Document:

Exhibit 10.1

 

COLDWATER CREEK INC.

 

2008 INCENTIVE AWARD PROGRAM FOR
EXECUTIVES

 

The 2008 Incentive Award
Program is available to executive officers. Under the 2008 Incentive Award
Program, an executive’s bonus will be based on the company’s achievement of
minimum levels of operating results before interest and taxes during the first
and second halves of fiscal 2008. The Company-wide performance goals are the
same for all participants, although individual bonus target amounts are
established by the Compensation Committee for each executive. If performance
does not exceed a minimum level, no bonus will be awarded under the program.
Individual performance will be assessed at mid-year and at year end, and an
individual’s award may be reduced by up to 25% based on his or her performance.Exhibit 10.1

THIRD  AMENDMENT  AND  MODIFICATION

TO  LOAN  AND  SECURITY  AGREEMENT

 

THIS  THIRD  AMENDMENT  AND  MODIFICATION  TO  LOAN  AND  SECURITY  AGREEMENT (the “Amendment”) is made effective as of March 17, 2008 by
and among LASALLE  BANK
NATIONAL  ASSOCIATION
(the “Lender”) and ZANETT,
INC., a Delaware corporation (“Zanett”), ZANETT  COMMERCIAL  SOLUTIONS,  INC., a Delaware corporation (“ZCS”;
Zanett and ZCS are each individually, a “Borrower” and
collectively, the “Borrowers”)
and PARAGON DYNAMICS, INC., a Delaware corporation
(“Paragon”).

 

BACKGROUND

 

A.            Borrowers, Paragon and
Lender have previously entered into a certain Loan and Security Agreement dated
December 21, 2006, as amended by (i) that certain First Amendment and
Modification to Loan and Security Agreement and Other Loan Documents dated May 31,
2007 (the “First Amendment”) and (ii) that
certain Second Amendment and Modification to Loan and Security Agreement dated November 14,
2007 (as amended, the “Loan  Agreement”), pursuant to which, inter  alia,
Lender agreed to extend to Borrowers certain credit facilities subject to the
terms and conditions set forth therein.

 

B.            The obligations of Borrowers
and Paragon under the Loans are secured, inter  alia, by (i) that
certain Patents, Trademarks, Copyrights and Licenses Security Agreement by and
between Paragon and Lender dated December 21, 2006 (the “Paragon IP Security Agreement”), and (ii) that certain
Securities Pledge Agreement made by Zanett in favor of Lender dated December 21,
2006 (the “Paragon Securities Pledge Agreement”),
pursuant to which, inter  alia, Zanett pledged to Lender a
security interest in all of the issued and outstanding shares of capital stock
of Paragon owned by Zanett.

 

C.            Zanett, Paragon and KOR
Electronics (“KOR”) have entered into that certain
Stock Purchase Agreement dated March 12, 2008 (the “Paragon
Sale Agreement”) pursuant to which KOR is acquiring all of the
outstanding capital stock of Paragon for the purchase price (the “Purchase Price”) of Eight Million Eight Hundred
Seventy-Five Thousand Dollars ($8,875,000) (“Sale of
Paragon”).

 

D.            Bruno Guazzoni and Lender
have previously entered into a certain Subordination Agreement dated December 21,
2006, as amended by the First Amendment (as amended, the “Guazzoni
Subordination Agreement”), pursuant to which, inter  alia,
Bruno Guazzoni subordinated the Junior Debt to the Senior Debt (as both such
terms are defined in the Guazzoni Subordination Agreement).  Emral Holdings Limited and Lender have
previously entered into a certain Subordination Agreement dated December 21,
2006 (the “Emral Subordination Agreement”),
pursuant to which, inter  alia, Emral Holdings Limited
subordinated the Junior Debt to the Senior Debt (as both such terms are defined
in the Emral Subordination Agreement). 
The Guazzoni Subordination Agreement and the Emral Subordination
Agreement are collectively, the “Subordination Agreements”.

 

 

E.             Borrowers and Lender are
entering into this Amendment to amend certain terms and conditions of the Loan
Agreement.

 

F.             Capitalized terms used
herein and not otherwise defined herein shall have the meanings set forth for
such terms in the Loan Agreement.

 

NOW, THEREFORE, in
consideration of  the foregoing premises
and intending to be legally bound hereby, the parties hereto agree as follows:

 

1.             Amendments to Loan Agreement.  The following amendments are effective upon
satisfaction of the conditions set forth in Section 19
below:

 

1.1          Definitions.

 

(a)           The definition of “Maximum Revolving Loan Limit” set forth in Section 1(a) of the Loan
Agreement shall be and is hereby amended to read, in its entirety, as follows:

 

““Maximum
Revolving Loan Limit” shall mean $5,000,000.”

 

Even though the Revolving
Loan Note made by Borrowers to Lender is for the face amount of $10,000,000,
the Revolving Loan Limit and Maximum Revolving Loan Limit shall not exceed
$5,000,000.

 

(b)           The definition of “Senior Debt Ratio” set forth in Section 1(a) of
the Loan Agreement shall be and is hereby amended to read, in its entirety, as
follows:

 

““Senior Debt
Ratio” shall mean, as of each test date, the ratio of (a) Total
Senior Debt of Borrowers as of the applicable test date, to (b) EBITDA of
Borrowers for the period ending on the applicable test date ((i) with
EBITDA (A) being measured for the period beginning October 1, 2006
and ending on the applicable test date, and (B) being annualized by
multiplying it by (x) four (4) for the December 31, 2006 test
date, (y) two (2) for the March 31, 2007 test date, and (z) one
and one-third (11/3) for the June 30, 2007 test date, (ii) with
EBITDA being measured on a rolling four quarters basis for the June 30,
2007, September 30, 2007 and December 31, 2007 test dates, (iii) with
EBITDA (A) being measured for the period beginning January 1, 2008
and ending on the applicable test date, and (B) being annualized by
multiplying it by (x) four (4) for the March 31, 2008 test date,
(y) two (2) for the June 30, 2008 test date, and (z) one
and one-third (11/3) for the September 30, 2008 test date, and (iv) with
EBITDA being measured on a rolling four quarters basis for each test date after
September 30, 2008).”

 

1.2          Advance Rate.  Section 2(a)(i) of
the Loan Agreement shall be and is hereby amended to read, in its entirety, as
follows:

 

2

 

“(i)  Sixty percent
(60%) of the face amount of Borrowers’ then existing Eligible Accounts; minus”

 

1.3          Fixed Charge Coverage Ratio.  Section 14(a) of
the Loan Agreement shall be and is hereby amended to read, in its entirety, as
follows:

 

“(a)         Fixed Charge Coverage
Ratio.  Borrowers shall
maintain a Fixed Charge Coverage Ratio of not less than the ratio set forth for
the corresponding period set forth below:

 

	
  Period

  	
   

  	
  Ratio

  
	
  For the 3 month
  period ending on December 31, 2006

  	
   

  	
  1.0 to 1.0

  
	
  For the 6 month
  period ending on March 31, 2007

  	
   

  	
  0.77 to 1.0

  
	
  For the 9 month
  period ending on June 30, 2007

  	
   

  	
  0.76 to 1.0

  
	
  For the 12 month
  period ending on September 30, 2007

  	
   

  	
  1.10 to 1.0

  
	
  For the 12 month
  period ending on December 31, 2007

  	
   

  	
  0.35 to 1.0

  
	
  For the 3 month
  period ending on March 31, 2008

  	
   

  	
  1.10 to 1.0

  
	
  For the 6 month
  period ending on June 30, 2008

  	
   

  	
  1.10 to 1.0

  
	
  For the 9 month
  period ending on September 30, 2008

  	
   

  	
  1.10 to 1.0

  
	
  For the 12 month
  period ending on December 31, 2008 and each 12 month period ending on the
  last day of each fiscal quarter thereafter”

  	
   

  	
  1.10 to 1.0

  

 

1.4          Senior Debt Ratio.  Section 14(b) of
the Loan Agreement shall be and is hereby amended to read, in its entirety, as
follows:

 

“(b)         Senior Debt Ratio.  Borrowers shall maintain a Senior Debt Ratio
of not greater than the ratio set forth below for the corresponding period set
forth below:

 

3

 

	
  Period

  	
   

  	
  Ratio

  
	
  For the 3 month
  period ending on December 31, 2006

  	
   

  	
  3.0 to 1.0

  
	
  For the 6 month
  period ending on March 31, 2007

  	
   

  	
  4.30 to 1.0

  
	
  For the 9 month
  period ending on June 30, 2007

  	
   

  	
  4.25 to 1.0

  
	
  For the 12 month
  period ending on September 30, 2007

  	
   

  	
  2.75 to 1.0

  
	
  For the 12 month
  period ending on December 31, 2007

  	
   

  	
  2.5 to 1.0

  
	
  For the 3 month
  period ending on March 31, 2008

  	
   

  	
  2.5 to 1.0

  
	
  For the 6 month
  period ending on June 30, 2008

  	
   

  	
  2.5 to 1.0

  
	
  For the 9 month
  period ending on September 30, 2008

  	
   

  	
  2.5 to 1.0

  
	
  For the 12 month
  period ending on December 31, 2008 and each 12 month period ending on
  the last day of each fiscal quarter thereafter”

  	
   

  	
  2.5 to 1.0

  

 

1.5          EBITDA.  Section 14(c) of
the Loan Agreement shall be and is hereby amended to read, in its entirety, as
follows:

 

“(c)         EBITDA.  Borrowers shall maintain EBITDA for each
calendar month (other than the calendar months of December and January) of
not less than $140,000.”

 

2.             Waiver  Regarding  Senior  Debt  Ratio.  Borrowers have requested and upon
satisfaction of the conditions set forth in Section 19
below, Lender waives as an Event of Default the failure of Borrowers to comply
with the Senior Debt Ratio covenant set forth in Section 14(b) of
the Loan Agreement for the 12 month period ending on December 31,
2007.  Such waiver shall be limited to
Borrowers’ compliance with Section 14(b) of
the Loan Agreement solely for such periods and for no other period and such
waiver shall not be construed to constitute a waiver of Borrowers’ compliance
with any other terms of the Loan Agreement or an agreement to enter into any
future waivers with Borrowers.

 

4

 

3.             Waiver  of  EBITDA  Covenant.  Borrowers have requested and upon
satisfaction of the conditions set forth in Section 19
below, Lender waives as an Event of Default the failure of Borrowers to comply
with the “EBITDA” covenant set forth in Section 14(c) of the Loan
Agreement: (a) for the December, 2007 calendar month; and (b) for the
following periods: (i) the 6 month period ending on October 31, 2007
and (ii) the 7 month period ending on November 30, 2007.  Such waiver shall be limited to Borrowers’
compliance with Section 14(c) of
the Loan Agreement solely for such individual calendar months and for such
aggregate monthly periods and for no other calendar months or periods and such
waiver shall not be construed to constitute a waiver of Borrowers’ compliance
with any other terms of the Loan Agreement or an agreement to enter into any
future waivers with Borrowers.

 

4.             Waiver of Capital Expenditures
Covenant.  Borrowers
have requested and upon satisfaction of the conditions set forth in Section 19 below, Lender
waives as an Event of Default the failure of Borrowers to comply with the
Capital Expenditures covenant set forth in Section 14(d) of
the Loan Agreement for the calendar year ending on December 31, 2007.  Such waiver shall be limited to Borrowers’
compliance with Section 14(d) of
the Loan Agreement solely for such period and for no other period and such
waiver shall not be construed to constitute a waiver of Borrowers’ compliance
with any other terms of the Loan Agreement or an agreement to enter into any
future waivers with Borrowers.

 

5.             Representations and Warranties
Regarding Sale of Paragon.  Zanett hereby represents and warrants to
Lender as follows:

 

5.1          Zanett has provided Lender
with true and complete copies of all material agreements entered into in
connection with the Sale of Paragon, including without limitation, the Paragon
Sale Agreement; the representations and warranties by Zanett contained in such
documents are accurate; and no defaults or events of default exist under such
documents.

 

5.2          Pursuant to the Paragon Sale
Agreement, Zanett is selling all of the issued and outstanding shares of
capital stock of Paragon owned by it to KOR.

 

5.3          All conditions for closing
the Sale of Paragon have been satisfied.

 

5.4          All approvals,
registrations, consents and other filings for closing the Sale of Paragon have
been obtained and are in full force and effect.

 

5.5          Zanett has complied in all
material respects with all laws, ordinances, governmental rules and regulations
to which they are subject in connection with the Sale of Paragon.

 

5.6          The closing of the Sale of
Paragon will not constitute a default in any material respect under any
agreement to which Zanett or any of its affiliates is a party or by which it is
bound.

 

5.7          Upon the closing of the Sale
of Paragon, Zanett shall have no liability whatsoever for any acts or omissions
of Paragon.

 

5

 

6.             Covenants Regarding Sale of
Paragon.  Zanett
hereby covenants and agrees with Lender as follows:

 

6.1          Zanett will comply with the
terms and conditions of all agreements entered into by Zanett in connection
with the Sale of Paragon.

 

6.2          Zanett will not modify,
amend or restate any of the agreements entered into by Zanett in connection
with the Sale of Paragon in any manner which would reasonably be likely to have
a material adverse effect on the ability of Borrowers to repay the Liabilities
in full and perform their obligations to Lender under the Loan Agreement, Loan
Documents and Other Agreements.

 

6.3          Zanett will utilize the
proceeds of the Sale of Paragon to (a) pay to Lender an amount equal to (i) the
Purchase Price, minus (ii) $887,500, which is the Holdback Amount
(as defined in the Paragon Sale Agreement), minus (iii) all fees
and expenses associated with the Sale of Paragon; provided, however,
such amount shall not exceed $1,000,000, minus (iv) the amounts
payable to Bruno Guazzoni and Emral Holdings Limited as set forth in subsections (b) and (c) below,
to reduce the outstanding principal amount of the Revolving Loans (the “Revolver Pay Down”), (b) pay to Bruno Guazzoni
$1,500,000 as set forth in Section 13
below and (c) pay to Emral Holdings Limited $1,500,000 as set forth in Section 13 below.

 

7.             Consent to Sale of Paragon.  Subject to the satisfaction of the conditions
set forth in Section 19 below and in
reliance upon the representations and warranties set forth in Section 5 and the covenants
and agreements set forth in Section 6,
(a) the Sale of Paragon by Zanett to KOR pursuant to the Paragon Sale
Agreement is and shall be permitted under the Loan Agreement, and (b) the
consummation and the execution and delivery of the documents related thereto,
including the Paragon Sale Agreement, by Zanett shall not be a Default or an
Event of Default under the Loan Agreement.

 

8.             Release and Removal of Paragon.  Upon satisfaction of the conditions set forth
in Section 19 below, (a) Paragon
is released and removed as a “Borrower”
under the Loan Agreement, Loan Documents and Other Agreements; (b) all
references to “Borrower” or “Borrowers”
under the Loan Agreement, Loan Documents and Other Documents shall be
references to Zanett and/or ZCS; (c) all references to the “Undersigned” under the Revolving Loan Note shall be
references to Zanett and ZCS; (d) all references to “Customer”
or “Customers” under the Controlled
Disbursement Agreement and Waiver Agreement shall be references to Zanett
and/or ZCS; and (e) all references to “Applicant” or “Applicants” under the Master Letter of Credit Agreement
shall be references to Zanett and/or ZCS, in each case mutatis  mutandis.  Upon satisfaction of the conditions set forth
in Section 19  below,
Lender fully, finally and forever releases Paragon from the provisions of Section 18 of the Loan Agreement.

 

9.             Release of Paragon’s Collateral.  Upon satisfaction of the conditions set forth
in Section 19 below, Lender
authorizes Paragon or its counsel to (i) file such UCC-3 Termination
Statements as are necessary to terminate Lender’s lien on and security interest
in the  personal property assets of
Paragon previously granted to Lender under Section 5
of the Loan 

 

6

 

Agreement, (ii) release
and terminate Lender’s security interest in the Patents, Copyrights, Licenses
and Trademarks (as such terms are defined in the Paragon IP Security Agreement)
of Paragon granted to Lender by Paragon under the Paragon IP Security
Agreement, (iii) terminate any and all payment instructions provided
previously to Paragon’s account debtors pursuant to that certain Lock Box and
Blocked Account Agreement dated December 21, 2006 by and among Borrowers,
Paragon and Lender and (iv) release and terminate Lender’s security
interest in all of the issued and outstanding shares of capital stock of
Paragon owned by Zanett granted to Lender by Zanett under the Paragon
Securities Pledge Agreement.  Upon
satisfaction of the conditions set forth in Section 19
below, Lender shall deliver to Zanett any and all share certificates issued by
Paragon and held pursuant to the Securities Pledge Agreement dated December 21,
2006 between Zanett and Lender.  Upon
execution of this Amendment, Lender agrees to deliver such share certificates
to White and Williams LLP, to be held in escrow pending satisfaction of the
conditions set forth in Section 19
below.  Upon satisfaction of the
conditions set forth in Section 19
below, Lender agrees to execute any and all documents necessary to effect the
provisions of this Section 9.

 

10.          Financial Reporting of Paragon.  Upon satisfaction of the conditions set forth
in Section 19 below and at all
times thereafter, Lender agrees that neither Administrative Borrower nor
Paragon will have any further obligation to provide Lender with any financial
reporting of Paragon, including without limitation, any financial statements,
projections, tax returns, audit reports or compliance certificates as described
in Section 9 of the Loan
Agreement.

 

11.          Termination of Continuing
Unconditional Guaranty of Paragon.  Upon satisfaction of the conditions set forth
in Section 19 below, the
Continuing Unconditional Guaranty executed and delivered by Paragon on December 21,
2006 shall be and is hereby terminated in its entirety and shall be null and
void and of no further force or effect.

 

12.          Release from Liability.  Upon satisfaction of the conditions set forth
in Section 19  below, Lender and
its officers, directors, employees, agents, attorneys, successors and assigns
are fully, finally and forever acquitted, quitclaimed, released and discharged
of any and all obligations, claims, liabilities, damages, cause or causes of
action to, of or for the benefit (whether directly or indirectly) of Paragon,
available to Paragon at law or in equity.

 

13.          Consent to Private Subordinated
Debt Payments. 
Notwithstanding anything contained in the Loan Agreement and/or
Subordination Agreements to the contrary, including, without limitation, the
restrictions and/or prohibitions set forth in Section 13(m) of
the Loan Agreement and Paragraph (C) of
each of the Subordination Agreements, upon satisfaction of the conditions set
forth in Section 19 below, Lender
consents to the following:

 

13.1        Upon Zanett’s receipt of the
proceeds from the Sale of Paragon, Borrowers may pay to Bruno Guazzoni,
utilizing such proceeds, the entire outstanding principal balance and all
accrued interest under the following promissory notes: (i) that certain
promissory note made by Zanett payable to Bruno Guazzoni in the original
principal amount of $500,000 dated December 30, 2005, (ii) that
certain promissory note made by Zanett to Bruno Guazzoni in the original
principal amount of $500,000 dated March 14, 2006 and (iii) that
certain promissory note made by Zanett to Bruno Guazzoni in the original
principal amount of $500,000 dated March 14, 2006.

 

7

 

13.2        Upon Zanett’s receipt of the
proceeds from the Sale of Paragon, Borrowers may pay to Emral Holdings Limited,
utilizing such proceeds, the entire outstanding principal balance and all accrued
interest under that certain promissory note made by Paragon to Emral Holdings
Limited in the original principal amount of $1,500,000 dated December 19,
2006.

 

Lender further agrees that
such Private Subordinated Debt payments to Bruno Guazzoni and Emral Holdings
Limited, as applicable, shall not be a Default or an Event of Default under the
Loan Agreement.

 

14.          Guazzoni Line.  Borrowers hereby represent and warrant to and
covenant with Lender as follows:

 

14.1        Bruno Guazzoni has extended
a $3,000,000 line of credit to Zanett (the “Guazzoni Line”).

 

14.2        The Guazzoni Line is
evidenced by that certain promissory note made by Zanett payable to Bruno
Guazzoni in the original principal amount of $3,000,000 dated February 21,
2007.

 

14.3        The outstanding balance on
the Guazzoni Line as of the date of this Amendment is $2,400,000.

 

14.4        Subject to the satisfaction
of the conditions set forth in Section 19
below and after receipt of Borrowers’ 10Q for the fiscal quarter ending March 31,
2008, Borrowers may make quarterly payments on the Guazzoni Line; provided,
however, such quarterly payments shall not exceed fifty percent (50%) of
Borrowers’ Excess Cash Flow (as defined below) for such fiscal quarter.  For purposes hereof, “Excess Cash
Flow” shall mean for each of Borrowers’ Fiscal Years, Borrowers’
EBITDA for such period, minus Borrowers’ taxes during such period and
any distributions to each of their shareholders in respect of taxes for such
period, minus non-PIK interest payable during such period, minus
actual principal payments made with respect to long term debt during such
period, minus all unfinanced Capital Expenditures by Borrowers during
such period.

 

15.          Amendment and Waiver Fee.  As consideration for Lender to enter into
this Amendment and to waive compliance with certain financial covenants as set
forth herein, Borrowers has agreed to pay to Lender an amendment and waiver fee
equal to $10,000 (the “Amendment  and Waiver  Fee”).  The Amendment and Waiver Fee is due and
payable in full upon execution of this Amendment.  Borrowers agree that the Amendment and Waiver
Fee has been fully earned by Lender and is non-refundable.

 

16.          Confirmation  of  Collateral.  Nothing contained herein shall be deemed to
be a compromise, satisfaction, accord and satisfaction, novation, release or
waiver (except the waivers and releases as provided in Sections
2, 3, 4, 8, 9, 10, 11 and 13 hereof) of any of the Loan
Documents or Other Agreements, or any rights or obligations thereunder by
Lender of any of its rights under the Loan Documents or Other Agreements or at
law or in equity.  Except as set forth in
Section 9 above, all liens,
security interests, rights and remedies granted to Lender in Loan Documents and
Other Agreements are hereby ratified, confirmed and continued.

 

8

Borrowers acknowledge and
agree that the term “Loan Documents” as used in the Loan Agreement and any
other documents executed in connection therewith shall include, without
limitation, this Amendment and any and all other documents executed in
connection herewith.

 

17.          Challenge  to  Enforcement.  Borrowers acknowledge and agree that they do
not have any defense, set-off, counterclaim or challenge against the payment of
any sums owing under the Loan Documents and Other Agreements, or the
enforcement of any of the terms or conditions thereof.

 

18.          Representation  and  Warranties.  Borrowers hereby, jointly and severally,
represent and warrant, which representations and warranties shall survive until
all Liabilities are paid and satisfied in full, as follows:

 

18.1        All representations and
warranties of Borrowers set forth in the Loan Documents and Other Agreements
are true and complete in all material respects as of the date hereof.

 

18.2        Upon the effectiveness of
this Amendment, no condition or event exists or has occurred which would
constitute a Default or an Event of Default under the Loan Agreement or any of
the other Loan Documents or Other Agreements.

 

18.3        Borrowers have not received
any notice of default or event of default from any other lender, trustee or
lessor with respect to any other loan, financing or lease agreement.

 

18.4        The execution and delivery
of this Amendment by Borrowers and all documents and agreements to be executed
and delivered pursuant to the terms hereof:

 

(a)           has been duly authorized by
all requisite corporate action by each Borrower;

 

(b)           will not conflict with or
result in the breach of or constitute a default (upon the passage of time,
delivery of notice or both) under any Borrower’s Articles of Incorporation,
By-Laws or any applicable statute, law, rule, regulation or ordinance or any
indenture, mortgage, loan or other document or agreement to which any Borrower
is a party or by which any of them is bound or affected; and

 

(c)           will not result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the property or assets of Borrower, except liens in
favor of Lender or as otherwise permitted under the Loan Documents or Other
Agreements.

 

18.5        Borrowers are not required
to modify, amend or restate the Indenture to reflect the Private Subordinated
Debt payments to be made by Borrowers pursuant to Section 15
above.

 

 

9

 

19.          Conditions.  The amendments, consents, waivers and
releases set forth in Sections 1, 2, 3, 4, 7, 8,
9, 10, 11, 13 and 14 granted by Lender to Borrowers shall be
subject to satisfaction of the following conditions:

 

19.1        Loan  Documents.  Borrowers and all other required persons and
entities shall have executed and delivered to Lender this Amendment.

 

19.2        Sale of Paragon.  The closing of the Sale of Paragon shall have
been completed on or before March 17, 2008 in accordance with the terms of
the Paragon Sale Agreement, with completion of such closing to be evidenced by
the delivery by Zanett to Lender of a duly executed and completed certificate
in the form attached hereto as Exhibit “A”.

 

19.3        Receipt of Purchase Price.  Zanett shall have received a minimum Purchase
Price of $8,875,000 from KOR as confirmed by a signed copy of the final
settlement statement, delivered to Lender, in connection with the Sale of
Paragon.

 

19.4        Revolver Pay Down.  Zanett shall have delivered the Revolver Pay
Down to Lender.

 

20.          Additional  Documents;  Further  Assurances.  Borrowers covenant and agree to execute and
deliver to Lender, or to cause to be executed and delivered to Lender
contemporaneously herewith, at the sole cost and expense of Borrowers, any and
all other documents, agreements, statements, resolutions, certificates,
consents and information as Lender may require in connection with the matters
or actions described herein.  Borrowers
further covenant and agree to execute and deliver to Lender or to cause to be
executed and delivered at the sole cost and expense of Borrowers, from time to time,
any and all other documents, agreements, statements, certificates and
information as Lender shall reasonably request to evidence or effect the terms
hereof, the Loan Agreement, as amended, or any of the other Loan Documents or
Other Agreements, or to enforce or to protect Lender’s interest in the
Collateral.  All such documents,
agreements, statements, certificates and information shall be in form and
content acceptable to Lender in its sole discretion.

 

21.          Certain  Fees,  Costs,  Expenses  and  Expenditures.  Borrowers will pay all of the Lender’s
expenses in connection with the review, preparation, negotiation, documentation
and closing of this Amendment and the consummation of the transactions
contemplated hereunder, including without limitation, costs and fees and
expenses of counsel retained by Lender and all fees related to filings,
recording of documents and searches, whether or not the transactions
contemplated hereunder are consummated. 
Nothing contained herein shall limit in any manner whatsoever Lender’s
right to reimbursement under any of the Loan Documents or Other Agreements.

 

22.          Communications  and  Notices. All notices,
requests and other communications made or given in connection with this
Amendment shall be made in accordance with the provisions of the Loan
Agreement.

 

23.          Time  of  Essence.  Time is of the essence of this Amendment.

 

 

10

 

24.          No  Waiver. 
Except as otherwise provided herein, nothing contained and no actions
taken by Lender in connection herewith shall constitute nor shall they be
deemed to be a waiver, release or amendment of or to any rights, remedies, or
privileges afforded to Lender under the Loan Documents, Other Agreements or
under the Uniform Commercial Code as adopted in the Commonwealth of
Pennsylvania.  Nothing herein shall
constitute a waiver by Lender of Borrowers’ compliance with the terms of the
Loan Documents or Other Agreements, nor shall anything contained herein
constitute an agreement by Lender to enter into any further amendments with
Borrowers.

 

25.          Reaffirmation, Confirmation and
Incorporation of Waivers.  As an inducement to Lender to enter into this
Amendment, Borrowers hereby affirm, restate and incorporate herein by
reference, as of the date hereof and prior to giving effect to this Amendment,
all waivers of Borrowers contemplated by the Loan Documents, including, but not
limited to, Section 27 of the Loan
Agreement, all of such waivers hereby being made part of this Amendment.

 

26.          Inconsistencies.  To the extent of any inconsistencies between
the terms and conditions of this Amendment and the terms and conditions of the
Loan Documents or Other Agreements, the terms and conditions of this Amendment
shall prevail.  All terms and conditions
of the Loan Documents or Other Agreements not inconsistent herewith shall
remain in full force and effect and are hereby ratified and confirmed by
Borrowers.

 

27.          Binding  Effect.  This
Amendment and all rights and powers granted hereby will bind and inure to the
benefit of the parties hereto and their respective permitted successors and
assigns.

 

28.          Severability.  The provisions of this Amendment and all
other Loan Documents or Other Agreements are deemed to be severable, and the
invalidity or unenforceability of any provision shall not affect or impair the
remaining provisions which shall continue in full force and effect.

 

29.          No  Third  Party  Beneficiaries.  The rights and benefits of this Amendment,
the Loan Documents and the Other Agreements shall not inure to the benefit of
any third party.

 

30.          Modifications.  No modifications of this Amendment, any of
the Loan Documents or any of the Other Agreements shall be binding or
enforceable unless in writing and signed by or on behalf of the party against
whom enforcement is sought.

 

31.          Holidays.  If the day provided herein for the payment of
any amount or the taking of any action falls on a Saturday, Sunday or public
holiday at the place for payment or action, then the due date for such payment
or action will be the next succeeding Business Day.

 

32.          Law  Governing. This Amendment has been
made, executed and delivered in the Commonwealth of Pennsylvania and will be
construed in accordance with and governed by the laws of such Commonwealth,
without regard to any rules or principles regarding conflicts of law or
any rule or canon of construction which interprets agreements against the
draftsman.

 

 

11

 

33.          Headings.  The headings of the Articles, Sections,
paragraphs and clauses of this Amendment are inserted for convenience only and
shall not be deemed to constitute a part of this Amendment.

 

34.          Counterparts;  Facsimile  Signatures.  This Amendment may be executed in any number
of counterparts, all of which taken together constitute one and the same
instrument, and any of the parties hereto may execute this Amendment by signing
any such counterpart.  Any signature
delivered via facsimile shall be deemed an original signature hereto.

 

35.          Waiver  of  Right  to  Trial  by  Jury.  EACH BORROWER AND LENDER
EACH HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, ANY OF THE OTHER
AGREEMENTS, THE LIABILITIES, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY
ANY BORROWER OR LENDER OR WHICH, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT
OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWERS AND LENDER.  IN NO EVENT SHALL LENDER BE LIABLE FOR LOST
PROFITS OR OTHER SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.

 

[REMAINDER  OF  PAGE  INTENTIONALLY  LEFT  BLANK]

 

 

12

 

 

IN  WITNESS  WHEREOF, the parties hereto have duly executed this
Amendment, intending to be legally bound hereby, effective as of the date first
written above.

 

	
   

  	
  BORROWERS:

  
	
   

  	
   

  
	
   

  	
  ZANETT,  INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ZANETT  COMMERCIAL  SOLUTIONS,  INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  PARAGON:

  
	
   

  	
   

  
	
   

  	
  PARAGON
  DYNAMICS, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  LASALLE  BANK  NATIONAL  ASSOCIATION

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  

 

13

 

CONSENT
AND AGREEMENT

 

The undersigned consents
to the terms of the foregoing Amendment and hereby confirms and agrees that
none of the terms of the Amendment will in any way adversely affect its
obligations or the rights of Lender under that certain Subordination Agreement
dated December 21, 2006 executed by the undersigned in favor of Lender,
all of the terms of which are hereby ratified and confirmed.

 

IN WITNESS WHEREOF, the undersigned hereto has duly
executed this Consent and Agreement as of March           ,
2008.

 

	
   

  	
   

  
	
   

  	
  BRUNO
  GUAZZONI, an
  individual

  

 

 

EXHIBIT “A”

 

Form of
Certificate of Sale of Paragon Closing

 

CERTIFICATE

 

                The undersigned, ZANETT, INC. (“Zanett”),
hereby certifies to LASALLE BANK NATIONAL
ASSOCIATION (the “Lender”) as
follows:

 

1.             This Certificate is being
delivered pursuant to that certain Third Amendment and Modification to Loan and
Security Agreement dated March 17, 2008 by and among Lender, Zanett,
Zanett Commercial Solutions, Inc. and Paragon Dynamics, Inc. (the “Third Amendment”).  The terms used in this Certificate and not
defined herein shall have the respective meanings ascribed to them in the Third
Amendment.

 

2.             Zanett has provided Lender
with true and complete copies of all material agreements entered into in
connection with the Sale of Paragon, including without limitation, the Paragon
Sale Agreement and no modifications or amendments have been made to the Paragon
Sale Agreement since being delivered to Lender; the representations and
warranties by Zanett contained in such documents are accurate; and no defaults
or events of default exist under such documents.

 

3.             Pursuant to the Paragon Sale
Agreement, Zanett has sold all of the issued and outstanding shares of capital
stock of Paragon owned by it to KOR.

 

4.             All conditions for closing
the Sale of Paragon have been satisfied.

 

5.             All approvals,
registrations, consents and other filings for closing the Sale of Paragon have
been obtained and are in full force and effect.

 

6.             Zanett has complied in all
material respects with all laws, ordinances, governmental rules and
regulations to which they are subject in connection with the Sale of Paragon.

 

7.             The closing of the Sale of
Paragon will not constitute a default in any material respect under any
agreement to which Zanett or any of its affiliates is a party or by which it is
bound.

 

8.             Upon the closing of the Sale
of Paragon, Zanett shall have no liability whatsoever for any acts or omissions
of Paragon.

 

9.             Zanett has received a
minimum Purchase Price of $8,750,000 from KOR as confirmed by a signed copy of
the final settlement statement, delivered to Lender, in connection with the
Sale of Paragon.

 

10.          Zanett has utilized the
proceeds of the Sale of Paragon to (a) pay to Lender an amount equal to (i) the
Purchase Price, minus (ii) $887,500, which is the Holdback Amount
(as defined in the Paragon Sale Agreement), minus (iii) all fees
and expenses associated with the 

 

 

Sale
of Paragon; provided, however, such amount shall not exceed
$1,000,000, minus (iv) the amounts payable to Bruno Guazzoni and
Emral Holdings Limited as set forth in subsections (b) and (c) below,
to reduce the outstanding principal amount of the Revolving Loans, (b) pay
to Bruno Guazzoni $1,500,000 as set forth in Section 13
of the Third Amendment and (c) pay to Emral Holdings Limited $1,500,000 as
set forth in Section 13 of the Third
Amendment.

 

                IN WITNESS WHEREOF, intending to
be legally bound and as an inducement to Lender for entering into the Third
Amendment, the undersigned has caused this Certificate to be executed effective
as of March           ,
2008.

 

	
   

  	
  ZANETT,  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

2

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