Document:

Exhibit 10.1

 

REVOLVING CREDIT AND TERM LOAN AGREEMENT

 

THIS AGREEMENT (this “Agreement”)
is made and entered into as of the  22 day of February, 2008, by and
between COMVEST CAPITAL LLC, a
Delaware limited liability company (the “Lender”), and CRDENTIA CORP., a Delaware corporation (the
“Borrower”).

 

W  I  T  N  E
S  S  E  T  H :

 

WHEREAS, the Borrower
and its Active Subsidiaries are engaged in the business of providing healthcare
staffing services to hospitals and other healthcare facilities throughout the
United States (the “Business Operations”); and

 

WHEREAS, in order to
enable the Borrower to repay certain outstanding Indebtedness and to finance
potential future business acquisitions, and for the Borrower’s working capital
and other general corporate purposes, the Borrower has requested the Lender to
extend to the Borrower a revolving credit facility and term loans on the terms
and conditions of this Agreement; and

 

WHEREAS, the Lender is
willing and able to provide such revolving credit facility and make such term
loans to the Borrower on the terms and conditions of this Agreement;

 

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

 

I.            DEFINITIONS

 

Section 1.01.  Defined Terms.  In addition to the other terms defined
elsewhere in this Agreement, as used herein, the following terms shall have the
following meanings:

 

“Accounts” shall mean
“accounts” (as defined in the UCC) of the Borrower and its Domestic
Subsidiaries from time to time.

 

“Account Debtor” shall mean any Person
who is obligated on an Account.

 

“Act” shall mean the
Securities Act of 1933, as amended, and the rules and regulations
thereunder.

 

“Active Subsidiaries”
shall mean those Subsidiaries listed as such on Schedule 1.01 of the
Disclosure Schedule.

 

“Advances” shall mean
the principal amounts loaned to the Borrower from time to time pursuant to Section 2.01
below.

 

“Affiliate” shall
mean, with respect to any Person, any other Person in Control of, Controlled
by, or under common Control with the first Person, and any other Person who has
a substantial interest, direct or indirect, in the first Person or any of its
Affiliates, including, without limitation, any officer or director of the first
Person or any of its Affiliates; provided, 

 

 

however, that, except
as otherwise provided herein, neither the Lender nor any of its Affiliates
shall be deemed an “Affiliate” of the Borrower for any purposes of this
Agreement.  For the purpose of this
definition, a “substantial interest” shall mean the direct or indirect legal or
beneficial ownership of more than ten (10%) percent of any class of stock or
similar interest.

 

“Agreement” shall
mean this Revolving Credit and Term Loan Agreement as it may from time to time
be amended, modified, supplemented and/or restated.

 

“Applicable Law”
shall mean all applicable provisions of all (a) constitutions, statutes,
ordinances, rules, regulations and orders of all governmental and/or
quasi-governmental bodies, (b) Government Approvals, and (c) order,
judgments and decrees of all courts and arbitrators.

 

“Availability” shall
mean the amount (if any) by which, at the time of determination, (a) the
Revolving Credit Commitment exceeds (b) the outstanding principal amount
of Advances.

 

“Borrowing Base”
shall mean an amount, determined in accordance with the most recent borrowing
base report provided to the Lender under Section 5.04(e) hereof,
equal to the sum of (a) 85% of Eligible Accounts, plus (b) the
lesser of (i) 50% of Eligible Unbilled Accounts, or (ii) $500,000, minus
(c) such reserves as the Lender may establish from time to time in its
Permitted Discretion (including, without limitation, to account for
concentration and other risks of collection, and for payroll, taxes or other
liabilities).  In the event that the
Borrower has not timely delivered a current Borrowing Base report in accordance
with Section 5.04(e) below, then the applicable Borrowing Base shall
be such amount as is established by the Lender, until such time as the Borrower
has delivered a current Borrowing Base report.

 

“Borrowing
Date” means the Business Day on which the Lender makes a Loan hereunder.

 

“Business Day” shall
mean a day other than (a) a Saturday, (b) a Sunday, or (c)  a
day on which banking institutions in either the State of Florida or the State
of Texas are authorized or required by law or executive order to close.

 

“Capital Expenditures”
shall mean with respect to any Person, all expenditures of such Person for
tangible assets which are capitalized, and the fair value of any tangible
assets leased by such Person under any lease which would be a Capitalized
Lease, determined in accordance with GAAP, including all amounts paid or
accrued by such Person in connection with the purchase (whether on a cash or
deferred payment basis) or lease (including Capitalized Lease Obligations) of
any machinery, equipment, real property, improvements to real property
(including leasehold improvements), or any other tangible asset of such Person
which is required, in accordance with GAAP, to be treated as a fixed asset on
the consolidated balance sheet of such Person.

 

“Capitalized Lease”
shall mean any lease which is or should be capitalized on the balance sheet of
the lessee thereunder in accordance with GAAP.

 

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“Capitalized Lease
Obligation” shall mean with respect to any Person, the amount of the
liability which reflects the amount of future payments under all Capitalized
Leases of such Person as at any date, determined in accordance with GAAP.

 

“Cash Equivalents”
shall mean (a) marketable securities issued, or directly and fully
guaranteed or insured, by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than twelve (12) months from the date of acquisition; (b) time deposits,
demand deposits, certificates of deposit, acceptances or prime commercial paper
issued by, or repurchase obligations for underlying securities of the types
described in clause (a) entered into with any commercial bank having a
short-term deposit rating of at least A-2 or the equivalent thereof by Standard &
Poor’s Corporation or at least P-2 or the equivalent thereof by Moody’s
Investors Service, Inc.; (c) commercial paper with a rating of A-I or
A-2 or the equivalent thereof by Standard & Poor’s Corporation or P-1
or P-2 or the equivalent thereof by Moody’s Investors Service, Inc. and in
each case maturing within twelve (12) months after the date of acquisition; (d) marketable
direct obligations issued by any state in the United States or any agency or
instrumentality thereof maturing within twelve (12) months from the date of
acquisition thereof and, at the time of acquisition, have one of the two
highest ratings generally obtainable from either Standard & Poor’s
Corporation or Moody’s Investors Services, Inc.; (e) tax-exempt
commercial paper of United States municipal, state or local governments rated
at least A-2 or the equivalent thereof by Standard & Poor’s
Corporation or at least P-2 or the equivalent thereof by Moody’s Investors
Services, Inc. and maturing within twelve (12) months after the date of
acquisition thereof; (f) any other items selected by the Borrower and
approved by the Lender (which approval shall not be unreasonably withheld or
delayed); or (g) any mutual fund or other pooled investment vehicle which
invests principally in the foregoing obligations.

 

“Closing Date” shall
mean the date of this Agreement, simultaneously with the funding of the Term
Loans.

 

“Closing Fees” shall
mean, collectively, (a) a facility fee in the amount of $125,000 with
respect to the Revolving Credit Commitment, and (b) a closing fee in the
amount of $100,000 with respect to the Term Loans, both of which shall be
payable in accordance with Section 2.03(a) below.

 

“Code” shall mean the
Internal Revenue Code of 1986, and the rules and regulations promulgated
thereunder, as in effect from time to time.

 

“Collateral” shall
mean all collateral pledged by the Borrower and/or any of the Subsidiaries as
security for the payment and performance of the Obligations, whether pursuant
to the Collateral Agreement or any other Security Document.

 

“Collateral Agreement”
shall mean the Collateral Agreement, dated as of the Closing Date, by and among
the Borrower, the Active Subsidiaries and the Lender, as same may be amended,
modified, supplemented and/or restated from time to time.

 

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“Common Stock” shall
mean the authorized common stock of the Company, $.0001 par value per share.

 

“Confidential Information”
shall mean information that the Borrower furnishes to the Lender pursuant to
any Loan Document, but does not include any such information once such
information has become, or if such information is, generally available to the
public or available to the Lender from a source other than the Borrower which
is not, to the Lender’s knowledge, bound by any confidentiality agreement in
respect thereof.

 

“Contract” shall mean
any indenture, agreement (other than this Agreement), other contractual
restriction, lease in which the Borrower or any Subsidiary is a lessor or
lessee, license or instrument.

 

“Control” shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise, and the terms “Controlling”
and “Controlled” shall have meanings correlative thereto.

 

“Control Agreement”
shall mean, with respect to each bank account (including lockbox service)
and/or securities account maintained by or in the name of the Borrower or any
Subsidiary (other than a Dissolving Subsidiary) from time to time, an agreement
executed and delivered by the Borrower (or the subject Subsidiary, as
applicable) and the account intermediary, whereby the account intermediary
acknowledges the Lender’s Lien on such account and all funds or property
therein, and “control” (within the meaning of the UCC) over such account is
established in favor of the Lender.

 

“Default” shall mean
any of the events specified in Article VII hereof, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.

 

“Disclosure Schedule”
shall mean the disclosure schedule, dated as of the Closing Date, executed and
delivered by the Borrower to the Lender, the section numbers of which
correspond to the Section numbers of this Agreement.

 

“Dissolving Subsidiaries”
shall mean those Subsidiaries listed as such on Schedule 1.01 of the
Disclosure Schedule.

 

“Dollars” or “$”
shall mean United States Dollars, lawful currency for the payment of public and
private debts.

 

“Domestic Subsidiary”
shall mean any Subsidiary which is incorporated or formed under the laws of the
United States, any State or Commonwealth in the United States, or the District
of Columbia.

 

“EBITDA” shall mean,
for the subject period, for the Borrower and its Subsidiaries on a consolidated
basis, the sum of (a) Net Income, plus (b) Interest Expense
deducted in the calculation of such Net Income, plus (c) all income
taxes deducted in the 

 

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calculation
of such Net Income, plus (d) depreciation and amortization expense
deducted in the calculation of such Net Income, plus (e) other
non-cash charges and expenses deducted in the calculation of such Net Income,
excluding accruals for cash expenses made in the ordinary course of business, minus
(f) any and all dividends and distributions made by the Borrower to its
stockholders.

 

“Eligible Account”
shall mean the face amount of each trade Account of the Borrower or a Domestic
Subsidiary (provided that such Domestic Subsidiary is a party to the Guaranty
Agreement and the Collateral Agreement) for services rendered or goods and
products sold in the ordinary course of the Business Operations which the
Lender, in its Permitted Discretion, deems to be an Eligible Account; provided,
however, that an Account shall not be deemed an Eligible Account unless
it meets all of the following conditions:

 

(a)           the subject services or products and goods have been
rendered, shipped or delivered on an absolute sale basis to an Account Debtor
which is not an Affiliate, vendor or supplier of the Borrower or a Subsidiary,
with an invoice date contemporaneous with or within ten (10) calendar days
after the date of shipment or service, and which does not constitute a
consignment sale, bill-and-hold sale, sale-and-return or other such arrangement
and is not subject to any other repurchase, return or offset agreement binding
upon the Borrower or a Subsidiary; the subject services or products and goods
have been rendered, shipped and delivered (or shipped f.o.b.) to such Account
Debtor on an open account basis (or with payment guaranteed by a domestic
letter of credit, drawn on or by a domestic financial institution, acceptable
to the Lender in all respects), and no part of the subject services, products
or goods has been returned, rejected, lost or damaged; the Account is not
evidenced by chattel paper or an instrument of any kind; and such Account
Debtor, unless pre-approved in writing by the Lender, is not insolvent or the
subject of any bankruptcy or insolvency proceeding of any kind in any
jurisdiction;

 

(b)           if the Account Debtor is located outside the continental
United States, payment for the subject services or goods shall be secured by an
irrevocable letter of credit, which letter of credit shall have been issued or
confirmed by a financial institutional reasonably acceptable to the Lender
payable in the full amount of the face value of the Account in lawful currency
of the United States;

 

(c)           it is a valid, legally enforceable obligation of the
Account Debtor thereunder payable in Dollars and is not subject to any
recoupment, offset or other defense or any discount or chargeback on the part
of such Account Debtor (provided that prompt payment discounts granted in the
ordinary course of business shall not cause an Account to be disqualified
hereunder, so long as only the discounted amount of such Account, if not
otherwise disqualified, is included in the calculation of the Borrowing Base)
or to any claim on the part of such Account Debtor denying liability thereunder
(provided that the undisputed portion may be considered to be an Eligible
Account);

 

(d)           it is subject to no Lien whatsoever except for the Lien of
the Lender, and the Lender has a perfected first priority Lien in such Account;

 

(e)           it has not remained unpaid in whole or in part for a
period exceeding one hundred twenty (120) days after the invoice date;

 

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(f)            it does not arise out of a transaction (whether direct or
indirect) with an employee, officer, agent, director or Affiliate of the
Borrower or any Subsidiary or with any entity controlled by any employee,
officer, agent or director of the Borrower or any Subsidiary;

 

(g)           it is not subject to any contract retainage or other
withholding of any portion of payments on amounts invoiced, whether to secure
the Borrower’s or any Subsidiary’s performance or otherwise;

 

(h)           it does not represent the unpaid portion of an Account any
portion of which was previously paid or agreed to be paid through the issuance or
delivery of equity securities or other non-cash consideration;

 

(i)            if the Account Debtor is the United States, any State, or
any department, agency or instrumentality thereof, the Borrower or the
applicable Domestic Subsidiary has duly assigned its rights to payment of such
Account to the Lender pursuant to the federal Assignment of Claims Act and any
comparable state statutes;

 

(j)            such Account is not payable by any person other than the
Account Debtor (such as a beneficiary, recipient or subscriber individually),
provided that the portion thereof which is payable by the Account Debtor may be
considered to be an Eligible Account;

 

(k)           at least sixty (60%) percent in dollar amount of the total
Accounts owed by such Account Debtor and/or its Affiliates constitute Eligible
Accounts;

 

(l)            the total Accounts owed by the subject Account Debtor
and/or its Affiliates constitute less than ten (10%) percent of the net
collectible dollar value of all Eligible Accounts (provided that only the
excess over ten (10%) percent shall be disqualified under this clause (l),
unless the Lender has otherwise consented in writing to the inclusion of all or
any portion of such excess);

 

(m)          such
Account is payable solely to the Borrower or a Domestic Subsidiary, and the
Borrower or such Domestic Subsidiary is not aware of any dispute by the Account
Debtor with respect to such Account (provided that (i) routine billing
questions by the Account Debtor, without denial of any payment obligation,
which are handled by the Borrower or the subject Domestic Subsidiary in the
ordinary course of business, shall not be deemed a disqualifying dispute
hereunder, and (ii) if the Account Debtor has affirmatively stated in
writing to the Borrower or the subject Domestic Subsidiary that the Account Debtor
will timely pay the undisputed portion of such Account, then the undisputed
portion of such Account will not be disqualified by reason of a dispute
relating to such Account); and

 

(n)           it is not otherwise determined by the Lender, in the
Lender’s Permitted Discretion, to be difficult to collect, uncollectible or
otherwise unacceptable for any reason.

 

“Eligible Unbilled
Account” shall mean the amount that would then be billable by the Borrower
or a Domestic Subsidiary (provided that such Domestic Subsidiary is a party to
the Guaranty Agreement and the Collateral Agreement) for each unbilled Account
of the Borrower or such Domestic Subsidiary arising in the ordinary course of
the Business Operations for the 

 

6

 

sale
of goods or rendering of services within the ten (10) calendar days
immediately preceding the calculation date of the subject Borrowing Base, and
which, other than being unbilled, satisfies all of the other conditions
contained in the definition of Eligible Account.

 

“ERISA” shall mean
the Employee Retirement Income Security Act of 1974, as in effect from time to
time.

 

“ERISA Affiliate”
shall mean, with respect to any Person, any other Person which is under common
control with the first Person within the meaning of Section 414(b) or
414(c) of the Code; provided, however, that with respect to
the Borrower, no Person which is an Affiliate of the Lender (other than the
Borrower and its Subsidiaries) shall be deemed an ERISA Affiliate for purposes
of this Agreement

 

“Event of Default”
has the meaning set forth in Article VII below.

 

“Exchange Act” shall
mean the Securities Exchange Act of 1934, as amended.

 

“Financial Statements”
has the meaning set forth in Section 3.01(a) below.

 

“Fiscal Year” shall
mean the fiscal year of the Borrower which ends on December 31 of each
year.

 

“Fixed Charges” shall
mean, for the period in question, the sum of (a) all principal payments
scheduled or required to be made during or with respect to such period in
respect of Indebtedness of the Borrower and its Subsidiaries, plus (b) all
Interest Expense of the Borrower and its Subsidiaries for such period, plus
(c) all income taxes paid or accrued for the Borrower and its Subsidiaries
for such period.

 

“Foreign Subsidiary”
shall mean any Subsidiary which is not a Domestic Subsidiary.

 

“GAAP” shall mean
generally accepted accounting principles in the United States of America,
consistently applied, unless the context otherwise requires, with respect to
any financial terms contained herein, as then in effect with respect to the
preparation of financial statements.

 

“Government Approval”
shall mean an authorization, consent, non-action, approval, license or
exemption of, registration or filing with, or report to, any governmental or
quasi-governmental department, agency, body or other unit.

 

“Guaranty”, “Guaranteed”
or to “Guarantee”, as applied to any Indebtedness, liability or other
obligation, shall mean (a) a guaranty, directly or indirectly, in any
manner, including by way of endorsement (other than endorsements of negotiable
instruments for collection in the ordinary course of business), of any part or
all of such obligation, and (b) an agreement, contingent or otherwise, and
whether or not constituting a guaranty, assuring, or intended to assure, the
payment or performance (or payment of damages in the event of non-performance)
of any part or all of such obligation by any means (including, without
limitation, 

 

7

 

the
purchase of securities or obligations, the purchase or sale of property or
services, or the supplying of funds).

 

“Guaranty Agreement”
shall mean the Guaranty Agreement, dated as of the Closing Date (and as same
may be amended, modified, supplemented and/or restated from time to time),
executed by each Active Subsidiary in favor of the Lender, pursuant to which
the Active Subsidiaries will guaranty the full and timely payment and
performance of all of the Obligations.

 

“Indebtedness” shall
mean (without duplication), with respect
to any Person, (a) all obligations or liabilities, contingent or
otherwise, for borrowed money, (b) any and all obligations represented by
promissory notes, bonds, debentures or the like, or on which interest charges
are customarily paid, (c) any liability secured by any mortgage, pledge,
lien or security interest on property owned or acquired, whether or not such
liability shall have been assumed, (d) obligations of such Person under
conditional sale or other title retention agreements relating to property or
assets purchased by such Person, (e) all obligations of such Person issued
or assumed as the deferred purchase price of property or services (excluding
trade payables and accrued obligations incurred in the ordinary course of
business), (f) any obligations (contingent or otherwise) of such Person as
an account party or applicant in respect of letters of credit and/or bankers’
acceptances, and (g) Guarantees, endorsements (other than for collection
in the ordinary course of business) and other contingent obligations in respect
of the obligations of others.

 

“Interest
Expense” shall mean, for the relevant period, interest expense (including,
without limitation, interest attributable to Capitalized Leases in accordance
with GAAP) and fees with respect to Indebtedness.

 

“Investment”, as
applied to the Borrower or any Subsidiary, shall mean: (a) any shares of
capital stock, evidence of Indebtedness or other security issued by any other
Person to the Borrower or any Subsidiary, (b) any loan, advance or
extension of credit to, or contribution to the capital of, any other Person,
other than credit terms extended to customers in the ordinary course of
business, (c) any other investment by the Borrower or any Subsidiary in
any assets or securities of any other Person, and (d) any commitment to
make any Investment.

 

“Knowledge” or “Known”
or words of similar import shall mean, with respect to the Borrower and/or any
Subsidiary, the actual knowledge of John B. Kaiser and/or James J. TerBeest,
after reasonable inquiry of the appropriate managerial employees of the
Borrower and the Subsidiaries.

 

“Landlord Waiver”
shall mean a landlord waiver, subordination and/or access agreement, in form
and substance reasonably satisfactory to the Lender, executed in favor of the
Lender by the landlord of a Real Property which is leased by the Borrower or a
Subsidiary as lessee.

 

“Liabilities and
Contingencies” has the meaning set forth in Section 3.01(c) below.

 

8

 

 

 

 

 

 

“Lien”, as applied to
the property or assets (or the income or profits therefrom) of the Borrower or
any Subsidiary, shall mean (in each case, whether the same is consensual or
nonconsensual or arises by contract, operation of law, legal process or otherwise):
(a) any mortgage, lien, pledge, hypothecation, attachment, assignment,
deposit arrangement, encumbrance, charge, lease constituting a Capitalized
Lease Obligation, conditional sale or other title retention agreement, or other
security interest or encumbrance of any kind in respect of any property
(including, without limitation, stock of any Subsidiary) of the Borrower or any
Subsidiary, or upon the income or profits therefrom; (b) any arrangement
under which any property of the Borrower or any Subsidiary is transferred,
sequestered or otherwise identified for the purpose of subjecting or making
available the same for the payment of Indebtedness or the performance of any
other liability in priority to the payment of the general, unsecured creditors
of the Borrower or any Subsidiary; (c) any Indebtedness or liability which
remains unpaid after the same shall become due and payable and which, if
unpaid, by law or otherwise is given any priority whatsoever over the general
unsecured creditors of the Borrower or any Subsidiary; and (d) any
agreement (other than this Agreement) or other arrangement which, directly or
indirectly, prohibits the Borrower or any Subsidiary from creating or incurring
any lien on any of its properties or assets or which conditions the ability to
do so on the security, on a pro  rata or other basis, of
Indebtedness other than Indebtedness outstanding under this Agreement.

 

“Loan Documents”
shall mean the collective reference to this Agreement, the Notes, the Security
Documents, the Warrant, the Registration Rights Agreement, and any and all
other agreements, instruments, certificates and other documents as may be
executed and delivered by the Borrower and/or any of the Subsidiaries pursuant
hereto or thereto.

 

“Loans” shall mean, collectively, the
Advances and the Term Loans.

 

“Material Adverse Effect”
shall mean any event, act, omission, condition or circumstance which has or
would reasonably be expected to have a material adverse effect on (a) the
business, operations, properties, assets or condition, financial or otherwise,
of the Borrower and the Subsidiaries, taken as a whole, (b) the ability of
the Borrower or any Subsidiary to pay or perform any of its obligations under
any of the Loan Documents, or (c) the validity or enforceability of, or
the Lender’s rights and remedies under, any of the Loan Documents, other than
due to the acts or omissions of the Lender or any of its Affiliates.

 

“Monitoring Fee”
shall mean the fees payable to the Lender pursuant to Section 2.03(b) below.

 

“Net Income” shall
mean the consolidated net income (or loss) of the Borrower and its Subsidiaries
for the period in question, after giving effect to deduction of or provision
for all operating expenses, all taxes and reserves (including reserves for
deferred taxes) and all other proper deductions, all determined in accordance
with GAAP; provided, however, that for purposes of calculating
Net Income, there shall be excluded and no effect shall be given to (a) any
restoration of any contingency reserve, except to the extent that provision for
such reserve was made out of income for the subject period, and (b) any
Net Income attributable to any Subsidiary to the extent that the Borrower (or
any Subsidiary through which the Borrower owns the subject Subsidiary) is
prohibited (by law, Contract, minority ownership rights or otherwise) from
receiving a distribution of such Net Income from such Subsidiary.

 

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“Notes” shall mean,
collectively, the Revolving Credit Note and the Term Notes.

 

“Obligations” shall
mean the collective reference to all Indebtedness and other liabilities and
obligations of every kind and description owed by the Borrower and/or any
Subsidiaries to the Lender from time to time under or pursuant to this
Agreement, the Notes, the Security Documents and the other Loan Documents
(excluding the Warrant and Registration Rights Agreement, other than amounts
payable from time to time pursuant to Section 2(c) of the
Registration Rights Agreement), and/or otherwise in respect of the Loans,
however evidenced, created or incurred, fixed or contingent, now or hereafter
existing, due or to become due.

 

“Organic Documents”
shall mean, with respect to any Person, the certificate of incorporation,
articles of incorporation, certificate of formation, certificate of limited
partnership, by-laws, operating agreement, limited partnership agreement or
other such document of such Person.

 

“Permitted Discretion”
shall mean a determination or judgment made by the Lender in good faith in the
exercise of reasonable business judgment from the perspective of a secured
lender.

 

“Permitted Indebtedness”
shall mean any and all Indebtedness expressly permitted pursuant to Section 6.01
below.

 

“Permitted Liens”
shall mean those Liens expressly permitted pursuant to Section 6.02 below.

 

“Person” shall mean
any individual, partnership, corporation, limited liability company, banking
association, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.

 

“Qualified Proceeds”
shall mean any and all net proceeds received by the Borrower (or any successor
entity) or any Subsidiary at any time and from time to time from any issuance
or sale of common stock, preferred stock or other equity securities (including
securities convertible into or exchangeable for capital stock of the Borrower),
except to the extent that such proceeds are, within sixty (60) days after the
receipt thereof, applied to pay the purchase price and/or directly associated
expenses of the Borrower’s acquisition (directly or through a Wholly-Owned
Subsidiary) of another business, in each case subject to the requirements of
this Agreement and the Collateral Agreement. 
In determining the amount of such net proceeds, (a) in the case of
an issuance or sale of common stock, preferred stock or other equity
securities, the gross proceeds of the subject offering, issuance or sale, net
of only those reasonable expenses incurred by the Borrower or the subject
Subsidiary directly related to the subject issuance or sale, exclusive of any
fees or commissions paid to any officer, director or other Affiliate of the
Borrower or any Affiliate of any of the foregoing, and (b) in the case of
any “reverse merger,” share exchange or other such transaction, the total
consolidated cash and cash equivalents of the other party or parties to such
transaction at the time of the consummation of such transaction, net of only
those reasonable expenses incurred by such other party or parties directly
related to such transaction, exclusive of any fees or commissions paid to any
officer, director or other Affiliate of the Borrower or such other party or
parties or any Affiliate of any of the foregoing.

 

10

 

“Real Properties”
shall mean, collectively, any real properties (land, buildings and/or
improvements) now owned or leased or occupied by the Borrower or any of the
Subsidiaries, and, during the period of the Borrower’s and/or Subsidiary’s
occupancy thereof, any other real properties heretofore owned or leased by the
Borrower or any Subsidiary (provided that, with respect to leased properties,
the term “Real Property” shall refer only to the portion of the subject
property (excluding common areas) leased by the Borrower or a Subsidiary).

 

“Registration Rights
Agreement” shall mean the Registration Rights Agreement, to be dated as of
the Closing Date, made by the Borrower for the benefit of the Lender and any
subsequent Holders (as such term is defined in the Registration Rights
Agreement), as same may be amended, modified, supplemented and/or restated from
time to time.

 

“Revolving Credit
Commitment” shall mean the Lender’s agreement to make Advances to the
Borrower within the limitations set forth in Section 2.01 below.

 

“Revolving Credit
Maturity Date” shall mean February 28, 2010, subject to extension in
accordance with Section 2.01(h) below; provided, however,
that in the event that the Term Loans are prepaid (or are, in accordance with
this Agreement or the Term Notes, required to be prepaid) in full, then the
Revolving Credit Maturity Date shall be deemed to have occurred simultaneously
with such prepayment or required prepayment.

 

“Revolving Credit Note”
shall mean the promissory note of the Borrower issued to the Lender to
represent the Advances and interest thereon, as described in Section 2.01(f) below.

 

“Sale” shall mean any
transaction or series of related transactions (a) whereby a majority of
the outstanding capital stock of the Borrower which ordinarily has voting power
for the election of directors (including preferred stock counted on an “as
converted” basis into common stock and common stock counted on a fully diluted
basis) is sold, assigned or transferred, (b) whereby the Borrower issues
shares of its capital stock which, after giving effect to such transaction or
transactions, constitute a majority of the outstanding capital stock of the
Borrower which ordinarily has voting power for the election of directors (including
preferred stock counted on an “as converted” basis into common stock and common
stock counted on a fully diluted basis), (c) whereby Control of the
Borrower is held by a Person (or group of Persons acting in concert) who does
not hold such Control on the date of this Agreement, (d)  in which the
Borrower is a constituent party to any merger or consolidation and as a result
thereof (i) the holders of the outstanding capital stock of the Borrower
which ordinarily has voting power for the election of directors (including
preferred stock counted on an “as converted” basis into common stock)
immediately prior to such merger or consolidation cease to own a majority of
the outstanding capital stock of the Borrower which ordinarily has voting power
for the election of directors (including preferred stock counted on an “as
converted” basis into common stock), or (ii) the Borrower is not the
surviving corporation, or (e) whereby all or any material portion of the
assets of the Borrower or any Subsidiary are sold, assigned or transferred; provided,
however, that a “Sale” shall not be deemed to have occurred by reason of
any of the aforedescribed transactions (other than a sale of assets) if, after
giving effect to the consummation of the subject transaction, (A) the
Borrower or the surviving entity in such 

 

11

 

transaction
shall be a corporation whose common stock is traded or listed on any national
securities exchange, the Nasdaq Global Market, or the Nasdaq Global Select
Market or is actively quoted on the OTC Bulletin Board, (B) if the
surviving entity is not the Borrower, then such surviving entity assumes all of
the Borrower’s obligations under the Warrant (on the same exchange or
conversion basis as the outstanding Common Stock was treated in the subject
transaction) and the Registration Rights Agreement, (C) the Borrower or
other surviving entity is Controlled By one or more Persons of the Borrower on
the date of this Agreement, and (D) no Default or Event of Default
occurred in the performance of the subject transaction or exists upon the
consummation of the subject transaction.

 

“SEC” shall mean the
United States Securities and Exchange Commission, and any successor agency
performing the functions thereof.

 

“SEC Reports” shall
mean the periodic and current reports, registration statements, proxy
statements and other reports filed or required to be filed by the Borrower with
the SEC pursuant to the Act and/or the Exchange Act, and any amendments or
supplements thereto filed with the SEC.

 

“Security Documents”
shall mean the Collateral Agreement, any collateral assignments, control
agreements, financing statements or other such agreements or documents pursuant
thereto, the Guaranty Agreement, the Validity Guaranties, and any other
agreements or instruments (including, without limitation, Control Agreements
and Landlord Waivers) securing or creating or evidencing Liens securing the
Obligations.

 

“Subordinated Debt”
shall mean all Indebtedness for money borrowed and other liabilities of the
Borrower, whether or not evidenced by promissory notes, which is contractually
subordinated in right of payment, in a manner satisfactory to the Lender (as
evidenced by the Lender’s prior written approval thereof), to all Obligations
of the Borrower to the Lender.

 

“Subsidiary” or “Subsidiaries”
shall mean the individual or collective reference to any corporation, limited
liability company or other entity of which 50% or more of the outstanding
shares of stock or other equity interests of each class having ordinary voting
power and/or rights to profits (other than stock having such power only by
reason of the happening of a contingency) is at the time owned by the Borrower,
directly or indirectly through one or more Subsidiaries of the Borrower.

 

“Term Loans” shall
mean the collective reference to the Tranche A Term Loan and the Tranche B Term
Loan.

 

“Term Notes” shall
mean the promissory notes of the Borrower issued to the Lender as described in Section 2.02(e) below.

 

“Term Notes Maturity Date”
shall mean February 28, 2011.

 

“Tranche A Term Loan”
shall mean the term loan in the principal amount of $2,500,000 to be made
pursuant to Section 2.02(a)(i) below.

 

12

 

 

 

 

“Tranche A Term Note”
shall mean the promissory note of the Borrower to be issued pursuant to Section 2.02(e) below
to evidence the Tranche A Term Loan.

 

“Tranche B Term Loan”
shall mean the term loan in the principal amount of $2,500,000 to be made pursuant
to Section 2.02(a)(ii) below.

 

“Tranche B Term Note”
shall mean the promissory note of the Borrower to be issued pursuant to Section 2.02(e) below
to evidence the Tranche B Term Loan.

 

“UCC” means the
Uniform Commercial Code as in effect in the State of New York on the date
hereof and hereafter from time to time.

 

“Validity Guaranties”
shall mean the collective reference to the Validity Guaranties, to be dated as
of the Closing Date, by and among the Lender, the Borrower and John B. Kaiser,
and by and among the Lender, the Borrower and the James J. TerBeest,
respectively.

 

“Warrant” shall mean
the warrants to purchase shares of Common Stock (such warrant covering an
aggregate of 8,000,000 shares of Common Stock, subject to adjustment) to be
issued by the Borrower to the Lender on the Closing Date.

 

“Wholly-Owned Subsidiary”
shall mean each Domestic Subsidiary of which all of the outstanding equity
securities (other than directors’ qualifying shares) are owned by the Borrower
or another such Wholly-Owned Subsidiary.

 

Section 1.02.  Use of Defined Terms.  All terms defined in this Agreement shall
have their defined meanings when used in the Notes, the Security Documents, the
other Loan Documents, and all certificates, reports or other documents made or
delivered pursuant to this Agreement, unless otherwise defined therein or
unless the specific context shall otherwise require.

 

Section 1.03.  Accounting Terms.  All accounting terms not specifically defined
herein shall be construed in accordance with GAAP.

 

Section 1.04.  Other Definitional Provisions.  The words “hereof,” “herein”, “hereto” and “hereunder”
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
Section references are to this Agreement unless otherwise specified.  The meanings given to terms defined herein
shall be equally applicable to both the singular and plural forms of such
terms.  The word “including” and words of
similar import when used in this Agreement shall mean “including, without
limitation,” unless otherwise specified.

 

II.                                    GENERAL
TERMS

 

Section 2.01.                             Revolving Credit Loans.

 

(a)                                  Subject at all
times to all of the terms and conditions of this Agreement, the Lender hereby
agrees to extend to the Borrower a secured revolving credit facility, from the

 

13

 

Closing
Date to the Revolving Credit Maturity Date, in an aggregate principal amount
not to exceed, at any time outstanding, the lesser of (i) the Borrowing
Base at the subject time, or (ii) $5,200,000 (the “Revolving Credit
Commitment”).

 

(b)                                 Such revolving
credit loans are herein sometimes referred to individually as an “Advance”
and collectively as the “Advances.” 
Subject at all times to all of the terms and conditions of this
Agreement, from the Closing Date to the Revolving Credit Maturity Date and
within the limits of the Revolving Credit Commitment, the Lender shall lend,
and the Borrower may borrow, prepay (without premium or penalty) and reborrow
under this Section 2.01.  Each
request for an Advance (i) shall be irrevocable, (ii) shall be deemed
to constitute an express affirmation that all conditions precedent set forth in
part B of Article IV below are satisfied on the date of such request and
will be satisfied on the requested Borrowing Date, and (iii) shall be made
to the Lender in writing, not later than three (3) Business Days prior to
the requested Borrowing Date, by an authorized officer of the Borrower or by
telephonic communication by such authorized officer to the Lender, which shall
be confirmed by written notice to the Lender to be delivered to the Lender by
the Business Day next following the subject request.  In no event shall the Borrower request, or
shall the Lender be required to honor, (A) any request for an Advance in
an amount greater than the Availability at such time, (B) any request for
an Advance in an amount less than $100,000, or (C) more than one request
for the borrowing of Advances in any seven (7) calendar day period.

 

(c)                                  The Borrower
shall pay the Lender interest on all Advances at the rate(s) per annum as
in effect from time to time in accordance with the Revolving Credit Note.  Such interest shall be payable monthly in
arrears on the first day of each calendar month and on the Revolving Credit
Maturity Date, and shall be computed on the daily unpaid balance of all
Advances made under the Borrower’s revolving credit loan accounts with the
Lender, based on a three hundred sixty (360) day year, counting the actual
number of days elapsed.  The Borrower
hereby authorizes the Lender to charge the Borrower’s revolving credit loan
accounts for all such interest; provided, however, that the
Lender shall be under no obligation to make any such charge to the Borrower’s
revolving credit loan accounts (including, without limitation, if there is
insufficient Availability at the time such interest is due and payable).

 

(d)                                 In the event
and to the extent that, at any time, the outstanding principal amount of Advances
exceeds the Revolving Credit Commitment then in effect, then the Borrower
shall, within three (3) Business Days, without notice or demand, make a
payment to the Lender in respect of the Advances in an amount sufficient to
cause the outstanding principal amount of Advances to be equal to or less than
the Revolving Credit Commitment then in effect.

 

(e)                                  Unless sooner
due and payable by reason of an Event of Default hereunder having occurred, the
Borrower shall pay in full all of the Obligations to the Lender in respect of
all Advances on or prior to the Revolving Credit Maturity Date.

 

(f)                                    All Advances
shall be evidenced by a secured Revolving Credit Note of the Borrower payable
to the Lender or registered assigns.

 

(g)                                 The Borrower
may, at its option, without payment of any premium or penalty, terminate the
Revolving Credit Commitment at any time by giving ten (10) Business

 

14

 

Days’
prior written notice thereof to the Lender, and paying to the Lender, on the
date fixed for termination, an amount equal to the sum of all outstanding
principal and accrued interest of the Advances.

 

(h)                                 Provided that
the Revolving Credit Commitment has not previously been terminated, the
Borrower may, at its option, by written notice to the Lender given not earlier
than December 31, 2009 and not later than January 31, 2010, elect to
extend the Revolving Credit Maturity Date to February 28, 2011, provided
that, at the time of such notice and on the scheduled Revolving Credit Maturity
Date, no Default or Event of Default shall have occurred and be
continuing.  The Borrower’s extension
notice shall expressly certify to the satisfaction of such conditions, and once
given, any such notice shall be irrevocable.

 

Section 2.02.  Term Loans.

 

(a)                                  Subject at all
times to all of the terms and conditions of this Agreement, the Lender hereby
agrees to extend to the Borrower (i) a Term Loan in the principal amount
of $2,500,000, and (ii) an additional Term Loan in the principal amount of
$2,500,000.  Each of the Term Loans shall
be borrowed in a single borrowing on the Closing Date, and any principal
amounts repaid in respect of the Term Loans may not be reborrowed.

 

(b)                                 The Term Loans
shall be repayable in accordance with the schedules of payments set forth in
the Term Notes.  The Borrower shall be
required to prepay the Term Loans (i) in full upon the consummation of any
Sale, and (ii) in part from time to time in the event and to the extent of
33% of any and all Qualified Proceeds received by the Borrower or any
Subsidiary from time to time.  With
respect to any prepayment under the foregoing clause (ii), same shall be due
and payable as and when the amount of Qualified Proceeds is determined (i.e.,
upon receipt of such Qualified Proceeds in the event that no acquisition
transaction is then pending, or sixty (60) days after receipt of such Qualified
Proceeds to the extent that such Qualified Proceeds have not been applied to
the purchase price and/or related expenses of a consummated business acquisition),
and shall be applied to the principal of the Term Notes ratably in proportion
to the respective principal balances thereof.

 

(c)                                  The Borrower
shall pay the Lender interest on the principal balance of the Term Loans at the
rate(s) per annum as in effect from time to time in accordance with the
Term Notes.  Such interest shall be
payable monthly in arrears on the first day of each calendar month and on the
Term Loans Maturity Date, and shall be computed on the daily unpaid balance of
each Term Loan, based on a three hundred sixty (360) day year, counting the
actual number of days elapsed.  The
Borrower hereby authorizes the Lender to charge the Borrower’s revolving credit
loan accounts for all such interest and/or for any or all principal amounts due
and payable in respect of the Term Loans; provided, however, that
the Lender shall be under no obligation to make any such charge to the Borrower’s
revolving credit loan accounts (including, without limitation, if there is
insufficient Availability at the time such interest and/or principal is due and
payable).

 

(d)                                 Unless sooner
due and payable by reason of an Event of Default hereunder having occurred, the
Borrower shall pay to the Lender all of the then-outstanding Obligations in
respect of the Term Loans on the Term Loans Maturity Date.

 

15

 

(e)                                  The Tranche A
Term Loan shall be evidenced by a secured Term Note of the Borrower payable to
the Lender or registered assigns, and the Tranche B Term Loan shall be
evidenced by a secured Term Note of the Borrower payable to the Lender or
registered assigns.

 

Section 2.03.  Fees and Premiums.

 

(a)                                  The Borrower
shall pay the Closing Fees to the Lender simultaneously with the funding of the
Term Loans on the Closing Date.  The
Closing Fees shall be deemed fully earned on the Closing Date, and shall not be
refundable in whole or in part and shall not be subject to reduction or set-off
under any circumstances.

 

(b)                                 The Borrower
shall further pay to the Lender, on the first (1st) day of each
calendar month prior to the Revolving Credit Maturity Date or the earlier
termination of the Revolving Credit Commitment and payment of the Obligations
in accordance with Section 2.01(g) above, and upon the termination of
the Revolving Credit Commitment and payment of the Obligations thereon, a
collateral monitoring, availability and administrative fee in an amount equal
to one-tenth of one percent (0.10%) of the average daily outstanding principal
amount of Advances during the immediately preceding calendar month (which shall
be appropriately prorated, based on a 30-day month, for any partial calendar
month).

 

(c)                                  In the event of
any prepayment of all or any portion of the Tranche B Term Loan at any time
prior to the second (2nd) anniversary of the Closing Date, in
addition to the payment of the subject principal amount and all unpaid accrued
interest thereon, the Borrower shall be required to pay to the Lender a
prepayment premium in an amount equal to two (2%) percent of the principal amount
being prepaid; provided, however, that no such prepayment premium
shall be required in respect of any mandatory prepayment pursuant to Section 2.02(b)(ii) above.

 

(d)                                 Payments
received in respect of the Obligations after 2:00 p.m. Eastern time on any
day shall be deemed to be received on the next succeeding Business Day, and if
any payment is received other than by wire transfer of immediately available
funds, such payment shall be subject to three (3) Business Days’ clearance
prior to being credited to the Obligations for interest calculation purposes.

 

(e)                                  In the event
that the Lender notifies the Borrower that the Lender is ready, willing and
able to fund the Loans on substantially the terms of this Agreement and the
Closing Date has not occurred within ten (10) days thereafter other than
due to the fault of the Lender, then the Lender may, at any time thereafter
until the Closing Date, terminate this Agreement by written notice to the
Borrower, in which event the Borrower shall immediately pay to the Lender (i) an
amount equal to all out-of-pocket costs, charges and expenses incurred by the
Lender in respect of the transactions contemplated by this Agreement (over and
above the $30,000 deposit heretofore paid to the Lender by the Borrower), and (ii) an
additional fee in the amount of $100,000. This Section 2.03(e) shall
survive any termination of this Agreement.

 

Section 2.04.  Use of Proceeds.  The Borrower shall utilize the proceeds of
the Loans (a) on the Closing Date, to repay all then-outstanding
Indebtedness owed by the Borrower to Textron Financial Corporation (assignee of
Systran Financial Services Corporation) and to

 

16

 

Comerica
Bank, and up to
$                  
of principal Indebtedness owed by the Borrower to Fatboy Capital, L.P. [and
                                              ],
and (b) from and after the Closing Date, to finance business acquisitions
and for working capital and other general corporate purposes of the Borrower.

 

Section 2.05.  Further Obligations.  With respect to all Obligations for which the
interest rate is not otherwise specified herein or in the Term Notes or
applicable Loan Documents (whether such Obligations arise hereunder, pursuant
to the Notes or Security Documents, or otherwise), such Obligations shall bear
interest at the rate(s) in effect from time to time pursuant to the
Revolving Credit Note.

 

Section 2.06.  Application of Payments.  All amounts paid to or received by the Lender
in respect of the Obligations from whatever source (whether from the Borrower,
any Subsidiary pursuant to the Guaranty Agreement, any realization upon any
Collateral, or otherwise) shall, unless otherwise specified in this Agreement
or otherwise directed by the Borrower with respect to any particular payment
(unless an Event of Default shall then be continuing, in which event the Lender
may disregard the Borrower’s direction), be applied (a) first, to
reimburse the Lender for all out-of-pocket costs and expenses incurred by the
Lender which are reimbursable to the Lender in accordance with this Agreement,
the Notes and/or any of the other Loan Documents, (b) next, to any accrued
but unpaid fees or prepayment premiums, (c) next, to unpaid accrued
interest on the Tranche A Term Loan, (d) next, to unpaid accrued interest
on the Tranche B Term Loan, (e) next, to unpaid accrued interest on the
Advances, (f) next, to the outstanding principal of the Tranche A Term
Loan, to the extent then due and payable, (g) next, to the outstanding
principal of the Tranche B Term Loan, to the extent then due and payable, (h) next,
to the outstanding principal of the Advances, and (i) finally, to the
payment of any other outstanding Obligations; provided, however,
that during the continuance of an Event of Default, the Lender may apply any
and all such amounts to such of the Obligations as the Lender may determine in
its sole and absolute discretion.  After
payment in full of the Obligations, any further amounts paid to or received by
the Lender in respect of the Obligations shall be paid over to the Borrower or
such other Person(s) as may be legally entitled thereto.

 

Section 2.07.  Sale or Maturity Date.  Anything elsewhere contained in this
Agreement and/or the Notes to the contrary notwithstanding, (a) the Revolving
Credit Commitment shall terminate and all Obligations shall become immediately
due and payable, without requirement of notice or demand, upon the consummation
of any Sale, and (b) the Revolving Credit Commitment shall terminate and
all Obligations shall become immediately due and payable, without requirement
of notice or demand, on the Revolving Credit Maturity Date or sooner upon the
prepayment (or required prepayment) and/or conversion in full of the Term
Loans.

 

Section 2.08.  Obligations Unconditional.

 

(a)                                  The payment and
performance of all Obligations shall constitute the absolute and unconditional
obligations of the Borrower, and shall be independent of any defense or rights
of set-off, recoupment or counterclaim which the Borrower might otherwise have
against the Lender.  All payments
required by this Agreement and/or the Notes shall be paid free of any
deductions or withholdings for any taxes or other amounts and without
abatement, diminution or set-off.  If the
Borrower is required by law to make such a deduction or withholding from a

 

17

 

payment
hereunder, the Borrower shall pay to the Lender such additional amount as is
necessary to ensure that, after the making of such deduction or withholding,
the Lender receives (free from any liability in respect of any such deduction
or withholding) a net sum equal to the sum which it would have received and so
retained had no such deduction or withholding been made or required to be made.  The Borrower shall (i) pay the full
amount of any deduction or withholding, which it is required to make by-law, to
the relevant authority within the payment period set by the relevant law, and (ii) promptly
after any such payment, deliver to the Lender an original (or certified copy)
official receipt issued by the relevant authority in respect of the amount
withheld or deducted or, if the relevant authority does not issue such official
receipts, such other evidence of payment of the amount withheld or deducted as
is reasonably acceptable to the Lender.

 

(b)                                 If, at any time
and from time to time after the Closing Date, (i) any change in any
existing law, regulation, treaty or directive or in the interpretation or
application thereof, (ii) any new law, regulation, treaty or directive
enacted or application thereof, or (iii) compliance by the Lender with any
request or directive (whether or not having the force of law) from any
governmental authority (A) subjects the Lender to any tax, levy, impost,
deduction, assessment, charge or withholding of any kind whatsoever with
respect to any Loan Document, or changes the basis of taxation of payments to
the Lender of any amount payable thereunder (except for net income taxes, or
franchise taxes imposed in lieu of net income taxes, imposed generally by
federal, state or local taxing authorities with respect to interest or
commitment fees or other fees payable hereunder or changes in the rate of tax
on the overall net income of the Lender or its members), or (B) imposes on
the Lender any other condition or increased cost in connection with the
transactions contemplated thereby or participations therein, and the result of
any of the foregoing is to increase the cost to the Lender of making or
continuing any Loan or to reduce any amount receivable hereunder, then, in any
such case, the Borrower shall promptly pay to the Lender any additional amounts
necessary to compensate the Lender, on an after-tax basis, for such additional
cost or reduced amount as determined by the Lender.  If the Lender becomes entitled to claim any
additional amounts pursuant to this Section 2.08(b), the Lender shall
promptly notify the Borrower of the event by reason of which the Lender has
become so entitled, and each such notice of additional amounts payable pursuant
to this Section 2.08(b) submitted by the Lender to the Borrower
shall, absent manifest error, be final, conclusive and binding for all
purposes.

 

Section 2.09.  Reversal of Payments.  To the extent that any payment or payments
made to or received by the Lender pursuant to this Agreement or any other Loan
Document are subsequently invalidated, declared to be fraudulent or
preferential, set aside, or required to be repaid to any trustee, receiver or
other person under any state or federal bankruptcy or other such law, then, to
the extent thereof, such amounts shall be revived as Obligations and continue
in full force and effect hereunder as if such payment or payments had not been
received by the Lender.

 

III.                                REPRESENTATIONS
AND WARRANTIES

 

As of the Closing Date and
on each Borrowing Date (unless the representation and warranty refers to a
specific date, in which case such representation and warranty shall continue to
relate to such specific date), the Borrower hereby makes the following
representations and

 

18

 

warranties
to the Lender, all of which representations and warranties shall survive the
Closing Date, the delivery of the Notes and the making of the Loans, shall be
continuing in nature so long as any Obligations are outstanding or the
Revolving Credit Commitment remains in effect, and are as follows:

 

Section 3.01.  Financial Matters.

 

(a)                                  The Borrower
has heretofore furnished to the Lender (i) the audited consolidated
financial statements (including balance sheets, statements of income and
statements of cash flows) of the Borrower and its Subsidiaries as at December 31,
2004, 2005 and 2006, and for the Fiscal Years then ended, and (ii) the
unaudited consolidated financial statements of the Borrower and its
Subsidiaries as of December 31, 2007 and for the twelve (12) months then
ended (collectively, the “Financial Statements”).

 

(b)                                 The Financial
Statements (i) have been prepared in accordance with GAAP and Regulation
S-X promulgated under the Act on a consistent basis for all periods (subject,
in the case of unaudited statements, to the absence of full footnote
disclosures, and to normal non-material audit adjustments), (ii) are
complete and correct in all material respects, (iii) fairly present the consolidated
financial condition of the Borrower and its Subsidiaries as of said dates, and
the results of their operations for the periods stated, (iv) contain and
reflect all necessary adjustments and accruals for a fair presentation of the
Company’s consolidated financial condition and the results of its consolidated
operations as of the dates of and for the periods covered by such Financial
Statements, and (v) make full and adequate provision, subject to and in
accordance with GAAP, for the various assets and liabilities (including,
without limitation, deferred revenues) of the Company and its Subsidiaries,
fixed or contingent, and the results of their operations and transactions in
their accounts, as of the dates and for the periods referred to therein.

 

(c)                                  Except as set
forth in Schedule 3.01 of the Disclosure Schedule, the Borrower and its
Subsidiaries do not have any liabilities, obligations or commitments of any
kind or nature whatsoever, whether absolute, accrued, contingent or otherwise
(collectively “Liabilities and Contingencies”), including, without
limitation, Liabilities and Contingencies under employment agreements and with
respect to any “earn-outs”, stock appreciation rights, or related compensation
obligations, except: (i) Liabilities and Contingencies disclosed in the
Financial Statements or footnotes thereto, (ii) Liabilities and
Contingencies incurred in the ordinary course of business and consistent with
past practice since the date of the most recent Financial Statements, or (iii) those
Liabilities  and Contingencies which are
not required to be disclosed under GAAP. 
The reserves, if any, reflected on the consolidated balance sheet of the
Borrower and its Subsidiaries included in the most recent Financial Statements
are appropriate and reasonable.  Neither
the Borrower nor any of its Subsidiaries has had or presently has any
Indebtedness for money borrowed, outstanding obligations for the purchase price
of property, contingent obligations or liabilities for taxes, or any unusual
forward or long-term commitments,  except
as specifically set forth or provided for in the Financial Statements or in Schedule
3.01 of the Disclosure Schedule.

 

(d)                                 Since the date
of the most recent Financial Statements, except for the transactions pursuant
to the Loan Documents and except as set forth in Schedule 3.01 of the

 

19

 

Disclosure
Schedule, there has been no material adverse change in the working capital,
condition (financial or otherwise), assets, liabilities, reserves, business,
management or Business Operations of the Borrower or any of its Subsidiaries,
including, without limitation, the following:

 

(i)                                     there has been no material
change in any assumptions underlying, or in any methods of calculating, any bad
debt, contingency or other reserve relating to the Borrower or any Subsidiary;

 

(ii)                                  there have been (A) no
write-downs in the value of any inventory of, and there have been no write-offs
as uncollectible of any notes, accounts receivable or other receivables of, the
Borrower or any Subsidiary other than write-offs of accounts receivable
reserved in full as of the date of the most recent financial statements
delivered to the Lender which would not have a Material Adverse Effect, and (B) no
reserves established for the uncollectibility of any notes, Accounts or other
receivables of the Borrower or any Subsidiary except to the extent that same
have been disclosed to the Lender in writing and would not, individually or in
the aggregate, cause the outstanding Advances to exceed the Revolving Credit
Commitment;

 

(iii)                               no debts have been
cancelled, no claims or rights of substantial value have been waived and no
properties or assets (real, personal or mixed, tangible or intangible) have
been sold, transferred, or otherwise disposed of by the Borrower or any
Subsidiary except (A) dispositions of worn-out or obsolete personal
property, and (B) otherwise in the ordinary course of business and
consistent with past practice;

 

(iv)                              there has been no change in
any method of accounting or accounting practice utilized by the Borrower or any
Subsidiary;

 

(v)                                 no material casualty, loss
or damage has been suffered by the Borrower or any Subsidiary, regardless of
whether such casualty, loss or damage is or was covered by insurance;

 

(vi)                              there have been no announced
changes in the policies or practices of any customer, supplier or referral
source which would reasonably be expected to have a Material Adverse Effect;

 

(vii)                           there has been no incurrence
by the Company or any Subsidiary of (A) any liability or obligation
outside of the ordinary course of business, or (B) any Indebtedness other
than Permitted Indebtedness;

 

(viii)                        there has been no
declaration, setting aside or payment of any dividend or distribution or any
other payment of any kind by the Borrower to or in respect of any equity
securities of the Borrower; and

 

(ix)                                No action described in this Section 3.01(d) has
been agreed to be taken by the Borrower or any Subsidiary.

 

20

 

 

(e)           The Borrower and its Subsidiaries have in place adequate
systems of internal controls and disclosure controls and procedures sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii) transactions
are recorded as necessary to permit preparation of financial statements in
accordance with GAAP and Regulation S-X and to maintain asset accountability, (iii) access
to assets is permitted only in accordance with management’s general or specific
authorization, (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences, and (v) the Borrower and its
management are able to obtain timely and accurate information regarding the
Business Operations and all material transactions relating to the Borrower and
the Subsidiaries; and no material deficiency exists with respect to the
Borrower’s or any Subsidiary’s systems of internal controls.

 

(f)            All of the SEC Reports, as of the respective dates
thereof, complied in all material respects, as applicable, with the Act and the
Exchange Act.

 

Section 3.02.  Organization; Corporate Existence.

 

(a)           The Borrower (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware, (ii) has
all requisite corporate power and authority to own its properties and to carry
on its business as now conducted and as proposed hereafter to be conducted, (iii) is
qualified to do business as a foreign corporation in each jurisdiction
(including, without limitation, the State of Texas) in which the failure of the
Borrower to be so qualified would have a Material Adverse Effect, and (iv) has
all requisite corporate power and authority to execute and deliver, and perform
all of its obligations under, the Loan Documents.  True and complete copies of the Organic
Documents of the Borrower, together with all amendments thereto, have been
furnished to the Lender.

 

(b)           On the date of this Agreement, the outstanding capital
stock of the Company, and the number and amount of all outstanding options,
warrants, convertible securities, subscriptions and other rights to acquire
capital stock of the Company, are as set forth in Schedule 3.02 of the
Disclosure Schedule.

 

(c)           Schedule 3.02 of the Disclosure Schedule further
sets forth, with respect to each Active Subsidiary on the date of this
Agreement, (i) its proper legal name, (ii) its jurisdiction of
incorporation or formation, (iii) the jurisdictions in which it is
qualified to do business as a foreign entity, (iv) the number of shares of
capital stock or ownership interests outstanding, and (v) the owner of
such outstanding capital stock or other ownership interests.  Each of the Active Subsidiaries (A) is
an entity duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or formation, (B) has all
requisite power and authority to own its properties and to carry on its
business as now conducted and as proposed hereafter to be conducted, and to
execute and deliver, and perform all of its obligations under, the Loan
Documents to which it is a party, and (C) is not required to be qualified
to do business as a foreign entity in any jurisdiction in which it is not so
qualified and the failure to be so qualified would reasonably be expected to
have a Material Adverse Effect.  True and
complete copies of the Organic Documents of each Active Subsidiary, together
with all amendments thereto to the date hereof, have been furnished to the
Lender.

 

 

21

 

 

(d)           On the date of this Agreement, the Borrower has no
Subsidiaries other than the Active Subsidiaries and the Dissolving Subsidiaries.  Each of the Dissolving Subsidiaries (i) has
no material assets or liabilities, (ii) is not engaged in the conduct of
any active business operations, and (iii) is actively pursuing its
dissolution as a legal entity.

 

Section 3.03.  Authorization.

 

(a)           The execution, delivery and performance by the Borrower
and the Subsidiaries of their respective obligations under the Loan Documents
have been duly authorized by all requisite corporate, company, partnership and
other action and will not, either prior to or as a result of the consummation
of the transactions contemplated by this Agreement: (i) violate any
provision of Applicable Law, any order of any court or other agency of
government, any provision of the Organic Documents of the Borrower or any Subsidiary,
or any Contract, indenture, agreement or other instrument to which the Borrower
or any of the Subsidiaries is a party, or by which the Borrower or any of the
Subsidiaries or any of its assets or properties are bound, or (ii) be in
conflict with, result in a breach of, or constitute (after the giving of notice
or lapse of time or both) a default under, or, except as may be provided in the
Loan Documents, result in the creation or imposition of any Lien of any nature
whatsoever upon any of the property or assets of the Borrower or any of the
Subsidiaries pursuant to, any such Contract, indenture, agreement or other
instrument.  When executed and delivered,
each Loan Document to which the Borrower or any Subsidiary is a party will
constitute the valid and binding obligation of the Borrower or such Subsidiary
(as applicable), enforceable against the Borrower or such Subsidiary in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or other laws affecting creditors’
rights generally, and by general principles of equity.

 

(b)           Neither the Borrower nor any of the Subsidiaries is
required to obtain any Government Approval, consent or authorization from, or
to file any declaration or statement with, any governmental instrumentality or
agency in connection with or as a condition to the execution, delivery or
performance of any of the Loan Documents.

 

Section 3.04.  Litigation.  Except as disclosed on Schedule 3.04
of the Disclosure Schedule, there is no action, suit or proceeding at law or in
equity or by or before any governmental instrumentality or other agency now
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any of the Subsidiaries or any of their respective assets,
which, if adversely determined, would have a Material Adverse Effect.  The Borrower has no Knowledge of any state of
facts, events, conditions or circumstances which would properly constitute
grounds for or the basis of any meritorious suit, action, arbitration,
proceeding or investigation (including, without limitation, any unfair labor
practice charges, interference with union organizing activities, or other labor
or employment claims) against or with respect to the Borrower or any Subsidiary
which, if adversely determined, would have a Material Adverse Effect.

 

Section 3.05.  Material Contracts.  Except as disclosed on Schedule 3.05
of the Disclosure Schedule, neither the Borrower nor any of the Subsidiaries is
(a) a party to any Contract, agreement or instrument or subject to any
charter or other corporate or organizational restriction which has had or could
reasonably be expected to have a Material Adverse Effect, (b) 

 

 

22

 

 

a
party to any collective bargaining agreement, or (c) in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any Contract, agreement or instrument to which it is a
party or by which any of its assets or properties is bound, which default,
individually or in the aggregate, would have or could reasonably be expected to
have a Material Adverse Effect.

 

Section 3.06.  Title to Properties.  The Borrower and each of the Subsidiaries has
good title to all of its properties and assets, free and clear of all
mortgages, security interests, restrictions, encumbrances or other Liens of any
kind, except for restrictions on the nature of use thereof imposed by
Applicable Law, and except for Permitted Liens, none of which materially
interfere with the use and enjoyment of such properties and assets in the
normal course of the Business Operations as presently conducted, or materially
impair the value of such properties and assets for the purpose of such
business.

 

Section 3.07.  Real Property.  Schedule 3.07 of the Disclosure
Schedule sets forth a correct and complete list of all Real Properties
currently leased or occupied by the Borrower and/or any of the
Subsidiaries.  Neither the Borrower nor
any of the Subsidiaries owns any Real Properties.  The Borrower and each Subsidiary has a valid
lessee’s interest in each Real Property currently leased or occupied by the
Borrower or such Subsidiary.  Neither the
Borrower, any Subsidiary, or, to the Borrower’s Knowledge, any other party
thereto, is in material breach or violation of any requirements of any such
lease; and such Real Properties are in good condition (reasonable wear and tear
excepted) and are adequate for the current and proposed businesses of the
Borrower and the Subsidiaries.

 

Section 3.08.  Machinery and Equipment.  The machinery and equipment owned and/or used
by the Borrower and the Subsidiaries is, as to each individual material item of
machinery and equipment, and in the aggregate as to all such equipment, in good
and usable condition and in a state of good maintenance and repair (reasonable
wear and tear excepted), and adequate for its use in the Business Operations.

 

Section 3.09.  Capitalization.  Except as set forth in Schedule 1.01
or Schedule 3.02 of the Disclosure Schedule and for new Subsidiaries
formed in accordance with Section 5.11 below, the Borrower does not,
directly or indirectly, own any capital stock of or any form of equity interest
in any other Person.

 

Section 3.10.  Solvency.  After giving effect to the Loans and the
other transactions contemplated hereby, the borrowings made and/or to be made
by the Borrower under this Agreement do not and will not render the Borrower
insolvent or with unreasonably small capital for its business; the fair saleable
value of all of the assets and properties of the Borrower does now, and will,
upon the funding of the Loans contemplated hereby, exceed the aggregate
liabilities and Indebtedness of the Borrower (including contingent
liabilities); the Borrower is not contemplating either the filing of a petition
under any state or federal bankruptcy or insolvency law, or the liquidation of
all or any substantial portion of its assets or property; the Borrower has no
knowledge of any Person contemplating the filing of any such petition against
the Borrower; and the Borrower reasonably anticipates that it will be able to
pay its debts as they mature.

 

 

23

 

 

Section 3.11.  No Investment Company.  The Borrower is not an “investment company”
or a company “controlled” by an “investment company” as such terms are defined
in the Investment Company Act of 1940, as amended.

 

Section 3.12.  Margin Securities.  The Borrower does not own or have any present
intention of acquiring any “margin security” or any “margin stock” within the
meaning of Regulations T, U or X of the Board of Governors of the Federal
Reserve System (herein called “margin security” and “margin stock”).  None of the proceeds of the Loans will be
used, directly or indirectly, for the purpose of purchasing or carrying, or for
the purpose of reducing or retiring any Indebtedness which was originally
incurred to purchase or carry, any margin security or margin stock or for any
other purpose which might constitute the transactions contemplated hereby a “purpose
credit” within the meaning of said Regulations T, U or X, or cause this
Agreement to violate any other regulation of the Board of Governors of the
Federal Reserve System or the Exchange Act, or any rules or regulations
promulgated under such statutes.

 

Section 3.13.  Taxes.

 

(a)           All federal, state and local tax returns and tax reports
required to be filed by the Borrower and/or any Subsidiary have been timely
filed with the appropriate governmental agencies in all jurisdictions in which
such returns and reports are required to be filed.  All federal, state and local income,
franchise, sales, use, property, excise, ad valorem, value-added, payroll and
other taxes (including interest, penalties and additions to tax and including
estimated tax installments where required to be filed and paid) due from or
with respect to the Borrower and the Subsidiaries have been paid to the extent
due and payable, and appropriate accruals have been made on the Borrower’s
books for taxes not yet due and payable. 
All taxes and other assessments and levies which the Borrower and/or any
Subsidiary is required by law to withhold or to collect have been duly withheld
and collected, and have been paid over to the proper governmental authorities
to the extent due and payable.  Except as
set forth in Schedule 3.13 of the Disclosure Schedule, there are no
outstanding or pending material claims, deficiencies or assessments for taxes,
interest or penalties with respect to any taxable period of the Borrower or any
Subsidiary, and no outstanding tax Liens.

 

(b)           Except as disclosed in Schedule 3.13 of the
Disclosure Schedule, the Borrower has no Knowledge and has not received notice
of any pending audit with respect to any federal, state or local tax returns of
the Borrower or any Subsidiary, and no waivers of statutes of limitations have
been given or requested with respect to any tax years or tax filings of the
Borrower or any Subsidiary.

 

Section 3.14.  ERISA.  Except as set forth in Schedule 3.14
of the Disclosure Schedule, neither the Borrower nor any ERISA Affiliate of the
Borrower maintains or has any obligation to make any contributions to any
pension, profit sharing or other similar plan providing for deferred
compensation to any employee.  With respect
to any such plan(s) as may now exist or may hereafter be established by
the Borrower or any ERISA Affiliate of the Borrower, and which constitutes an “employee
pension benefit plan” within the meaning of Section 3(2) of ERISA,
except as set forth on Schedule 3.14 of the Disclosure Schedule:  (a) the Borrower or the subject ERISA
Affiliate has paid and shall cause to be paid when due all amounts necessary to
fund such plan(s) in accordance with its terms, (b) except for normal
premiums payable by the Borrower to 

 

 

24

 

 

the
Pension Benefit Guaranty Corporation (“PBGC”), the Borrower or the
subject ERISA Affiliate has not taken and shall not take any action which could
result in any liability to the PBGC, or any of its successors or assigns, (c) the
present value of all accrued benefits thereunder shall not at any time exceed
the value of the assets of such plan(s) allocable to such accrued
benefits, (d) there have not been and there shall not be any transactions
such as would cause the imposition of any tax or penalty under Section 4975
of the Code or under Section 502 of ERISA, which would adversely affect
the funded benefits attributable to the Borrower or the subject ERISA
Affiliate, (e) there has not been and there shall not be any termination
or partial termination thereof (other than a partial termination resulting
solely from a reduction in the number of employees of the Borrower or an ERISA
Affiliate of the Borrower, which reduction is not anticipated by the Borrower),
and there has not been and there shall not be any “reportable event” (as such
term is defined in Section 4043(b) of ERISA) on or after the
effective date of Section 4043(b) of ERISA with respect to any such
plan(s) subject to Title IV of ERISA, (f) no “accumulated funding
deficiency” (as defined in Section 412 of the Code) has been or shall be
incurred on or after the effective date of Section 412 of the Code, (g) such
plan(s) have been and shall be determined to be “qualified” within the meaning
of Section 401(a) of the Code, and have been and shall be duly
administered in compliance with ERISA and the Code, and (h) the Borrower
is not aware of any fact, event, condition or cause which might adversely
affect the qualified status thereof.  As
respects any “multi-employer plan” (as such term is defined in Section 3(37)
of ERISA) to which the Borrower or any ERISA Affiliate thereof has heretofore
been, is now, or may hereafter be required to make contributions, the Borrower
or such ERISA Affiliate has made and shall make all required contributions
thereto, and there has not been and shall not be any “complete withdrawal” or “partial
withdrawal” (as such terms are respectively defined in Sections 4203 and 4205
of ERISA) therefrom on the part of the Borrower or such ERISA Affiliate.

 

Section 3.15.  Intellectual Property.  The Borrower and the Subsidiaries own or have
the valid right to use all material patents, trademarks, copyrights, software,
computer programs, equipment designs, network designs, equipment
configurations, technology and other intellectual property used, marketed and
sold in the Business Operations, and the Borrower and the Subsidiaries are in
compliance in all material respects with all licenses, user agreements and
other such agreements regarding the use of intellectual property used in the
Business Operations; and the Borrower has no Knowledge that or received notice
claiming that any of such intellectual property infringes upon or violates the
rights of any other Person.

 

Section 3.16.  Compliance with Laws.  The Borrower and the Subsidiaries are in
compliance with all occupational safety, health, wage and hour, employment
discrimination, environmental, flammability, labeling and other Applicable Law
(including, without limitation, healthcare laws and regulations, and healthcare
reimbursement laws and regulations) which are material to the Business
Operations, except where such non-compliance would not, individually or in the
aggregate, have a Material Adverse Effect. 
To the Borrower’s Knowledge, there are no state or facts, events,
conditions or occurrences which may now or hereafter constitute or result in a
violation of any Applicable Law, or which may give rise to the assertion of any
such violation, which could have a Material Adverse Effect.  Neither the Borrower nor any Subsidiary has
received written notice of default or violation, nor is the Borrower or any
Subsidiary in default or violation, with respect to any judgment, order, writ,
injunction, decree, demand or

 

 

25

 

 

assessment
issued by any court or any federal, state, local, municipal or other
governmental agency, board, commission, bureau, instrumentality or department,
domestic or foreign, relating to any aspect of the Borrower’s or any
Subsidiaries’ business, affairs, properties or assets, which default(s) or
violation(s) would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. 
Neither the Borrower nor any Subsidiary has received written notice of
or been charged with, or is, to the Borrower’s Knowledge, under investigation
with respect to, any violation(s) of any provision of any Applicable Law,
which violation(s) would, individually or in the aggregate, have a
Material Adverse Effect.

 

Section 3.17.  Licenses and Permits.  The Borrower and each Subsidiary has all
federal, state and local licenses and permits required to be maintained in
connection with the Business Operations, except where the failure to maintain
any such license or permit would not, individually or in the aggregate, have a
Material Adverse Effect; and all such licenses and permits are valid and in
full force and effect.  The Borrower and
each Subsidiary has complied with the requirements of such licenses and permits
in all material respects, and has received no notice of any pending or
threatened proceedings for the suspension, termination, revocation or
limitation thereof. There is no circumstance or condition Known to the Borrower
that would cause or permit any of such licenses or permits to be voided,
revoked or withdrawn.

 

Section 3.18.  Insurance.  Schedule 3.18 of the Disclosure
Schedule lists all insurance coverages maintained by the Borrower and the
Subsidiaries, including the names of insurers, policy limits and
deductibles.  Neither the Borrower nor
any Subsidiary has received written notice of cancellation or intent not to
renew any of such policies, and to the Borrower’s Knowledge, there has not
occurred, and there does not exist, any condition (other than general
industry-wide conditions) such as would cause any of such insurers to cancel
any of such insurance coverages, or would be reasonably likely to materially
increase the premiums charged to the Company and the Subsidiaries for coverages
consistent with the scope and amounts of coverages as in effect on the date of
this Agreement.

 

Section 3.19.  Environmental Laws.

 

(a)           The Borrower and each Subsidiary has complied with all
Environmental Laws relating to its business and properties, except where non-compliance
would not, individually or in the aggregate, have a Material Adverse Effect;
and to the Borrower’s Knowledge, there exist no Hazardous Substances in amounts
in violation of applicable Environmental Laws on any of the Real Properties the
existence of which would have a Material Adverse Effect, except those that are
stored and used in compliance with Applicable Laws.

 

(b)           Neither the Borrower nor any Subsidiary has received
notice of any pending or threatened litigation or administrative proceeding
which in any instance (i) asserts or alleges any violation of applicable
Environmental Laws on the part of the Borrower or any Subsidiary, (ii) asserts
or alleges that the Borrower or any Subsidiary is required to clean up, remove
or otherwise take remedial or other response action due to the disposal,
depositing, discharge, leaking or other release of any Hazardous Substances or
materials, or (iii) asserts or alleges that the Borrower or any Subsidiary
is required to pay all or any portion of the costs of any past, present or
future cleanup, removal or remedial or other response action which arises out
of or is related to the disposal, depositing, discharge, leaking or other
release of any hazardous 

 

 

26

 

 

substances
or materials by the Borrower or any Subsidiary. 
To the Borrower’s Knowledge, neither the Borrower nor any Subsidiary is
subject to any judgment, decree, order or citation related to or arising out of
any Environmental Laws.  To the Borrower’s
Knowledge, neither the Borrower nor any Subsidiary has been named or listed as
a potentially responsible party by any governmental body or agency in any
matter arising under any Environmental Laws. 
Neither the Borrower nor any Subsidiary is a participant in, nor does
the Borrower have Knowledge of, any governmental investigation involving any of
the Real Properties.

 

(c)           Neither the Borrower or any Subsidiary nor, to the
Borrower’s Knowledge, any other person, firm, corporation or governmental
entity has caused or permitted any Hazardous Substances or other materials to
be stored, deposited, treated, recycled or disposed of on or at any of the Real
Properties which materials, if known to be present, would reasonably be
expected to require or authorize cleanup, removal or other remedial action
under any applicable Environmental Laws.

 

(d)           As used in this Section 3.19 and in Section 5.08
below, the following terms have the following meanings:

 

“Environmental Laws”
include all federal, state, and local laws, rules, regulations, ordinances,
permits, orders, and consent decrees agreed to by the Borrower or any
Subsidiary, relating to health, safety, and environmental matters applicable to
the business and property of the Borrower or any Subsidiary.  Such laws and regulations include but are not
limited to the Resource Conservation and Recovery Act (“RCRA”), 42
U.S.C. §6901 et seq., as amended; the Comprehensive Environmental Response,
Compensation and Liability Act (“CERCLA”), 42 U.S.C. §9601 et seq., as
amended; the Toxic Substances Control Act (“TSCA”), 15 U.S.C. §2601 et
seq., as amended; and the Clean Water Act, 33 U.S.C. §1331 et seq., as amended.

 

“Hazardous Substances”,
“Release”, “Respond” and “Response” shall have the
meanings assigned to them in CERCLA, 42 U.S.C. §9601, as amended.

 

“Notice” means any
actual summons, citation, directive, information request, notice of potential
responsibility, notice of violation or deficiency, order, claim, complaint,
investigation, proceeding, judgment, letter, or other written communication
from the United States Environmental Protection Agency or other federal, state,
or local agency or authority, or any other entity or individual, public or
private, concerning any intentional or unintentional act or omission which involves
management of Hazardous Substances in amounts in violation of Environmental
Laws on or transported off any Real Properties; the imposition of any liens
asserted by government entities in connection with any Borrower’s or Subsidiary’s
response to the presence or Release of Hazardous Substances in amounts in
violation of Environmental Laws; and any alleged violation of or responsibility
under any Environmental Laws.

 

Section 3.20.  Sensitive Payments.  Neither the Borrower nor any Subsidiary has (a) made
any contributions, payments or gifts to or for the private use of any
governmental official, employee or agent where either the payment or the
purpose of such contribution, payment or gift is illegal under the laws of the
United States or the jurisdiction in which made, (b) established or
maintained any unrecorded fund or asset for any purpose or made any false or
artificial entries on its books, (c) made any payments to any person with
the intention that any part of such payment

 

 

27

 

 

was
to be used for any purpose other than that described in the documents
supporting the payment, or (d) done business with or proposes to do
business with any country, or any Person in any country, which is prohibited or
restricted under any Applicable Law of the United States, or engaged in or
proposes to engage in any “trading with the enemy” or other transactions
violating any rules or regulations of the Office of Foreign Assets Control
or any similar laws, rules or regulations of any federal, state, local or
foreign government or governmental agency.

 

Section 3.21.  Full Disclosure.  No statement of fact made by the Borrower in
this Agreement or any other Loan Document, in any SEC Report, or in any
information memorandum, business summary, agreement, certificate, schedule or
other written statement furnished by the Borrower to the Lender pursuant
hereto, contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary to make any statements
contained herein or therein not misleading, in any manner or instance in which
the correction of such statement would indicate, result in or reflect a
Material Adverse Effect relative to the represented facts.  Except for matters of a general economic or
political nature which do not affect the Borrower or any Subsidiary uniquely,
there is no fact presently known to the Borrower or any Subsidiary which has
not been disclosed to the Lender, which has had or would reasonably be expected
to have a Material Adverse Effect.

 

Section 3.22.  Reaffirmation.  Each and every request by the Borrower for
Advances shall constitute a reaffirmation of the truth and accuracy of the
Borrowers’ representations and warranties made in this Agreement and the
Security Documents on and as of the date of such request.

 

IV.           CONDITIONS OF
MAKING THE LOANS

 

A.            The obligation of the Lender to make the initial Loans
hereunder and to consummate the other transactions contemplated hereby are
subject to the following conditions precedent:

 

Section 4.01.  Representations and Warranties.  The representations and warranties set forth
in Article III hereof and in the other Loan Documents shall be true and
correct on and as of the Closing Date.

 

Section 4.02.  Loan Documents.  The Borrower and the Active Subsidiaries (as
applicable) shall have duly executed and/or delivered to the Lender all of the
following:

 

(a)           The
Notes;

 

(b)           The Guaranty Agreement, the Collateral Agreement, the
Validity Guaranties (which shall also have been executed and delivered by John
B. Kaiser and James J. TerBeest, respectively) and any and all other Security
Documents required by the Lender at the Closing Date (including, without
limitation, any Landlord Waivers or consents required by the Lender);

 

(c)           The
Warrant;

 

 

28

 

(d)           The
Registration Rights Agreement;

 

(e)           A certificate or certificates of insurance, with loss
payable endorsements, evidencing the insurance required by Section 5.01(d) hereof;

 

(f)            A current Borrowing Base report in conformity with Section 5.04(e) hereof,
and a written request for the borrowing of the Term Loans (and, if applicable,
the initial Advance);

 

(g)           A certificate of the Secretary or an Assistant Secretary
of the Borrower and each Active Subsidiary, certifying the votes of the Boards
of Directors or other applicable governing body of the Borrower and the Active
Subsidiaries, authorizing and directing the execution and delivery of the Loan
Documents to which they are a party and all further agreements, instruments,
certificates and other documents pursuant hereto and thereto;

 

(h)           A certificate of the Secretary or an Assistant Secretary
of the Borrower and each Active Subsidiary, certifying the names of the
officers of the Borrower and the Active Subsidiaries who are authorized to
execute and deliver the Loan Documents and all other agreements, instruments,
certificates and other documents to be delivered by the Borrower or such Active
Subsidiary pursuant hereto and thereto, together with the true signatures of
such officers.  The Lender may conclusively
rely on such certificate until the Lender shall receive any further such
certificate canceling or amending the prior certificate and submitting the
signatures of the officers named in such further certificate;

 

(i)            Certified copies of the Organic Documents of the Borrower
and each Active Subsidiary, and a certificate of the Secretary of State or
other appropriate official of the jurisdiction of incorporation of the Borrower
and each Active Subsidiary (and, in the case of the Borrower, the State of Texas),
dated reasonably prior to the Closing Date, stating that the Borrower or the
subject Active Subsidiary is duly formed and in good standing in such
jurisdiction; and

 

(j)            Such other agreements, instruments, documents and
certificates (including, without limitation, satisfactory lien and judgment
searches respecting the Borrower and the Subsidiaries) as the Lender or its
counsel may reasonably request.

 

Section 4.03.  Payoff and Release Letters.  The Borrower shall have received, and shall
have delivered to the Lender, a payoff and release letters signed by Textron
Financial Corporation (assignee of Systran Financial Services Corporation) and,
if available, Comerica Bank, respectively, in form and substance satisfactory
to the Lender, (a) confirming the amount required to be paid to each such
lender on the Closing Date in order to pay all of the Borrower’s and its
Subsidiaries’ obligations to such lender, (b) affirming that, upon receipt
of such amount on the Closing Date, all liens, encumbrances and security
interests held by such lender shall be terminated and released, and all
collateral shall be released and retuned to the Borrower, and (c) authorizing
the filing, upon receipt of such amount on the Closing Date, of termination
statements in respect of all lien filings against the Borrower and/or the
Subsidiaries in respect of such liens, encumbrances and security interests of
such lender.  The Borrower shall pay such

 

29

 

amounts
to such creditors on the Closing Date out of the proceeds of the Term Loans
and, if applicable, the initial Advance.

 

Section 4.04.  Legal Opinion.  The Lender shall have received the favorable
written opinions of Kane Russell Coleman & Logan, P.C., Morrison &
Foerster, and any local firm(s) as required, counsel for the Borrower and
the Active Subsidiaries, dated the Closing Date, reasonably satisfactory to the
Lender and its counsel in scope and substance.

 

Section 4.05.  Interest, Fees and Reimbursements.  The Borrower shall have paid the Closing
Fees, and shall have paid or reimbursed the Lender for its reasonable
out-of-pocket costs, charges and expenses incurred to the Closing Date; and in
connection herewith, the Borrower hereby irrevocably authorizes the Lender to
charge such amounts as Advances to the Borrower’s revolving credit loan
account.  Failure of the Lender to effect
any such charge shall not excuse the Borrower from its obligation to pay such
amounts.

 

Section 4.06.  Further Matters.  All legal matters, and the form and substance
of all documents, incident to the transactions contemplated hereby shall be
satisfactory to counsel for the Lender.

 

Section 4.07.  No Default.  No Default or Event of Default shall have
occurred and be continuing.

 

B.            The obligation of the Lender to make any Advances
subsequent to the Closing Date is subject to (a) the representations and
warranties set forth in Article III and in the other Loan Documents being
true and correct in all material respects (except that, to the extent that any
representation or warranty is already qualified by concepts of materiality
and/or Material Adverse Effect, then such representations and warranties shall
be true and correct in all respects while giving effect to the materiality
and/or Material Adverse Effect qualifiers therein) on and as of the subject
Borrowing Date, (b) the Lender’s receipt of a current Borrowing Base
report in conformity with Section 5.04(e) hereof, (c) the
execution and delivery of such further Security Documents as the Lender may have
reasonably requested pursuant to the Security Documents theretofore executed
and delivered, and (d) there being no continuing Default or Event of
Default.

 

V.           AFFIRMATIVE
COVENANTS

 

The Borrower hereby
covenants and agrees that, from the date hereof and until all Obligations
(whether now existing or hereafter arising) have been paid in full and the
Revolving Credit Commitment has been terminated, unless the Lender shall
otherwise consent in writing, the Borrower shall, and shall cause each of its
Subsidiaries to:

 

Section 5.01.  Corporate and Insurance.  Do or cause to be done all things necessary
to at all times (a) preserve, renew and keep in full force and effect its
corporate or other legal existence, rights, licenses, permits and franchises
(except that the Dissolving Subsidiaries shall continue diligently to pursue
and complete their dissolution), (b) comply with the Loan Documents and
any other agreements and instruments executed and delivered hereunder and
thereunder (to the extent a party thereto), (c) maintain, preserve and
protect all of its franchises

 

30

 

and
material trade names, and preserve all of its material property used or useful
in the conduct of its business and keep the same in good repair, working order
and condition (reasonable wear and tear excepted), and from time to time make,
or cause to be made, all needed and proper repairs, renewals, replacements,
betterments and improvements thereto, so that the Business Operations carried
on in connection therewith may be properly and advantageously conducted at all
times, (d) maintain insurance in amounts, on such terms and against such
risks (including fire and other hazards insured against by extended coverage,
public liability insurance covering claims for personal injury, death or
property damage, and professional liability insurance) as are customary for
companies of similar size in the same or similar businesses and operating in
the same or similar locations, as well as all such other insurance as is
required by the Collateral Agreement, each of which policies (other than
workers compensation) shall be issued by a financially sound and reputable
insurer reasonably satisfactory to the Lender and shall name the Lender as loss
payee and additional insured as its interest appears and provide for the Lender
to receive written notice thereof at least thirty (30) days prior to any
cancellation of the subject policy, and (e) comply in all material
respects with all material Contracts and material obligations to which it is a
party or by which it is bound, all benefit plans which it maintains or is
required to contribute to, and all Applicable Law (including, without
limitation, Environmental Laws, healthcare laws and regulations and healthcare
reimbursement laws and regulations) material to its Business Operations, and
all requirements of its insurers, whether now in effect or hereafter enacted,
promulgated or issued.  The Borrower will
provide to the Lender a certificate of the foregoing insurance, promptly upon
request.

 

Section 5.02.  Payment of Taxes.  File, pay and discharge, or cause to be paid
and discharged, all material taxes, assessments and governmental charges or
levies imposed upon the Borrower and/or any Subsidiary or upon its income and profits
or upon any of its property (real, personal or mixed) or upon any part thereof,
before the same shall become in default, as well as all lawful claims for
labor, materials, supplies and otherwise, which, if unpaid when due, might
become a Lien or charge upon such property or any part thereof; provided,
however, that neither the Borrower nor any Subsidiary shall be required
to pay and discharge or cause to be paid and discharged any such tax,
assessment, charge, levy or claim so long as (a) the validity thereof
shall be contested in good faith by appropriate proceedings and the Borrower or
such Subsidiary shall have set aside on its books adequate reserves with
respect to any such tax, assessment, charge, levy or claim so contested, and (b) payment
with respect to any such tax, assessment, charge, levy or claim shall be made
before any of the Borrower’s or such Subsidiary’s property shall be seized or
sold in satisfaction thereof.

 

Section 5.03.  Notices.  Give prompt written notice to the Lender of (a) the
filing by the Borrower of any SEC Reports, (b) any proceedings instituted
against the Borrower or any Subsidiary in any federal or state court or before
any commission or other regulatory body, whether federal, state or local,
which, if adversely determined, could reasonably be expected to have a Material
Adverse Effect, and (c) the occurrence of any material casualty to any
Collateral, any Material Adverse Effect, or any Default (if the Borrower knows
or reasonably should know of the existence thereof) or Event of Default, and
the action that the Borrower has taken, is taking, or proposes to take with
respect thereto.

 

31

 

Section 5.04.  Periodic Reports.  Furnish to the Lender:

 

(a)           Within ninety (90) calendar days after the end of each
Fiscal Year, consolidated balance sheets, and consolidated and consolidating
statements of income, statements of stockholders’ equity, and statements of
cash flows of the Borrower and its Subsidiaries, together with footnotes and
supporting schedules thereto, certified (as to the consolidated statements) by
independent certified public accountants selected by the Borrower and
reasonably satisfactory to the Lender, showing the financial condition of the
Borrower and its Subsidiaries at the close of such Fiscal Year and the results
of operations of the Borrower and its Subsidiaries during such Fiscal Year;

 

(b)           Within thirty (30) calendar days after the end of each
calendar month (forty-five (45) calendar days in the case of the end of a
fiscal quarter), consolidated (and, if specifically requested by the Lender
reasonably in advance, but not more frequently than quarterly, consolidating)
unaudited balance sheets, statements of income and statements of cash flows of
the Borrower and its Subsidiaries, together with supporting schedules thereto,
prepared by the Borrower and certified by the Borrower’s Chairman, President,
Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer,
such balance sheets to be as of the close of such calendar month and such
statements of income and statements of cash flows to be for the period from the
beginning of the then-current Fiscal Year to the end of such calendar month,
together with comparative statements of income and cash flows for the
corresponding period in the immediately preceding Fiscal Year, in each case
subject to normal audit and year-end adjustments;

 

(c)           Concurrently with the delivery of each of the financial
statements required by Sections 5.04(a) and 5.04(b) above, a
certificate on behalf of the Borrower (signed by the Chairman, President, Chief
Executive Officer, Chief Financial Officer or Chief Accounting Officer of the
Borrower), certifying that he has examined the provisions of this Agreement and
that no Default or Event of Default has occurred and/or is continuing;

 

(d)           Within fifteen (15) calendar days after the end of each
calendar month, an accounts receivable aging report and an accounts payable
aging report for the Borrower and the Subsidiaries (each on a consolidated and
consolidating basis);

 

(e)           On or prior to the fifteenth (15th) calendar day of each
calendar month, a detailed calculation of the Borrowing Base as of the close of
the immediately preceding calendar month (which shall include a roll-forward
from such month-end to as recent a day as practicable, reflecting sales and
collections (separately for billed Accounts and unbilled Accounts) since the
close-out of the preceding calendar month); and on or prior to the last
calendar day of each calendar month, a reasonably detailed calculation of the
Borrowing Base as of the fifteenth day of such calendar month (which shall
include a roll-forward to as recent a day as practicable, reflecting sales and
collections (separately for billed Accounts and unbilled Accounts) since the
fifteenth day of such calendar month); all such Borrowing Base reports to be in
form and substance, and with supporting documentation, reasonably satisfactory
to the Lender;

 

(f)            As soon as approved by the Borrower’s Board of Directors
(but in any event not later than after the beginning of each Fiscal Year), a
budget and operating plan (on a month-by-month basis) for such Fiscal Year, in
such detail as may reasonably be required by the Lender;

 

32

 

(g)           As and when distributed to the Borrower’s stockholders,
copies of all proxy materials, reports and other information which the Borrower
provides to its stockholders in their capacity as such; and as and when
distributed to any other holders of Indebtedness of the Borrower or the
Subsidiaries, copies of all reports, statements and other information provided
in writing to such lenders; and

 

(h)           Promptly, from time to time, such other information
regarding the Borrower’s or any Subsidiary’s operations, assets, business,
affairs and financial condition, as the Lender may reasonably request.

 

To
the extent that the financial statements required by Sections 5.04(a) and
5.04(b) are contained in any SEC Reports filed by the Borrower within the
required time period for the delivery of such financial statements, then the
Borrower shall be deemed to have complied with the subject financial statement
delivery by notifying the Lender of the filing of the subject SEC Report.

 

To
the extent that any report or other delivery required under this Section 5.04
or elsewhere in this Agreement will, at the time of anticipated delivery to the
Lender, contain any material non-public information, the Borrower will notify
the Lender thereof as promptly as practicable prior to the delivery of such
report (but without disclosing the specific items of material non-public
information or the nature thereof), and if so requested by the Lender prior to
the required date of the information delivery hereunder, the Borrower shall (x) if
reasonably practicable, redact such material non-public information from the
subject report prior to the delivery thereof to the Lender, or (y) defer
delivery of such report until such time as the Borrower has made public
disclosure of the subject material information or the Lender has affirmatively
requested delivery of such report. 
Absent timely request by the Lender as aforesaid, the Borrower shall
make the required delivery to the Lender on a timely basis.

 

Section 5.05.  Books and Records; Inspection.  Maintain centralized books and records
regarding all of the Business Operations at the Borrower’s principal place of
business, and permit agents or representatives of the Lender at reasonable
intervals to inspect, at any time during normal business hours, upon reasonable
notice, and without undue material disruption of the Business Operations, all
of the Borrower’s and its Subsidiaries’ various facilities, books and records
(wherever located), to make copies, abstracts and/or reproductions thereof, and
to discuss the business and affairs of the Borrower and the Subsidiaries with
the management of the Borrower; and without limitation of the foregoing, the
Lender may engage an independent auditing firm to conduct an audit of the
Collateral and the Borrower’s books and records on an annual basis.

 

Section 5.06.  Accounting.  Maintain a standard system of accounting in
order to permit the preparation of financial statements in accordance with GAAP
and Regulation S-X promulgated under the Act.

 

Section 5.07.  Reimbursements.  Pay or reimburse the Lender or other
appropriate Persons on demand for all reasonable costs, expenses and other
charges incurred or payable from time to time in connection with the
transactions contemplated by this Agreement, any routine SEC filings required
to report the Lender’s and its Affiliates’ beneficial ownership of Common
Stock, any waivers or amendments in respect of any Loan Documents, any “workout”
or

 

33

 

enforcement
action, and any bankruptcy or insolvency proceedings relating to the Borrower
or any Subsidiary, including but not limited to any and all search fees,
recording fees, costs of inspections and legal and accounting fees; provided
that, except for any such audit conducted during the continuance of an Event of
Default, the Borrower shall not be obligated to pay or reimburse the Lender for
the cost of more than one audit performed by an independent auditing firm (as
contemplated by Section 5.05 above) in any twelve (12) month period.

 

Section 5.08.  Environmental Response.  In the event of any material discharge,
spill, injection, escape, emission, disposal, leak or other Release of
Hazardous Substances in amounts in violation of applicable Environmental Laws
by the Borrower or any Subsidiary on any Real Property owned or leased by the
Borrower or any Subsidiary, which is not authorized by a permit or other
approval issued by the appropriate governmental agencies and which requires
notification to or the filing of any report with any federal or state
governmental agency, the Borrower shall promptly: (a) notify the Lender;
and (b) comply with the notice requirements of the Environmental
Protection Agency and applicable state agencies, and take all steps necessary
to promptly clean up such discharge, spill, injection, escape, emission,
disposal, leak or other Release in accordance with all applicable Environmental
Laws and the Federal National Contingency Plan, and, if required by Applicable
Law, receive a certification from all applicable state agencies or the
Environmental Protection Agency, that such Real Property has been cleaned up to
the satisfaction of such agency(ies).

 

Section 5.09.  Management.  Cause James B Kaiser to continue to be
employed or to function as the chief executive officer of the Borrower, and
James J. TerBeest to be employed or to function as the chief financial officer
of the Borrower, unless a successor is appointed within sixty (60) days after
the termination of such individual’s employment, and such successor is
reasonably satisfactory to the Lender.

 

Section 5.10.  Use of Proceeds.  Cause all proceeds of the Loans to be
utilized solely in the manner and for the purposes set forth in Section 2.04
hereof.

 

Section 5.11.  Future Subsidiaries.  At any time and from time to time when the
Borrower or any of its Subsidiaries proposes to form or acquire any Subsidiary
subsequent to the Closing Date, or in the event that and at such time as any of
the Dissolving Subsidiaries shall have or hold any material assets or shall
engage in active business operations, the Borrower shall give written notice
thereof to the Lender reasonably in advance of the formation or acquisition of
such Subsidiary or such change of status of a Dissolving Subsidiary, providing
information therefor of the type called for in Schedule 3.02 of the
Disclosure Schedule; and contemporaneously with the formation or acquisition of
such new Subsidiary or such change of status of a Dissolving Subsidiary, the
Borrower shall cause such new Subsidiary or affected Dissolving Subsidiary to
execute and deliver (a) a guaranty agreement in substantially the form of
the Guaranty Agreement (or a joinder agreement with respect to the existing
Guaranty Agreement in form and substance reasonably satisfactory to the
Lender), and (b) a Collateral Agreement (with completed perfection
certificate and other appropriate Security Documents) in substantially the form
of the Collateral Agreement as currently in place (or a joinder agreement with
respect to the existing Collateral Agreement in form and substance reasonably
satisfactory to the Lender) and other Security Documents as reasonably
requested by the Lender.  Nothing
contained in this Section

 

34

 

5.11
shall be deemed to constitute any waiver by the Lender of any consent otherwise
required under this Agreement or any other Loan Document with respect to the
formation or acquisition of any Subsidiary or any change in status of a
Dissolving Subsidiary.

 

Section 5.12.  Landlord Waivers.  To the extent reasonably requested by the
Lender from time to time subsequent to the Closing Date, use commercially
reasonable efforts to obtain, within thirty (30) days after the Lender’s
request therefor, in form and substance reasonably satisfactory to the Lender,
any and all bailee waivers, warehousemen’s waivers, Landlord Waivers and/or
access agreements requested by the Lender in respect of locations where there
is stored or held any material books or records, or any other Collateral having
an aggregate fair market value in excess of $25,000 (including, without
limitation, existing offices in Dallas, Texas,
                      
and
                              ).

 

Section 5.13.  Deposit Accounts.  Notify the Lender upon opening any new bank
account or securities account, and cause the subject bank or securities
intermediary promptly to execute and deliver to the Lender a Control Agreement
in respect of such bank account or securities account; and this Section 5.13
shall also be applicable to any and all bank accounts for which Control
Agreements have not been entered into on the Closing Date if (a) the funds
in such bank account exceed $10,000, or (ii) the funds held in the Bank
Accounts for which Control Agreements are not in place exceed $25,000 in the
aggregate; and to the extent that a required Control Agreement is not entered
into within thirty (30) days after the Closing Date, then the subject bank
account(s) shall be promptly closed and the funds held therein shall be
transferred to one or more accounts at another banking institution which has
executed and delivered a Control Agreement in respect of such account(s) in
form and substance satisfactory to the Lender.

 

VI.          NEGATIVE COVENANTS

 

The Borrower hereby
covenants and agrees that, until all Obligations (whether now existing or
hereafter arising) have been paid in full and the Revolving Credit Commitment
has been terminated, unless the Lender shall otherwise consent in writing, the
Borrower shall not, and shall not permit any Subsidiary to, directly or
indirectly:

 

Section 6.01.  Indebtedness.  Incur, create, assume, become or be liable in
any manner with respect to, or permit to exist, any Indebtedness, other  than:

 

(a)           Indebtedness
to the Lender pursuant to the Loan Documents;

 

(b)           liabilities with respect to trade obligations, accounts
payable, or other similar payments, operating leases and other normal accruals
incurred in the ordinary course of business, or with respect to which the
Borrower or the subject Subsidiary is contesting in good faith the amount or
validity thereof by appropriate proceedings, and then only to the extent that
the Borrower or the subject Subsidiary has set aside on its books adequate
reserves therefor;

 

(c)           Indebtedness existing on the date of this Agreement owed
to those Persons, in those amounts and having those maturities as set forth in Schedule
6.01 of the Disclosure Schedule;

 

35

 

(d)           Capitalized Leases reflected in the Financial Statements,
and Capitalized Leases hereafter entered into by the Borrower or its
Subsidiaries in the ordinary course of the Business Operations;

 

(e)           purchase money Indebtedness incurred in connection with
the Borrower’s or its Subsidiaries’ acquisition of capital assets in the
ordinary course of the Business Operations;

 

(f)            Subordinated Debt in such amounts and upon such terms and
conditions as shall be acceptable to the Lender in its sole and absolute
discretion;

 

(g)           intercompany Indebtedness between the Borrower and any
Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries; and

 

(h)           Guarantees
to the extent permitted pursuant to Section 6.03 below.

 

Section 6.02.  Liens.  Create, incur, assume or suffer to exist any
Lien or other encumbrance of any nature whatsoever on any of its assets, now or
hereafter owned, other than:

 

(a)           subject to Section 5.02 above, Liens securing the
payment of taxes which are either not yet due or the validity of which is being
contested in good faith by appropriate proceedings, and as to which the
Borrower or the subject Subsidiary shall have set aside on its books adequate
reserves;

 

(b)           deposits under workers’ compensation, unemployment
insurance and social security laws, or to secure the performance of bids,
tenders, contracts (other than for the repayment of money borrowed) or leases,
or to secure statutory obligations or surety or appeal bonds, or to secure
indemnity, performance or other similar bonds in the ordinary course of
business;

 

(c)           statutory Liens of landlords and Liens imposed by law,
such as, carriers’, warehousemen’s, materialmen’s or mechanics’ liens, incurred
by the Borrower or any Subsidiary in good faith in the ordinary course of
business and discharged promptly after same are incurred; fully bonded Liens
arising out of a judgment or award against the Borrower or any Subsidiary with
respect to which the Borrower or such Subsidiary shall currently be prosecuting
an appeal, a stay of execution pending such appeal having been secured; and
Liens arising out of a judgment or award against the Borrower or any Subsidiary
which are fully covered by insurance (subject to applicable deductibles) and
for which the relevant insurer has not denied or disclaimed coverage;

 

(d)           other Liens incurred in connection with Indebtedness
expressly permitted pursuant to Section 6.01(d) and/or Section 6.01(e) above,
provided that such Liens do not extend to any assets or property other than the
specific assets or properties acquired pursuant to such permitted Indebtedness;

 

(e)           encumbrances consisting of easements, rights-of-way,
survey exceptions and other similar restrictions on the use of Real Property,
or minor irregularities in title thereto which do not materially impair the use
of such property in the operation of the business of the Borrower and its
Subsidiaries (provided that the placement by the owner of any leased Real

 

36

 

Property
of a mortgage or deed of trust on the subject land and/or building shall not be
deemed a Lien on the leasehold interest of the Borrower or the subject
Subsidiary);

 

(f)            Liens in existence on the date of this Agreement, as set
forth on Schedule 6.02 of the Disclosure Schedule;

 

(g)           Liens arising out of judgments or awards (i) which
are fully covered by insurance (subject to applicable deductibles) and for
which the relevant insurer has not denied or disclaimed coverage, or (ii) with
respect to which the Borrower or the subject Subsidiary shall be prosecuting an
appeal in good faith and in respect of which a stay of execution shall have
been issued;

 

(h)           Liens
in favor of the Lender; and

 

(i)            extensions, renewals or replacements of any Lien referred
to in clauses (a) through (g) above, provided that same shall not
effect any increase in any principal amount secured thereby.

 

Section 6.03.  Guarantees.  Guarantee, endorse or otherwise in any manner
become or be responsible for obligations of any other Person, except (a) endorsements
of negotiable instruments for collection in the ordinary course of business,
and (b) guarantees by the Borrower of obligations of Wholly-Owned
Subsidiaries (other than Dissolving Subsidiaries) in the ordinary course of
business.

 

Section 6.04.  Sales of Assets and Management.  (a) Sell, lease, transfer, encumber or
otherwise dispose of any of the Borrower’s or any Subsidiary’s properties,
assets, rights, licenses or franchises (including, without limitation, equity
interests in Subsidiaries) other than (i) sales of inventory in the
ordinary course of business, (ii) licenses, joint ventures and related
transactions entered into, modified or terminated in the ordinary course of
business, or (iii) the disposition of surplus or obsolete personal
properties in the ordinary course of business, or (b) permit any Affiliate
of the Borrower (other than a Domestic Subsidiary which is a party to the
Collateral Agreement) to own or obtain any patent, patent application,
copyright, copyright application, trademark, trademark application, license, or
other intangible asset relating to the Business Operations except in the normal
course of business on terms and conditions no less favorable to the Borrower or
any Subsidiary than those which could be obtained in an arms’ length
transaction with an unaffiliated third party.

 

Section 6.05.  Sale-Leaseback.  Enter into any arrangement with any Person
whereby the Borrower or any Subsidiary shall sell or transfer any property
(real, personal or mixed) used or useful in the Business Operations, whether
now owned or hereafter acquired, and thereafter rent or lease such property.

 

Section 6.06.  Investments; Acquisitions.  Make any Investment in, or otherwise acquire
or hold securities (including, without limitation, capital stock and evidences
of Indebtedness) of, or make loans or advances to, or enter into any arrangement
for the purpose of providing funds or credit to, any other Person (including
any Affiliate), except:

 

37

 

(a)           Investments in Wholly-Owned Subsidiaries which have
complied with the requirements of Section 5.11 hereof;

 

(b)           advances (to the extent permitted by Applicable Law,
including federal securities laws) to employees of the Borrower or any
Wholly-Owned Subsidiaries (other than Dissolving Subsidiaries) for normal
business expenses not to exceed at any time $25,000 in the aggregate;

 

(c)           Investments of excess cash generated in the Business
Operations in Cash Equivalents; and

 

(d)           Investments of cash in overnight deposits or other
customary cash management Investments with commercial banks or in commercial
paper satisfying the criteria for such banks or commercial paper as set forth
in the definition of Cash Equivalents.

 

Section 6.07.  Real Property; Corporate Form; Acquisitions.  Acquire or hold any fee interest in any Real
Property; or dissolve or liquidate, or consolidate or merge with or into, sell
all or substantially all of the assets of the Borrower or any Subsidiary to, or
acquire all or substantially all of the securities, assets or properties of,
any other Person, except for (a) consolidations of a Subsidiary with a
Wholly-Owned Subsidiary (other than a Dissolving Subsidiary); (b) mergers
of a Wholly-Owned Subsidiary into the Borrower or into a Wholly-Owned
Subsidiary (other than a Dissolving Subsidiary); (c) sales to the Borrower
or another Subsidiary  for fair value; or
(d) the dissolution of the Dissolving Subsidiaries.

 

Section 6.08.  Dividends and Redemptions.  Declare or pay any dividends, or make any
distribution of cash or property, or both, to any Person in respect of any of
the shares of the capital stock or other equity securities of the Borrower or
any other Person, or directly or indirectly redeem, purchase or otherwise
acquire for consideration any securities or shares of the capital stock or
other equity securities of the Borrower or any other Person; provided,
that this Section 6.08 shall not be deemed to prohibit the payment of
dividends or distributions by any Subsidiary to the Borrower or to any other
direct or indirect Wholly-Owned Subsidiary.

 

Section 6.09.  Compensation.  Pay any compensation of any types or in any
amounts to any executive officers of the Borrower except (a) in accordance
with the employment agreements between the Borrower and such executive officers
as in effect on the Closing Date, (b) in accordance with the compensation
levels disclosed in Schedule 6.09 of the Disclosure Schedule, or (c) as
otherwise approved by the independent Compensation Committee of the Board of
Directors of the Borrower but in no case in any amount or amounts which would
cause or reasonably be expected to cause a Material Adverse Effect.

 

Section 6.10.  Change of Business.  (a) Engage in a business materially
different from the general nature of the Business Operations (i) as now
being conducted, or (ii) as the same may hereafter be reasonably expanded
from time to time in like areas of business; (b) cause or permit any of
the Dissolving Subsidiaries to own or hold any material assets or engage in any
active business operations; (c) wind up the Business Operations or cease
substantially all of its normal Business 

 

38

 

Operations
for a period in excess of ten (10) consecutive days; or (d) suffer
any material disruption, interruption or discontinuance of a material portion
of its normal Business Operations for a period in excess of ten (10) consecutive
days; provided, however, that the dissolution of the Dissolving
Subsidiaries shall not constitute a violation of this Section 6.10.

 

Section 6.11.  Receivables.  Sell or assign in any way any accounts
receivable, promissory notes or trade acceptances held by the Borrower or any
Subsidiary with or without recourse, except for (a) collections (including
endorsements) in the ordinary course of business, and (b) transfers to or
among the Borrower and Domestic Subsidiaries which are party to the Guaranty
Agreement and the Collateral Agreement.

 

Section 6.12.  Certain Amendments.  Agree, consent, permit or otherwise undertake
to amend any of the terms or provisions of the Borrower’s or any Subsidiary’s
Organic Documents in a manner which may impair in any respect any of the Lender’s
rights under any of the Loan Documents.

 

Section 6.13.  Affiliate Transactions.  Enter into any Contract, agreement or
transaction with any Affiliate of the Borrower except (a) as disclosed in Schedule
6.13 of the Disclosure Schedule, (b) for intercompany Indebtedness
between the Borrower and any Wholly-Owned Subsidiary (other than a Dissolving
Subsidiary) or between any Wholly-Owned Subsidiaries (other than Dissolving
Subsidiaries), or (c) in the normal course of business on terms and
conditions no less favorable to the Borrower or any Subsidiary than those which
could be obtained in an arms’ length transaction with an unaffiliated third
party.

 

Section 6.14.  Fiscal Year.  Amend its Fiscal Year.

 

Section 6.15.  Subordinated Debt.  Prepay, redeem or purchase any Subordinated
Debt.

 

Section 6.16.  Capital Expenditures.  Make aggregate Capital Expenditures (whether
through cash purchase, principal payments under Capitalized Leases, or
otherwise), in the aggregate for the Borrower and all Subsidiaries, in excess
of $250,000 in any Fiscal Year.

 

Section 6.17.  Coverage Test.  Permit the ratio of EBITDA to Fixed Charges
to be less than (a) 0.85 to 1.00 for the six (6) months ending June 30,
2008, (b) 1.00 to 1.00 for the nine (9) months ending September 30,
2008, (c) 1.10 to 1.00 for the four (4) consecutive fiscal quarters
ending December 31, 2008, and (d) 1.25 to 1.00 for the four (4) consecutive
fiscal quarters ending as of the end of any quarter of any Fiscal Year
thereafter.

 

VII.         DEFAULTS

 

Section 7.01.  Events of Default.  Each of the following events is herein, and
in the Notes, sometimes referred to as an Event of Default:

 

(a)           if any representation or warranty made herein or in any
other Loan Document, or in any certificate, financial statement, Borrowing Base
report, instrument or other written statement furnished by the Borrower or any
Subsidiary in connection with this Agreement or any of the borrowings
hereunder, shall be false, inaccurate or misleading in any material respect
when made or when deemed made hereunder if the correction of such
representation or warranty would indicate, result in or reflect a Material
Adverse Effect relative 

 

39

 

to
the representation or warranty as made; or if the Borrower or any Subsidiaries
repeatedly make false, inaccurate or misleading representations or warranties
in connection with this Agreement or any of the borrowings hereunder,
regardless of whether any such Material Adverse Effect is presented thereby;

 

(b)           any default in the payment of any principal or interest
under any of the Notes or any other Obligations when the same shall be due and
payable, whether at the due date thereof or at a date required for prepayment
or by acceleration or otherwise, and the continuance of any such non-payment
(in whole or in part) for a period of three (3) Business Days (provided
that such grace period shall not apply with respect to Section 2.01(d) above,
as to which the grace period is as specified in Section 2.01(d));

 

(c)           any default in the due observance or performance of any
covenant, condition or agreement contained in any Section of Article VI
hereof, which, if capable of being cured, is not fully cured within thirty (30)
days after the occurrence thereof; provided, however, that if
such Default is capable of cure but is not capable of being cured with
reasonable diligence within such thirty (30) day period, then such cure period
shall be extended for up to an additional thirty (30) days provided that (i) the
Borrower or the subject Subsidiary commenced such cure promptly within the
original thirty (30) day cure period and thereafter continuously continues to
effect such cure with reasonable diligence (and in any event completes such
cure within the extended cure period provided herein), and (ii) no
Material Adverse Effect exists or arises in respect of such Default;

 

(d)           any default in the due observance or performance of any
covenant, condition or agreement to be observed or performed under Article V
hereof, or otherwise pursuant to the terms hereof or any other Loan Document
and not addressed in Sections 7.01(a), (b) or (c), and the continuance of
such default unremedied for a period of thirty (30) days (five (5) Business
Days in the case of Section 5.01(d) hereof) after written notice
thereof to the Borrower, or such other cure period as may be provided in the
applicable Loan Document; provided, however, that if such Default
(other than in the case of Section 5.01(d) above) is capable of cure
but is not capable of being cured with reasonable diligence within such thirty
(30) day period, then such cure period shall be extended for up to an
additional thirty (30) days provided that (i) the Borrower or the subject
Subsidiary commenced such cure promptly within the original thirty (30) day
cure period and thereafter continuously continues to effect such cure with
reasonable diligence (and in any event completes such cure within the extended
cure period provided herein), and (ii) no Material Adverse Effect exists
or arises in respect of such Default;

 

(e)           any default with respect to any Indebtedness for money borrowed
of the Borrower or any of the Subsidiaries (other than to the Lender) in an
amount in excess of $75,000, if the effect of such default is to permit the
holder, with or without notice or lapse of time or both, to accelerate the
maturity of any such Indebtedness for money borrowed or to cause such
Indebtedness for money borrowed to become due prior to the stated maturity
thereof;

 

(f)            if the Borrower or any Subsidiary shall: (i) apply
for or consent to the appointment of a receiver, trustee, custodian or
liquidator of it or any of its properties, (ii) admit in writing its
inability to pay its debts as they mature, (iii) make a general assignment
for the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent
or be the subject of an order for 

 

40

 

relief
under Title 11 of the United States Code, or (v) file a voluntary petition
in bankruptcy, or a petition or an answer seeking reorganization or an
arrangement with creditors or to take advantage or any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation
law or statute, or an answer admitting the material allegations of a petition
filed against him or it in any proceeding under any such law, or (vi) take
or permit to be taken any action in furtherance of or for the purpose of
effecting any of the foregoing;

 

(g)           if any order, judgment or decree shall be entered, without
the application, approval or consent of the Borrower or any Subsidiary, by any
court of competent jurisdiction, approving a petition seeking reorganization of
the Borrower or any Subsidiary, or appointing a receiver, trustee, custodian or
liquidator of the Borrower or any Subsidiary, or of all or any substantial part
of its assets, and such order, judgment or decree shall continue unstayed and
in effect for any period of ninety (90) days;

 

(h)           if final judgment(s) for the payment of money in an
uninsured amount in excess of $75,000 individually or in the aggregate shall be
rendered against the Borrower and/or any Subsidiary, and the same shall remain
undischarged or unbonded for a period of thirty (30) consecutive days, during
which execution shall not be effectively stayed;

 

(i)            the occurrence of any levy upon or seizure or attachment
of, or any uninsured loss of or damage to, any property of the Borrower or any
Subsidiary having an aggregate fair value or repair cost (as the case may be)
in excess of $75,000 individually or in the aggregate, and any such levy,
seizure or attachment shall not be set aside, bonded or discharged within
thirty (30) days after the date thereof;

 

(j)            if any Lien purported to be created by any Security
Document shall cease to be a valid perfected first priority Lien (subject only
to any priority accorded by law to Permitted Liens) on the assets or properties
covered thereby (provided that if such condition is due to a change in
Applicable Law or any rectifiable event or occurrence which terminates the
ability to place a Lien on the subject asset, an Event of Default shall not be
deemed to exist by reason thereof unless the Borrower or the subject Subsidiary
fails, within ten (10) days after written notice from the Lender, to take
other lawful action which shall provide to the Lender substantially the same
benefit as the lost Lien), or the Borrower or any Subsidiary shall assert in
writing that any Lien purported to be created by any Security Document is not a
valid perfected first priority lien (subject only to any priority accorded by
law to Permitted Liens) on the assets or properties purported to be covered
thereby;

 

(k)           if (i) any of the Loan Documents shall cease to be in
full force and effect (other than as a result of the discharge thereof in
accordance with the terms thereof or by written agreement of all parties thereto),
provided that if such condition is due to a change in Applicable Law, an
Event of Default shall not be deemed to exist by reason thereof unless the
Borrower or the subject Subsidiary fails, within ten (10) days after
written notice from the Lender, to take other lawful action which shall provide
to the Lender substantially the same rights and benefits as were provided to
the Lender immediately prior to such change in Applicable Law, or (ii) the
Borrower or any Subsidiary shall disclaim or deny the validity of any Loan
Document or its obligations thereunder;

 

41

 

(l)            if the Common Stock (or the common stock of any surviving
entity described in the proviso to the definition of “Sale” above) shall
not be listed or traded on any national securities exchange, or shall cease to
be actively quoted on the OTC Bulletin Board, for any period in excess of
thirty (30) consecutive days; or

 

(m)          if the Borrower or any Subsidiary shall be indicted for or
convicted of any felony or crime of moral turpitude.

 

Section 7.02.  Remedies.  Upon the occurrence of any Event of Default,
and at all times thereafter during the continuance thereof: (a) the Notes,
and any and all other Obligations, shall, at the Lender’s option (except in the
case of Sections 7.01(f) and 7.01(g) hereof, the occurrence of which
shall automatically effect acceleration, regardless of any action or
forbearance in respect of any prior or ongoing Default or Event of Default
which may be inconsistent with such automatic acceleration), become immediately
due and payable, both as to principal, interest and other charges, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived, anything contained herein or in the Notes or other evidence
of such Obligations to the contrary notwithstanding, (b) all outstanding
Obligations under the Notes, and all other outstanding Obligations, shall bear
interest at the default rate of interest provided in the Notes, (c) the
Lender may file suit against the Borrower on the Notes and against the Borrower
and the Subsidiaries under the other Loan Documents and/or seek specific
performance or injunctive relief thereunder (whether or not a remedy exists at
law or is adequate), (d) the Lender shall have the right, in accordance
with the Security Documents, to exercise any and all remedies in respect of
such or all of the Collateral as the Lender may determine in its discretion
(without any requirement of marshalling of assets, or other such requirement),
and (e) the Revolving Credit Commitment shall, at the Lender’s option
(except in the case of Sections 7.01(f) and 7/01(g) hereof, the
occurrence of which shall automatically effect termination, regardless of any
action or forbearance in respect of any prior or ongoing Default or Event of
Default which may be inconsistent with such automatic termination), be
immediately terminated or reduced, and the Lender shall be under no further
obligation to consider making any further Advances.

 

VIII.      PARTICIPATING LENDERS; ASSIGNMENT.

 

Section 8.01.  Participations.  Anything in this Agreement to the contrary
notwithstanding, the Lender may, at any time and from time to time, without in
any manner affecting or impairing the validity of any Obligations, transfer,
assign or grant participating interests in the Loans as the Lender shall in its
sole discretion determine, to such other Persons (the “Participants”) as
the Lender may determine.  Upon any such
transfer, assignment or granting of participating interests, the Participants
shall be deemed to be included within the term “Lender” for all purposes of
this Agreement, subject to such agreements and arrangements as the Lender and
the Participants may agree upon. Notwithstanding the granting of any such
participating interests: (a) the Borrower shall look solely to the Lender
for all purposes of this Agreement and the transactions contemplated hereby, (b) the
Borrower shall at all times have the right to rely upon any waivers or consents
signed by the Lender as being binding upon all of the Participants, and (c) all
communications in respect of this Agreement and such transactions shall remain
solely between the Borrower and the Lender (exclusive of Participants)
hereunder.

 

42

 

 

 

 

Section 8.02.  Transfer.  Anything in this Agreement to the contrary
notwithstanding, the Lender may, at any time and from time to time, without in
any manner affecting or impairing the validity of any Obligations, transfer and
assign all or any portion of its interest in this Agreement, the Notes and the
other Loan Documents to any Person (an “Assignee Lender”) as the Lender
may determine.  Upon any such transfer or
assignment, the Assignee Lender shall be deemed to succeed (to the extent of
the interest assigned) to the rights and obligations of the Lender for all
purposes of this Agreement.  In the event
of any transfer and assignment of the Lender’s entire interest in this
Agreement, the Notes and the Security Documents, the Lender shall be replaced
by the Assignee Lender as “Secured Party” under the Collateral Agreement and
all other Security Documents.

 

Section 8.03.  Recordation of Assignment.  In respect of any negotiation, transfer or
assignment of all or any portion of any Lender’s interest in this Agreement,
any Note and/or any other Loan Documents at any time and from time to time, the
following provisions shall be applicable:

 

(a)           The Borrower, or any agent appointed by the Borrower,
shall maintain a register (the “Register”) in which there shall be
recorded the name and address of each Person holding any Note(s) hereunder
or any commitment to lend hereunder, and the principal amount payable to such
Person under such Person’s Note(s) or committed by such Person under such
Person’s lending commitment.  The
Borrower hereby irrevocably appoints the Lender (and/or any subsequent Lender
appointed by the Lender then maintaining the Register) as the Borrower’s agent
for the purpose of maintaining the Register.

 

(b)           In connection with any negotiation, transfer or assignment
as aforesaid, the transferor/assignor shall deliver to the Lender then
maintaining the Register an assignment and assumption agreement executed by the
transferor/assignor and the transferee/assignee, setting forth the specifics of
the subject transaction, including but not limited to the amount and nature of
Obligations and/or lending commitments being transferred or assigned (and being
assumed, as applicable), and the proposed effective date of such transfer or
assignment and the related assumption (if applicable).

 

(c)           Subject to receipt of completed tax forms (indicating
withholding status, or exemption from withholding, as applicable, of the
transferee/assignee) reasonably required by the Person then maintaining the
Register, and (if required by such Person) surrender of the negotiated,
transferred or assigned Note(s) for reissuance by the Borrower, such
Person shall record the subject transfer, assignment and assumption in the
Register.  Anything contained in any Note
or other Loan Document to the contrary notwithstanding, no negotiation,
transfer or assignment shall be effective until it is recorded in the Register
pursuant to this Section 8.03(c). 
The entries in the Register shall be conclusive and binding for all
purposes, absent manifest error; and the Borrower and each Lender shall treat
each Person whose name is recorded in the Register as a Lender hereunder for
all purposes of this Agreement.  The
Register shall be available for inspection by the Borrower and each Lender at
any reasonable time and from time to time upon reasonable prior notice.

 

43

 

IX.          MISCELLANEOUS

 

Section 9.01.  Survival.  This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto, shall survive the making by the Lender of the Loans and the
execution and delivery to the Lender of the Notes, and shall continue in full
force and effect for so long as the Notes or any other Obligations are
outstanding and unpaid or the Revolving Credit Commitment remains
outstanding.  Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and permitted assigns of such party; and all covenants,
promises and agreements in this Agreement contained, by or on behalf of the
Borrower shall inure to the benefit of the successors and assigns of the
Lender.

 

Section 9.02.  Indemnification.  The Borrower shall indemnify the Lender and
its managers, directors, officers, employees, attorneys and agents against, and
shall hold the Lender and such Persons harmless from, any and all losses,
claims, damages and liabilities and related expenses, including reasonable
counsel fees and expenses, incurred by the Lender or any such Person arising
out of, in any way connected with, or as a result of: (a) the use of any
of the proceeds of the Loans made by the Lender to the Borrower; (b) this
Agreement, the ownership and operation of the Borrower’s and any Subsidiary’s
assets, including all Real Properties and improvements or any Contract, the
performance by the Borrower or any other Person of their respective obligations
thereunder, and the consummation of the transactions contemplated by this
Agreement; (c) any finder’s fee, brokerage commission of other such
obligation payable or alleged to be payable in respect of the transactions
contemplated by this Agreement which arises or is alleged to arise from any
agreement, action or conduct of the Borrower or any of its Affiliates, and/or (d) any
claim, litigation, investigation or proceeding relating to any of the
foregoing, whether or not the Lender or its managers, directors, officers,
employees, attorneys or agents are a party thereto; provided that such
indemnity shall not apply to any such losses, claims, damages, liabilities or
related expenses arising from (i) any unexcused breach by the Lender of
any of its obligations under this Agreement, (ii) the willful misconduct
or gross negligence of the Lender as determined by a final, non-appealable
judgment of a court of competent jurisdiction, or (iii) the breach of any
commitment or legal obligation of the Lender to any Person other than the
Borrower or its Affiliates, provided that such breach is determined
pursuant to a final and nonappealable decision of a court of competent
jurisdiction.  The foregoing indemnity
shall remain operative and in full force and effect regardless of the
expiration or any termination of this Agreement, the consummation of the
transactions contemplated by this Agreement, the repayment of the Loans, the
invalidity or unenforceability of any term or provision of any Loan Document,
any investigation made by or on behalf of the Lender, and the content or
accuracy of any representation or warranty made by the Borrower or any
Subsidiary in any Loan Document.  All
amounts due under this Section 9.02 shall be payable on written demand
therefor.

 

Section 9.03.  Governing Law.  This Agreement and the other Loan Documents
shall (irrespective of where same are executed and delivered) be governed by
and construed in accordance with the laws of the State of New York (without
giving effect to principles of conflicts of laws).

 

44

 

Section 9.04.  Waiver and Amendment.  Neither any modification or waiver of any
provision of this Agreement, the Notes, or any other Loan Document, nor any
consent to any departure by the Borrower or any Subsidiary therefrom, shall in
any event be effective unless the same shall be set forth in writing duly
signed or acknowledged by the Lender and all parties to such Loan Document, and
then such waiver or consent shall be effective only in the specific instance,
and for the specific purpose, for which given. 
No notice to or demand on the Borrower in any instance shall entitle the
Borrower to any other or future notice or demand in the same, similar or other
circumstances.

 

Section 9.05.  Reservation of Remedies.  Neither any failure nor any delay on the part
of the Lender in exercising any right, power or privilege hereunder or under
the Notes or any other Loan Document shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or future
exercise, or the exercise of any other right, power or privilege.

 

Section 9.06.  Notices.  All notices, requests, demands and other
communications under or in respect of this Agreement or any transactions
hereunder shall be in writing (which may include telegraphic or telecopied
communication) and shall be personally delivered or mailed (by prepaid
registered or certified mail, return receipt requested), sent by prepaid
recognized overnight courier service, or telegraphed or telecopied by facsimile
transmission to the applicable party at its address or telecopier number
indicated below.

 

If to the Lender:

 

ComVest Capital, LLC

One North Clematis, Suite 300

West Palm Beach, FL 33401

Attention: Chief Financial Officer

Telecopier: (212) 829-5986

 

with a copy to:

 

Greenberg Traurig, LLP

200 Park Avenue

New York, New York  10166

Attention: 
Shahe Sinanian, Esq.

Telecopier: (212) 801-6400

 

If to the Borrower:

 

Crdentia Corp.

5001 LBJ Freeway, Suite 850

Dallas, Texas 75244

Attention: 
James TerBeest

Telecopier: (972) 392-2722

 

45

 

with a copy to:

 

Kane Russell Coleman &
Logan, P.C.

1601 Elm Street, Suite 3700

Dallas, Texas 
75201

Attention:  Patrick V. Stark, Esq.

Telecopier: (214) 777-4299

 

or, as to each party, at
such other address or telecopier number as shall be designated by such party in
a written notice to the other party delivered as aforesaid.  All such notices, requests, demands and other
communications shall be deemed given (a) when personally delivered, (b) three
(3) Business Days after being deposited in the mails with postage prepaid
(by registered or certified mail, return receipt requested), (c) one (1) Business
Day after being delivered to the telegraph company or overnight courier
service, if prepaid and sent overnight delivery, addressed as aforesaid and
with all charges prepaid or billed to the account of the sender, or (d) when
sent by facsimile transmission to a telecopier number designated by such
addressee.

 

Section 9.07.  Binding Effect.  This Agreement shall be binding upon and
inure to the benefit of the Borrower and the Lender and their respective
successors and assigns, except that the Borrower shall not assign any of its
rights or obligations hereunder without the prior written consent of the
Lender.

 

Section 9.08.  Consent to Jurisdiction; Waiver of Jury Trial.  The Borrower hereby consents to the
jurisdiction of all courts of the State of New York and the United States
District Court for the Southern District of New York, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of or with
respect to this Agreement, any other Loan Document, any other agreements,
instruments, certificates or other documents executed in connection herewith or
therewith, or any of the transactions contemplated hereby or thereby, or any of
the Borrower’s or any Subsidiary’s obligations hereunder or thereunder.  The Borrower hereby waives the right to
interpose any counterclaims (other than compulsory counterclaims) in any action
brought by the Lender hereunder or in respect of any other Loan Document,
provided that this waiver shall not preclude the Borrower from pursuing any
such claims by means of separate proceedings. 
THE BORROWER HEREBY EXPRESSLY WAIVES ANY AND ALL OBJECTIONS WHICH IT MAY HAVE
AS TO VENUE IN ANY OF SUCH COURTS, AND ALSO WAIVES TRIAL BY JURY IN ANY SUCH
SUIT, ACTION OR PROCEEDING.  The Lender
may file a copy of this Agreement as evidence of the foregoing waiver of right
to jury trial.

 

Section 9.09.  Certain Waivers.  The Borrower and the Lender each hereby
waives any claims for special, consequential or punitive damages in any way
arising out of or relating to this Agreement, any of the other Loan Documents,
or any breach hereof or thereof.

 

Section 9.10.  Severability.  If any provision of this Agreement is held by
a court of competent jurisdiction to be invalid or unenforceable, either in its
entirety or by virtue of its scope or application to given circumstances, such
provision shall thereupon be deemed modified only to the extent necessary to
render same valid, or not applicable to given circumstances, or excised from
this Agreement, as the situation may require, and this Agreement shall be
construed 

 

46

 

and
enforced as if such provision had been included herein as so modified in scope
or application, or had not been included herein, as the case may be.

 

Section 9.11.  Captions.  The Article and Section headings in
this Agreement are included herein for convenience of reference only, and shall
not affect the construction or interpretation of any provision of this
Agreement.

 

Section 9.12.  Sole and Entire Agreement.  This Agreement, the Notes, the other Loan
Documents, and the other agreements, instruments, certificates and documents
referred to or described herein and therein constitute the sole and entire
agreement and understanding between the parties hereto as to the subject matter
hereof, and supersede all prior discussions, agreements and understandings of
every kind and nature between the parties as to such subject matter.

 

Section 9.13.  Confidentiality.  The Lender shall not disclose any
Confidential Information to any Person without the prior consent of the
Borrower; provided, however, that nothing herein contained shall
limit any disclosure of the tax structure of the transactions contemplated
hereby, or the disclosure of any information (a) to the extent required by
statute, rule, regulation or judicial process, (b) to counsel, accountants
and other professional advisors for the Lender, (c) to bank examiners,
auditors, accountants or, if required by law, any regulatory authority, (d) to
the officers, partners, managers, directors, employees, agents and advisors
(including independent auditors and counsel) of the Lender, (e) in
connection with any litigation which relates to this Agreement to which the
Lender is a party, (f) to a subsidiary or Affiliate of the Lender, or (g) to
any assignee or participant (or prospective assignee or participant) which
agrees to be bound by this Section 9.13, and  further  provided,
that in no event shall the Lender be obligated or required to return any
materials furnished by the Borrower.  The
obligations of the Lender under this Section 9.13 shall supersede and
replace the obligations of the Lender under any confidentiality letter in
respect of this financing previously signed and delivered by the Lender to the
Borrower.

 

Section 9.14.  Counterparts; Fax Signatures.  This Agreement may be executed in any number
of counterparts, all of which shall constitute one and the same agreement.  This Agreement may be executed by fax
signatures, each of which shall be fully binding on the signing party.

 

Section 9.15.  Short Selling.  Until the earlier of (a) the Term Loans
Maturity Date, or (b) the repayment in full of the Term Loans, ComVest
Capital, LLC and its Affiliates shall not engage in any uncovered short sales
of Common Stock (provided that, for purposes of this Section 9.15, the
sale of or commitment to sell shares which may be acquired by ComVest Capital,
LLC from the exercise of the Warrant shall not be deemed to be an uncovered
short sale).

 

[The remainder of this page is intentionally blank]

 

47

 

IN WITNESS WHEREOF, the parties
hereto have caused this Agreement to be duly executed by their duly authorized
officer as of the day and year first written above.

 

	
   

  	
  COMVEST CAPITAL, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: Gary E. Jaggard

  
	
   

  	
   

  	
  Title: Managing Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CRDENTIA CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: John B. Kaiser

  
	
   

  	
   

  	
  Title: Chief Executive Officer

  

 

48Exhibit 10.2

 

REVOLVING CREDIT NOTE

 

	
  $5,200,000

  	
   

  	
  February 22, 2008

  

 

FOR VALUE RECEIVED, the
undersigned, CRDENTIA CORP., a Delaware  corporation (the “Maker”), hereby promises to pay to
COMVEST CAPITAL, LLC, a Delaware limited liability company (“ComVest”),
or registered assigns (hereinafter, collectively with ComVest, referred to as
the “Payee”), on February 28, 2010 (subject to extension pursuant
to Section 2.01(h) of the Loan Agreement hereinafter described, or
sooner by reason of an Event of Default or other mandatory prepayment event in
accordance with the Loan Agreement hereinafter described), the principal sum of
Five Million Two Hundred Thousand ($5,200,000) Dollars or, if less, the
aggregate unpaid principal amount of all Advances made by the Payee to the
Maker pursuant to that certain Revolving Credit and Term Loan Agreement of even
date herewith by and between ComVest and the Maker (as same may be amended,
modified, supplemented and/or restated from time to time, the “Loan
Agreement”), together with interest (computed as hereinafter provided) on
any and all principal amounts outstanding hereunder from time to time from the
date hereof until payment in full hereof, at a rate per annum equal to the
greater of (a) the Prime Rate (as such term is hereinafter defined) as in
effect from time to time plus two (2%) percent, or (b) eight and one-half
(8.5%) percent; provided, however, that during the continuance of
any Event of Default under the Loan Agreement, the interest rate otherwise
applicable hereunder shall be increased by five hundred (500) basis
points.  All interest shall be computed
on the daily unpaid principal balance hereof based on a three hundred sixty
(360) day year, and shall be payable monthly in arrears on the first day of
each calendar month commencing March 1, 2008, and upon maturity or
acceleration hereof.

 

As used herein, the term “Prime
Rate” shall mean the “prime rate” or “base rate” of interest publicly announced
by Citibank, N.A. (or any successor thereto, or in the event that such bank
shall cease to exist and shall have no successor, any other domestic commercial
bank selected by the Payee in good faith) from time to time, which is merely a
reference rate for determining the interest rate to be charged on loans or
other financial transactions, and may or may not be the best rate offered by
such bank for commercial loans; and upon each announced change of the Prime
Rate by such bank, the interest rate hereunder shall be correspondingly
adjusted.

 

The Maker shall have the
right, at any time and from time to time, without preimum or penalty, to prepay
all or any portion of the principal balance of this Note upon written notice to
the Payee, stating the amount of the prepayment.  In addition, the Maker shall be required to
make principal payments hereunder, without requirement of notice or demand, as
and to the extent provided in Sections 2.01(d) and 2.07 of the Loan
Agreement.

 

Unless the Maker shall be
otherwise notified in writing by ComVest, all principal and interest hereunder
are payable in lawful money of the United States of America at the office of
ComVest set forth in the Loan Agreement in immediately available funds.  Payments of principal and/or interest
hereunder shall be made, at the Payee’s option, by debiting any demand deposit
account(s) in the name of the Maker at the Payee (or any agent of the
Payee) or in such other reasonable manner as may be designated by the Payee in
writing to the Maker and in any event 

 

 

shall
be made in immediately available funds. 
The Maker hereby irrevocably authorizes the Payee to so debit any and
all such demand deposit accounts.

 

The Maker hereby waives
presentment, demand, dishonor, protest, notice of protest, diligence and any
other notice or action otherwise required to be given or taken under the law in
connection with the delivery, acceptance, performance, default, enforcement or
collection of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended, modified or subordinated (by forbearance or otherwise)
from time to time, without in any way affecting the liability of the
Maker.  The Maker hereby further waives
the benefit of any exemption under the homestead exemption laws, if any, or any
other exemption, appraisal or insolvency laws, and consents that the Payee may
release or surrender, exchange or substitute any personal property or other
collateral security now held or which may hereafter be held as security for the
payment of this Note.

 

This Note is the Revolving
Credit Note issued pursuant to the terms of the Loan Agreement and is secured
pursuant to the provisions of certain “Security Documents” referred to in the
Loan Agreement.  This Note is entitled to
all of the benefits of the Loan Agreement and said Security Documents,
including provisions governing the payment and the acceleration of maturity
hereof, which agreements and instruments are hereby incorporated by reference
herein and made a part hereof.  The
occurrence and continuance of an Event of Default thereunder shall constitute a
default under this Note and shall entitle the Payee to accelerate the entire
indebtedness hereunder and take such other action as may be provided for in the
Loan Agreement and/or any and all other instruments evidencing and/or securing
the indebtedness under this Note, or as may be provided under the law.

 

In the event that any holder
of this Note shall, during the continuance of any Event of Default, exercise or
endeavor to exercise any of its remedies hereunder or under the Loan Agreement
or any of the Security Documents, the Maker shall pay all costs and expenses
incurred in connection therewith, including, without limitation, reasonable
attorneys’ fees, all of which costs and expenses shall be obligations under and
part of this Note; and the holder hereof may take judgment for all such amounts
in addition to all other sums due hereunder.

 

No consent or waiver by the
holder hereof with respect to any action or failure to act which, without such
consent or waiver, would constitute a breach of any provision of this Note
shall be valid and binding unless in writing and signed by the Maker and by the
holder hereof.

 

All agreements between the
Maker and the Payee are hereby expressly limited to provide that in no
contingency or event whatsoever, whether by reason of acceleration of maturity
of the indebtedness evidenced hereby or otherwise, shall the amount paid or
agreed to be paid to the Payee for the use, forbearance or detention of the
indebtedness evidenced hereby exceed the maximum amount which the Payee is
permitted to receive under applicable law. 
If, from any circumstances whatsoever, fulfillment of any provision
hereof or of any of the Security Documents or the Loan Agreement, at the time
performance of such provision shall be due, shall involve transcending the
limit of validity prescribed by law, then, ipso  facto, the
obligation to be fulfilled shall automatically be reduced to the limit of such
validity, and if from any circumstance the Payee shall ever receive as interest
an amount which would exceed the highest lawful rate, such amount which would
be excessive interest shall be applied to the reduction of the principal 

 

2

 

balance
of any of the Maker’s Obligations (as such term is defined in the Loan Agreement)
to the Payee, and not to the payment of interest hereunder.  To the extent permitted by applicable law,
all sums paid or agreed to be paid for the use, forbearance or detention of the
indebtedness evidenced by this Note shall be amortized, prorated, allocated and
spread throughout the full term of such indebtedness until payment in full, to
the end that the rate or amount of interest on account of such indebtedness
does not exceed any applicable usury ceiling. 
As used herein, the term “applicable law” shall mean the law in effect
as of the date hereof, provided, however, that in the event there
is a change in the law which results in a higher permissible rate of interest,
then this Note shall be governed by such new law as of its effective date.  This provision shall control every other
provision of all agreements between the Maker and the Payee.

 

This Note shall be governed by and construed
in accordance with the laws of the State of New York, except to the extent that
such laws are superseded by Federal enactments.

 

The Maker hereby consents to the jurisdiction
of all courts of the State of New York and the United States District Court for
the Southern District of New York, as well as to the jurisdiction of all courts
from which an appeal may be taken from such courts, for the purpose of any
suit, action or other proceeding arising out of or with respect to this
Note.  The Maker hereby waives the right
to interpose any counterclaims (other than compulsory counterclaims) in any
action brought by the Payee hereunder, provided that this waiver shall not
preclude the Maker from pursuing any such claims by means of separate
proceedings.  THE MAKER HEREBY EXPRESSLY
WAIVES ANY AND ALL OBJECTIONS WHICH IT MAY HAVE AS TO VENUE IN ANY OF SUCH
COURTS, AND ALSO WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING.  The Payee may file a copy of
this Note as evidence of the foregoing waiver of right to jury trial.

 

In the event that the Payee shall place this
Note in the hands of an attorney for collection during the continuance of any
Event of Default, the Maker shall further be liable to the Payee for all costs
and expenses (including reasonable attorneys fees) which may be incurred by the
Payee in enforcing this Note, all of which costs and expenses shall be
obligations under and part of this Note; and the Payee may take judgment for
all such amounts in addition to all other sums due hereunder.

 

IN WITNESS WHEREOF, the Maker has
caused this Note to be executed by its duly authorized officer as of the date
first set forth above.

 

	
  CRDENTIA
  CORP.

  
	
   

  
	
  By:

  	
  /s/ John B. Kaiser

  
	
  Name:

  	
  John B. Kaiser

  
	
  Title:

  	
  Chief Exective Officer

  

 

3

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