Document:

Exhibit 10.1

LOAN AGREEMENT

between

AMERICAN BUSINESS
LENDING, INC.,

a Texas corporation,

as Borrower,

and

WELLS FARGO
FOOTHILL, LLC,

a Delaware limited liability company,

as Lender

	
  $25,000,000.00

  	
   

  	
  December 15, 2006

  

 

 

TABLE
OF CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  GENERAL TERMS

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.1

  	
  Defined

  	
   

  	
  1

  
	
   

  	
  1.2

  	
  Accounting Principles

  	
   

  	
  17

  
	
   

  	
  1.3

  	
  UCC Terms

  	
   

  	
  18

  
	
   

  	
  1.4

  	
  Certain Matters of Construction

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  AMOUNT AND TERMS OF LOAN

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
  The Loans and Commitments

  	
   

  	
  18

  
	
   

  	
  2.2

  	
  Notice of Borrowing; Disbursement of Advances

  	
   

  	
  19

  
	
   

  	
  2.3

  	
  Interest Rate

  	
   

  	
  19

  
	
   

  	
  2.4

  	
  Computation

  	
   

  	
  20

  
	
   

  	
  2.5

  	
  Fees

  	
   

  	
  21

  
	
   

  	
  2.6

  	
  Borrower’s Termination of Agreement

  	
   

  	
  21

  
	
   

  	
  2.7

  	
  Overadvances

  	
   

  	
  22

  
	
   

  	
  2.8

  	
  Crediting Payments

  	
   

  	
  22

  
	
   

  	
  2.9

  	
  All Loans to Constitute One Loan

  	
   

  	
  23

  
	
   

  	
  2.10

  	
  Loan Purpose

  	
   

  	
  23

  
	
   

  	
  2.11

  	
  Term of Agreement; Survival of Certain Obligations

  	
   

  	
  23

  
	
   

  	
  2.12

  	
  Payment Procedure

  	
   

  	
  23

  
	
   

  	
  2.13

  	
  Collection of Borrower’s Loans and Payments

  	
   

  	
  24

  
	
   

  	
  2.14

  	
  Collections; Lender’s Right to Notify Account
  Debtors

  	
   

  	
  26

  
	
   

  	
  2.15

  	
  Application of Payments

  	
   

  	
  26

  
	
   

  	
  2.16

  	
  Maintenance of Loan Account; Statement of
  Obligations

  	
   

  	
  27

  
	
   

  	
  2.17

  	
  Business Days

  	
   

  	
  27

  
	
   

  	
  2.18

  	
  Capital Requirements

  	
   

  	
  27

  
	
   

  	
  2.19

  	
  Indemnification

  	
   

  	
  28

  
	
   

  	
  2.20

  	
  LIBOR Option

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  SECURITY

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Borrower’s Obligations

  	
   

  	
  31

  
	
   

  	
  3.2

  	
  Further Assurances

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  REPRESENTATIONS AND WARRANTIES

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Corporate Existence

  	
   

  	
  31

  
	
   

  	
  4.2

  	
  Corporate Power and Authorization

  	
   

  	
  31

  
	
   

  	
  4.3

  	
  Ownership of Property; Permitted Liens

  	
   

  	
  32

  
	
   

  	
  4.4

  	
  Capital Structure

  	
   

  	
  32

  
	
   

  	
  4.5

  	
  Binding Obligations

  	
   

  	
  32

  
	
   

  	
  4.6

  	
  No Legal Bar; No Lien

  	
   

  	
  32

  
	
   

  	
  4.7

  	
  No Consent

  	
   

  	
  32

  
	
   

  	
  4.8

  	
  Liabilities; Litigation

  	
   

  	
  32

  
	
   

  	
  4.9

  	
  Taxes; Governmental Charges

  	
   

  	
  33

  
	
   

  	
  4.10

  	
  Defaults

  	
   

  	
  33

  

 

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  4.11

  	
  Use of Proceeds; Margin Stock

  	
   

  	
  33

  
	
   

  	
  4.12

  	
  Compliance with the Law

  	
   

  	
  33

  
	
   

  	
  4.13

  	
  ERISA

  	
   

  	
  33

  
	
   

  	
  4.14

  	
  Complete Disclosure

  	
   

  	
  33

  
	
   

  	
  4.15

  	
  Investment Company Act

  	
   

  	
  34

  
	
   

  	
  4.16

  	
  No Financing of Corporate Takeovers

  	
   

  	
  34

  
	
   

  	
  4.17

  	
  Location of Borrower

  	
   

  	
  34

  
	
   

  	
  4.18

  	
  Use of Proceeds

  	
   

  	
  34

  
	
   

  	
  4.19

  	
  Hazardous Materials

  	
   

  	
  34

  
	
   

  	
  4.20

  	
  Insurance Policies

  	
   

  	
  35

  
	
   

  	
  4.21

  	
  Schedule of Deposit Accounts

  	
   

  	
  36

  
	
   

  	
  4.22

  	
  Labor Matters

  	
   

  	
  36

  
	
   

  	
  4.23

  	
  Employment and Labor Agreements

  	
   

  	
  36

  
	
   

  	
  4.24

  	
  Solvent Financial Condition

  	
   

  	
  36

  
	
   

  	
  4.25

  	
  Brokers

  	
   

  	
  36

  
	
   

  	
  4.26

  	
  True Sales of Notes Receivable

  	
   

  	
  36

  
	
   

  	
  4.27

  	
  No Material Intellectual Property

  	
   

  	
  36

  
	
   

  	
  4.28

  	
  Asset Purchase Agreement

  	
   

  	
  36

  
	
   

  	
  4.29

  	
  Automatic Warranty and Reaffirmation of Warranties
  and Representations; Survival of Warranties and Representations

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  AFFIRMATIVE COVENANTS

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Financial Statements and Reports and Other Data

  	
   

  	
  38

  
	
   

  	
  5.2

  	
  Taxes and Other Liens

  	
   

  	
  40

  
	
   

  	
  5.3

  	
  Maintenance

  	
   

  	
  40

  
	
   

  	
  5.4

  	
  Further Assurances

  	
   

  	
  40

  
	
   

  	
  5.5

  	
  Performance of Obligations

  	
   

  	
  40

  
	
   

  	
  5.6

  	
  Insurance

  	
   

  	
  40

  
	
   

  	
  5.7

  	
  Accounts and Records

  	
   

  	
  41

  
	
   

  	
  5.8

  	
  Right of Inspection

  	
   

  	
  41

  
	
   

  	
  5.9

  	
  Notice of Certain Events

  	
   

  	
  42

  
	
   

  	
  5.10

  	
  ERISA Information and Compliance

  	
   

  	
  42

  
	
   

  	
  5.11

  	
  Financial Covenants

  	
   

  	
  42

  
	
   

  	
  5.12

  	
  Maintenance of Bad Debt Reserve

  	
   

  	
  44

  
	
   

  	
  5.13

  	
  Charges; Liens

  	
   

  	
  44

  
	
   

  	
  5.14

  	
  Communication With Accountants

  	
   

  	
  45

  
	
   

  	
  5.15

  	
  Notes Receivable Documents

  	
   

  	
  45

  
	
   

  	
  5.16

  	
  Subordination Agreement

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  NEGATIVE COVENANTS

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Debt

  	
   

  	
  46

  
	
   

  	
  6.2

  	
  Loans and Distributions

  	
   

  	
  46

  
	
   

  	
  6.3

  	
  Liens

  	
   

  	
  47

  

 

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  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  

  	
  6.4

  	
  Capital Expenditures

  	
   

  	
  47

  
	
   

  	
  6.5

  	
  [Intentionally Omitted]

  	
   

  	
  47

  
	
   

  	
  6.6

  	
  Capital Structure

  	
   

  	
  47

  
	
   

  	
  6.7

  	
  Transactions with Affiliates

  	
   

  	
  47

  
	
   

  	
  6.8

  	
  Change of Business

  	
   

  	
  47

  
	
   

  	
  6.9

  	
  Name of Borrower

  	
   

  	
  47

  
	
   

  	
  6.10

  	
  Location of Collateral

  	
   

  	
  47

  
	
   

  	
  6.11

  	
  Proceeds of Loans

  	
   

  	
  48

  
	
   

  	
  6.12

  	
  ERISA Compliance

  	
   

  	
  48

  
	
   

  	
  6.13

  	
  Sale or Discount of Receivables

  	
   

  	
  48

  
	
   

  	
  6.14

  	
  Payment on ASBA Note or FirstCity Debt

  	
   

  	
  48

  
	
   

  	
  6.15

  	
  Payments on Subordinated Debt

  	
   

  	
  49

  
	
   

  	
  6.16

  	
  Affiliates

  	
   

  	
  49

  
	
   

  	
  6.17

  	
  Consulting and Brokerage Services

  	
   

  	
  49

  
	
   

  	
  6.18

  	
  Modification of Asset Purchase Documents, Servicing
  Agreement, or FirstCity Debt

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  EVENTS OF DEFAULT

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1

  	
  Events of Default

  	
   

  	
  49

  
	
   

  	
  7.2

  	
  Termination of Agreement and Acceleration of the
  Obligations

  	
   

  	
  52

  
	
   

  	
  7.3

  	
  Remedies

  	
   

  	
  52

  
	
   

  	
  7.4

  	
  Notice of Sale or Other Action

  	
   

  	
  54

  
	
   

  	
  7.5

  	
  Marshalling; Payments Set Aside

  	
   

  	
  54

  
	
   

  	
  7.6

  	
  Effect of Multi-Party Agreement

  	
   

  	
  55

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  CONDITION PRECEDENT TO CLOSING DATE AND LENDING;
  CONDITIONS SUBSEQUENT

  	
   

  	
  55

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.1

  	
  Closing Date

  	
   

  	
  55

  
	
   

  	
  8.2

  	
  Initial Revolving Loan

  	
   

  	
  57

  
	
   

  	
  8.3

  	
  All Advances

  	
   

  	
  57

  
	
   

  	
  8.4

  	
  Conditions Subsequent

  	
   

  	
  58

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  MISCELLANEOUS

  	
   

  	
  59

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.1

  	
  Notices

  	
   

  	
  59

  
	
   

  	
  9.2

  	
  Modification of Agreement; Sale of Interest

  	
   

  	
  60

  
	
   

  	
  9.3

  	
  Lien Release Prior to Sale of SBA Guaranteed Notes
  Receivable

  	
   

  	
  60

  
	
   

  	
  9.4

  	
  Fees and Expenses

  	
   

  	
  60

  
	
   

  	
  9.5

  	
  Severability

  	
   

  	
  60

  
	
   

  	
  9.6

  	
  Waiver by Lender

  	
   

  	
  61

  
	
   

  	
  9.7

  	
  Successors and Assigns

  	
   

  	
  61

  
	
   

  	
  9.8

  	
  Conflict of Terms

  	
   

  	
  61

  
	
   

  	
  9.9

  	
  Waivers by Borrower

  	
   

  	
  61

  

 

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  9.10

  	
  Cumulative Rights

  	
   

  	
  61

  
	
   

  	
  9.11

  	
  CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER

  	
   

  	
  61

  
	
   

  	
  9.12

  	
  Taxes, etc

  	
   

  	
  62

  
	
   

  	
  9.13

  	
  Governmental Regulation

  	
   

  	
  62

  
	
   

  	
  9.14

  	
  Titles of Articles and Sections

  	
   

  	
  62

  
	
   

  	
  9.15

  	
  Authorized Signatures

  	
   

  	
  63

  
	
   

  	
  9.16

  	
  Confidentiality

  	
   

  	
  63

  
	
   

  	
  9.17

  	
  Acknowledgment of Lender’s other Interests

  	
   

  	
  63

  
	
   

  	
  9.18

  	
  Counterparts; Telefacsimile Execution

  	
   

  	
  64

  
	
   

  	
  9.19

  	
  Entire Agreement

  	
   

  	
  64

  
	
   

  	
  9.20

  	
  Revival and Reinstatement of Obligations

  	
   

  	
  64

  
	
   

  	
  9.21

  	
  Patriot Act Notice

  	
   

  	
  64

  

 

 iv

 

EXHIBITS AND SCHEDULES

	
  Exhibit A

  	
  Form of Borrowing Base Certificate

  
	
  Exhibit B

  	
  Form of Compliance Certificate

  
	
  Exhibit C

  	
  Schedule of Documents

  
	
  Exhibit D

  	
  Form of Note Sale Report

  
	
  Exhibit E

  	
  Form of Letter to Accountants

  
	
  Exhibit F

  	
  Form of LIBOR Notice

  
	
   

  	
   

  
	
  Schedule 1.1 (a)

  	
  Net Eligible Non-Guaranteed Notes Receivable

  
	
  Schedule 1.1(b)

  	
  Net Eligible SBA Guaranteed Notes Receivable

  
	
  Schedule 4.3(a)

  	
  Ownership of Real Property

  
	
  Schedule 4.3(b)

  	
  Permitted Liens

  
	
  Schedule 4.4

  	
  Capital Structure of Borrower

  
	
  Schedule 4.8

  	
  Liabilities; Litigation

  
	
  Schedule 4.20

  	
  Insurance Policies

  
	
  Schedule 4.21

  	
  Schedule of Deposit Accounts

  
	
  Schedule 4.23

  	
  Employment and Labor Agreements

  
	
  Schedule 4.27

  	
  Intellectual Property

  
	
  Schedule 7.1(q)

  	
  Key Employees

  

 

 

LOAN
AGREEMENT

THIS LOAN AGREEMENT (this “Agreement”) is
made as of the 15th day of December, 2006, by and between AMERICAN
BUSINESS LENDING, INC., a Texas corporation with its principal
offices located at 1420 West Mockingbird Lane, Suite 380, Dallas, Texas
75247 (“Borrower”), and WELLS FARGO
FOOTHILL, LLC, a Delaware limited liability company having an office
at 13727 Noel Road, Suite 1020, Dallas, Texas 75240 (“Lender”), with
reference to the following facts:

RECITALS

A.            Borrower
has requested that Lender provide to it a working capital facility in the
maximum aggregate principal amount of up to $25,000,000, the proceeds of which
Borrower will use to pay fees and expenses in connection with the closing of
this Agreement and to finance SBA 7(a) Loans (as hereinafter defined) made
by Borrower.

B.            Lender
is willing to extend such financial accommodations to Borrower in accordance
with and on the terms and conditions set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the terms and
conditions set forth herein, and of any extension of credit contemplated
hereby, now or hereafter made by the Lender to Borrower, Borrower and Lender
hereby agree as follows:

1.              GENERAL TERMS

1.1           Defined.  As used in this Agreement, the following
terms shall have the following meanings, unless the context otherwise requires
(terms defined in the singular to have the same meaning when used in the plural
and visa versa):

“Accounts” shall mean all accounts, accounts
receivable, other receivables, contract rights, and notes (other than forms of
obligations evidenced by chattel paper, documents or instruments), whether now
owned or hereafter acquired by Borrower and whether or not earned by
performance; provided, that the term Accounts shall not include the
Serviced ASBA Assets; and  provided  further, that to the
extent that such property is not part of the Collateral or ceases to be part of
the Collateral, the provisions of this Agreement applicable to Accounts shall
not be applicable thereto.

“Accountant” shall have the meaning ascribed
to that term in Section 5.1(a).

“Account Debtor” shall mean any Person who is
or who may become obligated to Borrower under, with respect to, or on account
of, an Account.

“ACH Transactions” shall mean any cash
management or related services (including the Automated Clearing House
processing of electronic funds transfers through the direct Federal Reserve
Fedline system) provided by a Bank Product Provider for the account of Borrower
or its Subsidiaries.

 1
 

 

“Affiliate” shall mean, as applied to any
Person, any other Person who, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with,
such Person.  For purposes of this
definition, “control” means the possession, directly or indirectly, of the
power to direct the management and policies of a Person, whether through the
ownership of Stock, by contract, or otherwise; provided, however,
that, in any event: (a) any Person which owns directly or indirectly 10% or
more of the securities having ordinary voting power for the election of
directors or other members of the governing body of a Person or 10% or more of
the partnership or other ownership interests of a Person (other than as a
limited partner of such Person) shall be deemed to control such Person, (b)
each director (or comparable manager) of a Person shall be deemed to be an
Affiliate of such Person, and (c) each partnership or joint venture in which a
Person is a partner or joint venturer shall be deemed to be an Affiliate of such
Person.

“Agreement” shall mean this Loan Agreement,
including all amendments, modifications and supplements hereto and any
appendices, exhibits or schedules to any of the foregoing, and shall refer to
the Agreement as the same may be in effect at the time such reference becomes
operative.

“Allocated Payment Portion” shall have the
meaning ascribed to such term in Section 2.13(c).

“ASBA” shall mean AMRESCO SBA Holdings, Inc.,
a Delaware corporation, and its successors and assigns.

“ASBA Note” shall mean the Secured Note in
the form of Exhibit 1.4 to the Asset Purchase Agreement, executed by
Borrower in favor of ASBA in an original principal amount equal to the “Stated
Amount” (as defined in the Asset Purchase Agreement) to pay part of the
purchase price under the Asset Purchase Agreement and secured solely by the
Serviced ASBA Assets.

“ASBA Security Agreement” shall mean the
Security Agreement dated November 30, 2006, executed by Borrower in favor
of ASBA to grant to ASBA a security interest in the Serviced ASBA Assets to
secure the obligations of Borrower under the Asset Purchase Agreement, the ASBA
Note and the ASBA Security Agreement.

“Asset Purchase Agreement” shall mean the
Asset Purchase Agreement dated as of June 30, 2006, by and among NCS I,
LLC, a Delaware limited liability company, and ASBA, as “Sellers,” Borrower, as
the “Purchaser,” FirstCity BLC, and FirstCity Financial, and including all
amendments, modifications and supplements hereto and any appendices, exhibits
or schedules to any of the foregoing, pursuant to which Borrower acquired the
SBA 7(a) Loan lending authority of ASBA and the Serviced ASBA Assets.

“Asset Purchase Documents” shall mean the
Asset Purchase Agreement, the ASBA Note, and all other agreements, instruments,
certificates, legal opinions, and other documents required to be executed or
delivered in connection with the consummation of the transactions contemplated
by the Asset Purchase Agreement.

“Authorized Person” shall mean any of the
President, the Chief Executive Officer, and the Treasurer of Borrower, and any
other officer of Borrower from time to time designated

 2
 

 

in writing by Borrower to Lender.

“Availability” shall mean, as of any date of
determination, if such date is a Business Day, and determined at the close of
business on the immediately preceding Business Day, if such date of
determination is not a Business Day, the amount that Borrower is entitled to
borrow as Revolving Loans under Section 2.1
(after giving effect to all then outstanding Obligations and all sublimits and
reserves applicable hereunder).

“Bank Product” shall mean any financial
accommodation extended to Borrower or its Subsidiaries by any Bank Product
Provider (other than pursuant to this Agreement) including:  (a) credit cards, (b) credit card processing
services, (c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash
management, including controlled disbursement, accounts or services, or (g)
transactions under Hedging Agreements.

“Bank Product Agreements” shall mean those
certain agreements entered into from time to time by Borrower or its
Subsidiaries with a Bank Product Provider in connection with the obtaining of
any of the Bank Products.

“Bank Product Obligations” shall mean all
obligations, liabilities, contingent reimbursement obligations, fees, and
expenses owing by Borrower or its Subsidiaries to any Bank Product Provider
pursuant to or evidenced by the Bank Product Agreements and irrespective of
whether for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, and
including all such amounts that Borrower or its Subsidiaries are obligated to
reimburse to Lender as a result of Lender purchasing participations from, or
executing indemnities or reimbursement obligations to, a Bank Product Provider
with respect to the Bank Products provided by such Bank Product Provider.

“Bank Product Provider” shall mean Wells
Fargo or any of its Affiliates.

“Bank Product Reserves” shall mean, as of any
date of determination, the amount of reserves that Lender has established
(based upon the relevant Bank Product Providers’ reasonable determination of
the credit exposure in respect of Bank Products) for Bank Products then
provided or outstanding.

“Bankruptcy Code” shall mean the United
States Bankruptcy Code, 11 U.S.C. sections 101 et  seq., as
the same may be modified, amended or supplemented from time to time.

“Base LIBOR Rate” means the rate per annum,
determined by Lender in accordance with its customary procedures, and utilizing
such electronic or other quotation sources as it considers appropriate (rounded
upwards, if necessary, to the next 1/100%), to be the rate at which Dollar
deposits (for delivery on the first day of the requested Interest Period) are
offered to major banks in the London interbank market 2 Business Days prior to
the commencement of the requested Interest Period, for a term of 30 days and in
an amount comparable to the amount of the LIBOR Rate Loan requested (whether as
an initial LIBOR Rate Loan or as a continuation of a LIBOR Rate Loan or as a
conversion of a Base Rate Loan to a LIBOR Rate Loan) by Borrower in accordance
with the Agreement, which determination shall be conclusive in the absence of
manifest error.

 3
 

 

“Base Rate” shall mean the greater of
(a) the rate of interest announced, from time to time, within Wells Fargo
at its principal office in San Francisco as its “prime rate,” with the
understanding that the “prime rate” is one of Wells Fargo’s base rates (not
necessarily the lowest of such rates) and serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto and is evidenced by the recording thereof after its announcement in
such internal publications as Wells Fargo may designate, or (b) seven and
one-half percent (7.50%) per annum.

“Base
Rate Loan” means the portion of the Revolving Loans that bears interest at
a rate determined by reference to the Base Rate.

“Board
of Directors” means the board of directors (or comparable managers) of
Borrower or any committee thereof duly authorized to act on behalf of the board
of directors (or comparable managers).

“Borrower” shall mean American Business
Lending, Inc., a Texas corporation, and its successors and permitted assigns.

“Borrower Allocated Payments” shall mean the
proceeds of any and all checks, drafts, cash and other remittances received by
Borrower in payment or on account of payment, with respect to any of the Notes
Receivable, after deducting such portion that constitutes an Allocated Payment
Portion, Servicing Fee (as defined in the Multi-Party Agreement), FTA’s fee or
SBA fee.

“Borrowing Base Certificate” shall mean the
report by Borrower with respect to calculation of the Maximum Commitment, to be
substantially in the form attached as Exhibit A
hereto.

“Broker-Dealer Confirmation” shall mean, with
respect to any sale of an SBA Guaranteed Note Receivable, the written
communication from a securities broker-dealer to Borrower confirming the date
on which all funds to be paid by the purchaser of such SBA Guaranteed Note
Receivable will be disbursed to FTA for the account of Borrower.

“Business Day” shall mean a day other than a
Saturday, Sunday or legal holiday for commercial banks under the laws of the
State of Texas or the State of California, except that, if a determination of a
Business Day shall relate to a LIBOR Rate Loan, the term “Business Day” also
shall exclude any day on which banks are closed for dealings in Dollar deposits
in the London interbank market.

“Capital Lease” shall mean a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP.

“Capitalized Lease Obligation” shall mean
that portion of the obligations under a Capital Lease that is required to be
capitalized in accordance with GAAP.

“Change of Control” shall mean (a) Permitted
Holders cease to directly or indirectly own and control outstanding capital
Stock of Borrower having at least ninety-six (96%) of
the votes for the election of members of the Board of Directors, or (b) a
majority of the members of the Board of Directors of Borrower do not constitute
Continuing Directors.

 4
 

 

“Charges” shall mean all taxes, levies,
assessments, charges, Liens, claims or encumbrances upon or relating to (a) the
Collateral, (b) the Obligations, (c) the employees, payroll, income
or gross receipts of Borrower, (d) the ownership or use of any of the
assets of Borrower, or (e) and any other aspect of Borrower’s business.

“Closing Date” shall mean the first date on
which all conditions precedent set forth in Section
8.1 have been satisfied in a manner acceptable to Lender or waived
in writing by Lender as provided therein, which date shall be confirmed by
Lender to Borrower in writing upon request.

“Closing Date Business Plan” means the set of
Projections of Borrower for the three-year period following the Closing Date
(on a year by year basis, and for the one year period following the Closing
Date, on a month by month basis), in form and substance (including as to scope
and underlying assumptions) satisfactory to Lender.

“Collateral” shall mean all of the property
and interests in property described in the Security Agreement and the other
Security Documents and all other property and interests in property which
shall, from time to time, secure the Obligations; provided, that the
term Collateral shall not include any of the Serviced ASBA Assets.

“Collateral Access Agreement” means a
landlord waiver, bailee letter or acknowledgement agreement of any lessor,
lessee, warehouseman, processor, consignee or other Person in possession of,
having a Lien upon, or having rights or interests in any personal property
Collateral (including, without limitation, books and records), in each case, in
form and substance satisfactory to Lender.

“Collection Account” shall have the meaning
ascribed to such term in Section 2.13(b).

“Compliance Certificate” shall mean the
certificate evidencing Borrower’s compliance with the terms of this Agreement,
to be substantially in the form attached as Exhibit B hereto.

“Continuing Directors” shall mean (a) any
member of the Board of Directors who was a director (or comparable manager) of
Borrower on the Closing Date, and (b) any individual who becomes a member of
the Board of Directors of Borrower after the Closing Date if such individual
was appointed or nominated for election to the Board of Directors by a majority
of the Continuing Directors, but excluding any such individual originally
proposed for election in opposition to the Board of Directors in office at the
Closing Date in an actual or threatened election contest relating to the
election of the directors (or comparable managers) thereof and whose initial
assumption of office resulted from such contest or the settlement thereof.

“Default” shall mean any event that, with the
passage of time, the giving of notice or both, would become an Event of
Default, unless cured or waived as specifically provided in this Agreement.

“Defaulted Non-Guaranteed Notes Receivable”
shall mean any Non-Guaranteed Notes Receivable with respect to which either
(a) any payment of interest, principal, or other amount due thereunder
from the Term Loan Debtor is more than 180 days past due, or

 5
 

 

(b) Borrower is required to designate as a “liquidation account”
in accordance with SBA Rules and Regulations.

“Delinquent Non-Guaranteed Notes Receivable”
shall mean any Non-Guaranteed Notes Receivable with respect to which any
payment of interest, principal, or other amount due thereunder from the Term
Loan Debtor is more than 60 days past due, but which has not yet become a
Defaulted Non-Guaranteed Notes Receivable.

“Designated Account” means account number
3189116431 of Borrower maintained with Borrower’s Designated Account Bank, or
such other deposit account of Borrower (located at a commercial depositary bank
within the United States acceptable to Lender) that has been designated as
such, in writing, by Borrower to Lender.

“Designated Account Bank” means Wells Fargo
Bank, N.A., ABA No. 121000248.

“Dollars” or $ shall mean lawful money
of the United States of America.

“EBITDA” shall mean, with respect to any
Person for any fiscal period, its consolidated net earnings (or loss), minus
extraordinary gains, plus interest expense, income taxes, and
depreciation and amortization for such period, as determined in accordance with
GAAP; provided, that solely for purposes of calculating compliance with
any of the financial covenants in Section 5.11,
the amount determined in accordance with GAAP shall be (a) increased by
the positive amount, if any, of the amortization of any premium earned over
book value on any sold SBA 7(a) Loan, and (b) increased or decreased, as
the case may be, by the amount of any loss or gain recognized as a result of
any change in valuation of any SBA 7(a) Loan based upon market conditions to
the extent required by GAAP.

“Environmental Actions” shall mean any
complaint, summons, citation, notice, directive, order, claim, litigation,
investigation, judicial or administrative proceeding, judgment, letter, or
other communication from any Governmental Authority, or any third party
involving violations of Environmental Laws or releases of Hazardous Materials
from (a) any assets, properties, or businesses of Borrower, its Subsidiaries or
predecessors in interest to Borrower or to any of Borrower’s Subsidiaries, (b)
from adjoining properties or businesses, or (c) from or onto any facilities
which received Hazardous Materials generated by Borrower, its Subsidiaries or
predecessors in interest to Borrower or to any of Borrower’s Subsidiaries.

“Environmental Laws” shall mean any applicable
federal, state, provincial, foreign or local statute, law, rule, regulation,
ordinance, code, binding and enforceable guideline, binding and enforceable
written policy, or rule of common law now or hereafter in effect and in each
case as amended, or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment, to
the extent binding on Borrower or its Subsidiaries, relating to the
environment, employee health and safety, or Hazardous Materials, including CERCLA
(Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
42 USC § 9601 et  seq.); RCRA (Resource Conservation and Recovery
Act of 1976, 42 USC § 6901 et  seq.); the Federal Water Pollution
Control Act, 33 USC § 1251 et  seq; the Toxic Substances Control
Act, 15 USC § 2601 et  seq; the Clean Air Act, 42 USC § 7401 et
seq.; the Safe Drinking Water Act, 42 USC § 300f et  seq.;
the Oil Pollution Act of 1990, 33 USC § 2701 et  seq.; the
Emergency Planning and Community Right-to-Know Act of 1986, 42

 6
 

 

USC § 11001 et
seq.; the Hazardous Material Transportation Act, 49 USC § 1801 et
seq.; and the Occupational Safety and Health Act of 1970, 29 USC §651 et
seq. (to the extent it regulates occupational exposure to Hazardous
Materials); any state and local or foreign counterparts or equivalents, in each
case as amended from time to time.

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

“ERISA Affiliate” shall mean (a) any Person
subject to ERISA whose employees are treated as employed by the same employer
as the employees of Borrower or its Subsidiaries under IRC Section 414(b), (b)
any trade or business subject to ERISA whose employees are treated as employed
by the same employer as the employees of Borrower or its Subsidiaries under IRC
Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412
of the IRC, any organization subject to ERISA that is a member of an affiliated
service group of which Borrower or any of its Subsidiaries are a member under
IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and
Section 412 of the IRC, any Person subject to ERISA that is a party to an
arrangement with Borrower or any of its Subsidiaries and whose employees are
aggregated with the employees of Borrower or its Subsidiaries under IRC Section
414(o).

“Event of Default” shall mean the occurrence
of any of the events specified in Section 7.1
hereof, provided that any requirement for notice or lapse of time or any other
condition precedent has been satisfied.

“Excess Availability” shall mean the amount,
as of the date any determination thereof is to be made, equal to Availability minus
the aggregate amount, if any, of all trade payables of Borrower aged in excess
of historical levels with respect thereto and all book overdrafts in excess of
historical practices with respect thereto, in each case as determined by Lender
in the exercise of its reasonable (from the perspective of a secured asset-based
lender in the same or similar circumstances) business judgment.

“FirstCity BLC” shall mean FirstCity Business
Lending Corporation, a Texas corporation.

“FirstCity Debt” shall have the meaning
ascribed to such term in Section 8.1(q).

“FirstCity Financial” shall mean FirstCity
Financial Corporation, a Delaware corporation.

“FTA” shall mean Colson Services Corp., as
fiscal and transfer agent for the SBA and as the SBA’s agent to hold the
original SBA 7(a) Loan Notes pursuant to the Multi-Party Agreement, and as
bailee for Lender for purposes of perfecting Lender’s security interest in the
original SBA 7(a) Loan Notes pursuant to the Multi-Party Agreement, or any
other Person designated by the SBA to perform the same or similar functions.

“Funding Losses” has the meaning set forth in
Section 2.20(b)(ii).

“GAAP” shall mean the generally accepted
accounting principles in the United States of America as in effect from time to
time.

 7
 

 

“Governmental Authority” shall mean any
federal, state, local, or other governmental or administrative body,
instrumentality, department, or agency or any court, tribunal, administrative
hearing body, arbitration panel, commission, or other similar dispute-resolving
panel or body.

“Governmental Authorization” shall mean any
permit, license, authorization, consent order or consent decree of or from any
Governmental Authority.

“Governmental Requirement” shall mean any
law, statute, code, ordinance, order, rule, regulation, judgment, decree,
injunction, franchise, permit, certificate, license, authorization or other
direction or requirement (including any of the foregoing which relate to SBA
Rules and Regulations, lender licensing, environmental standards or controls,
energy regulations and occupational, safety and health standards or controls)
of Governmental Authority that exercises jurisdiction over Borrower.

“Hazardous Materials” shall mean (a)
substances that are defined or listed in, or otherwise classified pursuant to,
any applicable laws or regulations as “hazardous substances,” “hazardous
materials,” “hazardous wastes,” “toxic substances,” or any other formulation
intended to define, list, or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, or “EP toxicity”, (b) oil, petroleum, or petroleum
derived substances, natural gas, natural gas liquids, synthetic gas, drilling
fluids, produced waters, and other wastes associated with the exploration,
development, or production of crude oil, natural gas, or geothermal resources,
(c) any flammable substances or explosives or any radioactive materials, and
(d) asbestos in any form or electrical equipment that contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of 50
parts per million.

“Hedging Agreement” shall mean any and all
transactions, agreements, or documents now existing or hereafter entered into
between Borrower or its Subsidiaries and a Bank Product Provider, which provide
for an interest rate, credit, commodity or equity swap, cap, floor, collar,
forward foreign exchange transaction, currency swap, cross currency rate swap,
currency option, or any combination of, or option with respect to, these or
similar transactions, for the purpose of hedging Borrower’s or its Subsidiaries’
exposure to fluctuations in interest or exchange rates, loan, credit exchange,
security or currency valuations or commodity prices.

“Highest Lawful Rate” shall mean the maximum
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received with respect to the
Revolving Loans or on other Obligations, as the case may be, under the law of
the State of New York (or the law of any other jurisdiction whose laws may be
mandatorily applicable notwithstanding other provisions of this Agreement), or
law of the United States of America applicable to Lender and the Transactions
that would permit Lender to contract for, charge, take, reserve or receive a
greater amount of interest, than under New York (or such other jurisdiction’s)
law.

“Indebtedness” shall mean (a) all obligations
for borrowed money, (b) all obligations evidenced by bonds, debentures, notes,
or other similar instruments and all reimbursement or other obligations in
respect of letters of credit, bankers acceptances, interest rate swaps, or
other financial products, (c) all obligations under Capital Leases, (d) all
obligations or liabilities of others secured by a Lien on any asset a Person or
its Subsidiaries,

 8
 

 

irrespective of whether such obligation or liability is assumed, (e)
all obligations for the deferred purchase price of assets (other than trade
debt incurred in the ordinary course of business and repayable in accordance
with customary trade practices), (f) all obligations owing under Hedging
Agreements, and (g) any obligation of Borrower or its Subsidiaries guaranteeing
or intended to guarantee (whether directly or indirectly guaranteed, endorsed,
co-made, discounted, or sold with recourse) any obligation of any other Person
that constitutes Indebtedness under any of clauses (a) through (f)
above.

“Indemnified Liabilities” shall have the
meaning ascribed to such term in Section 2.19.

“Indemnified Person” shall have the meaning
ascribed to such term in Section 2.19.

“Insolvency
Proceeding” shall mean any proceeding commenced by or against any Person
under any provision of the Bankruptcy Code or under any other state or federal
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.

“Intangible Assets” shall mean, with
respect to any Person, that portion of the book value of all of such Person’s
assets that would be treated as intangibles under GAAP.

“Interest
Coverage Ratio” shall mean, with respect to any Person for any period, the
ratio of (i) EBITDA for such period, to (ii) total interest expense to the
extent paid or required to be paid during such period, in each case determined
for such Person.

“Interest Period” means with respect to each
LIBOR Rate Loan, a period commencing on the first day of a calendar month and
ending on the last day of such calendar month; provided, however, that Borrower
may not elect an Interest Period which will end after the scheduled Termination
Date.

“Lender” shall mean Wells Fargo Foothill,
LLC, a Delaware limited liability company, together with its successors and
permitted assigns.

“Lender Account” shall mean an account at a
bank designated by Lender from time to time as the account into which Borrower
shall make all payments to Lender under this Agreement and the other Loan
Documents; unless and until Lender notifies Borrower to the contrary, the Lender
Account shall be that certain deposit account bearing account number 4121345110
and maintained by Lender with Wells Fargo Bank, N.A.,  San Francisco, CA, ABA No. 121000248.

“Lender Expenses” means all (a) reasonable
costs or expenses (including taxes, and insurance premiums) required to be paid
by Borrower or its Subsidiaries under any of the Loan Documents that are paid
or incurred by Lender, (b) reasonable fees or charges paid or incurred by
Lender in connection with its transactions with Borrower and its Subsidiaries,
including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department

 9
 

 

of motor vehicles), filing, recording, publication, appraisal
(including periodic Collateral appraisals or business valuations to the extent
of the fees and charges (and up to the amount of any limitation) provided for
in Section 2.5(d)), real
estate surveys, real estate title policies and endorsements, and environmental
audits, (c) reasonable costs and expenses incurred by Lender in the
disbursement of funds to Borrower (by wire transfer or otherwise), (d)
reasonable charges paid or incurred by Lender resulting from the dishonor of
checks, (e) reasonable costs and expenses paid or incurred by Lender to correct
any default or enforce any provision of the Loan Documents, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Collateral, or any portion
thereof, irrespective of whether a sale is consummated, (f) reasonable audit
fees and expenses of Lender related to audit examinations of Borrower’s books
and records to the extent of the fees and charges (and up to the amount of any
limitation) provided for in Section 2.5(d),
(g) reasonable costs and expenses of third party claims or any other suit paid
or incurred by Lender in enforcing or defending the Loan Documents or in
connection with the transactions contemplated by the Loan Documents or Lender’s
relationship with Borrower, (h)  Lender’s reasonable fees and expenses
(including attorneys fees) incurred in advising, structuring, drafting,
reviewing, administering, or amending the Loan Documents, (i) Lender’s
reasonable fees and expenses (including attorneys fees) incurred in
terminating, enforcing (including attorneys fees and expenses incurred in
connection with a “workout,” a “restructuring,” or an Insolvency Proceeding
concerning Borrower or its Subsidiaries or in exercising rights or remedies
under the Loan Documents), or defending the Loan Documents, irrespective of
whether suit is brought, or in taking any Remedial Action concerning the
Collateral, and (j) a $1,500 fee to cover Lender’s marketing and advertising
costs with respect to this Agreement and the Loan Documents.

“LIBOR Deadline” has the meaning set forth in
Section 2.20(b)(i).

“LIBOR Notice” means a written notice in the
form of Exhibit F.

“LIBOR Option” has the meaning set forth in Section 2.20(a).

“LIBOR Rate” means, for an Interest Period,
the rate per annum determined by Lender (rounded upwards, if necessary, to the
next 1/100%) by dividing (a) the Base LIBOR Rate for such Interest Period, by
(b) 100% minus the Reserve Percentage. 
The LIBOR Rate shall be adjusted on and as of the effective day of any
change in the Reserve Percentage or the Base LIBOR Rate.

“LIBOR Rate Loan” means that portion of the Revolving
Loans that bears interest at a
rate determined by reference to the LIBOR Rate.

“LIBOR Rate Margin” means two and
five-eighths percent (2.625%) per annum.

“Lien”
shall mean any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on the common law, statute or contract, and including but not limited to
the lien or security interest arising from a mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes.  The
term “Lien” shall include reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions, leases and other title
exceptions and encumbrances affecting Property.

 10

 

“Loan Account” shall have the meaning
ascribed to such term in Section 2.16.

“Loan Documents” shall mean this Agreement,
the Security Documents, the Multi-Party Agreement, the Validity Agreements, and
all agreements, instruments and documents, including notes, guaranties,
mortgages, deeds of trust, chattel mortgages, pledges, powers of attorney,
consents, assignments, contracts, notices, leases, financing statements,
subordination agreements, trust account agreements, and all other written
matter whether heretofore, now, or hereafter executed by or on behalf of
Borrower or delivered to Lender, with respect to this Agreement.

“Loan Guaranty Agreement” shall mean any Loan
Guaranty Agreement (Deferred Participation) (SBA Form 750) or similar agreement
in force and effect between Borrower and the SBA from time to time (including,
with respect to any SBA Guaranteed Notes Receivable originated by a
predecessor in interest of Borrower, SBA’s consent to Borrower’s acquisition of
such SBA Guaranteed Notes Receivable.

“Material Adverse Change” means (a) a
material adverse change in the business, prospects, operations, results of
operations, assets, liabilities or condition (financial or otherwise) of
Borrower and its Subsidiaries, taken as a whole, that can reasonably be
expected in the exercise of reasonable business judgment to result in a
material impairment of the ability of Borrower’s and its Subsidiaries’ ability
to perform their respective obligations under the Loan Documents to which each
such Person is a party or of Lender’s ability to enforce the Obligations or
realize upon the Collateral, or (b) any impairment of the enforceability or
priority of Lender’s Liens with respect to the Collateral.

“Maximum Commitment” shall have the meaning
ascribed to such term in Section 2.1(b).

“Maximum Credit Line” shall mean $25,000,000,
or such higher amount as Lender may agree to in its sole discretion.

“Multi-Party Agreement” shall mean the
Multi-Party Agreement by and among Borrower, Lender, FTA, and the SBA, dated as
of December 15, 2006, as the same may be supplemented, modified, or amended
from time to time.

“Net Eligible Non-Guaranteed Notes Receivable”
shall mean, at any particular time, the aggregate principal amount then
outstanding of Non-Guaranteed Notes Receivable conforming to the requirements
set forth in Schedule 1.1(a) as in effect at the time Borrower first
makes a request for a Revolving Loan with respect thereto or Lender is first
granted a Lien therein.

“Net Eligible SBA Guaranteed Notes Receivable”
shall mean, at any particular time, the aggregate principal amount then
outstanding of SBA Guaranteed Notes Receivable conforming to the requirements
set forth in Schedule 1.1(b) as in effect at the time Borrower first
makes a request for a Revolving Loan with respect thereto or Lender is first
granted a Lien therein.

“Net Sale Proceeds” shall mean the proceeds
payable to or for the account of Borrower from the sale of any SBA Guaranteed
Notes Receivable, net of any fees or

 11
 

 

commissions payable to FTA with respect thereto.  Net Sales Proceeds shall not include any
commissions payable to a broker-dealer with respect to any such sale.

“Non-Guaranteed Note Receivable” shall mean
that portion of any Note Receivable that is not guaranteed by the SBA and in
which Lender has been granted a first priority security interest pursuant to
the Security Agreement.

“Non-Guaranteed Participation” shall mean a
loan participation with respect to a Note Receivable, sold by Borrower after
the Closing Date pursuant to documentation reasonably acceptable to Lender.

“Note Participation Amount” shall mean the
proceeds payable to or for the account of Borrower from the sale of any
Non-Guaranteed Participation, which shall be a cash amount equal to not less
than 100% of the buyer’s or participant’s share of the outstanding principal
amount of the Participated Note Receivable.

“Note Receivable” shall mean the obligation
of any Term Loan Debtor to pay any SBA 7(a) Loan made by Borrower to such Term
Loan Debtor, whether or not evidenced by a promissory note or other instrument;
provided, that the term Note Receivable shall not include any Serviced
ASBA Asset; and  provided  further, that upon Lender’s
release of its Lien on a specific Note Receivable in connection with the
transfer by Borrower of such Note Receivable to the trustee pursuant to a
Securitization Transaction or the sale of a Non-Guaranteed Participation
therein, or any other release by Lender of its Lien therein, such obligation
shall cease to be considered a Note Receivable and the provisions of this
Agreement shall no longer be applicable thereto.

“Note Receivable Documents” shall mean, with
respect to any Note Receivable, all original documents, instruments, and
chattel paper, executed or delivered to Borrower by the applicable Term Loan
Debtor and evidencing such Note Receivable.

“Note Sale Reserve” shall mean, for purposes
of calculating the Maximum Commitment, a reserve equal to one hundred percent
(100%) of the outstanding principal amount of any SBA Guaranteed Note
Receivable proposed to be sold by Borrower, which Lender may establish in the
exercise of its reasonable (from the perspective of a secured asset-based
lender in the same or similar circumstances) business judgment if it deems
necessary or appropriate, as of the close of Lender’s business on the Business
Day immediately preceding the proposed Settlement Date for such sale, to be
maintained until the Business Day on which the Net Sale Proceeds payable on
account of such SBA Guaranteed Note Receivable are credited against the
Obligations pursuant to Section 2.13(b).

“Obligations” shall mean all loans, advances,
debts, principal, interest (including any interest that, but for the
commencement of an Insolvency Proceeding, would have accrued), premiums,
liabilities (including all amounts charged to Borrower’s Loan Account pursuant
hereto), obligations (including indemnification obligations), fees, charges,
costs, Lender Expenses (including any fees or expenses that, but for the
commencement of an Insolvency Proceeding, would have accrued), lease payments,
guaranties, covenants, and duties of any kind and description owing by Borrower
and its Subsidiaries to Lender pursuant to or evidenced by the Loan Documents
and irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
arising, and

 12
 

 

including all interest not paid when due and all Lender Expenses that
Borrower or its Subsidiaries are required to pay or reimburse by the Loan
Documents, by law, or otherwise, and (b) all Bank Product Obligations.  Any reference in this Agreement or in the
Loan Documents to the Obligations shall include all amendments, changes,
extensions, modifications, renewals replacements, substitutions, and
supplements, thereto and thereof, as applicable, both prior and subsequent to
any Insolvency Proceeding.

“Overadvance “ shall have the meaning
ascribed to such term in Section 2.7.

“Participated Notes Receivable” shall mean
the Non-Guaranteed Notes Receivable in which Borrower has sold a Non-Guaranteed
Participation.

“Permitted Holders” shall mean FirstCity BLC
or another Subsidiary of FirstCity Financial, and, if either Charles P. Bell,
Jr. or Joe N. Smith exercises their respective options existing as of the
Closing Date to acquire Stock of Borrower, the Person(s) exercising such
options, and trusts, limited liability companies or other estate planning
vehicles established for the benefit of any of such individuals or their
respective family members and in respect of which such individual either serves
as trustee, manager or in a similar capacity or otherwise maintains sole
control over the voting of any Stock of Borrower held in such trust or estate
planning vehicle.

“Permitted Liens” shall mean (i) any
Liens created pursuant to the Loan Documents for the benefit of Lender to
secure the Obligations; (ii) Liens for Charges which are not yet due and
payable, or claims and unfunded liabilities under ERISA not yet due and payable
or which are being contested in good faith by appropriate proceedings
diligently pursued; (iii) Liens arising in connection with worker’s
compensation, unemployment insurance, old age pensions and social security
benefits which are not overdue or are being contested in good faith by
appropriate proceedings diligently pursued, provided that in the case of any
such contest any proceedings commenced for the enforcement of such Lien shall
have been duly suspended and such provision for the payment of such Lien has
been made on the books of Borrower as may be required by GAAP; (iv) Liens
incurred in the ordinary course of business to secure the performance of
statutory obligations arising in connection with progress payments or advance
payments due under contracts with the United States Government or any agency
thereof entered into in the ordinary course of business; (v) Liens created
in favor of ASBA on the Serviced ASBA Assets solely to secure payment and
performance of the ASBA Note and obligations under the ASBA Security Agreement;
and (vi) those Liens disclosed on Schedule 4.3(b).

“Person” shall mean any individual,
corporation, limited liability company, partnership, joint venture,
association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof, or any other form of
entity.

“Plan” shall mean, with respect to Borrower
or any ERISA Affiliate, at any time, an employee benefit plan, as defined in
Section 3(3) of ERISA, which Borrower maintains, contributes to, or has an
obligation to contribute to on behalf of participants who are or were employed
by any of them.

“Prepayment Fee” shall have the meaning
ascribed to that term in Section 2.6.

“Projections” shall mean Borrower’s
forecasted (a) balance sheets, (b) profit and

 13
 

 

loss statements, and (c) cash flow statements, all prepared in a form
consistent with Borrower’s historical financial statements, together with
appropriate supporting details and a statement of underlying assumptions.

“Property” shall mean any interest in any
kind of property or asset, whether real, personal or mixed, or tangible or
intangible.

“Ramp Up Period” shall mean the period
commencing on the Closing Date and ending on the 365th day thereafter.

“Release” shall mean any release, spill,
emission, leaking, pumping, pouring, injection, escaping, deposit, disposal,
discharge, dispersal, dumping, leaching or migration of Hazardous Materials
into the indoor or outdoor environment (including, the abandonment or disposal
of any barrels, containers or other closed receptacles containing any Hazardous
Materials) or into or out of any Property, including the movement of any
Hazardous Material through the air, soil, surface water, groundwater or
property.

“Remedial Action” shall mean all actions
taken to (a) clean up, remove, remediate, contain, treat, monitor, assess,
evaluate, or in any way address Hazardous Materials in the indoor or outdoor
environment, (b) prevent or minimize a release or threatened release of
Hazardous Materials so they do not migrate or endanger or threaten to endanger
public health or welfare or the indoor or outdoor environment, (c) perform any
pre-remedial studies, investigations, or post-remedial operation and
maintenance activities, or (d) conduct any other actions authorized by CERCLA
(42 USC § 9601, et  seq.).

“Reserve Percentage” means, on any day, for
Lender, the maximum percentage prescribed by the Board of Governors of the
Federal Reserve System (or any successor Governmental Authority) for
determining the reserve requirements (including any basic, supplemental,
marginal, or emergency reserves) that are in effect on such date with respect
to eurocurrency funding (currently referred to as “eurocurrency liabilities”)
of Lender, but so long as Lender is not required or directed under applicable
regulations to maintain such reserves, the Reserve Percentage shall be zero.

“Revolving Loans” shall have the meaning
ascribed to such term in Section 2.1.

“SBA” shall mean the United States Small
Business Administration or any other federal agency administering the SBA Act.

“SBA Act” shall mean the Small Business Act
of 1953, as in effect from time to time.

“SBA Guaranteed Note Receivable” shall mean
that portion of any Note Receivable that is actually guaranteed by the SBA and
in which Lender has been granted a first priority security interest as set
forth in the Security Agreement.

“SBA Owned Notes Receivable” shall mean any
SBA Guaranteed Notes Receivable that are from time to time owned by SBA.

“SBA Rules and Regulations” shall mean the
SBA Act, as amended, any other

 14
 

 

legislation binding on SBA relating to financial transactions, any Loan
Guaranty Agreement, all rules and regulations promulgated from time to time
under the SBA Act, and SBA Standard Operating Procedures and Official Notices,
all as from time to time in effect.

“SBA 7(a) Loans” shall mean any loans made by
Borrower to small businesses and partially guaranteed by SBA, all originated in
accordance with the SBA Rules and Regulations and pursuant to the authorization
contained in Section 7(a) of the SBA Act.

“SBA 7(a) Loan Notes” shall mean any
promissory notes that at any time evidence SBA 7(a) Loans.

“SBA Standard Operating Procedures and Official
Notices” shall mean Public Law 85-536, as amended; those Rules and
Regulations, as defined in CFR 13, Part 120, “Business Loans” and CFR 13, Part
121, “Size Standards”; Standard Operating Procedures, (SOP) 50-10 for loan
processing, 50-50 for loan servicing and 50-51 for loan liquidation as may be
published and or amended from time to time by the SBA.

“Schedule of Documents” shall mean the
schedule, including all appendices, exhibits or schedules thereto, listing
certain documents and information required to be delivered in connection with
this Agreement and the other Loan Documents and the transactions contemplated
hereunder and thereunder, substantially in the form attached hereto as Exhibit C.

“Schedule of Eligible Notes Receivable” shall
have the meaning ascribed to such term in Section
5.1(c).

“Secondary Participation Agreement” shall
mean any Secondary Participation Guaranty Agreement (SBA Form 1086) or similar
agreement among Borrower, the SBA, and any purchaser or potential purchaser of
any SBA Guaranteed Note Receivable from time to time.

“Securitization Notes Receivable” shall mean
the Non-Guaranteed Notes Receivable sold by Borrower as part of a
Securitization Transaction.

“Securitization Transaction” shall mean any
securitization transaction effected after the Closing Date in a manner
reasonably acceptable to Lender and through documentation in form and substance
reasonably acceptable to Lender, pursuant to which Borrower sells all or a
specific portion of its portfolio of Non-Guaranteed Notes Receivable by pooling
and transferring them to a trust that issues and sells certificates
representing, in aggregate, the entire beneficial interest in such trust.

“Security Agreement” shall mean the Security
Agreement dated as of the date hereof executed by Borrower for the benefit of
Lender.

“Security Documents” shall mean the Security
Agreement, mortgages, deeds of trust, financing statements, and any and all
other agreements or instruments now or hereafter executed and delivered by
Borrower or any other Person in connection with, or as security for the payment
or performance of the Revolving Loans or any of the other Obligations, as such
agreements may be amended or supplemented from time to time.

“Serviced ASBA Assets” shall mean
(i) the unguaranteed portions of any

 15
 

 

SBA-guaranteed note receivable originated by ASBA and transferred to
Borrower pursuant to the Asset Purchase Agreement and being serviced as of the
Closing Date by Business Loan Center, Inc. as Subservicer pursuant to that
certain Lenders Service Provider Agreement, dated as of October 30, 2002,
between Business Loan Center, LLC and ASBA (as amended from time to time and
assigned by ASBA to Borrower as part of the Asset Purchase Documents), and
applicable SBA Rules and Regulations, and (ii) excepting only the “SBLC
License” (as defined in the Asset Purchase Agreement), any other “Transferred
Assets” (as defined in the Asset Purchase Agreement) transferred by ASBA to
Borrower pursuant to the Asset Purchase Agreement, and (iii) all proceeds
of the property described in clauses (i) and
(ii) above.

“Servicer” shall mean FirstCity Servicing
Corporation, as the provider of the loan operations support services described
in the Servicing Agreement, or such successor provider of such services
appointed with the written consent of both Borrower and Lender.

“Servicer Account” shall have the meaning
ascribed to such term in Section 2.13(a).

“Servicing Agreement” shall mean the Loan
Operations, Administrative and General Services Agreement by and between
Borrower, Lender, and FirstCity Servicing Corporation, pursuant to which
FirstCity Servicing Corporation will provide certain loan operations and
administrative and support services for Borrower’s ongoing business operations.

“Settlement Date” shall mean the date
specified for the settlement of the sale of any SBA Guaranteed Note Receivable
pursuant to a Broker-Dealer Confirmation.

“Sold Notes Receivable” shall mean the SBA
Guaranteed Notes Receivable sold by Borrower to purchasers in the secondary
market.

“Solvent” shall mean, with respect to any
Person, (a) the present fair value of such Person’s assets is in excess of
the total amount of such Person’s liabilities (including formerly contingent
liabilities that have become due), (b) such Person is able to pay its debts as
they become due, and (c) such Person does not have unreasonably small capital
to carry on its business.

“Stock” shall mean all shares, options,
warrants, interests, participations, or other equivalents (regardless of how
designated) of or in a Person, whether voting or nonvoting, including common
stock, preferred stock, or any other “equity security” (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC
under the Exchange Act).

“Subordinated Debt” shall mean any
Indebtedness of Borrower that is subordinated in a manner satisfactory in form
and substance to Lender as to right and time of payment of principal and
interest thereon to any and all of the Obligations pursuant to a Subordination
Agreement.

“Subordination Agreement” shall mean a
subordination agreement executed and delivered by Borrower, Lender and the
holder(s) of Subordinated Debt, providing for (i) subordination to the
Obligations of Subordinated Debt owing to such holder(s),
(ii) subordination to Lender’s Liens of any and all Liens securing such
Subordinated Debt, and

 16
 

 

(iii) such other matters in respect thereof, including without
limitation limitations in respect of the exercise of remedies against Borrower
or the Collateral, as may be required by Lender, all in form and substance
satisfactory to Lender.

“Subsidiary” shall mean, with respect to any
Person, a corporation, partnership, limited liability company, or other entity
in which that Person directly or indirectly owns or controls the shares of
Stock having ordinary voting power to elect a majority of the board of
directors (or appoint other comparable managers) of such corporation,
partnership, limited liability company, or other entity.

“Tangible Net Worth” shall mean, as of any
date of determination, the result of (a) the sum of (i) Borrower’s
total stockholder’s equity (including retained earnings) plus
(ii) Subordinated Debt, plus (iii) the FirstCity Debt, minus
(b) the sum of (i) all Intangible Assets of Borrower plus
(ii) all amounts due to Borrower (including its Subsidiaries) from its
Affiliates.  Notwithstanding any contrary
treatment that may apply under GAAP, for purposes of the definition of Tangible
Net Worth, all assets acquired from ASBA pursuant to the Asset Purchase
Agreement and included in the assets of Borrower (including the value of
Borrower’s license to make SBA 7(a) Loans) will be treated as tangible
assets.

“Term Loan Debtor” shall mean any Person,
other than the SBA, who is or may become obligated to Borrower under an
SBA 7(a) Loan.

“Termination Date” shall mean the earliest
of: (a) December 14, 2009 (unless a later date is agreed to in
writing by Borrower and Lender); (b) the date that Borrower elects to
terminate this Agreement and repays the Obligations in full in accordance with
the terms of Section 2.6; and
(c) the date Lender elects to terminate Borrower’s right to receive Revolving
Loans in accordance with Section 7.2.

“Transactions” shall mean the transactions
provided for in and contemplated by this Agreement and the other Loan
Documents.

“UCC” shall mean the Uniform Commercial Code
(or any successor statute), as in effect from time to time, of the State of New
York or of any other state the laws of which are required as a result thereof
to be applied in connection with the issue of perfection or the effect of
perfection of security interests; provided, that to the extent that the
UCC is used to define any term herein or in any other Loan Documents and such
term is defined differently in different Articles of the UCC, the definition of
such term contained in Article 9 shall govern.

“Validity Agreement” shall mean a Validity Agreement
executed and delivered by a Validity Certifier, in form and substance
satisfactory to Lender.

“Validity Certifier” shall mean each of the
Chief Executive Officer, the President, and the Treasurer of Borrower.

“Wells Fargo” shall mean Wells Fargo Bank,
National Association, a national banking association.

1.2           Accounting Principles.  Where the character or amount of any asset or
liability or item of income or expense is required to be determined or other
accounting computation is

 17
 

 

required to be made for the purposes of this Agreement, this shall be
done in accordance with GAAP, except where such principles are inconsistent
with the specific requirements of this Agreement (such as with respect to the
calculation of EBITDA for purposes of determining the Interest Coverage Ratio).

1.3           UCC Terms.  Any terms used in this Agreement that are
defined in the UCC shall be construed and defined as set forth in the UCC
unless otherwise defined herein.  All UCC
definitions referenced in Section 1.1
or this Section 1.3 are
incorporated herein by reference.

1.4           Certain Matters of Construction.  The terms “herein”, “hereof” and “hereunder”
and other words of similar import shall refer to this Agreement as a whole and
not to any particular section, paragraph or subdivision.  Any reference to a “Section”, “Exhibit”, “Article”
or “Schedule” shall refer to the relevant Section or Article of or Exhibit or
Schedule to this Agreement, unless specifically indicated to the contrary.  Any pronoun used shall be deemed to cover all
genders.  The term “including” shall not
be limiting or exclusive, unless specifically indicated to the contrary.  All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations.

2.              AMOUNT AND TERMS
OF LOAN

2.1           The Loans and Commitments.

(a)           General.  Subject to the terms and conditions set forth
herein and relying on the representations and warranties contained in this
Agreement, Lender hereby agrees that it will make available to Borrower, from
time to time prior to the Termination Date and so long as no Default or Event
of Default has occurred and is continuing, advances pursuant to Section 2.2 (collectively, the “Revolving
Loans”), and Borrower may make borrowings, payments, and reborrowings in
respect thereof.  If Lender makes
advances to Borrower from such line of credit, all advances shall be repayable
as provided in Sections 2.12 and 2.13, and shall be used by Borrower only
for the purposes specified in Section 2.10
and consistent with all applicable laws and statutes.

(b)           Maximum Commitment.  The aggregate outstanding principal amount of
the Revolving Loans made to Borrower at any one time (the “Maximum
Commitment”) shall not exceed the lesser of:

(i)            the Maximum Credit Line; or

(ii)           the amount by which (A) the sum of
(1) up to one hundred percent (100%) of the Net Eligible SBA Guaranteed
Notes Receivable, plus (2) up to eighty percent (80%) of the Net
Eligible Non-Guaranteed Notes Receivable, exceeds (B) the sum of
(1) the Bank Products Reserves, plus (2) the aggregate amount,
if any, of Note Sale Reserves then established and outstanding, plus
(3) the aggregate amount of any other reserves established by Lender
pursuant to Section 2.1(c).

(c)           Reserves.  Anything to the contrary in this Section 2.1 notwithstanding, Lender shall have the right to
establish reserves in such amounts, and with respect to such matters, as Lender
in the exercise of its reasonable (from the perspective of a secured
asset-based lender in the same or similar circumstances) business judgment
shall deem necessary or

 18
 

 

appropriate or in the event of a Material Adverse Change, against the
amount of Revolving Loans available hereunder, including reserves with respect
to (i) sums that Borrower is required to pay (such as taxes, assessments,
insurance premiums, or, in the case of leased assets, rents or other amounts
payable under such leases) and has failed to pay under any Section of this
Agreement or any other Loan Document, and (ii) amounts owing by Borrower
to any Person to the extent secured by a Lien on, or trust over, any of the
Collateral (other than any existing Permitted Lien set forth on Schedule
4.3(b) that is specifically identified thereon as entitled to have priority
over Lender’s Liens), which Lien or trust Lender, in the exercise of its
reasonable (from the perspective of a secured asset-based lender in the same or
similar circumstances) business judgment, believes likely would have a priority
superior to Lender’s Liens (such as Liens or trusts in favor of landlords,
warehousemen, carriers, mechanics, materialmen, laborers, or suppliers, or
Liens or trusts for ad valorem, excise, sales, or other taxes where given
priority under applicable law) in and to such item of the Collateral.  Lender will use reasonable efforts to inform
Borrower of any such reserves within five Business Days after establishing
same; provided, that Lender shall have no liability for any delay or
failure in doing so and any delay or failure to do so shall not impair any of
Lender’s rights or Borrower’s obligations under the Loan Documents.  In addition to the foregoing, Lender and its
real estate valuation advisor shall have the right to determine the value of
any property securing an SBA 7(a) Loan during each calendar quarter for the
purpose of redetermining the fair market value of the collateral securing such
SBA 7(a) Loan and, as a result, redetermining the appropriate advance rate for
the Non-Guaranteed Note Receivable portion thereof.

2.2           Notice of Borrowing; Disbursement of Advances.

(a)           Notice.  The amount and date of each advance hereunder
shall be designated by Borrower’s execution of and delivery to Lender of a
Borrowing Base Certificate that includes Borrower’s request for a new advance,
by no later than 10:00 a.m. (California Time) on the proposed funding date.

(b)           Disbursement.  Upon receipt of a Borrowing Base Certificate
pursuant to Section 2.2(a) and
satisfaction of all of the other conditions precedent set forth in Article 8, subject to the provisions
of, and satisfaction of the conditions set forth in, Section 2.1, Lender shall, on or after the Closing Date, make
advances to Borrower on a revolving basis up to a maximum aggregate outstanding
principal amount equal to the Maximum Commitment.

(c)           Designated Account.  Lender is authorized to make the Revolving
Loans under this Agreement based upon telephonic or other instructions received
from anyone purporting to be an Authorized Person, or without instructions if
pursuant to Section 2.12.  Borrower agrees to establish and maintain the
Designated Account with the Designated Account Bank for the purpose of
receiving the proceeds of the Advances requested by Borrower and made by Lender
hereunder.  Unless otherwise agreed by
Lender and Borrower, any Revolving Loan requested by Borrower and made by
Lender hereunder shall be made to the Designated Account.

2.3           Interest Rate.

(a)           Except as provided to the contrary in Section 2.20(a), Borrower shall pay
interest to Lender (i) monthly in arrears commencing on the first Business
Day of the month next succeeding the month in which the Closing Date falls, and
on the first Business Day of each

 19
 

 

subsequent calendar month, (ii) on the Termination Date, and
(iii) if any interest accrues or remains payable after the Termination
Date, or during the continuance of an Event of Default, upon demand by Lender.

(b)           Interest shall accrue on the Revolving Loans
at a rate equal to (i) in the case of a LIBOR Rate Loan, at a per annum
rate equal to the LIBOR Rate for the applicable Interest Period plus the
LIBOR Rate Margin; (ii) in the case of a Base Rate Loan, at a floating per
annum rate equal to the Base Rate; and (iii) otherwise, at a floating per
annum rate equal to the Base Rate.

(c)           All computations of interest shall be made
by Lender on the basis of a 360 day year, in each case for the actual number of
days occurring in the period for which such interest is payable.  In the event the Base Rate is changed from
time to time hereafter, the rates of interest hereunder based upon the Base
Rate automatically and immediately shall be increased or decreased by an amount
equal to such change in the Base Rate. 
Each determination by Lender of an interest rate hereunder shall be
conclusive and binding for all purposes, absent manifest error or bad faith.

(d)           After and during the continuation of an
Event of Default beyond the applicable cure period, and at the sole discretion
of Lender, the interest rate on the Revolving Loans shall be increased by four percentage points (4.0%) per
annum above the rate that would otherwise apply pursuant to Section 2.3(b).  To the extent that any change in the Highest
Lawful Rate would affect the interest rate in effect hereunder, then the
interest rate hereunder shall be adjusted on the effective date of such change
in order to reflect such change in the Highest Lawful Rate.

2.4           Computation.

(a)           In no event shall the
interest rate(s) on the Revolving Loans exceed the Highest Lawful Rate.  In the event that the interest rate(s) on the
Revolving Loans would, without giving effect to the previous sentence, exceed
the Highest Lawful Rate under the terms of this Agreement, then, should any
interest payable hereunder thereafter fall below the Highest Lawful Rate,
interest shall continue to accrue at the Highest Lawful Rate until such time as
Lender has received an amount of interest equal to what Lender would have
received but for the operation of this Section 2.4(a),
at which time the interest payable shall again accrue at the rate(s) otherwise
provided for under Section 2.3
until such rate(s) under Section 2.3
again exceeds the Highest Lawful Rate, in which event the terms of this Section 2.4(a) shall again apply.

(b)           In the event that at maturity or final
payment of the Revolving Loans, the total amount of interest paid or accrued thereon
is, due to the operation of Section 2.4(a),
less than the total amount of interest which would have accrued if the rate(s)
otherwise provided for under Section 2.3
had at all times been in effect, then Borrower agrees, to the fullest extent
permitted by law, to pay to Lender an amount equal to the difference between
(a) the lesser of (i) the amount of interest which would have accrued on
the Revolving Loans if the Highest Lawful Rate had at all times been in effect
or (ii) the amount of interest which would have accrued on the Revolving
Loans if the rate(s) otherwise provided for under Section 2.3 had at all times been in effect, and (b) the
amount of interest otherwise accrued on the Revolving Loans in accordance with
the provisions of Section 2.3
and this Section 2.4.

 20

 

2.5           Fees.

(a)           Closing Fee.  Borrower agrees to pay to Lender as
consideration for Lender agreeing to enter into this Agreement a closing fee,
which Borrower acknowledges shall have been fully earned and non-refundable by
Lender on the Closing Date, in an amount equal to one-half of one percent
(0.50%) of the Maximum Credit Line. 
Sixty-Two Thousand Five Hundred Dollars ($62,500) of such closing fee
shall be due and payable on the Closing Date and the remaining Sixty-Two
Thousand Five Hundred Dollars ($62,500) of such closing fee shall be due and
payable on the first anniversary of the Closing Date; provided, however,
that upon the termination of this Agreement prior to the first anniversary of
the Closing Date the entire unpaid amount of the closing fee shall be
immediately due and payable.

(b)           Unused Credit Line Fee.  Borrower agrees to pay to Lender, commencing
on the first anniversary of the Closing Date, in arrears on the first Business
Day of each month and on the Termination Date, a facility fee for Borrower’s
non-use of the available Maximum Credit Line after the end of the Ramp Up
Period in an amount equal to one-quarter of one percent (0.25%) per annum of
the average daily difference during the month in question (or portion thereof)
between (i) the Maximum Credit Line and (ii) the aggregate outstanding
principal amount of the Revolving Loans for such month (or portion thereof).

(c)           Loan Administration Fees.  Borrower agrees to pay to Lender, in arrears
on the first Business Day of each month for the prior month (or portion
thereof), commencing on the first Business Day of the eleventh month after the
month in which the Closing Date occurs and on the Termination Date, a
fully-earned and non-refundable monthly loan administration fee of One Thousand
Five Hundred Dollars ($1,500) for each month (or portion thereof) that this
Agreement is in effect.

(d)           Audit, Appraisal and Valuation Charges;
Establishment of Electronic Collateral Reporting.  Borrower agrees to pay Lender audit,
appraisal, and valuation fees and charges as follows (i) a fee of $1,000 per
day, per auditor, plus reasonable out-of-pocket expenses for each financial
audit of Borrower performed by personnel employed or contracted by Lender,
which audits shall be conducted at Borrower’s expense as frequently as Lender
shall determine (provided that so long as no Default or Event of Default
has occurred and is continuing, Borrower will not be charged for more than four
financial audits in any calendar year), (ii) a fee of $1,500 per day per
appraiser, plus reasonable out-of-pocket expenses, for each appraisal of the
Collateral, or any portion thereof, or to assess Borrower’s or its Subsidiaries’
Collateral or business valuation, performed by personnel employed by or
contracted by Lender (provided that so long as no Default or Event of
Default has occurred and is continuing, Borrower will not be charged for more
than four appraisals in any calendar year), (iii) the actual charges paid or
incurred by Lender if it elects to employ the services of one or more third
Persons (A) to perform any of the work described in clauses (i)
or (ii) above for which Borrower is
liable, or (B) to perform the quarterly real estate valuations referred to in Section 2.1(c), and (d) a one-time
set-up fee of $5,000 for the establishment of electronic collateral reporting
systems (with such systems to be administered and maintained by Lender).

2.6           Borrower’s Termination of Agreement.  Upon at least 90 days prior written notice to
Lender, Borrower may, at its option, terminate only the entirety of this
Agreement and not any single section thereof. 
In order for such termination by Borrower to become effective, Borrower
shall, on or before such termination date, pay to Lender all of the then outstanding
Obligations;

 21
 

 

provided, that if Borrower terminates this
Agreement within any of the time periods listed below, or if this Agreement is
terminated pursuant to Section 7.2,
then Borrower shall also pay to Lender, as liquidated damages for the loss of
the bargain and not as a penalty, a prepayment premium equal to the following
amounts (the “Prepayment Fee”):

	
  If Prepayment is Made

  	
   

  	
   

  
	
  Between the
  Following

  	
   

  	
   

  
	
  Dates,
  Inclusive:

  	
   

  	
  The Premium Shall Be:

  
	
   

  	
   

  	
   

  
	
  Closing Date to

  	
   

  	
  Three percent (3.0%) of the

  
	
  December 14, 2007

  	
   

  	
  Maximum Credit Line

  
	
   

  	
   

  	
   

  
	
  December 15, 2007 to

  	
   

  	
  Two percent (2.0%) of the

  
	
  December 14, 2008

  	
   

  	
  Maximum Credit Line

  
	
   

  	
   

  	
   

  
	
  December 15, 2008 to

  	
   

  	
  One percent (1.0%) of the

  
	
  December 13, 2009

  	
   

  	
  Maximum Credit Line

  

 

provided, however, that the applicable
Prepayment Fee would not be payable by Borrower if (a) Lender requests in
writing that Borrower obtain alternative financing for any reason other than
the occurrence of a Default or an Event of Default and, within 90 days of such
request by Lender, Borrower terminates this Agreement and repays all of the
outstanding Obligations in full, or (b) Lender’s loan facility is fully utilized
and Borrower has given Lender written notice of its desire to increase the
Maximum Credit Line by a commercially reasonable amount under the same terms
and conditions provided by Lender as of the Closing Date (including a
proportional incremental closing fee based on the amount of such increase in
the Maximum Credit Line), and Lender declines to provide such increase in the
Maximum Credit Line.

2.7           Overadvances.  If, at any time or for any reason, the amount
of Obligations (other than Bank Product Obligations) owed by Borrower to Lender
pursuant to Section 2.1 is greater than either
the Dollar or percentage limitations set forth in Section 2.1,
(an “Overadvance”), Borrower promptly shall pay to Lender, in cash, the
amount of such excess, which amount shall be used by Lender to reduce the
Obligations in accordance with the priorities set forth in Section 2.15.  In addition, Borrower hereby promises to pay
the Obligations (including principal, interest, fees, costs, and expenses) in
Dollars in full to Lender as and when due and payable under the terms of this
Agreement and the other Loan Documents.

2.8           Crediting Payments.  The receipt of any payment item by Lender
(whether from transfers to Lender from the Servicer Account, from the
Collection Account, or otherwise) shall not be considered a payment on account
unless such payment item is a wire transfer of immediately available federal
funds made to the Lender Account or unless and until such payment item is
honored when presented for payment. 
Should any payment item not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment and interest shall be
calculated accordingly.  Anything to the
contrary contained herein notwithstanding, any payment item shall be deemed
received by Lender only if it is received into the Lender Account on a Business
Day on or before 11:00 a.m. (California time). 
If any payment item is received into the Lender Account on a day that is
not a Business Day or after 11:00 a.m. (California time) on a Business Day, it
shall be deemed to have been received by

 22
 

 

Lender as of the opening of business on the
immediately following Business Day and any applicable interest or fee shall
continue to accrue until such following Business Day.

2.9           All Loans to Constitute One Loan.  Notwithstanding the limitations on the
Maximum Credit Line set forth in Section 2.1,
all advances made by Lender to Borrower under this Agreement and the other Loan
Documents shall constitute one loan to Borrower and all Obligations of Borrower
under this Agreement and the other Loan Documents shall constitute one general
obligation of Borrower secured by Lender’s security interest in all the
Collateral and by all other security interests, Liens, claims and encumbrances
heretofore, now, or at any time hereafter granted to or obtained by Lender with
respect to any property or assets of Borrower. 
All of the rights of Lender set forth in this Agreement shall apply to
any modification of or supplement to this Agreement and the other Loan
Documents.

2.10         Loan Purpose.  Borrower shall use the advances provided for
hereunder solely for the purpose of paying fees and expenses in connection with
the closing of this Agreement and financing SBA 7(a) Loans made by
Borrower.  Borrower’s use of such
advances shall be only for legal purposes permitted by Borrower’s
organizational documents or otherwise authorized by appropriate corporate
action, consistent with the Multi-Party Agreement and all applicable laws,
statutes and regulations.

2.11         Term of Agreement; Survival of Certain
Obligations.  Subject to Lender’s
right to cease making advances to Borrower, as set forth in Section 7.2 or as otherwise specifically
set forth in this Agreement, the provisions of this Agreement shall be in
effect until the Termination Date; provided, that in the event of a
prepayment of the entire principal amount then outstanding under the Revolving
Loans prior to the Termination Date, Borrower shall simultaneously therewith
pay to Lender, in immediately available funds, all outstanding Obligations in
full, in accordance with the terms of the agreements creating and instruments
evidencing such Obligations, together with the Prepayment Fee, if any, payable
pursuant to Section 2.6; and
provided  further, that from and after any Termination Date until
full payment of the Obligations, Lender shall retain all rights and remedies
provided under this Agreement and each of the other Loan Documents.  Except as otherwise expressly provided for in
this Agreement and in the other Loan Documents, no termination or cancellation
(regardless of cause or procedure) of this Agreement or the other Loan
Documents shall in any way affect or impair the powers, obligations, duties,
rights, and liabilities of Borrower or Lender relating to (a) any transaction
or event occurring prior to such termination or cancellation, (b) the
Collateral, or (c) any of the undertakings, agreements, covenants,
warranties and representations of Borrower or Lender contained in this
Agreement or the other Loan Documents. 
All such undertakings, agreements, covenants, warranties and
representations shall survive such termination or cancellation and be effective
until the full and final payment of the Obligations, at which time Lender shall
take all reasonable steps deemed necessary by Borrower to effect the release of
Lender’s Liens; provided, that all indemnity claims of Lender under the
Loan Documents shall survive such full and final payment.

2.12         Payment Procedure.  Except as otherwise provided in Section 2.13, all payments to Lender shall
be payable at Lender’s address set forth above or at such other place or places
as Lender may designate from time to time in writing to Borrower.  That portion of the Obligations consisting
of:

 23
 

 

(a)           interest payable pursuant to this Agreement
shall be due on the first Business Day of each month (for the preceding month),
and shall be charged through the last calendar day of each month;

(b)           costs, fees and expenses payable pursuant to
this Agreement shall be payable as and when provided in this Agreement and, if
not specified, on demand;

(c)           principal payable pursuant to this Agreement
shall be due and payable to the extent and on the date of any collections of
the Collateral or from any other source, to the extent consisting of cleared funds,
except to the extent such collections are applied to other Obligations; and

(d)           the balance of the Obligations, if any,
shall be payable as and when provided in this Agreement or the other Loan
Documents and, if not specified, on the Termination Date.

Except as otherwise
expressly provided herein, all payments by Borrower shall be made to the Lender
Account in accordance with and shall be credited as provided in Section 2.8. 
Borrower hereby authorizes Lender, from time to time without prior
notice to Borrower, to charge the above payments and all other payments due and
payable with respect to the Obligations (including all fees and costs provided
for in Section 2.20 and any amounts due and
payable to any Bank Product Provider in respect of Bank Products) to Borrower’s
Loan Account, which amounts thereafter shall constitute Revolving Loans
hereunder and shall accrue interest at the rate then applicable to Revolving
Loans hereunder.  Any interest not paid
when due shall be compounded by being charged to Borrower’s Loan Account and
shall thereafter constitute Revolving Loans hereunder and shall accrue interest
at the rate then applicable to Revolving Loans hereunder.

2.13         Collection of Borrower’s
Loans and Payments.

(a)           Servicer Account.  Borrower shall, or shall cause Servicer to,
maintain a depository account, at Wells Fargo or another depository reasonably
acceptable to Lender, in Borrower’s capacity as servicer for the purchasers or
beneficiaries of the Sold Notes Receivable, the Securitization Notes Receivable,
the Participated Notes Receivable, and the SBA Owned Notes Receivables, and, to
the extent of Borrower’s retained interest in any such Notes Receivable, Lender
(the “Servicer Account”).  The
agreement(s) governing the Servicer Account must be in form and substance
reasonably satisfactory to Lender and Borrower. 
Borrower shall deposit in the Servicer Account any and all checks,
drafts, cash and other remittances received by Borrower in payment or on
account of payment, with respect to any of the Notes Receivable; provided,
that (i) Borrower shall (A) cause each purchaser of a Sold Note
Receivable to instruct FTA to deposit by wire transfer to the Collection
Account all Net Sale Proceeds for such Sold Note Receivable upon the receipt
thereof by FTA, and (B) cause the depository holding the Collection
Account to advise Borrower and Lender of such deposit, and (ii) Borrower
shall cause payment of all Note Participation Amounts to be made directly to
the Collection Account.  The deposits
made in the Servicer Account shall be deposited in precisely the form received,
except for the endorsements of Borrower where necessary to permit the
collection of any such payments, which endorsements Borrower hereby agrees to
make.  All checks, drafts, cash and other
remittances received by Borrower with respect to the Serviced ASBA Assets shall
not be

 24
 

 

deposited in
the Servicer Account, but shall instead be deposited in separate accounts
maintained by Borrower for the benefit of ASBA.

(b)           Collection Account;
Transfers to Lender Account. 
Borrower shall establish a bank account in Borrower’s name with the same
bank or institution at which the Servicer Account is located, from which Lender
alone has power of access and withdrawal except to such limited extent as may
otherwise be provided in the agreement(s) governing such account, which must be
in form and substance reasonably satisfactory to Lender and Borrower (the “Collection
Account”).  Borrower shall, or shall
cause Servicer to, transfer to the Collection Account from the Servicer Account
all Borrower Allocated Payments within one Business Day of receipt of cleared
funds.  The agreement governing the
Collection Account will provide for the transfer on each Business Day, in
immediately available funds, of all available funds in the Collection Account
to the Lender Account.  Any such funds
transferred to the Lender Account shall be credited against the Obligations in
accordance with Section 2.8.

(c)           Allocation of
Payments Received.  Promptly after
becoming available and in any event within five Business Days after the end of
each month, or more frequently as may be reasonably requested by Lender (and,
if an Event of Default has occurred and is continuing, such request may be made
as often as daily), Borrower shall, or shall cause Servicer to, deliver to
Lender information detailing, with respect to each deposit made into the
Servicer Account, the specific Note Receivable to which such deposit relates
and (i) the amount, if any, of such deposit that relates to a Sold Note Receivable
and that Borrower has determined is payable to FTA for the benefit of the
purchaser of such Sold Note Receivable, (ii) the amount, if any, of such
deposit that relates to a Securitization Note Receivable and that Borrower has
determined must be transferred to the trustee or holders of the certificates
issued pursuant to a Securitization Transaction, (iii) the amount, if any,
of such deposit that relates to a Participated Note Receivable and that
Borrower has determined is payable to the purchaser of such Participated Note
Receivable, (iv) the amount, if any, of such deposit that relates to a SBA
Owned Note Receivable and that Borrower has determined is payable to SBA (any
such amount described in clauses  (i), (ii),
(iii), or (iv) above being the “Allocated Payment
Portion”), and (v) the amount of such deposit that relates to Borrower’s
retained interest in a Note Receivable and that Borrower has determined is
payable to Borrower.  The portion payable
to Borrower of each amount originally deposited in the Servicer Account and
constituting a Borrower Allocated Payment shall be held by Borrower for the
benefit of Lender, and Borrower shall, or shall cause Servicer to, cause any
such portion to be transferred to the Collection Account within one Business Day
after receipt of cleared funds.

(d)           Application of
Borrower Allocated Payments.  Subject
to Section 2.13(b), all Borrower
Allocated Payments shall be applied to the outstanding Obligations in the order
in which they are deposited in the Collection Account.  Prior to deposit into the Collection Account
or the Servicer Account in the manner required by this Agreement, Borrower
shall not commingle any Borrower Allocated Payments with any of its other funds
or property, but shall hold them separate and apart therefrom in trust and for
the account of, and as the property of, Lender. 
Subject to the provisions of Section 2.14
hereof and the Multi-Party Agreement, Lender may revoke the collection rights
of Borrower by either giving notice of its assignment of, and lien on, the
Collateral to the Term Loan Debtors or giving notice of such revocation to
Borrower.

(e)           Borrower as Servicer.  Borrower shall, or shall cause Servicer to,
at Borrower’s own expense service all of the Notes Receivable, including
(i) the billing, posting

 25
 

 

and maintaining of complete records
applicable thereto, and (ii) subject to applicable SBA Rules and
Regulations, the taking of such action with respect thereto as Borrower may
deem advisable.  Borrower agrees to pay
to Lender any and all reasonable fees, costs and expenses incurred in
connection with opening and maintaining the Collection Account, the Servicer
Account, and any other collection arrangement described above.

2.14         Collections; Lender’s Right to Notify
Account Debtors.  Subject to the
Multi-Party Agreement, obtaining the SBA’s prior written consent and applicable
SBA Rules and Regulations, and the rights of purchasers of the Serviced ASBA
Assets, the Sold Notes Receivable, the Securitization Notes Receivable and the
Participated Notes Receivable, and the rights of ASBA and other third parties
with respect to the Serviced ASBA Assets, Borrower hereby:

(a)           authorizes Lender, now and at any time or
times hereafter, whether or not a Default or an Event of Default has occurred,
to open Borrower’s mail and collect any and all amounts due to Borrower from
Account Debtors; provided, that Lender shall use commercially reasonable
efforts not to open Borrower’s private, personal or confidential mail that does
not, on its face, relate to the Collateral or the Account Debtors;

(b)           authorizes Lender, at any time after the
occurrence of a Default or an Event of Default, (i) to notify any or all
Account Debtors that the Accounts have been assigned to Lender and that Lender
has a security interest therein (and Borrower agrees that any such notice, in
Lender’s sole discretion, may be sent on Borrower’s stationery and, upon
request of Lender, Borrower shall co-sign such notice with Lender) and
(ii) to direct such Account Debtors to make all payments due from them to
Borrower upon the Accounts directly to Lender or to the Collection Account or
the Servicer Account; and

(c)           irrevocably makes, constitutes and appoints
Lender (and all Persons designated by Lender for that purpose) as Borrower’s
true and lawful attorney (and agent-in-fact) to endorse Borrower’s name on any
checks, notes, drafts, or any other form of payment relating to the Collateral
or proceeds of the Collateral that come into Lender’s possession or under
Lender’s control.

2.15         Application of Payments.  Except to the extent otherwise specifically
provided in Section 2.13(c) or some other
provision of the Loan Documents, all payments by or for the account of Borrower
(other than payments received while no Default or Event of Default has occurred
and is continuing and which relate to the payment of principal or interest of
specific Obligations or which relate to the payment of specific fees), and all
proceeds of Notes Receivable or other Collateral received by Lender, shall be
applied as follows:

(a)           first,
to pay any Lender Expenses then due under the Loan Documents, until paid in
full,

(b)           second, to pay any fees (other than
Lender Expenses) then due to Lender under the Loan Documents until paid in
full,

(c)           third, to pay interest due in respect
of the Revolving Loans until paid in full,

 26
 

 

(d)           fourth, so long as no Event of
Default has occurred and is continuing, and at Lender’s election (which
election Lender agrees will not be made if an Overadvance would be created
thereby), to pay amounts then due and owing by Borrower or its Subsidiaries in
respect of Bank Products until paid in full,

(e)           fifth, so long as no Event of Default
has occurred and is continuing, to pay the principal of all Revolving Loans
until paid in full,

(f)            sixth, if an Event of Default has
occurred and is continuing, ratably (i) to pay the principal of all Revolving
Loans until paid in full, and (ii) for the benefit of the Bank Product
Providers, as cash collateral in an amount up to the amount of the Bank
Products Reserve established prior to the occurrence of, and not in
contemplation of, the subject Event of Default until Borrower’s and its
Subsidiaries’ obligations in respect of the then extant Bank Products have been
paid in full or the cash collateral amount has been exhausted,

(g)           seventh, if an Event of Default has
occurred and is continuing, to pay any other Obligations (including the
provision of amounts to be held by Lender for the benefit of the Bank Product
Providers, as cash collateral in an amount up to the amount determined by
Lender as the amount necessary to secure Borrower’s and its Subsidiaries’
obligations in respect of the then extant Bank Products) until paid in full,
and

(h)           eighth, to Borrower (to be wired to
the Designated Account) or such other Person entitled thereto under applicable
laws.

2.16         Maintenance of Loan Account; Statement of
Obligations.  Lender shall maintain
an account on its books in the name of Borrower (the “Loan Account”) on
which Borrower will be charged with all Revolving Loans made by Lender to
Borrower or for Borrower’s account, and with all other payment Obligations
(except for Bank Product Obligations) hereunder or under the other Loan
Documents, including, accrued interest, fees and expenses, and Lender Expenses.
In accordance with Section 2.8,
the Loan Account will be credited with all payments received by Lender from
Borrower or for Borrower’s account, including all amounts received in the
Lender Account.  Lender shall render to
Borrower on a monthly basis written statements (which may be transmitted
electronically) regarding the Loan Account, including principal, interest,
fees, and including an itemization of all charges and expenses constituting
Lender Expenses owing, and such statements, absent manifest error, shall be
conclusively presumed to be correct and accurate and constitute an account
stated between Borrower and Lender unless, within 30 days after receipt thereof
by Borrower, Borrower shall deliver to Lender written objection thereto
describing the error or errors contained in any such statements.

2.17         Business Days.  If any payment on the Revolving Loans or any
other payment due hereunder becomes due and payable on a day other than a
Business Day, then for all purposes of the Loan Documents, the maturity of such
payment shall be extended to the next succeeding Business Day and, with respect
to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.

2.18         Capital Requirements.  If, after the date hereof, Lender determines
that (i) the adoption of or change in any law, rule, regulation or guideline
regarding capital requirements for banks or bank holding companies, or any
change in the interpretation or application thereof by any Governmental
Authority charged with the administration thereof, or (ii) compliance by

 27
 

 

Lender or its parent bank holding company with any guideline, request,
or directive of any such entity regarding capital adequacy (whether or not
having the force of law), has the effect of reducing the return on Lender’s or
such holding company’s capital as a consequence of Lender’s commitments
hereunder to a level below that which Lender or such holding company could have
achieved but for such adoption, change, or compliance (taking into
consideration Lender’s or such holding company’s then existing policies with
respect to capital adequacy and assuming the full utilization of such entity’s
capital) by any amount deemed by Lender to be material, then Lender may notify
Borrower thereof.  Following receipt of
such notice (a “Cost Notice”), Borrower agrees to pay Lender on demand
the amount of such reduction of return of capital as and when such reduction is
determined, payable within 90 days after presentation by Lender of a statement
in the amount and setting forth in reasonable detail Lender’s calculation
thereof and the assumptions upon which such calculation was based (which
statement shall be deemed true and correct absent manifest error).  In determining such amount, Lender may use
any reasonable averaging and attribution methods.  If Borrower’s payment of such amount results
in the occurrence of an Event of Default under Section 5.11 that would not have occurred but for the
payment of such amount, then Lender shall waive such Event of Default.  Notwithstanding the foregoing, if Borrower
receives a Cost Notice after the first anniversary of the Closing Date that
relates to events that are not equally applicable to substantially all banks
located in the continental United States of America, and if Borrower provides
written notice (a “Replacement Notice”) to Lender within 30 days after
receiving such Cost Notice, Borrower may thereafter terminate this Agreement
and pay all of the Obligations within 60 days of the date of such Replacement
Notice without payment of any Prepayment Fee; provided, however,
that if Lender withdraws the Cost Notice within 30 days of its receipt of the
Replacement Notice, Borrower shall not be entitled to terminate this Agreement
without payment of any Prepayment Fee that might otherwise be applicable.

2.19         Indemnification.  Borrower shall pay, indemnify, defend, and
hold Lender and Lender’s Affiliates, and each of their respective officers,
directors, employees, agents, and attorneys-in-fact (each, an “Indemnified
Person”) harmless (to the fullest extent permitted by applicable law) from
and against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any
time asserted against, imposed upon, or incurred by any of them (a) in
connection with or as a result of or related to the execution, delivery,
enforcement, performance, or administration of this Agreement, any of the other
Loan Documents, or the transactions contemplated hereby or thereby, and (b)
with respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the credit
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event, or circumstance in any manner related
thereto (all the foregoing, collectively, the “Indemnified Liabilities”).  The foregoing to the contrary
notwithstanding, Borrower shall have no obligation to any Indemnified Person
under this Section 2.19 with respect to any
Indemnified Liability that a court of competent jurisdiction finally determines
to have either (i) resulted from the gross negligence or willful
misconduct of such Indemnified Person, or (ii) arisen in connection with a
suit, action or other legal proceeding in which (A) the Borrower alleges a
breach by such Indemnified Person of its express obligations under this
Agreement or the other Loan Documents, and (B) such court has entered a
final, non-appealable judgment or order in favor of Borrower containing a
specific finding that Borrower is the prevailing party with respect to such
alleged breach.  This provision shall
survive the

 28
 

 

termination of this Agreement and the repayment of the
Obligations.  If any Indemnified Person
makes any payment to any other Indemnified Person with respect to an
Indemnified Liability as to which Borrower was required to indemnify the
Indemnified Person receiving such payment, the Indemnified Person making such
payment is entitled to be indemnified and reimbursed by Borrower with respect
thereto.  WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH
INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH ARE IN WHOLE
OR IN PART CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH
INDEMNIFIED PERSON OR OF ANY OTHER PERSON.

2.20         LIBOR Option.

(a)           Interest and Interest Payment Dates.  In lieu of having interest charged
at the rate based upon the Base Rate, Borrower shall have the option (the “LIBOR
Option”) to have interest on all or a portion of the Revolving Loans be
charged at a rate of interest based upon the LIBOR Rate.  Interest on LIBOR Rate Loans shall be payable
on the earliest of (i) the first calendar day after the last day of the
Interest Period applicable thereto, (ii) the occurrence of an Event of Default
in consequence of which Lender has elected to accelerate the maturity of all or
any portion of the Obligations, or (iii) termination of this Agreement pursuant
to the terms hereof.  On the first
calendar day after the end of each applicable Interest Period, unless Borrower
properly has exercised the LIBOR Option with respect thereto, the interest rate
applicable to such LIBOR Rate Loan automatically shall convert to the rate of
interest then applicable to Base Rate Loans. 
At any time that an Event of Default has occurred and is continuing, Borrower
no longer shall have the option to request that Revolving Loans bear interest
at a rate based upon the LIBOR Rate and Lender shall have the right to convert
the interest rate on all outstanding LIBOR Rate Loans to the rate then
applicable to Base Rate Loans hereunder.

(b)           LIBOR Election.

(i)            Borrower
may, at any time and from time to time, so long as no Event of Default has
occurred and is continuing, elect to exercise the LIBOR Option by notifying
Lender prior to 11:00 a.m. (California time) at least 3 Business Days prior to
the commencement of the proposed Interest Period (the “LIBOR Deadline”).  Notice of Borrower’s election of the LIBOR
Option for a permitted portion of the Revolving Loans and an Interest Period
pursuant to this Section shall be made by delivery to Lender of a LIBOR Notice
received by Lender before the LIBOR Deadline, or by telephonic notice received
by Lender before the LIBOR Deadline (to be confirmed by delivery to Lender of a
LIBOR Notice received by Lender prior to 5:00 p.m. (California time) on the
same day.

(ii)           Each
LIBOR Notice shall be irrevocable and binding on Borrower. In connection with
each LIBOR Rate Loan, Borrower shall indemnify, defend, and hold Lender
harmless against any loss, cost, or expense incurred by Lender as a result of
(A) the payment of any principal of any LIBOR Rate Loan other than on the last
day of an Interest Period applicable thereto (including as a result of an Event
of Default), (B) the conversion of any LIBOR Rate Loan other than on the first
calendar day after the last day of the Interest Period applicable thereto, or
(C) the failure to borrow, convert, continue or prepay any LIBOR Rate Loan on
the date specified in any LIBOR Notice delivered pursuant hereto (such losses,
costs, and expenses, collectively, “Funding Losses”).  Funding Losses shall be deemed to equal the
amount

 29
 

 

determined by
Lender to be the excess, if any, of (x) the amount of interest that would have
accrued on the principal amount of such LIBOR Rate Loan had such event not
occurred, at the LIBOR Rate that would have been applicable thereto, for the
period from the date of such event to the last day of the then current Interest
Period therefor (or, in the case of a failure to borrow, convert, or continue,
for the period that would have been the Interest Period therefor), minus
(y) the amount of interest that would accrue on such principal amount for
such period at the interest rate which Lender would be offered were it to be
offered, at the commencement of such period, Dollar deposits of a comparable
amount and period in the London interbank market.  A certificate of Lender delivered to Borrower
setting forth any amount or amounts that Lender is entitled to receive pursuant
to this Section 2.20 shall be
conclusive absent manifest error.

(iii)          Borrower
shall have not more than one LIBOR Rate Loan in effect at any given time.  Borrower only may exercise the LIBOR Option
for LIBOR Rate Loans in minimum amounts of $1,000,000 and integral multiples of
$1,000,000.

(c)           Prepayments.  Borrower may prepay LIBOR Rate Loans at any
time; provided, however, that in the event that LIBOR Rate Loans
are prepaid on any date that is not the last day of the Interest Period
applicable thereto, including as a result of any automatic prepayment through
the required application by Lender of proceeds of Borrower’s collections of
Notes Receivable in accordance with Section
2.13 or for any other reason, including early termination of the
term of this Agreement or acceleration of all or any portion of the Obligations
pursuant to the terms hereof, Borrower shall indemnify, defend, and hold Lender
harmless against any and all Funding Losses in accordance with clause
(b)(ii) above.

(d)           Special Provisions Applicable to LIBOR Rate.

(i)            The
LIBOR Rate may be adjusted by Lender on a prospective basis to take into
account any additional or increased costs to Lender of maintaining or obtaining
any eurodollar deposits or increased costs due to changes in applicable law
occurring subsequent to the commencement of the then applicable Interest
Period, including changes in tax laws (except changes of general applicability
in corporate income tax laws) and changes in the reserve requirements imposed
by the Board of Governors of the Federal Reserve System (or any successor),
excluding the Reserve Percentage, which additional or increased costs would
increase the cost of funding loans bearing interest at the LIBOR Rate.  In any such event, Lender shall give Borrower
notice of such a determination and adjustment and, upon its receipt of the
notice from Lender, Borrower may, by notice to Lender (A) require Lender to
furnish to Borrower a statement setting forth the basis for adjusting such
LIBOR Rate and the method for determining the amount of such adjustment, or (B)
repay the LIBOR Rate Loans with respect to which such adjustment is made
(together with any amounts due under clause
(b)(ii) above).

(ii)           In
the event that any change in market conditions or any law, regulation, treaty,
or directive, or any change therein or in the interpretation of application
thereof, shall at any time after the date hereof, in the reasonable opinion of
Lender, make it unlawful or impractical for Lender to fund or maintain LIBOR
Rate Loans or to continue such funding or maintaining, or to determine or
charge interest rates based upon the LIBOR Rate, Lender shall give notice of
such changed circumstances to Borrower and (A) in the case of any LIBOR Rate
Loans that are outstanding, the date specified in Lender’s notice shall be
deemed to be the last day of the Interest Period of such LIBOR Rate Loans, and
interest upon the LIBOR Rate Loans thereafter shall accrue interest at the rate
then applicable to Base Rate Loans, and

 30
 

 

(B) Borrower
shall not be entitled to elect the LIBOR Option until Lender determines that it
would no longer be unlawful or impractical to do so.

(e)           No Requirement of Matched Funding.  Anything to the contrary contained herein
notwithstanding, Lender is not required actually to acquire eurodollar deposits
to fund or otherwise match fund any Obligation as to which interest accrues
based upon the LIBOR Rate.  The
provisions of this Section shall apply as if Lender had match funded any
Obligation as to which interest is accruing at based upon the LIBOR Rate by
acquiring eurodollar deposits for each Interest Period in the amount of the
LIBOR Rate Loans.

3.              SECURITY

3.1           Borrower’s Obligations.  The Obligations of Borrower to pay all sums
due to Lender and to perform all other covenants and agreements under this
Agreement and the other Loan Documents to which Borrower is a party, shall be
secured to the extent provided by the Security Documents.

3.2           Further Assurances.  Provided that such action would not violate
applicable SBA Rules and Regulations, Borrower shall, at its sole cost and
expense, execute and deliver to Lender all such further documents, instruments
and agreements and agree to perform all such other acts which may be reasonably
required in the opinion of Lender to enable Lender to exercise and enforce its
rights as the secured party or beneficiary under the Security Documents.  To the extent permitted by applicable law,
Borrower hereby authorizes Lender to file financing statements and continuation
statements with respect to the security interests granted under the Security
Documents in favor of Lender and to execute such financing statements and
continuation statements on behalf of Borrower.

4.              REPRESENTATIONS
AND WARRANTIES

In
order to induce Lender to provide the financial accommodations to Borrower
provided for herein and in the other Loan Documents, Borrower makes the following
warranties and representations to Lender, each of which will be correct and
true as of the Closing Date and on the date that each advance is requested by
Borrower:

4.1           Corporate Existence.  Borrower (i) is a corporation duly organized, legally
existing and in good standing under the laws of the State of Texas,
(ii) is duly qualified or licensed to do business in all other
jurisdictions wherein the business transacted by it makes such qualification
necessary, except where the failure to so qualify could not reasonably be
expected to result in a Material Adverse Change; (iii) has the requisite
power and authority and the legal right to conduct its business as now,
heretofore and proposed to be conducted; and (iv) is in compliance with
its Certificate of Formation and By-Laws.

4.2           Corporate Power and Authorization.  Borrower is duly authorized and empowered to
borrow the Revolving Loans; and Borrower is duly authorized and empowered to
execute, deliver and perform this Agreement and the other Loan Documents to
which it is a party; and all corporate action on Borrower’s part requisite for
the due execution, delivery and performance of this Agreement and the other
Loan Documents to which it is a party has been duly and effectively taken.

 31

 

4.3           Ownership of Property; Permitted Liens.

(a)           Except as set forth in Schedule 4.3(a),
and except for fixtures and improvements, or real estate that Borrower has
received in connection with the enforcement of its rights under any Note
Receivable, in which Borrower has good and indefeasible title, Borrower does
not own any real property and is not a lessor or lessee under any lease other
than those leases that have been previously disclosed to Lender.

(b)           Except for the Permitted Liens, no Property
of Borrower pledged to Lender hereunder is subject to any Lien.

4.4           Capital Structure.  The number and nature of all outstanding
securities of Borrower is set forth on Schedule 4.4.  All such shares have been duly issued and are
fully paid and non-assessable.  There are
not outstanding any options to purchase, or any rights or warrants to subscribe
for, or any commitments or agreements to issue or sell, or any securities or
obligations convertible into, or any powers of attorney relating to, shares of
the capital Stock of Borrower, except as set forth on Schedule 4.4.  Except as set forth on Schedule 4.4,
there are no outstanding agreements or instruments known to Borrower that are
binding upon any of Borrower’s shareholders relating to the ownership of its
shares of capital Stock.

4.5           Binding Obligations.  This Agreement does, and the other Loan
Documents to which Borrower is a party upon their creation, issuance, execution
and delivery will, constitute valid and binding obligations of Borrower,
enforceable in accordance with their terms except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency and other
similar laws affecting creditors’ rights generally or by principles of equity
pertaining to the availability of equitable remedies.

4.6           No Legal Bar; No Lien.

(a)           This Agreement and each of the other Loan
Documents to which Borrower is a party do not and will not violate any
provisions of its Certificate of Formation or By-Laws, or any contract,
agreement, instrument or Governmental Requirement to which Borrower is subject.

(b)           Neither the execution, delivery, nor
performance of this Agreement or the other Loan Documents shall create, or
constitute cause for the creation of, any Lien on any asset of Borrower, other
than the Liens granted in favor of Lender.

4.7           No Consent.  Except for the consent of the SBA provided
under the Multi-Party Agreement, Borrower’s execution, delivery and performance
of this Agreement and each of the Loan Documents to which it is a party do not
require the consent or approval of any other Person (unless such consent has
otherwise been obtained), including any regulatory authority or governmental
body of the United States of America or any state thereof or any political
subdivision of the United States of America or any state thereof.

4.8           Liabilities; Litigation.  Borrower does not have, as of the Closing
Date, any material (individually or in the aggregate) liabilities, direct or
contingent, except as disclosed in Schedule 4.8.  Except as disclosed in Schedule 4.8,
as of the Closing Date, there is no litigation, legal, administrative or
arbitral proceeding, investigation or other action of any nature pending

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or, to the actual knowledge of Borrower, threatened against or
affecting Borrower that could reasonably be expected to result in a Material
Adverse Change.

4.9           Taxes; Governmental Charges.  As of the Closing Date or the date each
advance is requested by Borrower, as applicable,  Borrower has filed all tax returns and
reports required to be filed prior to such date and has paid all taxes,
assessments, fees and other governmental charges levied upon it or its income
which are due and payable, including interest and penalties, or has provided
adequate reserves for the payment thereof.

4.10         Defaults.  Borrower is not in default nor has any event
or circumstance occurred which, but for the passage of time or the giving of
notice, or both, would constitute a default under any loan or credit agreement,
indenture, mortgage, deed of trust, security agreement or other agreement or
instrument evidencing or pertaining to any debt of Borrower, or under any
material agreement or instrument to which Borrower is a party or by which it is
bound or which could reasonably be expected to result in a Material Adverse
Change.  No Default or Event of Default
hereunder has occurred and is continuing.

4.11         Use of Proceeds; Margin Stock.  The proceeds of the Revolving Loans will be
used by Borrower for the purposes set forth in Section 2.10.  None
of such proceeds will be used for the purpose of purchasing or carrying any “margin
stock” as defined in Regulation U of the Board of Governors of the Federal
Reserve System (12 C.F.R. Part 221), or for the purpose of reducing or retiring
any indebtedness which was originally incurred to purchase or carry a margin
stock or for any other purpose which might constitute this transaction a “purpose
credit” within the meaning of such Regulation U.  Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stocks.  Neither Borrower nor any Person acting on
behalf of Borrower has taken or will take any action which might cause this
Agreement or any of the other Loan Documents to violate Regulations T, U or X,
or any other regulation of the Board of Governors of the Federal Reserve System
or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereinafter be in effect.

4.12         Compliance with the Law.

(a)           Borrower is not in violation of any
Governmental Requirement.

(b)           Borrower has not failed to obtain any
license, permit, franchise or other governmental authorization necessary to the
conduct of its business, which violation or failure could reasonably be
expected to result in a Material Adverse Change.  Without limiting the generality of the
foregoing, Borrower has obtained the Loan Guaranty Agreement and has complied
and will continue to comply with all statutory, and other regulatory
requirements necessary to obtain and maintain the Loan Guaranty Agreement.

4.13         ERISA. 
Borrower is in compliance in all material respects with the applicable
provisions of ERISA, and no “reportable event,” as such term is defined in
Section 4043 of ERISA, has occurred with respect to any Plan of Borrower.

4.14         Complete Disclosure.  All factual information furnished by or on
behalf of Borrower or its Subsidiaries in writing to Lender (including all
information contained in the Schedules hereto or in the other Loan Documents)
for purposes of or in connection with this

 33
 

 

Agreement, the other Loan Documents, or any transaction contemplated
herein or therein is, and all other such factual information hereafter
furnished by or on behalf of Borrower or its Subsidiaries in writing to Lender
will be, true and accurate, in all material respects, on the date as of which
such information is dated or certified and not incomplete by omitting to state
any fact necessary to make such information (taken as a whole) not misleading
at such time in light of the circumstances under which such information was
provided.  On the Closing Date, the
Closing Date Business Plan represents, and as of the date on which any other
Projections are delivered to Lender, such additional Projections represent
Borrower’s good faith best estimate of its future performance for the periods
covered thereby.

4.15         Investment Company Act.  Borrower is not an “investment company” or a
company “controlled” by an “investment company,” within the meaning of the
Investment Company Act of 1940, as amended.

4.16         No Financing of Corporate Takeovers.  No proceeds of any advances hereunder will be
used to acquire any security in any transaction which is subject to Sections 13
or 14 of the Securities Exchange Act of 1934, including, Sections 13(d)
and 14(d) thereof.

4.17         Location of Borrower.  Borrower’s principal place of business and
chief executive offices are located at the address stated in the preamble of
this Agreement; provided, that after the Closing Date such principal
place of business and chief executive offices may be relocated if Borrower
complies with the requirements of Section 6.10.

4.18         Use of Proceeds.  Borrower’s use of the proceeds of any
advances and re-advances made by Lender to Borrower pursuant to this Agreement
are, and will continue to be, legal and proper corporate uses duly authorized
by its Board of Directors and permitted under Section 2.10,
and such uses are consistent with all applicable laws and statutes,
as in effect as of the date hereof.

4.19         Hazardous Materials.

(a)           The operations of Borrower comply in all
material respects with all Environmental Laws.

(b)           Borrower has obtained all material
Governmental Authorizations under Environmental Laws necessary to its
operations, and all such Governmental Authorizations are in good standing in
all material respects, and Borrower is in compliance with all material terms
and conditions of such Governmental Authorizations.

(c)           (i) 
Borrower has not received (A) any notice or claim to the effect that it
is or could reasonably be expected to be subject to a material liability to any
Person as a result of the Release or threatened Release of any Hazardous
Materials or (B) any letter or request for information under Section 104 of
CERCLA (42 U.S.C. §§ 9604 et  seq.) or comparable state laws,
and (ii) to Borrower’s knowledge, none of its operations is the subject of any
federal or state investigation evaluating whether any remedial action is needed
to respond to a Release or threatened Release of any Hazardous Material at any
Property.

(d)           None of the operations of Borrower is the
subject of any pending judicial or administrative proceeding alleging the
violation of or liability under any Environmental Laws

 34
 

 

which if adversely determined could reasonably be expected to result in
a Material Adverse Change.

(e)           Borrower is not subject to any outstanding
written order or agreement with any Governmental Authority or private party
(other than lease agreements entered into in the ordinary course of business
containing standard provisions relating to environmental matters) respecting
(i) any liabilities which have arisen or may arise under any Environmental Laws
or (ii) any Environmental Actions.

(f)            Neither Borrower nor, to the actual
knowledge of Borrower, any former owner or operator of any Property owned or
operated by Borrower, has filed any notice under any Environmental Law
indicating past or present treatment, storage, or disposal of Hazardous
Materials at any Property owned or operated by Borrower, and none of the
operations of Borrower involves the generation, transportation, treatment or
disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270 or
any state equivalent (other than hazardous materials used in the ordinary
course of business, the use of which is not reasonably likely to materially
adversely affect any Property), and neither Borrower nor, to the actual
knowledge of Borrower, any predecessor in title to Borrower or any third party
at any time occupying any Property owned or operated by Borrower has at any time
used, generated, disposed of, stored, transported to or from, released or
threatened the release of any Hazardous Materials, in any form, quantity or
concentration on, from, under or affecting such Property in a manner that could
reasonably be expected to result in the liability of or a material claim
against Borrower in an amount exceeding $100,000.

(g)           Borrower has not filed any notice or report
of a Release of any Hazardous Materials that could reasonably be expected to
give rise to an Environmental Action that could reasonably be expected to
result in a Material Adverse Change and, to the actual knowledge of Borrower,
no Hazardous Materials exist on, under or about any Property owned or operated
by Borrower in a manner that could reasonably be expected to give rise to an
Environmental Action that could reasonably be expected to result in a Material
Adverse Change.

(h)           Neither Borrower nor, to the actual
knowledge of Borrower, any former owner or operator of any Property owned or
operated by Borrower, has disposed of any Hazardous Materials in a manner that
could reasonably be expected to give rise to an Environmental Action that could
reasonably be expected to result in a Material Adverse Change.

(i)            To the actual knowledge of Borrower, no
underground storage tanks or surface impoundments are on or at any Property
owned or used by Borrower, which could reasonably be expected to give rise to
any Environmental Action materially adversely effecting such Property.

(j)            No Lien in favor of any Governmental Authority
for (i) any liability under Environmental Laws, or (ii) damages arising from or
costs incurred by such Governmental Authority in response to a Release has been
filed or attached to any Property owned or used by Borrower.

4.20         Insurance Policies.  Schedule 4.20 lists all insurance of
any nature maintained for current occurrences by Borrower, as well as a summary
of the terms of such insurance.  All of

 35
 

 

such policies are in full force and effect and provide coverage of such
risks and for such amounts as is customarily maintained for businesses of the
scope and size of Borrower.

4.21         Schedule of Deposit Accounts.  Schedule 4.21 lists all banks and
other financial institutions at which Borrower maintains or will maintain
deposit and/or other accounts, and such exhibit correctly identifies the name
and address of each depository, the name in which the account is held, the
purpose of the account, and the complete account number.

4.22         Labor Matters.  There are no labor disputes against Borrower
pending or, to Borrower’s knowledge, overtly threatened, that could reasonably
be expected to result in a Material Adverse Change.  Hours worked by and payment made to the
employees of Borrower have not been in violation of the Fair Labor Standards
Act or any other applicable law dealing with such matters, which violation
could reasonably be expected to result in a Material Adverse Change.  All payments due from Borrower on account of
employee health and welfare insurance which could reasonably be expected to
result in a Material Adverse Change if not paid will be paid or, if not due,
will be accrued as a liability on the books of Borrower.

4.23         Employment and Labor Agreements.  Except as listed in Schedule 4.23,
there are no employment agreements and no agreements for the payment of
deferred compensation, severance, or change in control pay covering the
officers and managers of Borrower, and there are no collective bargaining
agreements or other labor agreements covering any employees of Borrower.  A true and complete copy of each such
agreement has been furnished to Lender.

4.24         Solvent Financial Condition.  Borrower is now and, immediately after giving
effect to the consummation of the transactions contemplated by the Asset Purchase Documents and the advances
to be made hereunder, will be, Solvent.

4.25         Brokers.  There are no claims for brokerage
commissions, finder’s fees or investment banking fees in connection with the
transactions contemplated by this Agreement. 
Borrower agrees to indemnify, defend, and hold Lender harmless from and
against any claim of any broker or finder arising out of Borrower’s obtaining
financing from Lender under this Agreement.

4.26         True Sales of Notes Receivable.  Borrower now intends and at all times will
intend that its transfers of Sold Notes Receivable, Securitization Notes
Receivable, and Participated Notes Receivable to the purchasers thereof
constitute true sales and not financing devices, except as otherwise disclosed
to and consented to by Lender and SBA. 
The foregoing shall not preclude Borrower from adopting any contrary
position for tax or accounting purposes to the extent permitted by GAAP and
applicable law.

4.27         No Material Intellectual Property.  Borrower does not hold or own, or employ in
its business operations, any material rights in, to, or under copyrights,
copyright licenses, patents, patent licenses, trademarks, trademark licenses,
or tradenames (collectively, “Intellectual Property”), except as set
forth on Schedule 4.27. 
Borrower is not a party to or the subject of any agreement or dispute
respecting Intellectual Property which, if resolved unfavorably to Borrower,
could reasonably be expected to result in a Material Adverse Change.

4.28         Asset Purchase Agreement.  As of the Closing Date, Borrower has
delivered to Lender a complete and correct copy of the Asset Purchase Agreement
and the other Asset

 36
 

 

Purchase Documents (including all schedules, exhibits, amendments,
supplements, modifications, assignments and all other documents delivered
pursuant thereto or in connection therewith). 
Neither Borrower nor, to the best of Borrower’s knowledge, any other
Person party thereto, is in default in the performance or compliance with any
provisions thereof, except where such default could not reasonably be expected
to result in a Material Adverse Change. 
Each of the Asset Purchase Documents complies with, and the transactions
contemplated by the Asset Purchase Agreement have been consummated in
accordance with, all applicable laws. 
Each of the Asset Purchase Documents is in full force and effect as of
the Closing Date and has not been terminated, rescinded or withdrawn.  All requisite approvals by governmental
authorities having jurisdiction over Borrower and, to the best of Borrower’s
knowledge, all requisite approvals by governmental authorities having
jurisdiction over any other Person that is a party to any of the Asset Purchase
Documents, have been obtained, and no such approvals with respect to Borrower
and, to the best of Borrower’s knowledge, no such approvals with respect to any
other Person, impose any conditions to the consummation of the transactions
contemplated by the Asset Purchase Documents or to the conduct by Borrower of
its business thereafter, except for compliance with applicable SBA Rules and
Regulations.  To the best of Borrower’s
knowledge, none of the representations or warranties of the “Sellers” (as defined in the Asset
Purchase Agreement) in any of the Asset Purchase Documents contains any untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading.  Each of the
representations and warranties given by Borrower in Article 3 of the Asset
Purchase Agreement and in Article III of the “Security Agreement”
(as defined in the Asset Purchase Agreement) is true and correct in all
material respects.  Notwithstanding
anything contained in any Asset Purchase Document to the contrary, such
representations and warranties of Borrower are incorporated into this Agreement
by this Section 4.28 and shall,
solely for purposes of this Agreement and the benefit of Lender, survive the “Closing Date” (as defined in the Asset Purchase Agreement); provided,
however, that any breach of such representations and warranties or any
other representation, warranty or covenant provided for or contained in this Section 4.28 shall only be a Default or
Event of Default under this Agreement if such breach results or could
reasonably be expected to result in a Material Adverse Change.

4.29         Automatic Warranty and Reaffirmation of
Warranties and Representations; Survival of Warranties and Representations.  Each request for an advance made by Borrower
pursuant to this Agreement or the other Loan Documents shall constitute
(a) a warranty and representation by Borrower to Lender that there does
not then exist a Default or an Event of Default, except as otherwise disclosed
in writing by Borrower to Lender, and (b) a reaffirmation as of the date
of said request of the representations and warranties of Borrower contained in Sections 4.1 through and including 4.28. 
All representations and warranties of Borrower contained in this
Agreement and the other Loan Documents shall survive the execution, delivery
and acceptance thereof by the parties thereto and the closing of the transactions
described therein or related thereto.

References in this Article 4 to the “actual knowledge” of
Borrower shall refer only to the actual knowledge of an Authorized Person of
Borrower and shall not be construed to the knowledge of any other officer,
agent or employee of Borrower or any Affiliate thereof, or to impose upon any
Authorized Person of Borrower any duty to investigate the matter to which such
actual knowledge, or the absence thereof, pertains.

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5.              AFFIRMATIVE
COVENANTS

Borrower
will at all times comply with the covenants contained in this Article 5, from the date hereof and
for so long as any part of the Obligations is outstanding.

5.1           Financial Statements and Reports and
Other Data.  Borrower will promptly
furnish to Lender from time to time upon request such information regarding the
business affairs and financial condition of Borrower as Lender may reasonably
request, which information shall be certified by the Treasurer of Borrower to
be true and correct in all material respects as of the date provided.  The information that may be requested by
Lender includes the following reports:

(a)           Annual Reports.

(i)            Promptly after becoming available and in
any event within 90 days after the close of each fiscal year of Borrower,
Borrower shall provide to Lender audited fiscal year end financial statements
of Borrower and its consolidated Subsidiaries, prepared on a consolidated basis
with supporting consolidating schedules by KPMG, LLP, or other independent
public accountants selected by Borrower and reasonably acceptable to Lender (the
“Accountant”), showing the balance sheet as at the end of such year, the
income statement for such year, and the statement of cash flows for such year,
setting forth in each case in comparative form (for periods for which
available) the corresponding figures for the preceding fiscal year, accompanied
by the related report of the Accountant, which report shall be to the effect
that such statements have been prepared in accordance with GAAP consistently
followed throughout the period indicated except for such changes in such
principles with which the Accountant shall have concurred along with a
certificate certifying to Lender that, based upon Accountant’s examination of
the affairs of Borrower and its consolidated Subsidiaries performed in
connection with the preparation of said statements, Accountant is not aware of
the existence of any condition or event which constitutes or would, upon notice
or lapse of time or both, constitute an Event of Default under Section 7.1(c) or, if it is aware of such
condition or event, the nature thereof; and

(ii)           As soon as available, but not later than 30
days prior to the close of each fiscal year, beginning with the fiscal year
ending December 31, 2006, Borrower’s Projections for the following fiscal
year;

(b)           Monthly Reports.

(i)            Promptly after becoming available and in
any event within 30 days after the end of each month in each fiscal year of
Borrower, Borrower shall provide to Lender unaudited internally prepared
financial statements of Borrower and its consolidated Subsidiaries, prepared on
a consolidated basis with supporting consolidating schedules, that are
reasonably satisfactory to Lender in scope and detail and which include, but
are not limited to, the balance sheets as at the end of such period, and the
income statements and the statements of cash flows for such month and for the
period from the beginning of the fiscal year to the close of such month,
setting forth in each case in comparative form the corresponding figures from
the Projections, certified by the Treasurer of Borrower to have been prepared
in accordance with GAAP consistently followed throughout the period indicated
except to the extent stated therein, subject to normal changes resulting from
year-end adjustments;

 38
 

 

(ii)           At the time of each delivery of the monthly
financial statements referred to in Section 5.1(b)(i) that also coincides with the end of a
fiscal quarter of Borrower, a Compliance Certificate duly and properly
executed and completed by the Treasurer of Borrower;

(iii)          Promptly after becoming available and in any
event by the tenth Business Day after the end of each month in each fiscal year
of Borrower, loan agings, loan loss reports, and such other information as
Lender shall reasonably request with respect to the Notes Receivable; and

(iv)          Promptly after becoming available and in any
event by the tenth Business Day after the end of each month in each fiscal year
of Borrower, all audit reports prepared by Borrower with respect to any Term
Loan Debtor.

(c)           Schedule of Eligible Notes Receivable.  Accompanying each request for a Revolving
Loan hereunder, and in any event no less frequently than monthly, Borrower
shall provide Lender with a report listing, by name of obligor and other
identifying information ordinarily employed by Borrower, each of the Notes
Receivable then constituting the Net Eligible SBA Guaranteed Notes Receivable
and the Net Eligible Non-Guaranteed Notes Receivable, as well as all other
Notes Receivable being serviced by Borrower, along with the outstanding
principal amount, payment schedule, and collection and delinquency history
thereof, and such other collateral information as reasonably requested by
Lender (each a “Schedule of Eligible Notes Receivable”).

(d)           Other Reports.

(i)            Audit Reports.  Promptly upon receipt thereof, one copy of
each management letter or other report submitted to Borrower by its accountants
in connection with any annual, interim or special audit made by them of the
books of Borrower.

(ii)           Borrowing Base Certificate.  Together with any request for an advance and
in any event no less frequently than on a monthly basis, Borrower shall deliver
to Lender a Borrowing Base Certificate.

(iii)          Reports Respecting Sale of SBA Guaranteed
Notes Receivable.  No later than 2:00
p.m. (Central Time) of the Business Day immediately prior to any Settlement
Date, Borrower shall deliver to Lender a Note Sale Report in substantially the
form of Exhibit D,
accompanied by the Broker-Dealer Confirmation and the Secondary Participation
Agreement reflecting the anticipated sale of the subject SBA Guaranteed Note
Receivable and all instructions of Borrower to the purchaser or FTA with
respect thereto.  On the request of
Lender, Borrower shall deliver to Lender copies of any other documents related
to such sale.

(iv)          SEC Filings.  Promptly after the filing by Borrower with
the SEC of any report on Form 10Q or 10K, or any other material corporate
disclosure, Borrower shall deliver a copy of such filing to Lender.

(v)           Regulatory Reviews.  Promptly upon receipt thereof, Borrower shall
deliver to Lender a copy of any review, exam or audit by SBA with respect to
Borrower or its operations, except to the extent that such delivery would
violate any applicable Governmental Requirement.

 39

 

(vi)                              Other Data.  Promptly upon receipt thereof, copies of such
other financial or other data as Lender may, in its sole discretion, reasonably
request.

5.2                                 Taxes and Other
Liens.  Borrower will pay and
discharge promptly when due all taxes, assessments and governmental charges or
levies imposed upon it or upon its income as well as all claims of any kind
(including claims for labor, materials, supplies and rent) which, if unpaid,
might become a Lien upon any or all of its Property; provided, that
Borrower shall not be required to pay any such tax, assessment, charge, levy or
claim to the extent that the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings diligently
conducted by or on behalf of Borrower in compliance with Section 5.13(b).

5.3                                 Maintenance.

(a)                                  Borrower shall (i)
maintain its corporate existence, rights and franchises; and (ii) observe and
comply with all Governmental Requirements.

(b)                                 Borrower shall
maintain in full force and good standing all licenses, permits, franchises or
other governmental authorizations necessary to the conduct of its business, the
failure to maintain could reasonably be expected to result in a Material
Adverse Change.  Without limiting the
generality of the foregoing, Borrower shall continue to comply with all
statutory and other regulatory requirements necessary to maintain in full force
and good standing the Loan Guaranty Agreement, to the extent such requirements
have not been waived or become inapplicable pursuant to the terms of the
Multi-Party Agreement.

5.4                                 Further Assurances.  Borrower will promptly cure any defects in
the creation, execution or delivery of this Agreement or the other the Loan
Documents.  Provided that such action
would not violate applicable SBA Rules and Regulations, Borrower, at its
expense, will promptly execute and deliver to Lender upon request all such
other and further documents, agreements and instruments as shall reasonably be
necessary in compliance with or accomplishment of the covenants and agreements
of Borrower in this Agreement or the other Loan Documents, or to further
evidence and more fully describe the collateral intended as security for the
Obligations, or to correct any omissions in this Agreement or the other Loan Documents,
or more fully to state the security obligations set out herein or in any of the
Loan Documents, or to perfect, protect or preserve any Liens created pursuant
to this Agreement or any of the other Loan Documents, or to make any
recordings, to file any notices, or obtain any consents (other than consents of
SBA that SBA is unwilling to give), all as may be deemed necessary or
appropriate in connection therewith by Lender in its sole and absolute
discretion.

5.5                                 Performance of
Obligations.  Borrower will pay and
perform the Obligations according to the terms thereof.  To the fullest extent permitted by applicable
law, Borrower will do and perform every act and discharge all of the
obligations provided to be performed and discharged by it under this Agreement
or the other Loan Documents at the time or times and in the manner specified.

5.6                                 Insurance.

(a)                                  At Borrower’s
expense, Borrower will maintain insurance respecting its assets wherever
located covering loss or damage by fire, theft, explosion, and all other
hazards

 40
 

 

and risks as ordinarily are insured against by other Persons engaged in
the same or similar businesses.  Borrower
also shall maintain business interruption and public liability insurance, and
insurance against larceny, embezzlement, and criminal misappropriation.  All such policies of insurance shall be in
such amounts and with such insurance companies as are reasonably satisfactory
to Lender.  Borrower shall deliver copies
of all such policies to Lender with a satisfactory lender’s loss payable
endorsement naming Lender as sole loss payee or additional insured, as
appropriate.  Each policy of insurance or
endorsement shall contain a clause requiring the insurer to give not less than
30 days prior written notice to Lender in the event of cancellation of the
policy for any reason whatsoever.

(b)                                 Borrower shall give
Lender prompt notice of any loss covered by such insurance.  So long as a Default or Event of Default has
occurred and is continuing, Lender shall have the exclusive right to adjust any
losses payable under any such insurance policies without any liability to
Borrower whatsoever in respect of such adjustments.  Any monies received as payment for any loss
under any insurance policy mentioned above (other than liability insurance
policies) or as payment of any award or compensation for condemnation or taking
by eminent domain, shall be paid over to Lender to be applied at the option of
Lender either to the prepayment of the Obligations or shall be disbursed to
Borrower under staged payment terms reasonably satisfactory to Lender for
application to the cost of repairs, replacements, or restorations.  Any such repairs, replacements, or
restorations shall be effected with reasonable promptness and shall be of a
value at least equal to the value of the items of property destroyed prior to
such damage or destruction.

(c)                                  Borrower will not
take out separate insurance concurrent in form or contributing in the event of
loss with that required to be maintained under this Section 5.6,
unless Lender is included thereon as named insured with the loss payable to
Lender under a lender’s loss payable endorsement or its equivalent.  Borrower immediately shall notify Lender
whenever such separate insurance is taken out, specifying the insurer
thereunder and full particulars as to the policies evidencing the same, and
copies of such policies promptly shall be provided to Lender.

(d)                                 Borrower will require
each Term Loan Debtor to maintain insurance in accordance with any applicable
SBA Rules and Regulations and Borrower’s operating guidelines.

5.7                                 Accounts and
Records.  Borrower will keep books of
record and account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and activities, in
accordance with GAAP, consistently applied except only for changes in
accounting principles or practices with which Borrower’s Accountant concurs.

5.8                                 Right of Inspection.  Lender (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter, but
subject to Section 2.5(d),
(i) during regular business hours to inspect the Borrower’s books and records,
or the Servicer’s books and records relating to the Collateral, and to make
copies or abstracts thereof, (ii) from time to time, to communicate directly
with any and all Term Loan Debtors to verify the existence and terms of the SBA
7(a) Loan of such Term Loan Debtors, and (iii) from time to time, to check,
test, and appraise the Collateral, or any portion thereof, in order to verify
Borrower’s and its Subsidiaries’ financial condition or the amount, quality,
value, condition of, or any other matter relating to, the Collateral, and
Borrower shall, or shall cause Servicer to, permit any designated
representative of

 41
 

 

Lender to visit and inspect any of the properties of Borrower or
Servicer to inspect and to discuss Borrower’s finances and properties and
Collateral, upon reasonable notice and at such reasonable times during normal
business hours and as often as may be reasonably requested.

5.9                                 Notice of Certain
Events.  Borrower shall promptly
notify Lender if it learns of the occurrence of: (i) any event which
constitutes a Default or an Event of Default, together with a detailed
statement by a responsible officer of Borrower of the steps being taken to cure
the effect of such Default or Event of Default; or (ii) the receipt of any
notice from, or the taking of any other action by, the holder of any promissory
note, debenture or other evidence of Indebtedness of Borrower or of any
security (as defined in the Securities Act of 1933, as amended) of Borrower
with respect to a claimed default, together with a detailed statement by a
responsible officer of Borrower specifying the notice given or other action
taken by such holder and the nature of the claimed default and what action
Borrower is taking or proposes to take with respect thereto; or (iii) any
legal, judicial or regulatory proceedings affecting Borrower or any of the
Collateral in which the amount involved is in excess of $100,000 and is not
covered by insurance or which, if adversely determined, could reasonably be
expected to result in a Material Adverse Change; or (iv) any dispute
between Borrower and any governmental or regulatory body, any Term Loan Debtor,
or any other Person which, if adversely determined, could reasonably be
expected to result in a Material Adverse Change; or (v) any event that
causes Borrower to no longer be Solvent or that could reasonably be expected to
result in a Change of Control; or (vi) any material change in SBA Rules
and Regulations; or (vii) any other event or condition, including any
event or condition affecting the credit of a Term Loan Debtor, that could
reasonably be expected to result in a Material Adverse Change.

5.10                           ERISA Information and
Compliance.  Borrower will promptly
furnish to Lender (i) after the filing thereof with the United States Secretary
of Labor or the Pension Benefit Guaranty Corporation, copies of each annual and
other report with respect to each Plan or any trust created thereunder, and
(ii) immediately upon becoming aware of the occurrence of any “reportable
event,” as such term is defined in Section 4043 of ERISA, or of any “prohibited
transaction,” as such term is defined in Section 4975 of the Internal Revenue
Code of 1954, as amended, in connection with any Plan or any trust created
thereunder, a written notice signed by an Authorized Person specifying the
nature thereof, what action Borrower is taking or, proposes to take with
respect thereto, and, when known, any action taken by the Internal Revenue
Service with respect thereto.  Borrower
will fund all current service pension liabilities as they are incurred under
the provisions of all Plans from time to time in effect for the benefit of its
employees, and comply with all applicable provisions of ERISA.

5.11                           Financial Covenants.  From and after the Closing Date and until the
Obligations are fully satisfied, Borrower shall:

(a)                                  Minimum Tangible Net Worth.  As of the end of each fiscal quarter shown
below, maintain, on a consolidated basis with Borrower’s Subsidiaries, Tangible
Net Worth of not less than the corresponding amount shown for such fiscal
quarter:

	
  Fiscal Quarters Ending

  	
   

  	
  Minimum Tangible Net Worth

  
	
  December 31, 2006

  	
   

  	
  $

  	
  2,800,000

  
	
  March 31, 2007

  	
   

  	
  $

  	
  2,500,000

  
	
  June 30, 2007

  	
   

  	
  $

  	
  2,100,000

  
	
  September 30, 2007

  	
   

  	
  $

  	
  2,000,000

  
	
  December 31, 2007 and each fiscal quarter thereafter

  	
   

  	
  $2,000,000 plus
  the amount (but not less than $0.00) of cumulative net income (net of losses)
  for the period after September 30, 2007 through the date of measurement

  

 

 42
 

 

 

 

 

(b)                                 Maximum
Indebtedness to Tangible Net Worth Ratio. 
As of the end of each fiscal quarter shown below, maintain, on a
consolidated basis with Borrower’s Subsidiaries, a maximum ratio of (i) Indebtedness
(excluding the FirstCity Debt, the ASBA Note, and Subordinated Debt) to
(ii) Tangible Net Worth, of not more than the corresponding amount shown
for such fiscal quarter:

	
  Fiscal Quarters Ending

  	
   

  	
  Maximum Indebtedness to

  Tangible Net Worth Ratio

  
	
  December 31, 2006

  	
   

  	
  2.00 to 1:00

  
	
  March 31, 2007

  	
   

  	
  2.50 to 1:00

  
	
  June 30, 2007

  	
   

  	
  3.50 to 1:00

  
	
  September 30, 2007 and each fiscal quarter
  thereafter

  	
   

  	
  5.00 to 1:00

  

 

(c)                                  Minimum EBITDA.  As of the end of each fiscal quarter shown below,
have, on a consolidated basis with Borrower’s Subsidiaries, EBITDA for the
three-month period then ending, of not less than the corresponding amount shown
for such fiscal quarter:

 

	
  Fiscal Quarters Ending

  	
   

  	
  Minimum EBITDA

  	
   

  
	
  December 31,
  2006

  	
   

  	
  $

  	
  (600,0000

  	
  )

  
	
  March 31, 2007

  	
   

  	
  $

  	
  (600,0000

  	
  )

  
	
  June 30, 2007

  	
   

  	
  $

  	
  (400,0000

  	
  )

  
	
  September 30,
  2007

  	
   

  	
  $

  	
  (100,0000

  	
  )

  
	
  December 31, 2007

  	
   

  	
  $

  	
  200,0000

  	
   

  
	
  March 31, 2008

  	
   

  	
  $

  	
  250,0000

  	
   

  
	
  June 30, 2008

  	
   

  	
  $

  	
  250,0000

  	
   

  
	
  September 30, 2008

  	
   

  	
  $

  	
  500,0000

  	
   

  
	
  December 31,
  2008

  	
   

  	
  $

  	
  900,0000

  	
   

  
	
  March 31, 2009

  	
   

  	
  $

  	
  1,000,0000

  	
   

  
	
  June 30, 2009
  and each fiscal quarter thereafter

  	
   

  	
  $

  	
  1,100,0000

  	
   

  

 

 

 43
 

 

(d)                                 Maximum Delinquent
and Defaulted Notes Percentage.  At
all times, not cause or allow the ratio (expressed as a percentage) of (i) the
sum of (A) Delinquent Non-Guaranteed Notes Receivable and (B) Defaulted
Non-Guaranteed Notes Receivable, to (ii) Non-Guaranteed Notes Receivable
(each measured by the respective aggregate outstanding principal amounts of all
Non-Guaranteed Notes Receivable in each category, whether or not eligible for
inclusion in the Borrowing Base), to be more than seven percent (7.0%).

(e)                                  Maximum Loan
Charge-Off Percentage.  As of the end
of each fiscal quarter ending on or after September 30, 2007, not cause or
allow the ratio (expressed as a percentage) of (i) loan losses for the 12-month
period then ending, to (ii) the average amount of all Non-Guaranteed Notes
Receivable outstanding during such 12-month period (measured by the aggregate
outstanding principal amount of all Non-Guaranteed Notes Receivable, whether or
not eligible for inclusion in the Borrowing Base), to be more than two percent
(2.0%).

5.12                           Maintenance of Bad Debt
Reserve.  Borrower shall maintain on
its books, at all times, a bad debt reserve consistent with GAAP and Borrower’s
historical performance.

5.13                           Charges; Liens.

(a)                                  Borrower shall pay
promptly when due, all of the Charges, and promptly discharge any Liens,
encumbrances or other claims against the Collateral; provided, that
Borrower shall not be required to take such steps with respect to Collateral
consisting of the underlying collateral for the SBA 7(a) Loans granted to
Borrower to secure the obligations of the Term Loan Debtors.  Except for Liens in favor of Lender and any
other Permitted Liens, if Borrower, at any time or times hereafter, shall fail
to pay any Charges when due or promptly obtain the discharge of such Charges or
of any Lien, claim or encumbrance asserted against the Collateral, subject to
the provisions of Section 5.13(b)
below, Lender may, without waiving or releasing any obligation or liability of
Borrower hereunder or any Event of Default, in its sole discretion, at any time
or times thereafter, make such payment, or any part thereof, or obtain such
discharge and take any other action with respect thereto which Lender deems
advisable; provided, that Lender shall not be entitled to take such
steps with respect to Collateral consisting of the underlying collateral for
the SBA 7(a) Loans granted to Borrower to secure the obligations of the
Term Loan Debtors.  All sums so paid by
Lender and any expenses, including reasonable

 44
 

 

attorneys’ fees, court costs, expenses and other reasonable charges
relating thereto, shall be payable, upon demand, by Borrower to Lender and
shall be additional Obligations hereunder secured by the Collateral.

(b)                                 Borrower may in good
faith contest, by proper legal actions or proceedings, the validity or amount
of any Charges or claims, and provided that Borrower gives Lender advance
notice of its intention to contest the validity or amount of any such Charge or
claim, Lender will forebear from making any payment or otherwise obtaining the
discharge of such Charge or claim if at the time of the commencement of any
such action or proceeding, and during the pendency thereof (i) no Event of
Default shall have occurred and be continuing, (ii) reserves with respect
thereto are maintained on the books of Borrower in an amount reasonably
acceptable to Lender, (iii) such contest operates to suspend collection of the
contested Charges or claims and is maintained and prosecuted continuously with
diligence, (iv) none of the Collateral will be subject to forfeiture or loss of
any Lien in favor of Lender by reason of the institution or prosecution of such
contest, (v) no Lien that may reasonably be expected to prime the Liens of
Lender shall exist for such Charges or claims during such action or proceeding,
(vi) Borrower shall promptly pay or discharge such contested Charges and
all additional charges, interests, penalties and expenses, if any, and shall
deliver to Lender evidence reasonably acceptable to Lender of such compliance,
payment or discharge, if such contest is terminated or discontinued adversely
to Borrower, and (vii) Lender has not advised Borrower in writing that
Lender reasonably believes that non-payment or non-discharge thereof could
reasonably be expected to result in a Material Adverse Change.

5.14                           Communication With
Accountants.  Borrower shall
cooperate with Lender to permit reasonable access to Accountant and authorizes
Accountant to disclose to Lender any and all financial statements and other
supporting financial data, including matters relating to the conduct of the
annual audit and copies of any management letter with respect to Borrower’s
business, pending litigation, financial condition and other affairs.  On or before the Closing Date, Borrower shall
deliver to Lender a letter addressed to such accountants in the form of Exhibit E.

5.15                           Notes Receivable
Documents.  Pursuant to the
Multi-Party Agreement, Borrower shall deliver to FTA all original SBA 7(a) Loan
Notes, with all necessary endorsements, within five Business Days of the
execution or delivery to Borrower thereof, and shall identify such SBA 7(a)
Loan Notes to FTA as being pledged to Lender under this Agreement and the
Security Agreement.  Borrower shall
simultaneously deliver to Lender a copy of such SBA 7(a) Loan Notes.  If requested by Lender, each original SBA
7(a) Loan Note shall bear a legend on the first page stating “WELLS FARGO
FOOTHILL, LLC HAS A SECURITY INTEREST IN AN INTEREST IN THIS NOTE.”  Subject to the provisions of the Multi-Party
Agreement with respect to SBA’s rights and duties with respect to the Notes, if
possession of any original SBA 7(a) Loan Note is released by FTA to Borrower or
any other Person acting on Borrower’s behalf prior to the termination of Lender’s
Lien thereon, Borrower shall take, and shall cause any such third-party in
possession of such original SBA 7(a) Loan Note to take, such steps necessary or
reasonably requested by Lender to maintain at all times the continuous
perfection of such Lien, and if such SBA 7(a) Loan Note is in the possession of
Borrower, Borrower shall hold such SBA 7(a) Loan Note in trust for Lender.  On or before the fifteenth day of each month,
Borrower shall deliver to Lender copies of the following additional Notes
Receivable Documents, to the extent applicable, with respect to each Note
Receivable funded by Borrower during the prior calendar month, whether or not
required to be delivered to FTA: the loan agreement; the security

 45
 

 

agreement; the mortgage or deed of trust; personal guaranties; and to
the extent required by SBA Rules and Regulations or Borrower’s underwriting
standards, for any Note Receivable secured by real property where such real
property is part of the primary collateral for the indebtedness owing to
Borrower, (a) a copy of a fully paid mortgagee’s policy of title insurance
issued by an insurer acceptable to SBA and evidencing that Borrower is
beneficiary of mortgagee’s title insurance insuring Borrower’s Lien on such
real property as a valid and enforceable Lien in an amount not less than amount
of the indebtedness to Borrower secured thereby, (b) an environmental site
assessment report with respect to such real property prepared by a credentialed
environmental consultant acceptable to SBA, (c) if requested by Lender, a
boundary survey of such real property prepared by a surveyor acceptable to SBA,
certified to Borrower, and (d) such other information, documentation,
opinions and certifications with respect to such real property as may be
reasonably requested by Lender; provided, that Lender may require
Borrower to deliver copies of such Notes Receivable Documents on a more
frequent basis or to deliver copies of other Notes Receivable Documents.  Borrower and Lender shall at all times comply
with the terms and conditions of the Multi-Party Agreement and the Loan
Guaranty Agreement.

5.16                           Subordination Agreement.  Prior to incurring any Subordinated Debt,
Borrower shall cause to be delivered to Lender a Subordination Agreement from
each holder of such Subordinated Debt.

6.              NEGATIVE
COVENANTS

Without
Lender’s prior written consent, which Lender may or may not in its sole
discretion give, Borrower covenants that it shall not:

6.1                                 Debt.  Create, incur, assume or have outstanding any
Indebtedness, except for: (i) Indebtedness owing to Lender;
(ii) Indebtedness incurred by Borrower in the ordinary course of business
(including pursuant to applicable SBA Rules and Regulations), other than
Indebtedness for borrowed money; (iii) Indebtedness to ASBA under the ASBA
Note, (iv) Indebtedness to FirstCity Financial
with respect to the FirstCity Debt, and (v) Subordinated Debt acceptable
to Lender.

6.2                                 Loans and
Distributions.  Make any loans,
dividends or other distributions, payments, or advances of money and/or
extensions of credit to any Persons, including officers, directors, employees,
stockholders, or Affiliates and Subsidiaries of Borrower, other than (a)
reasonable advances made in the ordinary course of business on account of
salary, commissions, and routine travel and business expenses, (b) loans
made in the ordinary course of business to Term Loan Debtors, (c) payments
to ASBA required to be made under the ASBA Note or the ASBA Security Agreement,
so long as such payments are made solely
from the proceeds of the Serviced ASBA Assets, (d) payments to FirstCity
Financial of regularly scheduled monthly payments of interest with respect to
the FirstCity Debt, (e) payments to FirstCity Financial for corporate
overhead expenses charged to Borrower in amounts not exceeding those permitted
under Section 4.16 of the Asset Purchase Agreement or to FirstCity
Servicing Corporation for services provided under the Servicing Agreement, each
as in effect on the Closing Date, and (f) out of funds legally
available therefor, the regularly scheduled dividends to which the holders of
Borrower’s Preferred Stock are entitled pursuant to Borrower’s Certificate of
Formation as in effect on the Closing Date, so long as in the case of any
payment described in clauses (d), (e), or (f)
above (i) no Default or Event of Default shall have occurred and be
continuing or would

 46
 

 

occur as a result thereof, and (ii)  such payment is permitted
under applicable SBA Rules and Regulations.

6.3                                 Liens.  Except as otherwise expressly permitted
herein or in the other Loan Documents, encumber, pledge, mortgage, or grant a
security interest in (except for Permitted Liens), or assign, sell (except for
the sale of SBA Guaranteed Notes Receivable, the sale of Non-Guaranteed
Participations in Participated Notes Receivable, the sale to SBA of the
Non-Guaranteed Note Receivable portion of any Note Receivable with respect to
which SBA also holds the SBA Guaranteed Note Receivable portion thereof, and
pursuant to any Securitization Transaction, each to the extent permitted by Section 6.13, and the sale of other
property in the ordinary course of business), lease or otherwise dispose of or
transfer, whether by sale, merger, consolidation, liquidation, dissolution, or
otherwise, any of the Collateral; provided, that the foregoing shall not
prohibit Borrower from dealing with the Collateral consisting of the underlying
collateral for the SBA 7(a) Loans granted to Borrower to secure the
obligations of the Term Loan Debtors in the ordinary course of its business and
in accordance with SBA Rules and Regulations.

6.4                                 Capital
Expenditures.  Make capital
expenditures (including Capitalized Leases Obligations) during any fiscal year
of Borrower which, in the aggregate, exceed $200,000 in any fiscal year.

6.5                                 [Intentionally
Omitted].

6.6                                 Capital Structure.  Make any material change in Borrower’s
capital structure or in any of its business objectives, purposes and operations
which might in any way adversely affect the repayment of the Obligations; provided,
that Lender will not unreasonably withhold its consent to changes in Borrower’s
operations required by SBA.

6.7                                 Transactions with
Affiliates.  Except to the extent
permitted by Section 6.2,
enter into, or be a party to, any transaction with any Affiliate or stockholder
of Borrower, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower’s business and upon fair and reasonable terms which are
no less favorable to Borrower than would be obtained in a comparable arm’s
length transaction with a Person not an Affiliate or stockholder of Borrower.

6.8                                 Change of Business.  Enter into any new business or make any
material change in any of Borrower’s business objectives, purposes,
underwriting standards or other operations, except to the extent required by
SBA.

6.9                                 Name of Borrower.  Use any corporate name (other than its own)
or any fictitious name, tradestyle or “d/b/a”.

6.10                           Location of Collateral.  Stop keeping its books and records or the
Collateral at either the location listed in the preamble to this Agreement or
the offices of FirstCity BLC at 6400 Imperial Drive, Waco, Texas 76712, or keep
any of such books and records and/or the Collateral at any other office(s) or
location(s) unless (i) Borrower gives Lender written notice thereof and of
the new location of said books and records at least 30 days prior thereto and
(ii) the other office or location is within the continental United States
of America.

 47

 

6.11                           Proceeds of Loans.  Permit the proceeds of any of the Revolving
Loans to be used for any purpose other than those permitted by Section 2.10 hereof.

6.12                           ERISA Compliance.  At any time permit any Plan in which Borrower
is a participant to:

(a)                                  engage in any “prohibited
transaction” as such term is defined in Section 4975 of the Internal Revenue
Code of 1954, as amended;

(b)                                 incur any “accumulated
funding deficiency” as such term is defined in Section 302 of ERISA; or

(c)                                  terminate any such
Plan in a manner which could result in the imposition of a Lien on the Property
of Borrower pursuant to Section 4068 of ERISA.

6.13                           Sale or Discount of
Receivables.  Discount or sell any
portion of its Notes Receivable or its Accounts; provided, that Borrower
may sell to SBA the SBA Guaranteed Notes Receivable, sell to SBA the
Non-Guaranteed Note Receivable portion of any Note Receivable with respect to
which SBA also holds the SBA Guaranteed Note Receivable portion thereof, or
otherwise dispose of Notes Receivable or the collateral therefor, in each case
to the extent required by SBA in accordance with SBA Rules and Regulations; and
provided  further, that so long as no Event of Default shall have
occurred and be continuing, Borrower may:

(a)                                  sell SBA Guaranteed
Notes Receivable to the extent that such sales are made (i) at par or at a
premium, (ii) on ordinary business terms, (iii) by or through the FTA,
(iv) in full conformity with all applicable SBA Rules and Regulations and
other governing law, and (v) in accordance with the Settlement Date reporting
requirements of Section 5.1(d)(iii);

(b)                                 sell Non-Guaranteed
Participations in Participated Notes Receivable, so long as (i) the Note
Participation Amount generated from any such sale is at least equal to the
amount of any Revolving Loan made by Lender with respect to the applicable
Participated Note Receivable, and (ii) either (A) the corresponding
SBA Guaranteed Note Receivable has been or is simultaneously being sold
pursuant to Section 6.13(a),
or (B) Borrower otherwise simultaneous repays the full amount of any
Revolving Loan made by Lender with respect to such SBA Guaranteed Note
Receivable (in which event Lender will release its Lien therein); and

(c)                                  sell Non-Guaranteed
Notes Receivable pursuant to a Securitization Transaction, to the extent that
such sales are made (i) in full conformity with all applicable SBA Rules and
Regulations and other governing law, and (ii) on terms (including with respect
to the amount and timing of payment of the purchase price therefor) and in a
manner reasonably acceptable to Lender.

6.14                           Payment on ASBA Note or
FirstCity Debt.  Make (a) any
payment of principal or interest on, or any other payment or distribution with
respect to, the ASBA Note except out of the ASBA Serviced Assets to the extent
required by the Asset Purchase Agreement and the ASBA Note or the ASBA Security
Agreement, or (ii) any payment of principal or interest on, or any other
payment or distribution with respect to, the FirstCity Debt except to the
extent permitted by Section 6.2.

 48
 

 

6.15                           Payments on Subordinated
Debt.  Pay any Subordinated Debt or
make any payment of principal or interest thereof or interest thereon or any
other payment or distribution in respect thereof except as may be specifically
permitted under the applicable Subordination Agreement with respect to such
Subordinated Debt.  All Subordinated Debt
shall have a maturity date after the Termination Date and shall be unsecured
and subordinated to Lender in liquidation and repayment on terms that are
acceptable to Lender.

6.16                           Affiliates.  Hereafter create any Affiliate or Subsidiary
or divest itself of any material assets by transferring them to any Affiliate
or Subsidiary, except to the extent required in connection with a
Securitization Transaction.

6.17                           Consulting and Brokerage
Services.  Provide, or enter into any
contract or agreement to provide, or allow any Affiliate or Subsidiary of
Borrower to provide, or enter into any contract or agreement to provide, to any
Term Note Debtor or purchaser of Notes Receivable, any advisory, consulting,
brokerage, or similar services, other than (a) the advisory or consulting
services, if any, Borrower provides in the ordinary course of business to
prospective and actual Term Note Debtors or purchasers of SBA Guaranteed Notes
Receivable in connection with (i) the marketing, structuring, documentation,
and closing of Note Receivable transactions, (ii) the servicing of any Notes
Receivable, and (iii) general business advice, and (b) consulting
services provided to Term Loan Debtors or prospective borrowers in the ordinary
course of business that result in (i) a referral by Borrower to another funding
source that is not an Affiliate or Subsidiary of Borrower, and (ii) the receipt
by Borrower of a reasonable referral fee in an arm’s-length relationship with
such other funding source. 
Notwithstanding any provision herein seemingly to the contrary, there is
no prohibition upon FirstCity Financial or its Affiliates other than Borrower
providing, in the ordinary course of its business, brokerage or consulting
services provided to Term Loan Debtors or prospective borrowers in the ordinary
course of business that result in (i) a referral by FirstCity Financial or its
Affiliates other than Borrower to Borrower or another funding source that is
not an Affiliate or Subsidiary of Borrower, and (ii) the receipt by FirstCity
Financial or its Affiliates other than Borrower of a reasonable referral fee in
an arm’s-length relationship with Borrower or such other funding source.

6.18                           Modification of Asset
Purchase Documents, Servicing Agreement, or FirstCity Debt.  Amend, modify or waive, or agree to amend,
modify or waive, (a) any provision of the Asset Purchase Agreement, the
ASBA Note, or any of the other Asset Purchase Documents, or any right or
obligation of Borrower thereunder, if such amendment, modification or waiver
would have the effect of (i) changing the non-recourse nature of Borrower’s
obligations or providing any additional collateral therefor,
(ii) increasing the amount or accelerating the timing of any amounts
payable by Borrower, or (iii) otherwise increasing in a material manner
the liabilities or obligations of Borrower, (b) any provision of the
Servicing Agreement or any right or obligation of Borrower with respect
thereto, or (c) any provision with respect to the FirstCity Debt or any
right or obligation of Borrower with respect thereto.

7.              EVENTS OF DEFAULT

7.1                                 Events of Default.  Any of the following events shall be
considered an “Event of Default” as that term is used herein:

(a)                                  Payments.  Borrower or any of its Subsidiaries fails to
pay when due and payable, or when declared due and payable, all or any portion
of the Obligations (whether of

 49
 

 

principal, interest (including any interest which, but for the
provisions of the Bankruptcy Code, would have accrued on such amounts), fees
and charges, reimbursement of expenses, or other amounts constituting
Obligations); or

(b)                                 Other Covenant
Defaults.  Borrower or any of its
Subsidiaries fails to perform, keep, or observe any covenant or other provision
contained in (i) (A) Sections 5.1(a),
5.1(b)(i), 5.1(b)(iv),
5.1(d)(i), 5.4
or 5.10 or (B) any other section or
subsection of this Agreement or the other Loan Documents except
for a section or subsection of this Agreement or such other Loan
Documents, as applicable, that is dealt with expressly elsewhere in this Section 7.1 (including through clause (ii)(B) below) and such failure or
neglect described in this clause (i)
is not cured within three Business Days after the date on which such failure or
neglect first occurs, or (ii) (A) Section 8.3,
(B) Article 5  except
for any section or subsection of Article 5
that is dealt with expressly elsewhere in this Section 7.1,
or (C) Article 6 or any comparable
provision to such article that is contained in any of the other Loan Documents;
or

(c)                                  Seizure of Assets.  Any material portion of Borrower’s or any of
its Subsidiaries’ assets is attached, seized, subjected to a writ or distress
warrant, levied upon, or comes into the possession of any third Person; or

(d)                                 Voluntary
Insolvency Proceeding.  An Insolvency
Proceeding is commenced by Borrower or any of its Subsidiaries; or

(e)                                  Involuntary
Insolvency Proceeding.  An Insolvency
Proceeding is commenced against Borrower, or any of its Subsidiaries, and any
of the following events occur:  (a)
Borrower or the Subsidiary consents to the institution of such Insolvency
Proceeding against it, (b) the petition commencing the Insolvency Proceeding is
not timely controverted; provided, however, that, during the
pendency of such period, Lender shall be relieved of its obligations to extend
credit hereunder, (c) the petition commencing the Insolvency Proceeding is not
dismissed within 60 calendar days of the date of the filing thereof; provided,
however, that, during the pendency of such period, Lender shall be
relieved of its obligations to extend credit hereunder, (d) an interim trustee
is appointed to take possession of all or any substantial portion of the
properties or assets of, or to operate all or any substantial portion of the
business of, Borrower or any of its Subsidiaries, or (e) an order for relief
shall have been entered therein; or

(f)                                    Discontinuance
of Business.  Borrower or any of its
Subsidiaries ceases to conduct its business as now conducted or is enjoined,
restrained or in any way prevented by court order from conducting all or any
material part of its business affairs; or

(g)                                 Notice of Levy.  A notice of Lien, levy, or assessment is
filed of record with respect to any of Borrower’s or any of its Subsidiaries’
assets having a value in excess of $100,000 by the United States, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities becomes a Lien, whether choate or
otherwise, upon any of Borrower’s or any of its Subsidiaries’ assets and the
same is not paid before such payment is delinquent; or

(h)                                 Judgments.  A judgment or other claim becomes a Lien or
encumbrance upon any material portion of Borrower’s or any of its Subsidiaries’
assets; or

 50
 

 

(i)                                     Default under
Material Agreements.  There is a
default with respect to any material agreement to which Borrower or any of its
Subsidiaries is a party and such default (a) occurs at the final maturity
of the obligations thereunder, or (b) results in a right by the other party
thereto, irrespective of whether exercised, to accelerate the maturity of
Borrower’s or its Subsidiaries’ obligations thereunder, to terminate such
agreement, or to refuse to renew such agreement pursuant to an automatic
renewal right therein; or

(j)                                     Prohibited
Payments.  Borrower or any of its
Subsidiaries makes any payment on account of Indebtedness that has been
contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness; or

(k)                                  Representations
and Warranties. Any representation or warranty made by Borrower herein or
in any other Loan Document or in any certificate, request or other document
furnished pursuant to or under this Agreement or any other Loan Document proves
to have been incorrect in any material respect as of the date when made (including
as of the date provided by Section 8.2
upon Borrower’s acceptance of the proceeds of an advance); or

(l)                                     Termination of
Validity Agreements.  The obligations
of any Validity Certifier under its Validity Agreement is limited or terminated
by operation of law or by such Validity Certifier thereunder; or

(m)                               Failure of Perfection
of Liens.  This Agreement or any
other Loan Document that purports to create a Lien, shall, for any reason, fail
or cease to create a valid and perfected and, except to the extent permitted by
the terms hereof or thereof, first priority Lien on or security interest in the
Collateral covered hereby or thereby; or

(n)                                 Invalidity of Loan
Documents.  Any provision of any Loan
Document shall at any time for any reason be declared to be null and void, or
the validity or enforceability thereof shall be contested by Borrower or any of
its Subsidiaries, or a proceeding shall be commenced by Borrower or any of its
Subsidiaries, or by any Governmental Authority having jurisdiction over Borrower,
seeking to establish the invalidity or unenforceability thereof, or Borrower or
any of its Subsidiaries shall deny that Borrower or such Subsidiary has any
liability or obligation purported to be created under any Loan Document; or

(o)                                 Change of Control.  The occurrence of a Change of Control; or

(p)                                 Material Adverse
Change.  The occurrence of a Material
Adverse Change; or

(q)                                 Departure of Key
Employees.  Any of the employees of
Borrower listed on Schedule 7.1(q) hereto shall cease to be employed in
such individual’s current capacity with Borrower and a replacement satisfactory
to Lender shall not be hired within 45 days of such termination of employment;
or

(r)                                    Default under
Agreement with SBA.  Borrower shall
be in default, after the expiration of any applicable notice, grace or cure
periods, in any material respect of its servicing or any other obligations
under the Multi-Party Agreement or under any Loan Guaranty Agreement; or

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(s)                                  Default under
Securitization Transaction.  Borrower
shall be in default, after the expiration of any applicable notice, grace or
cure periods, in any material respect of its servicing or any other obligations
under any Securitization Transaction; or

(t)                                    Default under
Non-Guaranteed Participation. 
Borrower shall be in default, after the expiration of any applicable
notice, grace or cure periods, in any material respect of its servicing or any
other obligations under a Non-Guaranteed Participation; or

(u)                                 Default under Asset
Purchase Agreement.  Borrower shall
be in default, after the expiration of any applicable notice, grace or cure
periods, in any material respect of its obligations under the Asset Purchase
Agreement, and such default could reasonably be expected to result in a
Material Adverse Change.

(v)                                 Default under Servicing
Agreement.  Borrower or FirstCity
Servicing Corporation shall be in default, after the expiration of any
applicable notice, grace or cure periods, in any material respect of its
respective obligations under the Serving Agreement.

7.2                                 Termination of Agreement
and Acceleration of the Obligations. 
During any period of grace afforded Borrower under this Article 7 after which an act or omission of
Borrower will become an Event of Default, Lender shall have no obligation to
make any Revolving Loan hereunder.  Upon
the occurrence and continuation of an Event of Default, all of the Obligations
may, at the option of Lender and without demand, notice, or legal process of
any kind, be declared, and immediately shall become, due and payable, and
Lender, at its option, may terminate this Agreement; provided, that all
of the Obligations shall immediately become due and payable, and this Agreement
shall be terminated upon the occurrence and continuation of an Event of Default
set forth in Section 7.1(d) or Section 7.1(e); and  further  provided,
that Lender’s rights and remedies under this Agreement shall survive any such
termination.

7.3                                 Remedies.  Upon the occurrence and at any time during
the continuance of any Event of Default specified in Section 7.1, and subject at all times to Lender’s
compliance with all applicable terms of the Multi-Party Agreement and
applicable SBA Rules and Regulations, including those relating to the exercise
of remedies or the transfer of authority for collection, servicing, and
liquidation of Notes Receivable, Lender shall have the following rights and
remedies:

(a)                                  Rights of Setoff.  Upon the occurrence and during the
continuance of any Event of Default, Lender and each subsequent holder of the
Obligations is hereby authorized by Borrower at any time and from time to time,
without notice to Borrower (any such notice being expressly waived by
Borrower), to setoff and to appropriate and, to the extent permitted by
applicable law, to apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by Lender or any subsequent holder of the Obligations to or for the credit or
the account of Borrower against any and all of the Obligations of Borrower,
irrespective of whether or not the Lender or any subsequent holder of the
Obligations shall have made any demand under this Agreement or under any other
Loan Documents and although such obligations may be unmatured; provided,
that Lender shall have no right of setoff, either by contract or operation of
law, with respect to funds deposited or held in the Servicer Account.  Lender and any subsequent holder of the
Obligation agrees promptly to notify Borrower in writing after any such setoff
and application, provided that the failure to give such notice shall not affect
the validity of such setoff and application. 
The rights of Lender or

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any subsequent holder of the Obligations under this Section 7.3(a) are in addition to
other rights and remedies (including other rights of setoff) now or hereafter
granted under applicable law which Lender or any subsequent holder of the
Obligations may have.

(b)                                 Notes Receivable
and Accounts.  The right to:
(i) monitor, manage, and transfer the collection, servicing, and
liquidation of any or all of Notes Receivable and Borrower’s relationship with
Term Note Debtors with respect to the applicable Notes Receivable and the
collateral therefor; (ii) unless and until the SBA takes over or transfers
to another SBA-participating lender, designated by the SBA and acceptable to
Lender, the collection, servicing and liquidation functions of the Notes
Receivable in accordance with the Multi-Party Agreement, enforce and demand
payment of the Accounts and the Notes Receivable, in accordance with their terms,
by legal proceedings or otherwise; (iii) exercise all of Borrower’s rights
and remedies with respect to the collection of the Accounts and Notes
Receivable; (iv) settle, adjust, compromise, extend, or renew the Accounts
and Notes Receivable; (v) settle, adjust or compromise any legal
proceedings brought to collect the Accounts and Notes Receivable; (vi) if
permitted by applicable law, sell or assign the Accounts and Notes Receivable
upon such terms, for such amounts and at such time or times as Lender deems
advisable; (vii) discharge and release the Accounts or Notes Receivable;
(viii) take control, in any manner, of any items of payment;
(ix) prepare, file and sign Borrower’s name on any Proof of Claim in
Bankruptcy or similar document against any Account Debtor or Term Loan Debtor;
(x) prepare, file and sign Borrower’s name on any notice of lien,
assignment or satisfaction of lien or similar document in connection with the
Accounts or Notes Receivable; (xi) do all acts and things necessary, in
Lender’s sole discretion, to fulfill Borrower’s obligations under this
Agreement; (xii) endorse the name of Borrower upon any chattel paper,
document, instrument, invoice, or similar document or agreement relating to the
Accounts or Notes Receivable; (xiii) open Borrower’s mail and collect any
and all amounts due Borrower from Account Debtors and Term Loan Debtors; and
(xiv) use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to the Accounts and Notes
Receivable, to which Borrower has access;

(c)                                  Sell Collateral.  The right to: (i) require Borrower to
assemble the Collateral, to the extent Borrower has the legal right to do so,
and make it available to Lender at a place to be designated by Lender, in its
sole discretion; (ii) sell or to otherwise dispose of all or any
Collateral at public or private sale or sales, with such notice as may be
required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable; (iii) adjourn such sales from
time to time with or without notice; and (iv) conduct such sales on
Borrower’s premises or elsewhere and use Borrower’s premises without charge for
such sales for such time or times as Lender may see fit.  Lender is hereby granted a license or other
right to use, without charge, Borrower’s labels, patents, copyrights, rights of
use of any name, trade secrets, trade names, trademarks and advertising matter,
or any property of a similar nature, as it pertains to the Collateral, in
advertising for sale and selling any Collateral and Borrower’s rights under all
licenses and all franchise agreements shall inure to Lender’s benefit.  Lender shall have the right to sell, lease or
otherwise dispose of the Collateral, or any part thereof, for cash, credit or
any combination thereof, and Lender may purchase all or any part of the
Collateral at public or, if permitted by law, private sale and, in lieu of
actual payment of such purchase price, may setoff the amount of such price against
the Obligations.  The proceeds realized
from the sale of any Collateral shall be applied first to the reasonable
out-of-pocket costs, expenses and attorneys’ fees and expenses incurred by
Lender for collection and for acquisition, completion, protection,

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removal, storage, sale and delivery of the Collateral; second to
interest due upon any of the Obligations; and third to the principal of the
Obligations.  If any deficiency shall
arise, Borrower shall remain liable to Lender therefor;

(d)                                 Servicing of SBA
Loans.  The right, directly or
through its designee approved in writing by SBA in its sole discretion, to
monitor, manage, and service any or all of the Notes Receivable, including the
Sold Notes Receivable, the Participated Notes Receivable, and the SBA Owned
Notes Receivable, and Borrower’s relationship with its Term Loan Debtors with
respect to the applicable Notes Receivable and the collateral therefor; provided,
that Lender, or such designee, shall have been approved by the SBA (as a
participating lender under the SBA Act, as described in 13 CFR
section 120.302.1, or otherwise) to perform such functions.  Upon the transfer of the servicing
obligations of Borrower’s Notes Receivable from Borrower to Lender or such
approved designee, Borrower shall immediately deliver to Lender or such
approved designee all loan documents then held by Borrower or any other Person
relating to all of the outstanding Notes Receivable.  Borrower consents to any action taken by
Lender or such approved designee pursuant to this Section 7.3(d), and agrees that such action shall not release
or relieve Borrower of its obligations to Lender whether arising under this
Agreement, or any of the other Loan Documents. 
In carrying out the provisions of this Section
7.3(d), Lender or such approved designee may rely and act upon any
notice or instruction given to Lender or its designee by the SBA, and in so
doing, neither Lender nor such designee shall incur any liability or obligation
to Borrower by reason thereof;

(e)                                  Termination of Bank
Products. The right to notify and direct any Bank Product Provider to
terminate the provision of any Bank Products being provide to Borrower; and

(f)                                    UCC Remedies.  In addition to any other rights and remedies
contained in this Agreement and in all of the other Loan Documents, all of the
rights and remedies of a secured party under the UCC or other applicable law,
all of which rights and remedies shall be cumulative and non-exclusive, to the
extent permitted by law.

7.4                                 Notice of Sale or
Other Action.  Any notice required to
be given by Lender of a sale, lease, other disposition of the Collateral or any
other intended action by Lender, if given 10 Business Days prior to such
proposed action, shall constitute commercially reasonable and fair notice thereof
to Borrower.

7.5                                 Marshalling;
Payments Set Aside.  Lender shall be
under no obligation to marshal any assets in favor of Borrower or any other
party or against or in payment of any or all of the Obligations.  To the extent that Borrower makes a payment
or payments to Lender or Lender enforces its security interests or exercises
its rights of set-off, and such payment or payments or the proceeds of such
enforcement or set-off or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set-aside and/or required to be
repaid to a trustee, receiver or any other party under the Bankruptcy Code, or
any state or federal law, common law or equitable cause, 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 enforcement or set-off had not occurred.

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7.6                                 Effect of Multi-Party Agreement. 
Notwithstanding any other provision of this Article 7, all
rights and remedies of Lender under this Article 7 shall be
subject to the provisions of the Multi-Party Agreement.

8.              CONDITION PRECEDENT TO CLOSING DATE
AND LENDING; CONDITIONS SUBSEQUENT

The occurrence of the
Closing Date and the obligations of Lender to make Revolving Loans pursuant to
this Agreement are subject to the conditions precedent stated in this Article 8.

8.1                                 Closing Date.  The
occurrence of the Closing Date is subject to the satisfaction of each of the
following conditions precedent:

(a)                                  Closing Date.  The
Closing Date shall occur on or before December 31, 2006.

(b)                                 Closing Documents. 
Borrower shall have executed and delivered to Lender this Agreement.  In addition, Lender shall have received such
documents, instruments and agreements and other Loan Documents as Lender shall
request in connection with the closing of the Transactions contemplated by this
Agreement, including all documents, instruments, agreements and schedules
listed in the Schedule of Documents, each in form and substance satisfactory to
Lender.

(c)                                  Opinion of Borrower’s Counsel. 
Lender shall have received from counsel for Borrower a written opinion
in form and substance reasonably acceptable to Lender as to such matters as
Lender may require, including opinions regarding (i) the validity,
creation, attachment and perfection of the Liens under the Security Documents,
(ii) Borrower’s corporate authorization to enter into the Transactions
contemplated by this Agreement, (iii) Borrower’s compliance with all
Governmental Requirements, (iv) the existence of litigation against
Borrower that, if determined adversely to Borrower, could reasonably be
expected to result in a Material Adverse Change, and (v) as to such other
matters which in the reasonable judgment of Lender may materially impact the
legal and credit risks associated with the Transactions.

(d)                                 Initial Capitalization Documents and Pro
Forma Balance Sheet.  Lender shall have received copies of all
documents relating to the formation and initial capitalization of Borrower,
including evidence satisfactory to Lender that Borrower shall have received
initial cash contributions of not less than $1,000,000 in exchange for the
issuance of common stock and not less than $3,000,000 in exchange for the
issuance of preferred stock, as well as a pro forma balance sheet dated as of
the Closing Date reflecting Borrower’s financial position after giving effect
to such initial capitalization and the closing of this Agreement, all of which
shall be acceptable to Lender.

(e)                                  Recordings.  The Security Documents, or
other notices related thereto if necessary or appropriate, shall have been duly
delivered to the appropriate offices for filing or recording, and Lender shall
have received confirmations of receipt thereof from the appropriate filing or
recording offices.

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(f)                                    Fees and Lender Expenses. 
Lender shall have received the fees described in Section 2.5 due on the Closing Date and reimbursement of
all Lender Expenses incurred through the Closing Date.

(g)                                 Due Diligence. 
Lender shall have completed its business, legal, and collateral due
diligence, including a collateral audit and review of Borrower’s books and
records and verification of Borrower’s representations and warranties to
Lender, the results of which shall be satisfactory to Lender.

(h)                                 Reference Checks. 
Lender shall have received completed reference checks with respect to
Borrower’s senior management, the results of which are satisfactory to Lender
in its sole discretion.

(i)                                     Closing Date Business Plan. 
Borrower shall have delivered to Lender Borrower’s Closing Date Business
Plan.

(j)                                     Borrower’s Guidelines and Operations Manual. 
Borrower shall have delivered to Lender Borrower’s written operating
guidelines and written operations manuals, detailing Borrower’s business
development and underwriting processes, valuation guidelines, credit granting
procedures, loan documentation, and procedures for packaging and SBA approval,
loan closing and servicing, collections, account/portfolio administration, and
liquidation, and such materials shall be in a form reasonably satisfactory to
Lender.

(k)                                  Borrower’s Credit Request and Field
Examination Forms.  Borrower shall have delivered to Lender
Borrower’s standard forms of credit request, loan report and analysis, and
field examination/site visit report, and such materials shall be in a form
reasonably satisfactory to Lender.

(l)                                     Borrower’s Form Loan Documents. 
Borrower shall have submitted to Lender the standard form loan
agreement, security agreement, note, deed of trust, guaranty, subordination
agreement, and other form loan documents employed by Borrower (including, where
applicable, standard forms prescribed or supplied by the SBA), and all such loan
documents shall be reasonably satisfactory to Lender and its counsel.

(m)                               SBA Approval; Loan Guaranty Agreement. 
Borrower shall have provided Lender with evidence satisfactory to Lender
that the SBA shall have (i) consented to Borrower’s acquisition pursuant to the
Asset Purchase Agreement of ASBA’s license to make SBA 7(a) Loans and
entered into the Loan Guaranty Agreement with Borrower and (ii) through
its execution of the Multi-Party Agreement, consented to Borrower’s entering
into this Agreement and the Security Agreement and borrowing the loans and
granting the Liens provided for hereunder and thereunder.  Borrower shall have received all other
licenses, approvals or evidence of other actions required by any Governmental
Authority in connection with the execution and delivery by Borrower of this
Agreement or any other Loan Document or with the consummation of the
Transactions.

(n)                                 Closing under Asset Purchase Agreement. 
Lender shall have received fully executed copies of the Asset Purchase
Agreement and all other Asset Purchase Documents, each of which shall be in
full force and effect in form and substance reasonably satisfactory to Lender,
and the “Closing” (as defined in the Asset Purchase Agreement) shall have
occurred and

 56
 

 

all
conditions to be satisfied or actions to be taken under the Asset Purchase
Agreement on or prior to the “Closing Date” (as defined in the Asset Purchase
Agreement) shall have been satisfied or taken.

(o)                                 Operational Collateral Monitoring System. 
Borrower shall have established and be maintaining an operational
collateral monitoring system acceptable to Lender.

(p)                                 Minimum Tangible Net Worth. 
Borrower shall have a Tangible Net Worth of not less than $3,500,000.

(q)                                 Commitment for FirstCity Debt. 
Borrower shall have a binding written commitment from FirstCity
Financial for FirstCity Financial to provide Borrower after the Closing Date
with not less than $4,000,000 of additional debt financing to be funded on a
basis and pursuant to terms and conditions acceptable to Lender (the “FirstCity
Debt”), which FirstCity Debt shall be evidenced, payable, and subordinated
to payment of the Obligations in a manner satisfactory in from and substance to
Lender.

(r)                                    Implementation of Operational Accounting
System.  Borrower shall have completed implementation
of and be maintaining, or shall be provided by Servicer pursuant to the
Servicing Agreement with, an operational accounting and general ledger system
acceptable to Lender.

(s)                                  Implementation of Operational Loan Servicing
System.  Borrower shall have completed implementation
of and be maintaining, or shall be provided by Servicer pursuant to the
Servicing Agreement with, an operational loan servicing system acceptable to
Lender.

(t)                                    Completion of Collateral and Financial
Reporting Procedures.  Borrower and Lender shall have agreed upon
final collateral and financial reporting procedures with respect to this
Agreement.

(u)                                 Completion of Formal Credit File Format and
Checklist.  Borrower and Lender shall have agreed upon
formal credit file format and checklist information with respect to this
Agreement.

(v)                                 Other.  Lender shall have received
such other documents as it may reasonably have requested at any time at or
prior to the Closing Date.

8.2                                 Initial Revolving Loan.  The
obligation of Lender to make the initial Revolving Loan under this Agreement
is, in addition to the conditions precedent specified in Section 8.1 and Section 8.3
hereof, subject to satisfaction of each of the following conditions precedent;

(a)                                  Lender’s Follow-Up Audit.  Lender
shall have completed a follow-up on-site audit by Lender to ensure that all of
the conditions set forth in Sections 8.1, Section 8.2 and Section 8.3
have been met prior to the initial funding of the Revolving Loans, with the
results of such audit being satisfactory to Lender.

8.3                                 All Advances.  The
obligation of Lender to make Revolving Loans under this Agreement is subject to
the following further conditions precedent:

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(a)                                  Borrowing Base Certificate. 
Before each advance, Lender shall have received a Borrowing Base
Certificate, and a Schedule of Eligible Notes Receivable, each of which shall
be true and correct and shall be duly and properly executed and completed an
Authorized Person.

(b)                                 Possession of Notes Receivable Documents.  All
original SBA 7(a) Loan Notes shall have been physically delivered to the
possession of FTA and copies of the Notes Receivable Documents shall have been
delivered to Lender, to the extent and as set forth in Section 5.15.

(c)                                  No Default.  No Default or Event of Default
shall have occurred and be continuing or would result from the funding of the
advance.

(d)                                 Representations and Warranties.  All
of the representations and warranties of Borrower contained herein shall be
correct in all material respects as of the date of each such advance as though
made on and as of such date, except (i) to the extent that any such
representation or warranty expressly relates to an earlier date, and (ii) for
changes therein permitted or contemplated by this Agreement.  All of the representations and warranties of
Borrower contained in any of the other Loan Documents shall be correct in all
material respects as of the date delivered, except to the extent that any such
representation or warranty expressly relates to an earlier date.

(e)                                  No Material Adverse Change.  No
Material Adverse Change shall have occurred.

(f)                                    No Injunction.  No
injunction, writ, restraining order, or other order of any nature prohibiting,
directly or indirectly, the extending of such credit shall have been issued and
remain in force by any Governmental Authority against Borrower, Lender, or any
of their Affiliates.

(g)                                 Escrow Arrangements Regarding Concurrent
Fundings.  To the extent that, pursuant to the proviso
contained in either paragraph A of Schedule 1.1(a) or paragraph A of Schedule 1.1(b), the
requested advance is being made based upon new loans by Borrower that have not
yet actually been disbursed to the Term Loan Debtor, the conditions of and
escrow arrangements for the disbursement of such new loans shall be satisfactory
in form and substance to Lender.

The
acceptance by Borrower of the proceeds of any advance hereunder shall be deemed
to constitute, as of the date of such acceptance, (i) a representation and
warranty by Borrower that the conditions in this Section 8.3 have been satisfied, and (ii) a
confirmation by Borrower of the granting and continuance of Lender’s Lien
pursuant hereto.

8.4                                 Conditions Subsequent.  The
obligation of Lender to continue to make Revolving Loans (or otherwise extend
credit hereunder) is subject to the fulfillment, on or before the date
applicable thereto, of each of the following conditions subsequent (the failure
by Borrower to so perform or cause to be performed constituting a failure of a
condition for funding and an Event of Default):

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(a)                                  Within 90 days after the date of the initial
Revolving Loan (or such later date as agreed to in writing by Lender), Borrower
shall, or shall have caused Servicer to, establish and be utilizing Lender’s
electronic collateral reporting systems (with such systems to be administered
and maintained by Lender).

9.              MISCELLANEOUS

9.1                                 Notices.  Except as otherwise provided
herein, whenever this Agreement provides that any notice, demand, request,
consent, approval, declaration or other communication shall or may be given to
or served upon any of the parties by another, or whenever any of the parties
desires to give or serve upon another any communication with respect to this
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be delivered (i) in
person with receipt acknowledged, or (ii) by facsimile with receipt
confirmed, or (iii) by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:

(a)                                  If to Lender, at:

Wells Fargo Foothill, LLC

13727 Noel Road, Suite
1020

Dallas, Texas  75240

Attention:  Loan Portfolio Manager

Facsimile:  (972) 387-5775

With
copies to:

DLA Piper US LLP

153 Townsend Street,
Suite 800

San Francisco,
California  94107-1957

Attention:  Dick M. Okada, Esq.

Facsimile:  (415) 836-2501

(b)                                 If to Borrower, at:

American Business
Lending, Inc.

1420 West Mockingbird
Lane, Suite 380

Dallas, Texas  75247

Attention:  Charles Bell and Kathy S. McNair

Facsimile:  (254) 761-2955

With
copies to:

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FirstCity Business Lending Corporation

(Mailing Address)

P.O. Box 8216

Waco, Texas 
76714-8216

(Overnight Deliveries Only)

6400 Imperial Drive

Waco, Texas 
76712

Attn:  Legal
Department

Facsimile:  (254) 761-2953

or at such other address as may be substituted by notice given as
herein provided.  The giving of any
notice required hereunder may be waived in writing by the party entitled to
receive such notice.  Every notice,
demand, request, consent, approval, declaration or other communication hereunder
shall be deemed to have been duly given or served on the date on which
personally delivered or sent by facsimile, with receipt acknowledged or
confirmed, or upon receipt or the date delivery is rejected by the addressee in
the case of certified or registered United States mail.  Failure or delay in delivering copies of any
notice, demand, request, consent, approval, declaration or other communication
to the persons designated above to receive copies shall in no way adversely
affect the effectiveness of such notice, demand, request, consent, approval,
declaration or other communication.

9.2                                 Modification of Agreement; Sale of Interest.  This
Agreement and the other Loan Documents may not be modified, altered or amended,
except by an agreement in writing signed by Borrower and Lender, and, to the
extent required by the Multi-Party Agreement, consented to by SBA.  Borrower may not sell, assign or transfer
this Agreement, or the other Loan Documents or any portion thereof, including
Borrower’s rights, title, interests, remedies, powers, or duties hereunder or
thereunder.  Borrower hereby consents to
Lender’s participation, sale, assignment, transfer or other disposition, at any
time or times hereafter, of this Agreement, or the other Loan Documents, or of
any portion hereof or thereof, including Lender’s rights, title, interests,
remedies, powers, or duties hereunder or thereunder, subject to the provisions
of the Multi-Party Agreement.

9.3                                 Lien Release Prior to Sale of SBA Guaranteed
Notes Receivable.  Lender’s security interest in any SBA
Guaranteed Note Receivable shall be deemed to be automatically released on any
Settlement Date established with respect to such SBA Guaranteed Note Receivable
(or other date of settlement established pursuant to any applicable
Broker-Dealer Confirmation) concurrently with the receipt by FTA of the
purchase price therefor.  Notwithstanding
any release of a security interest by Lender under this Section 9.3, Lender shall not release, but rather shall
retain without interruption, its security interest in and to the Net Sale
Proceeds of such sale.

9.4                                 Fees and Expenses. 
Borrower shall reimburse Lender for Lender Expenses.

9.5                                 Severability.  In
the event that any one or more of the provisions contained in this Agreement or
in any other Loan Documents shall, for any reason, be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement or any other Loan
Document.

 60
 

 

9.6                                 Waiver by Lender.  Lender’s
failure, at any time or times hereafter, to require strict performance by
Borrower of any provision of this Agreement shall not waive, affect or diminish
any right of Lender thereafter to demand strict compliance and performance.  Any suspension or waiver by Lender of an
Event of Default by Borrower under this Agreement or the other Loan Documents
shall not suspend, waive or affect any other Event of Default by Borrower under
this Agreement or the other Loan Documents, whether the same is prior or subsequent
thereto and whether of the same or of a different type.  None of the undertakings, agreements,
warranties, covenants and representations of Borrower contained in this
Agreement or the other Loan Documents and no Event of Default by Borrower under
this Agreement or the other Loan Documents shall be deemed to have been
suspended or waived by Lender, unless such suspension or waiver is by an
instrument in writing signed by an officer of Lender and directed to Borrower
specifying such suspension or waiver.

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

9.8                                 Conflict of Terms.  The
other Loan Documents and all Schedules and Exhibits hereto are incorporated in
this Agreement by this reference thereto. 
Except as otherwise provided in this Agreement and except as otherwise
provided in the other Loan Documents by specific reference to the applicable
provision of this Agreement, if any provision contained in this Agreement is in
conflict with, or inconsistent with, any provision in the other Loan Documents,
the provision contained in this Agreement shall govern and control.  Notwithstanding the foregoing, in the event
any provision of this Agreement (including all documents incorporated by
reference herein) conflicts or is inconsistent with the Multi-Party Agreement,
the relevant provisions of the Multi-Party Agreement shall be controlling.

9.9                                 Waivers by Borrower. 
Except as otherwise provided herein, Borrower waives, to the extent
permitted by applicable law: 
(a) presentment, demand and protest and notice of presentment,
protest, default, non-payment, maturity, release, compromise, settleme­nt,
extension or renewal of any or all commercial paper, accounts, contract rights,
documents, instruments, chattel paper and guaranties at any time held by Lender
on which Borrower may in any way be liable and hereby ratifies and confirms
whatever Lender may do in this regard; (b) all rights to notice of a
hearing prior to Lender’s taking possession or control of, or to Lender’s
replevy, attachment or levy upon, the Collateral or any bond or security which
might be required by any court prior to allowing Lender to exercise any of
Lender’s remedies; and (c) the benefit of all valuation, appraisement and
exemption laws.  Borrower acknowledges
that it has been advised by counsel with respect to this Agreement and the
transactions evidenced by this Agreement.

9.10                           Cumulative Rights.  The
rights and remedies of Lender under this Agreement and each other Loan Document
shall be cumulative, and the exercise or partial exercise of any such right or
remedy shall not preclude the exercise of any other right or remedy.

9.11                           CHOICE OF LAW AND VENUE; JURY
TRIAL WAIVER.

(a)                                  THE VALIDITY OF THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN

 61
 

 

ANOTHER
LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE
PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR
THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

(b)                                 THE PARTIES AGREE THAT ALL
ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK; PROVIDED, HOWEVER,
THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY
BE BROUGHT, AT LENDER’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER
ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE
FOUND.  BORROWER AND LENDER WAIVE, TO THE
EXTENT PERMITTED UNDER APPLICABLE LAWS, ANY RIGHT EACH MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 9.11(b).

(c)                                  BORROWER AND LENDER HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  BORROWER AND LENDER REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

9.12                           Taxes, etc.  Any taxes (excluding income
taxes) payable or ruled payable by federal or state authority in respect of the
Revolving Loans, this Agreement or the other Loan Documents shall be paid by
Borrower, together with interest and penalties, if any.

9.13                           Governmental Regulation. 
Anything contained in this Agreement to the contrary notwithstanding,
Lender shall not be obligated to extend credit to Borrower in an amount in
violation of any limitation or prohibition provided by any applicable statute
or regulation.

9.14                           Titles of Articles and Sections.  All
titles or headings to articles and sections or other divisions of this
Agreement or the exhibits hereto are only for the convenience of the parties
and shall not be construed to have any effect or meaning with respect to the
other content of such articles, sections or other divisions, such other content
being controlling as to the agreement between the parties hereto.

 62
 

 

9.15                           Authorized Signatures. 
Until Lender is notified by Borrower to the contrary in writing as
provided by Section
9.1, the signature upon this
Agreement or any of the other Loan Documents of an individual designated in
Borrower’s incumbency resolutions of even date herewith shall bind Borrower and
be deemed to be the act of Borrower affixed pursuant to and in accordance with
resolutions duly adopted by Borrower’s Board of Directors.

9.16                           Confidentiality. 
Lender agrees that material, non-public information regarding Borrower
and its Subsidiaries, their operations, assets, and existing and contemplated
business plans shall be treated by Lender in a confidential manner, and shall
not be disclosed by Lender to Persons who are not parties to this Agreement,
except:  (a) to attorneys for and other
advisors, accountants, auditors, and consultants to Lender, (b) to Subsidiaries
and Affiliates of Lender (including the Bank Product Providers), provided that
any such Subsidiary or Affiliate shall have agreed to receive such information
hereunder subject to the terms of this Section 9.16, (c) as
may be required by statute, decision, or judicial or administrative order,
rule, or regulation, (d) as may be agreed to in advance by Borrower or its
Subsidiaries or as requested or required by any Governmental Authority pursuant
to any subpoena or other legal process, (e) as to any such information that is
or becomes generally available to the public (other than as a result of
prohibited disclosure by Lender), (f) in connection with any assignment,
prospective assignment, sale, prospective sale, participation or prospective
participations, or pledge or prospective pledge of Lender’s interest under this
Agreement, provided that any such assignee, prospective assignee, purchaser,
prospective purchaser, participant, prospective participant, pledgee, or
prospective pledgee shall have agreed in writing to receive such information
hereunder subject to the terms of this Section 9.16, and
(g) in connection with any litigation or other adversary proceeding involving
parties hereto which such litigation or adversary proceeding involves claims
related to the rights or duties of such parties under this Agreement or the
other Loan Documents.  The provisions of
this Section 9.16 shall survive for two years after the
payment in full of the Obligations. 
Anything contained herein or in any other Loan Document to the contrary
notwithstanding, the obligations of confidentiality contained herein and
therein, as they relate to the transactions contemplated hereby, shall not
apply to the federal tax structure or federal tax treatment of such
transactions, and each party hereto (and any employee, representative, or agent
of any party hereto) may disclose to any and all Persons, without limitation of
any kind, the federal tax structure and federal tax treatment of such
transactions (including all written materials related to such tax structure and
tax treatment).  The preceding sentence
is intended to cause the transactions contemplated hereby to not be treated as
having been offered under conditions of confidentiality for purposes of Section
1.6011-4(b)(3) (or any successor provision) of the Treasury Regulations
promulgated under Section 6011 of the IRC, and shall be construed in a manner
consistent with such purpose.  In addition,
each party hereto acknowledges that it has no proprietary or exclusive rights
to the tax structure of the transactions contemplated hereby or any tax matter
or tax idea related thereto.

9.17                           Acknowledgment of Lender’s other Interests. 
Borrower acknowledges that Lender or its Affiliates does now, and may in
the future, hold equity interests or other investments in or loans to other
entities or businesses that are also in the business of making loans guaranteed
by SBA and that may otherwise compete with the business of Borrower, and that
certain of Lender’s Affiliates themselves make loans guaranteed by SBA and that
may otherwise compete with the business of Borrower.

 63
 

 

9.18                           Counterparts; Telefacsimile Execution.  This
Agreement may be executed in any number of counterparts and by different
parties on separate counterparts, each of which, when executed and delivered,
shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. 
Delivery of an executed counterpart of this Agreement by telefacsimile
shall be equally as effective as delivery of an original executed counterpart
of this Agreement.  Any party delivering
an executed counterpart of this Agreement by telefacsimile also shall deliver an
original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability,
and binding effect of this Agreement. 
The foregoing shall apply to each other Loan Document mutatis  mutandis.

9.19                           Entire Agreement.  This
Agreement, the Security Documents, the Multi-Party Agreement, and the other
Loan Documents represent the final agreement between the parties with respect
to the subject matter hereof 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.

9.20                           Revival and Reinstatement of Obligations.  If
the incurrence or payment of the Obligations by Borrower or the transfer to
Lender of any property should for any reason subsequently be declared to be
void or voidable under any state or federal law relating to creditors’ rights,
including provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, or other voidable or recoverable payments of money or transfers of
property (collectively, a “Voidable Transfer”), and if Lender is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any such
Voidable Transfer, or the amount thereof that Lender is required or elects to
repay or restore, and as to all reasonable costs, expenses, and attorneys fees
of Lender related thereto, the liability of Borrower automatically shall be
revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.

9.21                           Patriot Act Notice. 
Lender hereby notifies 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”), Lender is required to obtain, verify and
record information that identifies the Borrower, which information includes the
name and address of Borrower and other information that will allow Lender to
identify Borrower in accordance with the Patriot Act.

[REST OF PAGE INTENTIONALLY LEFT BLANK]

 64

 

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

	
  

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  AMERICAN BUSINESS LENDING, INC.,

  
	
   

  	
  a Texas corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Charles P. Bell, Jr.

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LENDER:

  	
   

  
	
   

  	
   

  
	
   

  	
  WELLS FARGO FOOTHILL, LLC,

  
	
   

  	
  a Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Laurel Varney Mason

  
	
   

  	
   

  	
  Vice President

  
						

 

SIGNATURE PAGE TO LOAN
AGREEMENT

 

ACKNOWLEDGMENT OF INSTRUMENTS

STATE OF                                                      )

)               SS.

COUNTY OF                                                  )

 

On                                                      
before me, the undersigned notary public in and for said state, personally
appeared                                                      ,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument, the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.

WITNESS my hand and official seal.

 

Signature                                                                                          (Seal)

 

ACKNOWLEDGMENT
OF INSTRUMENTS

STATE OF                                                      )

)               SS.

COUNTY OF                                                  )

 

On                                                    before
me, the undersigned notary public in and for said state, personally appeared                                                 ,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument, the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.

WITNESS my hand and official seal.

 

Signature
                                                                                         (Seal)

 

Schedule 1.1(a)

Net Eligible Non-Guaranteed Notes Receivable

Upon
delivery to Lender of a Schedule of Eligible Notes Receivable, Lender shall
determine, in its sole discretion, which Non-Guaranteed Notes Receivable, if
any, satisfy the following requirements with respect to a Non-Guaranteed Note
Receivable and the applicable Note Receivable to which it relates
(collectively, in each instance, a “Loan”) and consequently are “Net
Eligible Non-Guaranteed Notes Receivable” for purposes of determining the
amounts to be advanced pursuant to Section
2.1:

A.                                   All
conditions precedent to the effectiveness of the SBA guaranty with respect to
the Loan have been met, and either (i) the Loan has been fully disbursed by
Borrower to or for the account of the Term Loan Debtor, or (ii) in the event
the Loan has been made with respect to any Loan that has not been fully or
partially funded, only that portion of such Loan that has actually been funded
and disbursed by Borrower to or for the account of the Term Loan Debtor shall be
eligible under this paragraph A;
provided, that at the discretion of Lender, the disbursement requirements of
this paragraph A may be deemed satisfied on
the condition subsequent that the subject disbursements are actually made to
the Term Loan Debtor on the same Business Day as the date of the advance made
by Lender;

B.                                     Borrower
has perfected its security interests and liens in all underlying collateral for
the Loan required to be obtained as a condition of obtaining the SBA guaranty
with respect thereto; provided, that at the discretion of Lender, the
perfection requirements of this paragraph B
may be deemed satisfied if escrow arrangements reasonably acceptable to Lender
are in place to insure that all steps necessary for such perfection will be
promptly accomplished;

C.                                     The
Loan conforms to all requirements of the SBA applicable to the initial approval
and guaranty of the SBA;

D.                                    No
event or condition has occurred that would release the SBA from its obligations
to Borrower with respect to the Loan or any recovery with respect thereto has
occurred, and the SBA has not rejected the Loan or the Note Receivable
Documents in any respect;

E.                                      Not
later than five Business Days after the issuance of the Loan, the subject
original SBA 7(a) Loan Notes are in the physical possession of FTA and have
been identified to FTA as being pledged to Lender under the Loan Agreement and
the Security Agreement;

F.                                      The
Loan conforms in all material respects to Borrower’s written credit and
underwriting guidelines, copies of which have been previously delivered to
Lender;

G.                                     If
the outstanding principal amount of any Non-Guaranteed Note Receivable exceeds
$500,000, then the excess shall be ineligible;

H.                                    The
Non-Guaranteed Note Receivable does not exceed seven and one-half percent
(7.5%) of Net Eligible Non-Guaranteed Notes Receivable at such time; provided,
that (i) such Non-Guaranteed Note Receivable will be ineligible only to
the extent of such excess; and (ii) such concentration limit shall not
apply during the Ramp Up Period;

I.                                         The
Non-Guaranteed Note Receivable does not cause the portion of Net Eligible
Non-Guaranteed Notes Receivable owed by Term Loan Debtors whose business
activities fall within a single industry, as defined by the Standard Industrial
Classification/NAIC classification

 

(six-digit NAIC codes)
then in effect, to exceed thirty percent (30%) of the total Net Eligible
Non-Guaranteed Notes Receivable; provided, that (i) such
Non-Guaranteed Note Receivable will be ineligible only to the extent of such
excess, and (ii) such concentration limit shall not apply during the Ramp Up
Period;

J.                                        The
Non-Guaranteed Note Receivable does not cause the portion of Net Eligible
Non-Guaranteed Notes Receivable that are not secured by commercial real
estate to exceed ten percent (10%) of the total Net Eligible Non-Guaranteed
Notes Receivable; provided, that such Non-Guaranteed Note Receivable
will be ineligible only to the extent of such excess;

K.                                    The
aggregate amount of the Non-Guaranteed Note Receivable and Guaranteed Note
Receivable portions of such Loan corresponding to any commercial real estate
collateral for such Loan does not exceed Lender’s estimate of the value of such
commercial real estate; provided, that such Non-Guaranteed Note
Receivable will be ineligible only to the extent of such excess.

L.                                      The
Term Loan Debtor is neither the United States of America nor any subdivision,
department, or agency thereof, except to the extent that Borrower has delivered
to Lender all documents necessary to comply with the Federal Assignment of
Claims Act of 1940, as amended from time to time;

M.                                 The
Term Loan Debtor is not a state or subdivision, department, or agency thereof,
unless Borrower gives prompt notice to Lender of any Notes Receivable with
respect to these entities;

N.                                    The
Term Loan Debtor is not insolvent or the subject of an Insolvency Proceeding; provided,
that such Non-Guaranteed Note Receivable will not be ineligible solely because
of this paragraph N if such Term Loan Debtor is
continuing to operate its business as a debtor-in-possession under the
Bankruptcy Code and all payments under the subject Note Receivable are being
paid on a current basis pursuant to authorization of the court in which such
Insolvency Proceeding is pending;

O.                                    No
payment of interest and principal, or other amount due under the Loan is more
than 60 days past due;

P.                                      The
Loan is a valid, legally enforceable obligation of the Term Loan Debtor and is
not subject to any offset or other defense on the part of such Term Loan Debtor
or to any claim on the part of the Term Loan Debtor denying liability;

Q.                                    The
subject Note Receivable is subject to no lien or security interest, except for
the security interest of Lender, and the Non-Guaranteed Note Receivable portion
thereof is not subject to a Non-Guaranteed Participation;

R.                                     The
Loan is evidenced by legal documentation in form and substance satisfactory to
Lender; provided, that (i) legal documentation that conforms in all
material respects to forms provided by the SBA, standard forms of mortgages or
deeds of trust provided by Borrower’s local counsel for use in specific
jurisdictions, or other forms of documents previously approved by Lender shall
be presumed to be satisfactory to Lender, and (ii) any Loan evidenced by
legal documentation that does not satisfy clause (i) above must have been
reviewed by Borrower’s legal counsel for legal sufficiency and the perfection
of Borrower’s liens in any collateral thereunder, with the written results of
such review being satisfactory to Lender;

S.                                      The
Loan does not arise out of transactions with an employee, officer, agent,
director, stockholder, or Affiliate of Borrower or any Affiliate of any
thereof;

 

T.                                     With
respect to the Non-Guaranteed Note Receivable, Borrower has made or reaffirmed
the warranties and representations set forth in the Loan Agreement at the time
of its most recent request for a Revolving Loan, including the representations
and warranties included in the Schedule of Eligible Notes Receivable
accompanying such request;

U.                                    The
Loan has not been turned over to the SBA or any other Person for servicing or
collection; and

V.                                     The
Loan and the respective rights of the SBA, Lender, Borrower, and FTA with
respect thereto are subject to the terms of the Multi-Party Agreement or such
other agreement with SBA and Borrower which Lender, in its sole discretion,
deems acceptable.

Notwithstanding any other
provision of this Schedule or the Loan Agreement, (1) Lender shall retain
the right, in its sole discretion, to establish specific reserves in such
amounts as Lender deems necessary for material changes in the expected recovery
of the Collateral, and (2) Lender shall retain the right to independently
underwrite all SBA 7(a) Loans funded during the Ramp Up Period, and all SBA
7(a) Loans in excess of $1,500,000 funded after the Ramp Up Period, for the
purpose of determining whether and to what extent the Non-Guaranteed Note
Receivable portion thereof would constitute Net Eligible Non-Guaranteed Notes
Receivable hereunder.

 

Schedule
1.1(b)

Net
Eligible SBA Guaranteed Notes Receivable

Upon delivery to Lender
of a Schedule of Eligible Notes Receivable, Lender shall determine, in its sole
discretion, which SBA Guaranteed Notes Receivable, if any, satisfy the
following requirements with respect to a SBA Guaranteed Note Receivable and the
applicable Note Receivable to which it relates (collectively, in each instance,
a “Loan”) and consequently are “Net Eligible SBA Guaranteed Notes
Receivable” for purposes of determining the amounts to be advanced pursuant
to Section 2.1:

A.            All conditions precedent to the effectiveness of the SBA
guaranty with respect to the Loan have been met, and either (i) the Loan has
been fully disbursed by Borrower to or for the account of the Term Loan Debtor,
or (ii) in the event the Loan has been made with respect to any Loan that has
not been fully or partially funded, only that portion of such Loan that has
actually been funded and disbursed by Borrower to or for the account of the
Term Loan Debtor shall be eligible under this paragraph
A; provided, that at the discretion of Lender, the
disbursement requirements of this paragraph A
may be deemed satisfied on the condition subsequent that the subject
disbursements are actually made to the Term Loan Debtor on the same Business
Day as the date of the advance made by Lender;

B.            Borrower has perfected its security interests and liens
in all underlying collateral for the Loan required to be obtained as a
condition of obtaining the SBA guaranty with respect thereto, but the SBA
guaranteed portion thereof has not yet been sold by Borrower; provided,
that at the discretion of Lender, the perfection requirements of this paragraph B may be deemed satisfied if
escrow arrangements reasonably acceptable to Lender are in place to insure that
all steps necessary for such perfection will be promptly accomplished;

C.            The Loan conforms to all requirements of the SBA
applicable to the initial approval and guaranty of the SBA;

D.            No event or condition has occurred that would release the
SBA from its obligations to Borrower with respect to the Loan or any recovery
with respect thereto has occurred, and the SBA has not rejected the Loan or the
Note Receivable Documents in any respect;

E.             Not later than five Business Days after the issuance of
the Loan, the subject original SBA 7(a) Loan Notes are in the physical
possession of FTA and have been identified to FTA as being pledged to Lender
under the Loan Agreement and the Security Agreement;

F.             The Loan conforms in all material respects to Borrower’s
written credit and underwriting guidelines, copies of which have been
previously delivered to Lender;

G.            If the outstanding principal amount of any Guaranteed
Note Receivable exceeds $2,000,000, then the excess shall be ineligible;

H.            The Term Loan Debtor is neither the United States of
America nor any subdivision, department, or agency thereof, except to the
extent that Borrower has delivered to Lender all documents necessary to comply
with the Federal Assignment of Claims Act of 1940, as amended from time to
time;

I.              The Term Loan Debtor is not a state or subdivision,
department, or agency thereof, unless Borrower gives prompt notice to Lender of
any Notes Receivable with respect to

 5
 

 

these entities;

J.             The Term Loan Debtor is not insolvent or the subject of
an insolvency proceeding or a case commenced under the Bankruptcy Code; provided,
that such SBA Guaranteed Note Receivable will not be ineligible solely because
of this paragraph J if such Term
Loan Debtor is continuing to operate its business as a debtor-in-possession
under the Bankruptcy Code and all payments under the subject Note Receivable
are being paid on a current basis pursuant to authorization of the court in
which such Insolvency Proceeding is pending;

K.            The Loan is a valid, legally enforceable obligation of
the Term Loan Debtor and is not subject to any offset or other defense on the
part of such Term Loan Debtor or to any claim on the part of the Term Loan
Debtor denying liability;

L.             The subject Note Receivable is subject to no lien or
security interest, except for the security interest of Lender, and the
Non-Guaranteed Note Receivable portion thereof is not subject to a
Non-Guaranteed Participation;

M.           The Loan is evidenced by legal documentation in form and
substance satisfactory to Lender; provided, that (i) legal
documentation that conforms in all material respects to forms provided by the
SBA, standard forms of mortgages or deeds of trust provided by Borrower’s local
counsel for use in specific jurisdictions, or other forms of documents
previously approved by Lender shall be presumed to be satisfactory to Lender,
and (ii) any Loan evidenced by legal documentation that does not satisfy
clause (i) above must have been reviewed by Borrower’s legal counsel for legal
sufficiency and the perfection of Borrower’s liens in any collateral
thereunder, with the written results of such review being satisfactory to
Lender;

N.            The Loan does not arise out of transactions with an
employee, officer, agent, director, stockholder, or Affiliate of Borrower or
any Affiliate of any thereof;

O.            With respect to the SBA Guaranteed Note Receivable,
Borrower has made or reaffirmed the warranties and representations set forth in
the Loan Agreement at the time of its most recent request for a Revolving Loan,
including the representations and warranties included in the Schedule of
Eligible Notes Receivable accompanying such request;

P.             The Loan has not been turned over to the SBA or any
other Person for servicing or collection; and

Q.            The Loan and the respective rights of the SBA, Lender,
Borrower, and FTA with respect thereto are subject to the terms of the
Multi-Party Agreement or such other agreement with SBA and Borrower which
Lender, in its sole discretion, deems acceptable.

Notwithstanding any other
provision of this Schedule or the Loan Agreement, Lender shall retain the
right, in its sole discretion, to establish specific reserves in such amounts
as Lender deems necessary for material changes in the expected recovery of the
Collateral.

 6
 

 

Exhibit F

Form of
LIBOR Notice

Wells Fargo Foothill, LLC

2450 Colorado Avenue

Suite 3000 West

Santa Monica, California  90404

Ladies and Gentlemen:

Reference hereby is made to
that certain Loan Agreement, dated as of December 15, 2006 (the “Loan
Agreement”), between American Business Lending, Inc., a Texas corporation
(“Borrower”), and Wells Fargo Foothill, LLC, a Delaware limited
liability company (“Lender”). 
Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed to them in the Loan Agreement.

This LIBOR Notice represents
Borrower’s request to elect the LIBOR Option with respect to outstanding
Revolving Loans in the amount of $                
(the “LIBOR Rate Loan”)[, and is a written
confirmation of the telephonic notice of such election given to Lender — USE IF
APPLICABLE], commencing on                1,
20       (“LIBOR Rate Effective Date”),
which is not less than 3 Business Days after the date of this Notice.

The LIBOR Rate Loan will have
an Interest Period of one calendar month, commencing on the first day of the
calendar month that is at least three Business Days after the date of this
Notice.

This LIBOR Notice further
confirms Borrower’s acceptance, for purposes of determining the rate of
interest based on the LIBOR Rate under the Loan Agreement, of the LIBOR Rate as
determined pursuant to the Loan Agreement.

[REST
OF PAGE INTENTIONALLY LEFT BLANK]

 7
 

 

Borrower represents and
warrants that (i) as of the date hereof, each representation or warranty
contained in or pursuant to any Loan Document or any agreement, instrument,
certificate, document or other writing furnished at any time under or in
connection with any Loan Document, and as of the effective date of any advance,
continuation or conversion requested above, is true and correct in all material
respects (except to the extent any representation or warranty expressly related
to an earlier date), (ii) each of the covenants and agreements contained in any
Loan Document have been performed (to the extent required to be performed on or
before the date hereof or each such effective date), and (iii) no Default or
Event of Default has occurred and is continuing on the date hereof, nor will
any thereof occur after giving effect to the request above.

	
   

  	
  Dated:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AMERICAN BUSINESS LENDING, INC.,

  
	
   

  	
  a Texas corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Acknowledged by:

  	
   

  
	
   

  	
   

  
	
  WELLS FARGO FOOTHILL, LLC,

  	
   

  
	
  a Delaware limited liability company

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: _______________________________

  	
   

  	
   

  	
   

  	
   

  
	
  Name: _____________________________

  	
   

  	
   

  	
   

  	
   

  
	
  Title: ______________________________

  	
   

  	
   

  	
   

  	
   

  
									

 

 8Exhibit
10.1

KEY ENERGY SERVICES, INC.

2006 PHANTOM
SHARE PLAN

1.                                      Purpose;
Eligibility.

1.1                                 General
Purpose.  The name of this plan is
the Key Energy Services, Inc. 2006 Phantom Share Plan (the “Plan”).  The purpose of the Plan is to enable Key
Energy Services, Inc., a Maryland corporation (the “Company”),
and any affiliate to obtain and retain the services of the types of Employees, who
will contribute to the long range success of the Company and its affiliates and
to provide incentives that are linked directly to increases in share value
which will inure to the benefit of all stockholders of the Company.

1.2                                 Eligible
Award Recipients.  The persons
eligible to receive Awards are Employees and any such parties who are
reasonably expected to become Employees after the receipt of Awards.

1.3                                 Available
Awards.  Phantom Share Awards are
available under the Plan.

2.                                      Definitions.

2.1                                 “Administrator” means the Board or
the Committee appointed by the Board in accordance with Section 3.5.

2.2                                 “Award” means an award of Phantom
Shares.

2.3                                 “Award Agreement” means a written
agreement between the Company and a holder of an Award evidencing the terms and
conditions of an individual Award grant. 
Each Award Agreement shall be subject to the terms and conditions of the
Plan.

2.4                                 “Beneficial Owner” has the meaning
assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that in calculating the beneficial ownership of any particular “person”
(as that term is used in Section 13(d)(3) of the Exchange Act), such “person”
shall be deemed to have beneficial ownership of all securities that such “person”
has the right to acquire by conversion or exercise of other securities, whether
such right is currently exercisable or is exercisable only after the passage of
time.  The terms “Beneficially Owns” and “Beneficially
Owned” have a corresponding meaning.

2.5                                 “Board” means the Board of Directors
of the Company.

2.6                                 “Cause” means (1) conviction of, or
plea of guilty or no contest to, a misdemeanor involving moral turpitude or a
felony, (2) engaging in an act of fraud against the Company or any of its affiliates,
(3) engaging in theft, embezzlement or other misappropriation of any funds or
property of the Company or any of its affiliates, including conduct which is
materially injurious (monetarily or otherwise) to the Company or any of its affiliates
(e.g., misuse of the Company’s or an affiliate’s funds or other property), (4)
willfully and continually failing to perform the material duties assigned to
such Participant, (5) knowingly engaging in any direct, material conflict of
interest with the Company or its affiliates without compliance with the
existing conflict of interest policy, if any, (6) knowingly engaging, without
the written approval

of the Board, in any activity which competes
with the business of the Company or its affiliates or which would result in a
material injury to the business, reputation or goodwill of the Company or an affiliate,
(7) without authorization, disclosure of trade secrets or proprietary
information of the Company, its affiliates, or a third party who has entrusted
such information to the Company or any of its affiliates, (8) knowingly and
intentionally engaging in any activity which would constitute a material
violation of the provisions of the Company’s policies and procedures, then in
effect; or (9) engaging in any act defined as “cause” in a Participant’s
employment agreement.

2.7                                 “Change in Control” means:

(1)
a merger of the Company with another entity, a consolidation involving the
Company, or the sale of all or substantially all of the assets of the Company
to another entity if, in any such case, the holders of equity securities of the
Company immediately prior to such transaction or event do not beneficially own
immediately after such transaction or event equity securities of the resulting
entity entitled to 50% or more of the votes then eligible to be cast in the
election of directors generally (or comparable governing body) of the resulting
entity in substantially the same proportions that they owned the equity
securities of the Company immediately prior to such transaction or event; (2)
the dissolution or liquidation of the Company; (3) when any person or entity,
including a “group” as contemplated by Section 13(d)(3) of the Exchange Act,
acquires or gains ownership or control (including, without limitation, power to
vote) of more than 50% of the combined voting power of the outstanding
securities of the Company; or (4) as a result of or in connection with a
contested election of directors, the persons who were members of the Board
immediately before such election shall cease to constitute a majority of the
Board.  For purposes of the preceding
sentence, (i) “resulting entity” in the context of a transaction or event that
is a merger, consolidation or sale of all or substantially all assets shall
mean the surviving entity (or acquiring entity in the case of an asset sale) unless
the surviving entity (or acquiring entity in the case of an asset sale) is a
subsidiary of another entity and the holders of common stock of the Company
receive capital stock of such other entity in such transaction or event, in
which event the resulting entity shall be such other entity, and (ii)
subsequent to the consummation of a merger or consolidation that does not
constitute a Change in Control, the term “Company” shall refer to the resulting
entity and the term “Board” shall refer to the board of directors (or
comparable governing body) of the resulting entity.

 2
 

2.8                                 “Code” means the Internal Revenue Code
of 1986, as it may be amended from time to time, and any guidance and/or
regulations promulgated thereunder.

2.9                                 “Committee” means a committee of one
or more members of the Board appointed by the Board to administer the Plan in
accordance with Section 3.5.

2.10                           “Common Stock” means the common
stock, $0.10 par value per share, of the Company.

2.11                           “Company” means Key Energy Services,
Inc. a Maryland corporation.

2.12                           “Continuous Service” means that the
Participant’s service with the Company its applicable predecessors and its
affiliates, is not interrupted for a period of more than 90 days or
terminated.  The Administrator or its
delegate, in its sole discretion, may determine whether Continuous Service
shall be considered interrupted in the case of any leave of absence approved by
that party, including sick leave, military leave or any other personal or
family leave of absence.

2.13                           “Date of Grant” means the date on
which the Administrator adopts a resolution, or takes other appropriate action,
expressly granting an Award to a Participant that specifies the key terms and
conditions of the Award and from which the Participant begins to benefit from
or be adversely affected by subsequent changes in the Fair Market Value of the
Common Stock or, if a later date is set forth in such resolution, then such
date as is set forth in such resolution.

2.14                           “Director” means a member of the
Board.

2.15                           “Disability” means a Participant’s inability to
engage in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or can
be expected to last for a continuous period of not less than twelve (12)
months; or (ii) results from a medically determinable physical or mental
impairment which can be expected to result in death or can be expected to last
for a continuous period of not less than twelve (12) months, and causes such
Participant to receive income replacement benefits for a period of not less
than three (3) months under an accident and health plan covering the Company’s
employees.

2.16                           “Effective Date” shall mean the date of Committee adoption of the
Plan.

2.17                           “Employee” means any person employed
by the Company or an affiliate.  Mere
service as a Director or payment of a director’s fee by the Company or an affiliate
shall not be sufficient to constitute “employment” by the Company or an affiliate.

 3
 

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

2.19                           “Fair Market Value” means, as of any
date, the value of the Common Stock as determined below.  The Fair Market Value on any date on which the
Company’s shares of Common Stock are registered under Section 12 of the
Exchange Act and listed on the New York Stock Exchange shall be the closing
price of a share of Common Stock on the New York Stock Exchange on such date,
and thereafter (a) if the Common Stock is admitted to quotation on the over the
counter market or any interdealer quotation system, the Fair Market Value on
any given date shall not be less than the average of the highest bid and lowest
asked prices of the Common Stock reported for such date or, if no bid and asked
prices were reported for such date, for the last day preceding such date for
which such prices were reported, or (b) in the absence of an established market
for the Common Stock, the Fair Market Value determined in good faith by the
Administrator and such determination shall be conclusive and binding on all
persons.

2.20                           “Incumbent Directors” means
individuals who, on the Effective Date, constitute the Board, provided that any
individual becoming a Director subsequent to the Effective Date whose election
or nomination for election to the Board was approved by a vote of at least
two-thirds of the Incumbent Directors then on the Board (either by a specific
vote or by approval of the proxy statement of the Company in which such person
is named as a nominee for Director without objection to such nomination) shall
be an Incumbent Director.  No individual
initially elected or nominated as a Director as a result of an actual or
threatened election contest with respect to Directors or as a result of any
other actual or threatened solicitation of proxies by or on behalf of any
person other than the Board shall be an Incumbent Director.

2.21                           “Non-Employee Director” means a
Director who is a “non-employee director” within the meaning of Rule 16b-3.

2.22                           “Officer” means a person who is an
officer of the Company within the meaning of Section 16 of the Exchange Act and
the rules and regulations promulgated thereunder.

2.23                           “Participant” means a person to whom
an Award is granted pursuant to the Plan or, if applicable, such other person
who holds an outstanding Award.

2.24                           “Plan” means this Key Energy
Services, Inc. 2006 Phantom Shares Plan.

2.25                           “Restricted Period” has
the meaning set forth in Section 7.1(a).

2.26                           “Phantom Share” means
a notational unit with the value of one share of Common Stock on any given date
and any other securities into which such share is changed or for which such
share is exchanged (“Share”).

2.27                           “Rule
16b-3” means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

 4
 

3.                                      Administration.

3.1                                 Administration
by Board.  The Plan shall be
administered by the Board unless and until the Board delegates administration
to a Committee, as provided in Section 3.5.

3.2                                 Powers
of Administrator.  The Administrator
shall have the power and authority to select and grant to Participants Awards
pursuant to the terms of the Plan.

3.3                                 Specific
Powers.  In particular, the
Administrator shall have the authority: (a) to construe and interpret the Plan
and apply its provisions; (b) to promulgate, amend, and rescind rules and
regulations relating to the administration of the Plan; (c) to authorize any
person to execute, on behalf of the Company, any instrument required to carry
out the purposes of the Plan; (d) to delegate its authority to one or more
Officers of the Company with respect to awards that do not involve “insiders”
within the meaning of Section 16 of the Exchange Act; (e) to determine
when Awards are to be granted under the Plan and the applicable Date of Grant;
(f) from time to time to select, subject to the limitations set forth in
this Plan, those Participants to whom Awards shall be granted; (g) to determine
the number of Phantom Shares to be covered by each Award; (i) to prescribe the
terms and conditions of each Award; (j) to amend any outstanding Awards; provided,
however, that if any such amendment impairs a Participant’s
rights or increases a Participant’s obligations under his or her Award or
creates or increases a Participant’s federal income tax liability with respect
to an Award, such amendment shall also be subject to the Participant’s consent;
(k) to determine the duration and purpose of leaves of absences which may be
granted to a Participant without constituting termination of his or her employment
for purposes of the Plan, which periods shall be no shorter than the periods
generally applicable to Employees under the Company’s employment policies; (l)
to make decisions with respect to outstanding Awards that may become necessary
upon a change in corporate control or an event that triggers anti-dilution
adjustments; and (m) to exercise discretion to make any and all other
determinations which it determines to be necessary or advisable for
administration of the Plan.

3.4                                 Decisions
Final.  All decisions made by the
Administrator pursuant to the provisions of the Plan shall be final and binding
on the Company and the Participants, unless such decisions are determined by a
court having jurisdiction to be arbitrary and capricious.

3.5                                 The
Committee.

(a)                                  General.  The Board may delegate administration of the
Plan to a Committee or Committees of one or more members of the Board, and the
term “Committee” shall
apply to any person or persons to whom such authority has been delegated.  If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee any of the administrative powers the Committee is
authorized to exercise (and references in this Plan to the Board or the
Administrator shall thereafter be to the Committee or subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board.  The Board may abolish the Committee at any
time and revest in the Board the administration of the Plan.  The members of the Committee shall be
appointed by and serve at the pleasure of the Board.  From

 5
 

time to time, the Board may increase or
decrease the size of the Committee, add additional members to, remove members
(with or without cause) from, appoint new members in substitution therefor, and
fill vacancies, however caused, in the Committee.  The Committee shall act pursuant to a vote of
the majority of its members or, in the case of a committee composed of only two
members, the unanimous consent of its members, whether present or not, or by
the written consent of the majority of its members and minutes shall be kept of
all of its meetings and copies thereof shall be provided to the Board.  Subject to the limitations prescribed by the
Plan and the Board, the Committee may establish and follow such rules and
regulations for the conduct of its business as it may determine to be
advisable.

(b)                                 Committee
Composition when Common Stock is Registered.  At any such time as the Common Stock is
required to be registered under Section 12 of the Exchange Act, the Board shall
have discretion to determine whether or not it intends to comply with the
exemption requirements of Rule 16b-3. 
However, if the Board intends to satisfy such exemption requirements,
with respect to any insider subject to Section 16 of the Exchange Act, the
Committee shall be a compensation committee of the Board that at all times
consists solely of two or more Non-Employee Directors.  Within the scope of such authority, the Board
or the Committee may delegate to a committee of one or more members of the
Board who are not Non-Employee Directors the authority to grant Awards to
eligible persons who are not then subject to Section 16 of the Exchange Act.

3.6                                 Indemnification.  In addition to such other rights of
indemnification as they may have as Directors or members of the Committee, and
to the extent allowed by applicable law, the Administrator shall be indemnified
by the Company against the reasonable expenses, including attorney’s fees,
actually incurred in connection with any action, suit or proceeding or in
connection with any appeal therein, to which the Administrator may be party by
reason of any action taken or failure to act under or in connection with the
Plan or any option granted under the Plan, and against all amounts paid by the
Administrator in settlement thereof (provided, however, that
the settlement has been approved by the Company, which approval shall not be
unreasonably withheld) or paid by the Administrator in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
Administrator did not act in good faith and in a manner which such person
reasonably believed to be in the best interests of the Company, and in the case
of a criminal proceeding, had no reason to believe that the conduct complained
of was unlawful; provided, however,
that within 60 days after institution of any such action, suit or proceeding,
such Administrator shall, in writing, offer the Company the opportunity at its
own expense to handle and defend such action, suit or proceeding.

4.                                      Shares
Subject to the Plan.

Subject
to adjustment in accordance with Section 8, the total number of Phantom
Shares that may be granted under the Plan shall not exceed 495,500.

 6
 

5.                                      Eligibility.

Awards
may be granted to Employees and those individuals whom the Administrator
determines are reasonably expected to become Employees following the Date of
Grant.

6.                                      Award
Terms

6.1                                 General.  The terms and conditions of a grant of Phantom
Shares shall be reflected in an Award Agreement.  No shares of Common Stock shall be issued at
the time a Phantom Share is granted or vested, and the Company will not be
required to set aside a fund for the payment of any such Award.  Unless otherwise determined at the time of
grant, each Phantom Share (representing one share of Common Stock) may be
credited with cash and the cash value of stock dividends paid by the Company in
respect of one share of Common Stock (“Dividend Equivalents”).  The cash value attributable to Dividend
Equivalent Rights will be converted into Phantom Shares based on the Fair
Market Value of a share of Common Stock on the date such dividend is paid
(provided that no fractional Phantom Shares shall be granted).  The cash value of any cash dividends or
distributions remaining in respect of a fractional Phantom Share shall be added
to any subsequent cash dividends or distributions and converted into additional
Phantom Shares.

6.2                                 Restrictions.  Phantom Shares awarded to any Participant
shall be subject to (A) forfeiture until the Phantom Shares have vested, and to
the extent such Phantom Shares are forfeited, all rights of the Participant to
such Phantom Shares shall terminate without further obligation on the part of
the Company, and (B) such other terms and conditions as may be set forth in the
applicable Award Agreement.  The Administrator
shall have the authority to accelerate some or all of the vesting of the Phantom
Shares whenever it may determine that, by reason of changes in applicable laws
or other changes in circumstances arising after the date of the Phantom Shares
are granted, such action is appropriate.

6.3                                 Vesting
Schedule.  The following conditions
shall apply to all Awards unless otherwise set forth in the applicable Award
Agreement.

(a)                                  Except as set forth in this Section 6.3, and
subject to the Participant’s
Continuous Service, each Award shall vest [25%] a year on each anniversary of
the Date of Grant unless otherwise set forth in this Section 6.3.

(b)                                 If
(I) a Participant terminates his or her Continuous Service for any reason, or
(II) the Company terminates a Participant’s Continuous Service due to Cause,
all unvested Phantom Shares shall be immediately forfeited without any payment
to the Participant.

(c)                                  If
(I) the Company terminates a Participant without Cause, or (II) the
Participant attains age 65 and completes ten years of Continuous Service, or
(III) a Participant’s Continuous Service terminates due to death or Disability,
all nonvested Phantom Shares shall vest immediately.

(d)                                 Upon a Change in
Control, all outstanding unvested Phantom Shares shall vest.

 7
 

6.4                                 Settlement of Phantom Shares.  Within
twenty business days of the vesting date of any outstanding Phantom Shares, the
Company shall deliver to the Participant, or his or her beneficiary, without
charge, a payment in cash equal to the value of the vested Phantom Shares.

7.                                      Miscellaneous.

7.1                                 Acceleration
of Exercisability and Vesting.  The
Administrator shall have the power to accelerate the time at which an Award or
any part thereof will vest.

7.2                                 Stockholder
Rights.  No Participant shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares of Common Stock due to his or her receipt or vesting of
an Award under this Plan.

7.3                                 No
Employment or Other Service Rights. 
Nothing in the Plan or any instrument executed or Award granted pursuant
to this Plan shall confer upon any Participant any right to continue to serve
the Company or an affiliate in the capacity in effect at the time the Award was
granted or shall affect the right of the Company or an affiliate to terminate the
employment of an Employee with or without notice and with or without Cause.

7.4                                 Transfer,
Approved Leave of Absence.  For
purposes of the Plan, no termination of Continuous Service by an Employee shall
be deemed to result from either (a) a transfer to the employment of the Company
from an affiliate or from the Company to an affiliate, or from one affiliate to
another; or (b) an approved leave of absence for military service or sickness,
or for any other purpose approved by the Company, if the Employee’s right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.

7.5                                 Withholding
Obligations.  The Company shall be
entitled to withhold and/or deduct any and all amounts required to be withheld
from any payment hereunder to fulfill its withholding obligations.

8.                                      Adjustments
Upon Changes in Stock.

Awards
granted under the Plan and any Award Agreements and the maximum number of Phantom
Shares which may be subject to all Awards will be equitably adjusted or
substituted to the extent necessary to preserve their economic intent in the
event of changes in the outstanding Common Stock or in the capital structure of
the Company by reason of stock or extraordinary cash dividends, stock splits,
reverse stock splits, recapitalization, reorganizations, mergers,
consolidations, combinations, exchanges, or other relevant changes in
capitalization occurring after the Date of Grant of any such Award. The Company
shall give each Participant notice of an adjustment hereunder.

9.                                      Amendment
of the Plan and Awards.

9.1                                 Amendment of Plan.  The Board at any time, and from time to time,
may amend or terminate the Plan.

 8
 

9.2                                 Contemplated
Amendments.  It is expressly
contemplated that the Board may amend the Plan in any respect the Board deems
necessary or advisable to provide eligible Employees with the maximum benefits
provided or to be provided under the provisions of the Code and the regulations
promulgated thereunder relating to the nonqualified deferred compensation
provisions of Section 409A of the Code and/or to bring the Plan and/or Awards
granted under it into compliance therewith.

9.3                                 No
Impairment of Rights.  Rights under
any Award granted before amendment of the Plan shall not be impaired by any
amendment of the Plan unless (a) the Company requests the consent of the
Participant and (b) the Participant consents in writing.

9.4                                 Amendment
of Awards.  The Administrator at any
time, and from time to time, may amend the terms of any one or more Awards; provided, however, that
the Administrator may not effect any amendment which would otherwise constitute
an impairment of the rights under any Award unless (a) the Company requests the
consent of the Participant and (b) the Participant consents in writing.

10.                               General
Provisions.

10.1                           Other
Compensation Arrangements.  Nothing
contained in this Plan shall prevent the Board from adopting other or
additional compensation arrangements, subject to stockholder approval if such
approval is required; and such arrangements may be either generally applicable
or applicable only in specific cases.   The Plan is intended to constitute an “unfunded”
plan for incentive compensation and nothing contained in the Plan shall give
any Participant any rights that are greater than those of a general unsecured
creditor of the Company.

10.2                           Other
Provisions.  The Award Agreements
authorized under the Plan may contain such other provisions not inconsistent
with this Plan, including, without limitation, restrictions upon the exercise
of the Awards, as the Administrator may deem advisable.

10.3                           Section
16.  It is the intent of the Company
that the Plan satisfy, and be interpreted in a manner that satisfies, the
applicable requirements of Rule 16b-3 as promulgated under Section 16 of the
Exchange Act so that Participants will be entitled to the benefit of Rule 16b-3,
or any other rule promulgated under Section 16 of the Exchange Act, and will
not be subject to short-swing liability under Section 16 of the Exchange
Act.  Accordingly, if the operation of
any provision of the Plan would conflict with the intent expressed in this Section 10.3,
such provision to the extent possible shall be interpreted and/or deemed
amended so as to avoid such conflict.

11.                               Effective
Date of Plan.

The
Plan shall become effective as of the Effective Date.

12.                               Termination
or Suspension of the Plan.

The
Plan shall terminate automatically on the day before the 10th anniversary of
the Effective Date.  No Award shall be
granted pursuant to the Plan after such date, but Awards

 9
 

theretofore granted may extend beyond that date.  The Board may suspend or terminate the Plan
at any earlier date.

13.                               Choice
of Law and Forum.

The
validity, performance and construction of this Plan shall be governed by the
laws of the State of Texas.  The parties
hereto consent to the exclusive jurisdiction of the courts of Harris County,
Texas.  Any claim arising out of or
related to this Agreement must be brought no later than six months after it has
accrued.

 10

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