (b)  The
      Loan
      Parties shall have taken all actions necessary to perfect the security interests
      of the Pledge and Security Agreement in the Collateral, including the delivery
      to the Lender of instruments and certificates as contemplated thereby, and
      shall
      have provided to the Lender evidence satisfactory to the Lender and its legal
      counsel confirming that the security interests of the Lender in the Collateral
      pursuant to the Pledge and Security Agreement are first priority security
      interests, subject only to Permitted Liens.

     

    (c)  Any
      fees
      required to be paid on or before the Closing Date shall have been
      paid.

     

    (d)  The
      Borrower shall have paid all Attorney Costs of the Lender to the extent invoiced
      prior to or on the Closing Date, plus such additional amounts of Attorney Costs
      as shall constitute its reasonable estimate of Attorney Costs incurred or to
      be
      incurred by it through the closing proceedings (provided that such estimate
      shall not thereafter preclude a final settling of accounts between the Borrower
      and the Lender).

     

    4.02  Conditions
      to all Credit Extensions.  The
      obligation of the Lender to make any Credit Extension is subject to the
      following conditions precedent:

     

    (a)  The
      representations and warranties of the Borrower and each other Loan Party
      contained in Article 5 or any other Loan Document, or that are contained
      in any document furnished at any time under or in connection herewith or
      therewith, shall be true and correct on and as of the date of such Credit
      Extension, except to the extent that such representations and warranties
      specifically refer to an earlier date, in which case they shall be true and
      correct as of such earlier date, and except that for purposes of this
Section 4.02, the representations and warranties contained in
subsections (a) and (b) of Section 5.05 shall be
      deemed to refer to the most recent statements furnished pursuant to
clauses (a) and (b), respectively, of
Section 6.01.

     

    
      
        
        

      

      
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    (b)  No
      Default shall exist, or would result from such proposed Credit
      Extension.

     

    (c)  The
      Lender shall have received a Request for Credit Extension in accordance with
      the
      requirements hereof.

     

    Each
      Request for Credit Extension
      (other than a Loan Notice requesting only a conversion of a Loan to the other
      Type or a continuation of a Eurodollar Rate Loan) submitted by the Borrower
      shall be deemed to be a representation and warranty that the conditions
      specified in Sections 4.02(a) and (b) have been satisfied on
      and as of the date of the applicable Credit Extension.

    

    ARTICLE
      5.

    REPRESENTATIONS
      AND WARRANTIES

     

    The
      Borrower represents and warrants to
      the Lender that:

    

    5.01  Existence,
      Qualification and Power; Compliance with Laws.

     

    (a)  Each
      Loan
      Party (i) is a corporation, partnership or limited liability company duly
      organized or formed, validly existing and in good standing under the Laws of
      the
      jurisdiction of its incorporation or organization, (ii) has all requisite
      power and authority and all requisite governmental licenses, authorizations,
      consents and approvals to (A) own its assets and carry on its business and
      (B) execute, deliver and perform its obligations under the Loan Documents
      to which it is a party, (iii) is duly qualified and is licensed and in good
      standing under the Laws of each jurisdiction where its ownership, lease or
      operation of properties or the conduct of its business requires such
      qualification or license, and (iv) is in compliance with all Laws; except
      in each case referred to in clauses (ii)(A), (iii) or
(iv), to the extent that failure to do so could not reasonably
      be
      expected to have a Material Adverse Effect.

     

    (b)  Each
      Subsidiary of the Borrower that is not a Loan Party (i) is a corporation,
      partnership or limited liability company duly organized or formed, validly
      existing and in good standing under the Laws of the jurisdiction of its
      incorporation or organization, (ii) has all requisite power and authority
      and all requisite governmental licenses, authorizations, consents and approvals
      to own its assets and carry on its business, (iii) is duly qualified and is
      licensed and in good standing under the Laws of each jurisdiction where its
      ownership, lease or operation of properties or the conduct of its business
      requires such qualification or license, and (iv) is in compliance with all
      Laws; except in each case referred to in clauses (ii), (iii)
      or (iv), to the extent that failure to do so could not reasonably be
      expected to have a Material Adverse Effect.

     

    5.02  Authorization;
      No Contravention.  The
      execution, delivery and performance by each Loan Party of each Loan Document
      to
      which such Person is party have been duly authorized by all necessary corporate
      or other organizational action, and do not and will not (a) contravene the
      terms of any of such Person's Organization Documents; (b) conflict with or
      result in any breach or contravention of, or the creation of any Lien under,
      (i) any Contractual

     

    
      
        
        

      

      
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    Obligation
      to which such Person is a party or (ii) any order, injunction, writ or
      decree of any Governmental Authority or any arbitral award to which such Person
      or its property is subject; or (c) violate any Law.

     

    5.03  Governmental
      Authorization; Other Consents.  No
      approval, consent, exemption, authorization, or other action by, or notice
      to,
      or filing with, any Governmental Authority or any other Person is necessary
      or
      required in connection with the execution, delivery or performance by, or
      enforcement against, any Loan Party of this Agreement or any other Loan
      Document.

     

    5.04  Binding
      Effect.  This
      Agreement has been, and each other Loan Document, when delivered hereunder,
      will
      have been, duly executed and delivered by each Loan Party that is party
      thereto.  This Agreement constitutes, and each other Loan Document
      when so delivered will constitute, a legal, valid and binding obligation of
      such
      Loan Party, enforceable against each Loan Party that is party thereto in
      accordance with its terms.

     

    5.05  Financial
      Statements; No Material Adverse Effect.

     

    (a)  The
      Audited Financial Statements (i) were prepared in accordance with GAAP
      consistently applied throughout the period covered thereby, except as otherwise
      expressly noted therein; (ii) fairly present the financial condition of the
      Borrower and its Subsidiaries as of the date thereof and their results of
      operations for the period covered thereby in accordance with GAAP consistently
      applied throughout the period covered thereby, except as otherwise expressly
      noted therein; and (iii) show all material indebtedness and other
      liabilities, direct or contingent, of the Borrower and its Subsidiaries as
      of
      the date thereof, including liabilities for taxes, material commitments and
      Indebtedness.

     

    (b)  The
      unaudited consolidated financial statements of the Borrower and its Subsidiaries
      dated June 30, 2007, and the related consolidated statements of income or
      operations, shareholders' equity and cash flows for the fiscal quarter ended
      on
      that date (i) were prepared in accordance with GAAP consistently applied
      throughout the period covered thereby, except as otherwise expressly noted
      therein, and (ii) fairly present the financial condition of the Borrower
      and its Subsidiaries as of the date thereof and the results of their operations
      for the period covered thereby, subject, in the case of clauses (i)
      and (ii), to the absence of footnotes and to normal year-end audit
      adjustments.

     

    (c)  Since
      the
      date of the Audited Financial Statements, there has been no event or
      circumstance, either individually or in the aggregate, that has had or could
      reasonably be expected to have a Material Adverse Effect.

     

    5.06  Litigation.  Taking
      into account the litigation and corresponding judgment described on
Schedule 5.06, there are no actions, suits, proceedings, claims or
      disputes pending or, to the knowledge of the Borrower after due and diligent
      investigation, threatened or contemplated, at law, in equity, in arbitration
      or
      before any Governmental Authority, by or against the Borrower or any of its
      Subsidiaries or against any of their properties or revenues that
      (a) purport to affect or pertain to this Agreement or any other Loan
      Document, or any of the

     

    
      
        
        

      

      
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    transactions
      contemplated hereby, or (b) either individually or in the aggregate, if
      determined adversely, could reasonably be expected to have a Material Adverse
      Effect.

     

    5.07  No
      Default.  Neither
      the Borrower nor any Subsidiary is in default under or with respect to any
      Contractual Obligation that, either individually or in the aggregate, could
      reasonably be expected to have a Material Adverse Effect.  No Default
      has occurred and is continuing or would result from the consummation of the
      transactions contemplated by this Agreement or any other Loan
      Document.

     

    5.08  Ownership
      of Property; Liens.  Each
      of the Borrower and each Subsidiary has good record and marketable title in
      fee
      simple to, or valid leasehold interests in, all real property necessary or
      used
      in the ordinary conduct of its business, except for such defects in title as
      could not, individually or in the aggregate, reasonably be expected to have
      a
      Material Adverse Effect.  The property of the Borrower and its
      Subsidiaries is subject to no Liens, other than Permitted Liens.

     

    5.09  Environmental
      Compliance.  The
      Borrower and its Subsidiaries conduct in the ordinary course of business a
      review of the effect of existing Environmental Laws and claims alleging
      potential liability or responsibility for violation of any Environmental Law
      against their respective businesses, operations and properties, and as a result
      thereof the Borrower has reasonably concluded that such Environmental Laws
      and
      claims could not, individually or in the aggregate, reasonably be expected
      to
      have a Material Adverse Effect.

     

    5.10  Insurance.  The
      properties and business of the Borrower and its Subsidiaries are insured with
      financially sound and reputable insurance companies in such amounts (after
      giving effect to any self-insurance compatible with the following standards),
      with such deductibles and covering such risks as are (a) customarily
      carried by companies engaged in similar businesses and owning similar properties
      in localities where the Borrower or the applicable Subsidiary operates, and
      (b) necessary to ensure that Uninsured Liabilities of the Borrower or any
      Subsidiary are not reasonably likely to result in a Material Adverse
      Effect.

     

    5.11  Taxes.  The
      Borrower and its Subsidiaries have filed all Federal, state and other material
      tax returns and reports required to be filed, and have paid all Federal, state
      and other material taxes, assessments, fees and other governmental charges
      levied or imposed upon them or their properties, income or assets otherwise
      due
      and payable, except those being contested in good faith by appropriate
      proceedings diligently conducted and for which adequate reserves have been
      provided in accordance with GAAP.  There is no proposed tax assessment
      against the Borrower or any Subsidiary that would, if made, have a Material
      Adverse Effect.

     

    5.12  ERISA
      Compliance.

     

    (a)  Each
      Plan
      is in compliance in all material respects with the applicable provisions of
      ERISA, the Code and other Federal or state Laws.  Each Plan that is
      intended to qualify under Section 401(a) of the Code has received a
      favorable determination letter from the IRS or an application for such a letter
      is currently being processed by the IRS with respect thereto and, to the best
      knowledge of the Borrower, nothing has occurred that would prevent, or cause
      the
      loss of, such qualification.  The

     

    
      
        
        

      

      
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    Borrower
      and each ERISA Affiliate have made all required contributions to each Plan
      subject to Section 412 of the Code, and no application for a funding waiver
      or
      an extension of any amortization period pursuant to Section 412 of the Code
      has been made with respect to any Plan.

     

    (b)  There
      are
      no pending or, to the best knowledge of the Borrower, threatened claims, actions
      or lawsuits, or action by any Governmental Authority, with respect to any Plan
      that could be reasonably be expected to have a Material Adverse
      Effect.  There has been no prohibited transaction or violation of the
      fiduciary responsibility rules with respect to any Plan that has resulted or
      could reasonably be expected to result in a Material Adverse
      Effect.

     

    (c)  (i)
       No ERISA Event has occurred or is reasonably expected to occur;
      (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither
      the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to
      incur, any liability under Title IV of ERISA with respect to any Pension
      Plan (other than premiums due and not delinquent under Section 4007 of ERISA);
      (iv) neither the Borrower nor any ERISA Affiliate has incurred, or
      reasonably expects to incur, any liability (and no event has occurred that,
      with
      the giving of notice under Section 4219 of ERISA, would result in such
      liability) under Sections 4201 or 4243 of ERISA with respect to a
      Multiemployer Plan; and (v) neither the Borrower nor any ERISA Affiliate
      has engaged in a transaction that could be subject to Sections 4069 or
      4212(c) of ERISA.

     

    5.13  Subsidiaries.  The
      Borrower has no Subsidiaries other than those specifically disclosed in
      Part (a) of Schedule 5.13 and has no equity investments in any
      other Person other than those specifically disclosed in Part (b) of
Schedule 5.13.  Upon completion of the NHR Acquisition,
      the organizational structure of the Borrower and its Subsidiaries will be in
      all
      material respects as described on Schedule 5.13.

     

    5.14  Margin
      Regulations; Investment Company Act .

     

    (a)  The
      Borrower is not engaged and will not engage, principally or as one of its
      important activities, in the business of purchasing or carrying margin stock
      (within the meaning of Regulation U issued by the FRB), or extending credit
      for the purpose of purchasing or carrying margin stock.

     

    (b)  None
      of
      the Borrower, any Person Controlling the Borrower, or any Subsidiary is or
      is
      required to be registered as an "investment company" under the Investment
      Company Act of 1940.

     

    5.15  Disclosure.  The
      Borrower has disclosed to the Lender all agreements, instruments and corporate
      or other restrictions to which it or any of its Subsidiaries is subject, and
      all
      other matters known to it, that, individually or in the aggregate, could
      reasonably be expected to result in a Material Adverse Effect.  No
      report, financial statement, certificate or other information furnished (whether
      in writing or orally) by or on behalf of any Loan Party to the Lender in
      connection with the transactions contemplated hereby and the negotiation of
      this
      Agreement or delivered hereunder (as modified or supplemented by other
      information so

     

    
      
        
        

      

      
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    furnished)
      contains any material misstatement of fact or omits to state any material fact
      necessary to make the statements therein, in the light of the circumstances
      under which they were made, not misleading; provided that with respect to
      projected financial information, the Borrower represents only that such
      information was prepared in good faith based upon assumptions believed to be
      reasonable at the time.

     

    5.16  Compliance
      with Laws.  Each
      of the Borrower and each Subsidiary is in compliance in all material respects
      with the requirements of all Laws and all orders, writs, injunctions and decrees
      applicable to it or to its properties, except in such instances in which
      (a) such requirement of Law or order, writ, injunction or decree is being
      contested in good faith by appropriate proceedings diligently conducted or
      (b) the failure to comply therewith, either individually or in the
      aggregate, could not reasonably be expected to have a Material Adverse
      Effect.

     

    5.17  Intellectual
      Property; Licenses, Etc.  The
      Borrower and its Subsidiaries own, or possess the right to use, all material
      trademarks, service marks, trade names, copyrights, patents, patent rights,
      franchises, licenses and other intellectual property rights (collectively,
      "IP Rights") that are reasonably necessary for the operation of their
      respective businesses, without conflict with the rights of any other
      Person.  To the knowledge of the Borrower, no slogan or other
      advertising device, product, process, method, substance, part or other material
      now employed, or now contemplated to be employed, by the Borrower or any
      Subsidiary infringes upon any rights held by any other Person.  No
      claim or litigation regarding any of the foregoing is pending or, to the best
      knowledge of the Borrower, threatened, that, either individually or in the
      aggregate, could reasonably be expected to have a Material Adverse
      Effect.

     

    5.18  Certain
      Subsidiaries.

     

    (a)  FMSC,
      Inc., a Florida corporation that is a direct Subsidiary of the Borrower, has
      no
      assets other than the leasehold interest owned by it on the date of this
      Agreement plus cash and cash equivalents not to exceed $50,000 at any one
      time.

     

    (b)  None
      of
      NHC Delaware Investments Inc., a Delaware corporation, NHC Healthcare/Lake
      City,
      Inc., a Florida corporation, and NHC Healthcare/Pensacola, Inc., a Florida
      corporation, owns any Subsidiary Equity (as defined in the Pledge and Security
      Agreement).

     

    ARTICLE
      6.

    AFFIRMATIVE
      COVENANTS

     

    So
      long as the Commitment shall be in
      effect, any Loan or other Obligation hereunder shall remain unpaid or
      unsatisfied, or any Letter of Credit shall remain outstanding, the Borrower
      shall, and shall (except in the case of the covenants set forth in
Sections 6.01, 6.02, 6.03, 6.11 and
6.13) cause each Subsidiary to:

    

    6.01  Financial
      Statements.  Deliver
      to the Lender, in form and detail satisfactory to the Lender:

     

    
      
        
        

      

      
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    (a)  as
      soon
      as available, but in any event within 90 days after the end of each fiscal
      year
      of the Borrower, a consolidated balance sheet of the Borrower and its
      Subsidiaries as at the end of such fiscal year, and the related consolidated
      statements of income or operations, shareholders' equity and cash flows for
      such
      fiscal year, setting forth in each case in comparative form the figures for
      the
      previous fiscal year, all in reasonable detail and prepared in accordance with
      GAAP, audited and accompanied by a report and opinion of an independent
      certified public accountant of nationally recognized standing reasonably
      acceptable to the Lender, which report and opinion shall be prepared in
      accordance with generally accepted auditing standards and shall not be subject
      to any "going concern" or like qualification or exception or any qualification
      or exception as to the scope of such audit; and

     

    (b)  as
      soon
      as available, but in any event within 45 days after the end of each of the
      first
      three fiscal quarters of each fiscal year of the Borrower, a consolidated
      balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal
      quarter, and the related consolidated statements of income or operations,
      shareholders' equity and cash flows for such fiscal quarter and for the portion
      of the Borrower's fiscal year then ended, setting forth in each case in
      comparative form the figures for the corresponding fiscal quarter of the
      previous fiscal year and the corresponding portion of the previous fiscal year,
      all in reasonable detail and certified by a Responsible Officer of the Borrower
      as fairly presenting the financial condition, results of operations,
      shareholders' equity and cash flows of the Borrower and its Subsidiaries in
      accordance with GAAP, subject only to normal year-end audit adjustments and
      the
      absence of footnotes.

     

    As
      to any
      information contained in materials furnished pursuant to
Section 6.02(c), the Borrower shall not be separately required to
      furnish such information under clause (a) or (b) above, but
      the foregoing shall not be in derogation of the obligation of the Borrower
      to
      furnish the information and materials described in subsections (a)
      and (b) above at the times specified therein.

    

    6.02  Certificates;
      Other Information.  Deliver
      to the Lender, in form and detail satisfactory to the Lender:

     

    (a)  promptly
      after any request by the Lender, copies of any detailed audit reports,
      management letters or recommendations submitted to the board of directors (or
      the audit committee of the board of directors) of the Borrower by independent
      accountants in connection with the accounts or books of the Borrower or any
      Subsidiary, or any audit of any of them;

     

    (b)  promptly
      after the same are available, copies of each annual report, quarterly report,
      proxy statement, financial statement or other report or communication sent
      to
      the stockholders of the Borrower;

     

    (c)  promptly
      after the same are available, and in any event within five days after the date
      filed with the SEC, copies of all annual, quarterly, regular, periodic and
      special reports and registration statements that the Borrower may file or be
      required to file with the SEC under Section 13 or 15(d) of the Securities
      and Exchange Act of 1934, and not otherwise required to be delivered to the
      Lender pursuant hereto; and

     

    
      
        
        

      

      
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    (d)  promptly,
      such additional information regarding the business, financial or corporate
      affairs of the Borrower or any Subsidiary, or compliance with the terms of
      the
      Loan Documents, as the Lender may from time to time reasonably
      request.

     

    Documents
      required to be delivered
      pursuant to Section 6.01(a) or (b) or
Section 6.02(b) or (c) (to the extent any such documents are
      included in materials otherwise filed with the SEC) may be delivered
      electronically and if so delivered, shall be deemed to have been delivered
      on
      the date on which the Borrower posts such documents, or provides a link thereto
      on the Borrower's website on the Internet at the website address listed on
      Schedule 9.02; provided that: (i) if the Lender so
      requests, the Borrower shall deliver paper copies of such documents to the
      Lender until a written request to cease delivering paper copies is given by
      the
      Lender and (ii) the Borrower shall notify (which may be by facsimile or
      electronic mail) the Lender of the posting of any such documents.

    

    6.03  Notices.  Promptly
      notify the Lender:

     

    (a)  of
      the
      occurrence of any Default;

     

    (b)  of
      the
      entry of a judgment in excess of the Threshold Amount against, or the filing
      of
      a proceeding under any Debtor Relief Law by or against, any Single-Asset Nursing
      Home Subsidiary;

     

    (c)  of
      any
      matter that has resulted or could reasonably be expected to result in a Material
      Adverse Effect, including the following (to the extent that the same has
      resulted or could reasonably be expected to result in a Material Adverse Effect
      ):  (i) breach or non-performance of, or any default under, a
      Contractual Obligation of the Borrower or any Subsidiary; (ii) any dispute,
      litigation, investigation, proceeding or suspension between the Borrower or
      any
      Subsidiary and any Governmental Authority; or (iii) the commencement of, or
      any material development in, any litigation or proceeding affecting the Borrower
      or any Subsidiary, including pursuant to any applicable Environmental
      Laws;

     

    (d)  of
      the
      occurrence of any ERISA Event; and

     

    (e)  of
      any
      material change in accounting policies or financial reporting practices by
      the
      Borrower or any Subsidiary.

     

    Each
      notice pursuant to this Section
      shall be accompanied by a statement of a Responsible Officer of the Borrower
      setting forth details of the occurrence referred to therein and stating what
      action the Borrower has taken and proposes to take with respect
      thereto.  Each notice pursuant to Section 6.03(a) shall
      describe with particularity any and all provisions of this Agreement and any
      other Loan Document that have been breached.

    

    6.04  Payment
      of Obligations.  Except
      where a failure to do so could not reasonably be expected to have a Material
      Adverse Effect or result in a Default, pay and discharge as the same shall
      become due and payable, all its obligations and liabilities, including
      (a) all tax liabilities, assessments and governmental charges or levies
      upon it or its properties or assets,

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

    unless
      the same are being contested in good faith by appropriate proceedings diligently
      conducted and adequate reserves in accordance with GAAP are being maintained
      by
      the Borrower or such Subsidiary; (b) all lawful claims that, if unpaid,
      would by law become a Lien upon its property; and (c) all Indebtedness, as
      and when due and payable, but subject to any subordination provisions contained
      in any instrument or agreement evidencing such Indebtedness.

     

    6.05  Preservation
      of Existence, Etc.  (a) Except
      as the result of a transaction permitted by Section 7.04 or
7.05, preserve, renew and maintain in full force and effect its
      legal
      existence and good standing under the Laws of the jurisdiction of its
      organization and each jurisdiction in which a material part of its property
      is
      located or the nature of its business so requires; (b) take all reasonable
      action to maintain all rights, privileges, permits, accreditations,
      certifications, licenses and franchises necessary or desirable in the normal
      conduct of its business, except to the extent that failure to do so could not
      reasonably be expected to have a Material Adverse Effect; and (c) preserve
      or renew all of its registered patents, trademarks, trade names and service
      marks, the non-preservation of which could reasonably be expected to have a
      Material Adverse Effect.

     

    6.06  Maintenance
      of Properties.  Except
      where a failure to do so could not reasonably be expected to have a Material
      Adverse Effect, (a) maintain, preserve and protect all of its material
      properties and equipment necessary in the operation of its business in good
      working order and condition, ordinary wear and tear excepted, (b) make all
      necessary repairs thereto and renewals and replacements thereof, and
      (c) use the standard of care typical in the industry in the operation and
      maintenance of its facilities.

     

    6.07  Maintenance
      of Insurance.  Maintain
      with financially sound and reputable insurance companies reasonably acceptable
      to Lender, insurance with respect to its properties and business in such
      amounts, with such deductibles and covering such risks as are
      (a) customarily carried by companies engaged in similar businesses and
      owning similar properties in localities where the Borrower or the applicable
      Subsidiary operates, and (b) necessary to ensure that Uninsured Liabilities
      of the Borrower or any Subsidiary are not reasonably likely to result in a
      Material Adverse Effect.

     

    6.08  Compliance
      with Laws.  Comply
      in all material respects with the requirements of all Laws and all orders,
      writs, injunctions and decrees applicable to it or to its business or property,
      except in such instances in which (a) such requirement of Law or order,
      writ, injunction or decree is being contested in good faith by appropriate
      proceedings diligently conducted, or (b) a failure to comply could not
      reasonably be expected to have a Material Adverse Effect.

     

    6.09  Books
      and Records.  (a) Maintain
      proper books of record and account in which full, true and correct entries
      in
      conformity with GAAP consistently applied shall be made of all financial
      transactions and matters involving the assets and business of the Borrower
      or
      such Subsidiary, as the case may be, and (b) maintain such books of record
      and account in material conformity with all applicable requirements of any
      Governmental Authority having regulatory jurisdiction over the Borrower or
      such
      Subsidiary, as the case may be.

     

    
      
        
        

      

      
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    6.10  Inspection
      Rights.  Permit
      representatives and independent contractors of the Lender to visit and inspect
      any of its properties, to examine its corporate, financial and operating records
      and make copies thereof or abstracts therefrom, and to discuss its affairs,
      finances and accounts with its directors, officers, and independent public
      accountants, all at such reasonable times during normal business hours and
      as
      often as may be reasonably desired, upon reasonable advance notice to the
      Borrower; provided, however, that when an Event of Default exists the
      Lender (or any of its representatives or independent contractors) may do any
      of
      the foregoing at the expense of the Borrower at any time during normal business
      hours and without advance notice.

     

    6.11  Use
      of Proceeds.  Use
      the proceeds of the Credit Extensions for general corporate purposes not in
      contravention of any Law or of any Loan Document.

     

    6.12  Additional
      Guarantors.  Notify
      the Lender at the time that any Person becomes a Required Guarantor, and
      promptly thereafter (and in any event within 15 days, in the case of
      Post-Acquisition NHR, and 30 days, in the case of any other Required Guarantor),
      cause such Person to (a) become a Guarantor by executing and delivering to
      the Lender a counterpart of the Guaranty or such other documents as the Lender
      shall deem appropriate for such purpose, (b) become a grantor under the
      Pledge and Security Agreement by executing and delivering to the Lender a
      counterpart of the Pledge and Security Agreement or such other documents as
      the
      Lender shall deem appropriate for such purpose, and execute, deliver or furnish
      to the Lender the instruments and certificates contemplated thereby, together
      with evidence satisfactory to the Lender and its legal counsel confirming that
      the security interests of the Lender in the Collateral of such Person pursuant
      to the Pledge and Security Agreement are first priority security interests,
      subject only to Permitted Liens, and (c) deliver to the Lender documents of
      the
      types referred to in clauses (iii) and (iv) of Section
      4.01(a) and favorable opinions of counsel to such Person (which shall cover,
      among other things, the legality, validity, binding effect and enforceability
      of
      the documentation referred to in clauses (a) and (b)), all in
      form, content and scope reasonably satisfactory to the Lender.

     

    6.13  Termination
      of Commitment and Prepayment.  Terminate
      the Commitment pursuant to Section 2.05 and simultaneously repay in full
      all outstanding Loans and other Obligations in the event that the NHR
      Acquisition has not been fully consummated and Post-Acquisition NHR has not
      complied with the requirements of Section 6.12 on or before
      December 28, 2007.

     

    ARTICLE
      7.

    NEGATIVE
      COVENANTS

     

    So
      long as the Commitment shall be in
      effect, any Loan or other Obligation hereunder shall remain unpaid or
      unsatisfied, or any Letter of Credit shall remain outstanding, the Borrower
      shall not, nor shall it permit any Subsidiary to, directly or
      indirectly:

    

    7.01  Liens.  Create,
      incur, assume or suffer to exist any Lien upon any of its property, assets
      or
      revenues, whether now owned or hereafter acquired, other than the
      following:

     

    
      
        
        

      

      
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    (a)  Liens
      pursuant to any Loan Document, and other Liens securing Indebtedness owed to
      the
      Lender or an Affiliate of the Lender;

     

    (b)  Liens
      existing on the date hereof and listed on Schedule 7.01 and any
      renewals or extensions thereof, provided that the property covered
      thereby is not increased and any renewal or extension of the obligations secured
      or benefited thereby is permitted by Section 7.03(b);

     

    (c)  Liens
      for
      taxes not yet due or that are being contested in good faith and by appropriate
      proceedings diligently conducted, if adequate reserves with respect thereto
      are
      maintained on the books of the applicable Person in accordance with
      GAAP;

     

    (d)  carriers',
      warehousemen's, mechanics', materialmen's, repairmen's or other like Liens
      arising in the ordinary course of business that are not overdue for a period
      of
      more than 30 days or that are being contested in good faith and by appropriate
      proceedings diligently conducted, if adequate reserves with respect thereto
      are
      maintained on the books of the applicable Person;

     

    (e)  pledges
      or deposits in the ordinary course of business in connection with workers'
      compensation, unemployment insurance and other social security legislation,
      other than any Lien imposed by ERISA;

     

    (f)  deposits
      to secure the performance of bids, trade contracts and leases (other than
      Indebtedness), statutory obligations, surety bonds (other than bonds related
      to
      judgments or litigation), performance bonds and other obligations of a like
      nature incurred in the ordinary course of business;

     

    (g)  easements,
      rights-of-way, restrictions and other similar encumbrances affecting real
      property that, in the aggregate, are not substantial in amount, and that do
      not
      in any case materially detract from the value of the property subject thereto
      or
      materially interfere with the ordinary conduct of the business of the applicable
      Person;

     

    (h)  Liens
      securing judgments for the payment of money not constituting an Event of Default
      under Section 8.01(h) or securing appeal or other surety bonds
      related to such judgments;

     

    (i)  Liens
      securing Indebtedness permitted under Section 7.03(e);
provided that (i) such Liens do not at any time encumber any
      property other than the property financed by such Indebtedness and (ii) the
      Indebtedness secured thereby does not exceed the cost or fair market value,
      whichever is lower, of the property being acquired on the date of
      acquisition;

     

    (j)  Liens
      securing Indebtedness permitted under Section 7.03(g);
provided that (i) such Liens existed at the time such Person became
      a Subsidiary or at the time such assets were acquired and, in each case, were
      not created in anticipation or contemplation thereof, and (ii) such Liens
      do not extend to property not subject to such Liens at the time of acquisition
      (other than improvements thereon or thereto);

     

    
      
        
        

      

      
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    (k)  Liens
      not
      otherwise permitted under this Section 7.01 securing Indebtedness in
      an aggregate amount not exceeding $30,000,000 outstanding at any one
      time.

     

    7.02  Investments.  Make
      any Investments, except:

     

    (a)  Investments
      held by the Borrower or such Subsidiary in the form of cash
      equivalents;

     

    (b)  Investments
      in existence on the date hereof and identified on Schedule 7.02, and
      any refinancing, refunding, renewal or extension of any such Investment that
      does not increase the amount thereof;

     

    (c)  Investments
      of (i) any Loan Party in any other Loan Party, (ii) any
      Subsidiary that is not a Loan Party in any other Subsidiary that is not a Loan
      Party, and (iii) any Subsidiary that is not a Loan Party in any Loan Party,
provided that any such Investment pursuant to this
clause (iii) that constitutes Indebtedness shall be subordinated to
      the Obligations on terms and conditions satisfactory to the Lender, in its
      discretion;

     

    (d)  advances
      to officers, directors and employees of the Borrower and its Subsidiaries in
      an
      aggregate amount not to exceed $1,000,000 at any time outstanding, for travel,
      entertainment, relocation and analogous ordinary business purposes;

     

    (e)  Investments
      consisting of extensions of credit in the nature of accounts receivable or
      notes
      receivable arising from the grant of trade credit in the ordinary course of
      business, and Investments received in satisfaction or partial satisfaction
      thereof from financially troubled account debtors to the extent reasonably
      necessary in order to prevent or limit loss;

     

    (f)  Guarantees
      permitted by Section 7.03;

     

    (g)  consummation
      of the NHR Acquisition in accordance with the terms and conditions of the NHR
      Acquisition Agreement as in effect on the date of this Agreement;

     

    (h)  the
      Royal
      Health Acquisition; provided that the total consideration paid therefor
      (inclusive of any Indebtedness described in Section 7.03(g)) does
      not exceed $40,000,000;

     

    (i)  Investments
      not exceeding $15,000,000 outstanding at any one time that constitute working
      capital advances to Persons described in Section 501(c)(3) of the Code who
      own or operate a Facility managed by the Borrower or a Subsidiary of the
      Borrower;

     

    (j)  Investments
      in Subsidiaries not otherwise permitted under this Section 7.02 in
      an aggregate amount not exceeding $75,000,000 outstanding at any one time;
      and

     

    (k)  Other
      Investments not otherwise permitted under this Section 7.02 in an
      aggregate amount not exceeding $10,000,000 outstanding at any one
      time.

     

    
      
        
        

      

      
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    7.03  Indebtedness.  Create,
      incur, assume or suffer to exist any Indebtedness, except:

     

    (a)  Indebtedness
      under the Loan Documents, and other Indebtedness owed to the Lender or an
      Affiliate of the Lender;

     

    (b)  Indebtedness
      outstanding on the date hereof and listed on Schedule 7.03 and any
      refinancings, refundings, renewals or extensions thereof; provided that
      (i) the amount of such Indebtedness is not increased at the time of such
      refinancing, refunding, renewal or extension except by an amount equal to a
      reasonable premium or other reasonable amount paid, and fees and expenses
      reasonably incurred, in connection with such refinancing and by an amount equal
      to any existing commitments unutilized thereunder, and (ii) Indebtedness
      subordinated to the Obligations may be refinanced only on subordination terms
      that are at least as favorable to the Lender as, and no more restrictive on
      the
      Borrower than, those for the subordinated Indebtedness being refinanced, and
      in
      an amount not less than the amount outstanding at the time of
      refinancing;

     

    (c)  Guarantees
      of the Borrower or any Guarantor in respect of Indebtedness of the Borrower
      or
      any other Guarantor otherwise permitted hereunder;

     

    (d)  obligations
      (contingent or otherwise) of the Borrower or any Guarantor existing or arising
      under any Swap Contract, provided that (i) such obligations are (or
      were) entered into by such Person in the ordinary course of business for the
      purpose of directly mitigating risks associated with liabilities, commitments,
      investments, assets or property held or reasonably anticipated by such Person,
      or changes in the value of securities issued by such Person, and not for
      purposes of speculation or taking a "market view;" and (ii) such Swap
      Contract does not contain any provision exonerating the non-defaulting party
      from its obligation to make payments on outstanding transactions to the
      defaulting party;

     

    (e)  Indebtedness
      in respect of capital leases, Synthetic Lease Obligations and purchase money
      obligations for fixed or capital assets within the limitations set forth in
      Section 7.01(i); provided, however, that the aggregate amount
      of all such Indebtedness at any one time outstanding shall not exceed
      $10,000,000;

     

    (f)  unsecured
      Indebtedness of the Borrower owed to Premier Plus, in an aggregate principal
      amount not to exceed $30,000,000, evidenced by a Demand Promissory Note dated
      October 30, 2007 in the aforesaid amount, made and executed by the Borrower
      and payable to the order of Premier Plus; provided, however, that
      not more than $20,000,000 in the aggregate of any amounts repaid in respect
      of
      said Indebtedness after the Closing Date may be readvanced;

     

    (g)   (i) Indebtedness
      of a Person or Indebtedness encumbering assets of a Person that, in either
      case,
      becomes a Subsidiary, or Indebtedness encumbering assets that are acquired
      by
      the Borrower or any of its Subsidiaries, in each case as a result of the Royal
      Health Acquisition, in an aggregate amount not to exceed $20,000,000 at any
      one
      time outstanding, provided that (A) such Indebtedness existed at the
      time such Person

     

    
      
        
        

      

      
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    became
      a
      Subsidiary or at the time such assets were acquired and, in each case, was
      not
      created in anticipation or contemplation thereof and (B) such Indebtedness
      is not guaranteed in any respect by Borrower or any Subsidiary (other than
      by
      any such Person that so becomes a Subsidiary) and (ii) any refinancing,
      refunding, renewal or extension of any Indebtedness specified in the preceding
      clause (i), provided that (x) the principal amount of
      any such Indebtedness is not increased above the principal amount thereof
      outstanding immediately prior to such refinancing, refunding, renewal or
      extension, (y) the direct and contingent obligors with respect to such
      Indebtedness are not changed and (z) such Indebtedness is not secured by
      any assets other than the assets securing the Indebtedness being renewed,
      extended or refinanced;

     

    (h)  Indebtedness
      constituting an Investment permitted by paragraph (h) of
Section 7.02; and

     

    (i)  Indebtedness
      not otherwise permitted under this Section 7.03 in an aggregate
      amount not exceeding $30,000,000 outstanding at any one time.

     

    7.04  Fundamental
      Changes.  Merge,
      dissolve, liquidate, consolidate with or into another Person, or Dispose of
      (whether in one transaction or in a series of transactions) all or substantially
      all of its assets (whether now owned or hereafter acquired) to or in favor
      of
      any Person, except that, so long as no Default exists or would result
      therefrom:

     

    (a)  any
      Subsidiary may merge with (i) the Borrower, provided that the
      Borrower shall be the continuing or surviving Person, or (ii) any one or
      more other Subsidiaries, provided that when any Guarantor merges with
      another Subsidiary, a Guarantor shall be the continuing or surviving
      Person;

     

    (b)  any
      Subsidiary may Dispose of all or substantially all of its assets (upon voluntary
      liquidation or otherwise) to the Borrower or to another Subsidiary;
provided that if the transferor in such a transaction is a Guarantor,
      then the transferee must either be the Borrower or a Guarantor;

     

    (c)  any
      Subsidiary that is not a Guarantor may (i) Dispose of all or substantially
      all of its assets in a transaction permitted by Section 7.05 (other
      than one permitted only by Section 7.05(e)), or (ii) liquidate
      or dissolve if the Borrower determines in good faith that such liquidation
      or
      dissolution is in the best interests of the Borrower and is not materially
      disadvantageous to the Lender..

     

    7.05  Dispositions.  Make
      any Disposition or enter into any agreement to make any Disposition,
      except:

     

    (a)  Dispositions
      of obsolete or worn out property, whether now owned or hereafter acquired,
      in
      the ordinary course of business;

     

    (b)  Dispositions
      of inventory in the ordinary course of business;

     

    (c)  Dispositions
      of equipment or real property to the extent that (i) such property is
      exchanged for credit against the purchase price of similar
      replacement

     

    
      
        
        

      

      
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    property
      or (ii) the proceeds of such Disposition are reasonably promptly applied to
      the purchase price of such replacement property;

     

    (d)  Dispositions
      of property by any Subsidiary to the Borrower or to a wholly-owned Subsidiary;
      provided that if the transferor of such property is a Guarantor, the
      transferee thereof must either be the Borrower or a Guarantor;

     

    (e)  Dispositions
      permitted by Section 7.04; and

     

    (f)  Dispositions
      by the Borrower and its Subsidiaries not otherwise permitted under this
Section 7.05; provided that (i) at the time of such
      Disposition, no Default shall exist or would result from such Disposition and
      (ii) the aggregate book value of all property Disposed of in reliance on
      this clause (f) in any fiscal year shall not exceed an amount equal
      to ten percent (10%) of the consolidated net worth of the Borrower and its
      Subsidiaries as of the end of the immediately preceding fiscal
      year;

     

    provided,
      however, that any Disposition pursuant to clauses (a) through
(c) and (f) shall be for fair market value.

    

    7.06  Restricted
      Payments.  Declare
      or make, directly or indirectly, any Restricted Payment, or incur any obligation
      (contingent or otherwise) to do so, except that any or all of the following
      shall be permitted:

     

    (a)  each
      Subsidiary may make Restricted Payments to the Borrower and to Subsidiaries
      (and, in the case of a Restricted Payment by a non-wholly-owned Subsidiary,
      to
      the Borrower and any Subsidiary and to each other owner of capital stock or
      other equity interests of such Subsidiary on a pro rata basis based on
      their relative ownership interests);

     

    (b)  the
      Borrower may declare and make dividend payments or other distributions payable
      solely in the common stock or other common equity interests of such
      Person;

     

    (c)  the
      Borrower and each Subsidiary may purchase, redeem or otherwise acquire shares
      of
      its common stock or other common equity interests or warrants or options to
      acquire any such shares with the proceeds received from the substantially
      concurrent issue of new shares of its common stock or other common equity
      interests;

     

    (d)  Restricted
      Payments made in connection with the consummation of the NHR Acquisition as
      required by the NHR Acquisition Agreement as in effect on the date of this
      Agreement shall be permitted; and

     

    (e)  the
      Borrower may declare or pay cash dividends to its stockholders and purchase,
      redeem or otherwise acquire shares of its capital stock or warrants, rights
      or
      options to acquire any such shares for cash solely out of 60% of the
      consolidated net income of the Borrower and its Subsidiaries arising after
      December 31, 2006, taking into account all such transactions on a
      cumulative consolidated basis occurring subsequent to

     

    
      
        
        

      

      
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    that
      date; provided that in each case no Default exists or would exist
      immediately after giving effect to the proposed transaction.

     

    7.07  Change
      in Nature of Business.  Engage
      in any material line of business substantially different from those lines of
      business conducted by the Borrower and its Subsidiaries on the date hereof
      or
      any business substantially related or incidental thereto.

     

    7.08  Transactions
      with Affiliates.  Enter
      into any transaction of any kind with any Affiliate of the Borrower, whether
      or
      not in the ordinary course of business, other than on fair and reasonable terms
      substantially as favorable to the Borrower or such Subsidiary as would be
      obtainable by the Borrower or such Subsidiary at the time in a comparable arm's
      length transaction with a Person other than an Affiliate; provided that
      the foregoing restriction shall not apply to transactions between or among
      the
      Borrower and any of its wholly-owned Subsidiaries or between and among any
      wholly-owned Subsidiaries.

     

    7.09  Burdensome
      Agreements.  Enter
      into any Contractual Obligation (other than this Agreement or any other Loan
      Document) that (a) limits the ability (i) of any Subsidiary to make
      loans, advances or Restricted Payments to the Borrower or any Guarantor or
      otherwise to transfer property to the Borrower or any Guarantor, (ii) of
      any Subsidiary to Guarantee the Indebtedness of the Borrower or (iii) of
      the Borrower or any Subsidiary to create, incur, assume or suffer to exist
      Liens
      on property of such Person; provided, however, that this
clause (iii) shall not prohibit any negative pledge incurred or
      provided in favor of any holder of Indebtedness permitted under Section
      7.03(e) solely to the extent any such negative pledge relates to the
      property financed by or the subject of such Indebtedness; or (b) requires
      the grant of a Lien to secure an obligation of such Person if a Lien is granted
      to secure another obligation of such Person.

     

    7.10  Use
      of Proceeds.  Use
      the proceeds of any Credit Extension, whether directly or indirectly, and
      whether immediately, incidentally or ultimately, to purchase or carry margin
      stock (within the meaning of Regulation U of the FRB) or to extend credit to
      others for the purpose of purchasing or carrying margin stock or to refund
      indebtedness originally incurred for such purpose.

     

    7.11  Equity
      Interests of Premier Group and Premier Plus.  Sell,
      transfer or convey, or create, incur, assume or suffer to exist any Lien upon,
      any of the Equity Interests of Premier Group or Premier Plus now or hereafter
      outstanding.

     

    ARTICLE
      8.

    EVENTS
      OF DEFAULT AND REMEDIES 

     

    8.01  Events
      of Default.  Any
      of the following shall constitute an Event of Default:

     

    (a)  Non-Payment.  The
      Borrower or any other Loan Party fails to pay (i) when and as required to
      be paid herein, any amount of principal of any Loan or any L/C Obligation,
      or
      (ii) within three days after the same becomes due, any interest on any
      Loan or on any L/C Obligation, or any fee due hereunder, or (iii) within five
      days after the same becomes due, any other amount payable hereunder or under
      any
      other Loan Document; or

     

    
      
        
        

      

      
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    (b)  Specific
      Covenants.  The Borrower fails to perform or observe any term,
      covenant or agreement contained in any of Section 6.01, 6.02,
6.03, 6.05, 6.10, 6.11, 6.12 or 6.13
      or Article 7; or

     

    (c)  Other
      Defaults.  An Event of Default, as described and defined in any
      Loan Document, occurs under such Loan Document, or any Loan Party fails to
      perform or observe any other covenant or agreement (not specified in
subsection (a) or (b) above) contained in any Loan Document
      on its part to be performed or observed, and such failure continues for 30
      days
      after the earlier to occur of (i) the date on which a Responsible Officer
      of a Loan Party first learns of such failure, or (ii) the effective date of
      notice of such failure given by Lender; or

     

    (d)  Representations
      and Warranties.  Any representation, warranty, certification or
      statement of fact made or deemed made by or on behalf of the Borrower or any
      other Loan Party herein, in any other Loan Document or in any document delivered
      in connection herewith or therewith shall be incorrect or misleading in any
      material respect when made or deemed made; or

     

    (e)  Cross-Default.  (i) The
      Borrower or any Subsidiary (A) fails to make any payment when due (whether
      by scheduled maturity, required prepayment, acceleration, demand, or otherwise)
      in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder
      and Indebtedness under Swap Contracts) having an aggregate principal amount
      (including undrawn committed or available amounts and including amounts owing
      to
      all creditors under any combined or syndicated credit arrangement) of more
      than
      the Threshold Amount, or (B) fails to observe or perform any other
      agreement or condition relating to any such Indebtedness or Guarantee or
      contained in any instrument or agreement evidencing, securing or relating
      thereto, or any other event occurs, the effect of which default or other event
      is to cause, or to permit the holder or holders of such Indebtedness or the
      beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf
      of such holder or holders or beneficiary or beneficiaries) to cause, with the
      giving of notice if required, such Indebtedness to be demanded or to become
      due
      or to be repurchased, prepaid, defeased or redeemed (automatically or
      otherwise), or an offer to repurchase, prepay, defease or redeem such
      Indebtedness to be made, prior to its stated maturity, or such Guarantee to
      become payable or cash collateral in respect thereof to be demanded; or
      (ii) there occurs, under any Swap Contract between a Loan Party and the
      Lender or an Affiliate of the Lender that relates to the Obligations or a
      portion thereof, an Early Termination Date (as defined in such Swap Contract)
      resulting from (A) any event of default under such Swap Contract as to
      which the Borrower or any Subsidiary is the Defaulting Party (as defined in
      such
      Swap Contract) or (B) any Termination Event (as so defined) under such Swap
      Contract as to which the Borrower or any Subsidiary is an Affected Party (as
      so
      defined) and, in either event, the Swap Termination Value owed by the Borrower
      or such Subsidiary as a result thereof is greater than the Threshold Amount;
      or

     

    (f)  Insolvency
      Proceedings, Etc.  Any Loan Party or any of its Subsidiaries
      institutes or consents to the institution of any proceeding under any Debtor
      Relief Law, or makes an assignment for the benefit of creditors; or applies
      for
      or consents to the

     

    
      
        
        

      

      
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    appointment
      of any receiver, trustee, custodian, conservator, liquidator, rehabilitator
      or
      similar officer for it or for all or any material part of its property; or
      any
      receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar
      officer is appointed without the application or consent of such Person and
      the
      appointment continues undischarged or unstayed for 60 calendar days; or any
      proceeding under any Debtor Relief Law relating to any such Person or to all
      or
      any material part of its property is instituted without the consent of such
      Person and continues undismissed or unstayed for 60 calendar days, or an order
      for relief is entered in any such proceeding; or

     

    (g)  Inability
      to Pay Debts; Attachment.  (i) The Borrower or any Subsidiary
      becomes unable or admits in writing its inability or fails generally to pay
      its
      debts as they become due, or (ii) any writ or warrant of attachment or
      execution or similar process is issued or levied against all or any material
      part of the property of any such Person and is not released, vacated or fully
      bonded within 30 days after its issue or levy; or

     

    (h)  Judgments.  There
      is entered against the Borrower or any Subsidiary (i) a final judgment or
      order for the payment of money in an aggregate amount exceeding the Threshold
      Amount (to the extent not covered by independent third-party insurance as to
      which the insurer does not dispute coverage), or (ii) any one or more
      non-monetary final judgments that have, or could reasonably be expected to
      have,
      individually or in the aggregate, a Material Adverse Effect and, in either
      case,
      (A) enforcement proceedings are commenced by any creditor upon such
      judgment or order, or (B) there is a period of 15 consecutive days during
      which a stay of enforcement of such judgment, by reason of a pending appeal
      or
      otherwise, is not in effect; or

     

    (i)  ERISA.  (i) An
      ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan that
      has
      resulted or could reasonably be expected to result in liability of the Borrower
      under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC
      in an aggregate amount in excess of the Threshold Amount, or (ii) the
      Borrower or any ERISA Affiliate fails to pay when due, after the expiration
      of
      any applicable grace period, any installment payment with respect to its
      withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan
      in an aggregate amount in excess of the Threshold Amount; or

     

    (j)  Invalidity
      of Loan Documents.  Any Loan Document, at any time after its
      execution and delivery and for any reason other than as expressly permitted
      hereunder or satisfaction in full of all the Obligations, ceases to be in full
      force and effect; or any Loan Party or any other Person contests in any manner
      the validity or enforceability of any Loan Document; or any Loan Party denies
      that it has any or further liability or obligation under any Loan Document,
      or
      purports to revoke, terminate or rescind any Loan Document; or

     

    (k)  Change
      of Control.  There occurs any Change of Control with respect to
      the Borrower.

     

    Notwithstanding
      the foregoing, no event described in the preceding subsections (f),
(g) or (h) of this Section 8.01 that occurs with
      respect to a Single-Asset Nursing Home Subsidiary shall

    
      
        
        

      

      
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    constitute
      an Event of Default if (i) not more than three Single-Asset Nursing Home
      Subsidiaries are affected by such events prior to the Maturity Date, and
      (ii) the occurrence of such events with respect to such Single-Asset
      Nursing Home Subsidiaries, either individually or in the aggregate, could not
      reasonably be expected to have a Material Adverse Effect.

    

    8.02  Remedies
      Upon Event of Default.  If
      any Event of Default occurs and is continuing, the Lender may take any or all
      of
      the following actions:

     

    (a)  declare
      the Commitment to be terminated, whereupon the Commitment shall be
      terminated;

     

    (b)  declare
      the unpaid principal amount of all outstanding Loans, all interest accrued
      and
      unpaid thereon, and all other amounts owing or payable hereunder or under any
      other Loan Document to be immediately due and payable, without presentment,
      demand, protest or other notice of any kind, all of which are hereby expressly
      waived by the Borrower;

     

    (c)  require
      that the Borrower Cash Collateralize the L/C Obligations (in an amount equal
      to
      the then Outstanding Amount thereof); and

     

    (d)  exercise
      all rights and remedies available to it under the Loan Documents or applicable
      law;

     

    provided,
      however, that upon the occurrence of an actual or deemed entry of an order
      for relief with respect to the Borrower under the Bankruptcy Code of the United
      States, the Commitment shall automatically terminate, the unpaid principal
      amount of all outstanding Loans and all interest and other amounts as aforesaid
      shall automatically become due and payable, and the obligation of the Borrower
      to Cash Collateralize the L/C Obligations as aforesaid shall automatically
      become effective, in each case without further act of the Lender.

    

    8.03  Application
      of Funds.  After
      the exercise of remedies provided for in Section 8.02 (or after the
      Loans have automatically become immediately due and payable and the L/C
      Obligations have automatically been required to be Cash Collateralized as set
      forth in the proviso to Section 8.02), any amounts received on
      account of the Obligations shall be applied by the Lender in such order as
      it
      elects in its sole discretion.

     

    ARTICLE
      9.

    MISCELLANEOUS

     

    9.01  Amendments;
      Etc.  No
      amendment or waiver of any provision of this Agreement or any other Loan
      Document, and no consent to any departure by the Borrower or any other Loan
      Party therefrom, shall be effective unless in writing signed by the Lender
      and
      the Borrower or the applicable Loan Party, as the case may be, and each such
      waiver or consent shall be effective only in the specific instance and for
      the
      specific purpose for which given.

     

    
      
        
        

      

      
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    9.02  Notices
      and Other Communications; Facsimile Copies.

     

    (a)  General.  Unless
      otherwise expressly provided herein, all notices and other communications
      provided for hereunder shall be in writing (including by facsimile
      transmission).  All such written notices shall be mailed, faxed or
      delivered to the address, facsimile number or (subject to
subsection (c) below) electronic mail address specified for notices
      to the applicable party on Schedule 9.02; or to such other address,
      facsimile number or electronic mail address as shall be designated by such
      party
      in a notice to the other party.  All notices and other communications
      expressly permitted hereunder to be given by telephone shall be made to the
      telephone number specified for notices to the applicable party on Schedule
      9.02, or to such other telephone number as shall be designated by such party
      in a notice to the other party.  All such notices and other
      communications shall be deemed to be given or made upon the earlier to occur
      of
      (i) actual receipt by the relevant party hereto and (ii) (A) if
      delivered by hand or by courier, when signed for by or on behalf of the relevant
      party hereto; (B) if delivered by mail, four Business Days after deposit in
      the mails, postage prepaid; (C) if delivered by facsimile, when sent and
      receipt has been confirmed by telephone; and (D) if delivered by electronic
      mail (which form of delivery is subject to the provisions of
subsection (c) below), when delivered; provided, however,
      that notices and other communications to the Lender pursuant to
Article 2 shall not be effective until actually received by the
      Lender.  In no event shall a voicemail message be effective as a
      notice, communication or confirmation hereunder.

     

    (b)  Effectiveness
      of Facsimile Documents and Signatures.  Loan Documents may be
      transmitted or signed by facsimile.  The effectiveness of any such
      documents and signatures shall, subject to applicable Law, have the same force
      and effect as manually-signed originals and shall be binding on all Loan Parties
      and the Lender.  The Lender may also require that any such documents
      and signatures be confirmed by a manually signed original thereof; provided,
      however, that the failure to request or deliver the same shall not limit the
      effectiveness of any facsimile document or signature.

     

    (c)  Limited
      Use of Electronic Mail.  Electronic mail and Internet and intranet
      websites may be used only to distribute routine communications, such as
      financial statements and other information as provided in
Section 6.02, and to distribute Loan Documents for execution by the
      parties thereto, and may not be used for any other purpose.

     

    (d)  Reliance
      by Lender.  The Lender shall be entitled to rely and act upon any
      notices (including telephonic Loan Notices) purportedly given by or on behalf
      of
      the Borrower even if (i) such notices were not made in a manner specified
      herein, were incomplete or were not preceded or followed by any other form
      of
      notice specified herein, or (ii) the terms thereof, as understood by the
      recipient, varied from any confirmation thereof.  The Borrower shall
      indemnify the Lender, its Affiliates, and their respective officers, directors,
      employees, agents and attorneys-in-fact from all losses, costs, expenses and
      liabilities resulting from the reliance by such Person on each notice
      purportedly given by or on behalf of the Borrower.  All telephonic
      notices to and other communications with the Lender may be recorded by the
      Lender, and the Borrower hereby consents to such recording.

     

    
      
        
        

      

      
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    9.03  No
      Waiver; Cumulative Remedies.  No
      failure by the Lender to exercise, and no delay by the Lender in exercising,
      any
      right, remedy, power or privilege hereunder shall operate as a waiver thereof;
      nor shall any single or partial exercise of any right, remedy, power or
      privilege hereunder preclude any other or further exercise thereof or the
      exercise of any other right, remedy, power or privilege.  The rights,
      remedies, powers and privileges herein provided are cumulative and not exclusive
      of any rights, remedies, powers and privileges provided by law.

     

    9.04  Attorney
      Costs, Expenses and Taxes.  The
      Borrower agrees (a) to pay or reimburse the Lender for all costs and
      expenses incurred in connection with the development, preparation, negotiation
      and execution of this Agreement and the other Loan Documents and any amendment,
      waiver, consent or other modification of the provisions hereof and thereof
      (whether or not the transactions contemplated hereby or thereby are
      consummated), and the consummation and administration of the transactions
      contemplated hereby and thereby, including all Attorney Costs, and (b) to
      pay or reimburse the Lender for all costs and expenses incurred in connection
      with the enforcement, attempted enforcement, or preservation of any rights
      or
      remedies under this Agreement or the other Loan Documents (including all such
      costs and expenses incurred during any "workout" or restructuring in respect
      of
      the Obligations and during any legal proceeding, including any proceeding under
      any Debtor Relief Law), including all Attorney Costs.  The foregoing
      costs and expenses shall include all search, filing, recording, title insurance
      and appraisal charges and fees and taxes related thereto, and other
      out-of-pocket expenses incurred by the Lender and the cost of independent public
      accountants and other outside experts retained by the Lender.  All
      amounts due under this Section 9.04 shall be payable within ten
      Business Days after demand therefor.  The agreements in this Section
      shall survive the termination of the Commitment and repayment, satisfaction
      or
      discharge of all other Obligations.

     

    9.05  Indemnification
      by the Borrower.  Whether
      or not the transactions contemplated hereby are consummated, the Borrower shall
      indemnify and hold harmless the Lender, its Affiliates, and their respective
      directors, officers, employees, counsel, agents and attorneys-in-fact
      (collectively the "Indemnitees") from and against any and all
      liabilities, obligations, losses, damages, penalties, claims, demands, actions,
      judgments, suits, costs, expenses and disbursements (including Attorney Costs)
      of any kind or nature whatsoever that may at any time be imposed on, incurred
      by
      or asserted against any such Indemnitee in any way relating to or arising out
      of
      or in connection with (a) the execution, delivery, enforcement, performance
      or administration of any Loan Document or any other agreement, letter or
      instrument delivered in connection with the transactions contemplated thereby
      or
      the consummation of the transactions contemplated thereby, (b) the
      Commitment or any Loan or Letter of Credit or the use or proposed use of the
      proceeds therefrom (including any refusal by the Lender to honor a demand for
      payment under a Letter of Credit if the documents presented in connection with
      such demand do not strictly comply with the terms of such Letter of Credit),
      (c) any actual or alleged presence or release of Hazardous Materials on or
      from any property currently or formerly owned or operated by the Borrower,
      any
      Subsidiary or any other Loan Party, or any Environmental Liability related
      in
      any way to the Borrower, any Subsidiary or any other Loan Party, or (d) any
      actual or prospective claim, litigation, investigation or proceeding relating
      to
      any of the foregoing, whether based on contract, tort or any other theory
      (including any investigation of, preparation for, or defense of any pending
      or
      threatened claim, investigation, litigation or proceeding) and regardless of
      whether any Indemnitee is a party thereto (all the foregoing, collectively,
      the
      "Indemnified Liabilities"), in all cases, whether or
      not

     

    
      
        
        

      

      
        50

        
          

        

      

      
        
        

      

    

    caused
      by
      or arising, in whole or in part, out of the negligence of the Indemnitee;
provided that such indemnity shall not, as to any Indemnitee, be
      available to the extent that such liabilities, obligations, losses, damages,
      penalties, claims, demands, actions, judgments, suits, costs, expenses or
      disbursements are determined by a court of competent jurisdiction by final
      and
      nonappealable judgment to have resulted from the gross negligence or willful
      misconduct of such Indemnitee.  No Indemnitee shall have any liability
      for any indirect or consequential damages relating to this Agreement or any
      other Loan Document or arising out of its activities in connection herewith
      or
      therewith (whether before or after the Closing Date).  All amounts due
      under this Section 9.05 shall be payable within ten Business Days
      after demand therefor.  The agreements in this Section shall survive
      the termination of the Commitment and the repayment, satisfaction or discharge
      of all the other Obligations.

     

    9.06  Payments
      Set Aside.  To
      the extent that any payment by or on behalf of the Borrower is made to the
      Lender, or the Lender exercises its right of set-off, and such payment or the
      proceeds of such set-off or any part thereof is subsequently invalidated,
      declared to be fraudulent or preferential, set aside or required (including
      pursuant to any settlement entered into by the Lender in its discretion) to
      be
      repaid to a trustee, receiver or any other party, in connection with any
      proceeding under any Debtor Relief Law or otherwise, then, to the extent of
      such
      recovery, the obligation or part thereof originally intended to be satisfied
      shall be revived and continued in full force and effect as if such payment
      had
      not been made or such set-off had not occurred.

     

    9.07  Successors
      and Assigns.

     

    (a)  The
      provisions of this Agreement shall be binding upon and inure to the benefit
      of
      the parties hereto and their respective successors and assigns permitted hereby,
      except that the Borrower may not assign or otherwise transfer any of its rights
      or obligations hereunder without the prior written consent of the Lender and
      the
      Lender may not assign or otherwise transfer any of its rights or obligations
      hereunder except (i) to an Eligible Assignee in accordance with the provisions
      of subsection (b) of this Section, (ii) by way of participation
      in accordance with the provisions of subsection (c) of this Section,
      or (iii) by way of pledge or assignment of a security interest subject to
      the restrictions of subsection (e) of this Section (and any other
      attempted assignment or transfer by any party hereto shall be null and
      void).  Nothing in this Agreement, expressed or implied, shall be
      construed to confer upon any Person (other than the parties hereto, their
      respective successors and assigns permitted hereby, Participants to the extent
      provided in subsection (c) of this Section and, to the extent
      expressly contemplated hereby, the Indemnitees) any legal or equitable right,
      remedy or claim under or by reason of this Agreement.

     

    (b)  The
      Lender may at any time assign to one or more Eligible Assignees all or a portion
      of its rights and obligations under this Agreement (including all or a portion
      of the Commitment, the Loans and L/C Obligations at the time owing to it)
      pursuant to documentation acceptable to the Lender and the assignee, it being
      understood and agreed that with respect to any Letters of Credit outstanding
      at
      the time of any such assignment, the Lender may sell to the assignee a ratable
      participation in such Letters of Credit.  From and after the effective
      date specified in such documentation, such Eligible Assignee shall

     

    
      
        
        

      

      
        51

        
          

        

      

      
        
        

      

    

    be
      a
      party to this Agreement and, to the extent of the interest assigned by the
      Lender, have the rights and obligations of the Lender under this Agreement,
      and
      the Lender shall, to the extent of the interest so assigned, be released from
      its obligations under this Agreement (and, in the case of an assignment of
      all
      of the Lender's rights and obligations under this Agreement, shall cease to
      be a
      party hereto but shall continue to be entitled to the benefits of
Sections 3.01, 3.04, 3.05, 9.04 and 9.05
      with respect to facts and circumstances occurring prior to the effective date
      of
      such assignment, and shall continue to have all of the rights provided hereunder
      to the Lender in its capacity as issuer of any Letters of Credit outstanding
      at
      the time of such assignment).  Upon request, the Borrower (at its
      expense) shall execute and deliver new or replacement Notes to the Lender and
      the assignee, and shall execute and deliver any other documents reasonably
      necessary or appropriate to give effect to such assignment and to provide for
      the administration of this Agreement after giving effect thereto.

     

    (c)  The
      Lender may at any time, without the consent of, or notice to, the Borrower,
      sell
      participations to any Person (other than a natural person or the Borrower or
      any
      of the Borrower's Affiliates or Subsidiaries) (each, a "Participant") in
      all or a portion of the Lender's rights or obligations under this Agreement
      (including all or a portion of its Commitment or the outstanding Letters of
      Credit or the Loans or the reimbursement obligations in respect of Letters
      of
      Credit); provided that (i) the Lender's obligations under this
      Agreement shall remain unchanged, (ii) the Lender shall remain solely
      responsible to the Borrower for the performance of such obligations and
      (iii) the Borrower shall continue to deal solely and directly with the
      Lender in connection with the Lender's rights and obligations under this
      Agreement.  Any agreement or instrument pursuant to which the Lender
      sells such a participation shall provide that the Lender shall retain the sole
      right to enforce this Agreement and to approve any amendment, modification
      or
      waiver of any  provision of this Agreement; provided that such
      agreement or instrument may provide that the Lender will not, without the
      consent of the Participant, agree to any amendment, waiver or other modification
      that would (i) postpone any date upon which any payment of money is
      scheduled to be made to such Participant, or (ii) reduce the principal,
      interest, fees or other amounts payable to such Participant (provided,
      however, that the Lender may, without the consent of the Participant,
      (A) amend any financial covenant hereunder (or any defined term used
      therein) even if the effect of such amendment would be to reduce the rate of
      interest on any Loan or Letter of Credit reimbursement obligation or to reduce
      any fee payable hereunder and (B) waive the right to be paid interest at
      the Default Rate), or (iii) release any Guarantor from the Guaranty or the
      whole
      or any material part of the Collateral.  Subject to
subsection (d) of this Section, the Borrower agrees that each
      Participant shall be entitled to the benefits of Sections 3.01,
3.04 and 3.05 to the same extent as if it were the Lender and had
      acquired its interest by assignment pursuant to subsection (b) of
      this Section.  To the extent permitted by law, each Participant also
      shall be entitled to the benefits of Section 9.09 as though it were
      the Lender.

     

    (d)  A
      Participant shall not be entitled to receive any greater payment under
Section 3.01 or 3.04 than the Lender would have been entitled
      to receive with respect to the participation sold to such Participant, unless
      the sale of the participation to such Participant is made with the Borrower's
      prior written consent.  A Participant that is not a

     

    
      
        
        

      

      
        52

        
          

        

      

      
        
        

      

    

    "United
      States person" within the meaning of Section 7701(a)(30) of the Code shall
      not be entitled to the benefits of Section 3.01 unless the Borrower
      is notified of the participation sold to such Participant and such Participant
      agrees, for the benefit of the Borrower, to provide to the Lender such tax
      forms
      prescribed by the IRS as are necessary or desirable to establish an exemption
      from, or reduction of, U.S. withholding tax.

     

    (e)  The
      Lender may at any time pledge or assign a security interest in all or any
      portion of its rights under this Agreement (including under the Note, if any)
      to
      secure obligations of the Lender, including any pledge or assignment to secure
      obligations to a Federal Reserve Bank; provided that no such pledge or
      assignment shall release the Lender from any of its obligations hereunder or
      substitute any such pledgee or assignee for the Lender as a party
      hereto.

     

    (f)  As
      used
      herein, the following terms have the following meanings:

     

    "Eligible
      Assignee" means  (a) an Affiliate of the Lender; (b) an
      Approved Fund; and (c) any other Person (other than a natural person)
      approved by the Borrower (such approval not to be unreasonably withheld or
      delayed); provided that no such approval shall be required if an Event of
      Default has occurred and is continuing.

    

    "Fund"
      means any Person (other than a natural person) that is (or will be) engaged
      in
      making, purchasing, holding or otherwise investing in commercial loans and
      similar extensions of credit in the ordinary course of its
      business.

    

    "Approved
      Fund" means any Fund that is administered or managed by (a) the Lender
      or (b) an Affiliate of the Lender.

    

    9.08  Confidentiality.  The
      Lender agrees to maintain the confidentiality of the Information (as defined
      below), except that Information may be disclosed (a) to its and its
      Affiliates' directors, officers, employees and agents, including accountants,
      legal counsel and other advisors (it being understood that the Persons to whom
      such disclosure is made will be informed of the confidential nature of such
      Information and instructed to keep such Information confidential), (b) to
      the extent requested by any regulatory authority, (c) to the extent
      required by applicable laws or regulations or by any subpoena or similar legal
      process, (d) to any other party hereto, (e) in connection with the
      exercise of any remedies hereunder or under any other Loan Document or any
      action or proceeding relating to this Agreement or any other Loan Document
      or
      the enforcement of rights hereunder or thereunder, (f) subject to an
      agreement containing provisions substantially the same as those of this Section,
      to (i) any assignee of or Participant in, or any prospective assignee of or
      Participant in, any of its rights or obligations under this Agreement or
      (ii) any actual or prospective counterparty (or its advisors) to any swap
      or derivative transaction relating to the Borrower and its obligations,
      (g) with the consent of the Borrower or (h) to the extent such
      Information (x) becomes publicly available other than as a result of a
      breach of this Section or (y) becomes available to the Lender on a
      nonconfidential basis from a source other than the Borrower.  For
      purposes of this Section, "Information" means all information received
      from any Loan Party relating to any Loan Party or any of their respective
      businesses, other than any such information that is available to the Lender
      on a
      nonconfidential basis prior to disclosure by any Loan Party, provided
      that, in the case of

     

    
      
        
        

      

      
        53

        
          

        

      

      
        
        

      

    

    information
      received from a Loan Party after the date hereof, such information is clearly
      identified at the time of delivery as confidential.  Any Person
      required to maintain the confidentiality of Information as provided in this
      Section shall be considered to have complied with its obligation to do so if
      such Person has exercised the same degree of care to maintain the
      confidentiality of such Information as such Person would accord to its own
      confidential information.

     

    9.09  Set-off.  In
      addition to any rights and remedies of the Lender provided by law, upon the
      occurrence and during the continuance of any Event of Default, the Lender is
      authorized at any time and from time to time, without prior notice to the
      Borrower or any other Loan Party, any such notice being waived by the Borrower
      (on its own behalf and on behalf of each Loan Party) to the fullest extent
      permitted by law, to set off and apply any and all deposits (general or special,
      time or demand, provisional or final) at any time held by, and other
      indebtedness at any time owing by, the Lender to or for the credit or the
      account of the respective Loan Parties against any and all Obligations owing
      to
      the Lender hereunder or under any other Loan Document, now or hereafter
      existing, irrespective of whether or not the Lender shall have made demand
      under
      this Agreement or any other Loan Document and although such Obligations may
      be
      contingent or unmatured or denominated in a currency different from that of
      the
      applicable deposit or indebtedness.  The Lender agrees promptly to
      notify the Borrower after any such set-off and application; provided,
      however, that the failure to give such notice shall not affect the validity
      of such set-off and application.

     

    9.10  Interest
      Rate and Loan Charge Limitations.  Notwithstanding
      anything to the contrary contained in any Loan Document, the interest and loan
      charges paid or agreed to be paid under the Loan Documents shall not exceed
      the
      maximum amounts of non-usurious interest or permissible loan charges, as
      applicable, permitted by applicable Law.  If the Lender shall receive
      interest or loan charges in an amount that exceeds the maximum amount permitted
      by applicable Law, the excess shall be applied to the principal of the Loans
      or,
      if it exceeds such unpaid principal, refunded to the Borrower.  In
      determining whether the amount of any interest or loan charges contracted for,
      charged or received by the Lender exceeds the maximum amount permitted by
      applicable Law, the Lender may, to the extent permitted by applicable Law,
      (a) characterize any payment that is not principal as an expense, fee or
      premium rather than interest, (b) exclude voluntary prepayments and the
      effects thereof, and (c) amortize, prorate, allocate and spread in equal or
      unequal parts the total amount of interest or loan charges, as the case may
      be,
      throughout the contemplated term of the Obligations hereunder.

     

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

     

    9.12  Integration.  This
      Agreement, together with the other Loan Documents, comprises the complete and
      integrated agreement of the parties on the subject matter hereof and thereof
      and
      supersedes all prior agreements, written or oral, on such subject
      matter.  In the event of any conflict between the provisions of this
      Agreement and those of any other Loan Document, the provisions of this Agreement
      shall control; provided that the inclusion of supplemental rights or
      remedies in favor of the Lender in any other Loan Document shall not be deemed
      a
      conflict with this Agreement.  Each Loan Document was drafted with the
      joint participation of the

     

    
      
        
        

      

      
        54

        
          

        

      

      
        
        

      

    

    respective
      parties thereto and shall be construed neither against nor in favor of any
      party, but rather in accordance with the fair meaning thereof.

     

    9.13  Survival
      of Representations and Warranties.  All
      representations and warranties made hereunder and in any other Loan Document
      or
      other document delivered pursuant hereto or thereto or in connection herewith
      or
      therewith shall survive the execution and delivery hereof and
      thereof.  Such representations and warranties have been or will be
      relied upon by the Lender, regardless of any investigation made by the Lender
      or
      on its behalf and notwithstanding that the Lender may have had notice or
      knowledge of any Default at the time of any Credit Extension, and shall continue
      in full force and effect as long as any Loan or any other Obligation hereunder
      shall remain unpaid or unsatisfied or any Letter of Credit shall remain
      outstanding.

     

    9.14  Severability.  If
      any provision of this Agreement or the other Loan Documents is held to be
      illegal, invalid or unenforceable, (a) the legality, validity and
      enforceability of the remaining provisions of this Agreement and the other
      Loan
      Documents shall not be affected or impaired thereby and (b) the parties
      shall endeavor in good faith negotiations to replace the illegal, invalid or
      unenforceable provisions with valid provisions the economic effect of which
      comes as close as possible to that of the illegal, invalid or unenforceable
      provisions.  The invalidity of a provision in a particular
      jurisdiction shall not invalidate or render unenforceable such provision in
      any
      other jurisdiction.

     

    9.15  Governing
      Law.

     

    (a)  THIS
      AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF
      THE
      STATE OF TENNESSEE APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
      WITHIN SUCH STATE; PROVIDED THAT THE LENDER SHALL RETAIN ALL RIGHTS
      ARISING UNDER FEDERAL LAW.

     

    (b)  ANY
      LEGAL
      ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
      MAY BE BROUGHT IN THE COURTS OF THE STATE OF TENNESSEE SITTING IN DAVIDSON
      COUNTY OR OF THE UNITED STATES FOR THE MIDDLE DISTRICT OF SUCH STATE, AND BY
      EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER AND THE LENDER
      CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
      JURISDICTION OF THOSE COURTS.  EACH OF THE BORROWER AND THE LENDER
      IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF
      VENUE
      OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT IT MAY NOW OR
      HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION
      IN RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED
      THERETO.  EACH OF THE BORROWER AND THE LENDER WAIVES PERSONAL SERVICE
      OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER
      MEANS
      PERMITTED BY THE LAW OF SUCH STATE.

     

    
      
        
        

      

      
        55

        
          

        

      

      
        
        

      

    

    

     

    9.16  Waiver
      of Right to Trial by Jury.  EACH
      PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY
      OF
      ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT
      OR
      IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
      PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE
      TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
      ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY
      HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
      ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
      THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
      ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE
      WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

     

    9.17  USA
      Patriot Act Notice.  The
      Lender hereby notifies the Borrower that pursuant to the requirements of the
      USA
      Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26,
      2001)) (the "Patriot Act"), it is required to obtain, verify and record
      information that identifies the Borrower, which information includes the name
      and address of the Borrower and other information that will allow the Lender
      to
      identify the Borrower in accordance with the Patriot Act.

     

    9.18  Time
      of the Essence.  Time
      is of the essence of the Loan Documents.

     

    9.19  Entire
      Agreement.  This
      Agreement and the other Loan Documents represent 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 between the parties.

     

    

    [This
      space left blank intentionally; signatures begin next
      page]

    
      
        
        

      

      
        56

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      the parties hereto have caused this Agreement to be duly executed as of the
      date
      first above written.

    

    

    
      	
              NATIONAL
                HEALTHCARE CORPORATION

            
	 
	 
	
              By:  /s/
                Robert G. Adams        

            
	
                     
                Name:  Robert G. Adams

            
	
                     
                Title:  CEO & President

            
	 
	 
	
              BANK
                OF AMERICA, N.A.

            
	 
	 
	
              By:  /s/
                Suzanne B. Smith        

            
	
                     
                Name:  Suzanne B. Smith

            
	
                     
                Title:  Senior Vice
                President

            

    

    

     

     

     

    S-1ex101.htm

    Exhibit
      10.1

    

    

    

    

    

    

    

    

    

    STOCK
      PURCHASE AGREEMENT

    

     AMONG

    

    WPCS
      INTERNATIONAL INCORPORATED

    

    

    GOMES
      AND
      GOMES, INC. dba EMPIRE ELECTRIC

    

    AND

    

    HAROLD
      L.
      GOMES

    

    AND

    

    JUDY
      L.
      GOMES

    

    

    

    

    Dated
      November 1, 2007

    

    

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

    

    

    TABLE
      OF
      CONTENTS

     

    
      
        	
                ARTICLE
                  I SALE AND PURCHASE OF SHARES 

              	 
                
                Page

              
	
                1.1

              	
                Sale
                  and Purchase of Shares

              	
                1

              
	 	 	 
	
                ARTICLE
                  II PURCHASE PRICE AND PAYMENT 

              	 
	
                2.1

              	
                Amount
                  of Purchase Price

              	
                1

              
	
                2.2

              	
                Payment
                  of Purchase Price

              	
                1

              
	
                2.3

              	
                 Net
                  Tangible Asset Value Adjustment

              	
                2

              
	 	 	 
	
                ARTICLE
                  III CLOSING AND TERMINATION 

              	 
	
                3.1

              	
                Closing
                  Date

              	
                3

              
	
                3.2

              	
                Termination
                  of Agreement

              	
                3

              
	
                3.3

              	
                Procedure
                  Upon Termination

              	
                3

              
	
                3.4

              	
                Effect
                  of Termination...

              	
                3

              
	 	 	 
	
                ARTICLE
                  IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS 

              	 
	
                4.1

              	
                Organization
                  and Good Standing

              	
                4

              
	
                4.2

              	
                Authority

              	
                4

              
	
                4.3

              	
                Shares

              	
                5

              
	
                4.4

              	
                Basic
                  Corporate Records

              	
                5

              
	
                4.5

              	
                Minute
                  Books

              	
                5

              
	
                4.6

              	
                Subsidiaries
                  and Affiliates

              	
                5

              
	
                4.7

              	
                Consents

              	
                6

              
	
                4.8

              	
                Financial
                  Statements

              	
                6

              
	
                4.9

              	
                Records
                  and Books Account

              	
                6

              
	
                4.10

              	
                Absence
                  of Undisclosed Liabilities

              	
                6

              
	
                4.11

              	
                Taxes

              	
                7

              
	
                4.12

              	
                Account
                  Receivable

              	
                9

              
	
                4.13

              	
                Inventory

              	
                9

              
	
                4.14

              	
                Machinery
                  and Equipment

              	
                9

              
	
                4.15

              	
                Real
                  Property Matters

              	
                10

              
	
                4.16

              	
                Leases

              	
                10

              
	
                4.17

              	
                Patents,
                  Software, Trademarks, Etc

              	
                10

              
	
                4.18

              	
                Insurance
                  Policies

              	
                11

              
	
                4.19

              	
                Banking
                  and Personnel Lists

              	
                11

              
	
                4.20

              	
                Lists
                  of Contracts, Etc

              	
                12

              
	
                4.21

              	
                Compliance
                  With the Law

              	
                13

              
	
                4.22

              	
                Litigation,
                  Pending Labor Disputes

              	
                13

              
	
                4.23

              	
                Absence
                  of Certain Changes or Events

              	
                14

              
	
                4.24

              	
                Employee
                  Benefit Plans

              	
                15

              

      

       

       

       

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

      
 

      
        	
                4.25

              	
                Product
                  Warranties and Product Liabilities

              	
                16

              
	
                4.26

              	
                Assets

              	
                17

              
	
                4.27   

              	
                Absence
                  of Certain Commercial Practices

              	17
	
                4.28 

              	
                Licenses,
                  Permits, Consents and Approvals

              	17
	
                4.29   

              	
                Environmental
                  Matters

              	17
	
                4.30   

              	
                Broker

              	18
	
                4.31

              	
                Related
                  Party Transactions

              	
                18

              
	
                4.32   

              	Patriot
                Act	18
	
                4.33

              	
                Investment
                  Intent

              	
                19

              
	
                4.34   

              	Investment
                Experience;
                Suitability	19
	
                4.35

              	
                Accreditation

              	
                19

              
	
                4.36   

              	
                Disclosure

              	20
	 	 	 
	
                ARTICLE
                  V REPRESENTATIONS AND WARRANTIES OF PURCHASER 

              	 
	
                5.1

              	
                Organization
                  and Good Standing

              	
                20

              
	
                5.2

              	
                Authority

              	
                20

              
	
                5.3

              	
                Conflicts;
                  Consents of Third Parties

              	
                20

              
	
                5.4

              	
                Litigation......

              	
                21

              
	
                5.5

              	
                Investment
                  Intention

              	
                21

              
	
                5.6

              	
                Broker

              	
                21

              
	
                5.7

              	
                Patriot
                  Act  

              	
                21

              
	
                5.8

              	
                Due
                  Authorization of Purchaser Common Stock

              	
                21

              
	 	 	 
	 	 	 
	 	 	 
	
                ARTICLE
                  VI COVENANTS 

              	 
	
                6.1

              	
                Access
                  to Information

              	
                22

              
	
                6.2

              	
                Conduct
                  of the Business Pending the Closing

              	
                22

              
	
                6.3

              	
                Consents

              	
                24

              
	
                6.4

              	
                Other
                  Actions

              	
                24

              
	
                6.5

              	
                No
                  Solicitation......

              	
                25

              
	
                6.6

              	
                Preservation
                  of Records

              	
                25

              
	
                6.7

              	
                Publicity

              	
                25

              
	
                6.8

              	
                Use
                  of Name

              	
                25

              
	
                6.9

              	
                Employment
                  Agreements   

              	26
	
                6.10   

              	
                
                  Board
                    of Directors

                

              	26
	
                6.11   

              	
                
                  Outstanding
                    Notes

                

              	26
	
                6.12   

              	
                
                  Financial
                    Statements

                

              	26
	
                6.13   

              	
                Tax
                  Election

              	26
	
                6.14   

              	
                Tax
                  Matters

              	27
	
                6.15

              	
                Non-Competition

              	
                28

              
	
                6.16

              	
                Registration
                  of Shares of Purchaser Common Stock

              	
                29

              
	
                6.17

              	
                Employee
                  Matters

              	
                29

              

      

       

       

      
 

      
        
          
          

        

        
          iii

          
            

          

        

        
          
          

        

      

      
        	 	 	 
	 	 	 
	 	 	 
	 	 	 
	
                ARTICLE
                  VII CONDITIONS TO CLOSING 

              	 
	
                7.1

              	
                Conditions
                  Precedent to Obligations of Purchaser  

              	29
	
                7.2

              	
                Conditions
                  Precedent to Obligations of the Sellers

              	30
	 	 	 
	
                ARTICLE
                  VIII DOCUMENTS TO BE DELIVERED 

              	 
	
                8.1

              	
                Documents
                  to be Delivered by the Sellers

              	31
	
                8.2

              	
                Documents
                  to be Delivered by the Purchaser

              	32
	 	 	 
	
                ARTICLE
                  IX INDEMNIFICATION 

              	 
	
                9.1

              	
                Indemnification

              	32
	
                9.2

              	
                Limitations
                  on Indemnification for Breaches of Representations and
                  Warranties

              	33
	
                9.3

              	
                Indemnification
                  Procedures  

              	34
	
                9.4

              	
                Tax
                  Treatment of Indemnity Payments

              	36
	 	 	 
	
                ARTICLE
                  X MISCELLANEOUS 

              	 
	
                10.1

              	
                Payment
                  of Sales, Use or Similar Taxes  

              	34
	
                10.2

              	
                Survival
                  of Representations and Warranties

              	35
	
                10.3

              	
                Expenses

              	35
	
                10.4

              	
                Specific
                  Performance 

              	35
	
                10.5

              	
                Further
                  Assurances

              	35
	
                10.6

              	
                Submission
                  to Jurisdiction; Consent to Service of Process

              	35
	
                10.7

              	
                Entire
                  Agreement; Amendments and Waivers

              	36
	
                10.8

              	
                Governing
                  Law

              	36
	
                10.9

              	
                Table
                  of Contents and Headings

              	36
	
                10.10

              	
                Notices

              	36
	
                10.11
                  

              	Severability	37
	
                10.12
                  

              	Binding
                Effect; Assignment	37
	 	 	 
	 	 	 

      

    

    

    

    

    
      
        
        

      

      
        iv

        
          

        

      

      
        
        

      

    

    

    

    

    STOCK
      PURCHASE AGREEMENT

    

    

    THIS
      STOCK PURCHASE AGREEMENT is made as of November 1, 2007 (the “Agreement”), among
      WPCS International Incorporated, a corporation existing under the laws of
      Delaware (the “Purchaser”), Gomes and Gomes, Inc. dba Empire Electric, a
      California corporation (the “Company”), and the shareholders of the Company
      listed on the signature pages hereof (collectively the “Sellers”).

     

    W
      I T
      N E S S E T H:

     

    WHEREAS,
      the Sellers own an aggregate of 10,000 shares of common stock, no par value
      (the
“Shares”), of the Company, which Shares constitute all of the issued and
      outstanding shares of capital stock of the Company; and

     

    WHEREAS,
      the Sellers desire to sell to Purchaser, and the Purchaser desires to purchase
      from the Sellers, the Shares for the purchase price and upon the terms and
      conditions hereinafter set forth;

     

    NOW,
      THEREFORE, in consideration of the premises and the mutual covenants and
      agreements hereinafter contained, the parties hereby agree as
      follows:

     

    ARTICLE
      I

    SALE
      AND
      PURCHASE OF SHARES

     

    1.1  Sale
      and
      Purchase of Shares.

     

    Upon
      the
      terms and subject to the conditions contained herein, on the Closing Date each
      Seller shall sell, assign, transfer, convey and deliver to the Purchaser, and
      the Purchaser shall purchase from each Seller, all Shares of the Company owned
      by such Seller set forth opposite such Seller's name on Annex
      A attached hereto.  

     

    ARTICLE
      II

     

    PURCHASE
      PRICE AND PAYMENT

     

    2.1  Amount
      of Purchase Price.

     

    The
      purchase price for the Shares shall be an amount equal to  Three
      Million dollars ($3,000,000) (the “Purchase Price”), subject to adjustment as
      set forth herein.

     

    2.2  Payment
      of Purchase Price.

     

    On
      the
      Closing Date, the Purchaser shall pay Two Million dollars ($2,000,000) of the
      Purchase Price to the Sellers (the “Closing Payment”), which shall be paid by
      wire transfer of immediately available funds into an account designated by
      the
      Sellers.

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    An
      additional $1,000,000 (the “Second  Payment”) will be payable to the
      Sellers in the event the Company’s earnings before interest and taxes (“EBIT”)
      for the year ending October 31, 2007, shall equal or exceed $850,000 (the
“Target EBIT”).  Determination of the Company’s EBIT for the Target
      EBIT shall be made by the independent accounting firm regularly engaged by
      the
      Purchaser (the “Auditor”), and shall be completed within 90 days after the end
      of such twelve month period.  For the purposes of the calculation of
      the Target EBIT, non-recurring income and expenses shall be excluded, including
      the preparation of financial statements required under this Agreement. The
      Sellers shall have a period of thirty (30) days to review the Company’s
      EBIT.  In the event the Sellers and the Purchaser are unable to agree
      upon the EBIT after good faith negotiations for a period of 30 days, the Sellers
      and the Purchaser shall submit such dispute for resolution to an independent
      accounting firm mutually appointed by the Sellers and the Purchaser (the
“Independent Accounting Firm”), which shall determine and report to the parties
      and such report shall be final, binding and conclusive on the parties
      hereto.  If the Independent Accounting Firm determines that the EBIT
      is more than five percent (5%) above the EBIT determined by the Purchaser,
      then
      the party whose EBIT calculation is furthest from that of the Independent
      Accounting Firm shall pay the legal fees and expenses of the other
      party.  If the arbitrator determines that the EBIT is equal to or less
      than five percent (5%) above the EBIT determined by the Purchaser, then the
      Sellers shall pay the legal fees and expenses of the Purchaser.  The
      parties shall cooperate with one another and provide reasonable access of all
      pertinent books and records to the other party.  To the extent the
      actual EBIT for the year ended October 31, 2007 shall be less than the Target
      EBIT, the Second Payment shall be prorated by the percent of shortfall from
      the
      Target EBIT.  At the option of the Purchaser, any amounts due to be
      paid for the Second Payment may be paid in cash or shares of Common Stock valued
      at the closing price of the Common Stock as reported by the NASDAQ Stock Market
      on the date prior to date on which the amount of the payment is determined
      (“Purchaser Shares”).  The Second Payment shall be paid within ten
      days after receipt, review and acceptance of the financial statements of the
      Company for such period.

     

    

    2.3  Net
      Tangible Asset Value Adjustment.

     

    (a)
      Within 90 days after the Closing Date, the Sellers shall cause to be prepared
      and delivered to Purchaser a calculation of the Company’s net tangible asset
      value as of the Closing Date.  Net tangible asset value is defined as
      total assets minus total liabilities minus intangible assets (“NTAV”). The
      Purchaser shall have a period of 20 days to review the NTAV
      calculation.  In the event the Sellers and the Purchaser are unable to
      agree upon the NTAV after good faith negotiations for a period of 20 days,
      the
      Sellers and the Purchaser shall submit such dispute for resolution to an
      Independent Accounting Firm, which shall determine and report to the parties
      and
      such report shall be final, binding and conclusive on the parties
      hereto.  If the Independent Accounting Firm determines that the NTAV
      is more than five percent (5%) below the NTAV determined by the Sellers, then
      the party whose NTAV calculation is furthest from that of the Independent
      Accounting Firm shall pay the legal fees and expenses of the other
      party.  If the Independent Accounting Firm determines that the NTAV is
      equal to or less than five percent (5%) above the NTAV determined by the
      Purchaser, then the Sellers shall pay the legal fees and expenses of the
      Purchaser.  The parties shall cooperate with one another and provide
      reasonable access of all pertinent books and records to the other
      party.  In the event the NTAV as of the Closing Date shall be less
      than $1,100,000, the Closing Payment and the Purchase Price shall be reduced
      by
      the amount of the shortfall.  In the event the NTAV as of the Closing
      Date shall be greater than $1,100,000, the Closing Payment and the Purchase
      Price shall be increased by the amount of the excess, which amount shall be
      paid
      in cash to the Sellers.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     (b)
      In order to satisfy any amounts which the Sellers may be required to deliver
      to
      the Purchaser as a result of a deficiency in the NTAV or any indemnification
      claims, $175,000 shall be deposited into an escrow account until the NTAV as
      of
      the Closing Date shall be determined and any deficiency in the NTAV shall have
      been paid from the escrow account to the Purchaser (the “Escrowed
      Funds”).  The Escrowed Funds shall be held for the benefit of the
      Sellers in accordance with their pro rata ownership of the Shares as set forth
      on Schedule 1.1.  The Escrowed Funds shall be held in accordance with
      the terms and conditions set forth in the escrow agreement attached hereto
      as
      Exhibit 2.3 (the “Escrow Agreement”).

     

    

    ARTICLE
      III

    CLOSING
      AND TERMINATION

     

    3.1  Closing
      Date.

     

    Subject
      to the satisfaction of the conditions set forth in Sections 7.1 and 7.2 hereof
      (or the waiver thereof by the party entitled to waive that condition), the
      closing of the sale and purchase of the Shares provided for in Section 1.1
      hereof (the "Closing") shall take place at the offices of Sichenzia Ross
      Friedman Ference LLP, 61 Broadway, New York, NY 10006 (or at such other place
      as
      the parties may designate in writing) on such date as the Sellers and the
      Purchaser may designate.  The Closing may also take place through the
      delivery of documents in electronic of telefaxed format or through courier
      delivery of actual signatures to counsel for the parties. 

     

    3.2  Termination
      of Agreement.

     

    This
      Agreement may be terminated prior to the Closing as follows:

     

    (a)  At
      the
      election of the Sellers or the Purchaser on or after November 15, 2007, if
      the
      Closing shall not have occurred by the close of business on such date, provided
      that the terminating party is not in default of any of its obligations
      hereunder;

     

    (b)  by
      mutual
      written consent of the Sellers' and the Purchaser; or

     

    (c)  by
      the
      Sellers or the Purchaser if there shall be in effect a final nonappealable
      order
      of a governmental body of competent jurisdiction restraining, enjoining or
      otherwise prohibiting the consummation of the transactions contemplated hereby;
      it being agreed that the parties hereto shall promptly appeal any adverse
      determination which is not nonappealable (and pursue such appeal with reasonable
      diligence).

     

    3.3  Procedure
      Upon Termination.

     

    In
      the
      event of termination and abandonment by the Purchaser or the Sellers, or both,
      pursuant to Section 3.2 hereof, written notice thereof shall forthwith be given
      to the other party or parties, and this Agreement shall terminate, and the
      purchase of the Shares hereunder shall be abandoned, without further action
      by
      the Purchaser or the Sellers.  If this Agreement is terminated as
      provided herein, each party shall redeliver all documents, work papers and
      other
      material of any other party relating to the transactions contemplated hereby,
      whether so obtained before or after the execution hereof, to the party
      furnishing the same.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    3.4  Effect
      of Termination.

     

    In
      the
      event that this Agreement is validly terminated as provided herein, then each
      of
      the parties shall be relieved of their duties and obligations arising under
      this
      Agreement after the date of such termination and such termination shall be
      without liability to the Purchaser, the Company or any Seller; provided,
      further, however, that nothing in this Section 3.4 shall relieve the Purchaser
      or any Seller of any liability for a breach of this Agreement.

     

    ARTICLE
      IV

    REPRESENTATIONS
      AND WARRANTIES OF THE SELLERS

     

    

    The
      Sellers hereby jointly and severally represent and warrant to the Purchaser
      that:

     

    4.1.           Organization
      and Good Standing of the Company.  The Company is a corporation
      duly organized, validly existing and in good standing under the laws of the
      jurisdiction of its incorporation as set forth above. Except as otherwise
      provided herein, the Company is not required to be qualified to transact
      business in any other jurisdiction where the failure to so qualify would have
      a
      material adverse effect on the business or operations of the Company (“Material
      Adverse Effect”).

    

    4.2.           Authority.

    

    (a)           The
      Company has full power and authority (corporate and otherwise) to carry on
      its
      business and has all permits and licenses that are necessary to the conduct
      of
      its business or to the ownership, lease or operation of its properties and
      assets, except where the failure to have such permits and licenses would not
      have a Material Adverse Effect.

    

    (b)           The
      execution of this Agreement and the delivery hereof to the Purchaser and the
      sale contemplated herein have been, or will be prior to Closing, duly authorized
      by the Company’s Board of Directors and by the Company’s stockholders having
      full power and authority to authorize such actions.

    

    (c)           Subject
      to any consents required under Section 4.7 below, the Sellers and the Company
      have the full legal right, power and authority to execute, deliver and carry
      out
      the terms and provisions of this Agreement; and this Agreement has been duly
      and
      validly executed and delivered on behalf of Sellers and the Company and
      constitutes a valid and binding obligation of each Seller and the Company
      enforceable in accordance with its terms.

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (d)           Except
      as set forth in Schedule 4.2, neither the execution and delivery of this
      Agreement, the consummation of the transactions herein contemplated, nor
      compliance with the terms of this Agreement will violate, conflict with, result
      in a breach of, or constitute a default under any statute, regulation,
      indenture, mortgage, loan agreement, or other agreement or instrument to which
      the Company or any Seller is a party or by which it or any of them is bound,
      any
      charter, regulation, or bylaw provision of the Company, or any decree, order,
      or
      rule of any court or governmental authority or arbitrator that is binding on
      the
      Company or any Seller in any way, except where such would not have a Material
      Adverse Effect.

    

    4.3.           Shares.

    

    (a)           The
      Company’s authorized capital stock consists of 25,000 shares of Common Stock, no
      par value, of which 10,000 shares have been issued to Sellers and constitute
      the
      Shares as defined above.  All of the Shares are duly authorized,
      validly issued, fully paid and non-assessable.

    

    (b)           The
      Sellers are the lawful record and beneficial owners of all the Shares, free
      and
      clear of any liens, pledges, encumbrances, charges, claims or restrictions
      of
      any kind, except as set forth in Schedule 4.3, and have, or will have on the
      Closing Date, the absolute, unilateral right, power, authority and capacity
      to
      enter into and perform this Agreement without any other or further
      authorization, action or proceeding, except as specified herein.

    

    (c)           There
      are no authorized or outstanding subscriptions, options, warrants, calls,
      contracts, demands, commitments, convertible securities or other agreements
      or
      arrangements of any character or nature whatever under which any Seller or
      the
      Company are or may become obligated to issue, assign or transfer any shares
      of
      capital stock of the Company except as set forth in Schedule
      4.3.  Upon the delivery to Purchaser on the Closing Date of the
      certificate(s) representing the Shares, Purchaser will have good, legal, valid,
      marketable and indefeasible title to all the then issued and outstanding shares
      of capital stock of the Company, free and clear of any liens, pledges,
      encumbrances, charges, agreements, options, claims or other arrangements or
      restrictions of any kind.

    

    4.4.           Basic
      Corporate Records.  The copies of the Articles of Incorporation of
      the Company (certified by the Secretary of State or other authorized official
      of
      the jurisdiction of incorporation), and the Bylaws of the Company, as the case
      may be (certified as of the date of this Agreement as true, correct and complete
      by the Company’s secretary or assistant secretary), all of which have been
      delivered to the Purchaser, are true, correct and complete as of the date of
      this Agreement.

    

    4.5.           Minute
      Books.  The minute books of the Company, which shall be exhibited
      to the Purchaser between the date hereof and the Closing Date, each contain
      true, correct and complete minutes and records of all meetings, proceedings
      and
      other actions of the shareholders, Boards of Directors and committees of such
      Boards of Directors of the Company, if any, except where such would not have
      a
      Material Adverse Effect and, on the Closing Date, will, to the best of Sellers’
knowledge, contain true, correct and complete minutes and records of any
      meetings, proceedings and other actions of the shareholders, respective Boards
      of Directors and committees of such Boards of Directors of each such
      corporation.

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    4.6.           Subsidiaries
      and Affiliates.  Any and all businesses, entities, enterprises and
      organizations in which the Company has any ownership, voting or profit and
      loss
      sharing percentage interest (the “Subsidiaries”) are identified in Schedule 4.6
      hereto, together with the Company’s interest therein.  Unless the
      context requires otherwise or specifically designated to the contrary on
      Schedule 4.6 hereto, “Company” as used in this Agreement shall include all such
      Subsidiaries.  Except as set forth in Schedule 4.6 or 4.31, (i) the
      Company has made no advances to, or investments in, nor owns beneficially or
      of
      record, any securities of or other interest in, any business, entity, enterprise
      or organization, (ii) there are no arrangements through which the Company
      has acquired from, or provided to, any of the Sellers or their affiliates any
      goods, properties or services, (iii) there are no rights, privileges or
      advantages now enjoyed by the Company as a result of the ownership of the
      Company by the Sellers which, to the knowledge of the Sellers or the Company,
      might be lost as a result of the consummation of the transactions contemplated
      by this Agreement.  Each entity shown on Schedule 4.6 is duly
      organized, validly existing and in good standing under the laws of the
      jurisdiction of its incorporation, and has full corporate power to own all
      of
      its property and to carry on its business as it is now being
      conducted.  Also set forth on Schedule 4.6 is a list of jurisdictions
      in which each Subsidiary is qualified as a foreign corporation.  Such
      jurisdictions are the only jurisdictions in which the ownership or leasing
      of
      property by each Subsidiary or the conduct of its business requires it to be
      so
      qualified.  All of the outstanding shares of capital stock of each
      Subsidiary have been duly authorized and validly issued, are fully paid and
      nonassessable, and, except as set forth on Schedule 4.6, are owned, of record
      and beneficially, by the Company, and on the Closing Date will be owned by
      the
      Company, free and clear of all liens, encumbrances, equities, options or claims
      whatsoever.  No Subsidiary has outstanding any other equity securities
      or securities options, warrants or rights of any kind that are convertible
      into
      equity securities of such Subsidiary, except as set forth on Schedule
      4.6.

    

    4.7.           Consents.  Except
      as set forth in Schedule 4.7, no consents or approvals of any public body or
      authority and no consents or waivers from other parties to leases, licenses,
      franchises, permits, indentures, agreements or other instruments are
      (i) required for the lawful consummation of the transactions contemplated
      hereby, or (ii) necessary in order that the business currently conducted by
      the Company can be conducted by the Purchaser in the same manner after the
      Closing as heretofore conducted by the Company, nor will the consummation of
      the
      transactions contemplated hereby result in creating, accelerating or increasing
      any liability of the Company, except where the failure of any of the foregoing
      would not have a Material Adverse Effect.

    

    4.8.           Financial
      Statements.  The Sellers have delivered, or will deliver prior to
      Closing, to the Purchaser copies of the following financial statements (which
      include all notes and schedules attached thereto), all of which are true,
      complete and correct, have been prepared from the books and records of the
      Company in accordance with generally accepted accounting principles (“GAAP”)
      consistently applied with past practice and fairly present the financial
      condition, assets, liabilities and results of operations of the Company as
      of
      the dates thereof and for the periods covered thereby:

    

    
      	
               

            	
              the
                reviewed balance sheet of the Company at October 31, 2006 and 2005,
                and
                the related statements of operations, and of cash flows of the Company
                for
                the period then ended and (ii) the unaudited balance sheet of the
                Company
                as of August 31, 2007 and the related compiled statement of operations
                of
                the Company for the ten month period then ended (such statements,
                including the related notes and schedules thereto, are referred to
                herein
                as the “Financial Statements.”)

            

    

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    In
      such Financial Statements, the
      statements of operations do not contain any items of special or nonrecurring
      income or any other income not earned in the ordinary course of business except
      as set forth in Schedule 4.8, and the financial statements for the interim
      periods indicated include all adjustments, which consist of only normal
      recurring accruals, necessary for such fair presentation.  There are
      no facts known to any of the Sellers or the Company that, under generally
      accepted accounting principles consistently applied, would alter the information
      contained in the foregoing Financial Statements in any material
      way.

    

    The
      final closing Balance Sheet will be
      complete and correct in all material respects determined in accordance with
      GAAP.

    

    For
      the purposes hereof, the balance
      sheet of the Company as of August 31, 2007 is referred to as the “Balance Sheet”
and August 31, 2007 is referred to as the “Balance Sheet Date”.

    

    

    4.9.           Records
      and Books of Account.  The records and books of account of the
      Company reflect all material items of income and expense and all material
      assets, liabilities and accruals, have been, and to the Closing Date will be,
      regularly kept and maintained in conformity with GAAP applied on a consistent
      basis with preceding years.

    

    4.10.                      Absence
      of Undisclosed Liabilities.  Except as and to the extent reflected
      or reserved against in the Company’s Financial Statements or disclosed in
      Schedule 4.10, there are no liabilities or obligations of the Company of any
      kind whatsoever, whether accrued, fixed, absolute, contingent, determined or
      determinable, and including without limitation (i) liabilities to former,
      retired or active employees of the Company under any pension, health and welfare
      benefit plan, vacation plan or other plan of the Company, (ii) tax
      liabilities incurred in respect of or measured by income for any period prior
      to
      the close of business on the Balance Sheet Date, or arising out of transactions
      entered into, or any state of facts existing, on or prior to said date, and
      (iii) contingent liabilities in the nature of an endorsement, guarantee,
      indemnity or warranty, and there is no condition, situation or circumstance
      existing or which has existed that could reasonably be expected to result in
      any
      liability of the Company which is of a nature that would be required to be
      disclosed on its Financial Statements in accordance with GAAP, other than
      liabilities and contingent liabilities incurred in the ordinary course of
      business since the Balance Sheet Date consistent with the Company’s recent
      customary business practice, none of which is materially adverse to the
      Company.

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    4.11           Taxes.

    

    (a)           For
      purposes of this Agreement, “Tax” or “Taxes” refers to:  (i) any and
      all federal, state, local and foreign taxes, assessments and other governmental
      charges, duties, impositions and liabilities relating to taxes, including taxes
      based upon or measured by gross receipts, income, profits, sales, use and
      occupation, and value added, ad valorem, transfer, franchise, withholding,
      payroll, recapture, employment, excise and property taxes and escheatment
      payments, together with all interest, penalties and additions imposed with
      respect to such amounts and any obligations under any agreements or arrangements
      with any other person with respect to such amounts and including any liability
      for taxes of a predecessor entity; (ii) any liability for the payment of any
      amounts of the type described in clause (i) as a result of being or ceasing
      to
      be a member of an affiliated, consolidated, combined or unitary group for any
      period (including, without limitation, any liability under Treas. Reg.
      Section 1.1502-6 or any comparable provision of foreign, state or local
      law); and (iii) any liability for the payment of any amounts of the type
      described in clause (i) or (ii) as a result of any express or implied obligation
      to indemnify any other person or as a result of any obligations under any
      agreements or arrangements with any other person with respect to such amounts
      and including any liability for taxes of a predecessor entity.

    

    (b)           (i)           The
      Company has timely filed all federal, state, local and foreign returns,
      estimates, information statements and reports (“Returns”) relating to Taxes
      required to be filed by the Company with any Tax authority effective through
      the
      Closing Date.  All such Returns are true, correct and complete in all
      respects, except for immaterial amounts where such would not have a Material
      Adverse Effect.  The Company has paid all Taxes shown to be due on
      such Returns.  Except as listed on Schedule 4.11 hereto, the Company
      is not currently the beneficiary of any extensions of time within which to
      file
      any Returns. The Sellers and the Company have furnished and made available
      to
      the Purchaser complete and accurate copies of all income and other Tax Returns
      and any amendments thereto filed by the Company in the last three (3)
      years.

    

    (ii)  The
      Company, as of the Closing Date, will have withheld and accrued or paid to
      the
      proper authority all Taxes required to have been withheld and accrued or paid,
      except for immaterial amounts where such would not have a Material Adverse
      Effect.

    

    (iii)  The
      Company has not been delinquent in the payment of any Tax nor is there any
      Tax
      deficiency outstanding or assessed against the Company.  The Company
      has not executed any unexpired waiver of any statute of limitations on or
      extending the period for the assessment or collection of any Tax.

    

    (iv)  There
      is
      no dispute, claim, or proposed adjustment concerning any Tax liability of the
      Company either (A) claimed or raised by any Tax authority in writing or
      (B)  based upon personal contact with any agent of such Tax authority, and
      there is no claim for assessment, deficiency, or collection of Taxes, or
      proposed assessment, deficiency or collection from the Internal Revenue Service
      or any other governmental authority against the Company which has not been
      satisfied.  The Company is not a party to nor has it been notified in
      writing that it is the subject of any pending, proposed, or threatened action,
      investigation, proceeding, audit, claim or assessment by or before the Internal
      Revenue Service or any other governmental authority, nor does the Company have
      any reason to believe that any such notice will be received in the future.
      Except as set forth on Schedule 4.11, neither the Internal Revenue Service
      nor
      any state or local taxation authority has ever audited any income tax return
      of
      the Company.  The Company has not filed any requests for rulings with
      the Internal Revenue Service.  Except as provided to the Company’s
      accountants, no power of attorney has been granted by the Company or its
      Affiliates with respect to any matter relating to Taxes of the
      Company.  There are no Tax liens of any kind upon any property or
      assets of the Company, except for inchoate liens for Taxes not yet due and
      payable.

    

    
      
        
        

      

      
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    (v)  Except
      for immaterial amounts which would not have a Material Adverse Effect, the
      Company has no liability for any unpaid Taxes which has not been paid or accrued
      for or reserved on the Financial Statements in accordance with GAAP, whether
      asserted or unasserted, contingent or otherwise.

    

    (vi)  There
      is
      no contract, agreement, plan or arrangement to which the Company is a party
      as
      of the date of this Agreement, including but not limited to the provisions
      of
      this Agreement, covering any employee or former employee of the Company that,
      individually or collectively, would reasonably be expected to give rise to
      the
      payment of any amount that would not be deductible pursuant to
      Sections 280G, 404 or 162(m) of the Internal Revenue Code of 1986, as
      amended (the “Code”). There is no contract, agreement, plan or arrangement to
      which the Company is a party or by which it is bound to compensate any
      individual for excise taxes paid pursuant to Section 4999 of the
      Code.

    

    (vii)  The
      Company has not filed any consent agreement under Section 341(f) of the
      Code or agreed to have Section 341(f)(2) of the Code apply to any disposition
      of
      a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned
      by
      the Company.

    

    (viii)  The
      Company is not a party to, nor has any obligation under any tax-sharing, tax
      indemnity or tax allocation agreement or arrangement.

    

    (ix)  None
      of
      the Company’s assets are tax exempt use property within the meaning of
      Section 168(h) of the Code.

    

    (x)  .

    

    4.12.                      Accounts
      Receivable.  The accounts receivable of the Company shown on the
      Balance Sheet Date, and those to be shown in the Financial Statements, are,
      and
      will be, actual bona fide receivables from transactions in the ordinary course
      of business representing valid and binding obligations of others for the total
      dollar amount shown thereon, and as of the Balance Sheet Date were not (and
      presently are not) subject to any recoupments, set-offs, or counterclaims.
      To
      the best of Sellers’ knowledge, except as set forth on Schedule 4.12, all such
      accounts receivable are, and will be collectible in amounts not less than the
      amounts (net of reserves) carried on the books of the Company, including
      the  Financial Statements, and will be paid in accordance with their
      terms.  Except as listed on Schedule 4.12 hereto, all such accounts
      receivable are and will be actual bona fide receivables from transactions in
      the
      ordinary course of business.

    

    
      
        
        

      

      
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    4.13.                      Inventory.  The
      inventories of the Company are located at the locations listed on Schedule
      4.13
      attached hereto. Except as disclosed in Schedule 4.8, the inventories of the
      Company shown on its Balance Sheet (net of reserves) are carried at values
      which
      reflect the normal inventory valuation policy of the Company of stating the
      items of inventory at average cost in accordance with generally accepted
      accounting principles consistently applied.  Inventory acquired since
      the Balance Sheet Date has been acquired in the ordinary course of business
      and
      valued as set forth above.  The Company will maintain the inventory in
      the normal and ordinary course of business from the date hereof through the
      Closing Date.

    

    4.14.                      Machinery
      and Equipment.  Except for items disposed of in the ordinary
      course of business, all machinery, tools, furniture, fixtures, equipment,
      vehicles, leasehold improvements and all other tangible personal property
      (hereinafter “Fixed Assets”) of the Company currently being used in the conduct
      of its business (the “Business”), or included in determining the net book value
      of the Company on the Balance Sheet Date, together with any machinery or
      equipment that is leased or operated by the Company, are in fully serviceable
      working condition and repair.  Said Fixed Assets shall be maintained
      in such condition from the date hereof through the Closing
      Date.  Except as described on Schedule 4.14 hereto, all Fixed Assets
      owned, used or held by the Company are situated at its business premises and
      are
      currently used in its Business.  Schedule 4.14 describes all Fixed
      Assets owned by or an interest in which is claimed by any other person (whether
      a customer, supplier or other person) for which the Company is responsible
      (copies of all agreements relating thereto being attached to said Schedule
      4.14), and all such property is in the Company’s actual possession and is in
      such condition that upon the return of such property in its present condition
      to
      its owner, the Company will not be liable in any amount to such
      owner.  There are no outstanding requirements or recommendations by
      any insurance company that has issued a policy covering either (i) such
      Fixed Assets or (ii) any liabilities of the Company relating to operation
      of the Business, or by any board of fire underwriters or other body exercising
      similar functions, requiring or recommending any repairs or work to be done
      on
      any Fixed Assets or any changes in the operations of the Business, any equipment
      or machinery used therein, or any procedures relating to such operations,
      equipment or machinery.  All Fixed Assets of the Company are set forth
      on Schedule 4.14 hereto.

    

    4.15.                      Real
      Property Matters.  The Company does not own any real property as
      of the date hereof and has not owned any real property during the three years
      preceding the date hereof.

    

    4.16.                      Leases.  All
      leases of real and personal property of the Company are described in Schedule
      4.16, are in full force and effect and constitute legal, valid and binding
      obligations of the respective parties thereto enforceable in accordance with
      their terms, except as limited by bankruptcy, insolvency, reorganization,
      moratorium or similar laws relating to or affecting generally the enforcement
      of
      creditor’s rights, and have not been assigned or encumbered.  The
      Company has performed in all material respects the obligations required to
      be
      performed by it under all such leases to date and it is not in default in any
      material respect under any of said leases, except as set forth in Schedule
      4.16,
      nor has it made any leasehold improvements required to be removed at the
      termination of any lease, except signs.  No other party to any such
      lease is in material default thereunder.  Except as noted on Schedule
      4.16, none of the leases listed thereon require the consent of a third party
      in
      connection with the transfer of the Shares.

    

    
      
        
        

      

      
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    4.17.                      Patents,
      Software, Trademarks, Etc.  The Company owns, or possesses
      adequate licenses or other rights to use, all patents, software, trademarks,
      service marks, trade names and copyrights and trade secrets, if any, necessary
      to conduct its Business as now operated by it.  The patents, software,
      trademarks, service marks, copyrights, trade names and trade secrets, if any,
      registered in the name of or owned or used by or licensed to the Company and
      applications for any thereof (hereinafter the “Intangibles”) are described or
      referenced in Schedule 4.17.  Sellers hereby specifically acknowledge
      that all right, title and interest in and to all patents and software listed
      on
      Schedule 4.17 as patents owned by the Company are owned by the Company or the
      Company has a right to use same and that the ownership of such patents and
      software will be transferred as part of the Company to Purchaser as part of
      the
      transaction contemplated hereby.  No officer, director, shareholder or
      employee of the Company or any relative or spouse of any such person owns any
      patents or patent applications or any inventions, software, secret formulae
      or
      processes, trade secrets or other similar rights, nor is any of them a party
      to
      any license agreement, used by or useful to the Company or related to its
      business except as listed in Schedule 4.17.  All of said Intangibles
      are valid and in good standing to the best of Sellers’ knowledge, and are free
      and clear of all liens, security interests, charges, restrictions and
      encumbrances of any kind whatsoever, and have not been licensed to any third
      party except as described in Schedule 4.17.  The Company has not been
      charged with, nor has it infringed, nor to the Sellers’ knowledge is it
      threatened to be charged with infringement of, any patent, proprietary rights
      or
      trade secrets of others in the conduct of its business, and, to the date hereof,
      neither the Sellers nor the Company has received any notice of conflict with
      or
      violation of the asserted rights in intangibles or trade secrets of
      others.  The Company is not now manufacturing any goods under a
      present permit, franchise or license, except as set forth in said Schedule
      4.17.  The consummation of the transactions contemplated hereby will
      not alter or impair any rights of the Company in any such Intangibles or in
      any
      such permit, franchise or license, except as described in Schedule
      4.17.  The Intangibles and the Company’s tooling, manufacturing and
      engineering drawings, process sheets, specifications, bills of material and
      other like information and data are in such form and of such quality and will
      be
      maintained in such a manner that the Company can, following the Closing, design,
      produce, manufacture, assemble and sell the products and provide the services
      heretofore provided by it so that such products and services meet applicable
      specifications and conform with the standards of quality and cost of production
      standards heretofore met by it.  The Company has the sole and
      exclusive right to use its corporate and trade names in the jurisdictions where
      it transacts business.

    

    4.18.                      Insurance
      Policies.  There is set forth in Schedule 4.18 a list and brief
      description of all insurance policies on the date hereof  held  by
 the Company or on which it pays premiums, including, without limitation,
      life insurance and title insurance policies, which description includes the
      premiums payable by it thereunder.  Schedule 4.18 also sets forth, in
      the case of any life insurance policy held by the Company, the name of the
      insured under such policy, the cash surrender value thereof and any loans
      thereunder.  All such insurance premiums in respect of such coverage
      have been, and to the Closing Date will be, paid in full, if due and
      owing.  All claims, if any, made against the Company which are covered
      by such policies have been, or are being, settled or defended by the insurance
      companies that have issued such policies.  Up to the Closing Date,
      such insurance coverage will be maintained in full force and effect and will
      not
      be cancelled, modified or changed without the express written consent of the
      Purchaser, except to the extent the maturity dates of any such insurance
      policies expiring prior to the Closing Date.  No such policy has been,
      or to the Closing Date will be, cancelled by the issuer thereof, and, to the
      knowledge of the Sellers and the Company, between the date hereof and the
      Closing Date, there shall be no increase in the premiums with respect to any
      such insurance policy caused by any action or omission of the Sellers or of
      the
      Company.  Upon the Closing Date, all life insurance policies
      maintained by the Company shall be assigned to each respective
      Seller.

    

    
      
        
        

      

      
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    4.19.                      Banking
      and Personnel Lists.  The Sellers and the Company will deliver to
      the Purchaser prior to the Closing Date the following accurate lists and summary
      descriptions relating to the Company:

    

    (i)           The
      name of each bank in which the Company has an account or safe deposit box and
      the names of all persons authorized to draw thereon or have access
      thereto.

    

    (ii)           The
      names, current annual salary rates and total compensation for the preceding
      fiscal year of all of the present directors and officers of the Company, and
      any
      other employees whose current base accrual salary or annualized hourly rate
      equivalent is $20,000 or more, together with a summary of the bonuses,
      percentage compensation and other like benefits, if any, paid or payable to
      such
      persons for the last full fiscal year completed, together with a schedule of
      changes since that date, if any.

    

    (iii)           A
      schedule of workers’ compensation payments of the Company over the past five
      full fiscal years and the fiscal year to date, a schedule of claims by employees
      of the Company against the workers’ compensation fund for any reason over such
      period, identification of all compensation and medical benefits paid to date
      on
      each such claim and the estimated amount of compensation and medical benefits
      to
      be paid in the future on each such claim.

    

    (iv)           The
      name of all pensioned employees of the Company whose pensions are unfunded
      and
      are not paid or payable pursuant to any formalized pension arrangements, their
      agent and annual unfunded pension rates.

    

    4.20.                      Lists
      of Contracts, Etc.  There is included in Schedule 4.20 a list of
      the following items (whether written or oral) relating to the Company, which
      list identifies and fairly summarizes each item (collectively
“Contracts”):

    

    (i)           All
      collective bargaining and other labor union agreements (if any); all employment
      agreements with any officer, director, employee or consultant; and all employee
      pension, health and welfare benefit plans, group insurance, bonus, profit
      sharing, severance, vacation, hospitalization, and retirement plans,
      post-retirement medical benefit plans, and any other plans, arrangements or
      custom requiring payments or benefits to current or retiring
      employees;

    

    (ii)           All
      joint venture contracts of the Company or affiliates relating to the
      Business;

    

    (iii)           All
      contracts of the Company relating to (a) obligations for borrowed money,
      (b) obligations evidenced by bonds, debentures, notes or other similar
      instruments, (c) obligations to pay the deferred purchase price of property
      or services, except trade accounts payable arising in the ordinary course of
      business, (d) obligations under capital leases, (e) debt of others
      secured by a lien on any asset of the Company, and (f) debts of others
      guaranteed by the Company;

    

    
      
        
        

      

      
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    (iv)           All
      agreements of the Company relating to the supply of raw materials for and the
      distribution of the products of its business, including without limitation
      all
      sales agreements, manufacturer’s representative agreements and distribution
      agreements of whatever magnitude and nature, and any commitments
      therefor;

    

    (v)           All
      contracts that individually provide for aggregate future payments to or from
      the
      Company of $50,000 or more, to the extent not included in (i) through (iv)
      above;

    

    (vi)           All
      contracts of the Company that have a term exceeding one year and that may not
      be
      cancelled without any liability, penalty or premium, to the extent not included
      in (i) through (v) above;

    

    (vii)           A
      complete list of all outstanding powers of attorney granted by the Company;
      and

    

    (viii)                      All
      other contracts of the Company material to the business, assets, liabilities,
      financial condition, results of operations or prospects of the Business taken
      as
      a whole to the extent not included above.

    

    Except
      as set forth in Schedule 4.20,
      (i) all contracts, agreements and commitments of the Company set forth in
      Schedule 4.20 are valid, binding and in full force and effect, and
      (ii) neither the Company nor, to the best of Sellers’ knowledge, any other
      party to any such contract, agreement, or commitment has materially breached
      any
      provision thereof or is in default thereunder.  Except as set forth in
      Schedule 4.20, the sale of the Shares by the Sellers in accordance with this
      Agreement will not result in the termination of any contract, agreement or
      commitment of the Company set forth in Schedule 4.20, and immediately after
      the
      Closing, each such contract, agreement or commitment will continue in full
      force
      and effect without the imposition or acceleration of any burdensome condition
      or
      other obligation on the Company resulting from the sale of the Shares by the
      Sellers.  True and complete copies of the contracts, leases, licenses
      and other documents referred to in this Schedule 4.20 will be delivered to
      the
      Purchaser, certified by the Secretary or Assistant Secretary of the Company
      as
      true, correct and complete copies, not later than four weeks from the date
      hereof or ten business days before the Closing Date, whichever is
      sooner.

    

    There
      are no pending disputes with
      customers or vendors of the Company regarding quality or return of goods
      involving amounts in dispute with any one customer or vendor, whether for
      related or unrelated claims, in excess of $5,000 except as described on Schedule
      4.20 hereto, all of which will be resolved to the reasonable satisfaction of
      Purchaser prior to the Closing Date.  To the best knowledge of Sellers
      and the Company, there has not been any event, happening, threat or fact that
      would lead them to believe that any of said customers or vendors will terminate
      or materially alter their business relationship with the Company after
      completion of the transactions contemplated by this Agreement.

    

    4.21.                      Compliance
      With the Law.  The Company is not in violation of any applicable
      federal, state, local or foreign law, regulation or order or any other, decree
      or requirement of any governmental, regulatory or administrative agency or
      authority or court or other tribunal (including, but not limited to, any law,
      regulation order or requirement relating to securities, properties, business,
      products, manufacturing processes, advertising, sales or employment practices,
      terms and conditions of employment, occupational safety, health and welfare,
      conditions of occupied premises, product safety and liability, civil rights,
      or
      environmental protection, including, but not limited to, those related to waste
      management, air pollution control, waste water treatment or noise abatement),
      except where such would not have a Material Adverse Effect.  Except as
      set forth in Schedule 4.21, the Company has not been and is not now charged
      with, or to the best knowledge of the Sellers or the Company under investigation
      with respect to, any violation of any applicable law, regulation, order or
      requirement relating to any of the foregoing, nor, to the best knowledge of
      any
      Seller or the Company after due inquiry, are there any circumstances that would
      or might give rise to any such violation.  The Company has filed all
      reports required to be filed with any governmental, regulatory or administrative
      agency or authority.

    

    4.22.                      Litigation;
      Pending Labor Disputes.  Except as specifically identified on the
      Balance Sheet or footnotes thereto or set forth in Schedule 4.22:

    

    (i)           There
      are no legal, administrative, arbitration or other proceedings or governmental
      investigations pending or, to the best knowledge of Sellers or the Company,
      threatened, against the Sellers or the Company, relating to its Business or
      the
      Company or its properties (including leased property), or the transactions
      contemplated by this Agreement, nor is there any basis known to the Company
      or
      any Seller for any such action.

    

    
      
        
        

      

      
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    (ii)           There
      are no judgments, decrees or orders of any court, or any governmental
      department, commission, board, agency or instrumentality binding upon Sellers
      or
      the Company relating to its Business or the Company the effect of which is
      to
      prohibit any business practice or the acquisition of any property or the conduct
      of any business by the Company or which limit or control or otherwise adversely
      affect its method or manner of doing business.

    

    (iii)           No
      work stoppage has occurred and is continuing or, to the knowledge of Sellers
      or
      the Company, is threatened affecting its Business, and to the best of Sellers’
knowledge, no question involving recognition of a collective bargaining agent
      exists in respect of any employees of the Company.

    

    (iv)           There
      are no pending labor negotiations or, to the best of Sellers’ knowledge, union
      organization efforts relating to employees of the Company.

    

    (v)           There
      are no charges of discrimination (relating to sex, age, race, national origin,
      handicap or veteran status) or unfair labor practices pending or, to the best
      knowledge of the Sellers or the Company, threatened before any governmental
      or
      regulatory agency or authority or any court relating to employees of the
      Company.

    

    4.23.                      Absence
      of Certain Changes or Events.  The Company has not, since the
      Balance Sheet Date, and except in the ordinary course of business consistent
      with past practice and/or except as described on Schedule 4.23:

    

    (i)           Incurred
      any material obligation or liability (absolute, accrued, contingent or
      otherwise), except in the ordinary course of its business consistent with past
      practice  or in connection with the performance of this Agreement, and
      any such obligation or liability incurred in the ordinary course is not
      materially adverse, except for claims, if any, that are adequately covered
      by
      insurance;

    

    (ii)           Discharged
      or satisfied any lien or encumbrance, or paid or satisfied any obligations
      or
      liability (absolute, accrued, contingent or otherwise) other than
      (a) liabilities shown or reflected on the Balance Sheet, and
      (b) liabilities incurred since the Balance Sheet Date in the ordinary
      course of business that were not materially adverse;

    

    (iii)           Increased
      or established any reserve or accrual for taxes or other liability on its books
      or otherwise provided therefor, except (a) as disclosed on the Balance
      Sheet, or (b) as may have been required under generally accepted accounting
      principles due to income earned or expense accrued since the Balance Sheet
      Date
      and as disclosed to the Purchaser in writing;

    

    (iv)           Mortgaged,
      pledged or subjected to any lien, charge or other encumbrance any of its assets,
      tangible or intangible;

    

    (v)           Sold
      or transferred any of its assets or cancelled any debts or claims or waived
      any
      rights, except in the ordinary course of business and which has not been
      materially adverse;

    

    (vi)           Disposed
      of or permitted to lapse any patents or trademarks or any patent or trademark
      applications material to the operation of its Business;

    

    (vii)           Incurred
      any significant labor trouble or granted any general or uniform increase in
      salary or wages payable or to become payable by it to any director, officer,
      employee or agent, or by means of any bonus or pension plan, contract or other
      commitment increased the compensation of any director, officer, employee or
      agent;

    

    
      
        
        

      

      
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    (viii)                      Authorized
      any capital expenditure for real estate or leasehold improvements, machinery,
      equipment or molds in excess of $5,000.00 in the aggregate;

    

    (ix)           Except
      for this Agreement or as otherwise disclosed herein or in any schedule to this
      Agreement, entered into any material transaction ;

    

    (x)           Issued
      any stocks, bonds, or other corporate securities, or made any declaration or
      payment of any dividend or any distribution in respect of its capital stock;
      or

    

    (xi)           Experienced
      damage, destruction or loss (whether or not covered by insurance) individually
      or in the aggregate materially and adversely affecting any of its properties,
      assets or business, or experienced any other material adverse change or changes
      individually or in the aggregate affecting its financial condition, assets,
      liabilities or Business.

    

    4.24.                      Employee
      Benefit Plans.

    

    (a)           Schedule
      4.24 lists a description of the only Employee Programs (as defined below) that
      have been maintained (as such term is further defined below) by the Company
      at
      any time during the five (5) years prior to the date hereof.

    

    (b)           There
      has not been any failure of any party to comply with any laws applicable with
      respect to any Employee Program that has been maintained by the Company, except
      where such would not have a Material Adverse Effect.  With respect to
      any Employee Programs now or heretofore maintained by the Company, there has
      occurred no breach of any duty under the Employee Retirement Income Security
      Act
      of 1974, as amended (“ERISA”) or other applicable law which could result,
      directly or indirectly in any taxes, penalties or other liability to the
      Purchaser, the Company or any affiliate (as defined below), except for
      immaterial exceptions which would not have a Material Adverse
      Effect.  No litigation, arbitration, or governmental administrative
      proceeding (or investigation) or other proceeding (other than those relating
      to
      routine claims for benefits) is pending or, to the best knowledge of the Company
      and Seller, threatened with respect to any such Employee Program.

    

    (c)           Except
      as set forth in Schedule 4.24 attached hereto, neither the Company nor any
      affiliate has ever (i) provided health care or any other non-pension
      benefits to any employees after their employment was terminated (other than
      as
      required by Part 6 of Subtitle B of Title I of ERISA) or has ever
      promised to provide such post-termination benefits or (ii) maintained an
      Employee Program provided to such employees subject to Title IV of ERISA,
      Section 401(a) or Section 412 of Code, including, without limitation, any
      Multiemployer Plan.

    

    (d)           For
      purposes of this Section 4.24:

     

    (i)           “Employee
      Program” means (A) all employee benefit plans within the meaning of ERISA
      Section 3(3), including, but not limited to, multiple employer welfare
      arrangements (within the meaning of ERISA Section 3(40)), plans to which
      more than one unaffiliated employer contributes and employee benefit plans
      (such
      as foreign or excess benefit plans) which are not subject to ERISA; and
      (B) all stock option plans, bonus or incentive award plans, severance pay
      policies or agreements, deferred compensation agreements, supplemental income
      arrangements, vacation plans, and all other employee benefit plans, agreements,
      and arrangements not described in (A) above.  In the case of an
      Employee Program funded through an organization described in Code Section
      501(c)(9), each reference to such Employee Program shall include a reference
      to
      such organization;

    

    
      
        
        

      

      
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    (ii)           An
      entity “maintains” an Employee Program if such entity sponsors, contributes to,
      or provides (or has promised to provide) benefits under such Employee Program,
      or has any obligation (by agreement or under applicable law) to contribute
      to or
      provide benefits under such Employee Program, or if such Employee Program
      provides benefits to or otherwise covers employees of such entity (or their
      spouses, dependents, or beneficiaries);

    

    (iii)           An
      entity is an “affiliate” of the Company for purposes of this Section 3.24
      if it would have ever been considered a single employer with the Company under
      ERISA Section 4001(b) or part of the same “controlled group” as the Company for
      purposes of ERISA Section 302(d)(8)(C); and

    

    (iv)           “Multiemployer
      Plan” means a (pension or non-pension) employee benefit plan to which more than
      one employer contributes and which is maintained pursuant to one or more
      collective bargaining agreements.

    

    4.25.                      Product
      Warranties and Product Liabilities.  The product warranties and
      return policies of the Company in effect on the date hereof and the types of
      products to which they apply are described on Schedule 4.25
      hereto.  Schedule 4.25 also sets forth all product liability claims
      involving amounts in controversy in excess of $5,000 that are currently either
      pending or, to the best of the Sellers’ and the Company’s knowledge, threatened
      against the Company.    The Sellers are not aware of any
      reason why the future cost of performing all such obligations and paying all
      such product liability claims with respect to goods manufactured, assembled
      or
      furnished prior to the Closing Date will not exceed the average annual cost
      thereof for said past three year period.

    

    4.26.                      Assets.   The
      assets of the Company are located at the locations listed on Schedule 4.26
      attached hereto. Except as described in Schedule 4.26, the assets of the Company
      are, and together with the additional assets to be acquired or otherwise
      received by the Company prior to the Closing, will at the Closing Date be,
      sufficient in all material respects to carry on the operations of the Business
      as now conducted by the Company.  The Company is the only business
      organization through which the Business is conducted.  Except as set
      forth in Schedule 4.16 or Schedule 4.26, all assets used by the Sellers and
      the
      Company to conduct the Business are, and will on the Closing Date be, owned
      by
      the Company.

    

    4.27.                      Absence
      of Certain Commercial Practices.  Except as described on Schedule
      4.27, neither the Company nor any Seller has made any payment (directly or
      by
      secret commissions, discounts, compensation or other payments) or given any
      gifts to another business concern, to an agent or employee of another business
      concern or of any governmental entity (domestic or foreign) or to a political
      party or candidate for political office (domestic or foreign), to obtain or
      retain business for the Company or to receive favorable or preferential
      treatment, except for gifts and entertainment given to representatives of
      customers or potential customers of sufficiently limited value and in a form
      (other than cash) that would not be construed as a bribe or payoff.

    

    
      
        
        

      

      
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    4.28.                      Licenses,
      Permits, Consents and Approvals.  The Company has, and at the
      Closing Date will have, all licenses, permits or other authorizations of
      governmental, regulatory or administrative agencies or authorities
      (collectively, “Licenses”) required to conduct the Business, except for any
      failures of such which would not have a Material Adverse Effect. All Licenses
      of
      the Company are listed on Schedule 4.28 hereto.  At the Closing, the
      Company will have all such Licenses which are material to the conduct of the
      Business and will have renewed all Licenses which would have expired in the
      interim.  Except as listed in Schedule 4.28, no registration, filing,
      application, notice, transfer, consent, approval, order, qualification, waiver
      or other action of any kind (collectively, a “Filing”) will be required as a
      result of the sale of the Shares by Sellers in accordance with this Agreement
      (a) to avoid the loss of any License or the violation, breach or
      termination of, or any default under, or the creation of any lien on any asset
      of the Company pursuant to the terms of, any law, regulation, order or other
      requirement or any contract binding upon the Company or to which any such asset
      may be subject, or (b) to enable Purchaser (directly or through any
      designee) to continue the operation of the Company and the Business
      substantially as conducted prior to the Closing Date.  All such
      Filings will be duly filed, given, obtained or taken on or prior to the Closing
      Date and will be in full force and effect on the Closing Date.

    

    4.29.                      Environmental
      Matters. Except as set forth on Schedule 4.29 hereto:

     

    (a)  The
      operations of the Company, to the best knowledge of Sellers, are in compliance
      with all applicable laws promulgated by any governmental entity which prohibit,
      regulate or control any hazardous material or any hazardous material activity
      (“Environmental Laws”) and all permits issued pursuant to Environmental Laws or
      otherwise except for where noncompliance or the absence of such permits would
      not, individually or in the aggregate, have a Material Adverse
      Effect;

     

    (b)   The
      Company has obtained all permits required under all applicable Environmental
      Laws necessary to operate its business, except for any failures of such which
      would not have a Material Adverse Effect;

     

    (c)  The
      Company is not the subject of any outstanding written order or Contract with
      any
      governmental authority or person respecting Environmental Laws or any violation
      or potential violations thereof; and

     

    (d)          The
      Company has not received any written communication alleging either or both
      that
      the Company may be in violation of any Environmental Law, or any permit issued
      pursuant to Environmental Law, or may have any liability under any Environmental
      Law.

    

    4.30           Broker.  Except
      as specified in Schedule 4.30, neither the Company nor any Seller has retained
      any broker in connection with any transaction contemplated by this
      Agreement.  Purchaser and the Company shall not be obligated to pay
      any fee or commission associated with the retention or engagement by the Company
      or Sellers of any broker in connection with any transaction contemplated by
      this
      Agreement.

    

    
      
        
        

      

      
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    4.31.                      Related
      Party Transactions.  Except as described in Schedule 4.31, all
      transactions during the past five years between the Company and any current
      or
      former shareholder or any entity in which the Company or any current or former
      shareholder had or has a direct or indirect interest have been fair to the
      Company as determined by the Board of Directors.  No portion of the
      sales or other on-going business relationships of the Company is dependent
      upon
      the friendship or the personal relationships (other than those customary within
      business generally) of any Seller, except as described in Schedule
      4.31.  During the past five years, the Company has not forgiven or
      cancelled, without receiving full consideration, any indebtedness owing to
      it by
      any Seller.

    

    4.32           Patriot
      Act.  The Company and the Sellers certify that the Company has not
      been designated, and is not owned or controlled, by a “suspected terrorist” as
      defined in Executive Order 13224.  The Company and the Sellers hereby
      acknowledge that the Purchaser seeks to comply with all applicable laws
      concerning money laundering and related activities.  In furtherance of
      those efforts, the Company and the Sellers hereby represent, warrant and agree
      that:  (i) none of the cash or property that the Sellers have
      contributed or paid or will contribute and pay to the Company has been or shall
      be derived from, or related to, any activity that is deemed criminal under
      United States law; and (ii) no contribution or payment by the Company to the
      Purchaser, to the extent that they are within the Company’s control shall cause
      the Purchaser to be in violation of the United States Bank Secrecy Act, the
      United States International Money Laundering Control Act of 1986 or the United
      States International Money Laundering Abatement and Anti-Terrorist Financing
      Act
      of 2001.  The Sellers shall promptly notify the Purchaser if any of
      these representations ceases to be true and accurate regarding the Sellers
      or
      the Company.  The Sellers agree to provide the Purchaser any
      additional information regarding the Company that the Purchaser reasonably
      requests to ensure compliance with all applicable laws concerning money
      laundering and similar activities.

    

    4.33                     Investment
      Intent.

     

    The
      Purchaser Shares, if any, will be acquired hereunder by the Sellers for
      investment purposes only, for their own account, not as a nominee or agent
      and
      not with a view to the distribution thereof.  The Sellers have no
      present intention to sell or otherwise dispose of the Purchaser Shares and
      they
      will not do so except in compliance with the provisions of the Securities Act
      of
      1933, as amended, and applicable law.  The Sellers understand that the
      Purchaser Shares which may be acquired hereunder must be held by them
      indefinitely unless a subsequent disposition or transfer of any of said shares
      is registered under the Securities Act of 1933, as amended, or is exempt from
      registration therefrom.  The Sellers further understand that the
      exemption from registration afforded by Rule 144 (the provisions of which are
      known to such Seller) promulgated under the Securities Act of 1933, as amended,
      depends on the satisfaction of various conditions, and that, if and when
      applicable, Rule 144 may afford the basis for sales only in limited
      amounts.

    

    4.34           Investment
      Experience; Suitability.

    

    The
      Sellers are each sophisticated investors familiar with the type of risks
      inherent in the acquisition of securities such as the Purchaser Shares and
      the
      Sellers’ financial position is such that the Sellers can afford to retain the
      shares of Purchaser Shares for an indefinite period of time without realizing
      any direct or indirect cash return on its investment.

     

    
      
        
        

      

      
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    4.35           Accreditation.

    

    Each
      Seller is an “accredited investor”
within the meaning of Rule 501(a) of Regulation D promulgated under the
      Securities Act of 1933, as amended.  The Sellers understand that the
      Purchaser Shares are being offered to them in reliance upon specific exemptions
      from the registration requirements of United States federal and state securities
      laws and that the Purchaser is relying upon the truth and accuracy of, and
      the
      Sellers’ compliance with, the representations, warranties, agreements,
      acknowledgments and understandings of the Sellers set forth herein in order
      to
      determine the availability of such exemptions and the eligibility of the Sellers
      to acquire the Purchaser Shares.

     

    4.36.                      Disclosure.  All
      statements contained in any schedule, certificate, opinion, instrument, or
      other
      document delivered by or on behalf of the Sellers or the Company pursuant hereto
      shall be deemed representations and warranties by each Seller and the Company
      herein.  No statement, representation or warranty by the Sellers or
      the Company in this Agreement or in any schedule, certificate, opinion,
      instrument, or other document furnished or to be furnished to the Purchaser
      pursuant hereto contains or will contain any untrue statement of a material
      fact
      or omits or will omit to state a material fact required to be stated therein
      or
      necessary to make the statements contained therein not misleading or necessary
      in order to provide a prospective purchaser of the Business of the Company
      with
      full and fair disclosure concerning the Company, its business, and the Company’s
      affairs.

    

    

    ARTICLE
      V

    REPRESENTATIONS
      AND WARRANTIES OF PURCHASER

     

    5.1  Organization
      and Good Standing.

     

    The
      Purchaser is a corporation duly organized, validly existing and in good standing
      under the laws of the State of Delaware.

     

    5.2  Authority.

     

    (a)           The
      execution and delivery of this Agreement and the consummation of the
      transactions contemplated herein have been, or will prior to Closing be, duly
      and validly approved and acknowledged by all necessary corporate action on
      the
      part of the Purchaser.

    

    (b)           The
      execution of this Agreement and the delivery hereof to the Sellers and the
      purchase contemplated herein have been, or will be prior to Closing, duly
      authorized by the Purchaser’s Board of Directors having full power and authority
      to authorize such actions.

    

    5.3  Conflicts;
      Consents of Third Parties.

     

    
      
        
        

      

      
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    (a)  The
      execution and delivery of this Agreement, the acquisition of the Shares by
      Purchaser and the consummation of the transactions herein contemplated, and
      the
      compliance with the provisions and terms of this Agreement, are not prohibited
      by the Articles of Incorporation or Bylaws of the Purchaser and will not
      violate, conflict with or result in a breach of any of the terms or provisions
      of, or constitute a default under, any court order, indenture, mortgage, loan
      agreement, or other agreement or instrument to which the Purchaser is a party
      or
      by which it is bound.

     

    (b)  No
      consent, waiver, approval, order, permit or authorization of, or declaration
      or
      filing with, or notification to, any person or governmental body is required
      on
      the part of the Purchaser in connection with the execution and delivery of
      this
      Agreement or any other agreement referenced herein or the compliance by
      Purchaser with any of the provisions hereof or thereof.

     

    5.4  Litigation.

     

    There
      are
      no legal proceedings pending or, to the best knowledge of the Purchaser,
      threatened that are reasonably likely to prohibit or restrain the ability of
      the
      Purchaser to enter into this Agreement or consummate the transactions
      contemplated hereby.

     

    5.5  Investment
      Intention.

     

    The
      Purchaser is acquiring the Shares for its own account, for investment purposes
      only and not with a view to the distribution (as such term is used in Section
      2(11) of the Securities Act of 1933, as amended (the "Securities Act")
      thereof.  Purchaser understands that the Shares have not been
      registered under the Securities Act and cannot be sold unless subsequently
      registered under the Securities Act or an exemption from such registration
      is
      available.

     

    5.6  Broker.

     

    The
      Purchaser has not retained any broker in connection with any transaction
      contemplated by this Agreement.  Sellers shall not be obligated to pay
      any fee or commission associated with the retention or engagement by the
      Purchaser of any broker in connection with any transaction contemplated by
      this
      Agreement.

     

    5.7  Patriot
      Act.  The Purchaser certifies that neither the Purchaser nor any
      of its subsidiaries has been designated, and is not owned or controlled, by
      a
“suspected terrorist” as defined in Executive Order 13224.  The
      Purchaser hereby acknowledge that the Company and the Sellers seek to comply
      with all applicable laws concerning money laundering and related
      activities.  In furtherance of those efforts, the Purchaser hereby
      represent, warrant and agree that:  (i) none of the cash or property
      that the Purchaser has contributed or paid or will contribute and pay to the
      Sellers has been or shall be derived from, or related to, any activity that
      is
      deemed criminal under United States law; and (ii) no contribution or payment
      by
      the Purchaser or any of its subsidiaries to the Sellers, to the extent that
      they
      are within the Purchaser’s control shall cause the Sellers or the Company to be
      in violation of the United States Bank Secrecy Act, the United States
      International Money Laundering Control Act of 1986 or the United States
      International Money Laundering Abatement and Anti-Terrorist Financing Act of
      2001.  The Purchaser shall promptly notify the Sellers if any of these
      representations ceases to be true and accurate regarding the Purchaser or any
      of
      its subsidiaries.  The Purchaser agrees to provide the Sellers any
      additional information regarding the Purchaser or any of its subsidiaries that
      the Sellers reasonably requests to ensure compliance with all applicable laws
      concerning money laundering and similar activities.

     

    
      
        
        

      

      
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    5.8  Due
      Authorization of Purchaser
      Shares.  The shares of Purchaser Common Stock, if delivered to the
      Sellers, shall be validly issued and outstanding as fully paid and
      non-assessable, free and clear of any liens, pledges, encumbrances, charges,
      agreements, options, claims or other arrangements or restrictions of any
      kind.

     

    

    

    ARTICLE
      VI

    COVENANTS

     

    6.1  Access
      to Information.

     

    The
      Sellers and the Company agree that, prior to the Closing Date, the Purchaser
      shall be entitled, through its officers, employees and representatives
      (including, without limitation, its legal advisors and accountants), to make
      such investigation of the properties, businesses and operations of the Company
      and its Subsidiaries and such examination of the books, records and financial
      condition of the Company and its Subsidiaries as it reasonably requests and
      to
      make extracts and copies of such books and records.  Any such
      investigation and examination shall be conducted during regular business hours
      and under reasonable circumstances, and the Sellers shall cooperate, and shall
      cause the Company and its Subsidiaries to cooperate, fully
      therein.  No investigation by the Purchaser prior to or after the date
      of this Agreement shall diminish or obviate any of the representations,
      warranties, covenants or agreements of the Sellers contained in this Agreement
      or the Seller Documents.  In order that the Purchaser may have full
      opportunity to make such physical, business, accounting and legal review,
      examination or investigation as it may reasonably request of the affairs of
      the
      Company and its Subsidiaries, the Sellers shall cause the officers, employees,
      consultants, agents, accountants, attorneys and other representatives of the
      Company and its Subsidiaries to cooperate fully with such representatives in
      connection with such review and examination.  It is agreed and
      understood that all information provided pursuant to this Section 6.1 is subject
      to the terms and conditions of the Confidentiality/Standstill Agreement executed
      by the parties as of August 30, 2007.

     

    6.2  Conduct
      of the Business Pending the Closing.

     

    (a)  Except
      as
      otherwise expressly contemplated by this Agreement or with the prior written
      consent of the Purchaser, prior to the Closing the Sellers shall, and shall
      cause the Company to:

     

    (i)  Conduct
      the respective businesses of the Company only in the ordinary course consistent
      with past practice;

     

    (ii)  Use
      its
      best efforts to (A) preserve its present business operations, organization
      (including, without limitation, management and the sales force) and goodwill
      of
      the Company and (B) preserve its present relationship with Persons having
      business dealings with the Company;

     

    (iii)  Maintain
      (A) all of the assets and properties of the Company in their current condition,
      ordinary wear and tear excepted and (B) insurance upon all of the properties
      and
      assets of the Company in such amounts and of such kinds com-parable to that
      in
      effect on the date of this Agreement;

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    (iv)  (A)
      maintain the books, accounts and records of the Company  in the
      ordinary course of business consistent with past practices, (B) continue to
      collect accounts receivable and pay accounts payable utilizing normal procedures
      and without discounting or accelerating payment of such accounts, and (C) comply
      with all contractual and other obligations applicable to the operation of the
      Company; and

     

    (v)  Comply
      in
      all material respects with applicable laws.

     

    (b)  Except
      as
      otherwise expressly contemplated by this Agreement or with the prior written
      consent of the Purchaser, prior to the Closing the Sellers shall not, and shall
      cause the Company not to:

     

    (i)  Declare,
      set aside, make or pay any dividend or other distribution in respect of the
      capital stock of the Company or repurchase, redeem or otherwise acquire any
      outstanding shares of the capital stock or other securities of, or other
      ownership interests in, the Company;

     

    (ii)  Transfer,
      issue, sell or dispose of any shares of capital stock or other securities of
      the
      Company or grant options, warrants, calls or other rights to purchase or
      otherwise acquire shares of the capital stock or other securities of the
      Company;

     

    (iii)  Effect
      any recapitalization, reclassification, stock split or like change in the
      capitalization of the Company;

     

    (iv)  Amend
      the
      certificate of incorporation or by-laws of the Company;

     

    (v)  (A)
      materially increase the annual level of compensation of any employee of the
      Company, (B) increase the annual level of compensation payable or to become
      payable by the Company to any of its executive officers, (C) grant any unusual
      or extraordinary bonus, benefit or other direct or indirect compensation to
      any
      employee, director or consultant, (D) increase the coverage or benefits
      available under any (or create any new) severance pay, termination pay, vacation
      pay, company awards, salary continuation for disability, sick leave, deferred
      compensation, bonus or other incentive compensation, insurance, pension or
      other
      employee benefit plan or arrangement made to, for, or with any of the directors,
      officers, employees, agents or representatives of the Company or otherwise
      modify or amend or terminate any such plan or arrangement or (E) enter into
      any
      employment, deferred compensation, severance, consulting, non-competition or
      similar agreement (or amend any such agreement) to which the Company is a party
      or involving a director, officer or employee of the Company in his or her
      capacity as a director, officer or employee of the Company;

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    (vi)  Except
      for trade payables and for indebtedness for borrowed money incurred in the
      ordinary course of business and consistent with past practice, borrow monies
      for
      any reason or draw down on any line of credit or debt obligation, or become
      the
      guarantor, surety, endorser or otherwise liable for any debt, obligation or
      liability (contingent or otherwise) of any other person, or change the terms
      of
      payables or receivables;

     

    (vii)  Subject
      to any lien (except for leases that do not materially impair the use of the
      property subject thereto in their respective businesses as presently conducted),
      any of the properties or assets (whether tangible or intangible) of the
      Company;

     

    (viii)  Acquire
      any material properties or assets or sell, assign, transfer, convey, lease
      or
      otherwise dispose of any of the material properties or assets (except for fair
      consideration in the ordinary course of business consistent with past practice)
      of the Company except, with respect to the items listed on Schedule 6.2(b)(viii)
      hereto, as previously consented to by the Purchaser;

     

    (ix)  Cancel
      or
      compromise any debt or claim or waive or release any material right of the
      Company except in the ordinary course of business consistent with past
      practice;

     

    (x)  Enter
      into any commitment for capital expenditures out of the ordinary
      course;

     

    (xi)  Permit
      the Company to enter into any transaction or to make or enter into any Contract
      which by reason of its size or otherwise is not in the ordinary course of
      business consistent with past practice;

     

    (xii)  Permit
      the Company to enter into or agree to enter into any merger or consolidation
      with, any corporation or other entity, and not engage in any new business or
      invest in, make a loan, advance or capital contribution to, or otherwise acquire
      the securities of any other person;

     

    (xiii)  Except
      for transfers of cash pursuant to normal cash management practices, permit
      the
      Company  to make any investments in or loans to, or pay any fees or
      expenses to, or enter into or modify any Contract with, any Seller or any
      affiliate of any Seller; or

     

    (xiv)  Agree
      to
      do anything prohibited by this Section 6.2 or anything which would make any
      of
      the representations and warranties of the Sellers in this Agreement or the
      Seller Documents untrue or incorrect in any material respect as of any time
      through and including the Effective Time.

     

    6.3  Consents.

     

    The
      Sellers shall use their best efforts, and the Purchaser shall cooperate with
      the
      Sellers, to obtain at the earliest practicable date all consents and approvals
      required to consummate the transactions contemplated by this Agreement,
      including, without limitation, the consents and approvals referred to in Section
      4.7 hereof; provided, however, that neither the Sellers nor the Purchaser shall
      be obligated to pay any consideration therefor to any third party from whom
      consent or approval is requested.

     

    
      
        
        

      

      
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    6.4  Other
      Actions.

     

    Each
      of
      the Sellers and the Purchaser shall use its best efforts to (i) take all actions
      necessary or appropriate to consummate the transactions contemplated by this
      Agreement, and (ii) cause the fulfillment at the earliest practicable date
      of
      all of the conditions to their respective obligations to consummate the
      transactions contemplated by this Agreement.

     

    6.5  No
      Solicitation.

     

    The
      Sellers will not, and will not cause or permit the Company or any of the
      Company's directors, officers, employees, representatives or agents
      (collectively, the "Representatives") to, directly or indirectly, (i) discuss,
      negotiate, undertake, authorize, recommend, propose or enter into, either as
      the
      proposed surviving, merged, acquiring or acquired corporation, any transaction
      involving a merger, consolidation, business combination, purchase or disposition
      of any amount of the assets or capital stock or other equity interest in the
      Company other than the transactions contemplated by this Agreement (an
      "Acquisition Transaction"), (ii) facilitate, encourage, solicit or initiate
      discussions, negotiations or submissions of proposals or offers in respect
      of an
      Acquisition Transaction, (iii) furnish or cause to be furnished, to any person,
      any information concerning the business, operations, properties or assets of
      the
      Company in connection with an Acquisition Transaction, or (iv) otherwise
      cooperate in any way with, or assist or participate in, facilitate or encourage,
      any effort or attempt by any other person to do or seek any of the
      foregoing.  The Sellers will inform the Purchaser in writing
      immediately following the receipt by any Seller, the Company or any
      Representative of any proposal or inquiry in respect of any Acquisition
      Transaction.

     

    6.6  Preservation
      of Records.

     

    Subject
      to Section 6.14 hereof (relating to the preservation of Tax records), the
      Sellers and the Purchaser agree that each of them shall preserve and keep the
      records held by it relating to the business of the Company (including but not
      limited to books, records and accounts, financial information, correspondence,
      production records, employment records and other similar information) for a
      period of six years from the Closing Date and shall make such records and
      personnel available to the other as may be reasonably requested by such party
      in
      connection with, among other things, any insurance claims by, legal proceedings
      against or governmental investigations of the Sellers or the Purchaser or any
      of
      their affiliates or in order to enable the Sellers or the Purchaser to comply
      with their respective obligations under this Agreement and each other agreement,
      document or instrument contemplated hereby or thereby.  

     

    6.7  Publicity.

     

    None
      of
      the Sellers nor the Purchaser shall issue any press release or public
      announcement concerning this Agreement or the transactions contemplated hereby
      without obtaining the prior written approval of the other party hereto, which
      approval will not be unreasonably withheld or delayed, unless, in the sole
      judgment of the Purchaser or the Sellers, disclosure is otherwise required
      by
      applicable law or by the applicable rules of any stock exchange on which the
      Purchaser lists securities, provided that, to the extent required by applicable
      law, the party intending to make such release shall use its best efforts
      consistent with such applicable law to consult with the other party with respect
      to the text thereof.

     

    
      
        
        

      

      
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    6.8  Use
      of
      Name.

     

    The
      Sellers hereby agree that upon the consummation of the transactions contemplated
      hereby, the Purchaser and the Company shall have the sole right to the use
      of
      the name "Empire Electric Incorporated" and the Sellers shall not, and shall
      not
      cause or permit any affiliate to, use such name or any variation or simulation
      thereof.

     

    6.9  Employment
      Agreements.

     

    On
      or
      prior to the Closing Date, each of Harold L. Gomes and Judy L. Gomes shall
      enter
      into an employment agreement with the Company, substantially in the form of
      agreement attached hereto as Exhibit 6.9 (the “Employment
      Agreements”).

     

    6.10  Board
      of Directors.

     

    The
      Board of Directors of the Company
      as of the Closing Date shall consist of Harold L. Gomes, Andrew Hidalgo and
      Joseph Heater, unless they shall be unable or unwilling to serve, in which
      case
      one member shall be appointed by the Company and two members shall be appointed
      by the Purchaser.

     

    6.11  Fiscal
      Projection; Confirmation of Financial Information.

     

    On
      or
      prior to the Closing Date, the Company will provide (i) a fiscal projection
      for
      the twelve month period ending April 30, 2008, which projection shall be
      mutually acceptable to the Company and the Purchaser, and (ii) confirmation
      to
      the Purchaser of information related to backlog, add-backs, key client
      relationships and the tangibility of assets.

    

    6.12  Financial
      Statements.

     

    If
      required for Securities and Exchange Commission purposes, the Sellers shall
      cooperate with the Purchaser, to provide all information required for the
      completion of audited financial statements of the Company for the years ended
      October 31, 2005 and 2006 and reviewed statements for the nine month period
      ended July 31, 2006 and 2007, and delivered no later than 60 days from the
      Closing Date.  The costs of such financial statements shall be borne
      by the Purchaser.

    

    6.13  Tax
      Election.

     

    At
      the sole discretion of the
      Purchaser, the Sellers agree to make a timely election under Internal Revenue
      Code Section 338(h)(10) (“338(h)(10) election”), and Purchaser shall indemnify
      and hold harmless Sellers from and against any Tax liabilities imposed on
      Sellers as a result of having made any such 338(h)(10) election to the extent
      that such Tax liabilities exceed the Tax liabilities that the Sellers would
      incur in the absence of such election (the “Purchaser Tax
      Payments”).  In the event that the Sellers incur any Tax obligations
      as a result of the 338(h)(10) election which are in excess of amounts due had
      the transactions set forth herein been taxed as a stock sale, then the amount
      that the Purchaser shall be required to reimburse Sellers under this paragraph
      (1) shall be grossed up to assure that Sellers do not incur any Tax cost as
      a
      result of the 338(h)(10) election and the reimbursement payments under this
      paragraph and (2) shall take into account the highest marginal income tax rate
      applicable to payments of this type at the applicable times as applies to any
      of
      the Sellers.  Any Purchaser Tax Payments shall be treated by the
      parties as additional Purchase Price and shall be paid to Sellers not less
      than
      seven (7) days prior to the time Sellers are required to pay such amounts with
      a
      Federal tax return or estimate.  Any amounts payable hereunder to the
      Sellers shall be paid in cash unless otherwise agreed to in writing by the
      Sellers.

    

    
      
        
        

      

      
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    6.14  Tax
      Matters.

     

    (a)           Tax
      Periods Ending on or Before the Closing Date.  The Sellers shall
      prepare or cause to be prepared and file or cause to be filed all Tax Returns
      for the Company for all periods ending on or prior to the Closing Date which
      are
      filed after the Closing Date as soon as practicable and prior to the date due
      (including any proper extensions thereof).  The Sellers shall permit
      the Company and the Purchaser to review and provide comments, if any, on each
      such Return described in the preceding sentence prior to
      filing.  Unless the Purchaser or the Company provides comments to the
      Sellers, the Company shall deliver to the Sellers each such Return signed by
      the
      appropriate officer(s) of the Company for filing within ten (10) days following
      the Seller’s delivery to the Company and the Purchaser of any such
      Return.  The Sellers shall deliver to the Company promptly after
      filing each such Return a copy of the filed Return and evidence of its
      filing.  The Sellers shall pay the costs and expenses incurred in the
      preparation and filing of the Tax Returns on or before the date such costs
      and
      expenses are due.

    

    If
      the Company provides comments to
      the Sellers and at the end of such ten (10) day period the Company and the
      Sellers have failed to reach written agreement with respect to all of such
      disputed items, the parties shall submit the unresolved items to arbitration
      for
      final determination. Promptly, but no later than thirty (30) days after its
      acceptance of its appointment as arbitrator, the arbitrator shall render an
      opinion as to the disputed items. The determination of the arbitrator shall
      be
      conclusive and binding upon the parties. The Company and the Sellers (as a
      group) shall each pay one half of the fees, costs and expenses of the
      arbitrator. The prevailing party may be entitled to an award of pre- and
      post-award interest as well as reasonable attorneys’ fees incurred in connection
      with the arbitration and any judicial proceedings related thereto as determined
      by the arbitrator.

    

    (b)           Tax
      Periods Beginning Before and Ending After the Closing Date.  The
      Company or the Purchaser shall prepare or cause to be prepared and file or
      cause
      to be filed any Returns of the Company for Tax periods that begin before the
      Closing Date and end after the Closing Date.  To the extent such Taxes
      are not fully reserved for in the Company’s financial statements, the Sellers
      shall pay to the Company an amount equal to the unreserved portion of such
      Taxes
      that relates to the portion of the Tax period ending on the Closing
      Date.  Such payment, if any, shall be paid by the Sellers within
      fifteen (15) days after receipt of written notice from the Company or the
      Purchaser that such Taxes were paid by the Company or the Purchaser for a period
      beginning prior to the Closing Date.  For purposes of this Section, in
      the case of any Taxes that are imposed on a periodic basis and are payable
      for a
      Taxable period that includes (but does not end on) the Closing Date, the portion
      of such Tax that relates to the portion of such Tax period ending on the Closing
      Date shall (i) in the case of any Taxes other than Taxes based upon or related
      to income or receipts, be deemed to be the amount of such Tax for the entire
      Tax
      period multiplied by a fraction the numerator of which is the number of days
      in
      the Tax period ending on the Closing Date and the denominator of which is the
      number of days in the entire Tax period (the “Pro Rata Amount”), and (ii) in the
      case of any Tax based upon or related to income or receipts, be deemed equal
      to
      the amount that would be payable if the relevant Tax period ended on the Closing
      Date.  The Sellers shall pay to the Company with the payment of any
      taxes due hereunder, the Sellers’ Pro Rata Amount of the costs and expenses
      incurred by the Purchaser or the Company in the preparation and filing of the
      Tax Returns. Any net operating losses or credits relating to a Tax period that
      begins before and ends after the Closing Date shall be taken into account as
      though the relevant Tax period ended on the Closing Date.  All
      determinations necessary to give effect to the foregoing allocations shall
      be
      made in a reasonable manner as agreed to by the parties.

    

    
      
        
        

      

      
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    (c)           Refunds
      and Tax Benefits.  Any Tax refunds that are received after the
      Closing Date by the Sellers (other than tax refunds received in connection
      with
      such Sellers individual tax Returns), the Purchaser or the Company, and any
      amounts credited against Tax to which the Sellers, the Purchaser or the Company
      become entitled, shall be for the account of the Company, and the Sellers shall
      pay over to the Company any such refund or the amount of any such credit within
      fifteen (15) days after receipt or entitlement thereto.  In addition,
      to the extent that a claim for refund or a proceeding results in a payment
      or
      credit against Tax by a taxing authority to the Sellers, the Sellers shall
      pay
      such amount to the Company within fifteen (15) days after receipt or entitlement
      thereto.

    

    (d)           Cooperation
      on Tax Matters.

    

    (i)           The
      Purchaser, the Company and the Sellers shall cooperate fully, as and to the
      extent reasonably requested by the other party, in connection with the filing
      of
      any Returns pursuant to this Section and any audit, litigation or other
      proceeding with respect to Taxes.  Such cooperation shall include the
      retention and (upon the other party's request) the provision of records and
      information which are reasonably relevant to any such audit, litigation or
      other
      proceeding and making employees available on a mutually convenient basis to
      provide additional information and explanation of any material provided
      hereunder.  The Company and the Sellers agree (A) to retain all books
      and records with respect to Tax matters pertinent to the Company relating to
      any
      taxable period beginning before the Closing Date until the expiration of the
      statute of limitations (and, to the extent notified by the Purchaser or the
      Sellers, any extensions thereof) of the respective tax periods, and to abide
      by
      all record retention agreements entered into with any taxing authority, and
      (B)
      to give the other party reasonable written notice prior to transferring,
      destroying or discarding any such books and records and, if the other party
      so
      requests, the Company or the Sellers, as the case may be, shall allow the other
      party to take possession of such books and records.

    

    (ii)           The
      Purchaser and the Sellers further agree, upon request, to use their commercially
      reasonable best efforts to obtain any certificate or other document from any
      governmental authority or any other person as may be necessary to mitigate,
      reduce or eliminate any Tax that could be imposed (including, but not limited
      to, with respect to the transactions contemplated hereby).

    

    (iii)           The
      Purchaser and the Sellers further agree, upon request, to provide the other
      party with all information that either party may be required to report pursuant
      to §6043 of the Code and all Treasury Department Regulations promulgated
      thereunder.

    

    
      
        
        

      

      
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    6.15  Non-Competition.
      For a period of two years after the later of the Closing Date or the termination
      of employment by the Company, Sellers agree not to engage in any of the
      following competitive activities: (a) engaging directly or indirectly in any
      business or activity substantially similar to any business or activity engaged
      in (or scheduled to be engaged) by the Company or the Purchaser in any areas
      where the Company or the Purchaser engage in business; (b) engaging directly
      or
      indirectly in any business or activity competitive with any business or activity
      engaged in (or scheduled to be engaged) by the Company or the Purchaser in
      any
      areas where the Company or the Purchaser engage in business; (c) soliciting
      or
      taking away any employee, agent, representative, contractor, supplier, vendor,
      customer, franchisee, lender or investor of the Company or the Purchaser, or
      attempting to so solicit or take away; (d) interfering with any contractual
      or
      other relationship between the Company or the Purchaser and any employee, agent,
      representative, contractor, supplier, vendor, customer, franchisee, lender
      or
      investor; or (e) using, for the benefit of any person or entity other than
      the
      Company, any confidential information of the Company or the Purchaser. Nothing
      in this Section 6.15 shall be deemed, however, to prevent a Seller from owning
      securities of any publicly-owned corporation engaged in any such business,
      provided that the total amount of securities of each class owned by such Seller
      in such publicly-owned corporation (other than Purchaser) does not exceed two
      percent (2%) of the outstanding securities of such class. In addition, no Seller
      shall make any negative statement of any kind concerning the Company, the
      Purchaser or their affiliates, or their directors, officers or agents, except
      as
      such may be compelled by legal proceeding or governmental action or
      authority.

     

    6.16  Registration
      of Shares of Purchaser Common Stock.  In the event the Sellers
      shall receive any Purchaser Shares, the Purchaser shall file a registration
      statement with respect to the resale of such shares within 45 days of the
      written demand of the Sellers and the Purchaser shall use commercially
      reasonable efforts to have such registration statement declared effective as
      soon as possible.

     

    6.17  Employee
      Matters.  The Company and the Purchaser agree that following the
      Closing Date:

     

    (i)           the
      Company shall convert its current 401(k) benefit plan into the plan maintained
      by the Purchaser;

    

    (ii)           the
      Company shall make a good faith effort to maintain the existing health and
      life
      insurance policies;

    

    
      
        
        

      

      
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    (iii)           the
      Company’s employees shall be eligible for grants pursuant to the Purchaser’s
      stock option plan, which shall be allocated as determined in good faith by
      Harold Gomes.

    

    6.18  Elimination
      of Non-Business Financial Obligations.

     

    On
      or
      prior to the Closing Date, the Company shall eliminate all financial obligations
      which are not directly related to the business and operations of the
      Company.

    

    ARTICLE
      VII

    CONDITIONS
      TO CLOSING

     

    7.1  Conditions
      Precedent to Obligations of Purchaser.

     

    The
      obligation of the Purchaser to consummate the transactions contemplated by
      this
      Agreement is subject to the fulfillment, on or prior to the Closing Date, of
      each of the following conditions (any or all of which may be waived by the
      Purchaser in whole or in part to the extent permitted by applicable
      law):

     

    (a)  all
      representations and warranties of the Sellers contained herein shall be true
      and
      correct as of the date hereof;

     

    (b)  all
      representations and warranties of the Sellers contained herein qualified as
      to
      materiality shall be true and correct, and the representations and warranties
      of
      the Sellers contained herein not qualified as to materiality shall be true
      and
      correct in all material respects, at and as of the Closing Date with the same
      effect as though those representations and warranties had been made again at
      and
      as of that time;

     

    (c)  the
      Sellers shall have performed and complied in all material respects with all
      obligations and covenants required by this Agreement to be performed or complied
      with by  them on or prior to the Closing Date;

     

    (d)  the
      Purchaser shall have been furnished with certificates (dated the Closing Date
      and in form and substance reasonably satisfactory to the Purchaser) executed
      by
      each Seller certifying as to the fulfillment of the conditions specified in
      Sections 7.1(a), 7.1(b) and 7.1(c) hereof;

     

    (e)  Certificates
      representing 100% of the Shares shall have been, or shall at the Closing be,
      validly delivered and transferred to the Purchaser, free and clear of any and
      all Liens;

     

    (f)  there
      shall not have been or occurred any Material Adverse Change;

     

    (g)  the
      Sellers shall have obtained all consents and waivers referred to in Section
      4.7
      hereof, in a form reasonably satisfactory to the Purchaser, with respect to
      the
      transactions contemplated by this Agreement;

     

    (h)  no
      legal
      proceedings shall have been instituted or threatened or claim or demand made
      against the Sellers, the Company, or the Purchaser seeking to restrain or
      prohibit or to obtain substantial damages with respect to the consummation
      of
      the transactions contemplated hereby, and there shall not be in effect any
      order
      by a governmental body of competent jurisdiction restraining, enjoining or
      otherwise prohibiting the consummation of the transactions contemplated
      hereby;

     

    
      
        
        

      

      
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    (i)  the
      Purchaser shall have received the written resignations of each director of
      the
      Company, other than Harold Gomes;

     

    (j)   the
      Employment Agreements shall have been executed by Harold Gomes, Judy
      Gomes-Guerrero and  the Company; and

     

    (k)  the
      Purchaser shall have received information satisfactory in its sole discretion
      to
      verify the accuracy of the backlog, add-backs, key client relationships and
      the
      tangibility of assets.

     

    (l)  Debt
      of the Company shall have been extinguished or converted to terms acceptable
      to
      the Purchaser in its sole discretion.

    

    7.2  Conditions
      Precedent to Obligations of the Sellers.

     

    The
      obligations of the Sellers to consummate the transactions contemplated by this
      Agreement are subject to the fulfillment, prior to or on the Closing Date,
      of
      each of the following conditions (any or all of which may be waived by the
      Sellers in whole or in part to the extent permitted by applicable
      law):

     

    (a)  all
      representations and warranties of the Purchaser contained herein shall be true
      and correct as of the date hereof;

     

    (b)  all
      representations and warranties of the Purchaser contained herein qualified
      as to
      materiality shall be true and correct, and all representations and warranties
      of
      the Purchaser contained herein not qualified as to materiality shall be true
      and
      correct in all material respects, at and as of the Closing Date with the same
      effect as though those representations and warranties had been made again at
      and
      as of that date;

     

    (c)  the
      Purchaser shall have performed and complied in all material respects with all
      obligations and covenants required by this Agreement to be performed or complied
      with by Purchaser on or prior to the Closing Date;

     

    (d)  the
      Sellers shall have been furnished with certificates (dated the Closing Date
      and
      in form and substance reasonably satisfactory to the Sellers) executed by the
      Chief Executive Officer and Chief Financial Officer of the Purchaser certifying
      as to the fulfillment of the conditions specified in Sections 7.2(a), 7.2(b)
      and
      7.2(c);

     

    (e)  no
      legal
      proceedings shall have been instituted or threatened or claim or demand made
      against the Sellers, the Company, or the Purchaser seeking to restrain or
      prohibit or to obtain substantial damages with respect to the consummation
      of
      the transactions contemplated hereby, and there shall not be in effect any
      order
      by a governmental body of competent jurisdiction restraining, enjoining or
      otherwise prohibiting the consummation of the transactions contemplated hereby;
      and

     

    
      
        
        

      

      
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    (f)  the
      Employment Agreements shall have been executed by Harold L. Gomes, Judy L.
      Gomes
      and the Company.

     

    

    ARTICLE
      VIII

    DOCUMENTS
      TO BE DELIVERED

     

    8.1  Documents
      to be Delivered by the Sellers.

     

    At
      the
      Closing, the Sellers shall deliver, or cause to be delivered, to the Purchaser
      the following:

     

    (a)  stock
      certificates representing the Shares, duly endorsed in blank or accompanied
      by
      stock transfer powers and with all requisite stock transfer tax stamps
      attached;

     

    (b)  the
      certificates referred to in Section 7.1(d) and 7.1(e) hereof;

     

    (c)  copies
      of
      all consents and waivers referred to in Section 7.1(g) hereof;

     

    (d)  Employment
      Agreements, substantially in the form of Exhibit 6.9 hereto, duly executed
      by
      Harold L. Gomes and Judy L. Gomes;

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    (e)  written
      resignations of each of the directors of the Company, other than Harold
      L.Gomes;

     

    (f)  certificate
      of good standing with respect to the Company issued by the Secretary of State
      of
      the State of incorporation, and for each state in which the Company is qualified
      to do business as a foreign corporation;

     

    (g)  the
      Escrow Agreement; substantially in the Form of Exhibit 2.3 hereto, duly executed
      by the Company and the Sellers; and

     

    (h)  such
      other documents as the Purchaser shall reasonably request.

     

    8.2  Documents
      to be Delivered by the Purchaser.

     

    At
      the
      Closing, the Purchaser shall deliver to the Sellers the following:

     

    (a)  The
      Purchase Price;

     

    (b)  the
      certificates referred to in Section 7.2(d) hereof;

     

    (c)   the
      Escrow Agreement; substantially in the Form of Exhibit 2.3 hereto, duly executed
      by the Company and the Sellers; and

     

    (d)  such
      other documents as the Sellers shall reasonably request.

     

    

    ARTICLE
      IX

     

    INDEMNIFICATION

     

    9.1  Indemnification.

     

    (a)  Subject
      to Section 9.2 hereof, the Sellers hereby agrees to jointly and severally
      indemnify and hold the Purchaser, the Company, and their respective directors,
      officers, employees, Affiliates, agents, successors and assigns (collectively,
      the "Purchaser Indemnified Parties") harmless from and against:

     

    (i)  any
      and
      all liabilities of the Company of every kind, nature and description, absolute
      or contingent, existing as against the Company prior to and including the
      Closing Date or thereafter coming into being or arising by reason of any state
      of facts existing, or any transaction entered into, on or prior to the Closing
      Date, except to the extent that the same have been fully provided for in the
      Balance Sheet, or disclosed in the notes thereto or were incurred in the
      ordinary course of business between the Balance Sheet date and the Closing
      Date;

     

    (ii)  subject
      to Section 10.3, any and all losses, liabilities, obligations, damages, costs
      and expenses based upon, attributable to or resulting from the failure of any
      representation or warranty of the Sellers set forth in Section 4 hereof, or
      any
      representation or warranty contained in any certificate delivered by or on
      behalf of the Sellers pursuant to this Agreement, to be true and correct in
      all
      respects as of the date made;

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    (iii)  any
      and
      all losses, liabilities, obligations, damages, costs and expenses based upon,
      attributable to or resulting from the breach of any covenant or other agreement
      on the part of the Sellers under this Agreement;

     

    (iv)  any
      and
      all notices, actions, suits, proceedings, claims, demands, assessments,
      judgments, costs, penalties and expenses, including reasonable attorneys' and
      other professionals' fees and disbursements (collectively, "Expenses") incident
      to any and all losses, liabilities, obligations, damages, costs and expenses
      with respect to which indemnification is provided hereunder (collectively,
      "Losses").

     

    (b)  Subject
      to Section 9.2, Purchaser hereby agrees to indemnify and hold the Sellers and
      their respective Affiliates, agents, successors and assigns (collectively,
      the
      "Seller Indemnified Parties") harmless from and against:

     

    (i)  any
      and
      all Losses based upon, attributable to or resulting from the failure of any
      representation or warranty of the Purchaser set forth in Section 5 hereof,
      or
      any representation or warranty contained in any certificate delivered by or
      on
      behalf of the Purchaser pursuant to this Agreement, to be true and correct
      as of
      the date made;

     

    (ii)  any
      and
      all Losses based upon, attributable to or resulting from the breach of any
      covenant or other agreement on the part of the Purchaser under this Agreement
      or
      arising from the ownership or operation of the Company from and after the
      Closing Date, unless such claim is for a pre-Closing matter; and

     

    (iii)  any
      and
      all Expenses incident to the foregoing.

     

    

    9.2  Limitations
      on Indemnification for Breaches of Representations and
      Warranties.

     

    An
      indemnifying party shall not have any liability under Section 9.1(a)(ii) or
      Section 9.1(b)(i) hereof unless the aggregate amount of Losses and Expenses
      to
      the indemnified parties finally determined to arise thereunder based upon,
      attributable to or resulting from the failure of any representation or warranty
      to be true and correct, other than the representations and warranties set forth
      in Sections 4.3, 4.11, 4.24 and 4.29 hereof, exceeds $15,000 (the “Basket”) and,
      in such event, the indemnifying party shall be required to pay the entire amount
      of such Losses and Expenses.  Notwithstanding else contained herein,
      the maximum liability the Sellers in the aggregate shall be required to pay
      hereunder shall be the amount of the Purchase Price.

     

    9.3  Indemnification
      Procedures.

     

    (a)  In
      the
      event that any legal proceedings shall be instituted or that any claim or demand
      ("Claim") shall be asserted by any person or entity in respect of which payment
      may be sought under Section 9.1 hereof (regardless of the Basket or the
      Deductible referred to above), the indemnified party shall reasonably and
      promptly cause written notice of the assertion of any Claim of which it has
      knowledge which is covered by this indemnity to be forwarded to the indemnifying
      party.  The indemnifying party shall have the right, at its sole
      option and expense, to be represented by counsel of its choice, which must
      be
      reasonably satisfactory to the indemnified party, and to defend against,
      negotiate, settle or otherwise deal with any Claim which relates to any Losses
      indemnified against hereunder.  If the indemnifying party elects to
      defend against, negotiate, settle or otherwise deal with any Claim which relates
      to any Losses indemnified against hereunder, it shall within five (5) days
      (or
      sooner, if the nature of the Claim so requires) notify the indemnified party
      of
      its intent to do so.  If the indemnifying party elects not to defend
      against, negotiate, settle or otherwise deal with any Claim which relates to
      any
      Losses indemnified against hereunder, fails to notify the indemnified party
      of
      its election as herein provided or contests its obligation to indemnify the
      indemnified party for such Losses under this Agreement, the indemnified party
      may defend against, negotiate, settle or otherwise deal with such
      Claim.  If the indemnified party defends any Claim, then the
      indemnifying party shall reimburse the indemnified party for the Expenses of
      defending such Claim upon submission of periodic bills.  If the
      indemnifying party shall assume the defense of any Claim, the indemnified party
      may participate, at his or its own expense, in the defense of such Claim;
      provided, however, that such indemnified party shall be entitled to participate
      in any such defense with separate counsel at the expense of the indemnifying
      party if, (i) so requested by the indemnifying party to participate or (ii)
      in
      the reasonable opinion of counsel to the indemnified party, a conflict or
      potential conflict exists between the indemnified party and the indemnifying
      party that would make such separate representation advisable; and provided,
      further, that the indemnifying party shall not be required to pay for more
      than
      one such counsel for all indemnified parties in connection with any
      Claim.  The parties hereto agree to cooperate fully with each other in
      connection with the defense, negotiation or settlement of any such
      Claim.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    (b)  After
      any
      final judgment or award shall have been rendered by a court, arbitration board
      or administrative agency of competent jurisdiction and the expiration of the
      time in which to appeal therefrom, or a settlement shall have been consummated,
      or the indemnified party and the indemnifying party shall have arrived at a
      mutually binding agreement with respect to a Claim hereunder, the indemnified
      party shall forward to the indemnifying party notice of any sums due and owing
      by the indemnifying party pursuant to this Agreement with respect to such matter
      and the indemnifying party shall be required to pay all of the sums so due
      and
      owing to the indemnified party by wire transfer of immediately available funds
      within 10 business days after the date of such notice.

     

    (c)  The
      failure of the indemnified party to give reasonably prompt notice of any Claim
      shall not release, waive or otherwise affect the indemnifying party's
      obligations with respect thereto except to the extent that the indemnifying
      party can demonstrate actual loss and prejudice as a result of such
      failure.

     

    9.4  Tax
      Treatment of Indemnity Payments.

     

    The
      Sellers and the Purchaser agree to treat any indemnity payment made pursuant
      to
      this Article 9 as an adjustment to the Purchase Price for federal, state, local
      and foreign income tax purposes.

     

    

    

    ARTICLE
      X

    MISCELLANEOUS

     

    10.1  Payment
      of Sales, Use or Similar Taxes.

     

    All
      sales, use, transfer, intangible, recordation, documentary stamp or similar
      Taxes or charges, of any nature whatsoever, applicable to, or resulting from,
      the transactions contemplated by this Agreement shall be borne by the
      Sellers.

     

    10.2  Survival
      of Representations and Warranties.

     

    The
      parties hereto hereby agree that the representations and warranties contained
      in
      this Agreement or in any certificate, document or instrument delivered in
      connection herewith, shall survive the execution and delivery of this Agreement,
      and the Closing hereunder, regardless of any investigation made by the parties
      hereto; provided, however, that any claims or actions with respect thereto
      (other than claims for indemnifications with respect to the representation
      and
      warranties contained in Sections 4.3, 4.11, 4.24, 4.29 and 5.8 which shall
      survive for periods coterminous with any applicable statutes of limitation)
      shall terminate unless within twenty four (24) months after the Closing Date
      written notice of such claims is given to the Sellers or such actions are
      commenced.

     

    10.3  Expenses.

     

    Except
      as
      otherwise provided in this Agreement, the Sellers and the Purchaser shall each
      bear its own expenses incurred in connection with the negotiation and execution
      of this Agreement and each other agreement, document and instrument contemplated
      by this Agreement and the consummation of the transactions contemplated hereby
      and thereby, it being understood that in no event shall the Company bear any
      of
      such costs and expenses.

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

    10.4  Specific
      Performance.

     

    The
      Sellers acknowledge and agree that the breach of this Agreement would cause
      irreparable damage to the Purchaser and that the Purchaser will not have an
      adequate remedy at law.  Therefore, the obligations of the Sellers
      under this Agreement, including, without limitation, the Sellers' obligation
      to
      sell the Shares to the Purchaser, shall be enforceable by a decree of specific
      performance issued by any court of competent jurisdiction, and appropriate
      injunctive relief may be applied for and granted in connection
      therewith.  Such remedies shall, however, be cumulative and not
      exclusive and shall be in addition to any other remedies which any party may
      have under this Agreement or otherwise.

     

    10.5  Further
      Assurances.

     

    The
      Sellers and the Purchaser each agrees to execute and deliver such other
      documents or agreements and to take such other action as may be reasonably
      necessary or desirable for the implementation of this Agreement and the
      consummation of the transactions contemplated hereby.

     

    10.6  Submission
      to Jurisdiction; Consent to Service of Process.

     

    (a)  The
      parties hereto hereby irrevocably
      submit to the non-exclusive jurisdiction of any federal or state court located
      within the State of California over any dispute arising out of or relating
      to
      this Agreement or any of the transactions contemplated hereby and each party
      hereby irrevocably agrees that all claims in respect of such dispute or any
      suit, action proceeding related thereto may be heard and determined in such
      courts.  The parties hereby irrevocably waive, to the fullest extent
      permitted by applicable law, any objection which they may now or hereafter
      have
      to the laying of venue of any such dispute brought in such court or any defense
      of inconvenient forum for the maintenance of such dispute.  Each of
      the parties hereto agrees that a judgment in any such dispute may be enforced
      in
      other jurisdictions by suit on the judgment or in any other manner provided
      by
      law.

     

    (b)  Each
      of
      the parties hereto hereby consents to process being served by any party to
      this
      Agreement in any suit, action or proceeding by the mailing of a copy thereof
      in
      accordance with the provisions of Section 10.10.

     

    (c)
      If
      any legal action or any arbitration or other proceeding is brought for the
      enforcement or interpretation of this Agreement, or because of an alleged
      dispute, breach, default or misrepresentation in connection with or related
      to
      this Agreement, the successful or prevailing party shall be entitled to recover
      reasonable attorneys' fees and other costs in connection with that action or
      proceeding, in addition to any other relief to which it or they may be
      entitled.

    

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    

    10.7  Entire
      Agreement; Amendments and Waivers.

     

    This
      Agreement (including the schedules
      and exhibits hereto, together with the Confidentiality/Standstill Agreement
      executed by the parties as of August 31, 2007) represents the entire
      understanding and agreement between the parties hereto with respect to the
      subject matter hereof and can be amended, supplemented or changed, and any
      provision hereof can be waived, only by written instrument making specific
      reference to this Agreement signed by the party against whom enforcement of
      any
      such amendment, supplement, modification or waiver is sought.  No
      action taken pursuant to this Agreement, including without limitation, any
      investigation by or on behalf of any party, shall be deemed to constitute a
      waiver by the party taking such action of compliance with any representation,
      warranty, covenant or agreement contained herein.  The waiver by any
      party hereto of a breach of any provision of this Agreement shall not operate
      or
      be construed as a further or continuing waiver of such breach or as a waiver
      of
      any other or subsequent breach.  No failure on the part of any party
      to exercise, and no delay in exercising, any right, power or remedy hereunder
      shall operate as a waiver thereof, nor shall any single or partial exercise
      of
      such right, power or remedy by such party preclude any other or further exercise
      thereof or the exercise of any other right, power or remedy.  All
      remedies hereunder are cumulative and are not exclusive of any other remedies
      provided by law.

     

    10.8  Governing
      Law.  This Agreement shall be governed by and construed in
      accordance with the laws of the State of California.

     

    10.9  Table
      of Contents and Headings.

     

    The
      table
      of contents and section headings of this Agreement are for reference purposes
      only and are to be given no effect in the construction or interpretation of
      this
      Agreement.

     

    10.10  Notices.

     

    All
      notices and other communications under this Agreement shall be in writing and
      shall be deemed given when delivered personally, mailed by certified mail,
      return receipt requested, or via recognized overnight courier service with
      all
      charges prepaid or billed to the account of the sender to the parties (and
      shall
      also be transmitted by facsimile to the Persons receiving copies thereof) at
      the
      following addresses (or to such other address as a party may have specified
      by
      notice given to the other party pursuant to this provision):

     

    

    
      	
              (a)  

            	
              Purchaser:

            

    

    

    WPCS
      International Incorporated

    One
      East
      Uwchlan Avenue, Suite 301

    Exton,
      Pennsylvania 19341

    Attn:  Andrew
      Hidalgo, Chief Executive Officer

    Phone:  (610)
      903-0400

    Facsimile:
      (610) 903-0401

    

    Copy
      to:

    

    Thomas
      A.
      Rose, Esq.

    Sichenzia
      Ross Friedman Ference LLP

    61
      Broadway

    New
      York,
      New York 10006

    Phone:  (212)
      930-9700

    Facsimile:
      (212) 930-9725

     

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

    

    
      	
              (b)  

            	
              Sellers
                and Company:

            

    

    

    Empire
      Electric Incorporated

    4081
      Seaport Boulevard

    West
      Sacramento, California 95691

    Attn:  Harold
      Gomes, President

    Phone:  (916)
      373-9153

    Facsimile:  (916)
      373-0964

    

    Copy
      to:

    

    Kristan
      Kelsch, Esq.

    3426
      American River Drive, Suite 11

    Sacramento,
      California 95864

    Phone:
      (916) 239-4000

    Fax:
      (916) 239-4008

    

    

    10.11  Severability.

     

    If
      any
      provision of this Agreement is invalid or unenforceable, the balance of this
      Agreement shall remain in effect.

     

    10.12  Binding
      Effect; Assignment.

     

    This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective successors and permitted assigns.  Nothing in this
      Agreement shall create or be deemed to create any third party beneficiary rights
      in any person or entity not a party to this Agreement except as provided
      below.  No assignment of this Agreement or of any rights or
      obligations hereunder may be made by either the Sellers or the Purchaser (by
      operation of law or otherwise) without the prior written consent of the other
      parties hereto and any attempted assignment without the required consents shall
      be void; 

     

    [intentionally
      blank]

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

    

     

    IN
      WITNESS WHEREOF, the parties hereto
      have executed or caused to be duly executed this Stock Purchase Agreement as
      of
      the date first set forth above.

     

     

    
      	 	WPCS
              INTERNATIONAL
              INCORPORATED	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ ANDREW
              HIDALGO	 
	 	 	
              Andrew
                Hidalgo,

            	 
	 	 	Chief
              Executive Officer	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	
              GOMES
                AND GOMES, INC.

              dba
                EMPIRE ELECTRIC

            	 
	 	 	 	 
	 	 	 	 
	 	 	/s/
              HAROLD L. GOMES	 
	 	 	Harold
              L. Gomes,	 
	 	 	President	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	SELLERS:	 
	 	 	 	 
	 	 	/s/
              HAROLD L. GOMES	 
	 	 	Harold
              L. Gomes	 
	 	 	 	 
	 	 	 	 
	 	 	/s/
              JUDY L. GOMES	 
	 	 	 Judy
              L. Gomes	 
	 	 	 	 

    

    

     

     

     

    

    

     

    

    

    

     

     

     

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      1.1

    

    

    
      	 Seller 	 Shares	 	 
	 	 	 	 
	 Harold
              L. Gomes  	 8,000	 	 
	 	 	 	 
	 Judy
              L. Gomes	 2,000

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