Document:

Exhibit
        10.3 

       

      FACTORING
        AGREEMENT

      

      THIS
        FACTORING AGREEMENT (“Agreement”) is made and entered into as of this
        4TH
        day of
        November 2005, by and between ATSI COMMUNICATIONS, INC., a Nevada
        corporation,
        with
        principal offices and mailing address at
        8600
        Wurzbach, Suite 700W, San Antonio, Texas 78240
        (hereinafter called the "Seller"), and CSI BUSINESS FINANCE, INC., a Texas
        corporation, with offices at 109 North Post Oak Lane, Suite 422, Houston,
        Harris
        County, Texas 77024 (hereinafter called "CSI");

      

      W I T N E&#
160;S S E T H:

      

      WHEREAS,
        CSI is engaged in, among other things, the business of purchasing accounts
        receivable and other rights to payment from persons or firms selling goods
        or
        rendering services to others, and Seller desires from time to time to sell
        accounts receivable and other rights to CSI pursuant to the terms of this
        Agreement;

      

      NOW
        THEREFORE, for and in consideration of the mutual promises herein contained,
        and
        other good and valuable consideration, the receipt and sufficiency of which
        are
        hereby acknowledged, CSI and Seller hereby agree as follows:

      

      ARTICLE
        I

      

      GENERAL
        TERMS

      

      Section
        1.01  Terms
        Defined Above.
        As used
        in this Agreement, the terms "Seller" and "CSI" shall have the meanings
        indicated above.

      

      Section
        1.02  Certain
        Definitions.
        As used
        in this Agreement, the following terms shall have the following meanings,
        unless
        the context otherwise requires:

      

      “Account
        Debtor” shall mean the party or parties obligated to pay an
        Account.

       

      "Accounts"
        shall
        mean the accounts receivable and other forms of rights to payment described
        on
Schedule
        A
        attached
        hereto and/or as set forth on a supplemental Schedule A to be attached in
        the
        future and signed by Seller and accepted for purchase by CSI.

      

      “Accounts
        Eligible for Purchase" shall mean accounts receivable for goods actually
        sold or
        leased by Seller or services actually performed by Seller that have not been
        pledged to any party other than CSI (except for Liens permitted under Section
        5.02 hereof), after deducting (a) the amount on all such accounts unpaid
        for
        ninety (90) days or more after the date of original invoice, (b) the amount
        of
        all discounts, allowances, rebates, credits and adjustments to such accounts,
        (c) all contra-accounts, setoffs, defenses or counterclaims asserted by or
        available to the Persons obligated on such accounts, (d) all such accounts
        owing
        by officers or employees of the Seller or by Subsidiaries or any other Person
        in
        which the Seller may have an equity interest, (e) all such accounts owed
        by
        Account Debtors which are insolvent, in any bankruptcy proceeding, or otherwise
        which CSI, in its sole discretion, deems not acceptable, (f) all such accounts
        for which twenty percent (20%) of the outstanding aggregate balance owed
        by any
        Account Debtor, is unpaid for ninety (90) days or more after the date of
        the
        original invoices unless the account debtor is an United States Government
        agency or an investment grade Account Debtor, (g) the amount owed
        by any
        Account Debtor on such accounts which exceeds twenty-five percent (25%) of
        the
        total of all Accounts Eligible for Purchase of the Seller, and (h) accounts
        where the Account Debtor is a foreign entity. The term “Accounts Eligible for
        Purchase” shall include Accounts that have already been purchased by CSI
        hereunder unless and until such Accounts are actually collected or would
        otherwise be excluded pursuant to clauses (a) through (h) above. 

      

      
        
          
          

        

        
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      Standards
        of eligibility may be set and may be revised, and reserves may be established,
        from time to time solely by CSI in its exclusive judgment.

      

      "Affiliate"
        shall mean any Person controlling, controlled by or under common control
        with
        any other Person. For purposes of this definition, "control" (including
        "controlled by" and "under common control with") means the possession, directly
        or indirectly, of the power to direct or cause the direction of the management
        and policies of such Person, whether through the ownership of voting securities
        or otherwise. Without limiting the generality of the foregoing, for purposes
        of
        this Agreement, Seller, Guarantors, and each of their respective Subsidiaries
        shall be deemed to be Affiliates of one another.

      

      “Agreed
        Due Date” shall mean 30 days after the date the invoice leading to the Account
        was originally issued by Seller, unless otherwise agreed in writing between
        CSI
        and Seller.

      

      "Agreement"
        shall mean this Factoring Agreement, as the same may from time to time be
        amended or supplemented.

      

      "Business
        Day" shall mean Banking Day as such term is defined in section 4.104 of the
        UCC.

      

      “Clearance
        Days” means the actual number of days after a payment is made for the payment
        to
        clear CSI’s bank, but not less than three (3) business days.

      

      "Closing"
        shall mean the date and time for closing the transaction contemplated hereby,
        described in Section 7.01 hereof.

       

      "Commitment"
        shall mean the obligation of CSI to consider the purchase of Seller’s accounts
        receivable under Section 2.01 hereof, up to the amount of the Maximum Committed
        Funds.

       

      "Default"
        shall mean the occurrence of any of the events specified in Article VI hereof,
        whether or not any requirement for notice or lapse of time or other condition
        precedent has been satisfied.

       

      “Deferred
        Purchase Price” means any portion of the Purchase Price of an Account that is
        deferred at the request of Seller and at Seller’s sole discretion pursuant to
        Section 2.05. Any amount of the Purchase Price that is deferred shall
be
        available upon request of Seller except to the extent that as a result of
        such
        request, the Accounts Eligible for Purchase would be rendered less than the
        Funds Employed following payment of the Deferred Purchase
        Price.

    

     

    
      
        
        

      

      
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    "DTPA"
      shall mean the Texas Deceptive Trade Practices-Consumer Protection Act,
      Subchapter E of Chapter 17 of the Texas Business and Commerce Code.

    

    "ERISA"
      shall mean the Employee Retirement Income Security Act of 1974, as
      amended.

    

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

    

    "Financial
      Statements" shall mean the consolidated and consolidating financial statement
      or
      statements of the Seller and its Subsidiaries delivered to CSI pursuant to
      Section 3.06 hereof.

    

    "Funding
      Date" shall mean the date upon which CSI initially purchases any Accounts
      pursuant to this Agreement.

    

    "Lien"
      shall mean any interest in Property securing an obligation owed to, or a claim
      by, a Person other than the owner of the Property, whether such interest is
      based on the common law, statute or contract, and including but not limited
      to
      the security interest or lien arising from a mortgage, security agreement,
      deed
      of trust, assignment, collateral mortgage, chattel mortgage, encumbrance,
      pledge, conditional sale or trust receipt or a lease, consignment, bailment
      for
      security purposes or certificate of title lien. The term "Lien" shall include
      reservations, exceptions, encroachments, easements, rights-of-way, covenants,
      conditions, restrictions, leases and other title exceptions and encumbrances
      affecting Property. For the purposes of this Agreement, the Seller or any
      Subsidiary shall be deemed to be the owner of any Property which it has acquired
      or holds subject to a conditional sale agreement, financing lease or other
      arrangement pursuant to which title to the Property has been retained by or
      vested in some other Person for security purposes.

    

    "Maximum
      Committed Funds" shall mean the maximum amount of funds CSI has agreed to employ
      in the purchase of Accounts pursuant hereto, which amount shall not exceed
      One
      Hundred Fifty Thousand and No/100 Dollars ($150,000.00).

    

    “Net
      Funds Employed” shall mean the sum of (i) the aggregate funds paid by CSI for
      Accounts that remain outstanding or for which the amount of such Accounts has
      not been paid to CSI plus (ii) all fees and other amounts owed by Seller to
      CSI
      pursuant to this Agreement. 

    

    “New
      Accounts Eligible for Purchase” shall mean Accounts Eligible for Purchase other
      than those that have already been purchased by CSI pursuant hereto.

    

    
      
        
        

      

      
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    "Obligations"
      shall mean any and all amounts owing or to be owing by the Seller pursuant
      to
      this Agreement or the other Security Instruments to CSI, and other obligations
      of the Seller to CSI from time to time existing, whether in connection with
      this
      or other transactions; provided, however, under no circumstances shall the
      funds
      paid to Seller in consideration of the sale of Accounts to CSI be deemed
      Obligations.

    

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

    

    "Plan"
      shall mean any Plan subject to Title IV of ERISA and maintained by the Seller
      or
      any Subsidiary, or any such plan to which the Seller or any Subsidiary is
      required to contribute on behalf of its employees.

    

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

    

    "Purchase
      Price" shall have the meaning specified in Section 2.05 hereof.

    

    "RICO"
      shall mean the Racketeer Influence and Corrupt Organization Act of 1970, as
      amended.

    

    "Reserve
      Account" shall have the meaning specified in Section 2.05 hereof.

    

    "Security
      Instruments" shall mean this Agreement, the agreements or instruments described
      or referred to in Sections 7.08, 7.09 and 7.11 hereof, and any and all other
      agreements or instruments now or hereafter executed and delivered by the Seller,
      any Subsidiary or any other Person (other than solely by CSI) in connection
      with, or as security for the payment or performance of, the
      Obligations.

    

    "Subsidiary"
      shall mean any corporation of which more than fifty percent (50%) of the issued
      and outstanding securities having ordinary voting power for the election of
      directors is owned or controlled, directly or indirectly, by the Seller and/or
      one or more of its subsidiaries and/or one or more shareholders of the Seller;
      provided, that any such corporation of which more than fifty percent (50%)
      of
      such securities is owned by the shareholders of the Seller, and none of which
      securities are owned by the Seller or any subsidiary of the Seller, shall not
      be
      deemed a Subsidiary hereunder.

    

    "Termination
      Date" shall mean one year from the date of this Agreement.

    

    “Validity
      Guarantors” shall mean Arthur L. Smith and Antonio Estrada, collectively.

    

    Section
      1.03  Accounting
      Principles.
      Where
      the character or amount of any asset or liability or item of income or expense
      is required to be determined or any consolidation or other accounting
      computation is required to be made for the purposes of this Agreement, this
      shall be done in accordance with generally accepted accounting principles,
      consistently applied, except where such principles are inconsistent with the
      requirements of this Agreement.

    

    
      
        
        

      

      
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    ARTICLE
      II

     

    PURCHASE
      AND SALE OF ACCOUNTS

    

    Section
      2.01 Purchase
      and Sale of Accounts Receivable and other Rights.
      At each
      occasion in which Seller desires to sell Accounts to CSI and on such other
      occasions as shall be requested by CSI, Seller shall complete a document in
      the
      form of Schedule
      A
      attached
      hereto. Such Schedule
      A
      shall
      set forth all New Accounts Eligible for Purchase for which Seller is submitting
      to CSI for purchase, and shall also include an up to date listing of all
      Accounts Eligible for Purchase. This schedule shall be certified by the
      president or the chief financial officer of Seller as being true and correct,
      to
      the best of their knowledge, as of the date thereof. Seller covenants and agrees
      that at no time shall the Net Funds Employed exceed seventy-five percent (75.0
      %) of all Accounts Eligible for Purchase (as may be adjusted from time to time
      by CSI in its sole discretion). CSI may elect at any time to return back to
      Seller and charge back any outstanding Account that is no longer an Account
      Eligible for Purchase. Upon CSI’s election to return and charge-back an Account
      that is no longer an Account Eligible for Purchase, Seller shall pay to CSI
      the
      face amount of the invoice less any payments theretofore received on such
      invoice by CSI. In order to fund such return and charge-back, CSI may, at its
      option, take any one or more of the following actions: (a) charge the
      Reserve Account for such amount, (b) subtract such amount from the Purchase
      Price for the next Account sold by Seller to CSI, or (c) otherwise invoice
      Seller for such amount, with such invoice being payable upon receipt. Upon
      payment to CSI of such amount, CSI shall assign, transfer, convey and deliver
      such Account to Seller without recourse. Acceptance of one or more Accounts
      listed on a Schedule
      A
      by CSI
      shall be evidenced by notation on the internal records of CSI and the funding
      (whether through payment to Seller or credit against obligations of Seller
      to
      CSI as provided herein) of the Purchase Price of the purchased Account to
      Seller. All purchased Accounts shall be subject in all respects to the terms
      of
      this Agreement. The parties agree that the transactions contemplated by
      Agreement are each an “Account Purchase Transaction” as that term is used in
      section 306.001 of the Texas Finance Code.

    

    Section
      2.02 Transfer
      of Related Interests.
      In
      addition to the Accounts, Seller hereby sells, assigns, transfers, conveys
      and
      delivers to CSI all other rights, title and interests (but not obligations)
      now
      or hereafter existing in connection with the Accounts, including, but not
      limited to, liens, security interests and guarantees securing payment of the
      Accounts, Seller's interest in returned goods arising with respect to the
      Accounts, and all other rights and remedies of Seller related to the Accounts
      such as rights of stoppage in transit, replevin, reclamation and lawsuits to
      collect the Accounts. If any Account is ever represented by a promissory note
      or
      other written evidence of obligation, Seller shall endorse and deliver the
      same
      to CSI and take any other action requested by CSI to effectuate such
      transfer.

    

    Section
      2.03 Further
      Assurances.
      Seller
      agrees to execute and deliver to CSI such notices of assignment and other
      documents as CSI may request from time to time to further document the sale
      and
      assignment of Accounts hereunder.

    

    Section
      2.04 Terms
      - Seller's Customers.
      Except
      as may otherwise be agreed to in writing from time to time, all Accounts shall
      be due on or before the Agreed Due Date. All invoices to be purchased pursuant
      hereto will be forwarded to the Account Debtor upon delivery of the goods or
      the
      services that are the subject of the Account. Seller shall not vary the terms
      of
      sale, terms of payment, or location of payment set forth in the invoice relating
      to any Account without CSI's prior written consent, it being understood that
      any
      such Account is the property of CSI.

    

    
      
        
        

      

      
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    Section
      2.05 Purchase
      Price; Fees; Deferral of Receipt of Purchase Price; Reserve
      Account.
      The
      Purchase Price (herein so called) for Accounts shall be the gross amount of
      the
      invoice, including any miscellaneous charges such as sales taxes, less any
      early
      payment or special discounts offered to Seller's customers as previously
      disclosed to CSI (the “Adjusted Gross Amount of the Invoice”), less the fees
      that accrue to CSI hereunder as provided herein. At the option of Seller and
      upon notice to CSI, Seller shall be permitted to defer receipt of a portion
      of
      the Purchase Price following the sale of any of its Accounts hereunder, and
      CSI
      shall thereafter pay to Seller the Deferred Purchase Price upon reasonable
      notice from Seller so long as the payment of such Deferred Purchase Price at
      the
      time of request does not otherwise place Seller in default of its obligations
      under this Agreement. As its fee for the purchase of Accounts, Seller shall
      pay
      to CSI on a monthly basis the
      average dollar amount of funds employed by CSI in connection with the purchase
      of Accounts from the Seller for the month, times one and five tenths percent
      (1.50%). In
      addition, there shall be subtracted from each payment for an Account an amount
      equal to twenty-five percent (25.0%) of the Adjusted Gross Amount of the
      Invoice, which amount shall stand as a reserve securing the payment of the
      fees
      and other amounts which Seller shall be obligated to pay hereunder or pursuant
      to any other Security Instrument (such reserve being referred to herein as
      the
“Reserve Account”). The balance in the Reserve Account shall at all times be
      maintained in a minimum amount equal to no less than twenty-five percent (25.0%)
      of the aggregate gross amount of all Accounts outstanding at a particular time;
      provided, however, (i) the applicable percentage deduction from the Purchase
      Price described above may be increased as necessary to maintain such minimum
      balance, and (ii) the amount required to be maintained in the Reserve Account
      as
      a percentage of the gross amount of all Accounts outstanding may be increased
      or
      decreased upon notice by CSI to Seller in CSI’s sole discretion. Upon request of
      Seller, CSI shall release to Seller amounts, if any, in the Reserve Account
      in
      excess of the balance required pursuant to this Section 2.05. While the reserve
      provided for herein is referred to as the Reserve Account, Seller acknowledges
      that the Reserve Account shall actually be a series of journal entries on the
      books and records of CSI, and that no actual segregated bank account will exist
      with the funds represented by the Reserve Account. The Reserve Account shall
      accrue no interest. Notwithstanding the foregoing, to the extent Seller defers
      receipt of a portion of the purchase price as permitted above, CSI may reduce
      the amount retained in the Reserve Account for such Account upon purchase of
      such Account during the deferral period.

     

    Section
      2.06  Termination
      of Commitment.
      Notwithstanding anything to the contrary contained herein or in any of the
      other
      Security Instruments, CSI may, (a) at any time, and from time to time, in its
      sole discretion, refuse to purchase any particular account receivable hereunder,
      or (b) upon giving the Seller at least sixty (60) days' prior notice, at any
      time terminate its Commitment to purchase accounts hereunder. The rights of
      CSI
      under this Section 2.06 are in addition to the rights of CSI to terminate the
      Commitment pursuant to Section 6.02 hereof.

    

    Section
      2.07 Early
      Termination Fee.
      In view
      of the impracticability and extreme difficulty of ascertaining actual damages
      and by mutual agreement of the parties as to a reasonable calculation of CSI’s
      lost profits as a result of early termination of this Agreement, Seller shall
      pay CSI upon the effective date of such termination, a fee of Ten Thousand
      and
      No/100 Dollars ($10,000.00) (the “Termination Fee”), if, prior to the
      Termination Date, Seller (i) defaults under this Agreement and CSI terminates
      its Commitment hereunder and requires the repurchase of Accounts hereunder
      as
      permitted pursuant to Section 6.02, (ii) fails to continue to offer accounts
      receivable to CSI for purchase in the ordinary course of business pursuant
      to
      this Agreement prior to the Termination Date, or (iii) terminates this
      Agreement; provided, however, Seller agrees that under no circumstances shall
      it
      terminate this agreement absent the providing of thirty (30) days written notice
      to CSI of such termination. 

    

    
      
        
        

      

      
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    Section
      2.08 Application
      and Documentation Fees.
      Seller
      shall pay to CSI an application fee in the amount of One Thousand and No/100
      Dollars ($1,000.00), and a documentation fee of Two Thousand Five Hundred and
      No/100 Dollars ($2,500.00). Such fees shall be due and payable on the date
      specified in Section 7.01 hereof.

    

    Section
      2.09 Minimum
      Committed Funds.
      So long
      as CSI’s commitment pursuant to this Agreement is continuing, Seller shall at
      all times have a sufficient quantity of outstanding Accounts that have been
      sold
      to CSI hereunder such that the minimum Net Funds Employed committed by CSI
      pursuant to this Agreement shall be One Hundred Fifty Thousand and No/100
      ($150,000.00). Seller shall not elect to defer any portion of the Purchase
      Price
      at such times as the Net Funds Employed under this Agreement are less than
      the
      minimum Net Funds Employed requirements described in the previous sentence.
      This
      Section 2.09 shall not be read so as to require CSI to purchase or continue
      to
      own any Accounts that would not constitute Accounts Eligible for
      Purchase. 

    

    Section
      2.10 Clearance
      Days.
      For all
      purposes under this Agreement, Clearance Days will be added to the date on
      which
      any payment is received by CSI.

    

    ARTICLE
      III

     

    REPRESENTATIONS
      AND WARRANTIES

    

    In
      order
      to induce CSI to enter into this Agreement, the Seller represents and warrants
      to CSI that:

    

    Section
      3.01  Corporate
      Existence.
      The
      Seller and each Subsidiary is a corporation duly organized, legally existing
      and
      in good standing under the laws of the jurisdiction in which it is incorporated
      and is duly qualified as a foreign corporation in all jurisdictions wherein
      it
      maintains a place of business.

    

    Section
      3.02  Corporate
      Power and Authorization.
      The
      Seller is duly authorized and empowered to enter into this Agreement and
      continue to sell Accounts pursuant to the terms hereof; and the Seller and
      each
      Subsidiary is duly authorized and empowered to execute, deliver and perform
      the
      Security Instruments, including this Agreement, to which it is a party; and
      all
      corporate action on the Seller's or any Subsidiary's part requisite due
      execution, delivery and performance of the Security Instruments, including
      this
      Agreement, to which the Seller or any Subsidiary is a party has been duly and
      effectively taken. The Board of Directors of the Seller acting pursuant to
      a
      duly called and constituted meeting, after proper notice, or pursuant to valid
      and unanimous consent, has determined (i) that entry into and performance of
      this Agreement and each of the other documents to which the Seller is a party,
      directly or indirectly benefits the Seller and (ii) that adequate and fair
      consideration and reasonably equivalent value has been received by the Seller
      to
      execute and perform this Agreement and each of the other documents to which
      it
      is a party.

    

    Section
      3.03  Binding
      Obligations.
      This
      Agreement does, and the other Security Instruments to which the Seller and
      any
      Subsidiaries are parties upon their execution and delivery will, constitute
      valid and binding obligations of the Seller or the Subsidiary, as the case
      may
      be, enforceable in accordance with their terms.

    

    
      
        
        

      

      
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    Section
      3.04  No
      Legal Bar or Resultant Lien.
      The
      Security Instruments, including this Agreement, to which the Seller or any
      Subsidiary is a party, do not and will not violate any provisions of the
      articles or certificates of incorporation or bylaws of the Seller or any such
      Subsidiary, or any contract, agreement, law, regulation, order, injunction,
      judgment, decree or writ to which the Seller or such Subsidiary is subject,
      or
      result in the creation or imposition of any Lien upon any Properties of the
      Seller or such Subsidiary, other than those contemplated by this
      Agreement.

    

    Section
      3.05  No
      Consent.
      The
      execution, delivery and performance of the Security Instruments, including
      this
      Agreement, to which the Seller or any Subsidiary is a party do not require
      the
      consent or approval of any other Person, including without limitation any
      regulatory authority or governmental body of the United States or any state
      thereof or any political subdivision of the United States or any state
      thereof.

    

    Section
      3.06  Financial
      Condition.
      The
      audited consolidated and consolidating financial statements of the Seller and
      its Subsidiaries dated July 31, 2005, which have been delivered to CSI, are
      complete and correct in all material respects, and have been prepared in
      accordance with generally accepted accounting principles, consistently applied,
      and fully and accurately reflect the financial condition and results of the
      operations of the Seller and its Subsidiaries as at the date or dates and for
      the period or periods stated (subject only to normal year-end audit adjustments
      with respect to any unaudited interim statements). No material adverse change,
      either in any case or in the aggregate, has since occurred in the condition,
      financial or otherwise, of the Seller or any Subsidiary, except as disclosed
      to
      CSI in writing.

    

    Section
      3.07  Investments
      and Guaranties.
      Neither
      the Seller nor any Subsidiary has made investments in, advances to or guaranties
      of the obligations of any Person, except as reflected in the Financial
      Statements or disclosed to CSI in writing.

    

    Section
      3.08  Issuance
      of Stock.
      Unless
      otherwise previously disclosed by Seller, there are no outstanding
      subscriptions, warrants, options, calls, commitments, convertible securities
      or
      other agreements to which Seller is a party or by which it is bound, calling
      for
      the issuance of any capital stock or securities convertible into capital stock
      of Seller. From and after the date of this Agreement, Seller shall provide
      Factor with written notice thirty (30) days prior to the issuance of any
      additional subscriptions, warrants, option, calls, commitment, convertible
      securities or other agreement to which Seller is a party or by which it is
      bound, calling for the issuance of any capital stock or securities convertible
      into capital stock of Seller.

    

    Section
      3.09  Liabilities.
      Except
      for liabilities incurred in the normal course of business, neither the Seller
      nor any Subsidiary has any material (individually or in the aggregate)
      liabilities, direct or contingent, except as disclosed or referred to in the
      Financial Statements or as disclosed to CSI in writing. Except as described
      in
      the Financial Statements, or as otherwise disclosed to CSI in writing, there
      is
      no litigation, legal or administrative proceeding, investigation or other action
      of any nature pending or, to the knowledge of the Seller, threatened against
      or
      affecting the Seller or any Subsidiary which involves the possibility of any
      judgment or liability not fully covered by insurance, and which may materially
      and adversely affect the business or the Properties of the Seller or any
      Subsidiary or their ability to carry on business as now conducted.

    

    
      
        
        

      

      
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    Section
      3.10  Taxes;
      Governmental Charges.
      The
      Seller and each Subsidiary has filed all tax returns and reports required to
      be
      filed and has paid all taxes, assessments, fees and other governmental charges
      levied upon it.

    

    Section
      3.11  Titles,
      etc.
      The
      Seller and each Subsidiary has good title to its respective material
      (individually or in the aggregate) Properties, free and clear of all Liens
      except those referred to in the Financial Statements.

    

    Section
      3.12  Defaults.
      Neither
      the Seller nor any Subsidiary is in default (in any respect which materially
      and
      adversely affects its respective business, Properties, operations or condition,
      financial or otherwise) under any indenture, mortgage, deed of trust, agreement
      or other instrument to which the Seller or any Subsidiary is a party or by
      which
      the Seller or any Subsidiary is bound, except as disclosed to CSI in writing.
      No
      Default hereunder
      has occurred and is continuing.

    

    Section
      3.13  Compliance
      with the Law.
      Neither
      the Seller nor any Subsidiary:

    

    (a)
       is
      in
      violation of any law, ordinance, or governmental rule or regulation to which
      the
      Seller or any Subsidiary or any of their respective Properties are subject
      including but not limited to those laws, ordinances and governmental rules
      and
      regulations regarding employee wages and overtime;

    

    (b)
       has
      failed to obtain any license, permit, franchise or other governmental
      authorization necessary to the ownership of any of their respective Properties
      or the conduct of their respective businesses; which violation or failure might
      adversely affect the business, prospects, profits, Properties or condition
      (financial or otherwise) of the Seller or any Subsidiary.

    

    Section
      3.14  ERISA.
      The
      Seller and its Subsidiaries are in compliance in all material respects with
      the
      applicable provisions of ERISA, and no "reportable event," as such term is
      defined in Section 4043 of ERISA, has occurred with respect to any Plan of
      the
      Seller or any Subsidiary.

    

    Section
      3.15 Subsidiaries.
      The
      Seller has two known Subsidiaries, being Telefamilia Communications, Inc.,
      and
      Digerati Networks, Inc. each a Texas corporation.

    

    Section
      3.16 RICO.
      The
      Seller is not in violation of any laws, statutes or regulations, including,
      without limitation, RICO, which contain provisions which could potentially
      override CSI's security interest in the Collateral (as that term is defined
      in
      the Security Instruments).

    

    ARTICLE
      IV

    

    AFFIRMATIVE
      COVENANTS

    

    A
      deviation from the provisions of this Article IV shall not constitute a Default
      under this Agreement if such deviation is consented to in writing (in the manner
      hereinafter provided in Section 9.02) by CSI. Without the prior written consent
      of CSI, the Seller will at all times comply with the covenants contained in
      this
      Article IV, from the date hereof and for so long as any Obligations or the
      Commitment is outstanding.

    

    
      
        
        

      

      
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    Section
      4.01  Financial
      Statements and Reports.
      The
      Seller and the Subsidiaries will promptly furnish to CSI from time to time
      upon
      request such information regarding the business and affairs and financial
      condition of the Seller and its Subsidiaries as CSI may reasonably request,
      and
      will furnish to CSI:

    

    (a)
       Annual
      Financial Statements.
      As soon
      as available and in any event within ninety (90) days after the close of each
      fiscal year of the Seller, the reviewed consolidated and consolidating balance
      sheets of the Seller and its Subsidiaries as at the end of such year and the
      reviewed consolidated and consolidating operating statements of the Seller
      and
      its Subsidiaries as at the end of such year (showing income, expenses and
      surplus), setting forth in each case in comparative form figures for the
      previous fiscal year, all prepared in accordance with generally accepted
      accounting principles and reviewed by an independent certified public accountant
      acceptable to CSI;

    

    (b)
       Monthly
      Financial Statements.
      As soon
      as available and in any event within twenty (20) days after the end of each
      calendar month, the consolidated and consolidating balance sheets of the Seller
      and its Subsidiaries as at the end of such month and the consolidated and
      consolidating operating statements of the Seller and its Subsidiaries for such
      month (showing income, expenses and surplus for such month and for the period
      from the beginning of the fiscal year to the end of such month), all prepared
      in
      accordance with generally accepted accounting principles, certified by the
      principal financial officer of the Seller; 

    

    (c)
       Accounts
      Agings.
      As soon
      as available and in any event within ten (10) days after the end of each
      calendar month and with each Schedule
      A,
      an
      aging of all accounts payable and accounts receivable, showing each such account
      which is thirty (30), sixty (60), ninety (90) and over ninety (90) days past
      due
      (such listing to include Accounts that have been purchased by CSI as well as
      accounts that continue to be owned by Seller);

    

    (d) Inventory
      Perpetual.
      On or
      before the first Business Day of each week, a perpetual inventory schedule
      as of
      the end of the preceding week; and 

    

    (e) New
      Accounts Eligible for Purchase.
      On or
      before the first Business Day of each week, a report of Accounts Eligible for
      Purchase in the form described in Section 2.01 above, together with cash receipt
      journals, sales journals and backup for all miscellaneous credits and debits
      which support such report (as well as copies of checks and invoices for new
      billings if requested by CSI). Such report shall also reflect (i) the amount
      of
      sales and receipts of Seller during the preceding week, (ii) all new accounts
      receivable generated by such sales, including the name, invoice amount, contact
      person and telephone number of the customer generating such accounts receivable,
      and (iii) such other information as CSI may reasonably request.

    

    All
      such
      balance sheets and other financial statements referred to in this Section 4.01
      above shall be in such detail as CSI may reasonably request and shall conform
      to
      generally accepted accounting principles applied on a basis consistent with
      those of the Financial Statements, except only for such changes in accounting
      principles or practice with which independent certified public accountants
      concur.

    

    
      
        
        

      

      
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    Section
      4.02  Compliance
      with Laws; Payment of Taxes and Other Claims.
      The
      Seller will and will cause each Subsidiary to observe and comply with (a) all
      laws, statutes, codes, acts, ordinances, rules, regulations, directions and
      requirements of all federal, state, county, municipal and other governments,
      departments, commissions, boards, courts, authorities, officials and officers
      applicable to it and where the failure to observe or comply would have a
      material adverse effect on the condition, financial or otherwise, of Seller;
      and
      (b) pay and discharge promptly all taxes, assessments and governmental charges
      or levies imposed upon the Seller or any Subsidiary or upon the income or any
      Property of the Seller or any Subsidiary as well as all claims of any kind
      (including claims for labor, materials, supplies and rent) which, if unpaid,
      might become a lien upon any or all of the Property of the Seller or any
      Subsidiary; provided, however, that, subject to the written approval of CSI,
      neither the Seller nor any Subsidiary shall be required to pay any such tax,
      assessment, charge, levy or claim if the amount, applicability or validity
      thereof shall currently be contested in good faith by appropriate proceedings
      diligently conducted and if the Seller or its Subsidiary shall have set up
      reserves therefor adequate under generally accepted accounting
      principles.

    

    Section
      4.03  Maintenance.
      The
      Seller will and will cause each Subsidiary to (i) maintain its corporate
      existence, rights and franchises; (ii) observe and comply with all valid laws,
      statutes, codes, acts, ordinances, judgments, injunctions, rules, regulations,
      certificates, franchises, permits and licenses (including without limitation
      applicable statutes, regulations, orders and restrictions relating to
      environmental standards or controls or to energy regulations) of all federal,
      state, county, municipal and other governmental authorities; (iii) maintain
      its
      Properties (and any Properties leased by or consigned to it or held under title
      retention or conditional sales contracts) in good and workable condition
      (ordinary wear and tear excepted) at all times and make all repairs,
      replacements, additions, betterments and improvements to its Properties as
      are
      needful and proper so that the business carried on in connection therewith
      may
      be conducted properly and efficiently at all times; and (iv) maintain and keep
      books of records and accounts, all in accordance with generally accepted
      accounting principles, consistently applied, of all dealings and transactions
      in
      relation to its business and activity.

    

    Section
      4.04 Further
      Assurances.
      The
      Seller will and will cause each Subsidiary to cure promptly any defects in
      the
      execution and delivery of the Security Instruments, including this Agreement.
      The Seller at its expense will promptly execute and deliver to CSI upon request
      all such other and further documents, agreements and instruments to effectuate
      the agreements of the Seller or any of its Subsidiaries in the Security
      Instruments, including in this Agreement, or to further evidence and more fully
      describe the collateral intended as security for obligations created hereby,
      or
      to correct any omissions in the Security Instruments, or more fully to state
      the
      security obligations set out herein or in any of the Security Instruments,
      or to
      perfect, protect or preserve any Liens created pursuant to any of the Security
      Instruments, or to make any recordings, to file any notices, or obtain any
      consents, all as may be necessary or appropriate in connection
      therewith.

    

    Section
      4.05  Performance
      of Obligations.
      The
      Seller will pay its Obligations according to the reading, tenor and effect
      of
      this Agreement and the other Security Instruments; and the Seller will do and
      perform every act and discharge all of the obligations provided to be performed
      and discharged by the Seller under the Security Instruments, including this
      Agreement, at the time or times and in the manner specified, and cause each
      of
      its Subsidiaries to take such action with respect to their obligations to be
      performed and discharged under the Security Instruments to which they
      respectively are parties.

    

    Section
      4.06  Reimbursement
      of Expenses.
      The
      Seller will pay all legal fees incurred by CSI in connection with the
      preparation of this Agreement and the Security Instruments, up to Two Thousand
      Five Hundred and No/100 Dollars ($2,500.00). The Seller shall also pay all
      legal
      fees incurred by CSI in connection with amendment, interpretation,
      administration and enforcement of this Agreement and any and all other Security
      Instruments contemplated hereby. The Seller will, upon request, promptly
      reimburse CSI for all amounts expended, advanced or incurred by CSI to satisfy
      any obligation of the Seller under this Agreement or any other Security
      Instrument, or to protect the Properties or business of the Seller or any
      Subsidiary or to enforce the rights of CSI under this Agreement or any other
      Security Instrument, which amounts will include all court costs, attorneys'
      fees, fees of auditors and accountants, and investigation expenses reasonably
      incurred by CSI in connection with any such matters, together with interest
      eighteen percent (18%) per annum.

    

    
      
        
        

      

      
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    Section
      4.07  Insurance.
      The
      Seller and each Subsidiary now maintains and will continue to maintain with
      financially sound and reputable insurers, insurance with respect to its
      respective Properties and businesses against such liabilities, casualties,
      risks
      and contingencies and in such types and amounts as is customary in the case
      of
      corporations engaged in the same or similar businesses and similarly situated
      but in any event, all fixed assets of the Seller shall be insured for their
      fair
      replacement value. All such policies shall name CSI as loss payee. Upon request
      of CSI, the Seller will furnish or cause to be furnished to CSI from time to
      time a summary of the insurance coverage of the Seller and its Subsidiaries
      in
      form and substance satisfactory to CSI and if requested will furnish CSI copies
      of the applicable policies.

    

    Section
      4.08  Right
      of Inspection.
      The
      Seller will permit and will cause each Subsidiary to permit any officer,
      employee or agent of CSI to visit and inspect any of the Properties of the
      Seller or any Subsidiary, to conduct at least three (3) field reviews each
      year,
      to examine the Seller's or any Subsidiary's books of record and accounts, to
      take copies and extracts therefrom, and to discuss the affairs, finances and
      accounts of the Seller or any Subsidiary with the Seller's or Subsidiary's
      current and former officers, employees, accountants and auditors, all at such
      times and as often as CSI may desire. The Seller shall reimburse CSI for all
      of
      CSI's out-of-pocket expenses in connection with the field reviews.

    

    Section
      4.09  Notice
      of Certain Events.
      The
      Seller shall promptly notify CSI if the Seller learns of the occurrence of
      (i)
      any event which constitutes a Default, together with a detailed statement by
      a
      responsible officer of the Seller of the steps being taken to cure the effect
      of
      such Default; or (ii) the receipt of any notice from, or the taking of any
      other
      action by, the holder of any promissory note, debenture or other evidence of
      indebtedness of the Seller or any Subsidiary or of any security (as defined
      in
      the Securities Act of 1933, as amended) of the Seller or any Subsidiary with
      respect to a claimed default, together with a detailed statement by a
      responsible officer of the Seller specifying the notice given or other action
      taken by such holder and the nature of the claimed default and what action
      the
      Seller or its Subsidiary is taking or proposes to take with respect thereto;
      or
      (iii) any legal, judicial or regulatory proceedings affecting the Seller or
      any
      Subsidiary or any of the Properties of the Seller or any Subsidiary in which
      the
      amount involved is material and is not covered by insurance or which, if
      adversely determined, would have a material and adverse effect on the business
      or the financial condition of the Seller or any Subsidiary; or (iv) any dispute
      between the Seller or any Subsidiary and any governmental or regulatory body
      or
      any other Person which, if adversely determined, might materially interfere
      with
      the normal business operations of the Seller or any Subsidiary; or (v) any
      material adverse changes, either in any case or in the aggregate, in the assets,
      liabilities, financial condition, business, operations, affairs or circumstances
      of the Seller or any Subsidiary, from those reflected in the Financial
      Statements or by the facts warranted or represented in any Security Instrument,
      including this Agreement.

    

    
      
        
        

      

      
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    Section
      4.10  ERISA
      Information and Compliance.
      The
      Seller will promptly furnish to CSI (i) if requested by CSI, promptly after
      the
      filing thereof with the United States Secretary of Labor or the Pension Benefit
      Guaranty Corporation, copies of each annual and other report with respect to
      each Plan or any trust created thereunder, and (ii) immediately upon becoming
      aware of the occurrence of any "reportable event," as such term is defined
      in
      Section 4043 of ERISA, or of any "prohibited transaction," as such term is
      defined in Section 4975 of the Internal Revenue Code of 1986, as amended, in
      connection with any Plan or any trust created thereunder, a written notice
      signed by the President or the principal financial officer of the Seller
      specifying the nature thereof, what action the Seller or any of its Subsidiaries
      is taking or proposes to take with respect thereto, and, when known, any action
      taken by the Internal Revenue Service with respect thereto. The Seller will
      fund, or will cause its Subsidiaries to fund, all current service pension
      liabilities as they are incurred under the provisions of all Plans from time
      to
      time in effect for the benefit of employees of the Seller or any of its
      Subsidiaries, and comply with all applicable provisions of ERISA.

    

    Section
      4.11 Environmental
      Requirements.
      Seller
      shall comply with all federal laws, state statutes, municipal ordinances and
      all
      other governmental standards, rules and regulations applicable to Seller or
      to
      its Property in respect to occupational health and safety, hazardous waste
      and
      substances and environmental matters. Seller shall promptly notify CSI of its
      receipt of any notice of a violation or an alleged violation of any such federal
      laws, state statutes, municipal ordinances or other governmental standards,
      rules or regulations. Seller shall indemnify and hold CSI harmless from all
      loss, cost, damages, claim and expense incurred by CSI on account of the
      Seller's failure to perform the obligations of this Section.

    

    ARTICLE
      V

    

    NEGATIVE
      COVENANTS

    

    A
      deviation from the provisions of this Article V shall not constitute a Default
      under this Agreement if such deviation is consented to in writing (in the manner
      hereinafter provided in Section 9.02) by CSI. Without the prior written consent
      of CSI, the Seller will at all times comply with the covenants contained in
      this
      Article V, from the date hereof and for so long as any part of the Obligations
      or the Commitment is outstanding.

    

    Section
      5.01  Debts,
      Guaranties and Other Obligations.
      Neither
      the Seller nor any Subsidiary will incur, create, assume or in any manner become
      or be liable in respect of any indebtedness (including obligations for the
      payment of rentals); and neither the Seller nor any Subsidiary will guarantee
      or
      otherwise in any way become or be responsible for obligations of any other
      Person, whether by agreement to purchase the indebtedness of any other Person
      or
      agreement for the furnishing of funds to any other Person through the purchase
      or lease of goods, supplies or services (or by way of stock purchase, capital
      contribution, advance or loan) for the purpose of paying or discharging the
      indebtedness of any other Person, or otherwise, except that the foregoing
      restrictions shall not apply to:

    

    (a) Obligations
      of Seller and its Subsidiaries pursuant to this Agreement and the other Security
      Instruments;

    

    (b) liabilities,
      direct or contingent, of the Seller and its Subsidiaries existing on the date
      of
      this Agreement which are reflected in the Financial Statements or have been
      disclosed to CSI in writing, but not any renewals and extensions
      thereof;

    

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

    (c) liabilities
      in relation to leases and lease agreements to the extent permitted by Section
      5.07 hereof;

    

    (d) endorsements
      of negotiable or similar instruments for collection or deposit in the ordinary
      course of business;

    

    (e) trade
      payables or similar obligations from time to time incurred in the ordinary
      course of business other than for borrowed money;

    

    (f) taxes,
      assessments or other government charges which are not yet due or are being
      contested pursuant to Section 4.02 hereof.

    

    Section
      5.02  Liens.
      Neither
      the Seller nor any Subsidiary will create, incur, assume or permit to exist
      any
      Lien on any of its Properties (now owned or hereafter acquired),
      except:

    

    (a) Liens
      securing the payment of any Obligations to CSI;

    

    (b) Liens
      for
      taxes, assessments, or other governmental charges not yet due or which are
      being
      contested in good faith by appropriate action promptly initiated and diligently
      conducted, if such reserve as shall be required by generally accepted accounting
      principles shall have been made therefor;

    

    (c) Liens
      of
      landlords, vendors, carriers, warehousemen, mechanics, laborers and materialmen
      arising by law in the ordinary course of business for sums not yet due or,
      subject to the written approval of CSI, being contested in good faith by
      appropriate action promptly initiated and diligently conducted, if such reserve
      as shall be required by generally accepted accounting principles shall have
      been
      made therefor;

    

    (d) Liens
      existing on Property owned by the Seller or any Subsidiary on the date of this
      Agreement which have been disclosed to CSI in writing but not any renewals
      and
      extensions thereof;

    

    (e) pledges
      or deposits made in the ordinary course of business in connection with workmen's
      compensation, unemployment insurance, social security and other like laws;
      and

    

    (f) inchoate
      liens arising under ERISA to secure the contingent liability of the Seller
      or
      any Subsidiary permitted by Section 4.10 hereof.

    

    Section
      5.03  Investments,
      Loans and Advances.
      Neither
      the Seller nor any Subsidiary will make or permit to remain outstanding any
      loans or advances to or investments in any Person, except that the foregoing
      restriction shall not apply to:

    

    (a) loans,
      advances or investments the material details of which have been set forth in
      the
      Financial Statements or have been otherwise disclosed to CSI in writing prior
      to
      the execution of this Agreement;

    

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

    (b) investments
      in direct obligations of the United States of America or any agency
      thereof;

    

    (c) investments
      in certificates of deposit issued by commercial banks in the United States
      having a combined capital and surplus in excess of One Hundred Million Dollars
      ($100,000,000.00); and

    

    (d) investments
      in commercial paper with the best rating by Standard & Poor's, Moody's
      Investors Service, Inc., or any other rating agency satisfactory to CSI issued
      by companies in the United States with a combined capital and surplus in excess
      of One Hundred Million Dollars ($100,000,000.00).

    

    Section
      5.04  Dividends,
      Distributions and Redemptions.
      The
      Seller will not declare or pay any dividend, purchase, redeem or otherwise
      acquire for value any of its stock now or hereafter outstanding, return any
      capital to its stockholders, or make any distribution of its assets to its
      stockholders as such; provided, however, if the stockholders of the Seller
      are
      subject to income taxes as a result of earnings of the Seller being taxed to
      such stockholders, the Seller may pay dividends to the stockholders to the
      extent of such income tax liability (but only to the extent not offset by
      applicable losses). 

    

    Section
      5.05  Sale
      of Properties.
      Neither
      the Seller nor any Subsidiary will sell, transfer or otherwise dispose of all
      or
      any substantial portion or integral part of its Properties except in the
      ordinary course of business, or enter into any arrangement, directly or
      indirectly, with any Person whereby the Seller or any Subsidiary shall sell
      or
      transfer any Property, whether now owned or hereafter acquired, and whereby
      the
      Seller or any Subsidiary shall then or thereafter rent or lease as lessee such
      Property or any part thereof or other Property which the Seller or any
      Subsidiary intends to use for substantially the same purpose or purposes as
      the
      Property sold or transferred.

    

    Section
      5.06  Nature
      of Business.
      Neither
      the Seller nor any Subsidiary will permit any material change to be made in
      its
      senior management employees or in the character of its business as carried
      on at
      the date hereof.

    

    Section
      5.07  Limitation
      on Leases.
      Neither
      the Seller nor any Subsidiary will create, incur, assume or suffer to exist
      any
      obligation for the payment of rent or hire of Property of any kind whatsoever
      (real or personal), under leases or lease agreements, without the prior written
      consent of CSI, except (i) leases and lease agreements for equipment used in
      the
      office operations of the Seller in an aggregate amount for the Seller and all
      Subsidiaries (determined on a consolidated basis) not to exceed $50,000 in
      any
      fiscal year of the Seller, and (ii) leases and lease agreements for real
      property at 8600 Wurzbach, Suite 700W, San Antonio, Texas 78240. 

    

    Section
      5.08 Mergers,
      Consolidations, etc.
      Neither
      the Seller nor any Subsidiary will amend its certificate or articles of
      incorporation or otherwise change its corporate name or structure, or
      consolidate with or merge into or acquire any Person, or permit any other Person
      to consolidate with or merge into or acquire the Seller or any Subsidiary or
      acquire the stock of any corporation or form any Subsidiary.

    

    Section
      5.09  ERISA
      Compliance.
      The
      Seller will not at any time permit any Plan maintained by it or any Subsidiary
      to:

    

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

    (a) engage
      in
      any "prohibited transaction" as such term is defined in Section 4975 of the
      Internal Revenue Code of 1986, as amended;

    

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

    

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

    

    Section
      5.10  Issuance
      of Stock.
      During
      the term of this Agreement, Seller will not issue any additional shares of
      stock
      without the written consent of CSI.

    

    Section
      5.11 Changes
      in Accounting Methods.
      The
      Seller will not make any change in its accounting method as in effect on the
      date of this Agreement or change its fiscal year ending date from December
      31,
      unless such changes have the prior written approval of CSI.

    

    Section
      5.12 Transactions
      With Affiliates.
      The
      Seller will not, directly or indirectly, enter into any transaction (including,
      but not limited to, the sale or exchange of property or the rendering of any
      service) with any Affiliate, other than in the ordinary course of its business
      and upon substantially the same or better terms as it could obtain in an arm's
      length transaction with a Person who is not an Affiliate.

    

    Section
      5.13 RICO.
      The
      Seller will not violate any laws, statutes or regulations, whether federal
      or
      state, for which forfeiture of its properties is a potential penalty, including,
      without limitation, RICO.

    

    ARTICLE
      VI

    

    EVENTS
      OF DEFAULT

    

    Section
      6.01  Events.
      Any of
      the following events shall be considered an "Event of Default" as that term
      is
      used herein:

    

    (a)
      Default
      in obligations hereunder.
      Default
      is made in any obligation of Seller to CSI hereunder; or

    

    (b)
      Representations
      and Warranties.
      Any
      representation or warranty made by the Seller, any Subsidiary any Guarantor
      or
      any Validity Guarantor in any Security Instrument, including this Agreement,
      proves to have been incorrect in any material respect as of the date thereof;
      or
      any representation, statement (including financial statements), certificate
      or
      data furnished or made by the Seller, any Subsidiary or any Guarantor (or any
      officer, accountant or attorney of the Seller or any Subsidiary or any
      Guarantor) under any Security Instrument, including this Agreement, proves
      to
      have been untrue in any material respect, as of the date as of which the facts
      therein set forth were stated or certified; or

    

    
      
        
        

      

      
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    (c)
      Affirmative
      Covenants.
      Default
      is made in the due observance or performance of any of the covenants or
      agreements contained in Article IV of this Agreement; or

    

    (d)
      Negative
      Covenants.
      Default
      is made in the due observance or performance by the Seller or any Subsidiary
      of
      any of the covenants or agreements contained in Article V of this Agreement;
      or

    

    (e)
      Conditions
      Precedent.
      The
      Seller fails to satisfy, or cause to be satisfied, any of the conditions
      precedent contained in Article VII hereof which are not to be completed as
      of
      the date of this Agreement; or

    

    (f)
      Other
      Security Instrument Obligations.
      Default
      is made in the due observance or performance by the Seller, any Subsidiary
      or
      any Guarantor of any of the covenants or agreements contained in any Security
      Instrument other than this Agreement, and such default continues unremedied
      beyond the expiration of any applicable grace period which may be expressly
      allowed under such Security Instrument; or

    

    (g)
      Involuntary
      Bankruptcy Proceedings.
      A
      receiver, conservator, custodian, liquidator, creditors' committee, board of
      inspectors, or trustee of the Seller, any Subsidiary or any Guarantor, or of
      any
      of their Property, is created, engaged, retained, procured, authorized, or
      appointed in the United States or under any law of any foreign country by the
      order or decree of any court or agency or supervisory authority having
      jurisdiction; or the Seller, any Subsidiary or any Guarantor becomes a debtor
      under the Bankruptcy Code of the United States or under the law of any foreign
      country, or is the subject of an order for relief, or becomes a bankrupt or
      insolvent; or any of the Seller's, any Subsidiary's or any Guarantor's Property
      is sequestered, seized, or attached in the United States or under any law of
      any
      foreign country by court order or decree; or a complaint, petition, or similar
      pleading is filed against the Seller, any Subsidiary or any Guarantor under
      any
      bankruptcy, reorganization, insolvency, readjustment of debt, dissolution,
      or
      liquidation law of any jurisdiction, in the United States or in any foreign
      country, whether such law is now in existence or hereafter in effect;
      or

    

    (h)
      Voluntary
      Petitions.
      The
      Seller, any Subsidiary or any Guarantor files a petition in bankruptcy or
      reorganization or seeks relief under any provision of any bankruptcy,
      reorganization, insolvency, readjustment of debt, dissolution, or liquidation
      law of any jurisdiction, in the United States or in any foreign country, whether
      such law is now in existence or hereafter in effect, or the Seller, any
      Subsidiary or any Guarantor is the subject of an order for relief or winding-up
      petition entered by any bankruptcy court, or the Seller or any Subsidiary or
      any
      Guarantor consents to the filing of any petition against it under any such
      law
      in the United States or in any foreign country; or

    

    (i)
      Assignments,
      Conveyances, or Transfers for Benefit of Creditors.
      The
      Seller, any Subsidiary or any Guarantor makes an assignment, conveyance, or
      transfer for the benefit of its creditors, or for the purpose of enforcing
      a
      lien against its Property, or admits in writing its inability to pay its debts
      generally as they become due, or is generally not paying its debts as such
      debts
      become due, or consents to the appointment of a custodian, receiver, trustee,
      assignee, or liquidator of all, substantially all, less than substantially
      all,
      or any part of its Property for the purpose of enforcing a lien against its
      Property; or

    

    
      
        
        

      

      
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    (j)
      Discontinuance
      of Business.
      The
      Seller or any Subsidiary discontinues its usual business; or

    

    (k)
      Default
      on Other Debt or Security.
      The
      Seller, any Subsidiary or any Guarantor fails to make any payment due on any
      indebtedness or security (as "security" is defined in the Securities Act of
      1933, as amended) or any event shall occur or any condition shall exist in
      respect of any such indebtedness or security of the Seller, any Subsidiary
      or
      any Guarantor, or under any agreement securing or relating to such indebtedness
      or security, the effect of which is (i) to cause or to permit any holder of
      such
      indebtedness or other security or a trustee to cause (whether or not such holder
      or trustee elects to cause) such indebtedness or security, or a portion thereof,
      to become due prior to its stated maturity or prior to its regularly scheduled
      dates of payment, or (ii) to permit a trustee or the holder of any security
      (other than common stock of the Seller or any Subsidiary) to elect (whether
      or
      not such holder or trustee does elect) a majority of the directors on the board
      of directors of the Seller or such Subsidiary; or

    

    (l)
      Undischarged
      Judgments.
      If
      judgment for the payment of money in excess of Ten Thousand and No/100 Dollars
      ($10,000.00) is rendered by any court or other governmental body against the
      Seller, any Subsidiary or any Guarantor and the Seller, Subsidiary or Guarantor
      does not immediately discharge the same or provide for its immediate discharge
      in accordance with its terms, or procure a stay of execution thereof within
      ten
      (10) days from the date of entry thereof, and within said period of ten (10)
      days from the date of entry thereof or such longer period during which execution
      of such judgment shall have been stayed, appeal therefrom and cause the
      execution thereof to be stayed during such appeal while providing such reserves
      therefor as may be required under generally accepted accounting principles;
      or

    

    (m)
      Insolvency.
      If the
      Seller shall be or become insolvent; or

    

    (n)
      Fraudulent
      Transfers.
      The
      Seller shall have concealed, removed, or permitted to be concealed or removed,
      any part of its Property, with intent to hinder, delay or defraud its creditors
      or any of them, or made or suffered a transfer of any of its Property which
      may
      be fraudulent under any bankruptcy, fraudulent transfer or similar law; or
      shall
      have made any transfer of its Property to or for the benefit of a creditor
      at a
      time when other creditors similarly situated have not been paid; or shall have
      suffered or permitted, while insolvent, any creditor to obtain a Lien upon
      any
      of its Property through legal proceedings or distraint or other process which
      is
      not vacated within 60 days from the date thereof; or

    

    (o)
      Forfeiture.
      The
      filing of formal charges under a federal or state law for which forfeiture
      of
      Seller's Property is a potential penalty.

    

    Section
      6.02  Remedies.
      Upon
      demand or the happening of any Event of Default specified in Section 6.01,
      (i)
      CSI may immediately charge back to Seller all Accounts purchased by CSI that
      remain uncollected by CSI as of the date thereof and immediately require the
      repurchase of such Accounts in the manner provided in Section 2.01 above; and
      (ii) all obligations, if any, of CSI hereunder, including the Commitment, shall
      immediately cease and terminate unless and until CSI shall reinstate same in
      writing.

    

    
      
        
        

      

      
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    Section
      6.03 Prohibition
      of Transfer, Assignment and Assumption.
      This
      Agreement pertains to the agreement by CSI to purchase certain Accounts of
      the
      Seller pursuant to the terms provided herein and cannot be transferred to,
      assigned to or assumed by any other person or entity either voluntarily or
      by
      operation of law. In the event Seller or any Subsidiary becomes a debtor under
      the Bankruptcy Code of the United States or under the law of any foreign
      country, any trustee or debtor in possession may not assume or assign this
      agreement nor delegate the performance of any provision hereunder.

    

    Section
      6.04  Right
      of Set-off.
      Upon
      the occurrence of any Event of Default, or if the Seller becomes insolvent,
      however evidenced, CSI and any agent bank of CSI is hereby authorized at any
      time and from time to time, without notice to the Seller (any such notice being
      expressly waived by the Seller), to set-off and apply any and all deposits
      (general or special, time or demand, provisional or final) at any time held
      and
      other indebtedness at any time owing by CSI or any agent bank of CSI to or
      for
      the credit or the account of the Seller against any and all of the Obligations
      of the Seller, irrespective of whether or not CSI shall have made any demand
      under this Agreement. CSI agrees promptly to notify the Seller after any such
      set-off and application, provided that the failure to give such notice shall
      not
      affect the validity of such set-off and application. The rights of CSI under
      this Section are in addition to other rights and remedies (including, without
      limitation, other rights of set-off), which CSI may have. 

    

    ARTICLE
      VII

    

    CONDITIONS

    

    The
      obligation of CSI to consider the purchase of Accounts of Seller pursuant to
      the
      terms hereof is subject to the accuracy of each and every representation and
      warranty of the Seller and its Subsidiaries made or referred to in each Security
      Instrument, including this Agreement, or in any certificate delivered to CSI
      pursuant to or in connection with any Security Instrument, including this
      Agreement, to the performance by the Seller of its obligations to be performed
      hereunder on or before the date of the purchase of Accounts hereunder, and
      to
      the satisfaction of the following further conditions which must be satisfied
      as
      of the date of this Agreement or the date of purchase of further Accounts
      hereunder.

    

    Section
      7.01  Closing.
      The
      delivery of all instruments and certificates referred to in this Article VII
      not
      theretofore delivered shall occur on or before November 4, 2005.

    

    Section
      7.02  Schedules.
      The
      Seller shall have duly and validly issued, executed and delivered one or more
      schedules evidencing the Accounts to be considered for purchase by CSI
      hereunder.

    

    Section
      7.03  Charter;
      By-laws.
      CSI
      shall have received a copy, certified as true by the Secretary or Assistant
      Secretary of the Seller or the Subsidiary, respectively, of the articles or
      certificate of incorporation and the by-laws of the Seller and any Subsidiary
      which is to execute this Agreement or any Security Instrument pursuant to this
      Agreement.

    

    Section
      7.04  Secretary's
      Certificates.
      CSI
      shall have received, on or before the date of Closing, certificates of the
      Secretary of the Seller and any Subsidiary which is to execute any Security
      Instrument pursuant to this Agreement setting forth (i) resolutions of its
      board
      of directors in form and substance satisfactory to CSI with respect to the
      authorization of this Agreement and any other Security Instruments provided
      herein and the officers authorized to sign such instruments, and (ii) specimen
      signatures of the officers so authorized.

    

    
      
        
        

      

      
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    Section
      7.05  Counsel
      of CSI.
      At the
      time of the Closing, all legal matters incident to the transactions herein
      contemplated shall be satisfactory to counsel of CSI.

    

    Section
      7.06  No
      Default.
      At the
      time of each purchase of Accounts hereunder, no Default shall have occurred,
      and
      there shall not have occurred any condition, event or act which constitutes,
      or
      with notice or lapse of time (or both) would constitute a default or event
      of
      default under any note, agreement or trust indenture to which the Seller or
      any
      Subsidiary is a party.

    

    Section
      7.07  No
      Material Adverse Changes.
      Prior
      to each purchase of Accounts by CSI hereunder, there shall have occurred, in
      the
      opinion of CSI, no material adverse changes, either in any case or in the
      aggregate, in the assets, liabilities, financial condition, business,
      operations, affairs or circumstances of the Seller or any Subsidiary, from
      those
      reflected in the Financial Statements or by the facts warranted or represented
      in any Security Instrument, including this Agreement.

    

    Section
      7.08  Other
      Security Instruments and Information.
      The
      Seller shall have duly and validly executed and delivered, or caused to be
      executed and delivered, to CSI the following instruments, each in form and
      substance satisfactory to CSI, in sufficient executed counterparts for recording
      purposes, as security for obligations of Seller to CSI hereunder and other
      Obligations and shall have delivered the following documents containing
      information necessary to the preparation and perfection of the liens created
      by
      such instruments:

    

    (a)
      Security Agreements covering all of the Seller's accounts receivable, general
      intangibles, inventory, equipment, chattel paper, instruments and documents;
      and

    

    (b)
      Financing Statements relating to the items described in Subsection
      (a).

    

    Section
      7.09  Guaranties.
      The
      Validity Guarantors shall have duly and validly executed and delivered, or
      caused to be executed and delivered, to CSI in form and substance satisfactory
      to CSI, the Validity Guaranty Agreement(s). The Guarantors shall have duly
      and
      validly executed and delivered, or caused to be executed and delivered, to
      CSI
      in form and substance satisfactory to CSI, the Guaranty
      Agreement(s).

    

    Section
      7.10  Recordings.
      The
      Security Instruments described in Section 7.08 hereof, including financing
      statements, security agreements and other notices related thereto, shall have
      been duly delivered to the appropriate offices for filing, recording or
      registration, and CSI shall have received confirmations of receipt thereof
      from
      the appropriate filing, recording or registration offices.

    

    Section
      7.11 Landlord's
      Waiver.
      The
      owner of Seller's offices at 8600 Wurzbach, Suite 700W, San Antonio, Texas
      78240, shall have executed and delivered, in form and substance satisfactory
      to
      CSI, in sufficient executed counterparts for recording purposes, waivers of
      any
      Liens to which it may be entitled, in favor of CSI.

    

    Section
      7.12 Additional
      Matters.
      CSI
      shall have received all exhibits, annexes and schedules herein referenced and
      such additional reports, certificates, documents, statements, legal opinions,
      agreements and instruments, in form and substance reasonably satisfactory to
      CSI, as CSI shall have reasonably requested from the Seller, Guarantors and
      their counsel.

    

    
      
        
        

      

      
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    Section
      7.13 Further
      Purchases of Accounts.
      All
      purchases of Accounts hereunder shall further be subject to the following
      specific conditions:

    

    (a)
      There
      shall have been no default under this Agreement or under any of the other
      Security Instruments;

    

    (b)
      The
      Financial Statements and all other financial information required by CSI shall
      have been furnished and shall be, as of the date of the requested advance,
      true
      and correct; and

    

    (c)
      The
      financial condition of the Seller, as shown by the most recent Financial
      Statement described in Section 4.01(b) hereof, shall be acceptable to CSI,
      in
      its sole discretion.

    

    ARTICLE
      VIII

    

    ACCOUNT
      CONTROL

    

    

    Section
      8.01 Collection
      by CSI.
      In the
      Event of Default, Seller specifically authorizes CSI, to the extent permitted
      by
      applicable law, to notify each Account Debtor to pay directly to CSI all
      accounts that are Accounts or Collateral (as defined in the Security
      Agreement(s) referenced in Section 7.08 of this Agreement), regardless of
      whether Seller has defaulted hereunder. CSI is authorized, but not obligated,
      to
      collect, sue for and give releases for all monies or other items of value due
      on
      all Accounts. CSI is hereby specifically authorized to endorse all checks,
      drafts or other forms of trade acceptances that are made payable to Seller,
      whether tendered in payment of Accounts or otherwise, and to apply such payments
      against the applicable Accounts or, if such payment does not relate to a
      particular Account, against any other obligation of Seller to CSI. Seller
      authorizes CSI to accept, indorse and deposit on behalf of Seller any checks
      tendered by an Account Debtor “in full payment” of its obligation to Seller.
      Seller shall not assert against CSI any claim arising therefrom, irrespective
      of
      whether such action by CSI effects an accord and satisfaction of Seller's
      claims, under §3-311 of the Uniform Commercial Code, or otherwise. Seller
      hereby waives notice of nonpayment of any Accounts as well as all other notices,
      demands or presentations for payment hereunder, and Seller expressly agrees
      that
      CSI may extend or renew from time to time the payment of any account without
      notice to or consent by Seller. In the event it becomes necessary for CSI to
      employ an attorney and incur other expenses to collect any account or to enforce
      any of the terms of this Agreement by reason of a breach or default by Seller,
      Seller agrees to pay to CSI an amount equal to all reasonable attorneys' fees,
      expenses and costs incurred by CSI. In the event any merchandise represented
      by
      any Account shall be returned to or repossessed by the Seller, such merchandise
      shall be held by the Seller in
      trust
      for CSI,
      separate and apart from the Seller's own property, and subject to CSI’s
      directions and control. With respect to any returned or repossessed merchandise,
      Seller shall, at its sole cost and expense, (a) provide proper storage therefor,
      (b) maintain adequate insurance coverage thereon, (c) prepare the same for
      sale,
      (d) defend title thereto, (e) take any other action necessary for the protection
      thereof, (f) pay all freight and related shipping costs, and (g) be responsible
      for any other costs or expenses incurred in connection with the foregoing,
      including, without limitation, attorneys' fees.
      In order
      to satisfy any of the Obligations, CSI is hereby authorized by Seller to
      initiate electronic debit or credit entries through the ACH system to any
      deposit account maintained by Seller wherever located.

    

    
      
        
        

      

      
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    Section
      8.02 Verification
      and Collection of Accounts. Seller
      hereby authorizes CSI to contact each Account Debtor at any time for purposes
      of
      verification or collection of Accounts. Seller shall cooperate with CSI to
      the
      maximum extent possible to provide information necessary for CSI to accomplish
      verification or collection of any Receivable. Unless otherwise agreed by CSI
      in
      writing, Seller shall provide the original invoice and any necessary copies
      required by the Account Debtor and one copy to CSI ready for mailing with the
      required postage to the Account Debtor. All invoices shall direct that payment
      be made to a post office box or other address owned and controlled by CSI,
      to be
      provided by CSI. If requested by CSI, Seller agrees to furnish evidence of
      shipment of the related merchandise and/or performance of services rendered,
      and
      a written assignment and bill of sale of such Receivable, all in a form
      satisfactory to CSI, including the original purchase order from the Account
      Debtor. If requested by CSI, all invoices for Accounts shall plainly state
      on
      their faces in language acceptable to CSI that the amounts payable thereunder
      have been sold to and are payable directly to CSI. If payment is made to Seller
      under any circumstances, such payment shall be held in trust by Seller for
      CSI
      and shall not be negotiated or commingled in any way with any of Seller's funds.
      Seller shall either (i) hand-deliver to CSI any payment it receives from an
      Account Debtor within one business day of such receipt, or (ii) mail to CSI
      any
      payment it receives from an Account Debtor on the same day of such receipt,
      all
      in the original form as received by Seller. In the event the form of any payment
      on an Account received by Seller is made payable to Seller, Seller shall endorse
      such instrument to the order of CSI. In the event that Seller does not deliver
      or mail the payments to CSI within the time frames established by this Section
      8.02, CSI shall be permitted to redirect Seller’s mail to CSI. Seller agrees to
      furnish CSI, upon request, any and all papers, documents or records of whatever
      nature related directly or indirectly, to any Accounts.

    

    Section
      8.03 Terms
      - Seller's Customers.
      Except
      as may otherwise be agreed to in writing from time to time, all Accounts shall
      be due on or before the Agreed Due Date. All invoices to be purchased pursuant
      hereto will be forwarded to the Account Debtor upon delivery of the goods or
      the
      services that are the subject of the Account. Seller shall not vary the terms
      of
      sale, terms of payment, or location of payment set forth in the invoice relating
      to any Account without CSI's prior written consent, it being understood that
      any
      Account is the property of CSI.

    

    Section
      8.04 Power
      of Attorney.
      For so
      long as this Agreement has not been terminated, CSI is hereby irrevocably
      authorized as Seller’s Attorney-in-Fact, with full authority in the place of
      Seller and in the name of Seller or otherwise, in CSI’s discretion, to take any
      action and to execute any instrument which CSI may deem necessary or advisable
      to accomplish the purposes of this Agreement, including, without
      limitation:

    

    (a) To
      endorse in the name of Seller, and to take all actions necessary to collect
      for
      deposit to CSI’s account, all checks, drafts and other forms of trade
      acceptances, negotiable instruments and other forms of payment (hereinafter
      collectively referred to as the “Payments”) which are tendered in payment of
      Accounts or in payment of insurance claims relating to the Accounts, or which
      are received by CSI. The authorization includes, without limitation, the power
      to open, cash, endorse, deposit and otherwise collect all such Payments in
      the
      event they are not made payable to CSI;

    

    (b) To
      contact Account Debtors at any time in order to verify and/or collect
      Accounts;

    

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

    (c) To
      contact the Internal Revenue Service and other State and local taxing
      authorities in order to ascertain Seller’s tax liability;

    

    (d) To
      obtain
      and adjust insurance required to be paid to CSI;

    

    (e) To
      ask,
      demand, collect, sue for, recover, compound, receive and give acquittance and
      receipts for moneys due and to become due under or in respect of any of the
      Accounts;

    

    (f) To
      file,
      at Seller’s expense, any claims or take any action or institute any proceedings
      which CSI may deem necessary or desirable for the collection of any of the
      Accounts or any of the collateral securing payment of the Accounts or otherwise
      to enforce the rights of CSI with respect to the Accounts.

    

    This
      Power of Attorney is irrevocable and coupled with an interest. Seller hereby
      acknowledges that Seller is not entitled to any notice, demand or presentation
      with respect to payment of any Account and agrees that CSI may extend or renew
      from time to time the payment of any Account without notice to or consent by
      Seller.

    

    ARTICLE
      IX

    

    MISCELLANEOUS

    

    Section
      9.01  Notices.
      All
      communications under or in connection with this Agreement shall be in writing
      and shall be mailed by registered or certified mail, return receipt requested,
      postage prepaid, or personally delivered to an officer of the receiving party.
      All such communications shall be mailed or delivered as follows:

    

    (a)
      If to
      the Seller, to the address set forth in the introductory paragraph of this
      Agreement, or to such other address or to such individual's or department's
      attention as it may have furnished CSI in writing;

    

    (b)
      If to
      CSI, to the address set forth in the introductory paragraph of this Agreement,
      or to such other address or to such individual's or department's attention
      as it
      may have furnished to the Seller in writing.

    

    Any
      notice so addressed and mailed by registered or certified mail, return receipt
      requested, shall be deemed to be given when so mailed, and any notice so
      delivered in person shall be deemed to be given when receipted for by, or
      actually received by, an authorized officer of the Seller or CSI, as the case
      may be.

    

    Section
      9.02  Deviation
      from Covenants.
      The
      procedure to be followed by the Seller to obtain the consent of CSI to any
      deviation from the covenants contained in this Agreement or any other Security
      Instrument shall be as follows:

    

    (a)
      The
      Seller shall send a written notice to CSI setting forth (i) the covenant(s)
      relevant to the matter, (ii) the requested deviation from the covenant(s)
      involved, and (iii) the reason for the requested deviation from the covenant(s);
      and

    

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

    (b)
      CSI
      will within a reasonable time send a written notice to the Seller, signed by
      an
      authorized officer of CSI, permitting or refusing the request; but in no event
      will any deviation from the covenants of this Agreement or any other Security
      Instrument be effective without the written consent of CSI.

    

    Section
      9.03  Invalidity.
      In the
      event that any one or more of the provisions contained in this Agreement or
      in
      any other Security Instrument shall, for any reason, be held invalid, illegal
      or
      unenforceable in any respect, such invalidity, illegality or unenforceability
      shall not affect any other provision of this Agreement or any other Security
      Instrument.

    

    Section
      9.04  Survival
      of Agreements.
      All
      representations and warranties of the Seller herein, and all covenants and
      agreements herein not fully performed before the effective date of this
      Agreement, shall survive such date.

    

    Section
      9.05  Successors
      and Assigns.
      All
      covenants and agreements contained by or on behalf of the Seller or any
      Subsidiary or any Guarantor in this Agreement and any other Security Instrument
      shall bind its successors and assigns or the heirs and personal representatives
      of any individual Guarantor and shall inure to the benefit of CSI and its
      successors and assigns; except that neither the Seller nor any Guarantor nor
      any
      Person acting on behalf of any of them may assign any of their rights hereunder
      without the prior written consent of CSI.

    

    Section
      9.06  Waivers.
      No
      course of dealing on the part of CSI, its officers, employees, consultants
      or
      agents, nor any failure or delay by CSI with respect to exercising any right,
      power or privilege of CSI under this Agreement or any other Security Instrument
      shall operate as a waiver thereof, except as otherwise provided in Section
      9.02
      hereof.

    

    Section
      9.07  Cumulative
      Rights.
      Rights
      and remedies of CSI under this Agreement and each other Security Instrument
      shall be cumulative, and the exercise or partial exercise of any such right
      or
      remedy shall not preclude the exercise of any other right or
      remedy.

    

    Section
      9.08  Construction.
      This
      Agreement is a contract made under and shall be construed in accordance with
      and
      governed by the laws of the State of Texas.

    

    Section
      9.09  Multiple
      Originals.
      This
      Agreement may be executed in two (2) or more copies; each fully executed copy
      shall be deemed an original, but all of which together shall constitute one
      and
      the same instrument.

    

    Section
      9.10  Exhibits
      and Schedules.
      All
      exhibits and schedules to this Agreement are incorporated herein by this
      reference for all purposes. The exhibits and schedules may be attached hereto,
      or bound together with or separately from this Agreement, and such binding
      shall
      be effective to identify such exhibits and schedules as if attached to this
      Agreement.

    

    Section
      9.11  Performance
      and Venue.
      The
      obligations of the parties hereto contained herein are performable in Houston,
      Harris County, Texas, and venue for any action in connection therewith shall
      be
      in Harris County, Texas.

    

    Section
      9.12 Negotiation
      of Documents.
      This
      Agreement and all other Security Instruments have been negotiated by the parties
      at arm's length, each represented by its own counsel, and the fact that the
      documents have been prepared by CSI's counsel, after such negotiation, shall
      not
      be cause to construe any of such documents against CSI.

    

    
      
        
        

      

      
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    Section
      9.13 Notices
      Received by CSI.
      Any
      instrument in writing, telex, telegram, telecopy or cable received by CSI in
      connection with any sale of Accounts or other transaction hereunder, which
      purports to be dispatched or signed by or on behalf of the Seller, shall
      conclusively be deemed to have been signed by such party, and CSI may rely
      thereon and shall have no obligation, duty or responsibility to determine the
      validity or genuineness thereof or authority of the Person or Persons executing
      or dispatching the same.

    

    Section
      9.14 Determination
      of Purchase Price.
      The
      Purchase Price of the Accounts has been determined pursuant to negotiations
      between CSI and Seller and represents the fair market value thereof, after
      due
      consideration has been given to the nature of the Account, the probability
      of
      prompt collection thereof, the creditworthiness of the Account Debtor, the
      payment history of the Account Debtor and other economical factors relative
      to
      the Accounts. Further, in arriving at the Purchase Price, consideration has
      been
      given to services rendered and services that will be rendered in the future
      by
      CSI in connection with credit investigations of Account Debtor, supervising
      the
      ledgering of accounts purchased, supervising the collection of accounts
      purchased, and the assumption of certain credit risks. The parties hereto
      acknowledge that the purchase of the Accounts by CSI constitutes an outright
      conveyance by the Seller to CSI.

    

    Section
      9.15 Provision
      Regarding Usury.
      Nothing
      contained herein, nor any course of dealing in the future, shall be construed
      to
      be anything other than an outright purchase and sale of such Accounts. All
      right, title and interest of the Seller has been conveyed to CSI and such
      transaction is not subject to a security interest in the Accounts and the
      Purchase Price paid to Seller by CSI constitutes consideration for the
      acquisition of the Accounts and under no circumstances shall be construed as
      a
      loan and no consideration herein set forth is for the use, forbearance or
      detention of money. Except with respect to Section 4.06 above, nothing contained
      herein shall be construed as to require the payment of interest; however, should
      a court of competent jurisdiction rule that any consideration paid hereunder
      (including amounts paid pursuant to Paragraph 4.06) are in fact or in law to
      be
      treated as interest, in no event shall Seller be obligated to pay that interest
      at a rate in excess of the maximum amount permitted by law, and all agreements,
      conditions, or stipulations contained herein, if any, which may in any event
      or
      contingency whatsoever operate to bind, obligate, or compel Seller to pay a
      rate
      of interest exceeding the maximum rate of interest permitted by law shall be
      without binding force or effect at law or in equity to the extent only of the
      excess of interest over such maximum rate of interest permitted by law. Also
      in
      such event, CSI may “spread” all charges characterized as interest over the
      entire term of all transactions with Seller and will refund to Seller the excess
      of any payments made over the highest lawful rate. It is the intention of the
      parties hereto that in the construction and interpretation of this Agreement,
      the foregoing sentence shall be given precedence over any other agreement,
      condition, or stipulation herein contained which is in conflict with
      same.

    

    Section
      9.16 No
      Third-Party Beneficiaries.
      This
      Agreement is for the sole and exclusive benefit of the Seller and CSI. This
      Agreement does not create, and is not intended to create, any rights in favor
      of
      or enforceable by any other Person. This Agreement may be amended or modified
      by
      the agreement of the Seller and CSI, without any requirement or necessity for
      notice to, or the consent of or approval of any other Person.

    

    
      
        
        

      

      
        -25-

        
          

        

      

      
        
        

      

    

    Section
      9.17 Termination;
      Release of Liability.
      Seller
      and CSI recognize that future purchases of Accounts are to be made only with
      mutual consent of Seller and CSI, through joint execution by Seller and CSI
      of a
      supplemental Schedule
      A.
      Accordingly, this Agreement shall continue in full force and effect unless
      and
      until each of the following occur: (i) written notice of the termination of
      this
      Agreement as it relates to future Accounts by any party hereto, (ii) the payment
      in full of all Obligations of Seller to CSI pursuant hereto and (iii) the
      collection of all outstanding Accounts sold by Seller to CSI that, in the sole
      discretion of CSI, can be collected; provided,
      however,
      that in
      lieu of the condition in item (iii), Seller may purchase the Account(s) (or
      any
      of them) in accordance with the terms of this Agreement pursuant to which an
      outstanding Account may or must be repurchased from CSI by Seller. Subject
      to
      the Payment of the Termination Fee by Seller, either party may immediately
      terminate this Agreement as to future transactions, without cause within its
      sole discretion, and nothing contained in this Agreement shall constitute an
      agreement or commitment to purchase any accounts until a supplemental Schedule
      describing such accounts has been executed by Seller and such accounts have
      been
      approved by CSI. In the event Seller shall have breached any provision of this
      Agreement or any other agreement with CSI, or if either party shall have given
      notice to the other of the termination of this Agreement as to future
      Accounts,
      any
      and
      all monies, balances or credits otherwise due by CSI to the Seller may be
      retained and applied by CSI from time to time to reduce the Obligations. The
      balance of such funds, if any, shall
      not
      be released to Seller unless all of Seller's Obligations hereunder have been
      paid in full. At the discretion of CSI, upon written notice of the termination
      of this Agreement as it relates to future Accounts by any party hereto, CSI
      may
      return and charge back to Seller any and all outstanding Accounts in the manner
      described in Section 2.01 above. At the discretion of Seller, upon written
      notice of termination of this Agreement as it relates to future Accounts by
      any
      party hereto, Seller may demand the sale by CSI to Seller of all or any of
      the
      Accounts. In addition and notwithstanding any provision of this Agreement to
      the
      contrary, CSI shall not be obligated to release any amounts otherwise owing
      by
      CSI to Seller unless and until Seller has executed and delivered to CSI a
      general release in the form attached hereto as Exhibit
      “A”.
      In
      recognition of CSI's
      right to have its attorneys' fees and other expenses incurred in connection
      with
      this Agreement secured by the Collateral, notwithstanding payment in full of
      all
      Obligations by Seller, CSI shall not be required to record any terminations
      or
      satisfactions of any of CSI's liens on the Collateral unless and until Seller
      has executed and delivered to CSI a general release in the form of Exhibit
      “A”
      hereto.
Seller
      understands that this provision constitutes a waiver of its rights under §9-513
      of the UCC.
      Termination
      of this Agreement shall not affect the rights and obligations of the parties
      accruing with respect to prior transactions. 

    

    Section
      9.18 DTPA
      Waiver.
      Seller acknowledges and agrees, on its own behalf and on behalf of any permitted
      assigns and successors hereafter, that the DTPA is not applicable to this
      transaction. Accordingly, Seller's rights and remedies with respect to the
      transaction contemplated under this Agreement, and with respect to all acts
      or
      practices of CSI, past, present or future, in connection with such transaction,
      shall be governed by legal principles other than the DTPA. In furtherance
      thereof, Seller agrees as follows:

    

    Seller
      waives its rights under the Deceptive Trade Practices-Consumer Protection Act,
      Section 17.41 et seq., Business & Commerce Code, a law that gives consumers
      special rights and protections. After consultation with an attorney of Seller’s
      own selection, Seller voluntarily consents to this waiver.

    

    Section
      9.19 Waiver
      of Trial by Jury.
      Each
      party to this Agreement hereby expressly waives any right to trial by jury
      of
      any claim, demand, action or cause of action (i) arising under this Agreement
      or
      any other instrument, document or agreement executed or delivered in connection
      herewith, or (ii) in any way connected with or related or incidental to the
      dealings of the parties hereto or any of them with respect to this Agreement
      or
      any other instrument, document or agreement executed or delivered in connection
      herewith, or the transactions related hereto or thereto. In each case whether
      now existing or hereafter arising, and whether sounding in contract or tort
      or
      otherwise, each party hereby agrees and consents that any such claim, demand,
      action or cause of actions shall be decided by court trial without a jury,
      and
      that any party to this Agreement may file an original counterpart or a copy
      of
      this section with any court as written evidence of the consent of the parties
      hereto to the waiver of their right to trial by jury.

    

    
      
        
        

      

      
        -26-

        
          

        

      

      
        
        

      

    

    Section
      9.20 No
      Obligation to Purchase Further Accounts.
      Seller
      specifically acknowledges and agrees that, anything herein to the contrary
      notwithstanding, CSI has the right to approve or reject any or all future
      accounts receivable proposed for sale under this Agreement IN ITS SOLE
      DISCRETION, and no course of conduct or prior course of dealing shall establish
      any commitment, obligation or agreement to purchase future accounts
      receivable.

    

    Section
      9.21 Use
      of
      Facsimiles.
      The
      parties acknowledge and agree that it is anticipated that execution of this
      Agreement, as well as schedules or other documents executed in connection
      herewith, may be evidenced by facsimile signatures, and such documents
      containing facsimile signatures shall be of the same force and effect as if
      original signatures had been obtained.

    

    Section
      9.22 Final
      Expression.
      THIS
      WRITTEN AGREEMENT AND THE SECURITY INSTRUMENTS REPRESENT THE FINAL AGREEMENT
      BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
      CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
      UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

    

    

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        -27-

        
          

        

      

      
        
        

      

    

     

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

     

    
      
        
          
            	 	 	SELLER:	 
	 	 	 	 	 
	 
 	 	
                    ATSI
                      COMMUNICATOINS, INC.

                  	 
	 	 	 	 
	 	 	 	 
	 	 	By:  	/S/
                    Arthur L. Smith 	 
	 	 	
                    Name:

                    
                      Title:

                    

                  	
                    Arthur L. Smith
                      CEO

                    

                  	 
	 	 	 	 	 

          

        

      

      
         

        
          
            
              
                	 	 	CSI:	 
	 	 	 	 	 
	 
 	 	
                        CSI
                          BUSINESS FINANCE, INC.

                      	 
	 	 	 	 
	 	 	 	 
	 	 	By:  	/S/
                        Timothy Connolly  	 
	 	 	
                        Name:

                        
                          Title:

                        

                      	
                        Timothy Connolly
                          CEO

                        

                      	 
	 	 	 	 	 
	 	 	 	 

              

            

          

           

        

      

    

     

    
      
        
        

      

      
        -28-

        
          

        

      

      
        
        

      

    

    EXHIBIT
      “A”

     

    GENERAL
      RELEASE 

     

    FOR
      GOOD
      AND VALUABLE CONSIDERATION, the receipt and adequacy of which are hereby
      acknowledged, the undersigned and each of them (collectively "Releasor") hereby
      forever releases, discharges and acquits CSI Business Finance, Inc.
      ("Releasee"), its parent, partners, officers, directors, shareholders, agents
      and employees, of and from any and all claims of every type, kind, nature,
      description or character, and irrespective of how, why, or by reason of what
      facts, whether heretofore existing, now existing or hereafter arising, or which
      could, might, or may be claimed to exist, of whatever kind or name, whether
      known or unknown, suspected or unsuspected, liquidated or unliquidated, each
      as
      though fully set forth herein at length, to the extent that they arise out
      of or
      are in way connected to or are related to that certain Factoring Agreement
      between Releasee and Releasor dated November 4, 2005 (collectively, the
“Claims”).

    

    Releasor
      agrees that the matters released herein are not limited to matters which are
      known or disclosed.

     

    Releasor
      acknowledges that factual matters now unknown to it may have given or
      may
      hereafter give rise to Claims which are presently unknown, unanticipated and
      unsuspected, and it acknowledges that this Release has been negotiated and
      agreed upon in light of that realization and that it nevertheless hereby intends
      to release, discharge and acquit the Releasee from any such unknown
      Claims.

    

    Acceptance
      of this Release shall not be deemed or construed as an admission of liability
      by
      any party released.

    

    Releasor
      acknowledges that either (a) it has had advice of counsel of its own choosing
      in
      negotiations for and the preparation of this release, or (b) it has knowingly
      determined that such advise is not needed.

    
      
        
          	 	 	 	 	 
	DATED: November
                  4,
                  2005	 	 	 	 
	
                  
                    

                     

                	 	 	 	 
	Individual Releasor: 	 	
                  
[Name
                  of individual],
                  individually	 
	 	 	 	 	 
	 	 	 	 	 
	Entity
                  Releasor: 	 	
                  
                    ATSI
                      COMMUNICATIONS, INC.

                  

                	 
	 	 	 	 
	 	 	
                  By:

                   

                  Name:  

                	
                  /s/ Arthur
                    L. Smith

                  
                    
Arthur
                    L. Smith 

                	 
	 	 	
                  Title:

                	
                  CEOExhibit 10.1

                        AGREEMENT AND GENERAL RELEASE AND WAIVER

                  GAIL MONTGOMERY residing at 94 Seminary Road, Bedford, New
         York 10506 (the "Employee") and NUTRITION 21, INC. with its principal
         office at 4 Manhattanville Road, New York 10577 (the "Company" or
         "Nutrition 21"), on behalf of itself and its officers, directors,
         shareholders, employees, agents and parent, affiliates, predecessor,
         successor, subsidiary, and other related companies, and each of them
         jointly and severally (hereinafter singularly and collectively referred
         to as the "Company"), hereby enter into the following Agreement and
         General Release and Waiver (the "Agreement"), concerning the Employee's
         resignation from the Company.

                  1. The Employee confirms that on November 3, 2005 she resigned
         as a director, officer and employee of the Company and its subsidiaries
         and affiliates, and that she was thereafter given at least 21 days to
         consider this Agreement and decide for herself whether or not she wants
         to sign this Agreement.

                  2. The Employee consulted with and negotiated through Kurzman
         Eisenberg et al., attorneys of her choice, concerning this Agreement
         and the implications of Employee signing or not signing the Agreement.

                  3. The Employee has carefully considered other alternatives to
         executing this Agreement and has entered into this Agreement
         voluntarily and of the Employee's own free will.

                  4. The Employee is entitled to change her mind and revoke this
         Agreement within seven days after signing it. This Agreement will
         become effective only if Employee has not exercised her option to
         revoke the Agreement within seven days after its execution and Employee
         complies with paragraph eleven (11) of this Agreement.

                  5. If this Agreement becomes effective:

         Nutrition 21 will for the period to end eight months after the date of
         her resignation (November 3, 2005) pay to Employee amounts equal to the
         salary installments she would have received during this period at the
         rate of pay that applied prior to her resignation. For the avoidance of
         doubt, these payments will be made retroactive to November 3, 2005. All
         such payments shall be net of all applicable Federal and State taxes.
         The Company will make these deductions and forward said monies to the
         appropriate government agencies.

         Nutrition 21 will for the period to end six months after Employee's
         resignation (but not past the date, if any, on which Employee obtains
         employment that provides medical benefits), continue Employee's
         medical, dental and vision benefits.

         Nutrition 21 will pay to Employee $10,000 in respect of her legal and
         administrative fees and other costs within seven days following the
         effectiveness of this agreement..

         Nutrition 21 will pay to Employee $3,600 in respect of a car allowance,
         against return of her Company car to the Company within seven days
         following the effectiveness of this agreement.

         Employee may exercise her 1,450,000 vested stock options and her
         108,333 vested SAR's only until November 2, 2006. All unexercised
         options and SAR's shall expire at the close of business on November 2,
         2006. Employee will be permitted to simultaneously exercise her options
         and sell the option shares through a broker designated by the Company
         who will simultaneously with the sale wire the exercise price to the
         Company.

         Employee acknowledges that she has no other options or SAR's, and that
         all non-vested options and SAR's have expired.

<PAGE>
                  6. The Employee acknowledges that she knows that there are
         various State and Federal laws which prohibit employment discrimination
         on the basis of age, sex, race, color, creed, national origin, marital
         status, religion, disability, veteran status, or other protected
         classifications and that these laws are enforced through the Federal
         Equal Employment Opportunity Commission, and various state, city,
         county and local human rights agencies. In particular, the Employee
         knows that she may have rights under the Federal Age Discrimination in
         Employment Act, which prohibits companies from discriminating against
         employees because of their age. In consideration for the Company making
         the payment described in paragraph five (5) of this Agreement, which
         the Employee is not otherwise entitled to receive, the Employee intends
         to voluntarily give up any rights she may have under these or any other
         laws with respect to her prior employment with the Company or
         termination of her employment, including her rights under the Age
         Discrimination in Employment Act. The Employee agrees that, as of the
         date of this Agreement, the Company has not (a) discriminated against
         her, (b) breached any express or implied contract with her, or (c)
         otherwise acted unlawfully toward her. In this regard, the Employee
         acknowledges she has received all compensation and benefits due her.

                  7. In exchange for the money and option exercise rights set
         forth in this Agreement, the Employee, her heirs, personal
         representatives, successors and assigns, hereby releases and discharges
         the Company, its successors, subsidiaries, and their officers,
         directors and employees ("Releasees") from all claims, liabilities,
         demands or causes of action, known or unknown, arising out of or in any
         way connected with or related to the Employee's employment and the
         termination thereof with the Company from the beginning of the world up
         to and including the effective date of this Agreement, except for
         rights granted under this Agreement and except for any indemnification
         rights under the Company's certificate of incorporation and by-laws.
         This includes, but is not limited to, claims of entitlement to change
         of control payments or to options and SAR's not referred to herein,
         wrongful discharge, breach of any implied or express contract, whether
         oral or written, fraud, misrepresentation, or any other tort. This also
         includes any claims based on any local, state or federal statute
         relating to age, sex, race, or any other form of discrimination such
         as, but not limited to, the Age Discrimination In Employment Act, Title
         VII of the Civil Rights Act of 1964, and other similar state and local
         anti-discrimination laws.

                  8. Cooperation

         Employee agrees to provide Nutrition 21 from time to time telephone
         consultation, and if deemed necessary by Nutrition 21, consultation in
         person at mutually agreeable times, which agreement on the part of
         Employee will not be unreasonably withheld, concerning her work for
         Nutrition 21. For the avoidance of doubt, Nutrition 21 is not requiring
         any substantive work from Employee. The consultation relates
         exclusively to such matters as, for example, interpreting handwritten
         notes that may be illegible, locating hard copy or computer files, etc.
         Employee also agrees to promptly sign and return documents that require
         Employee's signature, and have such documents notarized and/or
         witnessed if required, e.g. patent assignment documents.

         Employee will for no compensation cooperate fully and at reasonable
         times with the Company and its subsidiaries in all litigations and
         regulatory proceedings on which the Company or any subsidiary seeks
         Employee's assistance and as to which Employee had any knowledge or
         involvement. Without limiting the generality of the foregoing, Employee
         will be available to testify at such litigations and other proceedings,
         and will cooperate with counsel to the Company in preparing materials
         and offering advice in such litigations and other proceedings. Except
         as required by law and then only upon reasonable prior written notice
         to the Company, Employee will not in any way cooperate or assist any
         person or entity in any matter which is adverse to the Company or which
         is adverse to any person who at any time is or was an officer or
         director of the Company. Notwithstanding the foregoing, the Company
         will reimburse Employee for out of pocket expenses incurred in
         connection with attendance at litigation matters that require travel.

                  9. Employee agrees that at no time after November 3, 2005 will
         she disclose or use any confidential information received or acquired
         during the Employee's employment, including but not limited to trade
         secrets and any proprietary information. Employee agrees that until
         November 3, 2006, she will not directly or indirectly compete with
         Nutrition 21 or engage in or participate in any business (in whatever
         capacity, whether as owner, consultant, adviser, employee or
         otherwise), which competes with the business of Nutrition 21. The
         preceding sentence does not prohibit Employee from passively owning up
         to 2% of the voting securities of any entity that files public reports
         under the Securities Exchange Act of 1934; nor does it prohibit her
         from being employed by an entity that has a division that competes with
         the Company, so long as she is employed by a division of the entity
         that does not compete with the Company and she has no contact with
         divisions of the entity that do compete with the Company. This Section
         9 may be enforced by injunction (without posting bond or other
         security), as well as by other remedies.
<PAGE>

                  10. Employee will promptly advise the Company in writing
         should she at any time be contacted by any person or entity (including,
         without limitation, any private investigator) who seeks any information
         whatsoever with respect to the Company, or any of its employees,
         directors or officers, or any of its products, services or procedures,
         and she will shall forthwith furnish to the Company a complete and
         accurate report of all communications by or with any such person or
         entity. Employee confirms and acknowledges that she is aware of no
         publicly undisclosed information regarding the Company or its officers
         or directors which may be material to investors in the Company, lenders
         to the Company, or licensing, rating or regulatory entities. "Publicly
         undisclosed information" means information which is not contained in
         periodic reports filed by the Company under the Securities Exchange Act
         of 1934. Except as otherwise required by law (and then only upon 10
         days' prior written notice to the Company), neither party will from and
         after the date hereof in any way or to any person, denigrate or
         derogate the Company or any of its subsidiaries, or any person who was
         at any time an employee, officer or director of the Company, or any
         products, services or procedures, whether or not such denigrating or
         derogatory statements shall be true and are based on acts or omissions
         which were learned or are learned by heretofore or from and after the
         date hereof or on acts or omissions which occurred at any time
         heretofore or which occur at any time from and after the date hereof,
         or otherwise.

                  11. If she has not already done so, the Employee will
         forthwith return to the Company all Company property, proprietary
         documents and materials in the Employee's possession. Such property,
         documents, and materials include, but are not limited to, an
         automobile, computer hardware, telephones, keys, correspondence, notes
         and notebooks, drawings, prints, photographs, tape recordings,
         marketing information, sales information, customer information,
         customer lists, computer software disks and other written, typed,
         printed or recorded materials to which the Employee had access or which
         the Employee developed during the course of her employment with the
         Company and all copies thereof. The Employee will forthwith provide the
         Company with an inventory of the Company's property in her possession.

                  12. The Employee affirms that no promise, inducement or
         agreement not expressed in this Agreement has been made, and this
         Agreement contains the entire agreement of the parties.

                  13. This Agreement does not constitute an admission by the
         Company of any wrongful action or violation of any federal or state
         statute or common law rights, including those relating to the
         provisions of any law or statute concerning employment actions, or any
         other possible or claimed violation of law or rights. The federal and
         state courts sitting in the State of New York shall have exclusive
         jurisdiction with respect to this Agreement. Trial by jury is waived.

                  14. If a court of competent jurisdiction finds any provisions
         of this Agreement unenforceable under applicable law, the
         enforceability of all other provisions shall not be affected by such
         partial unenforceability, and the remainder shall continue to be
         binding and in full force and effect.

                  15. The Employee hereby agrees and acknowledges that since
         November 3, 2005 she has no longer been employed by the Company and
         further agrees and acknowledges that she will make no further attempt,
         at any time, to seek employment with the Company and/or any affiliated
         company, subsidiary, or division.

                  16. This Agreement shall not be interpreted in favor of or
         against either party on account of such party having drafted this
         Agreement.

                  17. If any party to this Agreement breaches any of the terms
         of this Agreement, then that party shall pay to the non-defaulting
         party all of the non-defaulting party's costs and expenses, including
         attorney's fees, incurred by that party in enforcing the terms of this
         Agreement.

                  18. This Agreement may be executed in any number of
         counterparts, each of which shall be deemed an original and all of
         which shall together constitute one and the same Agreement.

                  19. The parties shall execute any other instruments and/or
         documents that are reasonable or necessary to implement this Agreement.

                  20. The Employee agrees to keep this Agreement confidential
         and not to reveal its contents to anyone except her attorney or her
         financial consultant.

                  21. This Agreement constitutes the entire agreement between
         the Employee and the Company and it may only be modified, altered or
         changed in writing, signed by both the Company and the Employee. It may
         be signed in counterparts and by facsimile.

                  22. This Agreement shall be subject to and governed by the
         laws of the State of New York.
<PAGE>

                  BY SIGNING THIS AGREEMENT AND GENERAL RELEASE AND WAIVER, THE
         EMPLOYEE STATES THAT: SHE HAS READ IT; SHE UNDERSTANDS IT AND KNOWS
         THAT SHE IS GIVING UP IMPORTANT RIGHTS; SHE AGREES WITH EVERYTHING IN
         IT; SHE WAS TOLD, IN WRITING, TO CONSULT AN ATTORNEY BEFORE SIGNING IT;
         SHE HAS BEEN GIVEN THE OPPORTUNITY TO REVIEW THE AGREEMENT FOR 21 DAYS
         AND THINK ABOUT WHETHER OR NOT SHE WANTED TO SIGN IT; AND SHE HAS
         SIGNED IT KNOWINGLY AND VOLUNTARILY.

                  THEREFORE, the Employee and the Company now voluntarily and
         knowingly execute the Agreement and General Release and Waiver as of
         this 30th day of November 2005.

                                /s/  Gail Montgomery
                                -----------------------------
                                Gail Montgomery

                                NUTRITION 21, INC.

                                By: /s/  Benjamin T. Sporn

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