Document:

exv10w5

 

EXHIBIT 10.5

CAUSE NO. 05-11334

	 	 	 	 	 	 	 
	 

	 	PEPSICO, INC.
	 	§
	 	IN THE DISTRICT COURT
	 

	 	 	 	§	 	 
	 

	 	Plaintiff,
	 	§	 	 
	 

	 	 	 	§	 	 
	v.

	 	 	 	§	 	 
	 

	 	 	 	§	 	 
	PIZZA INN, INC.	 	§	 	 
	 

	 	 	 	§	 	 
	 

	 	Defendant.
	 	§	 	 
	 

	 	 	 	§
	 	DALLAS COUNTY, TEXAS
	 	 	 	 	 
	 

	 	 	 	§	 	 
	PIZZA INN, INC.,	 	§	 	 
	 

	 	 	 	§	 	 
	 

	 	Counter-Plaintiff,
	 	§	 	 
	 

	 	 	 	§	 	 
	v.

	 	 	 	§	 	 
	 

	 	 	 	§	 	 
	PEPSICO, INC.	 	§	 	 
	 

	 	 	 	§	 	 
	 

	 	Counter-Defendant.
	 	§
	 	116th JUDICIAL DISTRICT

COMPROMISE SETTLEMENT AGREEMENT AND MUTUAL RELEASE

     This Compromise Settlement Agreement and Mutual Release (“Agreement”) is entered into on
December 14, 2006, (the “Execution Date”) by PepsiCo, Inc. (“PepsiCo”) and Pizza Inn, Inc., (“Pizza
Inn”), and acknowledged and agreed by Timothy Taft and Jeff Ingram with respect to Paragraphs 7, 10
and 11 hereof, in consideration of and for the reasons set forth below.

RECITALS

     WHEREAS, PepsiCo filed the above-captioned Lawsuit against Pizza Inn on or about November 8,
2005, alleging that Pizza Inn was in breach of the Parties’ May 15, 1998, letter agreement (the
“Beverage Agreement”) pursuant to which PepsiCo supplied to Pizza Inn and its Participating
Franchisees, inter alia, packaged beverage products, dispensing equipment, marketing and support
funds, and related support services (the “PepsiCo Claims”);

     WHEREAS, Pizza Inn denies the allegations of the PepsiCo Claims and, on or about February 20,
2006, filed its Original Counterclaim, alleging that PepsiCo was in breach of the Beverage
Agreement, had breached certain express or implied warranties associated therewith, and had,
through the actions of one of its employees, defamed Pizza Inn’s business interests and its Chief
Executive Officer, and tortiously interfered with contracts between Pizza Inn and its franchisees
(the “Pizza Inn Counterclaims”);

COMPROMISE SETTLEMENT AGREEMENT 

AND MUTUAL RELEASE - Page 1

 

 

     WHEREAS, Pizza Inn denies the PepsiCo Claims and PepsiCo denies the Pizza Inn Counterclaims
(the PepsiCo Claims and Pizza Inn Counterclaims collectively referred to as the “Claims”);

     WHEREAS, in order to avoid further costs of litigation, PepsiCo and Pizza Inn (sometimes
referred to collectively as the “Parties”) desire to fully resolve all differences between them,
including but not limited to the Claims in the Lawsuit, and to enter into this agreement in full
settlement and discharge of all claims asserted or that could be asserted in the Lawsuit by either
Party against the other, from the beginning of time until the date of execution hereof, upon the
terms and conditions hereinafter set forth.

SETTLEMENT TERMS AND CONDITIONS

     NOW THEREFORE, for good and valuable consideration, the adequacy, receipt, and sufficiency of
which is hereby acknowledged, the Parties hereby agree as follows:

SETTLEMENT AMOUNT AND PAYMENT TERMS

     1. In consideration of the mutual promises and releases contained herein, Pizza Inn shall pay
to PepsiCo the sum of $410,000.00 in good funds (“Settlement Amount”) to be received and confirmed
by wire transfer in PepsiCo’s account on or before 5:00 p.m. CST, on December 29, 2006. In order
to secure payment of the Settlement Amount, Pizza Inn shall execute and deliver to PepsiCo
contemporaneously with execution of this Agreement an Agreed Judgment in the form attached hereto
as Exhibit A, which PepsiCo shall cause its counsel to hold in trust until the Settlement
Amount is paid, PepsiCo has the right to file the Agreed Judgment to enforce this Agreement, or
this Agreement is terminated, all as further provided below.

     2. It is expressly agreed and understood that time is of the essence with respect to PepsiCo’s
receipt of the Settlement Amount, and that in the event the full Settlement Amount is not received
by PepsiCo strictly within the time and in the manner specified herein, then, at PepsiCo’s sole
option, PepsiCo may either terminate this Agreement, thereby rendering it null and void, or PepsiCo
may ratify and enforce this Agreement by filing the Agreed Judgment with the Court.

     a. Should PepsiCo elect to terminate this Agreement, it shall provide written notice of
same to Pizza Inn on or before January 15, 2007, and shall tender to Pizza Inn any amounts
previously transferred to PepsiCo by Pizza Inn pursuant to this Agreement together with the
Agreed Judgment. Upon delivery of same, this Agreement shall terminate, and all rights and
liabilities, including but not limited to all Claims and defenses in the Lawsuit, restored
to the Parties as if this Agreement never were executed.

     b. Should PepsiCo elect to ratify and enforce this Agreement, it may immediately file
with the Court the Agreed Judgment and proceed to enforce same. To the extent that Pizza
Inn has, prior to the filing of the Agreed Judgment, paid any portion of the Settlement
Amount to PepsiCo, the principal balance of the Agreed Judgment shall be deemed to be
reduced by such amount. It is expressly agreed and understood that, in the event that
PepsiCo proceeds to enforce the Agreed Judgment, it shall be entitled to

COMPROMISE SETTLEMENT AGREEMENT 

AND MUTUAL RELEASE - Page 2

 

 

recover from Pizza Inn its attorney’s fees and other costs of collection, together with
interest on any unpaid amounts at the rate of 10% per annum from January 1, 2007, until
payment in full.

     3. Upon receipt by PepsiCo of the Settlement Amount strictly in accordance with the
requirements of Paragraph 1 above, or upon the filing by PepsiCo of the Agreed Judgment, this
Agreement shall become final and non-terminable by PepsiCo. With the sole exception of PepsiCo’s
right to terminate this Agreement as provided in Paragraph 2(a) above, neither Party shall have the
right to terminate this Agreement except based on a material breach by the other Party that remains
uncured after written notice of same and a reasonable opportunity to cure.

RELEASE AND DISCHARGE

     4. The following releases shall become effective upon receipt by PepsiCo of the Settlement
Amount strictly within the time and in the manner specified in Paragraph 1 above, or upon PepsiCo’s
filing of the Agreed Judgment as provided in Paragraph 2(b) above (the “Release Date”).

     5. Upon the Release Date, PepsiCo, for and on behalf of itself and its officers, employees,
representatives, assigns, and successors and all others in privity with it or any of them or who
may claim under them or any of them by way of a derivative claim or assignment, do hereby
compromise and settle all matters and FULLY RELEASE AND FOREVER DISCHARGE Pizza Inn, its
attorneys, officers, partners, members, directors, employees, agents, servants, shareholders,
insurers, reinsurers, representatives, assigns, affiliate companies, parent companies,
subsidiaries, successors, and all other persons, firms, organizations or corporations in privity
with it, or any of them, as well as any other persons or companies, whether named herein or not, of
and from all claims, debts, demands, actions, causes of action, suits, sums of money, contracts,
agreements, judgment, controversies and liabilities whatsoever, both at law and in equity, common
law or statutory, which PepsiCo has held or may now or in the future hold against Pizza Inn. This
Release and Discharge specifically includes, but is not limited to, the Claims asserted or that
could have been asserted in the Lawsuit.

     6. Upon the Release Date, Pizza Inn, for and on behalf of itself and its officers, employees,
representatives, assigns, and successors and all others in privity with it or any of them or who
may claim under them or any of them by way of a derivative claim or assignment, do hereby
compromise and settle all matters and FULLY RELEASE AND FOREVER DISCHARGE PepsiCo, its attorneys,
officers, partners, members, directors, employees, agents, servants, shareholders, insurers,
reinsurers, representatives, assigns, affiliate companies, parent companies, subsidiaries,
successors, and all other persons, firms, organizations or corporations in privity with it, or any
of them, as well as any other persons or companies, whether named herein or not, of and from all
claims, debts, demands, actions, causes of action, suits, sums of money, contracts, agreements,
judgment, controversies and liabilities whatsoever, both at law and in equity, common law or
statutory, which Pizza Inn has held or may now or in the future hold against PepsiCo. This Release
and Discharge specifically includes, but is not limited to, the Claims asserted or that could have
been asserted in the Lawsuit.

     7. The foregoing releases expressly include, but are not limited to, any and all claims or
causes of action, whether asserted in the Lawsuit or not, in favor of Pizza Inn or Timothy Taft,

COMPROMISE SETTLEMENT AGREEMENT 

AND MUTUAL RELEASE - Page 3

 

 

against PepsiCo or Jeff Ingram, or vice versa, related to or arising from any message board
postings, statements or publications, made by Mr. Ingram or Mr. Taft.

     8. The foregoing releases expressly do not include any claims arising under this Agreement,
and any actions by PepsiCo to enforce its rights pursuant to Paragraph 2(b) above.

DISMISSAL OF SUIT

     9. Upon the Release Date, or as soon thereafter as practicable, the Parties shall dismiss with
prejudice all claims asserted or that could have been asserted by either of them in the Lawsuit.
The Agreed Order of Dismissal shall provide for a dismissal with prejudice, with costs to be taxed
against the party incurring same.

CONFIDENTIALITY

     10. The Parties and additional signatories hereto agree that they shall not knowingly make or
publish, or cause to be made or published, any oral or written statement to any person or entity
(i) that discusses or otherwise discloses the substance of any settlement discussions or
negotiations relating to the Claims in the Lawsuit prior to this settlement (other than the
specific terms of this Agreement); or (ii) that discusses or otherwise discloses any information
designated by the other Party as Confidential pursuant to the Agreed Protective Order entered in
the Lawsuit on July 11, 2006. It is expressly agreed and understood that the Agreed Protective
Order shall remain binding and in full force and effect according to its terms following execution
of this Agreement and dismissal of the Lawsuit.

REPRESENTATIONS, WARRANTIES AND COVENANTS

     11. Each of the Parties and the additional signatories make the following representations,
warranties, and covenants:

     a. The Parties and signatories hereto each warrant and represent that they have read
this Agreement, they have conferred with their respective attorneys concerning this
Agreement and the terms and conditions hereof, and that they fully understand the terms,
conditions, requirements and effects of this Agreement.

     b. The Parties and signatories hereto each warrant and represent that they are
executing this Agreement freely and voluntarily, without threat, duress, coercion or promise
of consideration other than that stated herein and that they are competent to execute this
Agreement and have the authority to enter into the terms and conditions set forth herein.

     c. The Parties hereto each warrant and represent that the individual executing this
Agreement on its respective behalf has the authority and power to execute this Agreement for
the entity on behalf of which he or she executes this Agreement.

     d. The Parties and signatories hereto each warrant and represent that it is the full
and complete owner of all right, title and interest in the claims and to all claims released
by such Party or signatory in this Agreement and that there has been no

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AND MUTUAL RELEASE - Page 4

 

 

assignment or other transfer of right, title or interest in any of the claims released
in this Agreement.

     12. The representations and warranties contained herein shall survive the execution and
performance of this Agreement.

ENTIRE AGREEMENT

     13. Except as expressly provided herein, this Agreement constitutes the entire agreement and
understanding among the Parties with respect to the subject matter hereof. This Agreement
supersedes all prior oral and written communications, agreements, arrangements and understandings
(written or otherwise) with respect to such actual or potential claims and no oral or written
communication, representation or warranty, express or implied, has been made by or relied upon by
any Party hereto, except as expressly contained herein. This Agreement may not be modified,
amended or altered in any way, or rescinded except by a writing executed and signed by the Parties,
subject only to PepsiCo’s rights set forth in Paragraph 2 hereof. Any waiver of any term or
condition of this Agreement must be in writing and shall only be effective for the specific period
and purpose expressly stated therein, and any such waiver shall not constitute or be construed as
the waiver of any other provisions hereof or for any other purpose or time.

RESPONSIBILITY FOR COSTS

     14. The Parties acknowledge that each is responsible to pay its own attorneys’ fees and
costs, including taxable costs of court. The Parties declare, represent and warrant that their
attorneys have been or will be paid in full and that their attorneys do not have, nor shall they
seek to recover, any claims or damages against or from the other Party.

NON-WAIVER

     15. No delay or omission by a Party to exercise any right in connection herewith shall impair
such right or be construed to be a waiver thereof and no waiver of any right or the breach of any
provision hereof shall be construed to be a waiver of any other right or provision or any
subsequent breach of such provision.

NO ADMISSION OF FACT OR LIABILITY

     16. The Parties each acknowledge and agree that this Agreement is being executed, and the
consideration hereunder being given by each Party, in full compromise and settlement of disputed
claims among the Parties and to avoid further trouble, litigation, and expense and that the fact of
this Agreement shall not be taken in any way as an admission of fact or liability by any Party. In
the event of termination of this Agreement pursuant to Paragraph 2(a), neither the fact of this
Agreement nor any term or provision hereof, or any actions taken pursuant hereto, shall be usable
or admissible in any proceeding between the Parties.

CHOICE OF LAW

     17. THIS AGREEMENT, ANY DISPUTES WHICH MAY ARISE IN CONNECTION WITH THE INTERPRETATION OR
ENFORCEMENT OF THE

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AND MUTUAL RELEASE - Page 5

 

 

AGREEMENT, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES GENERALLY SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF TEXAS AND WITHOUT REGARD OR REFERENCE TO CHOICE OR CONFLICT OF LAW RULES.

EXECUTION IN COUNTERPARTS

     18. This Agreement may be executed in multiple counterparts, each of which shall be deemed an
original for all purposes, and all of which together shall constitute one instrument when executed
by the Parties and signatories hereto. Any signature page of a counterpart executed by any Party
(and any notarial acknowledgment thereof) may be detached from such counterpart without impairing
the legal effect of the signature or signatures thereon and be attached to another counterpart
identical in form thereto but having attached to it one or more additional signature pages (and
notarial acknowledgments) signed by the other Party.

SEVERABILITY

     19. The provisions of this Agreement are severable, and if any of the provisions shall be held
by any court of competent jurisdiction to be unenforceable, such holding shall not affect or impair
any other provision hereof.

FURTHER ASSURANCES

     20. The Parties each agree to take or cause to be taken all other actions reasonably necessary
to carry out the provisions of this Agreement.

HEADINGS

     21. The headings of this Agreement are for the purpose of reference only and shall not limit
or otherwise affect the meaning thereof.

[remainder of this page intentionally left blank; signature pages follow]

COMPROMISE SETTLEMENT AGREEMENT 

AND MUTUAL RELEASE - Page 6

 

 

SIGNATURES AND ACKNOWLEDGMENTS

     Accepted, agreed and acknowledged as of the Execution Date first set forth above:

	 	 	 
	PEPSICO, INC.
	 	 
	 
	 	 
	By: /s/ Kathryn L. Carson
 

Its: Assistant Secretary

	 	 
	 
	 	 
	PIZZA INN, INC.
	 	 
	 
	 	 
	By: /s/ Timothy P. Taft
 

Its: Chief Executive Officer

	 	 

Timothy Taft and Jeff Ingram execute this Agreement for purposes of acknowledging and agreeing to
the provisions of Paragraphs 7, 10 and 11 hereof.

	 	 	 
	/s/ Timothy P. Taft
 

Timothy Taft

	 	 
	 
	 	 
	/s/ Jeff Ingram
 

Jeff Ingram

	 	 

COMPROMISE SETTLEMENT AGREEMENT 

AND MUTUAL RELEASE - Page 7exv10w6

 

Exhibit 10.6

FINANCING AGREEMENT

THE CIT GROUP/COMMERCIAL SERVICES, INC.

(as Lender)

and

PIZZA INN, INC.

(as Company)

Dated: January 23, 2007

Financial Agreement — Pizza Inn

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 
	 	 	 	 	 	 
	SECTION 1.
	 	DEFINITIONS	 	 	1	 
	1.1.
	 	Defined Terms	 	 	1	 
	 
	 	 	 	 	 	 
	SECTION 2.
	 	CONDITIONS PRECEDENT	 	 	16	 
	2.1.
	 	Conditions Precedent to Initial Funding	 	 	16	 
	2.2.
	 	Conditions to Each Extension of Credit	 	 	19	 
	 
	 	 	 	 	 	 
	SECTION 3.
	 	REVOLVING LOANS AND COLLECTIONS	 	 	19	 
	3.1.
	 	Funding Conditions and Procedures	 	 	19	 
	3.2.
	 	Handling of Proceeds of Collateral; Cash Dominion	 	 	20	 
	3.3.
	 	Revolving Loan Account	 	 	21	 
	3.4.
	 	Repayment of Overadvances	 	 	21	 
	3.5.
	 	Application of Proceeds of Collateral	 	 	22	 
	3.6.
	 	Monthly Statement	 	 	22	 
	3.7.
	 	Access to CIT’s System	 	 	22	 
	 
	 	 	 	 	 	 
	SECTION 4.
	 	[INTENTIONALLY DELETED]	 	 	23	 
	 
	 	 	 	 	 	 
	SECTION 5.
	 	LETTERS OF CREDIT	 	 	23	 
	5.1.
	 	Assistance and Purpose	 	 	24	 
	5.2.
	 	Authority to Charge Revolving Loan Account	 	 	24	 
	5.3.
	 	Indemnity Relating to Letters of Credit	 	 	24	 
	5.4.
	 	Compliance of Goods, Documents and Shipments with Agreed Terms	 	 	24	 
	5.5.
	 	Handling of Goods, Documents and Shipments	 	 	25	 
	5.6.
	 	Compliance with Laws; Payment of Levies and Taxes	 	 	25	 
	5.7.
	 	Subrogation Rights	 	 	26	 
	 
	 	 	 	 	 	 
	SECTION 6.
	 	COLLATERAL	 	 	26	 
	6.1.
	 	Grant of Security Interest	 	 	26	 
	6.2.
	 	Limited License	 	 	26	 
	6.3.
	 	Representations, Covenants and Agreements Regarding Collateral Generally	 	 	27	 
	6.4.
	 	Representations Regarding Accounts and Inventory	 	 	27	 
	6.5.
	 	Covenants and Agreements Regarding Accounts and Inventory	 	 	28	 
	6.6.
	 	Covenants and Agreements Regarding Equipment	 	 	28	 
	6.7.
	 	General Intangibles	 	 	29	 
	6.8.
	 	Commercial Tort Claims	 	 	29	 
	6.9.
	 	Letter of Credit Rights	 	 	29	 
	6.10.
	 	Real Estate	 	 	30	 
	6.11.
	 	Reference to Other Loan Documents	 	 	30	 
	6.12.
	 	Credit Balances; Additional Collateral	 	 	30	 

Financial Agreement — Pizza Inn

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	 	 	 	 	Page	 
	 
	 	 	 	 	 	 
	SECTION 7.
	 	REPRESENTATIONS, WARRANTIES AND COVENANTS	 	 	30	 
	7.1.
	 	Initial Disclosure Representations and Warranties	 	 	30	 
	7.2.
	 	Affirmative Covenants	 	 	32	 
	7.3.
	 	Financial Covenants	 	 	42	 
	7.4.
	 	Negative Covenants	 	 	42	 
	 
	 	 	 	 	 	 
	SECTION 8.
	 	INTEREST, FEES AND EXPENSES	 	 	44	 
	8.1.
	 	Interest	 	 	44	 
	8.2.
	 	Default Interest Rate	 	 	44	 
	8.3.
	 	Fees and Expenses Relating to Letters of Credit	 	 	44	 
	8.4.
	 	Out-of Pocket Expenses	 	 	44	 
	8.5.
	 	Line of Credit Fee; Collection Days	 	 	44	 
	8.6.
	 	[Intentionally Deleted]	 	 	45	 
	8.7.
	 	Administrative Management Fee	 	 	45	 
	8.8.
	 	Standard Operational Fees	 	 	45	 
	8.9.
	 	LIBOR Loans	 	 	45	 
	8.10.
	 	LIBOR Breakage Costs and Fees	 	 	47	 
	8.11.
	 	Early Termination Fee	 	 	47	 
	8.12.
	 	Capital Adequacy	 	 	47	 
	8.13.
	 	Taxes, Reserves and Other Conditions	 	 	48	 
	8.14.
	 	Authority to Charge Revolving Loan Account	 	 	49	 
	 
	 	 	 	 	 	 
	SECTION 9.
	 	POWERS	 	 	49	 
	9.1.
	 	Authority	 	 	49	 
	9.2.
	 	Limitations on Exercise	 	 	50	 
	 
	 	 	 	 	 	 
	SECTION 10.
	 	EVENTS OF DEFAULT AND REMEDIES	 	 	50	 
	10.1.
	 	Events of Default	 	 	50	 
	10.2.
	 	Remedies With Respect to Outstanding Loans	 	 	51	 
	10.3.
	 	Remedies With Respect to Collateral	 	 	52	 
	10.4.
	 	General Indemnity	 	 	53	 
	 
	 	 	 	 	 	 
	SECTION 11.
	 	TERMINATION	 	 	54	 
	 
	 	 	 	 	 	 
	SECTION 12.
	 	MISCELLANEOUS	 	 	54	 
	12.1.
	 	Waivers	 	 	54	 
	12.2.
	 	Entire Agreement; Amendments	 	 	54	 
	12.3.
	 	Usury Limit	 	 	54	 
	12.4.
	 	Severability	 	 	55	 
	12.5.
	 	WAIVER OF JURY TRIAL; SERVICE OF PROCESS	 	 	55	 
	12.6.
	 	Notices	 	 	55	 
	12.7.
	 	CHOICE OF LAW	 	 	56	 

Financial Agreement — Pizza Inn

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EXHIBITS

Exhibit A – Form of Compliance Certificate

SCHEDULES

Schedule 1.1(a) – Existing Liens

Schedule 1.1(b) – Existing Indebtedness

Schedule 7.1(b) – Company and Collateral Information

Schedule 7.1(g) – Pending Litigation

Schedule 7.2(l) – Post-Closing Obligations

Schedule 7.7 – Environmental Matters

Financial Agreement — Pizza Inn

iv

 

     THE CIT GROUP/COMMERCIAL SERVICES, INC., a New York corporation, with an office located at
5420 LBJ Freeway, Suite 200, Dallas, Texas 75240 (“CIT”), is pleased to confirm the terms
and conditions under which CIT shall make revolving loans and other financial accommodations to
PIZZA INN, INC., a Missouri corporation (the “Company”), with a principal place of business
at 3551 Plano Parkway, The Colony, TX 75056.

SECTION 1. DEFINITIONS.

     1.1. Defined Terms. As used in this Financing Agreement:

     Accounts shall mean any and all of the Company’s present and future: (a) accounts (as
defined in the UCC); (b) instruments, documents, chattel paper (including electronic chattel paper)
(all as defined in the UCC); (c) unpaid seller’s or lessor’s rights (including rescission,
replevin, reclamation, repossession and stoppage in transit) relating to the foregoing or arising
therefrom; (d) rights to any goods represented by any of the foregoing, including rights to
returned, reclaimed or repossessed goods; (e) reserves and credit balances arising in connection
with or pursuant to this Financing Agreement; (f) guaranties, other supporting obligations, payment
intangibles and letter of credit rights (all as defined in the UCC); (g) insurance policies or
rights relating to any of the foregoing; (h) general intangibles pertaining to any of the foregoing
(including rights to payment, including those arising in connection with bank and non-bank credit
cards), and all books and records and any electronic media and software relating thereto; (i)
notes, deposits or other property of the Company’s account debtors securing the obligations owed by
such account debtors to the Company; and (j) all Proceeds of any of the foregoing.

     Adjustment Date shall mean December 31, 2007 and the first day of each fiscal quarter
of the Company thereafter.

     Administrative Management Fee shall mean an amount equal to $1,000 per month, payable
in accordance with Section 8.7 of this Financing Agreement.

     Applicable Margin shall mean, from the Closing Date until the initial Adjustment Date,
with respect to the Revolving Loans, 0.25% for Chase Bank Rate Loans and 2.50% for LIBOR Loans and
for Letters of Credit, 3.00%. On the initial Adjustment Date, and on each subsequent Adjustment
Date thereafter, the Applicable Margins for Chase Bank Rate Loans and LIBOR Loans shall be adjusted
prospectively based on the Fixed Charge Coverage Ratio of the Company for the most recently
completed four fiscal quarter period, in the following amounts:

Financial Agreement — Pizza Inn

 

 

	 	 	 	 	 	 	 	 	 
	Fixed Charge Coverage	 	 	 	 
	Ratio	 	Chase Bank Rate Loans	 	LIBOR Loans
	Less than 2.5 to 1.00
	 	 	0.50	%	 	 	3.00	%
	 
	 	 	 	 	 	 	 	 
	Greater than or equal to 2.50 to
1.00 but less than 3.00 to 1.00
	 	 	0.25	%	 	 	2.50	%
	 
	 	 	 	 	 	 	 	 
	Greater than or equal to 3.00 to
1.00
	 	 	0.00	%	 	 	2.00	%

All adjustments to the Applicable Margins shall be implemented by CIT based on the financial
statements and related officer’s certificate for the relevant period delivered by the Company to
CIT pursuant to Section 7.2(h)(ii) hereof, and shall take effect retroactively on the
Adjustment Date immediately preceding the date of CIT’s receipt of such financial statements.
Notwithstanding the foregoing: (a) no reduction in Applicable Margins shall occur on an Adjustment
Date if a Default or an Event of Default shall have occurred and remain outstanding on such
Adjustment Date or the date of CIT’s receipt of the financial statements on which such reduction is
to be based; and (b) if the Company fails to deliver the financial statements on which any
reduction in applicable margins is to be based within ten (10) days of the due date for such items
set forth in Section 7.2(h)(ii), then effective as of the Adjustment Date immediately
preceding the due date for such financial statements, the Applicable Margins shall increase to the
highest margins set forth in the table above until the following Adjustment Date.

     Availability Reserve shall mean an amount equal to the sum of:

     (a) any reserve which CIT may establish from time to time pursuant to the express terms of
this Financing Agreement and based on CIT’s reasonable credit judgment; plus

     (b) three (3) months rental payments or similar charges for any of the Company’s leased
premises or other Collateral locations for which the Company has not delivered to CIT a landlord’s
waiver in form and substance reasonably satisfactory to CIT; plus

     (c) a monthly reserve for accrued interest on LIBOR Loans having an Interest Period of more
than 30 days; plus

     (d) such other reserves against Net Availability as CIT deems necessary in the exercise of its
reasonable business judgment as a result of (i) negative forecasts and/or trends in the Company’s
business, industry, prospects, profits, operations or financial condition or (ii) other issues,
circumstances or facts that could otherwise negatively impact the Company or its business,
prospects, profits, operations, industry, financial condition or assets.

     Borrowing Base shall mean, at any time:

     (a) the sum at such time of: (i) eighty-five percent (85%) of the Company’s outstanding
Eligible Accounts Receivable, provided that the aggregate amount of any Royalty Accounts Receivable
shall not exceed $250,000 at any time; plus (ii) the lesser of (x) sixty

Financial Agreement — Pizza Inn

2

 

percent (60%) of the aggregate value of the Eligible Inventory, valued by using the average
cost accounting method, or (y) eighty-five percent (85%) of the Net Orderly Liquidation Value of
the Company’s Inventory, or (z) the amount determined above in clause (i); less

     (b) the amount of the Availability Reserve in effect at such time.

     Business Day shall mean any day on which CIT and JPMorgan Chase Bank are open for
business.

     Capital Expenditures shall mean, for any period, the aggregate expenditures of the
Company and any Guarantor during such period on account of property, plant, equipment or similar
fixed assets that, in conformity with GAAP, are required to be reflected on the balance sheet of
the Company.

     Capital Lease shall mean any lease of property (whether real, personal or mixed)
which, in conformity with GAAP, is accounted for as a capital lease or a Capital Expenditure on the
balance sheet of the Company.

     Casualty Proceeds shall mean (a) payments or other proceeds from an insurance carrier
with respect to any loss, casualty or damage to Collateral, and (b) payments received on account of
any condemnation or other governmental taking of any of the Collateral.

     Change of Control shall mean either: (a) Newcastle Partners, L.P. (the “Current
Shareholder”), a Texas limited partnership, shall cease to directly own and control at least
twenty percent (20%) of the outstanding voting securities of the Company on a fully diluted basis;
(b) any shareholder or other equity owner shall own and control a greater percentage of the
outstanding voting securities of the Company than the Current Shareholder, on a fully diluted
basis; or (c) the failure of Company to continue to own more than one hundred percent (100%) of the
issued and outstanding capital stock in any Guarantor unless such failure is the result of a
Permitted Restructuring.

     Chase Bank Rate shall mean the rate of interest per annum announced by JPMorgan Chase
Bank (or its successor) from time to time as its “prime rate” in effect at its principal office in
New York City. (The prime rate is not intended to be the lowest rate of interest charged by
JPMorgan Chase Bank to its borrowers).

     Chase Bank Rate Loans shall mean any loans or advances made pursuant to this Financing
Agreement that bear interest based upon the Chase Bank Rate.

     CIT’s Bank Account shall mean CIT’s bank account at JPMorgan Chase Bank (or its
successor) in New York, New York.

     CIT’s System shall mean CIT’s StuckeyNet or other internet-based loan accounting and
reporting system.

     Closing Date shall mean the date on which this Financing Agreement is executed by the
parties hereto and delivered to CIT.

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     Collateral shall mean, collectively, all present and future Accounts, Equipment,
Inventory and other Goods, Documents of Title, General Intangibles, Investment Property, Real
Estate and Other Collateral and with respect to any Guarantor, any other “Collateral” (as defined
in the Security Agreement).

     Collection Days shall mean a period of one (1) Business Day after the deposit of
proceeds of Collateral or other monies into CIT’s Bank Account, for which interest may be charged
on the aggregate amount of such deposits at the rate provided for in Section 8.1 or 8.2 (if
applicable) of this Financing Agreement.

     Consolidated Balance Sheet shall mean a consolidated balance sheet for the Company and
its subsidiaries, eliminating all inter-company transactions and prepared in accordance with GAAP.

     Consolidating Balance Sheet shall mean a Consolidated Balance Sheet plus individual
balance sheets for the Company and each of the Companies’ subsidiaries, showing all eliminations of
inter-company transactions and prepared in accordance with GAAP.

     Copyrights shall mean all present and hereafter acquired copyrights, copyright
registrations, recordings, applications, designs, styles, licenses, marks, prints and labels
bearing any of the foregoing, all reissues and renewals thereof, all licenses thereof, all other
general intangible, intellectual property and other rights pertaining to any of the foregoing,
together with the goodwill associated therewith, and all income, royalties and other Proceeds of
any of the foregoing.

     Default shall mean any event specified in Section 10.1 hereof, regardless of
whether any requirement for the giving of notice, the lapse of time, or both, or any other
condition, event or act, has occurred or been satisfied.

     Default Rate of Interest shall mean a rate of interest equal to two percent (2%)
per annum greater than the interest rate accruing on the Obligations pursuant to
Section 8.1 hereof, which CIT shall be entitled to charge the Company in the manner set
forth in Section 8.2 of this Financing Agreement.

     Depository Account shall mean the each bank account (and the related lockbox, if any)
subject to CIT’s control that is established by CIT or the Company or any Guarantor pursuant to
pursuant to Section 2.1(j) or Section 3.2(c) of this Financing Agreement.

     Depository Account Control Agreement shall mean a three-party agreement in form and
substance satisfactory to CIT among CIT, the Company and the bank which will maintain a Depository
Account, (a) which provides CIT with control of such Depository Account and provides for the
transfer of funds in a manner consistent with the provisions of Section 3.2(b) of this
Financing Agreement, and (b) pursuant to which such bank agrees that (i) all cash, checks, wires
and other items received or deposited into the Depository Account are the property of CIT, and (ii)
except as otherwise provided in the Depository Account Control Agreement, such bank has no lien
upon, or right of set off against, the Depository Account and any cash, checks, wires and other
items from time to time on deposit therein.

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     Dilution Percentage shall mean, with respect to the Company during any period of
measurement, the quotient (expressed as a percentage) obtained by dividing (a) the aggregate amount
of the Company’s non-cash reductions against Trade Accounts Receivable, during such period,
by (b) the average amount of the Company’s gross sales during such period, as determined by
CIT in the exercise of its reasonable business judgment. The Dilution Percentage shall be
determined by CIT based on its reviews of the periodic financial and collateral reports submitted
by the Company to CIT as well as the results of the periodic field examinations of the Company
conducted by CIT from time to time. The period of measurement for calculating the Dilution
Percentage shall be determined by CIT from time to time in the exercise of its reasonable business
judgment.

     Distributor shall mean Institutional Jobbers Company, a Tennessee corporation, and The
SYGMA Network, Inc., a Delaware corporation.

     Documentation Fees shall mean CIT’s standard fees for the use of CIT’s in-house legal
department relating to any and all modifications, waivers, releases, legal file reviews or
additional collateral with respect to this Financing Agreement, the Collateral and/or the
Obligations.

     Documents of Title shall mean all present and future documents (as defined in the
UCC), and any and all warehouse receipts, bills of lading, shipping documents, chattel paper,
instruments and similar documents, all whether negotiable or non-negotiable, together with all
Inventory and other Goods relating thereto, and all Proceeds of any of the foregoing.

     Early Termination Date shall mean a date prior to any Termination Date on which the
Company terminates this Financing Agreement or the Revolving Line of Credit.

     Early Termination Fee shall mean an amount equal to the product obtained by
multiplying (a) the maximum amount of the Revolving Line of Credit times (b) (i) three
percent (3.00%) if the Early Termination Date occurs on or before the first anniversary of the
Closing Date, (ii) two percent (2.00%) if the Early Termination Date occurs after first anniversary
of the Closing Date but on or before the second anniversary of the Closing Date; and (iii) one
percent (1.00%) if the Early Termination Date occurs after the second anniversary of the Closing
Date but prior to the initial Termination Date.

     EBITDA shall mean, for any period, all earnings before all interest, tax obligations
and depreciation and amortization expense of the Company for such period, all determined in
conformity with GAAP on a basis consistent with the latest audited financial statements of the
Company, but excluding the effect of extraordinary and/or nonrecurring gains or losses for such
period.

     Electronic Transmission shall have the meaning given to such term in Section
7.2(g) of this Financing Agreement.

     Eligible Accounts Receivable shall mean the gross amount of the Company’s Trade
Accounts Receivable that are subject to a valid, exclusive, first priority and fully perfected
security interest in favor of CIT, which conform to the warranties contained herein and which, at

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all times, continue to be acceptable to CIT in the exercise of its reasonable business
judgment, less, without duplication, the sum of:

     (a) actual returns, discounts, claims, credits and allowances of any nature (whether issued,
owing, granted, claimed or outstanding), plus

     (b) reserves for such Trade Accounts Receivable that arise from, or are subject to or include:
(i) sales to the United States of America, any state or other governmental entity or to any agency,
department or division thereof, except for any such sales as to which the Company has complied with
the Assignment of Claims Act of 1940 or any other applicable statute, rules or regulation to CIT’s
satisfaction in the exercise of its reasonable business judgment; (ii) foreign sales, other than
sales which otherwise comply with all of the other criteria for eligibility hereunder and are (x)
secured by letters of credit (in form and substance satisfactory to CIT) issued or confirmed by,
and payable at, banks acceptable to CIT having a place of business in the United States of America,
or (y) to customers residing in Canada, provided that such Accounts are payable in United
States Dollars; (iii) Accounts that remain unpaid more than the earlier of ninety (90) days from
invoice date or sixty (60) days from due date; (iv) contra accounts; (v) sales to any subsidiary
(direct or indirect) or parent (direct or indirect) of the Company, or to any other person or
entity otherwise affiliated with the Company or with any shareholder, subsidiary (direct or
indirect) of the Company in any way; (vi) bill and hold (deferred shipment) or consignment sales;
(vii) sales to any customer which is either (w) insolvent, (x) the debtor in any bankruptcy,
insolvency, arrangement, reorganization, receivership or similar proceedings under any federal or
state law, (y) negotiating, or has called a meeting of its creditors for purposes of negotiating, a
compromise of its debts, or (z) financially unacceptable to CIT or has a credit rating unacceptable
to CIT; (viii) all sales to any customer if fifty percent (50%) or more of the aggregate dollar
amount of all outstanding invoices to such customer are unpaid more than the earlier of ninety (90)
days from invoice date or sixty (60) days from due date; (ix) sales to any customer and/or its
affiliates to the extent the aggregate outstanding amount of such sales at any time exceed twenty
percent (20%) or more of all Eligible Accounts Receivable at such time; (x) pre-billed receivables
and receivables arising from progress billings; and (xi) sales not payable in United States
currency; plus

     (c) Accounts that arise from the sale or delivery of Inventory or goods by a Distributor or
other third-party that is invoiced by such Distributor or such other third-party unless there is a
written agreement satisfactory to CIT that provides for, among other things, that the Distributor
or the third-party, as applicable, and any secured party of such Distributor or such third-party
waives all right, title and interest therein; plus

     (d) reserves established by CIT to account for increases in the Company’s Dilution Percentage
above the Company’s historical Dilution Percentage, and such other reserves against Trade Accounts
Receivable as CIT deems necessary in the exercise of its reasonable business judgment and which are
customary either in the commercial finance industry or in the lending practices of CIT.

     Eligible Inventory shall mean the gross amount of the Company’s Inventory that is
subject to a valid, exclusive, first priority and fully perfected security interest in favor of CIT
and which conforms to the warranties contained herein and which, at all times continues to be

Financial Agreement — Pizza Inn

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acceptable to CIT in the exercise of its reasonable business judgment, less, without
duplication, (a) all work-in-process, (b) all supplies (other than raw materials), (c) all
Inventory not present in the United States of America, (d) all Inventory returned or rejected by
the Company’s customers (other than goods that are undamaged and resalable in the normal course of
business) and goods to be returned to the Company’s suppliers, (e) all Inventory in transit or in
the possession of a warehouseman, bailee, third party processor, distributor or other third party,
unless such warehouseman, bailee, distributor or third party has executed an agreement regarding
goods, invoicing and accounts receivable (in form and substance satisfactory to CIT) and if such
Person has a lender, such lender has executed a notice of security interest agreement (in form and
substance satisfactory to CIT), (f) Inventory located at Distributor’s premises, unless the Company
shall cause such Distributor to maintain policies of insurance, with such insurance companies, in
such reasonable amounts and covering such insurable risks as are at all times reasonably
satisfactory to CIT and insurance company to name CIT as the loss payee thereunder (unless
otherwise agreed to by CIT) with respect to such Inventory and the Distributor’s landlord has
executed a landlord waiver (in form and substance satisfactory to CIT unless otherwise agreed to by
CIT); and (g) the amount of such other reserves against Inventory as CIT deems necessary in the
exercise of its reasonable business judgment, including, without limitation, reserves for special
order, licensed or private label goods, discontinued, slow-moving and obsolete Inventory, market
value declines, bill and hold (deferred shipment), consignment sales, shrinkage and any applicable
customs, freight, duties and Taxes.

     Equipment shall mean all present and hereafter acquired equipment (as defined in the
UCC) including, without limitation, all machinery, equipment, rolling stock, furnishings and
fixtures, and all additions, substitutions and replacements thereof, wherever located, together
with all attachments, components, parts, equipment and accessories installed thereon or affixed
thereto and all Proceeds of any of the foregoing.

     ERISA shall mean the Employee Retirement Income Security Act or 1974, as amended from
time to time, and the rules and regulations promulgated thereunder from time to time.

     Eurocurrency Reserve Requirements shall mean for any day, as applied to a LIBOR Loan,
the aggregate (without duplication) of the maximum rates of reserve requirement (expressed as a
decimal fraction) in effect with respect to CIT and/or any present or future lender or participant
on such day (including, without limitation, basic, supplemental, marginal and emergency reserves
under Regulation D or any other applicable regulations of the Board of Governors of the Federal
Reserve System or other governmental authority having jurisdiction with respect thereto, as now and
from time to time in effect, dealing with reserve requirements prescribed for Eurocurrency funding
(currently referred to as “Eurocurrency Liabilities” in Regulation D of such Board) maintained by
CIT and/or any such lenders or participants (such rates to be adjusted to the nearest one-sixteenth
of one percent (1/16 of 1%) or, if there is not a nearest one-sixteenth of one percent (1/16 of
1%), to the next higher one sixteenth of one percent (1/16 of 1%).

     Event(s) of Default shall have the meaning given to such term in Section 10.1
of this Financing Agreement.

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     Fixed Charge Coverage Ratio shall mean, for any period, the quotient (expressed as a
ratio) obtained by dividing (a) EBITDA of the Company and the Guarantors for such period on a
consolidated basis less Unfinanced Capital Expenditures, as incurred by the Company and the
Guarantors during such period by (b) Fixed Charges of the Company and the Guarantors on a
consolidated basis for such period.

     Fixed Charges shall mean, for any period, the sum of (a) all interest obligations
(including the interest component of Capital Leases) of the Company and the Guarantors paid or due
during such period, (b) the amount of all scheduled fees paid to CIT during such period, (c) the
amount of principal repaid or scheduled to be repaid on Indebtedness of the Company (other than the
Revolving Loans during such period) and the Guarantors, and (d) all federal, state and local income
tax expenses due and payable by the Company and Guarantors during such period (or Permitted
Distributions paid to shareholders in lieu of such taxes as permitted under Section 7.4(f)
hereof).

     GAAP shall mean generally accepted accounting principles in the United States of
America as in effect from time to time and for the period as to which such accounting principles
are to apply.

     General Intangibles shall mean all present and hereafter acquired general intangibles
(as defined in the UCC), and shall include, without limitation, all present and future right, title
and interest in and to: (a) all Trademarks, (b) Patents, utility models, industrial models, and
designs, (c) Copyrights, (d) trade secrets, (e) licenses, permits and franchises, (f) any other
forms of intellectual property, (g) all customer lists, distribution agreements, supply agreements,
blueprints, indemnification rights and tax refunds, (h) all monies and claims for monies now or
hereafter due and payable in connection with the foregoing, including, without limitation, payments
for infringement and royalties arising from any licensing agreement between the Company and any
licensee of any of the Company’s General Intangibles, and (i) all Proceeds of any of the foregoing.

     Goods shall mean all present and hereafter acquired “Goods”, as defined in the UCC,
and all Proceeds thereof.

     Guaranties shall mean the guaranty agreements executed and delivered to CIT by
Guarantors.

     Guarantors shall mean Barko Realty, Inc., Pizza Inn of Delaware, Inc., R-Check, Inc.
and any other future guarantor of all or any part of the Obligations.

     Indebtedness shall mean, without duplication, all liabilities, contingent or
otherwise, which are either (a) obligations in respect of borrowed money or for the deferred
purchase price of property, services or assets, other than Inventory, or (b) obligations with
respect to Capital Leases.

     Indemnified Party shall have the meaning given to such term in Section 10.4 of
this Financing Agreement.

Financial Agreement — Pizza Inn

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     Intellectual Property Security Agreement shall mean an Intellectual Property Security
Agreement executed by the Company and the Guarantors in favor of CIT, as the same may be modified,
amended, restated or supplemented from time to time.

     Interest Period shall mean, subject to availability: (a) with respect to an initial
request by the Company for a LIBOR Loan or the conversion of a Chase Bank Rate Loan to a LIBOR
Loan, at the option of the Company a one-month, two-month or three-month period commencing on the
borrowing or conversion date with respect to such LIBOR Loan and ending one month, two months or
three months thereafter, as applicable; and (b) with respect to any continuation of a LIBOR Loan,
at the option of the Company a one-month, two-month or three-month period commencing on the last
day of the immediately preceding Interest Period applicable to such LIBOR Loan and ending one
month, two months or three months thereafter, as applicable; provided that (i) if any
Interest Period would otherwise end on a day which is not a Working Day, such Interest Period shall
be extended to the next succeeding Working Day, and (ii) if any Interest Period begins on the last
Working Day of any month, or on a day for which there is no numerically corresponding day in the
month in which such Interest Period ends, such Interest Period shall end on the last Working Day of
the month in which such Interest Period ends.

     Inventory shall mean all present and hereafter acquired inventory (as defined in the
UCC) including, without limitation, all merchandise and inventory in all stages of production (from
raw materials through work-in-process to finished goods), and all additions, substitutions and
replacements thereof, wherever located, together with all goods and materials used or usable in
manufacturing, processing, packaging or shipping of the foregoing, and all Proceeds of any of the
foregoing.

     Investment Property shall mean all present and hereafter acquired “Investment
Property”, as defined in the UCC, together with all stock and other equity interests in the
Company’s subsidiaries, and all Proceeds thereof.

     Issuing Bank shall mean any bank issuing a Letter of Credit for the Company.

     Letters of Credit shall mean all letters of credit issued for or on behalf of the
Company with the assistance of CIT by an Issuing Bank in accordance with Section 5 hereof.

     Letter of Credit Guaranty shall mean any guaranty or similar agreement delivered by
CIT to an Issuing Bank of the Company’s reimbursement obligation under such Issuing Bank’s
reimbursement agreement, application for letter of credit or other like document.

     Letter of Credit Guaranty Fee shall mean the fee that CIT may charge the Company under
Section 8.3(a) of this Financing Agreement for issuing a Letter of Credit Guaranty or
otherwise assisting the Company in obtaining Letters of Credit.

     Letter of Credit Sub-Line shall mean the commitment of CIT to assist the Company in
obtaining Letters of Credit in an aggregate amount of up to $750,000.

     LIBOR shall mean, for any Interest Period and subject to availability, a rate of
interest equal to the quotient obtained by dividing: (a) at CIT’s election, (i) LIBOR for such
Interest Period as quoted to CIT by JPMorgan Chase Bank (or any successor thereof) two (2) Business

Financial Agreement — Pizza Inn

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Days prior to the first day of such Interest Period, or (ii) the rate of interest determined
by CIT at which deposits in U.S. Dollars are offered for such Interest Period as presented on
Telerate Systems at page 3750 as of 11:00 a.m. (London time) two (2) Business Days prior to the
first day of such Interest Period (provided that if two or more offered rates are presented
on Telerate System at page 3750 for such Interest Period, the arithmetic mean of all such rates, as
determined by CIT, will be the rate elected); by (b) a number equal to 1.00 minus the
Eurocurrency Reserve Requirements, if any, in effect on the day which is two (2) Business Days
prior to the beginning of such Interest Period.

     LIBOR Interest Payment Date shall mean, with respect to any LIBOR Loan, the last day
of the Interest Period for such LIBOR Loan.

     LIBOR Lending Office shall mean the office of JPMorgan Chase Bank, or any successor
thereof, maintained at 270 Park Avenue, New York, NY 10017.

     LIBOR Loan shall mean any loans made pursuant to this Financing Agreement that bear
interest based upon LIBOR.

     Line of Credit shall mean the commitment of CIT in an aggregate amount equal to
$3,500,000 to (a) make Revolving Loans pursuant to Section 3 of this Financing Agreement,
and (b) assist the Company in opening Letters of Credit pursuant to Section 5 of this
Financing Agreement.

     Line of Credit Fee shall mean, for any month, the product obtained by multiplying (a)
(i) the amount of the Revolving Line of Credit minus (ii) the average daily principal
balance of Revolving Loans and the average daily undrawn amount of Letters of Credit outstanding
during such month, times (b) three-eights of one percent (0.375%) per annum for the number
of days in said month.

     Loan Documents shall mean this Financing Agreement, the Promissory Note, mortgages and
deeds of trust on any Real Estate, the Pledge Agreement, the Guaranties, the Security Agreement,
the Negative Pledge, the Intellectual Property Security Agreement, the landlord waivers, the
collateral access agreements, the other closing documents executed by the Company or the
Guarantors, and any other ancillary loan and security agreements executed by the Company or the
Guarantors from time to time in connection with this Financing Agreement, all as may be renewed,
amended, restated or supplemented from time to time.

     Material Adverse Effect shall mean a material adverse effect on either (a) the
business, condition (financial or otherwise), operations, performance, properties or prospects of
the Company, (b) the ability of the Company to perform its obligations under this Financing
Agreement or any other Loan Document, or to enforce its rights against account debtors of the
Company, (c) the value of the Collateral or (d) the ability of CIT to enforce the Obligations or
its rights and remedies under this Financing Agreement or any of the other Loan Documents.

     Negative Pledge shall mean that certain negative pledge agreement dated as of the date
hereof by and among the Company, Guarantors and CIT, with respect to the Little Elm, Texas real
property location to be filed in the real property records.

Financial Agreement — Pizza Inn

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     Net Availability shall mean, at any time, the amount by which (a) the Borrowing Base
of the Company at such time exceeds (b) the sum at such time of (i) the principal amount of all
outstanding Revolving Loans, plus (ii) the undrawn amount of all outstanding Letters of
Credit.

     Net Orderly Liquidation Value shall mean, at any time, the aggregate value of the
Company’s Inventory at such time in an orderly liquidation, taking into account all costs, fees and
expenses estimated to be incurred by CIT in connection with such liquidation, based upon the most
recent appraisal of the Company’s Inventory conducted by an appraiser selected by CIT.

     Obligations shall mean: (a) all loans, advances and other extensions of credit made by
CIT to the Company or to others for the Company’s account (including, without limitation, all
Revolving Loans and all obligations of CIT under Letter of Credit Guaranties); (b) any and all
other indebtedness, obligations and liabilities which may be owed by the Company or any Guarantor
to CIT and arising out of, or incurred in connection with, this Financing Agreement or any of the
other Loan Documents (including all Out-of-Pocket Expenses), whether (i) now in existence or
incurred by the Company or any Guarantor from time to time hereafter, (ii) secured by pledge, lien
upon or security interest in any of the Company’s or any Guarantor’s assets or property or the
assets or property of any other person, firm, entity or corporation, (iii) such indebtedness is
absolute or contingent, joint or several, matured or unmatured, direct or indirect, or (iv) the
Company is liable to CIT for such indebtedness as principal, surety, endorser, guarantor or
otherwise; (c) all indebtedness, obligations and liabilities owed by the Company or any Guarantor
to CIT under any other agreement or arrangement now or hereafter entered into between the Company,
on the one hand, and CIT, on the other hand, whether or not such agreement or arrangement relates
to the transactions contemplated by this Financing Agreement; (d) indebtedness, obligations and
liabilities incurred by, or imposed on, CIT as a result of environmental claims relating to the
Company’s or any Guarantor’s operations, premises or waste disposal practices or disposal sites;
(e) the Company’s or any Guarantor’s liabilities to CIT as maker or endorser on any promissory note
or other instrument for the payment of money; and (f) the Company’s or any Guarantor’s liabilities
to CIT under any instrument of guaranty or indemnity, or arising under any guaranty, endorsement or
undertaking which CIT may make or issue to others for the Company’s account, including any
accommodations extended by CIT with respect to applications for Letters of Credit, CIT’s acceptance
of drafts or CIT’s endorsement of notes or other instruments for the Company’s account and benefit.

     Operating Leases shall mean all leases of property (whether real, personal or mixed)
other than Capital Leases.

     Other Collateral shall mean: (a) all present and hereafter established lockbox,
blocked account and other deposit accounts maintained with any bank or financial institution into
which the proceeds of Collateral are or may be deposited (including the Depository Accounts); (b)
all cash and other monies and property in the possession or control of CIT (including negative
balances in the Revolving Loan Account and cash collateral held by CIT pursuant to Section
3.5(b) hereof); (c) all books, records, ledger cards, disks and related data processing
software at any time evidencing or containing information relating to any of the Collateral
described herein or otherwise necessary or helpful in the collection thereof or realization
thereon; and (d) all Proceeds of any of the foregoing.

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     Out-of-Pocket Expenses shall mean all of CIT’s present and future costs, fees and
expenses incurred in connection with this Financing Agreement and the other Loan Documents,
including, without limitation, (a) the cost of lien searches (including tax lien and judgment lien
searches), pending litigation searches and similar items, (b) fees and taxes imposed in connection
with the filing of any financing statements or other personal property security documents; (c) all
costs and expenses incurred by CIT in opening and maintaining the Depository Accounts and any
related lockboxes, depositing checks, and receiving and transferring funds (including charges
imposed on CIT for “insufficient funds” and the return of deposited checks); (d) any amounts paid
by, incurred by or charged to CIT by an Issuing Bank under any Letter of Credit or the
reimbursement agreement relating thereto, any application for Letter of Credit, Letter of Credit
Guaranty or other like document which pertains either directly or indirectly to Letters of Credit,
and CIT’s standard fees relating to the Letters of Credit and any drafts thereunder; (e) title
insurance premiums, real estate survey costs, note taxes, intangible taxes and mortgage or
recording taxes and fees; (f) all appraisal fees and expenses payable by the Company hereunder, and
all costs, fees and expenses incurred by CIT in connection with any action taken under Section
7.2(a) hereof, including reasonable travel, meal and lodging expenses of CIT personnel; (g) all
costs that CIT may incur to maintain the Required Insurance, and all reasonable costs, fees and
expenses incurred by CIT in connection with the collection of Casualty Proceeds and the monitoring
of any repair or restoration of any Real Estate; (h) all reasonable costs, fees, expenses and
disbursements of outside counsel hired by CIT to consummate the transactions contemplated by this
Financing Agreement (including the documentation and negotiation this Financing Agreement, the
other Loan Documents and all amendments, supplements and restatements thereto or thereof), and to
advise CIT as to matters relating to the transactions contemplated hereby; (i) all costs, fees and
expenses incurred by CIT in connection with any action taken under Section 10.3 hereof; and
(j) without duplication, all costs, fees and expenses incurred by CIT in connection with the
collection, liquidation, enforcement, protection and defense of the Obligations, the Collateral and
CIT’s rights under this Financing Agreement, including, without limitation, all reasonable fees and
disbursements of in-house and outside counsel to CIT incurred as a result of a workout,
restructuring, reorganization, liquidation, insolvency proceeding and in any appeals arising
therefrom, whether incurred before, during or after the termination of this Financing Agreement or
the commencement of any case with respect to the Company, any Guarantor or any subsidiary of the
Company (as the case may be) under the United States Bankruptcy Code or any similar statute.

     Overadvances shall mean, at any time, the amount by which (a) the sum at such time of
the principal amount of all outstanding Revolving Loans plus the undrawn amount of all
outstanding Letters of Credit exceeds (b) the Borrowing Base at such time.

     Patents shall mean all present and hereafter acquired patents, patent applications,
registrations, all reissues and renewals thereof, all licenses thereof, all inventions and
improvements claimed thereunder, all general intangible, intellectual property and other rights of
the Company with respect thereto, and all income, royalties and other Proceeds of the foregoing.

     Permitted Distributions shall mean:

     (a) dividends from a wholly-owned subsidiary of the Company to the Company;

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12

 

     (b) dividends payable solely in stock or other equity interests of the Company; and

     (c) cash distributions or cash dividends to the Company’s shareholders in the ordinary course
of the Company’s business provided that no Event of Default shall have occurred and remain
outstanding on the date of the making of such distribution or dividend, or would be created
thereby, and provided further that (i) no cash dividends or distributions to the
Company’s shareholders may be made until the first anniversary of the Closing Date, (ii)
immediately prior to and after giving effect to such cash distribution or cash dividend, Net
Availability is at least $1,500,000 and (iii) the aggregate amount of all cash distributions or
cash dividends to the Company’s shareholders made pursuant to this subsection (c) shall not exceed
$2,500,000.

     Permitted Encumbrances shall mean: (a) all liens identified on Schedule 1.1(a)
attached hereto; (b) Purchase Money Liens; (c) statutory liens of landlords and liens of carriers,
warehousemen, bailees, mechanics, materialmen and other like liens imposed by law, created in the
ordinary course of business and securing amounts not yet due (or which are being contested in good
faith, by appropriate proceedings or other appropriate actions which are sufficient to prevent
imminent foreclosure of such liens), and with respect to which adequate reserves or other
appropriate provisions are being maintained by the Company or any Guarantor in accordance with
GAAP; (d) deposits made (and the liens thereon) in the ordinary course of business of the Company
(including, without limitation, security deposits for leases, indemnity bonds, surety bonds and
appeal bonds) in connection with workers’ compensation, unemployment insurance and other types of
social security benefits or to secure the performance of tenders, bids, contracts (other than for
the repayment or guarantee of borrowed money or purchase money obligations), statutory obligations
and other similar obligations arising as a result of progress payments under government contracts;
(e) liens granted to CIT by the Company or any Guarantor; (f) liens of judgment creditors,
provided that such liens do not exceed $75,000 in the aggregate at any time (other than
liens bonded or insured to the reasonable satisfaction of CIT); (g) Permitted Tax Liens; and (h)
easements (including, without limitation, reciprocal easement agreements and utility agreements),
encroachments, minor defects or irregularities in title, variation and other restrictions, charges
or encumbrances (whether or not recorded) affecting the Real Estate, if applicable, and which in
the aggregate (i) do not materially interfere with the occupation, use or enjoyment by the Company
or any Guarantor of its business or property so encumbered and (ii) in the reasonable business
judgment of CIT, do not materially and adversely affect the value of such Real Estate.

     Permitted Indebtedness shall mean: (a) current Indebtedness maturing in less than one
year and incurred in the ordinary course of business for raw materials, supplies, equipment,
services, Taxes or labor; (b) Indebtedness secured by Purchase Money Liens; (c) Indebtedness
arising under the Letters of Credit and this Financing Agreement; (d) deferred Taxes and other
expenses incurred in the ordinary course of business; (e) Subordinated Debt and (f) other
Indebtedness existing on the Closing Date and listed on Schedule 1.1(b) attached hereto.

     Permitted Restructuring shall mean the merger of BARKO REALTY, INC., a Texas
corporation, and/or R-CHECK, INC., a Texas corporation, with and into Company, so long as the
Company is the survivor of such merger.

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     Permitted Tax Liens shall mean liens for Taxes not due and payable and liens for Taxes
that the Company is contesting in good faith, by appropriate proceedings which are sufficient to
prevent imminent foreclosure of such liens, and with respect to which adequate reserves are being
maintained by the Company in accordance with GAAP; provided that in either case, such liens
(a) are not filed of record in any public office, (b) other than with respect to Real Estate, are
not senior in priority to the liens granted by the Company to CIT, or (c) do not secure taxes owed
to the United States of America (or any department or agency thereof) or any State or State
authority, if applicable State law provides for the priority of tax liens in a manner similar to
the laws of the United States of America.

     Pledge Agreement shall have the meaning given to such term in Section 2.1(q)
of this Financing Agreement.

     Proceeds shall have the meaning given to such term in the UCC, including, without
limitation, all Casualty Proceeds.

     Purchase Money Liens shall mean liens on any item of Equipment acquired by the Company
or any Guarantor after the date of this Financing Agreement, provided that (a) each such
lien shall attach only to the Equipment acquired, (b) a description of the Equipment so acquired is
furnished by the Company to CIT, and (c) the indebtedness incurred by the Company or any Guarantor
in connection with such acquisitions shall not exceed $100,000 in any fiscal year of the Company.

     Real Estate shall mean all of the Company’s or any Guarantor’s present and future fee
and leasehold interests in real property.

     Regulatory Change shall mean any change after the Closing Date in United States
federal, state or foreign law or regulation (including, without limitation, Regulation D of the
Board of Governors of the Federal Reserve System), or the adoption or making after the Closing Date
of any interpretation, directive or request applying to a class of lenders including CIT of or
under any United States federal, state or foreign law or regulation, in each case whether or not
having the force of law and whether or not failure to comply therewith would be unlawful.

     Required Insurance shall have the meaning provided for in Section 7.2(c) of
this Financing Agreement.

     Revolving Line of Credit shall mean the commitment of CIT to make Revolving Loans
pursuant to Section 3 of this Financing Agreement and assist the Company in opening Letters
of Credit pursuant to Section 5 of this Financing, in an aggregate amount equal to
$3,500,000.

     Revolving Loan Account shall mean the account on CIT’s books, in the Company’s name,
in which the Company will be charged with all Obligations when due or incurred by CIT.

     Revolving Loans shall mean the loans and advances made from time to time to or for the
account of the Company by CIT pursuant to Section 3 of this Financing Agreement.

     Royalty Accounts Receivable shall mean any Accounts that otherwise comply with the
definition of Eligible Accounts Receivable that is generated by the Company as a result of a

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license of any intellectual property or other royalty license pursuant to documentation
satisfactory to CIT in its sole discretion.

     Security Agreement shall have the meaning given to such term in Section 2.1(r)
of this Financing Agreement.

     Subordinated Debt shall mean all indebtedness of the Company (and the note(s)
evidencing such indebtedness) that is subordinated to the prior payment and satisfaction of the
Obligations pursuant to a Subordination Agreement.

     Subordination Agreements shall mean (a) any agreement (in form and substance
satisfactory to CIT) among the Company, a subordinating creditor and CIT, pursuant to which
Subordinated Debt is subordinated to the prior payment and satisfaction of the Obligations, and (b)
any note, indenture, note purchase agreement or similar instrument or agreement, pursuant to which
the indebtedness evidenced thereby or issued thereunder is subordinated to the Obligations by the
express terms of such note, indenture, note purchase agreement or similar instrument or agreement.

     Taxes shall mean all federal, state, municipal and other governmental taxes, levies,
charges, claims and assessments which are or may be owed or collected by the Company with respect
to its business, operations, Collateral or otherwise.

     Termination Date shall mean the date occurring five (5) years from the Closing Date
and the same date in every year thereafter.

     Test Period shall mean (i) for the fiscal month ending February 28, 2007 for the
two-month period then ending, (ii) for the fiscal month ending March 31, 2007 for the three-month
period then ending, (iii) for the fiscal month ending April 30, 2007 for the four-month period then
ending, (iv) for the fiscal month ending May 31, 2007 for the five-month period then ending, (v)
for the fiscal month ending June 30, 2007 for the six-month period then ending, (vi) for the fiscal
month ending July 31, 2007 for the seven-month period then ending, (vii) for the fiscal month
ending August 31, 2007 for the eight-month period then ending, (viii) for the fiscal month ending
September 30, 2007 for thee nine-month period then ending, (ix) for the fiscal month ending October
31, 2007 for the ten-month period then ending, and (x) for the fiscal month ending November 30,
2007 for the eleven-month period then ending.

     Trade Accounts Receivable shall mean that portion of the Company’s Accounts which
arises from the sale of Inventory, the rendition of services or license of intellectual property,
in each case, in the ordinary course of the Company’s business.

     Trademarks shall mean all present and hereafter acquired trademarks, trademark
registrations, recordings, applications, tradenames, trade styles, corporate names, business names,
service marks, logos and any other designs or sources of business identities, prints and labels (on
which any of the foregoing may appear), all reissues and renewals thereof, all licenses thereof,
all other general intangible, intellectual property and other rights pertaining to any of the
foregoing, together with the goodwill associated therewith, and all income, royalties and other
Proceeds of any of the foregoing.

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     UCC shall mean the Uniform Commercial Code as the same may be amended and in effect
from time to time in the State of New York.

     Unfinanced Capital Expenditure shall mean Capital Expenditures and payments on Capital
Leases by Company to the extent not financed pursuant to Indebtedness of Company having a final
maturity (or which is renewable or extendable at the option of Company for a period ending) more
than one year after the date of creation thereof.

     Working Day shall mean any Business Day on which dealings in foreign currencies and
exchanges between banks may be transacted.

SECTION 2. CONDITIONS PRECEDENT.

     2.1. Conditions Precedent to Initial Funding. The obligation of CIT to make the
initial loans and to assist the Company in obtaining initial Letters of Credit hereunder,
immediately prior to or concurrently with the making of such loans or the issuance of such Letters
of Credit, of the following conditions precedent:

     (a) Lien Searches. CIT shall have received tax lien, judgment lien and Uniform
Commercial Code searches from all jurisdictions reasonably required by CIT, and such
searches shall verify that CIT has a first priority security interest in the Collateral,
subject to Permitted Encumbrances.

     (b) Casualty Insurance. The Company shall have delivered to CIT evidence
satisfactory to CIT that all Required Insurance is in full force and effect, and CIT shall
have confirmed that CIT has been named as a loss payee or additional insured with respect to
the Required Insurance in a manner satisfactory to CIT.

     (c) UCC Filings. All UCC financing statements and similar documents required
to be filed in order to create in favor of CIT a first priority perfected security interest
in the Collateral (to the extent that such a security interest may be perfected by a filing
under the UCC or applicable law), shall have been properly filed in each office in each
jurisdiction required. CIT shall have received (i) acknowledgement copies of all such
filings (or, in lieu thereof, CIT shall have received other evidence satisfactory to CIT
that all such filings have been made), and (ii) evidence that all necessary filing fees,
taxes and other expenses related to such filings have been paid in full.

     (d) Resolutions. CIT shall have received a copy of resolutions of the board of
directors of the Company authorizing the execution, delivery and performance of the Loan
Documents to be executed by the Company and each Guarantor, certified by the Secretary or
Assistant Secretary of the Company and each Guarantor as of the date hereof, together with a
certificate of such Secretary or Assistant Secretary as to the incumbency and signature of
the officer(s) executing the Loan Documents on behalf of the manager of the Company.

     (e) Organizational Documents. CIT shall have received a copy of the
Certificate or Articles of Incorporation of the Company and each Guarantor, certified by
the applicable authority in the Company’s or such Guarantor’s, as applicable, State of

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incorporation, and copies of the bylaws (as amended through the date hereof) of the Company
and each Guarantor, certified by the Secretary or an Assistant Secretary thereof.

     (f) Officer’s Certificate. CIT shall have received an executed Officer’s
Certificate for the Company and each Guarantor, satisfactory in form and substance to CIT,
certifying that as of the Closing Date (i) the representations and warranties contained
herein are true and correct in all material respects, (ii) the Company and each Guarantor is
in compliance with all of the terms and provisions set forth herein and (iii) no Default or
Event of Default has occurred.

     (g) [Intentionally Deleted].

     (h) Disbursement Authorizations. The Company shall have delivered to CIT all
information necessary for CIT to issue wire transfer instructions on behalf of the Company
for the initial and subsequent loans and/or advances to be made under this Financing
Agreement, including disbursement authorizations in form acceptable to CIT.

     (i) Examination & Verification; Net Availability; Projections. CIT shall have
completed and be satisfied with an updated examination and verification of the Trade
Accounts Receivable, Inventory and the books and records of the Company, and such
examination shall indicate that (i) after giving effect to all loans, advances and
extensions of credit to be made at closing, the Company shall have opening Net Availability
of not less than $1,300,000, it being understood that this requirement contemplates that all
debts and obligations are current, and that all payables are being handled in the normal
course of Company’s business and consistent with its past practice, and (ii) no material
adverse change has occurred in the financial condition, business, prospects, profits,
operations or assets of the Company, the Company’s subsidiaries or the Guarantors since
September 30, 2006. In addition, the Company shall have delivered to CIT, and CIT shall be
satisfied with, balance sheet, income statement, cash flows and Net Availability projections
for the Company for not less than twelve (12) months following the Closing Date.

     (j) Depository Accounts; Payment Direction. (i) The Company or CIT shall have
established one or more Depository Accounts with respect to the collection of Accounts and
the deposit of proceeds of Collateral, and (ii) CIT, the Company and each depository bank
shall have entered into a Depository Account Control Agreement with respect to each
Depository Account.

     (k) Existing Credit Agreement. (i) The Company’s existing credit agreement
with Wells Fargo Bank, National Association (the “Existing Lender”) shall be
terminated, (ii) all loans and obligations of the Company and the Guarantors with respect
thereto shall be paid or satisfied in full utilizing the proceeds of the initial Revolving
Loans to be made under this Financing Agreement, and (iii) all liens and security interests
in favor of the Existing Lender in connection therewith shall be terminated and/or released
upon such payment.

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     (l) Guaranty and Related Documents. The Guarantors shall have executed and
delivered to CIT the Guaranties.

     (m) Opinions. Subject to the filing, priority and remedies provisions of the
UCC, the provisions of the Bankruptcy Code, insolvency statutes or other like laws, the
equity powers of a court of law and such other matters as may be agreed upon with CIT,
counsel for the Company and the Guarantors shall have delivered to CIT opinion(s)
satisfactory to CIT.

     (n) Legal Restraints/Litigation. As of the Closing Date, there shall be no (x)
injunction, writ or restraining order restraining or prohibiting the consummation of the
financing arrangements contemplated under this Financing Agreement, or (y) suit, action,
investigation or proceeding (judicial or administrative) pending against the Company, any
Guarantor, any subsidiary of the Company or any of their assets, which, in the opinion of
CIT, if adversely determined, could have a Material Adverse Effect.

     (o) Additional Documents. The Company shall have executed and delivered to CIT
the Loan Documents necessary to consummate the lending arrangement contemplated by this
Financing Agreement.

     (p) Background Checks. CIT shall have received and be satisfied with
background checks on key managers and stockholders of the Company as CIT shall designate.

     (q) Pledge Agreements. The Company shall have executed and delivered to CIT a
stock pledge agreement in form and substance satisfactory to CIT covering all capital stock
in the Company’s subsidiaries owned by the Company (including the Guarantors), together with
all stock certificates and duly executed stock powers (undated and in-blank) with respect
thereto (“Pledge Agreement”).

     (r) Security Agreement. The Guarantors shall have executed and delivered to
CIT a security agreement in form and substance satisfactory to CIT granting CIT a first
priority lien in all assets of the Guarantors, subject to Permitted Encumbrances.

     (s) Sale/Lease Transaction. The Company shall have consummated a
sale/leaseback transaction, the documentation of which shall be in a form of substance
satisfaction to CIT, and CIT shall have received evidence that Company has received net cash
proceeds of at least $10,600,000 in connection therewith.

     (t) Satisfaction of Settlement with respect to Litigation. The CIT shall have
received evidence that the Company has paid $2,800,000 to the former CEO of the Company and
such settlement has been complied with in all respects by the Company.

     Upon the execution of this Financing Agreement and the initial disbursement of the initial
loans hereunder, all of the above conditions precedent shall have been deemed satisfied, except as
the Company and CIT shall otherwise agree in a separate writing.

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     2.2. Conditions to Each Extension of Credit. Subject to the terms of this Financing
Agreement, including without limitation CIT’s rights
pursuant to Section 10.2 hereof, the agreement of CIT to make any extension of credit
requested to be made by it to Company on any date (including without limitation, the initial
extension of credit) is subject to the satisfaction of the following conditions precedent:

     (a) Representations and Warranties. Each of the representations and warranties
made by Company in or pursuant to this Financing Agreement shall be true and correct in all
material respects on and as of such date as if made on and as of such date.

     (b) No Default. No Default or Event of Default shall have occurred and be
continuing on such date or after giving effect to the extension of credit requested to be
made on such date.

     (c) Borrowing Base. Except as may be otherwise agreed to from time to time by
CIT and the Company in writing, after giving effect to the extension of credit requested to
be made by Company on such date, the aggregate outstanding balance of the Revolving Loans
and outstanding Letters of Credit owing by Company will not exceed the lesser of (i) the
Revolving Line of Credit or (ii) the Borrowing Base.

     Each borrowing by Company hereunder shall constitute a representation and warranty by the
Company as of the date of such loan or advance that each of the representations, warranties and
covenants contained in the Financing Agreement have been satisfied and are true and correct, except
as the Company and CIT shall otherwise agree herein or in a separate writing.

SECTION 3. REVOLVING LOANS AND COLLECTIONS.

     3.1. Funding Conditions and Procedures.

     (a) Amounts and Requests. Subject to the terms and conditions of this
Financing Agreement, CIT agrees to make loans and advances to the Company on a revolving
basis (i.e. subject to the limitations set forth herein, the Company may borrow, repay and
re-borrow Revolving Loans). In no event shall CIT have an obligation to make a Revolving
Loan to the Company, nor shall the Company be entitled to request or receive a Revolving
Loan, if (i) a Default or Event of Default shall have occurred and remain outstanding on the
date of request for such Revolving Loan or the date of the funding thereof, (ii) the amount
of such Revolving Loan, when added to the principal amount of the Revolving Loans
outstanding plus the undrawn amount of all Letters of Credit on the date of the
request therefor or the funding thereof, would exceed the Revolving Line of Credit, or (iii)
amount of such Revolving Loan would exceed the Net Availability of the Company on the date
of the request therefor or the funding thereof. Any request for Revolving Loan must be
received by an officer of CIT no later than 11:00 a.m., New York, New York time, (a) on the
Business Day on which such Revolving Loan is required, if the request is for a Chase Bank
Rate Loan, or (b) three (3) Business Days prior to the Business Day on which such Revolving
Loan is required, if

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the request is for a LIBOR Loan. The funding of any LIBOR Loan is also
subject to the satisfaction of the conditions set forth in Section 8.9 of this
Financing Agreement.

     (b) Phone and Electronic Loan Requests. The Company hereby authorizes CIT to
make Revolving Loans to the Company based upon a telephonic or e-mail request (or, if
permitted by CIT, based upon a request posted on CIT’s System) made by any officer or other
employee of the Company that the Company has authorized in writing to request Revolving
Loans hereunder, as reflected by CIT’s records. Each telephonic, e-mail or posted request
by the Company shall be irrevocable, and the Company agrees to confirm any such request for
a Revolving Loan in a writing approved by CIT and signed by such authorized officer or
employee, within one (1) Business Day of CIT’s request for such confirmation. CIT shall
have the right to rely on any telephonic, e-mail or posted request for a Revolving Loan made
by anyone purporting to be an officer or other employee of the Company that the Company has
authorized in writing to request Revolving Loans hereunder, without further investigation.

     (c) Reaffirmation of Representations and Warranties. Except for the
representations and warranties set forth in Sections 6.7, 6.8, 6.9
and 7.1, all of the representations and warranties made by the Company in this
Financing Agreement shall be deemed to be remade by the Company each time that the Company
requests a Revolving Loan or a Letter of Credit under this Financing Agreement, and each
such request shall also constitute a representation and warranty by the Company that, after
giving effect to the requested Revolving Loan or Letter of Credit, no Default or Event of
Default shall have occurred and remain outstanding.

     3.2. Handling of Proceeds of Collateral; Cash Dominion.

     (a) Collection of Accounts and Other Proceeds. The Company, at its expense,
will enforce and collect payments and other amounts owing on all Accounts in the ordinary
course of the Company’s business subject to the terms hereof. Except as set forth below,
the Company agrees to direct its account debtors to send payments on all Accounts directly
to a lockbox associated with a Depository Account, and to include on all of the Company’s
invoices the address of such a lockbox as the sole address for remittance of payment. With
respect to any payment on an Account or other Proceeds of the sale of Collateral that the
Company receives, including checks, cash, receipts from credit card sales and receipts,
notes or other instruments or property with respect to any Collateral, the Company agrees to
hold such proceeds in trust for CIT, separate from the Company’s other property and funds,
and to deposit such proceeds directly into a Depository Account on the Business Day
received.

     (b) Transfer of Funds from Depository Accounts. Funds remaining on deposit in
a Depository Account shall be transferred to CIT’s Bank Account on each Business Day in
accordance with the terms and provisions of the applicable Depository Account Control
Agreement, and the Company agrees to take all actions reasonably required by CIT or any bank
at which a Depository Account is maintained in order to effectuate the transfer of funds in
this manner. Subject to charges for Collection Days, all amounts received from a Depository
Account and any other proceeds of the Collateral

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deposited into CIT’s Bank Account will, for
purposes of calculating Net Availability and interest, be credited to the Revolving Loan
Account on the date of deposit in CIT’s Bank
Account. No checks, drafts or other instruments received by CIT shall constitute final
payment to CIT unless and until such instruments have actually been collected.

     (c) New Depository Accounts. The Company agrees not to open any lockbox or new
bank account into which Proceeds of Collateral are to be delivered or deposited unless
concurrently with the opening of such lockbox and/or bank account, CIT, the Company and the
bank which will maintain such lockbox or at which such account will be maintained, execute a
Depository Account Control Agreement with respect to such lockbox and/or related bank
account. Upon compliance with the terms set forth above, such lockbox and/or bank account
shall constitute a Depository Account for purposes of this Financing Agreement.

     (d) Credit Card Receipts. The Company agrees to direct all credit card
processors handling proceeds of sale of the Company’s Inventory to transfer all funds due to
the Company pursuant to such arrangement directly to a Depository Account. Promptly after
the establishment of any credit card processing or depository relationship, the Company
agrees to notify CIT in writing of the establishment of such relationship and shall cause
the credit card processor to execute and deliver to CIT an agreement in form and substance
satisfactory to CIT, pursuant to which the credit card processor agrees to deposit all sums
due to the Company pursuant to such arrangement directly to a Depository Account.

     3.3. Revolving Loan Account. CIT shall charge the Revolving Loan Account for all
loans and advances made by CIT to the Company or for the Company’s account, and for all any other
Obligations, including Out-of-Pocket Expenses, when due and payable hereunder. Subject to the
provisions of Section 3.5 below, CIT will credit the Revolving Loan Account with all
amounts received by CIT from each Depository Account or from others for the Company’s account,
including, as set forth above, all amounts received by CIT in payment of Accounts, and such amounts
will be applied to payment of the Obligations in the order and manner set forth herein. In no
event shall prior recourse to any Account or other security granted to or by the Company be a
prerequisite to CIT’s right to demand payment of any of the Obligations. In addition, the Company
agrees that CIT shall have no obligation whatsoever to perform in any respect any of the Company’s
contracts or obligations relating to the Accounts.

     3.4. Repayment of Overadvances. If at any time (a) the sum of the outstanding balance
of Revolving Loans and undrawn amount of Letters of Credit exceed the Revolving Line of Credit, or
(b) an Overadvance exists, the amount of such excess (in the case of clause (a)) or the amount of
the Overadvance (in the case of clause (b)) shall be immediately due and payable, unless CIT
otherwise agrees in writing. Should CIT for any reason honor requests for Overadvances, such
Overadvances shall be made in CIT’s sole discretion and subject to any additional terms CIT deems
necessary.

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     3.5. Application of Proceeds of Collateral.

     (a) Generally. Unless this Financing Agreement expressly provides otherwise,
so long as no Event of Default shall have occurred and remain outstanding, CIT agrees to
apply (i) all Proceeds of Trade Accounts Receivable to the Revolving Loan Account, (ii) all
Proceeds of all other Collateral and any other payment received by CIT with respect to the
Obligations, in such order and manner as CIT shall elect in the exercise of its reasonable
business judgment.

     (b) Application of Proceeds to Chase Bank Rate Loans and LIBOR Loans. So long
as no Event of Default shall have occurred and remain outstanding, CIT agrees to apply all
Proceeds of Collateral and other payments described in Section 3.5(a) to Chase Bank
Rate Loans until there are no Chase Bank Rate Loans outstanding, and then to LIBOR Loans;
provided that in the event the aggregate outstanding principal amount of Revolving
Loans that are LIBOR Loans exceeds Net Availability or any other applicable limit set forth
herein, CIT may apply all proceeds of Collateral received by CIT to the payment of the
Obligations in such manner and in such order as CIT may elect in the exercise of its
reasonable business judgment. Subject to the terms of the preceding sentence, so long as no
Event of Default shall have occurred and remain outstanding, if CIT receives Proceeds of
Collateral or other payments that exceed the outstanding principal amount of Revolving Loans
that are Chase Bank Rate Loans, the Company may request, in writing, that CIT not apply such
excess Proceeds to outstanding Revolving Loans that are LIBOR Loans, in which case CIT shall
remit such excess to the Company. If as a result of the application of the provisions of
this Section 3.5(b), any Proceeds of Collateral are applied to loans that are LIBOR
Loans, such application shall be treated as a prepayment of such LIBOR Loans and CIT shall
be entitled to the costs and fees provided for in Section 8.10 hereof.

     (c) Application of Proceeds During an Event of Default. If an Event of Default
shall have occurred and remain outstanding, CIT may apply all Proceeds of Collateral and all
other payments received by CIT to the payment of the Obligations in such manner and in such
order as CIT may elect in its sole discretion. If as a result of the application of the
provisions of this Section 3.5(c), any Proceeds or payments are applied to loans
that are LIBOR Loans, such application shall be treated as a prepayment of such LIBOR Loans
and CIT shall be entitled to the costs and fees provided for in Section 8.10 hereof.

     3.6. Monthly Statement. After the end of each month, CIT agrees to prepare and make
available to the Company by posting to CIT’s System, a statement showing the accounting for the
charges, loans, advances and other transactions occurring between CIT and the Company during that
month. Absent manifest error, each monthly statement shall be deemed correct and binding upon the
Company and shall constitute an account stated between the Company and CIT unless CIT receives a
written statement of exception from the Company within thirty (30) days of the date of such monthly
statement.

     3.7. Access to CIT’s System. CIT shall provide to the Company access to CIT’s System
during normal business hours, for the purposes of (i) obtaining information regarding

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loan balances
and Net Availability, and (ii) if permitted by CIT, making requests for Revolving Loans and
submitting borrowing base certificates. Such access shall be subject to the following terms, in
addition to all terms set forth on the website for CIT’s System:

     (a) CIT shall provide to the Company an initial password for secured access to CIT’s
System. The Company shall provide CIT with a list of officers and employees that are
authorized from time to time access CIT’s System, and the Company agrees to limit access to
the password and CIT’s System to such authorized officers and employees. After the initial
access, the Company shall be solely responsible for (i) changing and maintaining the
integrity of the Company’s password and (ii) any unauthorized use of the Company’s password
or CIT’s System by the Company’s officers and employees.

     (b) The Company shall use the CIT’s System and the Company’s information thereon solely
for the purposes permitted above, and shall not access the CIT’s System for the benefit of
third parties or provide any information obtained from the CIT’s System to third parties.
CIT makes no representation that loan balance or Net Availability information is or will be
available, accurate, complete, correct or current at all times. CIT’s System may be
inoperable or inaccessible from time to time, whether for required website maintenance,
upgrades to CIT’s System, or for other reasons, and in any such event the Company must
obtain loan balance and Net Availability information, and (if permitted by CIT) make
requests for Revolving Loans and submit borrowing base certificates using other available
means.

     (c) The Company hereby confirms and agrees that CIT’s System consist of proprietary
software, data, tools, scripts, algorithms, business logic, website designs and interfaces
and related intellectual property, information and documentation. CIT’s System and related
intellectual property, information and documentation are the sole and exclusive property of
CIT, and the Company shall have no right, title or interest therein or thereto, except for
the limited right to access CIT’s System for the purposes permitted above. Upon termination
of this Financing Agreement, the Company agrees to cease any use of the CIT’s System.

     (d) All agreements, covenants and representations and warranties made by the Company in
any borrowing base certificate submitted to CIT by means of CIT’s System are incorporated
herein by reference.

SECTION 4. [INTENTIONALLY DELETED].

SECTION 5. LETTERS OF CREDIT.

     In order to assist the Company in establishing or opening Letters of Credit with an Issuing
Bank, the Company has requested that CIT join in the applications for such Letters of Credit,
and/or guarantee payment or performance of such Letters of Credit and any drafts or
acceptances thereunder through the issuance of one or more Letter of Credit Guaranties,
thereby lending CIT’s credit to the Company, and CIT has agreed to do so. These arrangements shall
be

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handled by CIT subject to satisfaction of the conditions set forth in Section 2.1 hereof
and the terms and conditions set forth below.

     5.1. Assistance and Purpose. Within the Revolving Line of Credit and subject to
sufficient Net Availability, CIT shall assist the Company in obtaining Letters of Credit in an
aggregate undrawn amount outstanding at any time not to exceed the Letter of Credit Sub-Line. The
term, form and purpose of each Letter of Credit and all documentation in connection therewith, and
any amendments, modifications or extensions thereof, must be mutually acceptable to CIT, the
Issuing Bank and the Company, provided that the Company shall not request a Letter of
Credit to support the purchase of domestic Inventory or to secure present or future indebtedness
owed to suppliers of domestic Inventory. Notwithstanding any other provision of this Financing
Agreement to the contrary, if a Default or an Event of Default shall have occurred and remain
outstanding, CIT’s assistance in connection with any Letter of Credit shall be in CIT’s sole
discretion.

     5.2. Authority to Charge Revolving Loan Account. The Company hereby authorizes CIT,
without notice to the Company, to charge the Revolving Loan Account with the amount of all
indebtedness, liabilities and obligations of any kind incurred by CIT under a Letter of Credit
Guaranty, including the charges of an Issuing Bank, as such indebtedness, liabilities and
obligations are charged to or paid by CIT, or, if earlier, upon the occurrence of an Event of
Default. Any amount charged to the Revolving Loan Account shall be deemed a Chase Bank Rate Loan
hereunder and shall incur interest at the rate provided in Section 8.1 (or Section
8.2, if applicable) of this Financing Agreement. The Company confirms that any charges which
CIT may make to the Revolving Loan Account as provided herein will be made as an accommodation to
the Company and solely at CIT’s discretion.

     5.3. Indemnity Relating to Letters of Credit. The Company unconditionally indemnifies
CIT and holds CIT harmless from any and all loss, claim or liability incurred by CIT arising from
any transactions or occurrences relating to Letters of Credit established or opened for the
Company’s account, the Collateral relating thereto and any drafts or acceptances thereunder, and
all Obligations thereunder, including any such loss, claim or liability arising from any error,
omission, negligence, misconduct or other action taken by an Issuing Bank, other than for any such
loss, claim or liability arising out of the gross negligence or willful misconduct by CIT with
respect to a Letter of Credit Guaranty. This indemnity shall survive the termination of this
Financing Agreement and the repayment of the Obligations.

     5.4. Compliance of Goods, Documents and Shipments with Agreed Terms. CIT shall not be
responsible for: (a) the existence, character, quality, quantity, condition, packing, value or
delivery of the goods purporting to be represented by any documents relating to any Letter of
Credit; (b) any difference or variation in the character, quality, quantity,
condition, packing, value or delivery of the goods from that expressed in such documents; (c)
the validity, sufficiency or genuineness of such documents or of any endorsements thereon, even if
such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent
or forged; (d) the time, place, manner or order in which shipment is made; (e) partial or
incomplete shipment, or failure or omission to ship any or all of the goods referred to in the
Letters of Credit or documents relating thereto; (f) any deviation from instructions; (g) delay,
default, or fraud by

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the shipper and/or anyone else in connection with the goods or the shipping
thereof; or (h) any breach of contract between the shipper or vendors and the Company.

     5.5. Handling of Goods, Documents and Shipments. The Company agrees that any action
taken by CIT, if taken in good faith, or any action taken by the Issuing Bank of whatever nature,
under or in connection with the Letters of Credit, the Letter of Credit Guaranties, drafts or
acceptances relating to Letters of Credit, or the goods subject thereto, shall be binding on the
Company and shall not result in any liability whatsoever of CIT to the Company. CIT shall have the
full right and authority, in CIT’s name, to (a) clear and resolve any questions of non-compliance
of documents, (b) give any instructions as to acceptance or rejection of any documents or goods,
(c) execute any and all steamship or airways guaranties (and applications therefor), indemnities or
delivery orders, (d) grant any extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances, or documents, and (e) agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or conditions of any of the
applications, the Letters of Credit, the Letter of Credit Guaranties or drafts or acceptances
relating to Letters of Credit. An Issuing Bank shall be entitled to comply with and honor any and
all such documents or instruments executed by or received solely from CIT, without any notice to or
any consent from the Company. Notwithstanding any prior course of conduct or dealing with respect
to the foregoing (including amendments to and non-compliance with any documents, and/or the
Company’s instructions with respect thereto), CIT may exercise its rights under this Section
5.5 in its sole but reasonable business judgment. In addition, the Company agrees not to: (a)
at any time, (i) execute any application for steamship or airway guaranties, indemnities or
delivery orders, (ii) grant any extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances or documents, or (iii) agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or conditions of any of the
applications, Letters of Credit, drafts or acceptances; and (b) if an Event of Default shall have
occurred and remain outstanding, (i) clear and resolve any questions of non-compliance of documents
or (ii) give any instructions as to acceptances or rejection of any documents or goods.

     5.6. Compliance with Laws; Payment of Levies and Taxes. The Company agrees that (a)
all necessary import and export licenses and certificates necessary for the import or handling of
the Collateral will be promptly procured, (b) all foreign and domestic governmental laws and
regulations in regard to the shipment and importation of the Collateral or the financing thereof
will be promptly and fully complied with, and (c) any certificate in that regard that CIT may at
any time request will be promptly furnished to CIT. In connection herewith, the Company represents
and warrants to CIT that all shipments made under any Letter of Credit are and will be in
compliance with the laws and regulations of the countries in which the shipments originate and
terminate, and are not prohibited by any such laws and
regulations. The Company assumes all risk, liability and responsibility for, and agrees to
pay and discharge, all present and future local, state, federal or foreign Taxes, duties, or levies
pertaining to the importation and delivery of the Collateral. Any embargo, restriction, law, custom
or regulation of any country, state, city, or other political subdivision, where the Collateral is
or may be located, or wherein payments are to be made, or wherein drafts may be drawn, negotiated,
accepted, or paid, shall be solely the Company’s risk, liability and responsibility.

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     5.7. Subrogation Rights. Upon any payments made to an Issuing Bank under a Letter of
Credit Guaranty, CIT shall acquire by subrogation, any rights, remedies, duties or obligations
granted to or undertaken by the Company to the Issuing Bank in any application for Letter of
Credit, any standing agreement relating to Letters of Credit or otherwise, all of which shall be
deemed to have been granted to CIT and apply in all respects to CIT and shall be in addition to any
rights, remedies, duties or obligations contained herein.

SECTION 6. COLLATERAL.

     6.1. Grant of Security Interest.

     (a) As security for the prompt payment in full of all Obligations, the Company hereby
pledges and grants to CIT a continuing general lien upon, and security interest in, all of
the Collateral.

     (b) Extent of Security Interests. The security interests granted hereunder
shall extend and attach to:

     (i) all Collateral which is presently in existence and which is owned by the
Company or in which the Company has any interest, whether held by the Company or by
others for the Company’s account, and, if any Collateral is Equipment, whether the
Company’s interest in such Equipment is as owner, lessee or conditional vendee;

     (ii) all Equipment whether the same constitutes personal property or fixtures,
including, but without limiting the generality of the foregoing, all dies, jigs,
tools, benches, molds, tables, accretions, component parts thereof and additions
thereto, as well as all accessories, motors, engines and auxiliary parts used in
connection with, or attached to, the Equipment; and

     (iii) all Inventory and any portion thereof which may be returned, rejected,
reclaimed or repossessed by either CIT or the Company from the Company’s customers,
as well as to all supplies, goods, incidentals, packaging materials, labels and any
other items which contribute to the finished goods or products manufactured or
processed by the Company, or to the sale, promotion or shipment thereof.

     6.2. Limited License. Regardless of whether CIT’s security interests in any
of the General Intangibles has
attached or is perfected, the Company hereby irrevocably grants to CIT a royalty-free,
non-exclusive license to use the Company’s Trademarks, Copyrights, Patents and other proprietary
and intellectual property rights, in connection with the (i) advertisement for sale, and the sale
or other disposition of, any finished goods Inventory by CIT in accordance with the provisions of
this Financing Agreement, and (ii) the manufacture, assembly, completion and preparation for sale
of any unfinished Inventory by CIT in accordance with the provisions of this Financing Agreement.

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     6.3. Representations, Covenants and Agreements Regarding Collateral Generally.

     (a) Representations and Warranties. The Company hereby represents and warrants
to CIT that except for Permitted Encumbrances, (i) upon the filing of UCC financing
statements covering the Collateral in all required jurisdictions, this Financing Agreement
creates a valid, perfected, first priority security interest in all personal property of the
Company as to which perfection may be achieved by filing, (ii) CIT’s security interests in
the Collateral constitute, and will at all times constitute, first priority and exclusive
liens on the Collateral, and (iii) the Company is, or will be at the time additional
Collateral is acquired by the Company, the absolute owner (except with respect to
intellectual property licenses) of the Collateral with full right to pledge, sell, transfer
and create a security interest therein, free and clear of any and all claims or liens other
than Permitted Encumbrances.

     (b) Covenants. The Company, at its expense, agrees to forever warrant and
defend the Collateral from any and all claims and demands of any other person, other than
holders of Permitted Encumbrances.

     6.4. Representations Regarding Accounts and Inventory. The Company represents and
warrants to CIT that:

     (a) each Trade Account Receivable is based on an actual and bona fide sale and delivery
of Inventory, rendition of services or license of intellectual property to customers, made
by the Company in the ordinary course of its business;

     (b) the Inventory being sold and the Trade Accounts Receivable created by such sales
are the exclusive property of the Company and are not subject to any lien, consignment
arrangement, encumbrance, security interest or financing statement whatsoever, other than
Permitted Encumbrances;

     (c) the invoices evidencing such Trade Accounts Receivable are in the name of the
Company or Norco Restaurant Services, a division of the Company;

     (d) the customers of the Company have accepted the Inventory or services, owe and are
obligated to pay the full amounts stated in the invoices according to their terms, without
dispute, offset, defense, counterclaim or contra, except for disputes and other matters,
including immaterial adjustments and discounts, arising in the ordinary
course of business of which the Company has notified CIT pursuant to Section
7.2(g) hereof; and

     (e) the Company’s Inventory is marketable in the ordinary course of the Company’s
business, and no Inventory has been produced in violation of the Fair Labor Standards Act
(29 U.S.C. §201 et seq.), as amended.

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     6.5. Covenants and Agreements Regarding Accounts and Inventory.

     (a) The Company confirms to CIT that all Taxes and fees relating to the Company’s
business, the Company’s sales, and the Accounts or Inventory relating thereto, are the
Company’s sole responsibility, and that same will be paid by the Company when due, subject
to Section 7.2(d) hereof, and that none of said Taxes or fees represent a lien on or
claim against the Accounts, other than a Permitted Tax Lien.

     (b) The Company agrees not to acquire any Inventory on a consignment basis, nor
co-mingle its Inventory with any goods of its customers or any other person (whether
pursuant to any bill and hold sale or otherwise).

     (c) The Company agrees to maintain such books and records regarding Accounts and
Inventory as CIT reasonably may require and agrees that the books and records of the Company
will reflect CIT’s interest in the Accounts and Inventory. In support of the continuing
assignment and security interest of CIT in the Accounts and Inventory, the Company also
agrees to deliver to CIT all of the schedules, reports and other information described in
Section 7.2(g) of this Financing Agreement. The Company’s failure to maintain its
books in the manner provided herein or to deliver to CIT any of the foregoing information
shall in no way affect, diminish, modify or otherwise limit the security interests granted
to CIT in the Accounts and Inventory.

     (d) The Company agrees to issue credit memoranda promptly after accepting returns or
granting allowances, and to deliver to CIT copies of such credit memoranda as and when
required to do so under Section 7.2(g) hereof.

     (e) The Company agrees to safeguard, protect and hold all Inventory for CIT’s account
and to make no sale or other disposition thereof except in the ordinary course of the
Company’s business, on open account and on commercially reasonable terms consistent with the
Company’s past practices. Notwithstanding the ordinary course of the Company’s business and
the Company’s past practices, the Company agrees not sell inventory on a consignment basis,
nor retain any lien on or security interest in any Inventory sold by the Company. As to any
sale or other disposition of Inventory, CIT shall have all of the rights of an unpaid
seller, including stoppage in transit, replevin, rescission and reclamation. The Company
agrees to handle all Proceeds of sales of Inventory in accordance with the provisions of
Section 3.2 hereof.

     6.6. Covenants and Agreements Regarding Equipment.

     (a) Maintenance of Equipment. The Company agrees to (i) maintain the Equipment
in as good and substantial repair and condition as the Equipment is now
maintained (or at the time that CIT’s security interest may attach to the Equipment),
reasonable wear and tear excepted, (ii) make any and all repairs and replacements when and
where necessary, and (iii) safeguard, protect and hold all Equipment in accordance with the
terms hereof and subject to CIT’s security interest. The Equipment will only be used by the
Company in the operation of its business and will not be sold or held for sale or lease,
except as expressly provided in Section 6.6(b) below.

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     (b) Sales of Equipment. The Company may sell obsolete Equipment or surplus
Equipment from time to time, provided that in each such instance: (i) no Event of
Default shall have occurred and remain outstanding at the time of such sale; (ii) the
aggregate book value of the Equipment (x) other than the Equipment described in subclause
(ii)(y) of this sentence, that is the subject of the sale does not exceed $150,000 in any
fiscal year of the Company, (y) that is located at the Company’s premises at 375 Greens
Road, Houston, Texas 77060 and 5596 North Freeway, Houston, Texas 77076, that is the
subject of the sale does not exceed $150,000 and (z) consisting of trailers leased by the
Company as of the Closing Date that are the subject of such sale(s) do not exceed $200,000,
in the aggregate; and (iii) all net proceeds of such sales are either (x) promptly delivered
by the Company to CIT by deposit to the Depository Account for application to the
Obligations in such manner and in such order as CIT may elect in the exercise of its
reasonable business judgment), or (y) within 90 days of such sale, used to purchase
replacement Equipment that the Company determines in its reasonable business judgment to
have a value at least equal to the Equipment sold. Except as set forth above, the Company
agrees not to sell, transfer, lease or otherwise dispose of any item of Equipment without
CIT’s prior written consent. Upon the sale, transfer, lease or other disposition of
Equipment, CIT’s security interest in the Equipment shall, without break in continuity and
without further formality or act, continue in, and attach to, all Proceeds. Such Proceeds
shall not be commingled with the Company’s other property, but shall be segregated, held by
the Company in trust for CIT as CIT’s exclusive property. As to any such sale, transfer,
lease or other disposition, CIT shall have all of the rights of an unpaid seller, including
stoppage in transit, replevin, rescission and reclamation.

     6.7. General Intangibles. The Company represents and warrants to CIT that as of the
date hereof, the Company possesses all material General Intangibles necessary to conduct the
Company’s business as presently conducted. The Company agrees to maintain the Company’s rights in,
and the value of, all material General Intangibles, and to pay when due all payments required to
maintain in effect any licensed rights. The Company shall provide CIT with adequate notice of the
acquisition of rights with respect to any additional Patents, Trademarks and Copyrights so that CIT
may, to the extent permitted under the documentation granting such rights or applicable law,
perfect its security interest in such rights in a timely manner.

     6.8. Commercial Tort Claims. The Company represents and warrants to CIT that as of
the date hereof, the Company holds no interest in any commercial tort claim. If the Company at any
time holds or acquires a commercial tort claim, the Company agrees to promptly notify CIT in
writing of the details
thereof, and in such writing the Company shall grant to CIT a security interest in such
commercial tort claim and in the Proceeds thereof, all upon the terms of this Agreement.

     6.9. Letter of Credit Rights. The Company represents and warrants to CIT that as of
the date hereof, the Company is not the beneficiary of any letter of credit. If the Company
becomes a beneficiary under any letter of credit, the Company agrees to promptly notify CIT, and
upon request by CIT, the Company agrees to either (a) cause the issuer of such letter of credit to
consent to the assignment of the proceeds of such letter of credit to CIT pursuant to an agreement
in form and substance satisfactory to CIT, or (b) cause the issuer of such letter of credit to name
CIT as the transferee beneficiary of such letter of credit.

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     6.10. Real Estate. Upon the request of CIT, the Company agrees to execute and deliver
to CIT from time to time, a mortgage or deed of trust (as appropriate) in form and substance
satisfactory to CIT on any Real Estate acquired by the Company after the date hereof as CIT shall
require to obtain a valid first priority lien thereon, subject only to Permitted Encumbrances;
provided, however, that Company shall not be required to mortgage any Real Estate
owned on the Closing Date and located at Little Elm, Texas so long as such Real Estate is subject
to the Negative Pledge.

     6.11. Reference to Other Loan Documents. Reference is hereby made to the other Loan
Documents for additional representations, covenants and other agreements of the Company regarding
the Collateral covered by such Loan Documents.

     6.12. Credit Balances; Additional Collateral.

     (a) The rights and security interests granted to CIT hereunder shall continue in full
force and effect, notwithstanding the termination of this Financing Agreement or the fact
that the Revolving Loan Account may from time to time be temporarily in a credit position,
until the termination of this Financing Agreement and the full and final payment and
satisfaction of the Obligations. Any reserves or balances to the credit of the Company (in
the Revolving Loan Account or otherwise), and any other property or assets of the Company in
the possession of CIT, may be held by CIT as Other Collateral, and applied in whole or
partial satisfaction of such Obligations when due, subject to the terms of this Financing
Agreement. The liens and security interests granted to CIT herein and any other lien or
security interest which CIT may have in any other assets of the Company secure payment and
performance of all present and future Obligations.

     (b) Notwithstanding CIT’s security interests in the Collateral, to the extent that the
Obligations are now or hereafter secured by any assets or property other than the
Collateral, or by the guaranty, endorsement, assets or property of any other person, CIT
shall have the right in its sole discretion to determine which rights, security, liens,
security interests or remedies CIT shall at any time pursue, foreclose upon, relinquish,
subordinate, modify or take any other action with respect to, without in any way
modifying or affecting any of such rights, security, liens, security interests or
remedies, or any of CIT’s rights under this Financing Agreement.

     The Company makes the representations, covenants and agreements regarding Collateral contained
in Section 6.3, 6.4, 6.5, 6.6, 6.7, 6.8,
6.9, 6.10, 6.11 and 6.12 on behalf of each Guarantor as if such
representation, covenant and agreement applied to the Guarantor.

SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS 

     7.1. Initial Disclosure Representations and Warranties. The Company represents and
warrants to CIT that as of the date hereof:

     (a) Financial Condition. (i) The amount of the Company’s assets, at fair
valuation, exceeds the book value of the Company’s liabilities, (ii) the amount of the
Company’s and the Guarantors’ assets, on a consolidated basis, exceeds the book value of the
Company’s and the Guarantors’ liabilities, on a consolidated basis, (iii) the

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Company,
individually, is, and the Guarantors and the Company, on a consolidated basis, are,
generally able to pay its or their debts, as applicable, as they become due and payable, and
(iv) the Company does not have unreasonably small capital to carry on its business as
currently conducted absent extraordinary and unforeseen circumstances. All financial
statements of the Company previously furnished to CIT present fairly, in all material
respects, the financial condition of the Company as of the date of such financial
statements.

     (b) Organization Matters; Collateral Locations. Schedule 7.1(b)
attached hereto correctly and completely sets forth (w) the Company’s and each Guarantor’s
exact name, as currently reflected by the records of the Company’s or Guarantor’s, as
applicable, State of incorporation, (x) the Company’s and each Guarantor’s State of
incorporation, (y) the Company’s and each Guarantor’s federal employer identification number
and State organization identification number (if any), and (z) the address of the Company’s
and each Guarantor’s chief executive office and all locations of Collateral.

     (c) Power and Authority; Conflicts; Enforceability.

     (i) The Company and each Guarantor has full power and authority to execute and
deliver this Financing Agreement and the other Loan Documents to which such party is
a party, and to perform all of their obligations thereunder.

     (ii) The execution and delivery by the Company and the Guarantors of this
Financing Agreement and the other Loan Documents to which such party is a party, and
the performance of the Company’s and each Guarantor’s obligations thereunder, have
been duly authorized by all necessary corporate or other relevant action, and do not
(w) require any consent or approval of any director, shareholder, partner or member
of the Company or any Guarantor, as applicable, that has not been obtained, (x)
violate any term, provision or covenant contained in the organizational documents of
the Company or any Guarantor, as applicable, (such as the certificate or articles of
incorporation, certificate of origin,
partnership agreement, by-laws or operating agreement), (y) violate, or cause
the Company or any Guarantor to be in default under, any law, rule, regulation,
order, judgment or award applicable to such party or its assets, or (z) violate any
term, provision, covenant or representation contained in, or constitute a default
under, or result in the creation of any lien under, any material loan agreement,
lease, indenture, mortgage, deed of trust, note, security agreement or pledge
agreement to which the Company is a signatory or by which the Company or any
Guarantor or any of the Company’s or any Guarantor’s assets are bound or affected.

     (iii) This Financing Agreement and the other Loan Documents to which the
Company and each Guarantor is a party constitute legal valid and binding obligations
of the Company and such Guarantor, enforceable in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, moratorium, fraudulent transfer
and other laws affecting creditors’ rights generally, and subject to general
principals of equity, regardless of whether considered in a proceeding at law or in
equity.

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     (d) Schedules. Each of the Schedules attached to this Financing Agreement set
forth a true, correct and complete description of the matter or matters covered thereby.

     (e) Compliance with Laws. The Company (and each Guarantor) and the Company’s
(and each Guarantor’s) properties are in compliance with all applicable federal, state and
local acts, rules and regulations, and all orders of any federal, state or local
legislative, administrative or judicial body or official, except to the extent the failure
to so comply would not have a Material Adverse Effect. The Company (and each Guarantor) has
obtained and maintains all permits, approvals, authorizations and licenses necessary to
conduct its business as presently conducted, except to the extent the failure to have such
permits, approvals, authorizations or licenses would not have a Material Adverse Effect.

     (f) Environmental Matters.

     (i) None of the operations of the Company or any Guarantor are the subject of
any federal, state or local investigation to determine whether any remedial action
is needed to address the presence or disposal of any environmental pollution,
hazardous material or environmental clean-up of the Real Estate or any of the
Company’s or any Guarantor’s leased real property. No enforcement proceeding,
complaint, summons, citation, notice, order, claim, litigation, investigation,
letter or other communication from a federal, state or local authority has been
filed against or delivered to the Company or any Guarantor, regarding or involving
any release of any environmental pollution or hazardous material on any real
property now or previously owned or operated by the Company or any Guarantor.

     (ii) Neither the Company nor any Guarantor has any known contingent liability
with respect to any release of any environmental pollution or hazardous
material on any real property now or previously owned or operated by the
Company or any Guarantor.

     (iii) Each of the Company and each Guarantor is in compliance with all
environmental statutes, acts, rules, regulations and orders applicable to the
operation of the Company’s and each Guarantor’s business, except to the extent that
the failure to so comply would not have a Material Adverse Effect.

     (g) Pending Litigation. Except as previously disclosed by the Company and/or
any Guarantor to CIT on the attached Schedule 7.1(g), there exist no actions, suits
or proceedings of any kind by or against the Company and/or any Guarantor pending in any
court or before any arbitrator or governmental body, that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.

     7.2. Affirmative Covenants. Until the termination of this Financing Agreement and the
full and final payment and satisfaction of the Obligations:

     (a) Maintenance of Financial Records; Inspections. The Company and each
Guarantor agrees to maintain books and records pertaining to the Company’s and

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each
Guarantor’s financial matters in such detail, form and scope as CIT reasonably shall
require. The Company and each Guarantor agrees that CIT or its agents may enter upon the
Company’s and each Guarantor’s premises at any time during normal business hours, and from
time to time, in order to (i) examine and inspect the books and records of the Company and
each Guarantor, and make copies thereof and take extracts therefrom, and (ii) verify,
inspect and perform physical counts and other valuations of the Collateral and any and all
records pertaining thereto. The Company and each Guarantor irrevocably authorizes all
accountants and third parties to disclose and deliver directly to CIT, at the Company’s
expense, all financial statements and information, books, records, work papers and
management reports generated by them or in their possession regarding the Company and each
Guarantor or the Collateral. All costs, fees and expenses incurred by CIT in connection
with such examinations, inspections, physical counts and other valuations shall constitute
Out-of-Pocket Expenses for purposes of this Financing Agreement.

     (b) Further Assurances. The Company and each Guarantor agrees to comply with
the requirements of all state and federal laws in order to grant to CIT valid and perfected
first priority security interests in the Collateral, subject only to the Permitted
Encumbrances. CIT is hereby authorized by the Company and each Guarantor to file any
financing statements, continuations and amendments covering the Collateral without the
Company’s or any Guarantor’s signature in accordance with the provisions of the UCC. The
Company and each Guarantor hereby consents to and ratifies the filing of any financing
statements covering the Collateral by CIT on or prior to the Closing Date. The Company and
each Guarantor agrees to do whatever CIT reasonably may request from time to time, by way of
(i) filing notices of liens, financing statements, amendments, renewals and continuations
thereof, (ii) cooperating with CIT’s agents and employees,
(iii) keeping Collateral records, (iv) transferring proceeds of Collateral to CIT’s
possession in accordance with the terms hereof and (v) performing such further acts as CIT
reasonably may require in order to effect the purposes of this Financing Agreement,
including the execution of control agreements with respect to Depository Accounts and
Investment Property.

     (c) Insurance and Condemnation.

     (i) Required Insurance. The Company and each Guarantor agrees to
maintain insurance on the Real Estate, Equipment and Inventory under such policies
of insurance, with such insurance companies, in such reasonable amounts and covering
such insurable risks as are at all times reasonably satisfactory to CIT (the
“Required Insurance”). All policies covering the Real Estate, Equipment and
Inventory are, subject to the rights of any holder of a Permitted Encumbrance having
priority over the security interests of CIT, to be made payable solely to CIT, in
case of loss, under a standard non-contributory “mortgagee”, “secured party” or
“lender’s loss payable” clause or endorsement, and are to contain such other
provisions as CIT reasonably may require to fully protect CIT’s interest in the Real
Estate, Inventory and Equipment and to any payments to be made under such policies.
Each loss payable endorsement in favor of CIT shall provide (x) for not less than
thirty (30) days prior written notice to CIT of the exercise of any

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right of
cancellation and (y) that CIT’s right to payment under any property insurance policy
will not be invalidated by any act or neglect of, or any breach of warranty or
condition by, the Company or any other party. If an Event of Default shall have
occurred and remain outstanding, CIT, subject to the rights of any holder of a
Permitted Encumbrance having priority over the security interests of CIT, shall have
the sole right, in the name of CIT or the Company, to file claims under any
insurance policies, to receive, receipt and give acquittance for any payments that
may be payable thereunder, and to execute any and all endorsements, receipts,
releases, assignments, reassignments or other documents that may be necessary to
effect the collection, compromise or settlement of any claims under any such
insurance policies.

     (ii) CIT’s Purchase of Insurance. Unless the Company provides CIT with
evidence of the Required Insurance in the manner set forth in Section
7.2(c)(i) above, CIT may purchase insurance at the Company’s expense to protect
CIT’s interests in the Collateral. The insurance purchased by CIT may, but need
not, protect the Company’s and each Guarantor’s interests in the Collateral, and
therefore such insurance may not pay any claim which the Company make or any claim
which is made against the Company in connection with the Collateral. The Company
may later request that CIT cancel any insurance purchased by CIT, but only after
providing CIT with satisfactory evidence that the Company has the Required
Insurance. If CIT purchases insurance covering all or any portion of the
Collateral, the Company shall be responsible for the costs of such insurance,
including interest (at the applicable rate set forth hereunder) and other charges
accruing on the purchase price therefor, until the effective date of the
cancellation or the expiration of the insurance, and CIT may charge all of such
costs, interest
and other charges to the Revolving Loan Account. The costs of the premiums of
any insurance purchased by CIT may exceed the costs of insurance which the Company
may be able to purchase on its own. In the event that CIT purchases insurance, CIT
will notify the Company of such purchase within thirty (30) days after the date of
such purchase. If, within thirty (30) days after the date of receipt of such
notice, the Company provides CIT with proof that the Company and each Guarantor had
the Required Insurance as of the date on which CIT purchased insurance and
the Company and each Guarantor has continued at all times thereafter to have the
Required Insurance, then CIT agrees to cancel the insurance purchased by CIT and
credit the Revolving Loan Account for the amount of all costs, interest and other
charges associated with such insurance that CIT previously charged to the Revolving
Loan Account.

     (iii) Application of Insurance and Condemnation Proceeds. So long as
no Event of Default shall have occurred and remain outstanding as of the date of
CIT’s receipt of any Casualty Proceeds:

     (A) In the event of any loss or damage to any Inventory by
condemnation, fire or other casualty, CIT agrees to apply the Casualty
Proceeds to repay the outstanding Revolving Loans.

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     (B) In the event of any loss or damage to any item of Collateral other
than Inventory by condemnation, fire or other casualty, if the Casualty
Proceeds relating to such condemnation, fire or other casualty are less than
or equal to $100,000, CIT agrees to apply such Casualty Proceeds to repay
the outstanding Revolving Loans.

     (C) In the event of any loss or damage to any item of Equipment by
condemnation, fire or other casualty, if the Casualty Proceeds relating to
such condemnation, fire or other casualty exceed $100,000, the Company may
elect (by delivering written notice to CIT within ten (10) Business Days
following CIT’s receipt of such Casualty Proceeds) to replace or repair such
item of Equipment. If the Company elects to replace or repair any item of
Equipment, CIT initially shall apply all such Casualty Proceeds to the
outstanding Revolving Loans and will establish an Availability Reserve in an
amount equal to such Casualty Proceeds. CIT agrees to reduce this
Availability Reserve dollar-for-dollar as and when payments then are due
under the contract(s) for the purchase of replacement Equipment or the
repair of such item of Equipment. Upon the replacement or completion of
repair of such item of Equipment, CIT will eliminate any remaining
Availability Reserve established hereunder.

     (D) In the event of any loss or damage to any Real Estate leased by the
Company by condemnation, fire or other casualty, the Company may use the
Casualty Proceeds in the manner required or permitted by the lease agreement
relating thereto. In the event of any loss or damage to any Real Estate
owned by the Company by condemnation, fire or other
casualty, if the Casualty Proceeds relating to such condemnation, fire
or other casualty exceed $100,000, and so long as the Company has sufficient
business interruption insurance to replace the lost profits of the
facilities affected by the condemnation, fire or other casualty, the Company
may elect to repair or replace such Real Estate, subject to the following
terms:

     (1) If the Company reasonably determines that the Real Estate
may be repaired to substantially the same condition of the Real
Estate prior to the condemnation, fire or other casualty, the Company
may elect to repair the Real Estate by delivering written notice to
CIT within thirty (30) days following CIT’s receipt of such Casualty
Proceeds. CIT initially shall apply all such Casualty Proceeds to
the outstanding Revolving Loans and will establish an Availability
Reserve in an amount equal to such Casualty Proceeds. The Company
shall provide CIT with a repair plan, the contract(s) for repair and
a total budget certified by an independent third party experienced in
construction costing. If such budget indicates that there are
insufficient Casualty Proceeds to cover the full cost of repair of
the Real Estate, the Company shall fund such deficiency before the
Availability Reserve established hereunder

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shall be reduced. CIT
agrees to reduce this Availability Reserve dollar-for-dollar as and
when payments are due under the contract(s) for repair. Upon
completion of the repair of the Real Estate (as determined by CIT in
the exercise of its reasonable business judgment), CIT will eliminate
any remaining Availability Reserve established hereunder.

     (2) The Company may elect to replace the Real Estate owned by
the Company only on terms and conditions satisfactory to CIT in its
sole discretion.

     If a Default or an Event of Default shall have occurred and remain outstanding as of
the date of CIT’s receipt of any Casualty Proceeds, or if the Company does not or cannot
elect to use the Casualty Proceeds in the manner set forth in paragraphs (y) or (z) above,
CIT may, subject to the rights of any holder of a Permitted Encumbrance having priority over
the security interests of CIT, apply the Casualty Proceeds to the payment of the Obligations
in such manner and in such order as CIT may elect in its sole discretion.

     (d) Payment of Taxes. The Company and each Guarantor agrees to pay when due
all Taxes lawfully levied, assessed or imposed upon the Company and each Guarantor or the
Collateral (including all sales taxes collected by the Company (or any Guarantor) on behalf
of the Company’s or such Guarantor’s customers in connection with sales of Inventory and all
payroll taxes collected by the Company (or any Guarantor) on behalf of the Company’s (and
such Guarantor’s) employees), unless the Company is contesting such Taxes in good faith, by
appropriate proceedings, and is maintaining adequate reserves for such Taxes in accordance
with GAAP. Notwithstanding the
foregoing, if a lien securing any Taxes is filed in any public office and such lien is
not a Permitted Tax Lien, then the Company or the applicable Guarantor shall pay all taxes
secured by such lien immediately and remove such lien of record promptly. Pending the
payment of such taxes and removal of such lien, CIT may, at its election and without curing
or waiving any Event of Default which may have occurred as a result thereof, (i) establish
an Availability Reserve in the amount of such Taxes (or such other amount as CIT shall deem
appropriate in the exercise of its reasonable business judgment) or (ii) pay such taxes on
behalf of the Company or the applicable Guarantor, and the amount paid by CIT shall become
an Obligation which is due and payable on demand by CIT.

     (e) Compliance With Laws.

     (i) The Company and each Guarantor agrees to comply with all applicable
federal, state and local acts, rules and regulations, and all orders of any federal,
state or local legislative, administrative or judicial body or official, if the
failure to so comply would have a Material Adverse Effect, provided that the
Company or the applicable Guarantor may contest any acts, rules, regulations, orders
and directions of such bodies or officials in any reasonable manner which CIT
determines, in the exercise of its reasonable business judgment, will not materially
and adversely effect CIT’s rights or priorities in the Collateral.

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     (ii) Without limiting the generality of the foregoing, the Company agrees to
comply with all environmental statutes, acts, rules, regulations or orders, as
presently existing or as adopted or amended in the future, applicable to the
ownership and/or use of its real property and operation of its business, if the
failure to so comply would have a Material Adverse Effect. Neither the Company nor
any Guarantor shall be deemed to have breached any provision of this Section
7.2(e) if (x) the failure to comply with the requirements of this Section
7.2(e) resulted from good faith error or innocent omission, (y) the Company or
such Guarantor promptly commences and diligently pursues a cure of such breach and
(z) such failure is cured within thirty (30) days following the Company’s or the
Guarantor’s receipt of notice from CIT of such failure, or if such breach cannot in
good faith be cured within thirty (30) days following the Company’s receipt of such
notice, then such breach is cured within a reasonable time frame based on the extent
and nature of the breach and the necessary remediation, and in conformity with any
applicable consent order, consensual agreement and applicable law.

     (f) Notices Concerning Environmental, Employee Benefit and Pension Matters.
The Company agrees to notify CIT in writing of:

     (i) any expenditure (actual or anticipated) in excess of $100,000 for
environmental clean-up, environmental compliance or environmental testing and the
impact of said expenses on the affected Company’s or any Guarantor’s working
capital;

     (ii) the Company’s or any Guarantor’s receipt of notice from any local, state
or federal authority advising the Company or any Guarantor of any environmental
liability (real or potential) arising from the Company’s or any Guarantor’s
operations, its premises, its waste disposal practices, or waste disposal sites used
by the Company or any Guarantor; and

     (iii) the Company’s or any Guarantor’s receipt of notice from any governmental
agency or any sponsor of any “multiemployer plan” (as that term is defined in ERISA)
to which the Company has contributed, relating to any of the events described in
Section 10.1(g) hereof.

     The Company agrees to provide CIT promptly with copies of all such notices and other
information pertaining to any matter set forth above if CIT so requests.

     (g) Collateral Reporting.

     (i) The Company agrees to furnish to CIT:

     (1) On each date on which the Company requests or is to receive a
Revolving Loan or the issuance of a Letter of Credit (but more frequently
upon CIT’s reasonable request), a borrowing base certificate in form and
substance satisfactory to CIT, certified by the treasurer or chief financial
officer of the Company (or any other authorized officer

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satisfactory to
CIT), together with such confirmatory schedules of Trade Accounts Receivable
and Inventory (in form and substance satisfactory to CIT in its reasonable
credit judgment) as CIT may request, including, without limitation, sales
journals, invoice registers, cash receipts journals or collection reports,
deposit and receipts detail, copies of invoices and shipping evidence,
credit and debit memos and/or adjustment registers, and updated inventory
reports.

     (2) On or before the 20th day of each month, a detailed and summary
aging report of Trade Accounts Receivable existing as of the last day of the
preceding month and a roll-forward of Trade Accounts Receivable from the
first day of the preceding month through the last day of the preceding
month, all in such form as CIT reasonably shall require, certified by the
treasurer or the chief financial officer of the Company (or any other
authorized officer satisfactory to CIT), together with (x) a reconciliation,
as of the last day of the preceding month, of the Company’s Trade Accounts
Receivable aging report to the Company’s general ledger, and (y) information
sufficient to allow CIT to (A) reconcile, as of the date of such report, the
Company’s Trade Accounts Receivable aging report to the applicable borrowing
base certificate delivered by the Company to CIT, and (B) update the amount
of ineligible Trade Accounts Receivable.

     (3) On or before the 20th day of each month, (but more frequently upon
CIT’s reasonable request), a summary of Inventory
(containing such detail from the Company’s perpetual inventory as CIT
may require) as of the last Business Day of the preceding month, together
with information sufficient to allow CIT to update the amount of ineligible
Inventory.

     (4) On or before the 20th day of each month, an aged trial balance of
all the Company’s accounts payable as of the last day of the preceding
month.

     (5) On or before the last day of each month, a copy of the bank
statement for the Company’s primary operating account for the preceding
month.

     (6) Together with the collateral information described in clause (i)
above, disclosure of (x) all matters materially affecting the value,
enforceability or collectibility of the Trade Accounts Receivable of the
Company, (y) all material customer disputes, offsets, defenses,
counterclaims, returns, rejections and all reclaimed or repossessed
merchandise or goods, and (z) all material matters adversely effecting the
value of the Inventory, all in such detail and format as CIT reasonably may
require.

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     (7) Prior written notice of any change in the location of any
Collateral and any material change in type, quantity, quality or mix of the
Inventory.

     (8) From time to time, access to the Company’s computers, electronic
media, software programs (including any electronic records, contracts and
signatures) and such other documentation and information relating to the
Trade Accounts Receivable, Inventory and other Collateral as CIT reasonably
may require.

     (ii) The Company may deliver to CIT any borrowing base certificate, collateral
report or other material that the Company is required to deliver to CIT under
clauses (1), (2), (3) and (4) of Section 7.2(g)(i) by e-mail or other
electronic transmission (an “Electronic Transmission”), subject to the
following terms:

     (1) Each Electronic Transmission must be sent by the treasurer or chief
financial officer of the Company (or any other authorized officer
satisfactory to CIT), and must be addressed to the loan officer and the
collateral analyst of CIT that handle the Company’s account, as designated
by CIT from time to time. If any Electronic Transmission is returned to the
sender as undeliverable, the material included in such Electronic
Transmission must be delivered to the intended recipient in the manner
required by Section 12.6 hereof.

     (2) Each certificate, collateral report or other material contained in
an Electronic Transmission must be in a “pdf” or other
imaging format and, to the extent that such material must be certified
by an officer of the Company under this Section 7.2(g)), must
contain the signature of the officer submitting the Electronic Transmission.
As provided in Section 12.6, any signature on a certificate,
collateral report or other material contained in an Electronic Transmission
shall constitute a valid signature for purposes hereof. CIT may rely upon,
and assume the authenticity of, any such signature, and any material
containing such signature shall constitute an “authenticated” record for
purposes of the Uniform Commercial Code and shall satisfy the requirements
of any applicable statute of frauds.

     (3) Each Electronic Transmission must contain the name and title of the
officer of the Company transmitting the Electronic Transmission, and shall
include following text in the body of the Electronic Transmission:

“Pursuant to the Financing Agreement dated January ___, 2007
between The CIT Group/Commercial Services, Inc. (“CIT”) and
Pizza Inn, Inc. (the “Company”), the undersigned                     
[title of submitting officer] of the Company hereby delivers
to CIT the Company’s

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39

 

                     [describe submitted
reports]. The Company represents and warrants to CIT that the
materials included in this Electronic Transmission are true,
correct, and complete in all material respects. The name of
the officer of the Company set forth in this e-mail
constitutes the signature of such officer, and this e-mail
shall constitute an authenticated record of the Company.”

     (4) The Company agrees to maintain the original versions of all
certificates, collateral reports and other materials delivered to CIT by
means of an Electronic Transmission and agrees to furnish to CIT such
original versions within five (5) Business Days of CIT’s request for such
materials, signed and certified (to the extent required hereunder by the
officer submitting the Electronic Transmission.

     (iii) The Company hereby authorizes CIT to regard the Company’s printed name or
rubber stamp signature on assignment schedules or invoices as the equivalent of a
manual signature by one of the Company’s authorized officers or agents. The
Company’s failure to promptly deliver to CIT any schedule, report, statement or
other information set forth in this Section 7.2(g) shall not affect,
diminish, modify or otherwise limit CIT’s security interests in the Collateral.

     (h) Financial Reporting. The Company agrees to furnish to CIT:

     (i) within one hundred twenty (120) days after the end of each fiscal year of
the Company, a Consolidated Balance Sheet and a Consolidating Balance Sheet as at
the close of such year, and consolidated/consolidated and consolidating statements
of profit and loss and cash flow of the Company for such year, audited by
independent public accountants selected by the Company and satisfactory to CIT,
together with (x) the unqualified opinion of the accountants preparing such
financial statements and (y) if requested by CIT, such accountants’ management
practice letter;

     (ii) within thirty (30) days after the end of each month, (x) a Consolidated
Balance Sheet and a Consolidating Balance Sheet as at the end of such month, (y)
consolidated/consolidated and consolidating statements of profit and loss and cash
flow of the Company for such month and for the period commencing on the first day of
the current fiscal year through the end of such month, and (z) comparative
statements of profit and loss and cash flow of the Company for the same month and
same fiscal year-to-date period in the prior fiscal year, certified by the treasurer
or chief financial officer of the Company (or any other authorized officer
satisfactory to CIT);

     (iii) within five (5) Business Days of filing by the Company with the U.S.
Securities and Exchange Commission, copies of all (x) financial reports,
registration statements and other documents filed by the Company with the U.S.

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Securities and Exchange Commission, as and when filed by the Company, and (y) annual
reports filed pursuant to ERISA in connection with each benefit plan of the Company
subject to ERISA; and

     (iv) no later than thirty (30) days prior to the beginning of each fiscal year
of the Company, monthly projections of the Company’s Consolidated Balance Sheet and
Consolidating Balance Sheet and consolidated/consolidated and consolidating
statements of profits and loss and cash flow of the Company, as well as monthly
projected Net Availability for the Company for such fiscal year.

     Each financial statement which the Company is required to submit pursuant to clauses (i) and
(ii) above must be accompanied by an officer’s certificate substantially in the form set forth on
Exhibit A attached hereto, signed by the treasurer or chief financial officer of the
Company (or any other authorized officer satisfactory to CIT). In addition, should the Company
materially modify its accounting principles and procedures from those in effect on the Closing
Date, the Company agrees to prepare and deliver to CIT statements of reconciliation in form and
substance reasonably satisfactory to CIT.

     (i) Asset Appraisals. From time to time upon the request of CIT, the Company
agrees to permit CIT to perform appraisals of the Company’s Inventory, Equipment and Real
Estate covered by a mortgage or deed of trust in favor of CIT. The Company agrees to
reimburse CIT for the costs and expenses relating to (w) up to 4 Inventory appraisals in any
twelve-month period, so long as no Event of Default shall
have occurred and remain outstanding, (x) one Equipment appraisal in any twelve-month
period, so long as no Event of Default shall have occurred and remain outstanding, (y) one
Real Estate appraisal in any twelve-month period, so long as no Event of Default shall have
occurred and remain outstanding, and (z) all such appraisals performed while an Event of
Default remains outstanding. All appraisals shall be performed by qualified appraisers
selected by CIT. To the extent that the Company is required by this Section 7.2(i)
to reimburse CIT for CIT’s costs and expenses relating to appraisals, such costs and
expenses shall constitute Out-of-Pocket Expenses.

     (j) Business Qualification. The Company and each Guarantor agrees to qualify
to do business, and to remain qualified to do business and in good standing, in each
jurisdiction where the failure to so qualify or to remain qualified or in good standing,
would have a Material Adverse Effect.

     (k) Anti-Money Laundering and Terrorism Regulations. The Company and each
Guarantor agrees to comply with all applicable anti-money laundering and terrorism laws,
regulations and executive orders in effect from time to time (including, without limitation,
the USA Patriot Act (Pub. L. No. 107-56)). The Company and each Guarantor also agrees to
ensure that no person who owns a controlling interest in or otherwise controls the Company
is a person designated under Section 1(b), (c) or (d) of Executive Order No. 13224 (issued
September 23, 2001) or any other similar Executive Order. The Company and each Guarantor
acknowledges that CIT’s performance hereunder is subject to compliance with all such laws,
regulations and executive orders, and in furtherance of the foregoing, the Company agrees to
provide to CIT all

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information about the Company’s and each Guarantor’s ownership, officers,
directors, customers and business structure as CIT reasonably may require to comply with,
such laws, regulations and executive orders.

     (l) Post-Closing Obligations. The Company agrees to comply with the provisions
set forth on Schedule 7.2(l) attached hereto within the time periods set forth
therein.

     7.3. Financial Covenants. Until termination of this Financing Agreement and the full
and final payment and satisfaction of all Obligations, the Company agrees (and shall cause the
Guarantors to agree) on a consolidated basis:

     (a) Fixed Charge Coverage. To maintain a Fixed Charge Coverage Ratio, as of
the end of each fiscal month (i) for any fiscal month ending prior to December 31, 2007, for
the Test Period applicable thereto and (ii) for any fiscal month ending on or after December
31, 2007 for the twelve-month period then ended, of not less than 1.2 to 1.0.

     (b) Operating Leases and Capital Expenditures. Not to (i) enter into any
Operating Lease if after giving effect thereto the aggregate obligations with respect to
Operating Leases during any fiscal year would exceed $500,000; or (ii) contract for,
purchase, make expenditures for, lease pursuant to a Capital Lease or otherwise incur
obligations with respect to Capital Expenditures (whether subject to a security interest or
otherwise) during any fiscal year of the Company in the aggregate amount in excess of
$750,000.

     7.4. Negative Covenants. Until termination of this Financing Agreement and full and
final payment and satisfaction of all Obligations, the Company agrees not to, and will cause each
Guarantor and each subsidiary of the Company not to:

     (a) Liens and Encumbrances. Mortgage, assign, pledge, transfer or otherwise
permit any lien, charge, security interest, encumbrance or judgment (whether as a result of
a purchase money or title retention transaction, or other security interest, or otherwise)
to exist on any of the Collateral or its other assets, whether now owned or hereafter
acquired, except for the Permitted Encumbrances.

     (b) Indebtedness. Incur or create any Indebtedness other than the Permitted
Indebtedness.

     (c) Sale of Assets. Sell, lease, assign, transfer or otherwise dispose of (i)
Collateral, except as otherwise specifically permitted by this Financing Agreement, or (ii)
all or any substantial part of its assets, if any, which do not constitute Collateral.

     (d) Organizational Change. (i) Merge or consolidate with any other entity,
(ii) change its name or principal place of business, (iii) change its structure or
organizational form, or reincorporate or reorganize in a new jurisdiction, (iv) enter into
or engage in any operation or activity materially different from that presently being
conducted by the Company, any Guarantor or any subsidiary of the Company, as the case

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may
be; provided that (i) the Company, any Guarantor and any subsidiary of the Company
may change its name or its principal place of business so long as the Company provides CIT
with thirty (30) days prior written notice thereof and the Company, any Guarantor or any
subsidiary of the Company, as the case may be executes and delivers to CIT, prior to making
such change, all documents and agreements required by CIT in order to ensure that the liens
and security interests granted to CIT hereunder continue in effect without any break or
lapse in perfection and (ii) the Company and those certain permitted Guarantors may enter
into any Permitted Restructuring.

     (e) Guaranty Obligations. Assume, guarantee, endorse, or otherwise become
liable upon the obligations of any person, firm, entity or corporation, except (i) pursuant
to the Guaranties and (ii) by the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business.

     (f) Dividends and Distributions. Declare or pay any dividend or distribution
of any kind on, or purchase, acquire, redeem or retire, any of its equity interests (of any
class or type whatsoever), whether now or hereafter issued and outstanding, other than
Permitted Distributions.

     (g) Investments. (i) Create any new subsidiary, or (ii) make any advance or
loan to, or any investment in, any firm, entity, person or corporation, or (iii) acquire all
or substantially all of the assets of, or any capital stock or any equity interests in, any
firm, entity or corporation, other than current investments of the Company, any Guarantor
and any subsidiary of the Company, as the case may be, in existing subsidiaries of such
entities.

     (h) Related Party Transactions. Enter into any transaction, including, without
limitation, any purchase, sale, lease, loan or exchange of property, with any shareholder,
officer, director, parent (direct or indirect), subsidiary (direct or indirect) or other
person or entity otherwise affiliated with the Company, any Guarantor or any subsidiary of
the Company, unless (i) such transaction otherwise complies with the provisions of this
Financing Agreement, (ii) such transaction is for the sale of goods or services rendered in
the ordinary course of business and pursuant to the reasonable requirements of the Company,
any Guarantor or any subsidiary of the Company, as the case may be, and upon standard terms
and conditions and fair and reasonable terms, no less favorable to such entity than such
entity could obtain in a comparable arms length transaction with an unrelated third party,
and (iii) no Event of Default shall have occurred and remain outstanding at the time such
transaction occurs, or would occur after giving effect to such transaction.

     (i) Restricted Payments. (i) Make any payment of the principal of, or interest
on, any Subordinated Debt, or purchase, acquire or redeem any of the Subordinated Debt,
unless (x) such payment, purchase, acquisition or redemption is expressly permitted by the
terms of the applicable Subordination Agreement and (y) no Event of Default shall have
occurred and remain outstanding on the date on which such payment or transaction occurs, or
would occur as a result thereof; (ii) pay any management, consulting or other similar fees
to any shareholder, director, parent (direct

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or indirect), subsidiary (direct or indirect)
or other person or entity otherwise affiliated with the Company, any Guarantor or any
subsidiary of the Company, except reasonable fees to directors and members of management in
the position of chief executive officer, chief financial officer, general counsel or chief
operating officer or similar officer, in each case, in the ordinary course of the Company’s
business.

SECTION 8. INTEREST, FEES AND EXPENSES.

     8.1. Interest. Interest on the outstanding principal balance of the Revolving Loans
that are Chase Bank Rate Loans shall be due and payable monthly on the first day of each month and
shall accrue at a rate per annum equal to the Applicable Margin plus the Chase Bank Rate on
the average net principal balance of such Revolving Loans at the close of each day during the
immediately preceding month, as reflected by CIT’s System. On each Revolving Loan that is a LIBOR
Loan, interest shall be due and payable on the LIBOR Interest Payment Date and shall accrue at a
rate per annum equal to the Applicable Margin plus the applicable LIBOR on the outstanding
principal balance of such LIBOR Loan. In the event of any change in said Chase Bank Rate, the rate
set forth in the first sentence of this Section 8.1(a) shall change, effective as
of the date of such change, so as to remain equal to the Applicable Margin plus the
new Chase Bank Rate. All interest rates shall be calculated based on a 360-day year and actual
days elapsed.

     8.2. Default Interest Rate. Upon the occurrence of an Event of Default, (a)
provided that CIT has given the Company written notice of such Event of Default (other than
an Event of Default described in Section 10.1(c) of this Financing Agreement, for which no
written notice shall be required), all Obligations shall bear interest at the Default Rate of
Interest until such Event of Default is waived, and (b) at CIT’s election at any time thereafter,
interest on each outstanding LIBOR Loan shall be due and payable on the first day of each month,
notwithstanding the Interest Period with respect thereto.

     8.3. Fees and Expenses Relating to Letters of Credit.

     (a) Letter of Credit Guaranty Fee. In consideration of the issuance of any
Letter of Credit Guaranty by CIT or other assistance of CIT in obtaining Letters of Credit
pursuant to Section 5 hereof, the Company agrees to pay to CIT a Letter of Credit
Guaranty Fee equal to Applicable Margin per annum on the face amount of each Letter of
Credit. All Letter of Credit Guaranty Fees shall be due and payable monthly on the first
day of each month.

     (b) Charges of Issuing Bank. The Company agrees to reimburse CIT for any and
all charges, fees, commissions, costs and expenses charged to CIT for the Company’s account
by an Issuing Bank in connection with, or arising out of, Letters of Credit or out of
transactions relating thereto, when charged to or paid by CIT, or as may be due upon any
termination of this Financing Agreement.

     8.4. Out-of Pocket Expenses. The Company agrees to reimburse CIT for all
Out-of-Pocket Expenses promptly after being charged to or paid by CIT.

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     8.5. Line of Credit Fee; Collection Days. On the first day of each month, commencing
on January 1, 2007, (a) the Company agrees to pay to CIT the Line of Credit Fee, and (b) CIT shall
charge the Company for interest at the rate set forth in Section 8.1 (or Section
8.2, if applicable) hereof on the Collection Days for the immediately preceding month.

     8.6. [Intentionally Deleted].

     8.7. Administrative Management Fee. On the Closing Date and on the first day of the
month following the month in which each annual anniversary of the Closing Date occurs, the Company
agrees to pay to CIT the Administrative Management Fee, which shall be fully earned when paid.

     8.8. Standard Operational Fees. In addition to the Administrative Management Fee and
all Out-of-Pocket Expenses incurred by CIT in connection with any action taken under Section
7.2(a) hereof (but without duplication), the Company agrees to pay to CIT (a) all Documentation
Fees, (b) CIT’s standard charges for any employee of CIT used to conduct any of the examinations,
verifications, inspections, physical counts and other valuations described in Section
7.2(a) hereof (currently $1,000 per person, per day), and (c) CIT’s standard charges for each
wire transfer made by CIT to or for the benefit of the Company (currently $30) and for Dunn and
Bradstreet searches conducted by CIT for the Company’s account (currently $65), provided
that such standard charges may be increased by CIT from time to time. Such charges shall be due
and payable in accordance with CIT’s standard practices, as in effect from time to time.

     8.9. LIBOR Loans.

     (a) Conditions Applicable to LIBOR Loans. The Company may elect to use LIBOR
as to any Revolving Loans, convert any Chase Bank Rate Loan to a new LIBOR Loan or continue
any existing LIBOR Loan as a new LIBOR Loan on the last day of the Interest Period with
respect to such existing LIBOR Loan, so long as:

     (i) no Default or Event of Default shall have occurred and remain outstanding
on the date on which such new LIBOR Loan is requested and on the first day of the
Interest Period for such new LIBOR Loan;

     (ii) the Company requests the new LIBOR Loan no later than three (3) Business
Days preceding the first day of the Interest Period for such new LIBOR Loan (or
three (3) Business Days prior to the expiration of any Interest Period, in the case
of a continuation of an existing LIBOR Loan);

     (iii) if CIT requests written confirmation of any new LIBOR Loan from the
Company, the Company shall have signed and returned to CIT any such confirmation on
or prior to first day of the Interest Period for such new LIBOR Loan; and

     (iv) with respect to the Interest Period selected by the Company for such new
LIBOR Loan, (x) either (1) JPMorgan Chase Bank provides a LIBOR quote for such

Financial
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Interest Period or CIT otherwise determines the LIBOR for such Interest Period, as
provided in the definition of LIBOR, or (2) the LIBOR for such Interest Period as
quoted by JPMorgan Chase Bank or as determined by CIT adequately and fairly reflects
the cost of maintaining or funding CIT’s loans bearing interest at LIBOR for such
Interest Period, and (y) such Interest Period ends on or before the Termination
Date.

     Any LIBOR election must be for at least $250,000 and if greater, in integral multiples of
$250,000, and there shall be no more than four (4) LIBOR Loans outstanding at one time. Elections
for LIBOR Loans shall be irrevocable once made. If any condition for a LIBOR election is not
satisfied, then the requested new loan (or continuation of an existing LIBOR Loan) shall be made to
the Company as a Chase Bank Rate Loan.

     (b) Restrictions Affecting the Making or Funding of LIBOR Loans.
Notwithstanding any other provision of this Financing Agreement to the contrary, if any law,
regulation, treaty or directive, or any amendment thereto or change in the interpretation or
application thereof, shall make it unlawful for CIT to make or maintain any LIBOR Loan, then
(x) such LIBOR Loan shall convert automatically to a Chase Bank Rate Loan at the end of the
applicable Interest Period, or such earlier date as may be required by such law, regulation,
treaty or directive, and (y) the obligation of CIT thereafter to make or continue LIBOR
Loans and to convert Chase Bank Rate Loans into LIBOR Loans hereunder shall be suspended
until CIT determines that it is no longer unlawful to make and maintain LIBOR Loans as
contemplated herein. In addition, in the event that, by reason of any Regulatory Change,
CIT either (x) incurs any material additional costs based on or measured by the excess above
a specified level of the amount of a category of deposits or other liabilities of CIT which
includes deposits by reference to which the interest rate on LIBOR Loans is determined
hereunder, or a category of extensions of credit or other assets of CIT which includes LIBOR
Loans, or (y) becomes subject to any material restrictions on the amount of such a category
of liabilities or assets which CIT may hold, then if CIT so elects by notice to the Company,
the obligation of CIT thereafter to make or continue LIBOR Loans and to convert Chase Bank
Rate Loans into LIBOR Loans hereunder shall be suspended until such Regulatory Change ceases
to be in effect.

     (c) Inability to Determine LIBOR. Notwithstanding any other provision of this
Financing Agreement to the contrary, if CIT determines in the exercise of its reasonable
business judgment (which determination shall be conclusive and binding upon the Company)
that by reason of circumstances affecting the interbank LIBOR market, adequate and
reasonable means do not exist for ascertaining LIBOR applicable to an Interest Period with
respect to any election of a new LIBOR Loan, CIT shall give written notice of such
determination to the Company prior to the effective date of such election. Upon receipt of
such notice, the Company may cancel the Company’s request for such new LIBOR Loan, in which
case the requested LIBOR Loan shall be made as a Chase Bank Rate Loan. Until such notice
has been withdrawn by CIT, the obligation of CIT thereafter to make or continue LIBOR Loans
and to convert Chase Bank Rate Loans into LIBOR Loans hereunder shall be suspended until CIT
determines that adequate and reasonable means again exist for ascertaining LIBOR applicable
to an Interest Period with respect to any election of a new LIBOR Loan.

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     (d) Compensation for Costs. The Company hereby agrees to pay to CIT, on
demand, any additional amounts necessary to compensate CIT for any costs incurred by CIT in
making any conversions from LIBOR Loans to Chase Bank Rate Loans in accordance with this
Section 8.9, including, without limitation, breakage costs provided for in
Section 8.10 of this Financing Agreement.

     (e) Loan Participants. For purposes of this Section 8.9, the term “CIT”
shall include any financial institution that purchases from CIT a participation in the loans
made by CIT to the Company hereunder.

     8.10. LIBOR Breakage Costs and Fees. In the event that the Company (i) pays all or any part of the principal amount of a LIBOR
Loan on a date prior to the last day of an Interest Period for such LIBOR Loan, (ii) fails to
borrow a LIBOR Loan, or fails to convert a Chase Bank Rate Loan to a LIBOR Loan, on the date for
such borrowing or conversion specified in the relevant request to CIT, or (iii) fails to pay to CIT
the principal of, or interest on, any LIBOR Loan when due, the Company agrees to pay to CIT (and
any financial institution that purchases from CIT a participation in the loans made by CIT to the
Company hereunder), on demand, the greater of (x) $1,000, (y) such amount as shall compensate CIT
and such financial institution for any actual loss, cost or expense that CIT or such financial
institution may sustain or incur as a result of such event (including, without limitation, any
interest or fees payable by CIT or such financial institution to lenders or depositors of funds
obtained by CIT or such financial institution in order to make or maintain any LIBOR Loans under
this Financing Agreement), and (z) in the case of a prepayment of any LIBOR Loan, the excess (if
any) of the amount of interest that would have accrued on such loan from the first day of the
Interest Period to the date of prepayment, assuming that such loan was a Chase Bank Rate Loan, over
the amount of interest that actually accrued on such loan from the first day of the Interest Period
to the date of prepayment. The determination by CIT of the amount of any such loss, cost or expense
described in clause (y) of the preceding sentence, when set forth in a written notice to the
Company containing CIT’s calculations thereof in reasonable detail, shall be conclusive and binding
upon the Company, in the absence of manifest error.

     8.11. Early Termination Fee. In the event the Company terminates the Revolving Line
of Credit or this Financing Agreement on an Early Termination Date, the Early Termination Fee shall
be due and payable in full on the date of termination.

     8.12. Capital Adequacy. In the event that CIT (or any financial institution that
purchases from CIT a participation in the loans made by CIT to the Company hereunder), subsequent
to the Closing Date, determines in the exercise of its reasonable business judgment that (x) any
change in applicable law, rule, regulation or guideline regarding capital adequacy, or (y) any
change in the interpretation or administration thereof, or (z) compliance by CIT or such financial
institution with any new request or directive regarding capital adequacy (whether or not having the
force of law) of any central bank or other governmental or regulatory authority, has or would have
the effect of reducing the rate of return on CIT’s or such financial institution’s capital as a
consequence of its obligations hereunder to a level below that which CIT or such financial
institution could have achieved but for such change or compliance (taking into consideration CIT’s
or such financial institution’s policies with respect to capital adequacy) by an amount deemed
material by CIT or such financial institution in the exercise of their

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reasonable business judgment, the Company agrees to pay to CIT, no later than five (5) days following demand by CIT,
such additional amount or amounts as will compensate CIT or such financial institution for such
reduction in rate of return. In determining such amount or amounts, CIT and such financial
institution may use any reasonable averaging or attribution methods. The protection of this
Section 8.12 shall be available to CIT and such financial institution regardless of any
possible contention of invalidity or inapplicability with respect to the applicable law, regulation
or condition. A certificate of CIT or such financial institution setting forth such amount or
amounts as shall be necessary to compensate CIT or such financial institution with respect to this
Section 8.12 and the calculation thereof, when delivered to the Company, shall be
conclusive and binding on the Company absent manifest error. In the event CIT or such financial
institution exercises its rights pursuant to this Section 8.12, and subsequent thereto
determines that the amounts paid by the Company exceeded the amount which CIT or such financial
institution actually required to compensate CIT or such financial institution for any reduction in
rate of return on its capital, such excess shall be returned to the Company by CIT or such
financial institution, as the case may be.

     8.13. Taxes, Reserves and Other Conditions. In the event that any applicable law,
treaty or governmental regulation, or any change therein or in the interpretation or application
thereof, or compliance by CIT (or by any financial institution that purchases from CIT a
participation in the loans made by CIT to the Company hereunder) with any new request or directive
(whether or not having the force of law) of any central bank or other governmental or regulatory
authority, shall:

     (a) subject CIT or such financial institution to any tax of any kind whatsoever with
respect to this Financing Agreement or the other Loan Documents, or change the basis of
taxation of payments to CIT or such financial institution of principal, fees, interest or
any other amount payable hereunder or under any of the other Loan Documents (except for
changes in the rate of tax on the overall net income of CIT or such financial institution by
the federal government or other jurisdiction in which it maintains its principal office);

     (b) impose, modify or hold applicable any reserve, special deposit, assessment or
similar requirement against assets held by, or deposits in or for the account of, advances
or loans by, or other credit extended by CIT or such financial institution by reason of or
in respect to this Financing Agreement and the Loan Documents, including (without
limitation) pursuant to Regulation D of the Board of Governors of the Federal Reserve
System; or

     (c) impose on CIT or such financial institution any other condition with respect to
this Financing Agreement or any other document;

and the result of any of the foregoing is to (i) increase the cost to CIT of making, renewing or
maintaining CIT’s loans hereunder (or the cost to such financial institution in participating in
such loans) by an amount deemed material by CIT or such financial institution in the exercise of
their reasonable business judgment, or (ii) reduce the amount of any payment (whether of principal,
interest or otherwise) in respect of any of the loans made hereunder by an amount that CIT or such
financial institution deems to be material in the exercise of its reasonable business

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judgment, the Company agrees to pay to CIT, no later than five (5) days following demand by CIT, such additional
amount or amounts as will compensate CIT or such financial institution for such increase in cost or
reduction in payment, as the case may be. A certificate of CIT or such financial institution
setting forth such amount or amounts as shall be necessary to compensate CIT or such financial
institution with respect to this Section 8.13 and the calculation thereof, when delivered
to the Company, shall be conclusive and binding on the Company absent
manifest error. In the event CIT or such financial institution exercises its rights pursuant to
this Section 8.13, and subsequent thereto determines that the amounts paid by the Company
in whole or in part exceeded the amount which CIT or such financial institution actually required
to compensate CIT or such financial institution for any increase in cost or reduction in payment,
such excess shall be returned to the Company by CIT or such financial institution, as the case may
be.

     8.14. Authority to Charge Revolving Loan Account. The Company hereby authorizes CIT
to charge the Revolving Loan Account with the amount of all payments due under this Section
8 as such payments become due. Any amount charged to the Revolving Loan Account shall be
deemed a Chase Bank Rate Loan hereunder and shall bear interest at the rate provided in Section
8.1 (or Section 8.2, if applicable) of this Financing Agreement. The Company confirms
that any charges which CIT may make to the Revolving Loan Account as provided herein will be made
as an accommodation to the Company and solely at CIT’s discretion.

SECTION 9. POWERS.

     9.1. Authority. The Company hereby authorizes CIT, or any person or agent which CIT
may designate, at the Company’s cost and expense, to exercise all of the following powers, which
authority shall be irrevocable until the termination of this Financing Agreement and the full and
final payment and satisfaction of the Obligations:

     (a) To receive, take, endorse, sign, assign and deliver, all in the name of CIT or the
Company, any and all checks, notes, drafts, and other documents or instruments relating to
the Collateral;

     (b) To receive, open and dispose of all mail addressed to the Company and to notify
postal authorities to change the address for delivery thereof to such address as CIT may
designate;

     (c) To request from customers indebted on Accounts at any time, in the name of CIT,
information concerning the amounts owing on the Accounts;

     (d) To request from customers indebted on Accounts at any time, in the name of the
Company, any certified public accountant designated by CIT or any other designee of CIT,
information concerning the amounts owing on the Accounts;

     (e) To transmit to customers indebted on Accounts notice of CIT’s interest therein and
to notify customers indebted on Accounts to make payment directly to CIT for the Company’s
account; and

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     (f) To take or bring, in the name of CIT or the Company, all steps, actions, suits or
proceedings deemed by CIT necessary or desirable to enforce or effect collection of the
Accounts.

     9.2. Limitations on Exercise. Notwithstanding any other provision of this Financing
Agreement to the contrary, the powers set forth in Sections 9.1(b), (c),
(e) and (f) may only be exercised if an Event of Default shall have
occurred and remain outstanding.

SECTION 10. EVENTS OF DEFAULT AND REMEDIES.

     10.1. Events of Default. Each of the following events shall constitute an “Event of
Default” under this Agreement:

     (a) the cessation of the business of the Company, any Guarantor or any subsidiary of
the Company, or the calling of a meeting of the creditors of the Company, any Guarantor or
any subsidiary of the Company for purposes of compromising its debts and obligations;

     (b) the failure of either the Company, any Guarantor or any subsidiary of the Company
to generally meet its debts as those debts mature;

     (c) (i) the commencement by the Company, any Guarantor or any subsidiary of the Company
of any bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceedings under any federal or state law; or (ii) the commencement against the Company,
any Guarantor or any subsidiary of the Company of any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceeding under any federal or state law by
creditors of any of them, but only if such proceeding is not contested by the Company, any
Guarantor or any subsidiary of the Company, as applicable, within ten (10) days and not
dismissed or vacated within thirty (30) days of commencement, or any of the actions or
relief sought in any such proceeding shall occur or be authorized by the Company, any
Guarantor or any subsidiary of the Company;

     (d) the breach or violation by the Company of any warranty, representation or covenant
contained in this Financing Agreement (other than those referred to in Section
10.1(e) below), provided that such breach or violation shall not be deemed to be
an Event of Default unless the Company fails to cure such breach or violation to CIT’s
reasonable satisfaction within ten (10) days from the date of such breach or violation;

     (e) the breach or violation by the Company of any warranty, representation or covenant
contained in Sections 3.2, 6.3, 6.4, 6.5, 6.6(b),
7.2(c), 7.2(d), 7.2(g)(i), 7.3 and 7.4;
provided, that if such breach or violation occurs under Section
7.2(g)(i) as a result of an error or an immaterial omission, such breach or violation
shall not be deemed to be an Event of Default unless Company fails to cure such breach or
violation to CIT’s reasonable satisfaction within two (2) days from the date of such breach
or violation;

     (f) the failure of the Company to pay any of the Obligations within five (5) Business
Days of the due date thereof, provided that nothing contained herein shall

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prohibit CIT from charging such amounts to the Revolving Loan Account on the due date
thereof;

     (g) the Company shall (i) engage in any “prohibited transaction” as defined in ERISA,
(ii) incur any “accumulated funding deficiency” as defined in ERISA, (iii) incur any
“reportable event” as defined in ERISA, (iv) terminate any “plan”, as defined in ERISA or
(v) become involved in any proceeding in which the Pension Benefit Guaranty Corporation
shall seek appointment, or is appointed, as trustee or administrator of any “plan”, as
defined in ERISA, and with respect this Section 10.1(g), such event or condition
either (x) remains uncured for a period of thirty (30) days from date of occurrence and (y)
could, in CIT’s reasonable business judgment, subject the Company to any tax, penalty or
other liability having a Material Adverse Effect;

     (h) the occurrence of any default or event of default (after giving effect to any
applicable grace or cure period) under any of the other Loan Documents, or any of the other
Loan Documents ceases to be valid, binding and enforceable in accordance with its terms;

     (i) the occurrence of any default or event of default (after giving effect to any
applicable grace or cure period) under any instrument or agreement evidencing or governing
(i) the Subordinated Debt, or (ii) other Indebtedness of the Company having a principal
amount in excess of $100,000;

     (j) the Company shall modify the terms or provisions of any agreement, instrument or
other document relating to any Subordinated Debt without CIT’s prior written consent, unless
such modification is permitted by the applicable Subordination Agreement;

     (k) a Change of Control shall occur; or

     (l) any Guarantor shall attempt to terminate its Guaranty or deny that such Guarantor
has any liability thereunder, or any Guaranty shall be declared null and void and of no
further force and effect.

     10.2. Remedies With Respect to Outstanding Loans. Upon the occurrence of a Default or
an Event of Default, at the option of CIT, all loans, advances and extensions of credit provided
for in Sections 3, 4 and 5 of this Financing Agreement thereafter shall be
made in CIT’s sole discretion, and the obligation of CIT to make Revolving Loans and to assist the
Company in opening Letters of Credit, shall cease unless such Default is cured to CIT’s
satisfaction or such Event of Default is waived in accordance herewith. In addition, upon the
occurrence of an Event of Default and so long as such Event of Default is continuing, CIT may, at
its option (a) declare all Obligations immediately due and payable, (b) charge the Company the
Default Rate of Interest on all then outstanding or thereafter incurred Obligations in lieu of the
interest provided for in Sections 8.1 of this Financing Agreement, provided that
CIT has given the Company written notice of such Event of Default if required by Section
8.2, and (c) immediately terminate this Financing Agreement upon notice to the Company.
Notwithstanding the foregoing, (x) CIT’s commitment to make loans, advances and
extensions of credit provided for in Sections 3,

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4 and 5 of this
Financing Agreement automatically shall terminate without any declaration, notice or demand by CIT
upon the commencement of any proceeding described in clause (ii) of Section 10.1(c), and
(y) this Financing Agreement automatically shall terminate and all Obligations shall become due and
payable immediately without any declaration, notice or demand by CIT, upon the commencement of any
proceeding described in clause (i) of Section 10.1(c) or the occurrence of an Event of
Default described in clause (ii) of Section 10.1(c). The exercise of any option is not
exclusive of any other option that may be exercised at any time by CIT.

     10.3. Remedies With Respect to Collateral. Immediately after the occurrence of an
Event of Default and so long as such Event of Default is continuing, CIT may, at its option, to the
extent permitted by applicable law: (a) remove from any premises where same may be located any and
all books and records, computers, electronic media and software programs associated with any
Collateral (including electronic records, contracts and signatures pertaining thereto), documents,
instruments and files, and any receptacles or cabinets containing same, relating to the Accounts,
and CIT may use, at the Company’s expense, such of the Company’s personnel, supplies or space at
the Company’s places of business or otherwise, as may be necessary to properly administer and
control the Accounts or the handling of collections and realizations thereon; (b) bring suit, in
the name of the Company or CIT, and generally shall have all other rights respecting the Accounts,
including, without limitation, the right to (i) accelerate or extend the time of payment, (ii)
settle, compromise, release in whole or in part any amounts owing on any Accounts and (iii) issue
credits in the name of the Company or CIT; (c) sell, assign and deliver the Collateral and any
returned, reclaimed or repossessed merchandise, with or without advertisement, at public or private
sale, for cash, on credit or otherwise, at CIT’s sole option and discretion, and CIT may bid or
become a purchaser at any such sale, free from any right of redemption, which right is hereby
expressly waived by the Company; (d) foreclose CIT’s security interests in the Collateral by any
available judicial procedure, or take possession of any or all of the Collateral without judicial
process, and to enter any premises where any Collateral may be located for the purpose of taking
possession of or removing the same; and (e) exercise any other rights and remedies provided in law,
in equity, by contract or otherwise. CIT shall have the right, without notice or advertisement
(except as may be required by law), to sell, lease, or otherwise dispose of all or any part of the
Collateral whether in its then condition or after further preparation or processing, in the name of
the Company or CIT, or in the name of such other party as CIT may designate, either at public or
private sale or at any broker’s board, in lots or in bulk, for cash or for credit, with or without
warranties or representations (including, without limitation, warranties of title, possession,
quiet enjoyment and the like), and upon such other terms and conditions as are commercially
reasonable, and CIT shall have the right to purchase at any such sale. If any Inventory and
Equipment shall require rebuilding, repairing, maintenance or preparation, CIT shall have the
right, at its option, to do such of the aforesaid as is necessary, for the purpose of putting the
Inventory and Equipment in such saleable form as CIT shall deem appropriate. The Company agrees,
at the request of CIT, to assemble the Inventory and Equipment, and to make it available to CIT at
premises of the Company or elsewhere and to make available to CIT the premises and facilities of
the Company for the purpose of CIT’s taking possession of, removing or putting the Inventory and
Equipment in saleable form. If notice of intended disposition of any Collateral is required by
law, it is agreed that ten (10) days notice shall constitute reasonable
notification and full compliance with the law. The net cash proceeds resulting from CIT’s
exercise of any of the foregoing rights (after deducting all Out-of-Pocket

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Expenses relating thereto) shall be applied by CIT to the payment of the Obligations, whether due or to become due,
in such order as CIT may elect, and the Company shall remain liable to CIT for any deficiencies,
and CIT in turn agrees to remit to the Company or its successors or assigns, any surplus resulting
therefrom. The enumeration of the foregoing rights is not intended to be exhaustive and the
exercise of any right shall not preclude the exercise of any other right of CIT under applicable
law or the other Loan Documents, all of which shall be cumulative.

     10.4. General Indemnity. In addition to the Company’s agreement to reimburse CIT for
Out-of-Pocket Expenses, but without duplication, the Company hereby agrees to indemnify CIT and its
officers, directors, employees, attorneys and agents (each, an “Indemnified Party”) from,
and to defend and hold each Indemnified Party harmless against, any and all losses, liabilities,
obligations, claims, actions, judgments, suits, damages, penalties, costs, fees, expenses
(including reasonable attorney’s fees) of any kind or nature which at any time may be imposed on,
incurred by, or asserted against, any Indemnified Party:

     (a) as a result of CIT’s exercise of (or failure to exercise) any of CIT’s rights and
remedies hereunder, including, without limitation, (i) any sale or transfer of the
Collateral, (ii) the preservation, repair, maintenance, preparation for sale or securing of
any Collateral, and (iii) the defense of CIT’s interests in the Collateral (including the
defense of claims brought by the Company, as a debtor-in-possession or otherwise, any
secured or unsecured creditors of the Company, or any trustee or receiver in bankruptcy);

     (b) as a result of any environmental pollution, hazardous material or environmental
clean-up relating to the Real Estate, the Company’s operation and use of the Real Estate,
and the Company’s off-site disposal practices;

     (c) arising from or relating to (i) the maintenance and operation of any Depository
Account, (ii) any Depository Account Control Agreements and (iii) any action taken (or
failure to act) by any Indemnified Party with respect thereto;

     (d) in connection with any regulatory investigation or proceeding by any regulatory
authority or agency having jurisdiction over the Company; and

     (e) otherwise relating to or arising out of the transactions contemplated by this
Financing Agreement and the other Loan Documents, or any action taken (or failure to act) by
any Indemnified Party with respect thereto;

provided that an Indemnified Party’s conduct in connection with the any of the foregoing
matters does not constitute gross negligence or willful misconduct, as finally determined by a
court of competent jurisdiction. This indemnification shall survive the termination of this
Financing Agreement and the payment and satisfaction of the Obligations. CIT may from time to time
establish Availability Reserves with respect to this indemnity as CIT may deem advisable in the
exercise of its reasonable business judgment, and upon termination of this Financing Agreement, CIT
may hold such reserves as cash reserves as security for this indemnity.

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SECTION 11. TERMINATION.

     Except as otherwise provided in Section 10.2 hereof, CIT may terminate this Financing
Agreement and the Line of Credit only as of the initial or any subsequent Termination Date, and
then only by giving the Company at least ninety (90) days prior written notice of termination. The
Company may terminate this Financing Agreement at any time prior to any Termination Date upon
thirty (30) days prior written notice to CIT, provided that the Company pays to CIT any
Early Termination Fee due and payable hereunder on the date of termination. THIS FINANCING
AGREEMENT, UNLESS TERMINATED AS HEREIN PROVIDED, SHALL AUTOMATICALLY CONTINUE FROM TERMINATION DATE
TO TERMINATION DATE. All Obligations shall become due and payable in full on the date of any
termination hereunder and, pending a final accounting of the Obligations, CIT may withhold any
credit balances in the Revolving Loan Account (unless supplied with an indemnity satisfactory to
CIT) as a cash reserve to cover any contingent Obligation then outstanding, including, but not
limited to, an amount equal to 110% of the face amount of any outstanding Letters of Credit. All
of CIT’s rights, liens and security interests granted pursuant to the Loan Documents shall continue
after any termination of this Financing Agreement until all Obligations have been fully and finally
paid and satisfied.

     SECTION 12. MISCELLANEOUS.

     12.1. Waivers. The Company hereby waives diligence, demand, presentment, protest and
any notices thereof as well as notices of nonpayment, intent to accelerate and acceleration. No
waiver of an Event of Default by CIT shall be effective unless such waiver is in writing and signed
by CIT. No delay or failure of CIT to exercise any right or remedy hereunder, whether before or
after the happening of any Event of Default, shall impair any such right or remedy, or shall
operate as a waiver of such right or remedy, or as a waiver of such Event of Default. A waiver on
any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future
occasion. No single or partial exercise by CIT of any right or remedy precludes any other or
further exercise thereof, or precludes any other right or remedy.

     12.2. Entire Agreement; Amendments. This Financing Agreement and the other Loan
Documents: (a) constitute the entire agreement between the Company and CIT; (b) supersede any prior
agreements (including the agreements set forth in the Commitment Letter); (c) may be amended only
by a writing signed by the Company and CIT; and (d) shall bind and benefit the Company and CIT and
their respective successors and assigns. Should the provisions of any Loan Document conflict with
the provisions of this Loan Agreement, the provisions of this Financing Agreement shall apply and
govern.

     12.3. Usury Limit. In no event shall the Company, upon demand by CIT for payment of
any indebtedness relating hereto, by acceleration of the maturity thereof, or otherwise, be
obligated to pay interest and fees in excess of the amount permitted by law. Regardless of any
provision herein or in any
agreement made in connection herewith, CIT shall never be entitled to receive, charge or
apply, as interest on any indebtedness relating hereto, any amount in excess of the maximum amount
of interest permissible under applicable law. If CIT ever receives, collects or applies any such
excess, it shall be deemed a partial repayment of principal and treated as such. If as a result,
the entire principal amount of the Obligations is paid in full, any remaining

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excess shall be
refunded to the Company. This Section 12.3 shall control every other provision of the
Financing Agreement, the other Loan Documents and any other agreement made in connection herewith.

     12.4. Severability. If any provision hereof or of any other Loan Document is held to
be illegal or unenforceable, such provision shall be fully severable, and the remaining provisions
of the applicable agreement shall remain in full force and effect and shall not be affected by such
provision’s severance. Furthermore, in lieu of any such provision, there shall be added
automatically as a part of the applicable agreement a legal and enforceable provision as similar in
terms to the severed provision as may be possible.

     12.5. WAIVER OF JURY TRIAL; SERVICE OF PROCESS. THE COMPANY AND CIT EACH HEREBY WAIVE
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREUNDER. THE COMPANY HEREBY IRREVOCABLY WAIVES
PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL,
RETURN RECEIPT REQUESTED. IN NO EVENT WILL CIT BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR
CONSEQUENTIAL DAMAGES.

     12.6. Notices. Except as otherwise herein provided, any notice or other communication
required hereunder shall be in writing (messages sent by e-mail or other electronic transmission
(other than by telecopier) shall not constitute a writing, however any signature on a document or
other writing that is transmitted by e-mail or telecopier shall constitute a valid signature for
purposes hereof), and shall be deemed to have been validly served, given or delivered when received
by the recipient if hand delivered, sent by commercial overnight courier or sent by facsimile, or
three (3) Business Days after deposit in the United States mail, with proper first class postage
prepaid and addressed to the party to be notified as follows:

	 	(a)	 	if to CIT, at:

The CIT Group/Commercial Services, Inc.

5420 LBJ Freeway, Suite 200

Dallas, Texas 75240

Attn: Regional Credit Manager

Telecopier No.: (972) 455-1690

With a copy to:

Patton Boggs LLP

2001 Ross Avenue, Suite 3000

Dallas, Texas 75201

Attn: James C. Chadwick, Esq.

Telecopier No.: (214) 758-1550

Financing Agreement — Pizza Inn

55

 

	 	(b)	 	if to the Company at:

Pizza Inn, Inc.

3551 Plano Parkway

The Colony, TX 75056

Attn: Rod McDonald, General Counsel

Telecopier No.: (469) 579-4452

With a copy to:

Jeffery L. Curtis

Haynes and Boone, LLP

2505 N. Plano Road

Richardson, TX 75082

Telecopier No.: (972) 692-9086; or

	 	(c)	 	to such other address as any party may designate for itself by like notice.

     12.7. CHOICE OF LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK,
EXCEPT TO THE EXTENT THAT ANY OTHER LOAN DOCUMENT INCLUDES AN EXPRESS ELECTION TO BE GOVERNED BY
THE LAWS OF ANOTHER JURISDICTION.

[The Remainder of this Page Intentionally Left Blank]

Financing Agreement — Pizza Inn

56

 

     IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement to be executed,
accepted and delivered by their proper and duly authorized officers as of the date set forth above.

	 	 	 
	COMPANY

	 	CIT
	 
	 	 
	PIZZA INN, INC.

	 	THE CIT GROUP/COMMERCIAL SERVICES, INC.
	 
	 	 
	By:      /s/ Timothy P. Taft

	 	By:      /s/ Mark Porter
	Name: Tim Taft

	 	Name: Mark Porter
	Title: President

	 	Title: Vice President

Financing
Agreement Schedule 7.2(1)

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