Document:

EX-10.1

EXHIBIT 10.1

AMENDED AND RESTATED SECURED PROMISSORY NOTE

$3,200,000 May 2, 2006

AMENDED AND RESTATED SECURED PROMISSORY NOTE, dated May 2, 2006 (this “Note"), by XYBERNAUT
CORPORATION, a Delaware corporation, and XYBERNAUT SOLUTIONS, INC., a Virginia corporation, debtors
and chapter 11 debtors-in-possession (together, “Borrowers”), in favor of EAST RIVER CAPITAL LLC, a
Delaware limited liability company (“Holder” or “Lender”).

WHEREAS, Lender is the present owner and holder of that certain Secured Promissory Note, dated
March 23, 2006, attached hereto as Exhibit A and incorporated herein (the “Existing Note"), which
Existing Note evidences the indebtedness of Borrowers to Lender in the current outstanding
principal amount of Two Million Four Hundred Thousand Dollars ($2,400,000) (the “Existing Debt");

WHEREAS, upon the terms and conditions of this Note, Lender has agreed to make loans (the
“Loans") to Borrowers in the maximum principal amount of Three Million Two Hundred Thousand Dollars
($3,200,000), such Loans to be comprised of (i) the Existing Debt, and (ii) additional loans in the
maximum aggregate principal amount of Eight Hundred Thousand Dollars ($800,000) (the “Subsequent
Loans"), so that the combined outstanding principal balance of the Subsequent Loans and the
Existing Debt shall not exceed Three Million Two Hundred Thousand Dollars ($3,200,000) (the
“Commitment Amount"); and

WHEREAS, Borrowers and Lender have agreed in the manner hereinafter set forth to (i) combine
and consolidate the Existing Note and the indebtedness evidenced thereby with the Subsequent Loans,
and (ii) amend, modify and restate in their entirety the terms and provisions of the Existing Note
on the terms and conditions hereinafter set forth; and

WHEREAS, Lender and Borrowers intend these Recitals to be a material part of this Note.

NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, Borrowers and Lender
agree as follows:

I. The Existing Debt is combined and consolidated together with the Subsequent Loans so that
together they shall constitute but one indebtedness equal to the aggregate principal amount of all
Loans made by or through Lender to Borrowers pursuant to this Note, such amount not to exceed the
maximum principal amount of Three Million Two Hundred Thousand Dollars ($3,200,000) (such amount,
or so much thereof as may be outstanding from time to time under this Note, the “Principal
Amount"). The terms, covenants, conditions and provisions of the Existing Note are hereby
modified, amended and restated in their entirety so that henceforth the terms, covenants,
conditions and provisions of the Existing Note shall read and be as set forth in this Note and
Borrowers agree to comply with and be subject to all of the terms, covenants and conditions of this
Note.

II. The parties hereto certify that this Note evidences the Existing Debt evidenced by the
Existing Note, as increased by the Subsequent Loans, and evidences no further or other principal
indebtedness. Neither this Note nor anything contained herein shall be construed as a novation of
Borrowers’ indebtedness to Lender evidenced by the Existing Note or of the Existing Note, which
shall remain in full force and effect as hereby confirmed, modified, restated and amended.

III. This Note is an extension and continuation of the Existing Debt evidenced by the Existing
Note, as increased by the Subsequent Loans, and, as to the Existing Debt, is issued in replacement
of and substitution for the Existing Note.

IV. The Existing Note, as modified and restated in its entirety pursuant to this Note, and the
obligations of Borrowers thereunder, as increased by the Subsequent Loans, is hereby ratified and
confirmed, and shall remain in full force and effect until the full performance and satisfaction of
all obligations of Borrowers under this Note.

NOW, THEREFORE, FOR VALUE RECEIVED, Borrowers hereby unconditionally and jointly and severally
promise to pay to the order of Lender, in lawful money of the United States of America and in
immediately available funds, the Principal Amount, together with interest accrued thereon as herein
provided and all premiums, fees and expenses and other amounts payable hereunder (the
“Obligations”). Any reference in any other document executed in connection with the Existing Note
or this Note, including without limitation, that certain Security Agreement dated as of March 23,
2006, by and between Borrowers and Holder (as the same may from time to time be amended, modified
or supplemented or restated, the “Security Agreement”), a copy of which is attached hereto as
Exhibit B, shall be deemed to refer to this Note. Additional rights of Holder are set forth in the
Security Agreement. All capitalized terms used herein and not otherwise defined herein shall have
the respective meanings given to them in the Security Agreement.

	 	1.	 	Borrowings. Lender has previously advanced principal under this Note in the
amount of Two Million Four Hundred Thousand Dollars ($2,400,000). Upon the terms and
conditions set forth herein, Holder agrees to make the Subsequent Loans in the amount
of Eight Hundred Thousand Dollars ($800,000) upon the written request of Borrowers.
Borrowers shall provide such written request (a “Loan Request”), together with
telephonic notice thereof, to Holder on or before 12:00 noon at least three (3)
business days prior to the requested date of such borrowing stating the amount
requested and containing a certification of an officer of Borrowers stating that no
Event of Default (as defined below) has then occurred and is continuing. Lender shall
advance the amount requested in such notice provided that (a) no Event of Default has
occurred and is continuing at the time the notice is given and at the time the advance
is made, (b) the aggregate Principal Amount outstanding under this Note after giving
effect to the requested advance does not exceed Three Million Two Hundred Thousand
Dollars ($3,200,000) and (c) all of the conditions precedent for Subsequent Loans set
forth in Section 16 have been satisfied. Amounts repaid hereunder may be reborrowed on
a revolving basis. Notwithstanding anything to the contrary herein, the Lender shall
have no obligation to make any Subsequent Loans in excess of Two Hundred Thousand
Dollars ($200,000), and the Lender’s determination as to whether to make Subsequent
Loans in excess of such amount shall be at its sole and absolute discretion. Each
request must be in a minimum amount of Fifty Thousand Dollars ($50,000).

	 	2.	 	Repayment. Except for those Obligations payable on an earlier date, the
Obligations shall be due and payable in full on September 1, 2006 (the “Maturity
Date”).

	 	3.	 	Interest. The outstanding principal balance of this Note shall not bear
interest except for default interest under section 5 hereof.

	 	4.	 	Place of Payment. All amounts payable hereunder shall be payable by wire
transfer to Holder in accordance with wire transfer instructions to be separately
provided to Borrowers in writing, unless another manner of payment shall be specified
in writing by Holder.

	 	5.	 	Application of Payments, Default Rate. Payment on this Note shall be applied
first to accrued interest, if any, second, to the Premium (as defined below), third, to
fees and expenses of the Lender, and thereafter to the outstanding principal balance
hereof. Any amount outstanding on the Obligations hereunder not paid when due, whether
at stated maturity, by acceleration or otherwise, shall bear interest at a rate per
annum (computed on the basis of a 360-day year, actual days elapsed) of fifteen percent
(15.0 %) from the date due until the date of payment.

	 	6.	 	Security. The full amount of the Secured Obligations are secured by the
Collateral identified and described as security therefor in the Security Agreement
executed by and delivered by Borrowers. Borrowers shall not, directly or indirectly,
create, permit or suffer to exist, and shall defend the Collateral against and take
such other action as is necessary to remove, any Lien on or in the Collateral, or in
any portion thereof, except as permitted pursuant to the Security Agreement.

	 	7.	 	Use of Proceeds. Borrowers covenant that the Loans shall be used solely as
follows: repayment of outstanding advances, fees and expenses payable under the
debtor-in-possession financing facility with LC Capital Master Fund, Ltd. (“LC Fund”)
approved by the Court in October, 2005 (the “LC Fund DIP Facility”) in the amount of
Eight Hundred Forty Seven Thousand Two Hundred Fifty One and 81/100 Dollars
($847,251.81), establishment and funding of the Lender Escrow as provided in Section 8
hereof, working capital needs, general corporate purposes, the costs and expenses
associated with the bankruptcy cases of Borrowers (the “Cases"), the payment of fees
and expenses of Lender payable hereunder, the funding of the GUC Escrow Account (as
defined in that Stipulation and Order entered on or about April 7, 2006) in the amount
of Two Hundred Thousand Dollars ($200,000), and other purposes with the prior written
consent of Lender.

	 	8.	 	Lender Escrow. The Existing Debt has been used in part to establish an escrow
account (the “Lender Escrow") in the amount of Six Hundred Thousand Dollars ($600,000)
for the benefit of Lender, which amount may be later reduced to an amount not less than
Two Hundred Thousand Dollars ($200,000) upon mutual written consent of the Lender and
the Borrowers. The funds deposited in the Lender Escrow may be used, at the Lender’s
option and in accordance with instruction by the Lender to the Escrow Agent (as such
term is defined in the Escrow Agreement, a copy of which is annexed hereto as Exhibit C
(as the same may from time to time be amended, modified, supplemented or restated, the
“Escrow Agreement")), for payment to the Lender of the Obligations, including, without
limitation, fees and expenses of the Lender, that are due and payable under this Note
and have not been paid by the Borrowers. Payment to the Lender from the Lender Escrow
of unpaid fees, expenses or any of the Obligations that are due and payable hereunder
shall not constitute a waiver of any Event of Default arising from the failure of
Borrowers to pay such amounts. The Lender Escrow shall be governed by and subject to
the terms and conditions of this Note and the Escrow Agreement.

	 	9.	 	Premium. Holder shall have earned and shall be paid hereunder an additional
amount (the “Premium”) equal to the greater of (a) One Million Two Hundred Thousand
Dollars ($1,200,000) and (b) 62.5% (sixty-two and one-half percent) of each dollar
advanced hereunder. The Premium was earned upon advance of the Initial Loans (as
defined below) and shall be paid when principal becomes due hereunder or when all or
any amount of the Loans is repaid.

	 	10.	 	Fees and Expenses. Borrowers shall pay Lender a monthly administration fee of
Five Thousand Dollars ($5,000), which shall be due and payable on the first day of each
month. In addition, Borrowers shall pay for all costs and expenses incurred by Lender
in connection with the Loans, the Loan Documents (as defined below), the enforcement or
preservation of rights and remedies under the Loan Documents, and the prosecution or
defense of any investigation, litigation or proceeding arising out of, related to, or
in connection with the Obligations, this Note, the other Loan Documents, and any
order(s) relating thereto. All reasonable expenses incurred by Lender, including but
not limited to attorneys’ fees and expenses for purposes of preparing, negotiating,
drafting, executing, delivering, closing, administrating or obtaining approval of the
Loan Documents, any amendment, supplement or modification thereto, and any other
documents prepared in connection herewith or therewith, shall be payable by Borrowers
within seven (7) days after receipt of written demand, without the need for an order of
the Court approving such payment.

	 	11.	 	Collateral Sales. Borrowers are presently engaged in and will continue to
engage in efforts to sell Collateral (particularly, Collateral consisting of
intellectual property identified on Exhibit 2 to the Security Agreement). Borrowers
will not sell all or any portion of the Collateral without the prior written consent of
Lender. The proceeds of the sale or other disposition of Collateral (including the sale
or other disposition of property, whether directly or indirectly and including by way
of a sale of Borrowers’ business (including by way of a section 363 sale or as part of
a chapter 11 plan(s)), that had been included in the Collateral (even if the Loans have
been repaid) (subject only to the final sentence of this Section 11), net only of the
expenses directly attributable (excluding any commission, incentive or similar fee
payable to broker or investment bankers to such sale or disposition) (“Collateral
Proceeds”), shall upon Borrowers’ receipt be paid as follows: (a) the first Five
Million Dollars ($5,000,000) of Collateral Proceeds shall be paid one hundred percent
(100%) to Holder to reduce the Obligations until payment in full of the Obligations,
(b) after the aggregate Collateral Proceeds exceed Five Million Dollars ($5,000,000)
and until payment in full of the Obligations, ninety-seven and one-half percent (97.5%)
to Holder and two and one-half percent (2.5%) to LC Fund for a period of one year
following confirmation of a plan of reorganization for the Borrowers and thereafter one
hundred percent (100%) to Holder to reduce the Obligations, and (c) after the aggregate
Collateral Proceeds exceed Ten Million Dollars ($10,000,000) and until payment in full
of the Obligations, ninety-six and one-half percent (96.5%) to Holder and two and
one-half percent (3.5%) to LC Fund for a period of one year following confirmation of a
plan of reorganization for the Borrowers and thereafter one hundred percent (100%) to
Holder to reduce the Obligations. For the avoidance of doubt, while no Event of
Default exists, Collateral consisting of accounts receivable and inventory created in
the ordinary course of business may be used by Borrowers in the ordinary course of
their business.

	 	12.	 	Existing Ownership. Borrowers shall not without the prior express written
consent of Lender (i) issue any capital stock, (ii) cancel any authorized stock, or
(iii) alter existing shareholder structure, or take any other action, so as to further
or cause an ownership change within the meaning of section 382 of the Internal Revenue
Code. Upon acquiring information or knowledge that any person or entity may take
action to become a “5% shareholder” within the meaning of section 382 of the Internal
Revenue Code, Borrowers shall immediately advise Lender of such circumstance, shall
consult in good faith with Lender as to any commercially reasonable actions that
Borrowers may take to prevent such person or entity becoming a “5% shareholder,” and
shall take any and all such commercially reasonable actions mutually agreed upon with
Lender.

	 	13.	 	Sales Process/Plan Milestones. Borrowers covenant to use their best efforts to
cause the events set forth on Exhibit D to occur by the dates indicated thereon (the
“Milestones”).

	 	14.	 	Board of Director Meetings. Borrowers shall provide Holder with reasonable
prior notice of all meetings (including telephonic meetings) of the boards of directors
of Borrowers, and permit an authorized representative of Holder to attend and observe
all such meetings; provided, however, the Holder’s representative shall not be
permitted to attend meetings of executive committees of the boards of directors held to
discuss matters that the boards of directors have determined in good faith are required
to be kept confidential for the protection of the Borrowers’ operations.

	 	15.	 	Access to Books and Records. Borrowers shall permit any authorized
representative of Lender to inspect any of their properties and books and records,
including financial and accounting records, and to make copies and take extracts
therefrom, all upon reasonable notice at such reasonable times and as often as may be
reasonably requested; provided that Lender shall not unreasonably interfere
with the Borrowers’ operations.

	 	16.	 	Conditions Precedent. Holder’s obligation to make the initial and each
successive Loan hereunder is subject to the satisfaction of the following conditions
precedent:

	 	(a)	 	Interim and Final Orders. The Court shall have issued the
Financing Orders satisfactory to Lender, including the Interim DIP Order and
Final DIP Order in the form of Exhibit E hereto, with such modifications as are
acceptable to Lender in its sole and absolute discretion. Such Financing
Orders shall be in full force and effect and shall not have been amended,
stayed or vacated. The Financing Orders or a separate order of the Court shall
provide that portions of this Note and motions related hereto that describe the
Milestones shall be filed under seal, although such information shall be
available to the Official Committee of Unsecured Creditors (the “Creditors’
Committee"), the Official Committee of Equity Security Holders (the “Equity
Committee") and the Office of the United States Trustee.

	 	(b)	 	Initial Loans. Upon entry of the Interim DIP Order, as modified
by the Order Modifying Interim Order Authorizing Post-Petition Secured
Financing Pursuant to § 364 of the Bankruptcy Code, entered April 13, 2006,
subject to the terms and conditions herein, Borrowers may borrow initial Loans
(“Initial Loans") in an amount not to exceed Two Million Four Hundred Thousand
Dollars ($2,400,000). Prior to entry of the Final DIP Order, the Loans shall
not exceed Two Million Four Hundred Thousand Dollars ($2,400,000) in the
aggregate.

	 	(c)	 	Loan Documents. Borrowers shall have executed and delivered to
Holder this Note, the Escrow Agreement, the Security Agreement, such other
documents necessary to grant to Holder a perfected first priority security
interest in and lien on the Collateral, and such other documents, instruments
and agreements reasonably requested by Holder, all in form and substance
satisfactory to Holder (collectively, the “Loan Documents").

	 	(d)	 	Subsequent Loans. Upon entry of the Final DIP Order which
shall provide, among other things, that Borrowers have no further obligations
to LC Fund under the LC Fund DIP Facility, and subject to the terms and
conditions herein, Borrowers may borrow Subsequent Loans in an amount, together
with the Initial Loans advanced, not to exceed the Commitment Amount. As
conditions to borrowing Subsequent Loans, (i) the Borrowers and each of the
directors of the Borrowers shall have executed and deposited into escrow any
and all documents, in form and substance satisfactory to Lender, reasonably
requested by Lender to confirm that they will comply with their respective
obligations under Section 23, (ii) the Creditors’ Committee shall have
consented to an increase in the Commitment Amount to Three Million Two Hundred
Thousand Dollars ($3,200,000), (iii) the Final DIP Order shall approve and
authorize Loans in the aggregate amount of Three Million Two Hundred Thousand
Dollars ($3,200,000), (iv) the Borrowers shall have submitted a Loan Request to
the Lender requesting the Lender to make Loans in the amount of Two Hundred
Eight Thousand Five Hundred Seventy-Five Dollars ($208,575), or such other
amount equal to the Lender’s expenses incurred to the date of the Loan Request,
which Loans shall be used by the Borrowers to reimburse the Lender for such
expenses, (v) the Borrowers shall be in compliance with the Milestones, and
(vi) the progress of the Borrowers’ efforts to sell Collateral and the bids
received from potential purchasers for the Collateral shall be satisfactory to
Lender in its sole and absolute discretion.

	 	(e)	 	Collateral Value/Appraisals. Borrowers have delivered to
Holder the Intellectual Asset Valuation Report, dated June 27, 2005, prepared
by IPI Innovations Financial Services, Inc. (“IPI”) that values the Collateral
consisting of the intellectual property identified on Exhibit 2 to the Security
Agreement (the “IPI Valuation”), demonstrating that the Collateral supports
repayment of the Obligations. IPI has not withdrawn or modified or disavowed
the IPI Valuation. IPI’s engagement with the Borrowers for other matters has
been terminated.

	 	(f)	 	No Defaults. No Default or Event of Default shall have
occurred and be continuing or would result from the proposed borrowing.

	 	(g)	 	Due Authorization. Borrowers shall have provided to Lender
evidence satisfactory to Lender in its discretion of due authorization to enter
into the Note, the Security Agreement and the Escrow Agreement and perform all
obligations hereunder and thereunder.

	 	(h)	 	Representations and Warranties. All representations and
warranties contained herein, in the Security Agreement or in the Escrow
Agreement shall be true and correct on and as of the date of such borrowing (or
if such representation or warranty expressly relates to an earlier date, then
as of such earlier date).

	 	(i)	 	Fees and Expenses Paid. Holder’s fees and expenses (including
attorneys’ and financial advisor’s fees) incurred to date shall have been paid
in full in cash.

	 	17.	 	Default. Each of the following events shall be an “Event of Default”
hereunder:

	 	(a)	 	Borrowers fail to pay timely any principal amount when due
under this Note on the date the same becomes due and payable or any other
amounts due under this Note on the date the same becomes due and payable;

	 	(b)	 	Borrowers shall fail to pay or reimburse when due, or if there
is no specified due date, upon demand, any other amounts owed to Lender,
including without limitation, the Premium, fees and expenses, under this Note;

	 	(c)	 	A breach by either Borrower of any provision, covenant,
agreement, representation or warranty under this Note, the Security Agreement,
the Escrow Agreement or any Financing Order;

	 	(d)	 	Any challenge in a legal proceeding to the validity or
enforceability of this Note, the Security Agreement, the Escrow Agreement, or
any Financing Order or any term hereunder or thereunder;

	 	(e)	 	Reversal, modification, rescission, amendment or vacating of
any Financing Order;

	 	(f)	 	An “Event of Default” has occurred and is continuing under and
as defined in the Security Agreement;

	 	(g)	 	Failure of the Borrowers to meet any of the Milestones;

	 	(h)	 	Failure of the Borrowers to fund the Lender Escrow in
accordance with Section 8 hereof and the Escrow Agreement;

	 	(i)	 	Failure of the Borrowers or any of the directors of the
Borrowers to comply with their respective obligations under Section 23;

	 	(j)	 	The filing of any motion to approve a sale of all or a
substantial portion of either Borrower’s assets, unless the Holder consents
(which consent has been obtained with respect to the motion filed on April 14,
2006, for approval of bid procedures (“Bid Procedures”) and the sale of certain
IP Collateral) or the motion is accompanied by a Bona Fide Offer for such
assets that would yield sufficient proceeds to pay the Obligations in full
(including, for the avoidance of doubt, the Premium);

	 	(k)	 	The filing of any plan(s) of reorganization for either Borrower
which does not provide for the payment in cash in full of the Obligations on or
before the Maturity Date;

	 	(l)	 	Dismissal of either of the Cases, conversion of either of the
Cases to a chapter 7 liquidation or the appointment of a trustee or an examiner
in either of the Cases with expanded powers;

	 	(m)	 	The occurrence of a material adverse change in (1) the
condition or business prospects (financial or otherwise) of Borrowers, taken as
a whole, since the date of this Note, or (2) the value or salability of the
Collateral such that the aggregate value of the intellectual property
identified on Exhibit 2 to the Security Agreement may be less than Ten Million
Dollars ($10,000,000);

	 	(n)	 	Either Borrower taking any action before the Court contrary to
Lender’s rights under the Note, the Security Agreement, the Escrow Agreement or
any Financing Order;

	 	(o)	 	Modification of, or the Borrowers taking any action contrary
to, modifying or waiving any requirements of, the Bid Procedures filed with the
Court on April 14, 2006 without the prior consent of the Lender;

	 	(p)	 	Borrowers shall use the proceeds of the Loans in a manner not
provided for under Section 7 hereof; and

	 	(q)	 	The filing of a motion to approve post-petition financing that
will be secured by Liens on the Collateral that are equal or senior to the
Liens granted to Holder in connection herewith.

Upon the occurrence of an Event of Default hereunder, but subject to the terms of the
Financing Orders, all unpaid principal, accrued interest, Premium, and other amounts owing
hereunder shall, at the option of Holder, be immediately due, payable and collectible by Holder
pursuant to applicable law and the commitments hereunder terminated, and Holder may exercise all
rights and remedies under this Note, the Security Agreement, the Escrow Agreement and applicable
law. Upon an Event of Default, if after five (5) days written notice from Holder the default has
not been cured, Borrowers consent to the immediate modification of the automatic stay of Section
362 of the Bankruptcy Code to the extent necessary to permit Holder to exercise all rights and
remedies under this Note, the Security Agreement, the Escrow Agreement and applicable law.

	 	18.	 	Representations and Warranties of Borrowers. Each Borrower hereby represents
and warrants to the Holder that:

	 	(a)	 	Organization and Good Standing. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation and has all requisite corporate power and authority to carry
on its business as now conducted.

	 	(b)	 	Authorization. The execution, delivery and performance by
Borrower of this Note, the Security Agreement and the Escrow Agreement are
within Borrower’s corporate power; have been duly authorized by all necessary
or proper corporate action and, on the date of initial funding of the Loans
hereunder and on each subsequent funding date, will be authorized by a
Financing Order which remains in full force and effect and has not been
amended, stayed or vacated; will not violate any applicable law; does not
require the consent or approval of any governmental authority or any other
person (other than entry of the applicable Financing Order) and except such
consents as have been obtained.

	 	(c)	 	Valid Obligation. This Note, Security Agreement and the Escrow
Agreement constitute valid and legally binding obligations of Borrower,
enforceable against Borrower in accordance with their terms.

	 	(d)	 	Non-contravention of Other Instruments. Borrower is not in
violation or default (i) of any provision of its Certificate of Incorporation
or Bylaws, or (ii) in any material respect of any post-petition instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound which violation or default would have a material adverse effect on
Borrower or its subsidiaries, taken as a whole. The execution, delivery and
performance of this Note, the Security Agreement and the Escrow Agreement, and
the consummation of the transactions contemplated hereby and thereby, will not
result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such post-petition provision, instrument, judgment, order, writ, decree or
contract (including but not limited to any credit agreements, guaranties or
debt related agreements to which Borrower or any affiliate of Borrower may be a
party) or an event that results in the creation of any lien, charge or
encumbrance upon any assets of Borrower or its subsidiaries or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any material permit,
license, authorization, or approval applicable to Borrower, its business or
operations or any of its assets or properties.

	 	(e)	 	Title to Collateral. Except as expressly provided otherwise in
the Security Agreement, all assets and property of Borrower are included in the
Collateral. Borrower owns and holds good and marketable title to the assets
and property, including, without limitation, intangible property and contract
rights (including without limitation the intellectual property identified on
Exhibit 2 to the Security Agreement), constituting the Collateral and that
there are no Liens, claims or encumbrances on the Collateral other than those
Liens and encumbrances not exceeding One Hundred Thousand Dollars ($100,000) in
the aggregate and scheduled on Exhibit 3 to the Security Agreement (“Permitted
Liens") and with respect to the intellectual property identified on Exhibit 2
to the Security Agreement, other than the licenses, assignments or other
transfers of rights or interests, covenants not to sue, or adverse claims, with
respect to such property (“Adverse Interests”) that are identified as Permitted
Liens, there are no Adverse Interests, and any maintenance fees with respect to
such property are current.

	 	(f)	 	Monthly Operating Report. The monthly operating report for
March 2006 attached as Exhibit F hereto in all material respects fairly
represents the assets and liabilities of Borrowers as of the dates set forth
therein; provided, however, the amount of the Obligations as of March
31, 2006 was $3,087,500 plus the amount of Lender’s expenses incurred as of
that date.

	 	19.	 	Waiver. Borrowers waive presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection w hen incurred, including, without limitation, reasonable attorneys’ fees,
costs and other expenses. The right to plead any and all statutes of limitations as a
defense to any demands hereunder is hereby waived to the full extent permitted by law.

	 	20.	 	Indemnification. Borrowers hereby indemnify Lender for any fees, costs and
expenses (including counsel and financial advisor fees and) incurred in connection with
this Note, the other Loan Documents, and any order(s) relating thereto, other than
fees, costs and expenses arising directly as a result of Holder’s gross negligence or
willful misconduct. This covenant shall survive termination of this Note and payment of
the Obligations.

	 	21.	 	Governing Law. This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, excluding conflict of laws
principles that would cause the application of laws of any other jurisdiction, except
to the extent governed by the Bankruptcy Code.

	 	22.	 	Successors and Assigns. The provisions of this Note and the Security Agreement
shall inure to the benefit of and be binding on any successor to Borrowers and to any
successor or assign of Holder.

	 	23.	 	Issuance of Stock; Reconstitution of Boards of Directors. If the Borrowers
fail to pay the Obligations in full on or prior to the Maturity Date (for purposes of
this Section 23, a “Section 23 Default”) then, at the option of Lender and to the
extent permitted by applicable law: (a) Borrowers shall pay Lender the sum of Four
Hundred Thousand Dollars ($400,000) as a late payment fee, (b) each Borrower shall
issue to Holder, for the sum of Four Hundred Thousand Dollars ($400,000), payable by
setoff against the Obligations owed to the Lender hereunder, all authorized unissued
 shares of common stock of such Borrower, legally available for issuance, and/or (c)
each Borrower shall, pursuant to (i) the Financing Orders and (ii) Section 303 of the
General Corporation Law of the State of Delaware, 8 Del. C. § 303 (“Section 303”),
reconstitute its board of directors (including, if necessary, name, constitute or
appoint directors in place of or in addition to all or some of the directors then in
office) so that the majority of the board of directors of each Borrower is satisfactory
to Lender in its sole and absolute discretion; provided, however, that in the
event that at the Maturity Date the Borrowers are then parties to one or more existing
contracts with a credible buyer(s) with respect to a Bona Fide Offer(s) (as defined in
Exhibit D) that will provide funds to Borrowers in an aggregate amount sufficient to
enable Borrowers to repay the Obligations in full within thirty (30) days after the
Maturity Date, the issuance of stock and reconstitution of the boards of directors
provided for in this Section 23 shall not occur unless and until Borrowers fail to pay
the Obligations in full on or before thirty (30) days after the Maturity Date;
provided, further, however, that the issuance of stock and reconstitution of
the boards of directors pursuant hereto shall not be deemed to satisfy Borrowers’
obligation to repay the Obligations, which shall remain in effect under this Note.
Borrowers further agree that, to the fullest extent permitted by applicable law: (a) if
all of the current directors choose to resign from their positions on the boards of
directors before reconstitution of the boards of directors pursuant hereto, prior to
such resignations becoming effective the Borrowers shall, pursuant to (i) the Financing
Orders and (ii) Section 303, appoint the Chief Executive Officer as a director to serve
in such capacity upon the resignations of such directors, and (b) the Borrowers shall
cooperate in good faith with Lender and take any and all actions necessary to
facilitate the actions contemplated by this Section 23, including, without limitation,
as a condition precedent to any Subsequent Loans the execution and deposit into escrow
by the Borrowers and directors of any and all documents, in form and substance
satisfactory to Lender, reasonably requested by Lender to confirm that they will comply
with their respective obligations under this Section 23.

	 	24.	 	Warrants; Equity Rights. Holder shall receive warrants for the right to
purchase 6.3% of the capital stock of Borrowers, as reorganized under a chapter 11
plan, on a fully diluted basis at nominal cost, subject to anti-dilution protection.
In addition, Holder shall have the right to participate in any rights offering for the
stock of Borrowers by having the option to purchase any unsubscribed stock. Borrowers
agree to consult with Holder in connection with development and proposal of a plan of
reorganization and to propose a plan of reorganization that provides for Holder to
receive the warrants and, if applicable, rights offering option provided for herein.
For such period of time as Holder holds warrants or stock of Borrowers, Holder shall
have the right to appoint, at its election, a member of, or observer to, the board of
directors of each reorganized Borrower. The Borrowers’ obligations under this Section
24 shall constitute Secured Obligations secured by the Collateral under the Security
Agreement.

	 	25.	 	Assignments and Participations. Borrowers agree and acknowledge that the
Lender has the right to sell participations in any of the Loans and assign its rights
and interests hereunder to third parties. Borrowers hereby consent to the sale by
Lenders of participations in the Loans.

	 	26.	 	Payment Procedures. Payments of principal and interest on this Note shall be
made to the Holder at its principal office in New York City, in such coin or currency
of the United States of America as at the time of payment shall be legal tender for the
payment of public and private debt. If any payment of principal or interest on this
Note shall become due on a day that is not a business day, such payment shall be made
on the next succeeding day that is a business day.

	 	27.	 	Press Releases. Borrowers will not use Holder’s or its affiliates’ name(s) in
any press release without Holder’s prior written consent.

1

	 	 	 	 	 
	BORROWERS	 	XYBERNAUT CORPORATION	 	 
	 	 	XYBERNAUT SOLUTIONS, INC.
	
 
	 	By:
	 	/s/ Perry L. Nolen
	
 
	 	 
	 	 
	
 
	 	Name:
	 	Perry L. Nolen
	
 
	 	 	 	 
	
 
	 	Title:
	 	President and CEO
	
 
	 	 
	 	 
	HOLDER

	 	EAST RIVER CAPITAL LLC

By:
	 	

/s/ James A. Coyne
	
 
	 	 
	 	 
	
 
	 	Name:
	 	James A. Coyne
	
 
	 	 	 	 
	
 
	 	Title:
	 	Manager, East River Capital, LLC, its Manager
	
 
	 	 
	 	 

2

EXHIBIT A

3

4

Existing Note1

EXHIBIT B

Security Agreement2EXHIBIT C

5

Escrow Agreement3

EXHIBIT D

6

[CONFIDENTIAL]4

EXHIBIT E

7

Final Order

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

ALEXANDRIA DIVISION

	 	 	 	 	 	 	 	 	 
	 
	 		)		 	 	 	 
	In re:
	 		)		 	 	 	 
	 
	 		)		 	Case No. 05-12801

	XYBERNAUT CORPORATION, et al.,
	 		)		 	Jointly Administered

	 
	 	 	 	 	 	 	 	 
	 
	 		)		 	Chapter 11

	Debtors.
	 		)		 	Hon. Robert G. Mayer

	 
	 		)		 	 	 	 
	______________________________
	 		)		 	 	 	 

FINAL ORDER AUTHORIZING POST-PETITION SECURED FINANCING

PURSUANT TO SECTION 364 OF THE BANKRUPTCY CODE

Upon the motion, dated March 15, 2006 (the “Motion”), of Xybernaut Corporation
and Xybernaut Solutions, Inc. (collectively, the “Debtors”), seeking entry of an order (I)
authorizing and approving the Debtors entering into a post-petition financing facility (the
“DIP Credit Facility”) with East River Capital LLC (the “Lender”) for the purposes
of obtaining post-petition loans (the “Loans”) and credit secured by liens on property of
the Debtors’ estates pursuant to sections 364(c)(2), 364(c)(3) and 364(d) of the Bankruptcy Code
and a superpriority administrative expense claim as provided in section 364(c)(1) of the Bankruptcy
Code, on the terms and conditions set forth in the Secured Promissory Note (the “Secured
Promissory Note”) and related loan documents submitted to the Court, (II) authorizing the
Debtors to file Exhibit C to the Secured Promissory Note under seal, (III) authorizing the Debtors
to obtain credit and incur debt under the DIP Credit Facility on an interim basis for a period from
the date of entry of the Interim Order (as defined below) through and including the date of the
Final Hearing (as defined below) up to an aggregate amount of $1,900,000 (the “Interim Funding
Amount”) on the terms and conditions described in the Motion, and (IV) scheduling a final
hearing on the Motion (the “Final Hearing”) to consider entry of an order (the “Final
Order”) granting the relief requested in the Motion on a final basis and approving the form of
notice of the Final Hearing; and an interim hearing on the Motion (the “Interim Hearing”)
having been held on March 21, 2006; and the Court having entered an order approving the Motion on
an interim basis (the “Interim Order”) on March 23, 2006; and the Court having entered an
Order Modifying Interim Order Authorizing Post-Petition Secured Financing Pursuant to Section 364
of the Bankruptcy Code (the “Interim Modification Order”) on April 13, 2006; and an Amended
and Restated Secured Promissory Note (the “Amended and Restated Note”), Security Agreement
(the “Security Agreement”), Escrow Agreement (the “Escrow Agreement”, and
collectively with the Amended and Restated Note and the Security Agreement, as such documents may
be amended, modified, restated and supplemented from time to time, the “DIP Loan
Documents”)5 having been filed with the Court; and the Final Hearing having been
held on April 25, 2006; and upon the evidence submitted to the Court at the Interim Hearing and the
Final Hearing, the testimony, and the arguments of counsel, and it appearing that, absent the
relief requested herein, the Debtors will suffer immediate and irreparable harm; and it further
appearing that notice of the Motion is sufficient and complies with the requirements of Federal
Rule of Bankruptcy Procedure 4001(c), for good cause shown;

BASED ON THE RECORD ESTABLISHED BEFORE THIS COURT, THE COURT HEREBY MAKES THE FOLLOWING FINDINGS OF
FACT AND CONCLUSIONS OF LAW:

A. On July 25, 2005 (the “Petition Date”), each of the Debtors filed with this Court a
voluntary petition under chapter 11 of the Bankruptcy Code.

B. The Debtors have continued in the management and operation of their businesses and
properties as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. On
August 29, 2005, the United States Trustee appointed an official committee of unsecured creditors
(the “Creditors’ Committee”). On August 31, 2005, the United States Trustee appointed an
official committee of equity security holders (the “Equity Committee”). No trustee
or examiner has been appointed in these cases.

C. This Court has jurisdiction, pursuant to 28 U.S.C. §§ 157(b) and 1334, over these chapter
11 cases (the “Cases”), and over the persons and property affected hereby. Consideration
of the Motion constitutes a core proceeding as defined in 28 U.S.C. § 157(b)(2). The statutory
predicates for the relief sought herein are sections 364 and 107(b) of the Bankruptcy Code and
Federal Rules of Bankruptcy Procedure 4001(c) and 9018. Venue is proper pursuant to 28 U.S.C. §§
1408 and 1409.

D. Pursuant to this Court’s Order (I) Authorizing Post-Petition Secured Financing Pursuant to
Section 364 of the Bankruptcy Code, And (II) Authorizing Debtors to File Exhibit Under Seal entered
October 27, 2005 (the “October 27, 2005 DIP Loan Order”), this Court authorized the Debtors
to obtain secured financing (the “LC Fund DIP Credit Facility”) from LC Capital Master
Fund, Ltd. (“LC Fund”) in the maximum amount of $5 million on the terms and conditions
provided in the October 27, 2005 DIP Loan Order and the loan documents underlying the LC Fund DIP
Credit Facility. The drawdowns on the LC Fund DIP Credit Facility in the amount of $447,251.81
(the “LC Fund Prior Advances”) have been paid in full from a portion of the proceeds of the
Loans (the “Initial Loans”) provided pursuant to the Interim Order and the Interim
Modification Order.

E. At a hearing held on April 7, 2006, on the Motion to (A) Approve Global Settlement Pursuant
to Federal Rule of Bankruptcy Procedure 9019(a) and (B) Amend Order (I) Authorizing Post-Petition
Secured Financing Pursuant to Section 364 of the Bankruptcy Code, and (II) Authorizing Debtors to
File Exhibit Under Seal (the “Motion to Approve Settlement”), filed by the Debtors to
resolve and settle certain disputes, the Debtors, the Creditors’ Committee, the Equity Committee
and the Lender requested that the Interim Order be modified, effective nunc pro tunc to March 23,
2006, the date of the entry of the Interim Order, to increase the Interim Funding Amount from
$1,900,000 to $2,400,000 to allow for payments to be made under the terms of the Settlement
Agreement (as defined in the Motion to Approve Settlement) to LC Fund in the amount of $300,000 and
to provide for an additional funding of $200,000 to the Escrow Account described in paragraph 6 of
the Interim Order (the “Lender Escrow Account”). By order entered April 7, 2006 (the
"Settlement Order”), this Court granted the Motion to Approve Settlement.

F. On April 13, 2006, the Interim Order was modified, nunc pro tunc to March 23, 2006, by the
Interim Modification Order to, inter alia, increase the Interim Funding Amount from $1,900,000 to
$2,400,000. Pursuant to the settlement approved in the Settlement Order, $400,000 of the Initial
Loans was used to pay in full LC Fund’s expenses under the LC Fund DIP Credit Facility.

G. Pursuant to the Interim Order and the Interim Modification Order, as of the date hereof the
Lender has provided Loans in the aggregate amount of $2,400,000 to the Debtors. As of the date
hereof, the Lender has incurred approximately $208,575 in fees and expenses that are due and
payable under the DIP Credit Facility.

H. Based upon the record made before this Court at the Interim Hearing and the Final Hearing,
an immediate need exists for the Debtors to obtain funds and financial accommodations with which to
continue their operations, meet their payroll and other necessary, ordinary course business
expenditures, acquire raw materials, goods and services, and administer and preserve the value of
their estates. The ability of the Debtors to finance their operations requires the additional
availability of working capital, the absence of which would immediately and irreparably harm the
Debtors, their estates, and their creditors and the possibility for a successful reorganization.

I. The Debtors are unable to obtain unsecured credit allowable only as an administrative
expense under section 503(b)(1) of the Bankruptcy Code or pursuant to sections 364(a), (b) or
(c)(1) of the Bankruptcy Code.

J. The Debtors also are unable to obtain secured credit allowable under section 364(c)(2) of
the Bankruptcy Code except on the terms and conditions provided in this Order. The Debtors are
unable to borrow funds without granting the Lender liens on various assets of the Debtors pursuant
to sections 364(c)(2), (c)(3) and (d) of the Bankruptcy Code, and a superpriority administrative
expense claim pursuant to section 364(c)(1) of the Bankruptcy Code, in each case as provided in
this Order. Additionally, the Debtors are unable to procure the necessary financing on more
favorable terms than those offered by the Lender pursuant to the Amended and Restated Note and the
other DIP Loan Documents.

K. The ability of the Debtors to finance their operations and the availability of sufficient
working capital through the incurrence of indebtedness for borrowed money and other financial
accommodations is vital to the Debtors’ ability to preserve and maintain their going concern value
and their ability to consummate a successful reorganization.

L. The relief requested in the Motion is necessary, essential, and appropriate for the
continued operation of the Debtors’ businesses and the management and preservation of their
properties.

M. It is in the best interest of the Debtors’ estates to be allowed to establish the DIP
Credit Facility.

N. The Debtors have requested, and the Lender has agreed, to provide a debtor-in-possession
credit facility consisting of loans of up to $2,600,000 (inclusive of the $200,000 to fund the GUC
Escrow Account, as such term is defined in the Stipulation and Order entered by the Court on or
about April 7, 2006), subject to an increase in the commitment amount (the “Commitment
Amount”) of up to $3,200,000 by the Lender, in its sole and absolute discretion and upon
written mutual agreement of the Lender and the Debtors, with the consent of the Creditors’
Committee, in accordance with the terms of the DIP Loan Documents.

O. After entry of the Interim Order, the Debtors, with the consent of the Creditors’ Committee
and the Equity Committee, requested the Lender to agree to certain modifications to the Secured
Promissory Note. In connection therewith, (i) the Debtors and the Lender have agreed to the
modifications to the Secured Promissory Note that are reflected in the Amended and Restated Note,
(ii) the Debtors and the Lender have agreed to increase the Commitment Amount to $3,200,000, and
the Creditors’ Committee has consented to such increase in the Commitment Amount, and (iii) upon
the funding of the GUC Escrow Account in the amount of $200,000, the Creditors’ Committee shall
waive the Creditors’ Committee BFO Milestone, as such term is defined in that certain letter
agreement dated April 18, 2006 by and among the Debtors, the Creditors’ Committee and the Equity
Committee and filed with the Court.

P. The Debtors have taken necessary corporate/business organizational action to enter into and
have obtained all necessary consents to and authority for the DIP Loan Documents and the DIP Credit
Facility and the transactions contemplated thereby.

Q. The terms and conditions of the DIP Credit Facility and the DIP Loan Documents, and the
fees paid and to be paid thereunder, are fair, reasonable, and the best available under the
circumstances, reflect the Debtors’ exercise of prudent business judgment consistent with their
fiduciary duties and are supported by reasonably equivalent value and consideration. The DIP Loan
Documents were negotiated in good faith (as the term “good faith” is used in section 364(e) of the
Bankruptcy Code) and at arms’ length between the Debtors on the one hand, and the Lender on the
other hand. The credit extended or to be extended under the DIP Loan Documents has been or will be
so extended in good faith, and for valid business purposes and uses, the consequence of which is
that the Lender is entitled to the protection and benefits of section 364(e) of the Bankruptcy
Code.

R. The information set forth on Exhibit D to the Amended and Restated Note contains certain
confidential information regarding sale timelines and other milestones, which constitutes
“commercial information” as that term is used in section 107(b) of the Bankruptcy Code and Federal
Rule of Bankruptcy Procedure 9018.

S. It is in the best interest of the Debtors’ estates that Exhibit D to the Amended and
Restated Note be filed under seal.

T. Notice of the Final Hearing and the relief requested in the Motion was given to (i) the
Office of the United States Trustee for the Eastern District of Virginia, (ii) counsel to LC
Capital Master Fund, Ltd. (iii) counsel to the Lender, (iv) counsel to the Creditors’ Committee,
(v) counsel to the Equity Committee, (vi) all parties requesting notice pursuant to Federal Rule of
Bankruptcy Procedure 2002, (vii) any party which filed prior to March 29, 2006 a request for
notices with the Court, and (viii) any known holders of Permitted Liens (collectively, the
“Notice Parties”). Such notice constitutes good and sufficient notice of the Final Hearing
in accordance with Rule 4001(c) and section 102(1) of the Bankruptcy Code, as required by section
364(c) of the Bankruptcy Code, in light of the nature of the relief requested in the Motion.

U. Good and sufficient cause has been shown for the entry of this Order. Among other things,
the entry of this Order will enable the Debtors to continue the operation of their business; will
increase the possibility for a successful reorganization; and is in the best interests of the
Debtors, their creditors, and their estates.

NOW THEREFORE, based upon the Debtors’ Motion and the record before the Court with respect to
the Motion and the entire record of these Cases, and with the consent of the Creditors’ Committee
and the Equity Committee to the form and entry of this Order, and good cause appearing,

IT IS ORDERED that:

1. Motion Granted. The Motion is granted and the terms and the conditions of the DIP
Credit Facility and the DIP Loan Documents are hereby approved. The Debtors are authorized to:

	 	a.	 	Establish the DIP Credit Facility;

	 	b.	 	Execute the Amended and Restated Note, the Security Agreement,
the Escrow Agreement, and any related documents to which any Debtor is a party
and perform all their obligations thereunder;

	 	c.	 	Borrow up to $3,200,000 under the DIP Credit Facility on a
final basis consistent with the terms set forth in the Amended and Restated
Note and the other DIP Loan Documents;

	 	d.	 	Pay to the Lender all principal, interest, the Premium, fees,
expenses and other amounts required under the DIP Credit Facility; and

	 	e.	 	Utilize the proceeds from the DIP Credit Facility solely in
accordance with the terms of the DIP Loan Documents.

2. Authorization to Enter Into and Comply with DIP Loan Documents. The Debtors are
hereby authorized, empowered and directed to perform under and comply in all respects with all of
the terms and conditions of the DIP Loan Documents, each of which constitute valid, binding,
enforceable and non-avoidable obligations of the Debtors for all purposes during the Cases, any
subsequently converted case(s) of any Debtors under Chapter 7 of the Bankruptcy Code or after the
dismissal or reorganization of any of the Cases. The Debtors are hereby authorized and directed to
(a) pay the principal, interest, the Premium, fees, expenses and other amounts, including, without
limitation, administration fees and reasonable attorneys’, consultants and advisors’ fees and
expenses, paid or incurred by Lender at any time in connection with the financing transactions as
authorized and provided for in this Final Order and the DIP Loan Documents as such become due
without further approval of the Court, all of which unpaid Premium, fees, costs and expenses shall
be added to, and are included as part of, the Principal Amount, secured by the Collateral and
afforded all of the rights, priorities and protections afforded to the Lender under this Final
Order and the DIP Loan Documents, and (b) perform all of their obligations under the DIP Loan
Documents, including but not limited to the issuance of stock and/or warrants provided for in
Sections 23 and 24 respectively of the Amended and Restated Note (clauses (a) and (b)
collectively, the “DIP Obligations”). The Debtors are hereby authorized and directed to
perform all acts, and execute and comply with the terms of such other documents, instruments, and
agreements as the Lender may reasonably require as evidence of and for the protection of the DIP
Obligations and the Collateral or which may be otherwise deemed necessary by the Lender to
effectuate the terms and conditions of this Final Order and the DIP Loan Documents, each of such
additional documents, instruments, and agreements being included in the definition of “DIP Loan
Documents” contained herein.

3. Authorization to Execute and Deliver DIP Loan Documents. Each officer of the
Debtors as may be so authorized by the Board of Directors of each of the Debtors, acting singly, is
hereby authorized to execute and deliver each of the DIP Loan Documents, such execution and
delivery to be conclusive of their respective authority to act in the name of and on behalf of the
Debtors.

4. Approval of DIP Loan Documents. The terms, conditions and covenants of the Amended
and Restated Note and the other DIP Loan Documents are hereby approved in all respects and shall be
deemed to be incorporated into the terms and conditions of this Final Order. Such terms and
conditions shall be sufficient and conclusive evidence of the borrowing and financing arrangements
among the Debtors and the Lender for all purposes, including, without limitation, the payment of
all principal, interest, Premium, fees, Lender’s legal and other professional expenses, and other
fees and expenses, as more fully set forth in the Amended and Restated Note and the other DIP Loan
Documents.

5. Enforceable Obligations. The Amended and Restated Note and each of the other DIP
Loan Documents, respectively, shall constitute and evidence the valid and binding joint and several
obligations of each of the Debtors, which joint and several obligations shall be enforceable
against each of the Debtors in accordance with their terms. No obligation, payment, transfer or
grant of security under the DIP Loan Documents or this Order shall be stayed, restrained, voidable,
or recoverable under the Bankruptcy Code or under any applicable law, or subject to any defense,
reduction, setoff, recoupment or counterclaim.

6. Conditions Precedent. The Lender shall have no obligation to make any Loan under
the DIP Loan Documents unless the conditions precedent to making such Loan under the DIP Loan
Documents have been satisfied in full.

7. Lender Escrow Account. Pursuant to the Interim Order, the Interim Modification
Order and the DIP Loan Documents, the Debtors have used the proceeds of the Initial Loans to
establish and fund the Lender Escrow Account in the amount of $600,000 for the benefit of the
Lender. In accordance with section 8 of the Amended and Restated Note, the Lender shall be
entitled at its option to payment from the Lender Escrow Account of the DIP Obligations, including
without limitation, fees and expenses of the Lender, that are due and payable under the Amended and
Restated Note and have not been paid by the Borrowers. Notwithstanding the foregoing, the Lender
shall have no obligation at any time to apply funds in the Lender Escrow Account to the payment of
the DIP Obligations, and neither the establishment and funding of the Lender Escrow Account nor the
withdrawal by the Lender of funds in the Lender Escrow Account for payment of any fees, expenses or
other DIP Obligations shall constitute a waiver of any Event of Default under the DIP Loan
Documents.

8. Subsequent Loans. As a condition precedent to the borrowing of any Subsequent
Loans, the Debtors shall submit to the Lender a Loan Request requesting Loans in the amount of
$208,575 or such other amount equal to the Lender’s expenses incurred to the date of the Loan
Request, and the Loans shall be used by the Debtors to reimburse the Lender for such expenses.
Proceeds of Subsequent Loans in the amount of $200,000 shall be used by the Debtors to establish
and fund the GUC Escrow Account for the benefit of general unsecured creditors. Notwithstanding
anything to the contrary herein, the Lender shall have no obligation to make any Subsequent Loans
in excess of $200,000, and the Lender’s determination as to whether to make Subsequent Loans in
excess of such amount shall be at its sole and absolute discretion.

9. LC Fund Rights and Obligations. Pursuant to the Settlement Order, LC Fund has no
further rights or obligations under the October 27, 2005 DIP Loan Order and LC Fund DIP Credit
Facility, including, but not limited to, the right to receive the 15% Sale Premium or the Warrants
(as such terms are defined in the Settlement Order), and the October 27, 2005 DIP Loan Order and LC
Fund DIP Credit Facility have been terminated. LC Fund shall not oppose any good faith,
noncollusive, lawful sale or other disposition of the Debtors’ assets (whether in a single or
multiple sales, and whether the sale(s) were conducted under 11 U.S.C. § 363, through or under a
chapter 11 plan, under state law foreclosure rules or any other mechanism that would transfer
ownership or control of the Debtors’ assets in a manner that would satisfy the claims and liens of
the Lender under the DIP Credit Facility). Until such time as all of the DIP Obligations have been
indefeasibly paid in full in cash in accordance with the DIP Loan Documents and this Final Order,
LC Fund shall not seek or exercise any enforcement rights or remedies in connection with the Senior
Secured Sales Proceeds Interest (as such term is defined in the Settlement Order) and the liens in
connection therewith.

10. DIP Liens. The DIP Obligations shall be secured by valid, binding, enforceable,
non-avoidable and automatically perfected postpetition first priority liens (the “DIP
Liens”) on the Collateral as defined in the Security Agreement, pursuant to sections 364(c) and
364(d) of the Bankruptcy Code, which liens shall be senior to all other liens now existing or
arising in the future, but subject to the Permitted Liens listed on Schedule 3 of the Security
Agreement, and shared with LC Fund to the extent provided in the Settlement Order; provided,
however, the lien in favor of LC Fund pursuant to the Settlement Order shall (a) be limited to the
extent provided in the Settlement Agreement (as defined in the Settlement Order) until all
obligations to the Lender under the DIP Credit Facility have been fully satisfied, (b) be
subordinate to the DIP Liens granted to the Lender in this Final Order until the gross proceeds
from the sale of the Debtors’ assets are equal to $5 million, and (c) after the aggregate gross
proceeds of sale exceed $5 million, be pari passu with the DIP Liens in the ratio of 2.5% for LC
Fund and 97.5% for the Lender (or 3.5% and 96.5%, respectively, after aggregate gross sale proceeds
exceed $10 million) until full payment of the Lender under the DIP Credit Facility, and,
thereafter, (iv) be an unsubordinate senior lien. In no event shall (a) any lien or security
interest that is avoided and preserved for the benefit of the Debtors’ estates under section 551 of
the Bankruptcy Code, and (b) any person or entity who pays (or through the extension of credit to
any Debtor, causes to be paid) any of the DIP Obligations be subrogated, in whole or in part, to
any rights, remedies, claims, privileges, liens, or security interests granted in favor of, or
conferred upon the Lender by the terms of the DIP Loan Documents or this Final Order, until such
time as all of the DIP Obligations shall be indefeasibly paid in full in cash in accordance with
the DIP Loan Documents. For avoidance of doubt, the DIP Liens shall not extend to the right to
control avoidance actions under Chapter 5 of the Bankruptcy Code or actions of the estate that
arose prepetition against third parties.

11. Postpetition Lien Perfection. This Order shall be sufficient and conclusive
evidence of the validity, perfection, and priority of the liens granted by the Debtors to the
Lender in the Collateral to secure all obligations incurred under the DIP Loan Documents without
the necessity of filing or recording any financing statement, mortgage or other instrument or
document which may otherwise be required under the law of any jurisdiction or the taking of any
other action to validate or perfect the Lender’s liens, and no such filing or recordation shall be
necessary or required in order to create or perfect any such lien.

12. Recordation of Liens. Notwithstanding the foregoing, the Lender, in its
discretion, may file a copy of this Order as a financing statement or similar perfection document
with any recording officer designated to file financing statements or with any registry or similar
office in any jurisdiction in which the Debtors have property, and is hereby granted relief from
the automatic stay of section 362 of the Bankruptcy Code in order to do so, and all such financing
statements, mortgages, notices and other documents shall be deemed to have been filed or recorded
as of the date of this Order. The Debtors shall execute and deliver to the Lender all such
financing statements, mortgages, notices and other documents as the Lender may reasonably request
to evidence, confirm, validate or perfect, or to insure the contemplated priority of, the DIP Liens
granted pursuant to the DIP Loan Documents and this Final Order. The Lender, in its discretion,
may file a xerographic copy of this Final Order as a financing statement with any recording officer
designated to file financing statements or with any registry of deeds or similar office in any
jurisdiction in which the Debtors have real or personal property.

13. Commitment Termination Date. All DIP Obligations shall be immediately due and
payable in full, without notice or demand, on the date (the “Commitment Termination Date”)
that is the earliest to occur of:

(a) September 1, 2006;

(b) the effective date of any plan of reorganization for one or more of the Debtors confirmed
pursuant to Bankruptcy Code section 1129;

(c) the consummation of the sale of all or substantially all assets of either Debtor; and

(d) a date that is a “Termination Declaration Date” as defined herein.

14. Superpriority Claims. The DIP Obligations shall constitute allowed administrative
expense claims with priority, under section 364(c)(1) of the Bankruptcy Code and otherwise, over
all administrative expense claims, dimunition claims (including claims for adequate protection) and
general unsecured claims and all other claims against the Debtors, now existing or hereafter
arising, of any kind or nature whatsoever, including, without limitation, administrative expenses
of the kinds specified in or ordered pursuant to sections 105, 326, 328, 330, 331, 503(a), 503(b),
506(c), 507(a), 507(b), 546(c), 726, 1113 and 1114 of the Bankruptcy Code (the “Superpriority
Claims”), whether or not such expenses or claims may become secured by a judgment lien or other
non-consensual lien, levy or attachment, which allowed claims shall be payable from and have
recourse to all pre and post-petition property of the Debtors and all proceeds thereof. No costs
or expenses of administration including, without limitation, professional fees allowed and payable
under sections 328, 330 and 331 or other provisions of the Bankruptcy Code, that have been or may
be incurred in these proceedings, or in any case(s) under chapter 7 of the Bankruptcy Code upon the
conversion of any of the Cases or in any other proceedings related to any of the foregoing (any
"Successor Cases”), and no priority claims to the Collateral are, or will be, senior to,
prior to, or on a parity with the DIP Obligations, or with any other claims of the Lender arising
hereunder.

15. Issuance of Stock; Reconstitution of Boards of Directors. In accordance with
Section 23 of the Amended and Restated Note, if the Debtors fail to pay the DIP Obligations in full
on or prior to the Maturity Date (a “Section 23 Default”), then, at the option of the
Lender and to the extent permitted by applicable law: (a) Debtors shall pay Lender the sum of
$400,000 as a late payment fee, (b) the Debtors shall issue to Lender, for the aggregate sum of
$400,000, payable by setoff against the DIP Obligations owed to the Lender, all authorized unissued
shares of common stock of the Debtors legally available for issuance, and/or (c) each Debtor shall,
pursuant to (i) this Final Order and (ii) Section 303 of the General Corporation Law of the State
of Delaware, 8 Del. C. § 303 (“Section 303”), reconstitute its board of directors
(including, if necessary, name, constitute or appoint directors in place of or in addition to all
or some of the directors then in office) so that the majority of the board of directors of each
Debtor is satisfactory to Lender in its sole and absolute discretion; provided, however, that in
the event that at the Maturity Date the Debtors are then parties to one or more existing contracts
with a credible buyer(s) with respect to a Bona Fide Offer(s) that will provide funds to Debtors in
an aggregate amount sufficient to enable Debtors to repay the DIP Obligations in full within thirty
(30) days after the Maturity Date, the issuance of stock and reconstitution of the boards of
directors provided for in Section 23 of the Amended and Restated Note and herein shall not occur
unless and until Debtors fail to pay the DIP Obligations in full on or before thirty (30) days
after the Maturity Date; provided, further, however, that the issuance of stock and reconstitution
of the boards of directors pursuant hereto shall not be deemed to satisfy Debtors’ obligation to
repay the DIP Obligations, which shall remain in effect under the Amended and Restated Note and
this Final Order. Debtors further agree that, to the fullest extent permitted by applicable law:
(a) if all of the current directors choose to resign from their positions on the boards of
directors before reconstitution of the boards of directors pursuant hereto, prior to such
resignations becoming effective the Debtors shall, pursuant to (i) the Financing Orders and (ii)
Section 303, appoint the Chief Executive Officer as a director to serve in such capacity upon the
resignations of such directors, and (b) the Debtors shall cooperate in good faith with Lender and
take any and all actions necessary to facilitate the actions contemplated by Section 23 of the
Amended and Restated Note, including, without limitation, as a condition precedent to any
Subsequent Loans the execution and deposit into escrow by the Debtors and directors of any and all
documents, in form and substance satisfactory to Lender, reasonably requested by Lender to confirm
that they will comply with their respective obligations under Section 23 of the Amended and
Restated Note.

16. Amendments. Subject to the provisions of the DIP Loan Documents, the Debtors and
the Lender may amend, and the Lender may waive, any provision of the DIP Loan Documents without
seeking the approval of this Court; provided, however, that such amendment or waiver, in the
judgment of the Debtors and the Lender, is either nonprejudicial to the rights of third parties or
is not material. Except as otherwise set forth in the foregoing sentence, no waiver, modification,
or amendment of any of the provisions hereof or of the DIP Loan Documents shall be effective unless
set forth in writing, signed by the parties hereto and approved by the Court.

17. Events of Default; Remedies. Immediately upon the occurrence of and during the
continuance of an Event of Default (as defined in the Amended and Restated Note), (a) the Lender
may declare all obligations owing under the DIP Loan Documents immediately due and payable and may
declare the termination of any further commitment to extend credit to the Debtors to the extent any
such commitment remains (the declaration of any of the foregoing being referred to herein as a
"Termination Declaration” and the date of such declaration being referred to herein as the
"Termination Declaration Date”), and (b) the default interest rate set forth in the Amended
and Restated Note shall be automatically applicable to the DIP Obligations. In addition to the
foregoing remedies and other customary remedies, the automatic stay imposed by section 362 of the
Bankruptcy Code otherwise applicable to the Lender is hereby modified so that upon the occurrence
and during the continuance of an Event of Default, and following the giving of five (5) days
written notice (the “Remedies Notice Period”) to the Debtors, the Creditors’ Committee, the
Equity Committee, and the United States Trustee, the Lender shall be entitled to foreclose on all
or any portion of the Collateral, collect accounts receivable and apply the proceeds thereof to the
DIP Obligations, occupy the Debtors’ premises to fulfill orders and sell the Collateral or
otherwise exercise remedies against the Collateral permitted by applicable non-bankruptcy law.
During the Remedies Notice Period, the Debtors, the Creditors’ Committee and the Equity Committee
shall be entitled to an emergency hearing with the Court solely with respect to the issue of
whether an Event of Default has occurred and is continuing, and, unless ordered otherwise prior to
the expiration of the Remedies Notice Period, the automatic stay, as to the Lender, shall be
automatically and irrevocably terminated at the end of the Remedies Notice Period and without
further notice or order. Nothing contained in this Final Order or otherwise shall be construed to
obligate the Lender in any way to lend or advance any Loans to the Debtors upon or after the
occurrence of an Event of Default.

18. Disposition of Collateral. The Debtors shall not sell, transfer, lease, encumber
or otherwise dispose of any portion of the Collateral without the prior written consent of the
Lender (and no such consent shall be implied, from any other action, inaction or acquiescence by
Lender or an order of this Court), except for sales of the Debtors’ Inventory (as defined in the
Security Agreement) in the ordinary course of their businesses or except as otherwise provided for
in the DIP Loan Documents.

19. Modification of Automatic Stay. The automatic stay imposed under section 362(a)
of the Bankruptcy Code is hereby modified as necessary to (a) permit the Debtors to grant the DIP
Liens and to incur all liabilities and obligations to the Lender under the DIP Loan Documents and
this Final Order, and (b) authorize the Lender to retain and apply payments hereunder.

20. Reservation of Lender’s Rights. Entry of this Final Order shall not be deemed to
prejudice any and all rights, remedies, claims and causes of action Lender may have against third
parties, and shall not prejudice the rights of Lender from and after the entry of this Final Order
to seek any other relief in the Cases. Entry of this Final Order shall not in any way constitute:
(a) a preclusion or a waiver of any right of Lender to file, or to prosecute if already filed, a
motion for relief from stay, a motion or request for relief, including but not limited to any
adversary proceeding; (b) agreement, consent, or acquiescence to the terms of any plan of
reorganization by virtue of any term or provision of this Final Order; (c) a preclusion of Lender’s
right to sell participations in any of the Loans and assign its rights and interest in the Loans to
third parties; (d) a preclusion or waiver to assert any other rights, remedies or defenses
available to Lender, or to respond to any motion, application, proposal, or other action, all such
rights, remedies, defenses and opportunities to respond being specifically reserved by Lender; or
(e) a preclusion, waiver or modification of any rights or remedies that Lender has against any
other person or entity.

21. Priority of Superpriority Claims and DIP Liens. If an order dismissing any of the
Cases under section 1112 of the Bankruptcy Code or otherwise or converting the Cases to Successor
Cases is entered at any time, such order shall provide (in accordance with sections 105 and 349 of
the Bankruptcy Code) that the Superpriority Claims and DIP Liens granted to the Lender pursuant to
this Order and the DIP Loan Documents shall continue in full force and effect and shall maintain
their priorities as provided in this Order until all obligations to the Lender under the DIP Loan
Documents shall have been paid and satisfied in full. Except as expressly provided herein, the DIP
Liens shall not be made subject to or pari passu with any lien or security interest by any court
order heretofore or hereafter entered in the Cases; and shall be valid and enforceable against any
trustee appointed in the Cases, or in any Successor Cases. The DIP Liens shall not be subject to
section 506(c), 510, 549, 550 or 551 of the Bankruptcy Code.

22. Section 506(c) Claims. No costs or expenses of administration which have been,
or may be hereafter, incurred at any time in the Cases or in any Successor Cases shall be charged
against the Lender, the DIP Obligations, or the Collateral, pursuant to sections 105, 506(c), or
522 of the Bankruptcy Code, or otherwise, without the prior written consent of the Lender, and no
such consent shall be implied from any other action, inaction or acquiescence by the Lender.

23. Good Faith. The Lender has acted in good faith in connection with this Final
Order and its reliance on the provisions of this Final Order is in good faith. Accordingly, the
Lender is entitled to the protections provided for in section 364(e) of the Bankruptcy Code, and if
any provision of this Order is hereafter reversed, modified, vacated or stayed, such reversal,
stay, modification or vacation shall not affect (a) the validity of the Debtors’ obligations to the
Lender as of the effective date of the reversal, stay, modification or vacation or (b) the validity
or enforceability of any lien or priority authorized or created hereby or pursuant to the DIP Loan
Documents.

24. Collateral Rights. Unless the Lender has provided its prior written consent or
all DIP Obligations have been paid in full in cash (or will be paid in full in cash upon entry of
an order approving indebtedness described in subparagraph (a) below), and all commitments to lend
have terminated, there shall not be entered in these Cases, or in any Successor Cases, any order
which authorizes any of the following:

(a) the obtaining of credit or the incurring of indebtedness that is secured by a security,
mortgage, or collateral interest or other lien on all or any portion of the Collateral and/or
entitled to priority administrative status which is equal or senior to those granted to the Lender
herein; or

(b) the enforcement of any claimed security, mortgage, or collateral interest or other lien of
any person other than the Lender on all or any portion of the Collateral (other than Permitted
Liens).

25. Proceeds. Without limiting the provisions and protections of paragraph 24 above,
if at any time prior to the repayment in full of all DIP Obligations and the termination of the
Lender’s obligation to make loans under the DIP Credit Facility, including subsequent to the
confirmation of any plan with respect to any or all of the Debtors’ estates, any trustee, any
examiner with expanded powers or any responsible officer, subsequently appointed shall obtain
credit or incur debt, then all of the cash proceeds derived from such credit or debt shall
immediately be turned over to the Lender in reduction of the DIP Obligations.

26. Payment on or Before Effective Date of Plan. Unless the DIP Obligations have been
paid in full on an earlier date, the DIP Obligations shall be indefeasibly paid in full on or
before the effective date of any plan of reorganization confirmed in the Cases.

27. Survival of Final Order. The provisions of this Final Order and the liens and
superpriority claims and all other rights and remedies of the Lender under this Final Order and the
DIP Loan Documents shall survive, and shall not be modified, impaired or discharged by (a) entry of
an order converting any of the Cases to a case under chapter 7, dismissing any of the Cases,
terminating the joint administration of the Cases or by another act or omission, or (b) entry of an
order confirming a plan of reorganization. The terms and provisions of this Final Order and the
DIP Loan Documents shall continue in these Cases, or any Successor Cases, and the liens,
superpriority claims and all other rights and remedies of the Lender granted by this Final Order
and the DIP Loan Documents shall continue in full force and effect until all the obligations to the
Lender under the DIP Loan Documents are indefeasibly paid in full and discharged (such payment
being without prejudice to any terms or provisions contained in the DIP Loan Documents which
survive such discharge by their terms); provided, that, all obligations and duties of Lender
hereunder, under the DIP Loan Documents or otherwise with respect to any future loans or advances
or otherwise shall terminate immediately upon the earlier of the date of any Event of Default or
the date that a plan of reorganization of the Debtors becomes effective unless the Lender has given
its express prior written consent thereto, no such consent being implied from any other action,
inaction or acquiescence by Lender. The DIP Obligations shall not be discharged by entry of an
order confirming a reorganization plan, the Debtors having waived such discharge pursuant to
section 1141(d)(4) of the Bankruptcy Code. The Debtors shall not propose or support any
reorganization plan that is not conditioned upon the payment in full in cash of all of the DIP
Obligations, on or prior to the earlier to occur of (a) the effective date of such plan or (b) the
Commitment Termination Date.

28. No Modification or Stay of this Final Order. Based on the findings set forth in
this Final Order and in accordance with section 364(e) of the Bankruptcy Code, which is applicable
to the DIP Credit Facility contemplated by this Final Order, in the event any or all of the
provisions of this Final Order are hereafter modified, amended or vacated by a subsequent order of
this or any other Court, no such modification, amendment or vacation shall affect the validity and
enforceability of any advances made hereunder or lien or priority authorized or created hereby.
Notwithstanding any such modification, amendment or vacation, any claim granted to the Lender
hereunder arising prior to the effective date of such modification, amendment or vacation of any of
the protections granted to the Lender herein shall be governed in all respects by the original
provisions of this Final Order, and the Lender shall be entitled to all of the rights, remedies,
privileges and benefits granted herein, with respect to any such claim. Since the Loans made
pursuant to the DIP Loan Documents are made in reliance on this Final Order, the obligations owed
to the Lender prior to the effective date of any stay, modification, amendment or vacation of this
Final Order cannot, as a result of any subsequent order in the Cases, or in any Successor Cases, be
subordinated, lose their lien priority or superpriority administrative expense claim status, or be
deprived of the benefit of the status of the liens and claims granted to the Lender under this
Final Order and/or the DIP Loan Documents.

29. Fees and Expenses. As provided in the Amended and Restated Note, all reasonable,
documented fees and expenses of the Lender, including, without limitation, reasonable legal,
consultant and advisory fees and expenses, in connection with the Loans, the DIP Loan Documents,
and the DIP Credit Facility will be paid by the Debtors, whether or not the transactions
contemplated hereby are consummated.

30. Binding Effect. The provisions of this Final Order shall be binding upon and
inure to the benefit of the Lender, the Debtors and their respective successors and assigns
(including any trustee or other fiduciary hereafter appointed as a legal representative of the
Debtors or with respect to the property of the estates of the Debtors) whether in the Cases, in any
Successor Cases, or upon dismissal of any such Chapter 11 or Chapter 7 case.

31. No Waiver. The failure of the Lender to seek relief or otherwise exercise its
rights and remedies under the DIP Loan Documents, the DIP Credit Facility, or this Final Order, as
applicable, shall not constitute a waiver of any of the Lender’s rights hereunder, thereunder, or
otherwise. Notwithstanding anything herein, the entry of this Final Order is without prejudice to,
and does not constitute a waiver of, expressly or implicitly, or otherwise impair (a) the rights of
the Lender under the Bankruptcy Code or under non-bankruptcy law, including, without limitation,
the rights of the Lender to (i) request conversion of either of the Cases to cases under Chapter 7,
dismissal of either of the Cases, or the appointment of a trustee in either of the Cases (but only
in the event an Event of Default has occurred and is continuing), or (ii) propose, subject to
section 1121 of the Bankruptcy Code, a Chapter 11 plan or plans or (b) any of the rights, claims,
or privileges (whether legal, equitable or otherwise) of the Lender.

32. No Third Party Rights. Except as expressly provided herein, this Final Order does
not create any rights for the benefit of any third party, creditor, equity holder or any direct,
indirect, or incidental beneficiary.

33. Enforceability. This Final Order shall constitute findings of fact and
conclusions of law pursuant to Bankruptcy Rule 7052 and shall take effect and be fully enforceable
immediately upon execution hereof.

34. Objections Overruled. All objections to the Motion to the extent not withdrawn or
resolved, are hereby overruled.

35. No Waiver or Modification of Final Order. The Debtors irrevocably waive any right
to seek any modification or extension of this Final Order without the prior written consent of the
Lender and no such consent shall be implied by any other action, inaction or acquiescence of the
Lender.

36. Exhibit D. The Debtors’ request to file Exhibit D to the Amended and Restated
Note under seal is granted. Exhibit D to the Amended and Restated Note shall be held by the Clerk
of the Bankruptcy Court under seal until October 31, 2006. The Debtors may share the information
contained in Exhibit D to the Amended and Restated Note with creditors and equity interest holders,
as appropriate, if the requesting party executes a confidentiality agreement. If the Debtors
refuse to share the information with such party, or if the parties cannot agree upon the terms of
the confidentiality agreement, the requesting party can file a motion with the Court to hear the
dispute.

37. Inconsistency. In the event of any inconsistency between the terms and conditions
of any DIP Loan Document and of this Final Order, the provisions of this Final Order shall govern
and control.

38. Jurisdiction. This Court retains and reserves jurisdiction to interpret and
enforce all provisions of this Final Order.

SO ORDERED by the Court this 1st day of May 2006.

/s/ Robert G. Mayer

	 	 	ROBERT G. MAYER

	 	 	 	U.S.
BANKRUPTCY JUDGE

1 A copy of the Existing Note is incorporated
by reference to Exhibit 10.1 of the Company’s Form 8-K filed on March 29,
2006.

2 A copy of the Security Agreement is
incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed
on March 29, 2006

3 A copy of the Escrow Agreement is
incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed
on March 29, 2006

4 Confidential Treatment has been requested for
the redacted portion. The confidential, redacted portions have been filed
separately with the SEC.

5 Capitalized terms used and not defined
herein shall have the meanings set forth in the DIP Loan Documents.

8

WE ASK FOR THIS:

/s/ Thomas E. Cabaniss

Thomas E. Cabaniss, Esq. (VSB No. 14788)

John H. Maddock III, Esq. (VSB No. 41044)

David I. Swan, Esq.

McGUIREWOODS LLP

One James Center

901 East Cary Street

Richmond, Virginia 23219

804.775.1178

Counsel to the Debtors and Debtors-in-Possession

/s/ Paul Sweeney

Paul Sweeney, Esq. (VSB No. 33994)

Linowes and Blocher LLP

7200 Wisconsin Avenue, Suite 800

Bethesda, Maryland 20814

and

Michael B. Schaedle, Esq.

David W. Carickhoff, Esq.

Blank Rome LLP

One Logan Square

18th & Cherry Streets

Philadelphia, Pennsylvania 19103

Counsel for the Official Committee of Unsecured Creditors

/s/ Kevin O’Donnell

Kevin O’Donnell, Esq.

Connolly Bove Lodge & Hutz

1990 M Street, NW

Suite 800

Washington, DC 20036

Counsel for the Official Committee of Equity Security Holders

/s/ D.J. Baker

D.J. Baker, Esq.

Alexandra Margolis, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, New York 10036-6522

and

Edward J. Meehan, Esq.

David E. Carney, Esq. (VSB No. 43914)

Skadden, Arps, Slate, Meagher & Flom LLP

1440 New York Avenue, N.W.

Washington, D.C. 20005-2111

Counsel to East River Capital LLC

9

Local Rule Certification

I hereby certify, pursuant to Local Rule 9022-1 that this order has been endorsed by all
necessary parties.

/s/ John H. Maddock III

10

John H. Maddock IIIEXHIBIT F

Monthly Operating Report for March 20066

6 A copy of the Monthly Operating Report for
March 2006 is incorporated by reference to Exhibits 99.1 and 99.2 of the
Company’s Form 8-K filed on April 19, 2006.

11Amendment No. 1 to Master Repurchase Agreement

EXHIBIT 10.1

 

AMENDMENT NO. 1 TO MASTER REPURCHASE AGREEMENT

Amendment No. 1, dated as of May 5, 2006 (this “Amendment”), among MERRILL LYNCH BANK USA (“Buyer”), HOMEBANC MORTGAGE CORPORATION (“HMC” and a “Seller”) and HOMEBANC CORP. (“HB Corp.” and a “Seller”, together with HMC as the “Sellers”).

RECITALS

The Buyer and the Sellers are parties to that certain Master Repurchase Agreement, dated as of February 24, 2006 (the “Existing Repurchase Agreement” as amended by this Amendment, the “Repurchase Agreement”).  Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Existing Repurchase Agreement.

The Buyer and the Sellers have agreed, subject to the terms and conditions of this Amendment, that the Existing Repurchase Agreement be amended to reflect certain agreed upon revisions to the terms of the Existing Repurchase Agreement.  

Accordingly, the Buyer and the Sellers hereby agree, in consideration of the mutual promises and mutual obligations set forth herein, that the Existing Repurchase Agreement is hereby amended, as follows:

SECTION 1.    Definitions.  Section 2 of the Existing Repurchase Agreement is hereby amended by deleting the definition of “Capital Raise Period” and replacing it with the following definition:

“Capital Raise Period” shall mean the period of time beginning on November 30, 2005 until and including the earlier of (A) August 31, 2006 or (B) the date HB Corp. realizes proceeds from the 2006 public sale of at least an additional $50,000,000 of common equity offering.

SECTION 2.     Conditions Precedent.  This Amendment shall become effective as of May 5, 2006 (the “Amendment Effective Date”), subject to the satisfaction of the following conditions precedent:

2.1          Delivered Documents.  On the date hereof, the Buyer shall have received the following documents, each of which shall be satisfactory to the Buyer in form and substance:

(a)   this Amendment, executed and delivered by duly authorized officers of the Buyer and the Sellers; and

(b)   such other documents as the Buyer or counsel to the Buyer may reasonably request.

SECTION 3.     Representations and Warranties.  Each Seller hereby represents and warrants to the Buyer that it is in compliance with all the terms and provisions set forth in the Existing Repurchase Agreement on its part to be observed or performed, and that no Event of 

 

 

Default has occurred or is continuing, and hereby confirms and reaffirms the representations and warranties contained in Section 11 of the Existing Repurchase Agreement.

SECTION 4.     Limited Effect.  Except as expressly amended and modified by this Amendment, the Existing Repurchase Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms.

SECTION 5.    Counterparts.  This Amendment may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument.

SECTION 6.  GOVERNING LAW.  THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAW PROVISIONS THEREOF.

[SIGNATURE PAGE FOLLOWS]

 

-2-

 

 

 

                IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written.

	
            Buyer:
 	
            MERRILL LYNCH BANK USA,
 

as Buyer

By: /s/ JAMES B. CASON                                    

Name: James B. Cason

Title:  Vice President

	
            Seller:
 	
            HOMEBANC MORTGAGE CORPORATION,
 

as Seller

By: /s/ JAMES L. KRAKAU                                

Name:  James L. Krakau

Title:  Senior Vice President

	
            Seller:
 	
            HOMEBANC CORP.,
 

as Seller

By: /s/ JAMES L. KRAKAU                                

Name:  James L. Krakau

Title:  Senior Vice President

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