Document:

Exhibit 10.1

LOAN AGREEMENT

            THIS LOAN AGREEMENT ("Agreement"),
dated March __, 2005, is made and entered into on the terms and conditions
hereinafter set forth, by and between HOME SOLUTIONS OF AMERICA, INC., a
Delaware corporation (the "Borrower"), those lenders who are
or become parties to this Agreement (collectively, the "Lenders"
and, individually, a "Lender") and PETRA MEZZANINE FUND, L.P.,
a Delaware limited partnership, as administrative agent for the Lenders (in
such capacity, the "Administrative Agent").

RECITALS:

            1.         Borrower has requested that Lenders
make available to Borrower a term loan in the aggregate original principal
amount of FOUR MILLION and No/100ths Dollars ($4,000,000.00) (the "Loan")
on the terms and conditions hereinafter set forth, and for the purpose(s)
hereinafter set forth.

            2.         Lenders, in reliance upon the
representations and inducements of Borrower set forth herein and in the other
Loan Documents, have agreed to make the Loan upon the terms and conditions
hereinafter set forth.

AGREEMENTS:

            NOW, THEREFORE, in consideration of the
agreement of Lenders to make the Loan and the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of all of which are hereby acknowledged, the
Administrative Agent, Lenders and Borrower hereby agree as follows:

ARTICLE 1

DEFINITIONS,
ACCOUNTING TERMS

AND PRINCIPLES OF CONSTRUCTION

            1.1       Defined Terms.  In addition to
terms defined elsewhere herein, the following terms, as used in this Agreement,
shall have the respective meanings set forth below (terms defined in the
singular to have the same meaning when used in the plural, and vice versa,
unless otherwise expressly indicated):

            "Asset Acquisition" shall mean
(a) any Investment by the Borrower or any of its Subsidiaries in any other
Person pursuant to which such Person shall become a Subsidiary of the Borrower
or any of its Subsidiaries or shall be merged with the Borrower or any of its
Subsidiaries or (b) any acquisition by the Borrower or any of its Subsidiaries
of the assets of any Person that constitute substantially all of an operating
unit or business of such Person.

 

 

            "Average
Life": as of any date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the product of
the numbers of years (rounded to the nearest one-twelfth of one year) from the
date of determination to the dates of each successive scheduled principal
payment of such Indebtedness multiplied by the amount of such payment by
(b) the sum of all such payments.

            "Capitalized Lease" shall mean,
as to any Person, any lease of property by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a capital lease on a consolidated balance sheet of such Person or
otherwise be disclosed as such in a note to such balance sheet.

            "Capitalized Lease Obligations"
shall mean, as to any Person as of any date, the amount of the obligation of
the lessee under a Capitalized Lease that, in accordance with GAAP, would
appear on a consolidated balance sheet of such Person in respect of such
Capitalized Lease or otherwise be disclosed as such in a note to such balance
sheet.

"Cash Equivalents" means: (a)
marketable securities (i) issued or directly and unconditionally guaranteed as
to interest and principal by the United States government or (ii) issued by any
agency of the United States government the obligations of which are backed by
the full faith and credit of the United States, in each case maturing within
one year after acquisition thereof; (b) marketable direct obligations issued by
any state of the United States of America or any political subdivision of any
such state or any public instrumentality thereof, in each case maturing within
one year after acquisition thereof and having, at the time of acquisition, a
rating of at least A‐1 from Standard & Poor's, a division of The
McGraw Hill Companies, Inc. ("S&P") or at least P‐1
from Moody's Investors Service, Inc. ("Moody's"); (c)
commercial paper maturing no more than one year from the date of acquisition
and, at the time of acquisition, having a rating of at least A‐1 from
S&P or at least P‐1 from Moody's; (d) certificates of deposit or
bankers' acceptances issued or accepted by any commercial bank organized under
the laws of the United States of America or any state thereof or the District
of Columbia that is at least (i) "adequately capitalized" (as defined
in the regulations of its primary Federal banking regulator) and (ii) has Tier
1 capital (as defined in such regulations) of not less than $250,000,000, in
each case maturing within one year after issuance or acceptance thereof; and
(e) shares of any money market mutual or similar funds that (i) has
substantially all of its assets invested continuously in the types of
investments referred to in clauses (a) through (d) above, (ii)
has net assets of not less than $500,000,000 and (iii) has short term
obligations that are rated either "A-1" by S&P or "P-1"
by Moody's.

            "Cash Interest Expense" shall
mean, with respect to any fiscal period of Borrower, the portion of Interest
Expense for such period that was paid in cash.

 

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            "Change in Control" shall mean
an event or series of events shall occur by which any "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")),
but excluding Frank Fradella, shall become the "beneficial owner"
(within the meaning of Rule 13d-3 and/or Rule 13d-5 under the Exchange Act,
except that Person shall be deemed to have "beneficial ownership" of
all shares that such Person has the right to acquire without condition, other
than the passage of time, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of fifty percent (50%) or
more of the combined voting power of all securities of the Borrower entitled to
vote in the election of directors, other than securities having such power only
by reason of the happening of a contingency (other than the passage of time).

            "Closing Date" shall have the
date on which the conditions set forth in Article 6 have been satisfied
and the proceeds of the Loan have been advanced to Borrower by Lenders.

            "Closing Fee" shall have the
meaning assigned to such term in Section 2.2.

            "Collateral" shall mean all
property and interests in property, presently owned or hereafter acquired or
presently existing or hereafter created directly by Borrower or any of the
Guarantors, including any and all proceeds thereof, in which a security
interest has been granted in favor of the Administrative Agent for the benefit
of the Lenders, whether under this Agreement, the Security Documents or any
other Loan Document.

            "Common Stock" shall have the
meaning assigned to such term in Section 3.2.

            "Commonly Controlled Entity"
shall mean a Person that is under common control with Borrower within the
meaning of subsection 414(b), (c), (m), (n) or (o) of the Internal Revenue
Code.

            "Contingent Obligations" shall
mean, for any Person, any contingent obligation calculated in accordance with
GAAP, and in any event shall include (without duplication) all indebtedness,
obligations or other liabilities of such Person guaranteeing or in effect
guaranteeing the payment or performance of any indebtedness, obligation or
other liability, regardless of whether contingent (collectively, the "primary
obligations"), of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, including any indebtedness,
obligation or other liability of such Person, (a) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(b) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation, or (d)
otherwise to assure or hold harmless the owner of such primary obligation
against loss with respect thereto.

 

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            "Cornerstone" shall mean
Cornerstone Building and Remodeling, Inc., a Florida corporation.

"Cornerstone Acquisition"
shall mean the acquisition, reorganization and merger contemplated by that
certain Reorganization Agreement and Plan of Merger by and among Borrower,
Cornerstone Acquisition Corp., Cornerstone, and the sole shareholder of
Cornerstone, effective as of January 3, 2005.

            "Credit Parties" shall mean,
collectively, the Borrower and the Guarantors.

            "Default" shall mean any of the
events specified in Section 7.1, regardless of whether any requirement
for the giving of notice (and if applicable, an opportunity to cure), the lapse
of time or both has been satisfied.

            "EBITDA"  shall mean, with
respect to any fiscal period of Borrower and its Subsidiaries on a consolidated
basis, Net Income for such period, plus, without duplication, and only
to the extent reflected as an expense in the statement of such Net Income for
such period, the sum of (a) income tax expense (including, without
limitation, the expenses of any franchise or excise taxes imposed in lieu of
income taxes), plus (b) Interest Expense, plus (c) depreciation
and amortization expense, plus (d) amortization of intangibles
(including, without limitation,  goodwill) and organization costs, plus
(e) any other non-cash charges or expenses or non-cash losses (including
non-cash losses on sales of assets outside of the ordinary course of business,
and also including non-cash expenses relating to or arising out of the issuance
of common stock purchase warrants), plus (f) any extraordinary, unusual
or non-recurring losses (including losses on the sales of assets outside the
ordinary course of business), minus, without duplication, and only to
the extent included as an income item in the statement of such Net Income for
such period, the sum of (i) any extraordinary, unusual or non-recurring
income or gains (including gains on the sales of assets outside of the ordinary
course of business), plus (ii) any other non-cash income, all as
determined on a consolidated basis and in accordance with GAAP.

            "Environmental Laws" shall mean
all applicable federal, state, regional, county or local laws, statutes, rules,
regulations or ordinances, now or hereafter in effect, relating to the
generation, recycling, use, reuse, sale, storage, handling, transport,
treatment or disposal of Hazardous Materials, including the Comprehensive
Environmental Response Compensation Liability Act of 1980, as amended by the
Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §9601 et seq.,
the Resource Conservation and Recovery Act of 1976, as amended by the Solid and
Hazardous Waste Amendments of 1984, 42 U.S.C. §6901 et seq., the Toxic
Substances Control Act, 15 U.S.C. §2601 et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. §1801, et seq., the Clean Air Act, 42
U.S.C. §7401 et seq., the Clean Water Act of 1977, 33 U.S.C. §1251 et
seq., and any rules, regulations and guidance documents promulgated or
published thereunder, and any state, regional, county or local statute, law,
rule, regulation or ordinance now or hereafter in effect that relates to public
health, safety or the discharge, emission or disposal of Hazardous Materials in
or to air, water, land or groundwater, to the withdrawal or use of groundwater,
to the use, handling or disposal of asbestos, polychlorinated biphenyls,
petroleum, petroleum derivatives or by-products, other hydrocarbons or urea
formaldehyde, to the treatment, storage, disposal or management of Hazardous
Materials, to exposure to Hazardous Materials or to the transportation,
storage, disposal, management or release of gaseous or liquid substances, and
any regulation, order, injunction, judgment, declaration, notice or demand
issued thereunder.

 

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

            "ERISA Affiliate" shall mean
each trade or business (whether or not incorporated) which, together with
Borrower, is treated as a single employer under Section 414(b), (c), (m), (n)
or (o) of the Internal Revenue Code.

            "Event of Default" shall mean
any of the events specified in Section 7.1, provided that any
requirement for the giving of notice (and if applicable, an opportunity to
cure), the lapse of time or both has been satisfied.

            "Financing Statement" shall
mean any Uniform Commercial Code financing statement, authorized pursuant to
the provisions of the Security Agreement, the Guarantor Security Agreement or
any other Loan Document.

            "Fiscal Quarter" shall mean
each of the accounting periods of three (3) months ending on March 31, June 30,
September 30 and December 31, respectively, of each year.

            "Fiscal Year" shall mean the
twelve (12) month period ending on December 31 of each year.

            "Fixed Charge Coverage Ratio"
shall mean, for Borrower and its Subsidiaries on a consolidated basis, calculated
as of the end of any period of four (4) consecutive Fiscal Quarters of Borrower
after giving Pro Forma Effect to the Asset Acquisition, the ratio of EBITDA for
such period to Fixed Charges for such period.

            "Fixed Charges" means, for any
period, the sum of (a) Cash Interest Expense for such period, plus
(b) regularly scheduled payments of principal paid or payable in respect of
Funded Indebtedness during such period, minus payments of principal
under the Laurus Credit Facility made in the ordinary course of Borrower's
business. 

            "Funded Indebtedness" shall
mean, for Borrower and its Subsidiaries on a consolidated basis, without
duplication, (a) indebtedness for borrowed money or for notes, debentures or
other debt securities, (b) reimbursement obligations in respect of letters of
credit issued for the account of such Person (including any such obligations in
respect of any drafts drawn thereunder), and (d) Capitalized Lease Obligations.

 

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            "Funded Indebtedness to EBITDA Ratio" 
shall mean, for Borrower and its Subsidiaries on a consolidated basis,
calculated as of the end of any period of four (4) consecutive Fiscal Quarters
of Borrower after giving Pro Forma Effect to the Asset Acquisition, the ratio
of (a) Funded Indebtedness as of the last day of such period  minus unrestricted
cash on hand of Borrower and the Guarantors, to (b) EBITDA for such period.

            "GAAP" shall mean generally
accepted accounting principles in the United States of America in effect from
time to time.

            "Governmental Authority" shall
mean any nation, province, state or other political subdivision thereof and any
government or any natural person or entity exercising executive, legislative,
regulatory or administrative functions of or pertaining to government.

            "Guarantor Security Agreement"
means that certain Security Agreement of even date herewith executed by
Guarantors in favor of the Administrative Agent and the Lenders.

            "Guarantors" means,
collectively, Cornerstone and PW Stephens.

            "Guaranty" means that certain
Guaranty Agreement of even date herewith executed by Guarantors.

            "Hazardous Material" shall mean
any material, substance, pollutant or waste that is defined or designated as a
hazardous material, hazardous substance, hazardous waste, pollutant,
contaminant or toxic substance under any Environmental Law or otherwise is
regulated under any Environmental Law, including asbestos, polychlorinated
biphenyls, petroleum, petroleum derivatives or by-products, other hydrocarbons,
urea formaldehyde and medical and infectious wastes.

            "Indebtedness" shall mean, as
to any Person, all items that in accordance with GAAP would be shown on the
balance sheet of such Person as a liability and in any event shall include
(without duplication) (a) indebtedness for borrowed money or for notes,
debentures or other debt securities, (b) notes payable and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money, (c) reimbursement obligations in respect of letters of credit
issued for the account of such Person (including any such obligations in
respect of any drafts drawn thereunder), (d) liabilities for all or any part of
the deferred purchase price of property or services, including any such
liabilities in the form of deferred compensation payable to the sellers
thereof, (e) liabilities secured by any Lien on any property or asset owned or
held by such Person regardless of whether the indebtedness secured thereby
shall have been assumed by or is a primary liability of such Person, (f)
Capitalized Lease Obligations, and (g) Contingent Obligations.

            "Interest Expense" shall mean,
with respect to any fiscal period of Borrower, interest expense of Borrower and
its Subsidiaries determined on a consolidated basis in accordance with GAAP,
whether paid or accrued, including, without duplication, amortization or
write-off of original issue discount on any Indebtedness and all deferred
financing fees, costs and expenses associated with the incurrence of such
Indebtedness (to the extent customarily included in interest expense), the
interest portion of any deferred payment obligation and the interest component
of any Capitalized Lease Obligation; provided, that the amortization of
deferred financing, legal and accounting costs with respect to this Agreement and
all non-cash interest expense shall (in each case) be excluded from Interest
Expense to the extent same would otherwise have been included therein.

 

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            "Internal Revenue Code" shall
mean the Internal Revenue Code of 1986.

            "Investment" shall mean the making
of any loan, advance, extension of credit or capital contribution to, or the
acquisition of any stock, bonds, notes, debentures or other obligations or
securities of, or the acquisition of any other interest in or the making of any
other investment in, any Person.

            "Laurus Credit Facility" shall
mean those certain loans made to Borrower by Laurus Master Fund, Ltd. in the
maximum aggregate principal amount of $4,000,000, as evidenced by that certain
Secured Revolving Note in the maximum principal amount of $2,500,000, executed
by Borrower in favor of Laurus Master Fund, Ltd. and that certain Secured
Convertible Minimum Borrowing Note in the principal amount of $1,500,000,
executed by Borrower in favor of Laurus Master Fund, Ltd.

            "Lien" shall mean, as to any
asset, (a) any lien, charge, claim, mortgage, security interest, pledge,
hypothecation or other encumbrance of any kind with respect to such asset, (b)
any interest of a vendor or lessor under any conditional sale agreement,
Capitalized Lease or other title retention agreement relating to such asset,
(c) any reservation, exception, encroachment, easement, right-of-way, covenant,
condition, restriction, lease or other title exception affecting such asset, or
(d) any assignment, deposit, preference, priority or other security agreement
(including any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction).

            "Loan Documents" shall mean
this Agreement, the Notes, the Security Documents and all other documents,
instruments and agreements now or hereafter executed or delivered pursuant
hereto or in connection herewith.

            "Material Adverse Effect" and
"Material Adverse Change" shall mean a material adverse effect
on, or a material adverse change in, (a) the properties, business, operations,
or financial condition of Borrower and its Subsidiaries, taken as a whole, or
(b) the ability of Borrower to perform its obligations under this Agreement,
the Note and the other Loan Documents to which it is a party.

            "Multiemployer Plan" shall mean
a "multiemployer plan" as defined in Section 4001(a)(3) of
ERISA.  

 

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            "Net Income" shall mean, for
Borrower and its Subsidiaries on a consolidated basis for any period, the net
income (or loss) after taxes, determined in accordance with GAAP, subject to
customary exclusions with respect to extraordinary and nonrecurring items.

"Notes" shall mean
one or more promissory notes, substantially in the form of Exhibit B,
executed by the Borrower in favor of the Lenders, evidencing the indebtedness
of the Borrower to the Lenders in connection with the Loan.

            "Operating Lease" shall mean,
as to any Person, any lease of property (whether real, personal or mixed) by
such Person as lessee that is not a Capitalized Lease.

            "Outstanding Shares" shall have
the meaning assigned to such term in Section 3.2.

            "PBGC" shall mean the Pension
Benefit Guaranty Corporation established pursuant to subtitle A of Title IV of
ERISA.

"Permitted Acquisition"
shall mean any Asset Acquisition by the Borrower or any Guarantor with respect
to which (a) the Borrower and its Subsidiaries shall have complied with the
provisions of Section 4.21, (b) all assets acquired in the
transaction are held or acquired by the Borrower or its Subsidiary, (c) at
the time of such Asset Acquisition and after giving Pro Forma Effect thereto
and to any other Asset Acquisition made during the then most recent twelve (12)
month period, no Default shall have occurred or be continuing or would result
therefrom, (d) the aggregate consideration paid or to be paid in connection
with such Asset Acquisition, inclusive of all Indebtedness incurred or assumed,
when combined with the aggregate consideration paid or to be paid (inclusive of
all Indebtedness incurred or assumed and all potential future earn out as if
paid in full) will not exceed $15,000,000, (e) the aggregate consideration
paid or to be paid in connection with such Asset Acquisition, inclusive of all
Indebtedness incurred or assumed, when combined with the aggregate
consideration paid or to be paid (inclusive of all Indebtedness incurred or
assumed and all potential future earn out as if paid in full) in connection
with all other Asset Acquisitions by the Borrower and its Subsidiaries
occurring during the term of the Loan will not exceed $45,000,000, and (f) the
applicable Target is and shall continue to be, after the consummation of the
acquisition, engaged in the business of residential services.

            "Permitted Liens" shall mean
Liens permitted pursuant to the provisions of Section 4.15.

"Permitted Non-Guarantor
Entity" shall mean, collectively Fiber Seal Systems, L.P., a Texas
limited partnership, FSS Holding Corp, a Texas limited partnership, Southern
Exposure Holdings, Inc., a Florida corporation, SE Tops of Florida, Inc., a
Florida corporation, Southern Exposure Unlimited of Florida, Inc., a Florida
corporation, and Southernstone Cabinets, Inc., a Florida corporation.

            "Person" shall mean an
individual, corporation, partnership, limited partnership, limited liability
company, limited liability limited partnership, trust, business trust,
association, joint stock company, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization, Governmental Authority or other
form of entity not specifically listed herein.

 

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            "Plan" shall mean an employee
pension benefit plan covered by Title IV of ERISA that is maintained by
Borrower, any of its Subsidiaries or a Commonly Controlled Entity.

"Pro Forma Effect"
shall mean, in making any calculation hereunder necessary to determine whether
the Borrower is in compliance with Article 5, the Asset Acquisition
made during the twelve (12) month period ending on and including the date of
determination shall be assumed to have occurred on the first day of such
period; provided that the Administrative Agent has been furnished with
annual audited financial statements or interim financial statements regarding
the Asset Acquisition that are in sufficient detail to provide a basis for
determining the Pro Forma Effect thereof and that otherwise are in form and
substance and prepared by Persons satisfactory to the Administrative Agent.

            "Purchase Money Debt" shall
mean (a) Indebtedness of Borrower or any of its Subsidiaries that, within
forty-five (45) days of the purchase of real property, equipment or other
tangible personal property in which neither Borrower nor any of its
Subsidiaries at any time prior to such purchase had any interest, is incurred
to finance part or all of (but not more than) the purchase price of such
property, and that bears interest at a rate per annum that is commercially
reasonable at the time, and (b) Indebtedness that constitutes a renewal,
extension, refunding or refinancing of, but not an increase in the principal
amount of, Purchase Money Debt that is such by virtue of clause (a), is
binding only upon the obligor or obligors under the Purchase Money Debt being
renewed, extended or refunded and bears interest at a rate per annum that is
commercially reasonable at the time.

            "PW Stephens" shall mean P.W.
Stephens, Inc., a California corporation.

"Refinance": in
respect of any Indebtedness, to refinance, extend, renew, refund, repay,
prepay, repurchase, redeem, defease or retire, or to issue other Indebtedness
in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.

            "Reportable Event" shall mean
any of the events set forth under Section 4043(b) of ERISA or the PBGC
regulations thereunder.

            "Requirement of Law" shall
mean, as to any Person (a) the partnership agreement, charter, certificate of
incorporation, articles of incorporation, bylaws, operating agreement or other
organizational or governing documents of such Person, (b) any federal, state or
local law, treaty, ordinance, rule or regulation, (c) any order, decree or
determination of a court, arbitrator or other Governmental Authority; in each
case applicable to or binding upon such Person or any of its property or to
which such person or any of its property is subject.

 

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"Requisite Lenders"
shall mean, as of any date of determination, Lenders holding in the aggregate
more than fifty percent (50%) of the indebtedness evidenced by the Notes.  

            "Responsible Officer" shall
mean, as to any Person, its president, chief executive officer or chief
financial officer.

            "Restricted Payments" shall
mean, as to any Person for any period:

                        (a)        dividends, other distributions
and other payments or deliveries of property on account of the capital stock of
or other ownership interests in, or any warrants, options or other rights in
respect of any capital stock of or other ownership interests in, such Person or
its Subsidiaries, now or hereafter outstanding, that are recorded by such
Person and its Subsidiaries on a consolidated basis (excluding any such
dividends, distributions and other payments made solely to such Person or a
wholly-owned Subsidiary of such Person by a Subsidiary of such Person, and
other dividends payable solely in shares of any class of capital stock to
holders of that class.

                        (b)        amounts paid to purchase,
redeem, retire or otherwise acquire for value any of the capital stock of or
other ownership interests in, or any warrants, options or other rights in
respect of the capital stock of or other ownership interests in, such Person or
its Subsidiaries, now or hereafter outstanding (excluding any such amounts paid
solely to such Person or a wholly-owned Subsidiary of such Person by a
Subsidiary of such Person),

                        (c)        any assets segregated or
set apart (including any money or property deposited with a trustee or other
paying agent) by such Person or any of its Subsidiaries for a sinking or
analogous fund for the purchase, redemption or retirement or other acquisition
of any capital stock of or other ownership interests in, or any warrants,
options or other rights in respect of any capital stock of or other ownership
interests in, such Person or its Subsidiaries, now or hereafter outstanding
(excluding any assets so segregated or set apart with respect to any stock,
warrants, options or other rights held by a wholly-owned Subsidiary of such
Person),

                        (d)        payments made or required
to be made by such Person with respect to any stock appreciation rights plan,
equity incentive or achievement plan, other than regular compensation and
bonuses paid to employees of the Borrower and its Subsidiaries in the ordinary
course of business and consistent with past practices, or any similar plan and
any assets segregated or set apart for such purposes (including any money or
property deposited with a trustee or other paying agent) and

                        (e)        any payment, purchase,
redemption or acquisition of Indebtedness subordinated to the Indebtedness
evidenced by the Notes and any assets segregated or set apart for such purposes
(including any money or property deposited with a trustee or other paying
agent), excluding, however, regularly scheduled payments of interest made
according to the stated terms of such subordinated Indebtedness;

 

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            all as determined in accordance with GAAP.

            "Securities Act" means the
Security Act of 1933, as amended, or any similar federal statute and the rules
and regulations of the SEC thereunder, all as the same shall be in effect at
the time.

            "Security Agreement" shall mean
the Security Agreement, substantially in the form of Exhibit C, executed
by Borrower in favor of the Administrative Agent for the benefit of the
Lenders.

            "Security Documents" shall mean
the Security Agreement, the Trademark and Patent Security Agreement, the
Guaranty, the Guarantor Security Agreement and the Financing Statements,
together with all documents, instruments and agreements now or hereafter
executed or delivered pursuant thereto or in connection therewith.

            "Solvent" shall mean, with
respect to any Person on any particular date, that on such date (a) the fair
value of the assets of such Person is, on the date of determination, greater
than the total amount of liabilities, including contingent and unliquidated
liabilities, of such Person, (b) such Person is able to pay all liabilities of
such Person as they mature, and (c) such Person does not have unreasonably
small capital with which to carry on its business.  In computing the amount of
contingent or unliquidated liabilities at any time, such liabilities will be
computed at the amount that, in light of all the facts and circumstances
existing at such time, represents the amount that can be reasonably expected to
become an actual or matured liability.

"Stated
Maturity": with respect to any Indebtedness, the date specified in the
governing documents thereof as the fixed date on which the final or only, as
the case may be, payment of principal of such Indebtedness is due and payable,
including pursuant to any mandatory redemption provision (but excluding any
provision providing for the repurchase of such Indebtedness at the option of
the holder thereof upon the happening of any contingency beyond the control of
the issuer). 

            "Subsidiary" shall mean, as to
any Person (a) a corporation, limited liability company or other entity of
which shares of stock or other ownership interests having ordinary voting power
(other than stock having such power only by reason of the occurrence of a
contingency) to elect a majority of the board of directors or other managers
thereof are at the time owned, or the management of which is otherwise
controlled, directly or indirectly, through one or more intermediaries, or
both, by such Person, or (b) a partnership in which such Person is a general
partner or the management of which is otherwise controlled, directly or
indirectly, through one or more intermediaries or both, by such Person.

            "Target" shall mean any Person
or material group of assets acquired or proposed to be acquired pursuant to an
Asset Acquisition.

 

11

            "Trademark and Patent Security Agreement"
shall mean that certain Trademark and Patent Security Agreement executed by
Borrower and each Guarantor in favor of the Administrative Agent for the
benefit of the Lenders.

            "UCC" shall mean the Uniform
Commercial Code as in effect in the State of Tennessee or any other applicable
jurisdiction, as the context may require.

            "Warrant" shall mean each Stock
Purchase Warrant, substantially in the form of Exhibit D, executed by
Borrower in favor of each Lender.

            1.2       Accounting and Commercial Terms. 
As used in this Agreement, all accounting terms used but not otherwise defined
herein shall have the respective meanings assigned to them by GAAP.  All terms
used but not otherwise defined herein that are defined or used in Article 9 of
the UCC shall have the respective meanings assigned to them in such Article.

            1.3       General Construction.  As used
in this Agreement, the masculine, feminine and neuter genders and the plural
and singular numbers shall be deemed to include the others in all cases in
which they would so apply.  "Includes" and "including" are
not limiting, and shall be deemed to be followed by "without
limitation" regardless of whether such words or words of like import in
fact follow same.  The word "or" is not intended and shall not be
construed to be exclusive.

            1.4       Headings.  Article and section
headings and captions in this Agreement and the other Loan Documents are
included in such Loan Documents for convenience of reference and shall not
constitute a part of the applicable Loan Documents for any other purpose.

            1.5       References to this Agreement and
Parts Thereof.  As used in this Agreement, unless otherwise specified the
words "hereof," "herein" and "hereunder" and
words of similar import shall refer to this Agreement including all schedules
and exhibits hereto, as a whole, and not to any particular provision of this
Agreement, and the words "Article", "Section",
"Schedule" and "Exhibit" refer to articles, sections,
schedules and exhibits of or to this Agreement.

            1.6       Documentary References.  Any
reference herein to any instrument, document or agreement, by whatever
terminology used, shall be deemed to include any and all amendments, modifications,
supplements, extensions, renewals, substitutions or replacements thereof as the
context may require.

            1.7       Legal References.  Any
reference herein to any law shall be a reference to such law as in effect from
time to time and shall include any rules and regulations promulgated or
published thereunder and published interpretations thereof.

 

12

ARTICLE 2

THE LOAN

            2.1       The Loan; Evidence of Loan
Indebtedness; Repayment.  Subject to the terms and conditions hereof,
Lenders agree to make the Loan to Borrower.  The Loan shall be evidenced by,
and payable in accordance with the provisions of, the Notes.  Borrower may
prepay the Loan, in whole or in part, at any time and from time to time,
without premium or penalty.

            2.2       Acceptance Fee; Closing Fee. 
In connection with the making of the Loan, Borrower shall pay to Lender an
acceptance fee in the amount of $37,500 (the "Acceptance Fee"). 
Lender hereby acknowledges that Borrower has prepaid the Acceptance Fee. 
Further in connection with the making of the Loan, Borrower shall pay to Lender
a closing fee in the amount of $122,500 (the "Closing Fee"). 
The Closing Fee is due and payable on the Closing Date, and Borrower hereby
authorizes and directs Lender to deduct from the Loan proceeds and retain for
its account the sum of $122,500 as payment of the Closing Fee.

            2.3       Purpose.  The purpose of the
Loan shall be to finance the Cornerstone Acquisition and to provide additional
working capital to Borrower.  The proceeds of the Loan shall be used for
no other purposes.

ARTICLE 3

REPRESENTATIONS
AND WARRANTIES

            To induce Lenders to make the Loan and to induce
the Lenders and the Administrative Agent to enter into this Agreement, Borrower
hereby represents and warrants to Lenders as follows:

            3.1       Corporate Status.  Borrower and
its Subsidiaries are entities of the types set forth on Schedule 3.1,
and each is duly organized, validly existing and in good standing under the
laws of the jurisdiction indicated next to its name on Schedule 3.1. 
Borrower and its Subsidiaries have all requisite corporate power, authority and
legal rights to own and operate their respective properties, to carry on their
respective businesses as now conducted and to enter into and to perform their
respective obligations under this Agreement and the other Loan Documents to
which each is a party.  Borrower and its Subsidiaries are each duly qualified
to do business and in good standing in each jurisdiction in which a failure to
be so qualified would have a Material Adverse Effect.

            3.2       Capitalization.  The authorized
capital stock of Borrower consists solely of  (i) 50,000,000 
shares of common stock, $ .001 par value per share ("Common
Stock"), of which  16,967,785 shares (the "Outstanding  Common Shares")
are issued and outstanding  and (ii) 1,000,000 shares of preferred stock ,
$.001 par value per share (the "Preferred Stock"), of which
there are 68 shares of Series A Convertible Preferred Stock (the "Series
A Convertible Preferred Stock") issued and outstanding and 40 shares
of Series B Convertible Preferred Stock (the "Series B Convertible
Preferred Stock") issued and outstanding (collectively,
the "Outstanding Preferred Shares" and together with the
Outstanding Common Shares, the "Outstanding Shares") .  Schedule
3.2 lists the respective holders of Outstanding Shares, the number of
Outstanding Shares held by each and the respective percentage ownership of each
on a fully diluted basis, assuming the exercise or conversion of all issued and
outstanding option securities and convertible securities of Borrower.  All of
the Outstanding Shares are duly authorized, validly issued and outstanding and
fully paid and nonassessable and free of preemptive rights.  Except for the
Outstanding Shares, there are no shares of capital stock or other securities of
Borrower outstanding.  Except as set forth on Schedule 3.2, there are no
outstanding options, warrants or rights to purchase or acquire from Borrower
any securities of Borrower, and there are no contracts, commitments,
agreements, understandings, arrangements or restrictions as to which Borrower
is a party or by which it is bound relating to any shares of capital stock or
other securities of Borrower (including the Outstanding Shares), regardless of
whether outstanding. 

 

13

            3.3       Authorization.    The execution
and delivery of this Agreement, the borrowing hereunder, the execution and
delivery of each Loan Document to which Borrower and any of its Subsidiaries is
a party and the performance by Borrower and its Subsidiaries of their
respective obligations thereunder are within the corporate powers of Borrower
and its Subsidiaries and have been duly authorized by all necessary corporate
action properly taken, have received all necessary governmental approvals, if
any were required, and do not and will not contravene or conflict with any
provision of law, any applicable judgment, ordinance, regulation or order of
any court or Governmental Authority.  The officer(s) executing this Agreement,
the Notes and all of the other Loan Documents to which Borrower or any of its
Subsidiaries is a party are duly authorized to act on behalf of Borrower or its
Subsidiaries, as the case may be.

            3.4       Validity and Binding Effect. 
This Agreement and the other Loan Documents are the legal, valid and binding
obligations of Borrower and the Guarantors, as the case may be, enforceable in
accordance with their respective terms, subject to limitations imposed by
bankruptcy, insolvency, moratorium or other similar laws affecting the rights
of creditors generally or the application of general equitable principles.

            3.5       No Conflicts.  Except as set
forth on Schedule 3.5, the execution and delivery of this Agreement and
the other Loan Documents, consummation of the transactions contemplated by such
Loan Documents and the performance of the respective obligations of Borrower
and the Guarantors under and by virtue of such Loan Documents will not result
in any breach of, or constitute a default under, any mortgage, security deed or
agreement, deed of trust, lease, bank loan or credit agreement, corporate
charter or bylaws, agreement or certificate of limited partnership, partnership
agreement, license, franchise or any other instrument or agreement to which
Borrower or its Subsidiaries is a party or by which Borrower, its Subsidiaries,
or their respective properties may be bound or affected, unless and except to
the extent that Borrower or its Subsidiaries have obtained an effective waiver.

 

14

            3.6       Investments.  Borrower has no
Investments other than cash on deposit with banks and Investments (including
Investments in Subsidiaries of Borrower) set forth on Schedule 3.6.

            With respect to each Subsidiary of Borrower, Schedule
3.6 shows the percentage of the stock or other equity interests that is
owned by Borrower and each other Person having an interest therein.  The
outstanding capital stock of each Subsidiary that is a corporation is validly
issued, fully paid and nonassessable.  Borrower and its Subsidiaries have good
and valid title to the equity interests in the Subsidiaries of Borrower shown as
owned by each of them on Schedule 3.6, free and clear of all Liens.

            3.7       Trademarks, Patents, Etc.  Schedule
3.7 is an accurate and complete list of all patents, trademarks,
tradenames, trademark registrations, service names, service marks, copyrights,
licenses, formulas and applications therefor owned by Borrower or any of its
Subsidiaries or used or required by Borrower or any of its Subsidiaries in the
operation of their respective businesses, title to each of which is, except as
set forth in Schedule 3.7, held by Borrower or its subsidiary, as
applicable, free and clear of all Liens.  There is no infringement action,
lawsuit, claim or, to the knowledge of Borrower, complaint that asserts that
Borrower's or its Subsidiaries operations violate or infringe the rights or the
trade names, trademarks, trademark registrations, service names, service marks
or copyrights of others with respect to any asset or operation of Borrower or
any of its Subsidiaries or, to the knowledge of Borrower, any adversely held trademark,
trade name, trademark registration, service name, service mark or copyright,
and Borrower and its Subsidiaries are not in any way making use of any
confidential information or trade secrets of any Person except with the consent
of such Person.

3.8             
Financial Statements.  

(a)    The financial
statements of the Borrower and its Subsidiaries included in the Borrower's
filings with the SEC for the last three (3) fiscal years, the audited financial
statements as of December 31, 2004 and for the year ended December 31, 2004 and
the unaudited financial statements of January 31, 2005 and for the month then
ended (including the related notes, if any) complied as to form, as of their
respective dates of filing with the SEC, if applicable, in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto (including, without limitation,
Regulation S-X), have been prepared in accordance with GAAP (except, in the
case of unaudited statements, as permitted by Quarterly Report Form 10-QSB of
the SEC) applied on a consistent basis during the periods and at the dates
involved (except as may be indicated in the notes thereto) and fairly present
the consolidated financial condition of the Borrower and its Subsidiaries at
the dates thereof and the consolidated results of operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to the
absence of notes and normal year-end audit adjustments that were not material
in amount or effect).  Except (A) as reflected in the Borrower's audited
financial statements at December 31, 2004 (the "Most Recent Financial
Statements") or liabilities described in any notes thereto (or
liabilities for which neither accrual nor footnote disclosure is required
pursuant to GAAP) or (B) for liabilities incurred in the ordinary course of
business since December 31, 2004 consistent with past practice or in connection
with this Agreement or the transactions contemplated hereby, neither the
Borrower nor any of its Subsidiaries has any material liabilities or
obligations of any nature.  Corbin & Company, LLP, who have expressed their
opinion with respect to the audited financial statements of the Borrower and
its Subsidiaries included in the Borrower's filings with the SEC (including the
related notes), are independent public or certified public accountants as
required by the Securities Act and the Exchange Act.

 

15

            3.9       Indebtedness.  Schedule 3.9
is a complete and correct list of all Indebtedness of Borrower and its
Subsidiaries, and identifies all credit agreements, indentures, purchase
agreements, promissory notes and other evidences of Indebtedness, guaranties,
Capitalized Leases and other instruments, agreements and arrangements presently
in effect providing for or relating to extensions of credit (including
agreements and arrangements for the issuance of letters of credit or for
acceptance financing) in respect of which Borrower or any of the properties
thereof is in any manner directly or contingently obligated.  The maximum
principal or face amounts of the credit in question that are outstanding and
that can be outstanding are correctly stated on Schedule 3.9, and all
Liens of any nature given or agreed to be given as security for any
Indebtedness of Borrower are correctly described or indicated in such Schedule.

            3.10     Title to Assets.  Borrower and
its Subsidiaries have good and valid title (or good and valid leasehold
interests with respect to leased property) to all their respective assets
(including all assets constituting a part of the Collateral and all assets
reflected in the balance sheet of Borrower as of January 31, 2005), subject to
no Liens other than Permitted Liens.

            3.11     Labor Matters.  There are no
disputes or controversies pending between Borrower or its Subsidiaries and
their respective employees, the outcome of which reasonably may be expected to
have a Material Adverse Effect.

            3.12     Litigation.  Except as set forth
on Schedule 3.12, there are no actions, suits or proceedings pending,
or, to the knowledge of Borrower threatened, against or affecting Borrower or
any of its Subsidiaries or involving the validity or enforceability of any of
the Loan Documents, at law or in equity, before any court or Governmental
Authority.  To Borrower's knowledge, Borrower is not in default with respect to
any order, writ, injunction, decree or demand of any court or Governmental
Authority.

            3.13     Other Agreements; No Defaults. 
Borrower is not a party to any indenture, loan or credit agreement, lease or
other instrument, document or agreement or instrument, or subject to any
charter or corporate restriction, that could have a Material Adverse Effect. 
Borrower is not in default in any respect in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement or instrument material to its business to which it is a party,
including this Agreement and the other Loan Documents, and no other default or
event has occurred and is continuing that with notice or the passage of time or
both would constitute a default or event of default under any of same.

 

16

            3.14     Compliance with Laws.  Borrower
and its Subsidiaries (a) have not been, are not and will not be in violation of
any applicable Requirement of Law, including any building, zoning, occupational
safety and health, fair employment, equal opportunity, pension, environmental
control or similar federal, state or local law, ordinance or regulation,
relating to the ownership or operation of their respective businesses or
assets, (b) have not failed to obtain any license, permit, certificate or other
governmental authorization necessary for the conduct of their businesses or the
ownership and operation of their assets, (c) have not received any notice from
any Governmental Authority, and to their knowledge no such notice is pending or
threatened, alleging that Borrower or any of its Subsidiaries has violated, or
has not complied with, any Requirement of Law, condition or standard applicable
with respect to any of the foregoing, and (d) are not a party to any agreement
or instrument, or subject to any judgment, order, writ, rule, regulation, code
or ordinance, except to the extent that any violation, noncompliance, failure,
agreement, judgment, etc. as described in this Section 3.14 cannot
reasonably be expected to have a Material Adverse Effect.

            3.15     Governmental Authorizations;
Permits, Licenses and Accreditation; Other Rights.  Borrower and its
Subsidiaries have all licenses, permits, approvals, registrations, contracts,
consents, franchises, qualifications, accreditations and other authorizations
necessary for the lawful conduct of their respective businesses or operations
wherever now conducted and as planned to be conducted, pursuant to all
applicable statutes, laws, ordinances, rules and regulations of all
Governmental Authorities having, asserting or claiming jurisdiction over
Borrower and its Subsidiaries or over any part of their respective operations. 
Copies of all such licenses, permits, approvals, registrations, contracts,
consents, franchises, qualifications, accreditations and other authorizations
shall be provided to Lender upon request.  Borrower and its Subsidiaries are
not in default under any of such licenses, permits, approvals, registrations, contracts,
consents, franchises, qualifications, accreditations or other authorizations,
and no event has occurred, and no condition exists, that with the giving of
notice, the passage of time or both would constitute a default thereunder or
would result in the suspension, revocation, impairment, forfeiture or
non-renewal of any thereof, except to the extent that the cumulative effect of
all such defaults, events, conditions, suspensions, revocations, impairments,
forfeitures and non-renewals cannot reasonably be expected to have a Material
Adverse Effect.  The continuation, validity and effectiveness of all such
licenses, permits, approvals, registrations, contracts, consents, franchises,
qualifications, accreditations and other authorizations will not be adversely
affected by the transactions contemplated by this Agreement.  Borrower and its
Subsidiaries know of no reason why they will not be able to maintain after the
date hereof all licenses, permits, approvals, registrations, contracts,
consents, franchises, qualifications, accreditations and other authorizations
necessary or appropriate to conduct the businesses of Borrower and its
Subsidiaries as now conducted and presently planned to be conducted.

            3.16     Taxes.  Borrower has filed or
caused to be filed all tax returns that to its knowledge are required to be
filed (except for returns that have been appropriately extended), and has paid,
or will pay when due, all taxes shown to be due and payable on said returns and
all other taxes, impositions, assessments, fees or other charges imposed on
them by any governmental authority, agency or instrumentality, prior to any
delinquency with respect thereto (other than taxes, impositions, assessments,
fees and charges currently being contested in good faith by appropriate
proceedings, for which appropriate amounts have been reserved).  No tax liens
have been filed against Borrower or any of the property thereof.

 

17

            3.17     Certain Transactions.  Except as
set forth on Schedule 3.17, (a) Borrower is not indebted, directly or
indirectly, to any of its officers or directors or to their respective spouses
or children, in any amount whatsoever, and (b) none of said officers or
directors or any members of their immediate families, are indebted to Borrower
or have any direct or indirect ownership interest in any firm or corporation
with which Borrower has a business relationship, or any firm or corporation
which competes with Borrower, except that officers or directors of Borrower may
own no more than 1% of outstanding stock of publicly traded companies that may
compete with Borrower.  Except as set forth on Schedule 3.17, no officer
or director or any member of their immediate families, is, directly or
indirectly, interested in any material contract with Borrower, and each such
contract has been fully disclosed to and approved by the directors of Borrower
and is on arm's length terms.  Except as set forth on Schedule 3.17,
Borrower is not a guarantor or indemnitor of any Indebtedness of any other
person, firm or corporation.

            3.18     Margin Regulations. Borrower is
not engaged in the business of extending credit for the purpose of purchasing
or carrying margin stock.  No proceeds received pursuant to this Agreement will
be used to purchase or carry any equity security of a class registered pursuant
to Section 12 of the Exchange Act.

            3.19     Significant Contracts.  Schedule
3.19 is a complete and correct list of all contracts, agreements and other
documents pursuant to which Borrower receives revenues in excess of $500,000. 
Each such contract, agreement and other document is in full force and effect as
of the date hereof and Borrower knows of no reason why such contracts,
agreements and other documents would not remain in full force and effect
pursuant to the terms thereof.

            3.20     ERISA.

                        (a)        Plans.  Schedule
3.20 sets forth any and all Plans maintained by or on behalf of Borrower or
any of its Subsidiaries, including any defined benefit pension plan, profit
sharing plan, money purchase pension plan, savings or thrift plan, stock bonus
plan, employee stock ownership plan or Multiemployer Plan and any plan, fund,
program, arrangement or practice providing for medical (including
post-retirement medical), hospitalization, accident, sickness, disability, or
life insurance benefits.  Neither Borrower nor any ERISA Affiliate maintains or
contributes to, or has maintained or contributed to, any defined benefit
pension plan or Multiemployer Plan.

                        (b)        Compliance.  Each
Plan maintained by or on behalf of Borrower or any of its Subsidiaries has at
all times been maintained, by its terms and in operation, in accordance in all
material respects with ERISA and all other applicable Requirements of Law.

 

18

                        (c)        Liabilities. 
Except for liabilities and expenses that become payable and are timely paid
pursuant to the terms and usual operations of the Plans, Borrower currently is
not, and to its knowledge will not become, subject to any material liability
(including withdrawal liability), tax or penalty whatsoever to any Person
whomsoever with respect to any Plan including any material tax, penalty or
liability arising under Title I or Title IV of ERISA or Chapter 43 of the
Internal Revenue Code.

                        (d)        Funding.  Each of
Borrower and its ERISA Affiliates has made full and timely payment of all
amounts (1) required to be contributed under the terms of each Plan and
applicable law and (2) required to be paid as expenses of each Plan.  No Plan
or Plans have an "amount of unfunded benefit liabilities" (as defined
in Section 4001(a)(18) of ERISA) that, in the aggregate, exceeds $25,000.

            3.21     Environmental Matters.

                        (a)        Except as set forth on Schedule
3.21, neither Borrower nor any of its Subsidiaries, nor any of the
properties owned or leased thereby or operations thereof, nor, to the knowledge
of Borrower, any current or prior owner, lessor or operator (other than
Borrower or any of its Subsidiaries) of any properties owned or leased by
Borrower or any of its Subsidiaries, is in violation of any applicable
Environmental Law or any restrictive covenant or deed restriction relating to
environmental matters (recorded or otherwise) or subject to any existing,
pending or threatened investigation, inquiry or proceeding by any Governmental
Authority or subject to any remedial obligations under any Environmental Law, except
to the extent that the cumulative effect of all such violations,
investigations, inquiries, proceedings and remedial obligations cannot
reasonably be expected to have a Material Adverse Effect.

                        (b)        All permits, licenses,
approvals and filings required of Borrower or any of its Subsidiaries with
respect to Hazardous Materials, including past or present treatment, storage,
disposal or release of any Hazardous Materials into the environment, have been
obtained or filed.

                        (c)        All Hazardous Materials
generated by Borrower or any of its Subsidiaries have in the past been, and
will continue to be, transported, treated and disposed of only by carriers
maintaining valid permits under all applicable Environmental Laws and only at
treatment, storage and disposal facilities maintaining valid permits under
applicable Environmental Laws, which carriers and facilities have been and are,
to the knowledge of Borrower, operating in compliance with such permits.

                        (d)        Borrower and its
Subsidiaries have taken all reasonable steps necessary to determine, and have
determined, that no Hazardous Materials have been disposed of or otherwise
released by them except in compliance with Environmental Laws.

                        (e)        Neither Borrower nor any
of its Subsidiaries has a material contingent liability in connection with any
release of any Hazardous Materials or solid waste into the environment.

 

19

            3.22     Controls.  Each of the Borrower
and its Subsidiaries maintains accurate books and records reflecting its assets
and liabilities and maintains proper and adequate internal accounting controls
which are effective for gathering, analyzing and disclosing the information the
Borrower is required to timely disclose in the reports it files under the
Exchange Act.

            3.23     SEC Reports.  The Borrower has
on a timely basis filed all forms, reports and documents required to be filed
by it with the SEC since January 1, 2002.  Except to the extent available in
full without redaction on the SEC's web site through the Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR") two days prior to
the date of this Agreement, the Borrower has made available to counsel to the
Lenders, copies in the form filed with the SEC of (i) the Borrower's Annual
Reports on Form 10-KSB for each fiscal year of the Borrower beginning since
January 1, 2002, (ii) its Quarterly Reports on Form 10-QSB for each of the
first three fiscal quarters in each of the fiscal years of the Borrower
referred to in clause (ii) above, (iii) all proxy statements relating to the
Borrower's meetings of stockholders (whether annual or special) held, and all
information statements relating to stockholder consents since the beginning of
the first fiscal year referred to in clause (i) above, and (iv) all other
forms, reports, registration statements and other documents (other than
preliminary materials if the corresponding definitive materials have been
provided to Lenders pursuant to this Section 3.23 filed (but not furnished) by
the Borrower with the SEC since the beginning of the first fiscal year referred
to in clause (i) above (the forms, reports, registration statements and other
documents referred to in clauses (i), (ii), (iii), and (iv) above are,
collectively, the "Company SEC Reports" and, to the extent available
in full without redaction on the SEC's web site through EDGAR two days prior to
the date of this Agreement, are collectively, the "Filed Company SEC
Reports"), and (v) all comment letters received by the Borrower from the
staff of the SEC since January 1, 2002 and all responses to such comment
letters by or on behalf of the Borrower.  The Company SEC Reports, including
all certifications and statements required by Rule 13a-14 or 15d-14 under the
Exchange Act,  (x) complied as to form in all material respects with the
requirements of the Securities Act and the Exchange Act, as the case may be,
and the rules and regulations thereunder and (y) did not at the time they were
filed with the SEC, contain any untrue statement of a material fact or omit to
state a material fact or required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading.  No Subsidiary is or has been required to file
any form, report, registration statement or other document with the SEC.  The
Borrower maintains the disclosure controls and procedures required by Rule
13a-15 or 15d-15 under the Exchange Act.  Except as set forth on Part 2.13
of the Disclosure Schedule, to the Borrower's knowledge, each director and
executive officer of the Borrower has filed with the SEC on a timely basis all
statements required by Section 16(a) of the Exchange Act and the rules and
regulations thereunder since January 1, 2002.

            3.24     Statements Not False or Misleading. 
No representation or warranty given as of the date hereof by Borrower contained
in this Agreement or any schedule attached hereto or any statement in any
document, certificate or other instrument furnished or to be furnished to
Lender pursuant hereto, taken as a whole, contains or will (as of the time so
furnished) contain any untrue statement of a material fact, or omits or will
(as of the time so furnished) omit to state any material fact which is
necessary in order to make the statements contained therein not misleading.

 

20

ARTICLE 4

COVENANTS AND
AGREEMENTS

            Borrower covenants and agrees that during the
term of this Agreement:

            4.1       Payment and Performance of
Obligations.  Borrower shall pay the indebtedness evidenced by the Notes
according to the terms thereof, and shall timely pay or perform, as the case
may be, all of the other obligations of Borrower to Lenders, and Borrower to
the Administrative Agent, direct or contingent, however evidenced or
denominated, and however and whenever incurred, including indebtedness incurred
pursuant to any present or future commitment of Lender to Borrower, together
with interest thereon, and any extensions, modifications, consolidations or
renewals thereof and any notes given in payment thereof.

            4.2       Financial Statements and Reports. 
Borrower shall furnish to each Lender:

                        (a)        as soon as available and
in any event within one hundred twenty (120) days after the end of each Fiscal
Year of Borrower, a consolidated balance sheet of Borrower and its Subsidiaries
as of the end of such Fiscal Year and the related consolidated statements of
income, shareholders' equity and cash flows of Borrower and its Subsidiaries
for such Fiscal Year, audited and reported upon, without qualification, by an
independent public accounting firm reasonably acceptable to the Administrative
Agent, accompanied by an unaudited consolidating balance sheet of Borrower and
its Subsidiaries as of the end of such Fiscal Year and an unaudited
consolidating statement of income of Borrower and its Subsidiaries for such
Fiscal Year, certified by a Responsible Officer of Borrower, together with (1)
a certificate of a Responsible Officer of Borrower stating that no Default has
occurred and is continuing or, if in the opinion of such officer, a Default has
occurred and is continuing, a statement as to the nature thereof and the action
that Borrower proposes to take with respect thereto, (2) a certificate of a
Responsible Officer of Borrower, in form satisfactory to Lender, setting forth
computations demonstrating compliance with all financial covenants contained
herein as of the end of such Fiscal Year, and (3) a written discussion and
analysis by the management of Borrower of the financial statements furnished in
respect of such Fiscal Year.

                        (b)        as soon as available and
in any event within forty-five (45) days after the end of each month, an
unaudited consolidated and consolidating balance sheet of Borrower and its
Subsidiaries as of the end of such month, the related consolidated and
consolidating statement of income of Borrower and its Subsidiaries for the
period commencing at the beginning of the current Fiscal Year and ending with
the end of such month and the related consolidated statements of shareholders'
equity and cash flows of Borrower and its Subsidiaries for such period,
certified by a Responsible Officer of Borrower, together with (1) a certificate
of a Responsible Officer of Borrower stating that no Default has occurred and
is continuing or, if in the opinion of such officer, a Default has occurred and
is continuing, a statement as to the nature thereof and the action that
Borrower proposes to take with respect thereto, (2) a certificate of a
Responsible Officer of Borrower, in form satisfactory to Lender, setting forth
computations demonstrating compliance with all financial covenants contained
herein as of the end of such period, and (3) a written discussion and analysis
by the management of Borrower of the financial statements furnished in respect
of such period.

 

21

                        (c)        within thirty (30) days
prior to the beginning of each Fiscal Year of Borrower, a budget of Borrower
and its Subsidiaries for such Fiscal Year setting forth, in reasonable detail,
a balance sheet and statements of income, shareholders' equity and cash flows
for such Fiscal Year.

                        (d)        with reasonable promptness,
such other financial data as Lender reasonably may request.

            Borrower will take all actions necessary to
cause all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein (except as may be
approved by such accountants or Responsible Officer, as the case may be, and
specifically disclosed therein).

            4.3       Maintenance of Books and Records;
Inspection.  Borrower shall maintain its books, accounts and records in
accordance with GAAP consistently applied, and permit each Lender, their
respective officers and employees and any professionals designated by any
Lender in writing, at such Lender's expense, to visit and inspect any of the
properties, corporate books and financial records of Borrower and its
Subsidiaries, and to discuss its accounts, affairs and finances with Borrower
or the principal officers of Borrower during reasonable business hours, all at
such times as either Lender may reasonably request upon reasonable advance
notice, provided that no such inspection shall materially interfere with the
conduct of Borrower's business.

            4.4       Insurance.  Without limiting
any of the requirements of any of the other Loan Documents, Borrower shall, and
shall cause each of its Subsidiaries to, maintain, in amounts customary for
entities of similar reputation engaged in comparable business activities, (a)
"all risk" casualty insurance on its properties against such hazards
as are customarily insured against by entities of similar reputation engaged in
comparable business activities, (b) general liability insurance, and (c) to the
extent required by applicable law, worker's compensation insurance (or maintain
a legally sufficient amount of self insurance against worker's compensation
liabilities, with adequate reserves, under a plan approved by the
Administrative Agent, such approval not to be unreasonably withheld).  The
Administrative Agent shall be named as an additional insured with respect to
liability insurance and an additional loss payee, as its interests appear, with
respect to property insurance.  Each such insurance policy shall require the
insurer to notify the Administrative Agent in writing at least thirty (30) days
prior to any cancellation or material reduction or limitation of such policy. 
At the request of the Administrative Agent, Borrower will deliver to each
Lender forthwith a certificate specifying the details of such insurance in
effect.

 

22

            4.5       Taxes and Assessments. 
Borrower shall, and shall cause each of its Subsidiaries to, (a) file all tax
returns and appropriate schedules thereto that are required to be filed under
applicable law, prior to the date of delinquency, (b) pay and discharge all
taxes, assessments and governmental charges or levies imposed upon Borrower or
such Subsidiary or upon its income and profits or upon any properties belonging
to it, prior to the date on which penalties attach thereto, and (c) pay all
taxes, assessments and governmental charges or levies that, if unpaid, might
become a Lien upon any of its properties; provided, however, that
Borrower or such Subsidiary in good faith may contest any such tax, assessment,
governmental charge or levy described in the foregoing clauses (b) and (c) so
long as appropriate reserves are maintained with respect thereto.

            4.6       Corporate Existence; Name. 
Borrower shall, and shall cause each of its Subsidiaries to,  maintain its
corporate or other existence and good standing in the state of its
incorporation or organization, and its qualification and good standing in each
jurisdiction in which a failure to be so qualified would have a Material
Adverse Effect.  Borrower shall not, and shall not permit any of its
Subsidiaries to, change its name without giving Lender thirty (30) days prior
written notice.

            4.7       Compliance with Law and Other
Agreements.  Except where the failure to do so would not have a Material
Adverse Effect, Borrower shall, and shall cause each of its Subsidiaries to, 
maintain its business operations and property owned or used in connection
therewith in compliance with (a) all applicable Requirements of Law, and (b)
all instruments, documents and agreements to which Borrower or such Subsidiary
is a party or by which Borrower or such Subsidiary or any of its properties is
bound.  Without limiting the foregoing, Borrower shall, and shall cause each of
its Subsidiaries to, pay all of its Indebtedness promptly in accordance with
the terms thereof.

            4.8       Notice of Default.  Borrower
shall give written notice to each Lender of the occurrence of any Default
promptly following the occurrence thereof.

            4.9       Notice of Litigation.  Borrower
shall give notice, in writing, to each Lender of (a) any actions, suits or
proceedings wherein the amount at issue is in excess of One Hundred Thousand
and No/100ths Dollars ($100,000.00) instituted by any persons whomsoever
against Borrower or any of its Subsidiaries or affecting any of the assets of
Borrower or any of its Subsidiaries, and (b) any dispute, not resolved within
sixty (60) days of the commencement thereof, between Borrower or any of its
Subsidiaries on the one hand and any governmental regulatory body on the other
hand, which dispute could have a Material Adverse Effect.

            4.10     Conduct of Business.  Borrower
shall, and shall cause each of its Subsidiaries to,  continue to engage in a
business of the same general type and manner as conducted by it on the date of
this Agreement, with respect to any Permitted Acquisition, on the date of such
acquisition.

 

23

            4.11     ERISA.  If Borrower now has in
effect or hereafter institutes any Plan, Borrower shall:

                        (a)        Within five (5) days
after Borrower knows or has reason to know of such event, notify Lender of (1)
any fact that might constitute grounds for the involuntary termination of any
Plan, or for the appointment by the appropriate United States District Court of
a trustee to administer the Plan, (2) any Reportable Event with respect to any
Plan, (3) the institution of proceedings or the taking or expected taking of
any other action by the PBGC, Borrower, any of its Subsidiaries or any Commonly
Controlled Entity to terminate, withdraw or partially withdraw from any Plan,
and (4) with respect to any Multi-Employer Plan, the reorganization or insolvency
of such Plan.

                        (b)        cause contributions under
each such Plan to meet the minimum funding standards required by ERISA.

            4.12     Restricted Payments; Preemptive
Rights.  Borrower shall not, and shall not permit any of its Subsidiaries
to, declare, pay or make, any Restricted Payments or grant any preemptive
rights with respect to its capital stock of Borrower, except:

                        (a)        Borrower
may declare and pay dividends and make distributions payable solely in common
stock of Borrower, and may distribute cash in lieu of fractional shares
otherwise distributable pursuant to this clause (a), only on (i) shares of
Common Stock of Borrower outstanding at any time and (ii) shares of Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock outstanding
as of the date hereof;

                        (b)        Borrower may purchase or
otherwise acquire shares of its capital stock by exchange for or out of the
proceeds received from a substantially concurrent issue of new shares of its
capital stock;

            (c)        any
Subsidiary of the Borrower may make Restricted Payments to the Borrower or any
Guarantor; 

                        (d)        Borrower may pay amounts
potentially due to a seller of assets in a Permitted Acquisition that
(i) relate to customary post-closing adjustments with respect to accounts
receivable, accounts payable and similar items typically subject to
post-closing adjustments in similar transactions, and (ii) are outstanding
for a period of one hundred twenty (120) days or less following the closing of
such Permitted Acquisition; 

                        (e)        Borrower may redeem or
repurchase the Warrants owned by the Lenders in accordance with the terms of
the Warrants; 

 

24

                        (f)         Borrower may make
regularly scheduled payments of principal and interest pursuant to those
obligations described on Schedule 4.12; and

 

            (g)        Borrower may
make regularly scheduled payments of principal and interests pursuant to the
Indebtedness permitted in Section 4.14(i).

            4.13     Investments.  Borrower shall not
make, commit to make or suffer to exist, or permit any of its Subsidiaries to
make, commit to make or suffer to exist, any Investment except:

                        (a)        cash on hand and in
deposit in banks or Cash Equivalents;

                        (b)        Investments existing on
the date hereof and set forth in Schedule 3.6;

                        (c)        accounts receivable
representing trade credit extended in the ordinary course of business;

                        (d)        unsecured loans or
advances to Borrower by any Subsidiary of Borrower; 

                        (e)        additional Investments in
Subsidiaries (other than in Permitted Non-Guarantor Entities); 

                        (e)        Investments consisting of
Permitted Acquisitions; 

            (f)         advances in
reasonable amounts made by Borrower and its Subsidiaries to their respective
employees for reimbursable expenses incurred or to be incurred by such
employees in the ordinary course performance of their duties;

            (g)        Investments
in Permitted Non-Guarantor Entities in an aggregate amount not to exceed
$100,000.

            4.14     Indebtedness.  Borrower shall
not create, incur, assume or suffer to exist, or permit any of its Subsidiaries
to create, incur, assume or suffer to exist, any Indebtedness, except:

                        (a)        Indebtedness of Borrower
under or pursuant to this Agreement and the other Loan Documents;

                        (b)        Indebtedness existing, or
arising pursuant to commitments existing, on the date hereof, all as set forth
in Schedule 3.9, and any extensions, renewals, refundings or
refinancings thereof on substantially the same terms or other terms
satisfactory to Lender; provided, however, that neither the principal
amount thereof nor the interest rate (including the manner of calculating a
variable rate of interest) thereon shall be increased, nor shall the
amortization schedule thereof be shortened;

 

25

                        (c)        Current liabilities
incurred in the ordinary course of business and not represented by any note,
bond, debenture or other instrument, and which do not remain unpaid more than
thirty (30) days after the date due or more than one hundred and fifty (150)
days after the date of the corresponding invoice, whichever is longer, or if
unpaid beyond that time, which are being contested in good faith and by
appropriate actions and for which adequate reserves in accordance with GAAP
have been established on the books of the primary obligor with respect thereto;

                        (d)        Contingent Obligations
consisting of (1) the indorsement by Borrower or any of its Subsidiaries of
negotiable instruments payable to such Person for deposit or collection in the
ordinary course of business, and (2) guarantees executed by Borrower or any of
its Subsidiaries with respect to Indebtedness of Borrower and its Subsidiaries
otherwise permitted by this Agreement;

                        (e)        Contingent Obligations
consisting of the indemnification by Borrower or any of its Subsidiaries in
favor of (1) the officers, directors, employees and agents of Borrower or such
Subsidiary, to the extent permissible under the corporation law of the
jurisdiction in which Borrower or such Subsidiary is organized, (2) commercial
banks, investment bankers and other independent consultants or professional
advisors pursuant to agreements relating to the underwriting of Borrower's or
such Subsidiary's securities or the rendering of banking or professional
services to Borrower or such Subsidiary and (3) landlords, licensors, licensees
and other parties pursuant to agreements entered into in the ordinary course of
business by Borrower or such Subsidiary;

                        (f)         Indebtedness with
respect to financed insurance premiums not past due;

                        (g)        Indebtedness of Borrower
that is owed to a Subsidiary of Borrower and that is described in clause (d) of
Section 4.13; and 

            (h)        Indebtedness
that is owed to a seller of assets in a Permitted Acquisition or the
Cornerstone Acquisition that (i) relates to customary post-closing
adjustments with respect to accounts receivable, accounts payable and similar
items typically subject to post-closing adjustments in similar transactions,
and (ii) is outstanding for a period of one hundred twenty (120) days or
less following the closing of such Permitted Acquisition or the Cornerstone
Acquisition, as applicable;

           
(i)         Indebtedness incurred or
assumed as a part of the consideration for a Permitted Acquisition, not
otherwise described in this Section 4.14, in the maximum amount of
$10,000,000 per Permitted Acquisition with an aggregate amount not to exceed
$30,000,000 outstanding at any one time;

            (j)         Any Indebtedness
that Refinances the Laurus Credit Facility, so long as (i) such Indebtedness is
in an aggregate principal amount not in excess of the sum of (x) $4,000,000,
and (y) an amount necessary to pay any fees and expenses, including premiums
and defeasance costs, related to such Refinancing; (ii) the Average Life of
such Indebtedness is equal to or greater than the Average Life of the
Indebtedness being Refinanced; (iii) the Stated Maturity of such Indebtedness
is no earlier than the Stated Maturity of the Indebtedness being Refinanced;
and (iv) the new Indebtedness shall not be senior in right of payment to the
Indebtedness that is being Refinanced; provided, however, that such new
Indebtedness shall not include Indebtedness of a Subsidiary that Refinances the
Laurus Credit Facility.

 

26

                        (k)        Purchase Money Debt and
Capitalized Lease Obligations in an aggregate amount not to exceed
$2,000,000.00 outstanding at any one time.

            4.15     Liens.  Borrower shall not
create, incur, assume or suffer to exist, or permit any of its Subsidiaries to
create, incur, assume or suffer to exist, any Lien upon any real or personal
property, fixtures, revenues or other assets whatsoever (including the
Collateral), whether now owned or hereafter acquired, of Borrower or any of its
Subsidiaries, except:

                        (a)        Liens securing the
indebtedness and other obligations of Borrower pursuant to this Agreement, the
Notes and the other Loan Documents;

                        (b)        Liens described on Schedule
3.9;

                        (c)        Liens for taxes not
delinquent or that are being contested in good faith and by appropriate actions
and for which adequate reserves in accordance with GAAP have been established
on the books of Borrower or such Subsidiary;

                        (d)        carriers',
warehousemen's,  mechanics', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business that are not overdue for a period of
more than thirty (30) days, or if overdue for more than thirty (30) days, (1)
which are being contested in good faith and by appropriate proceedings, (2) for
which adequate reserves in accordance with GAAP have been established on the
books of Borrower or such Subsidiary; and (3) with respect to which the
obligations secured thereby are not material;

                        (e)        pledges or deposits in
connection with workers' compensation insurance, unemployment insurance and
like matters;

                        (f)         Liens securing Purchase
Money Debt or Indebtedness arising under Capitalized Leases; provided,
however, that in each case any such Lien attaches only to the specific
item(s) of property or asset(s) acquired or financed with the proceeds of the
corresponding Indebtedness;

                        (g)        deposits to secure the
performance of bids, trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;

                        (h)        easements, reservations,
exceptions, rights-of-way, covenants, conditions, restrictions and other
similar encumbrances incurred in the ordinary course of business that, in the
aggregate, are not substantial in amount, and that do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of business by Borrower or such Subsidiary;

 

27

                        (i)         Liens of lessors under
or in connection with Operating Leases; 

(j)         Liens securing Indebtedness described in Section 4.14(i); 

                        (j)         Liens securing
Indebtedness described in Section 4.14(j); 

                        (k)        Other non-consensual
Liens not securing Indebtedness, the existence of which in the aggregate cannot
reasonably be expected to have a Material Adverse Effect, provided that
any Lien permitted by this clause (j) is permitted only for so long as is
reasonably necessary for Borrower or the affected Subsidiary, using its best
efforts, to remove or eliminate such Lien.

            4.16     Sale or Transfer of Assets. 
Borrower shall not, and shall not permit any of its Subsidiaries to, sell,
lease, assign, transfer or otherwise dispose of, any of its assets (including
the stock of Subsidiaries) except:

                        (a)        sales of inventory and
other personal property assets in the ordinary course of business of Borrower
and its Subsidiaries;

                        (b)        the disposition of
obsolete or worn-out equipment or other property no longer required by or
useful to Borrower or any of its Subsidiaries in connection with the operation
of their businesses; 

                        (c)        the sale or transfer to
Borrower of any asset owned by any of its Subsidiaries; 

                        (d)        the sale or transfer to a
Subsidiary (other than a Permitted Non-Guarantor Entity); 

                        (e)        the sale, in the ordinary
course of business and consistent with past practices, to collection agencies
of  accounts receivable overdue by not less than one hundred eighty (180) days;
and

                        (f)         dispositions of Cash
Equivalents.

            4.17     Mergers, Consolidations,
Acquisitions and Sales.  Borrower shall not (a) be a party to any merger,
consolidation or corporate reorganization, nor (b) except for Permitted
Acquisitions and the Cornerstone Acquisition, purchase or otherwise acquire all
or substantially all of the assets or stock of, or any partnership or joint
venture interest in, any other person, firm or entity, nor (c) create any
Subsidiaries nor, except as permitted by Section 4.16(d), convey any of
its assets to any Subsidiary; provided, however, notwithstanding clause (a)
of this Section 4.17, the merger, consolidation or amalgamation
of any Subsidiary of the Borrower with any other Person as the method by which
a Permitted Acquisition is accomplished shall be permitted; and, further
provided, notwithstanding clause (c) of this Section 4.17, the
creation of a new Subsidiary shall be permitted to the extent the new
Subsidiary is created solely to consummate a Permitted Acquisition. 

 

28

            4.18     Transactions With Affiliates. 
Borrower shall not enter into any transaction, including, without limitation,
the purchase, sale or exchange of property or the rendering of any service,
with any affiliate, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to Borrower than Borrower would obtain in a comparable
arm's length transaction with a person not an affiliate.  For the purposes of
this Section 4.18, "affiliate" shall mean a person,
corporation, partnership or other entity controlling, controlled by or under
common control with Borrower.

4.19         
Environmental Matters.  In addition to, and not in derogation of,
the requirements of Section 4.7, Borrower will, and will cause its
Subsidiaries to, (a) comply with all applicable Environmental Laws (unless the
validity or applicability of such laws, standards or regulations are being
contested in good faith by appropriate proceedings and adequate reserves
therefor have been established in accordance with GAAP), (b) promptly notify
Lender of its receipt of any notice of a violation of any such Environmental
Law, and (c) indemnify Lender against and hold Lender harmless from all loss,
cost, damage, liability, claim and expense incurred by or imposed upon Lender
on account of Borrower's failure to perform its obligations under this Section
4.19.

4.20         
Board Rights and Composition.  For so long as the Loan remains
outstanding, the Administrative Agent shall receive notice of and be entitled
to attend or may send a representative to attend all meetings of Borrower's
Board of Directors (the "Board of Directors") and any meetings of any
committee(s) established by the Board of Directors in a non-voting observation
capacity and shall receive a copy of all correspondence and information delivered
to the Board of Directors; provided, however, that the Administrative Agent and
it's representative shall agree to hold in confidence all information so
provided, except for any disclosure (a) made to any of its officers, directors,
employees, attorneys and other advisors, (b) of any information which is or has
become public information other than as a result of a disclosure by it or any
of the persons described in the preceding clause (a), (c) as required by any
applicable law, rule or regulation or judicial process or requested by any
governmental authority, in which event, to the extent permitted by law, notice
of any such disclosure shall be given as promptly as practicable to you, (d) to
prospective assignees which agree for the Borrower's benefit to be bound by
confidentiality provisions substantially the same as those contained in this
sentence, (e) in connection with any adversarial legal proceeding between
Lenders and Borrower or the Administrative Agent and Borrower, (f) of any
information which was available to the Administrative Agent on a
non-confidential basis prior to its disclosure by Borrower or its advisors, or
(g) of any information which becomes available to the Administrative Agent on a
non-confidential basis from a source other than Borrower or any of its
advisors, provided that such source is not (1) known to the Administrative
Agent to be bound by a confidentiality agreement with Borrower or any of its
advisors or (2) known to the Administrative Agent to be otherwise prohibited from
transmitting the information to the Administrative Agent by a contractual,
legal or fiduciary obligation.  Notwithstanding anything to the contrary set
forth in this Section 4.20, if an issue is to be discussed or otherwise
arises at any Board of Directors meeting which, in the reasonable good faith
judgment of the Board of Directors, is not appropriate to be discussed in the
presence of the Administrative Agent or it representative in order to avoid a
conflict of interest on the part of the Administrative Agent or it
representative or to preserve an attorney-client or accountant-client
privilege, then such issue may be discussed without the Administrative Agent or
it representative being present, so long as the Administrative Agent or it
representative is given notice of the occurrence of such judgment by the Board
of Directors.

 

29

4.21         
Asset Acquisitions.  Not later than thirty (30) days prior to the
consummation of any Asset Acquisition, notice of the pendency of such Asset
Acquisition, and not later than ten (10) Business Days prior to the
consummation of such Asset Acquisition, Borrow shall deliver to the Lenders the
following:

(a)  a reasonably
detailed description of the operating profile for the assets to be acquired in
such Asset Acquisition, and

(b)  a reasonably detailed
description of the terms and conditions of such Asset Acquisition, including
the proposed purchase price and the manner and structure of payment(s),
accompanied by copies of the then-current drafts of the proposed acquisition
agreement(s), and the proposed closing date thereof, and

(c)  copies of
financial statements for the Person owning the assets to be acquired or in
which stock is being purchased in the transaction for the two (2) most recent
fiscal years, if available, and for any subsequent interim accounting periods,
and

(d)  pro forma financial
projections for the Borrower and its consolidated Subsidiaries for the current
and next two (2) fiscal years;

(e)  appraisals (to
the extent generated as part of the acquisition);

(f)   historical
financial statements of the applicable Target for the three (3) fiscal years
prior to such acquisition (or, if such Target has not been in existence for
three (3) years, for each year such Target has existed or if such historical
financial statements do not exist, then such historical financial statements as
are available);

(g)  a general
description of the applicable Target's business;

 

30

(h)  a description of
threatened (to the extent known by the Borrower) or pending material litigation
involving the applicable Target;

(i)   a
description of the proposed method of financing the acquisition, including
sources and uses;

(j)   a list of
locations of all material personal and real property of the applicable Target,
including the location of its chief executive office;

(k)  in the event any of
the Target's executive management employees shall be employed by Borrower or
any of Borrower's Subsidiaries following the consummation of the acquisition, a
description of such executive management employees;

(l)   a
description of, and if requested by any Lender , copies of all material
agreements binding upon the applicable Target or any of its real property; 

(m) evidence that the
applicable Target will have in place at the time such acquisition is
consummated, with financially sound and reputable insurers, public liability
and property damage insurance with respect to its business and properties
against loss or damage of the kinds customarily carried or maintained by
Persons of established reputation engaged in similar businesses and in
commercially reasonable amounts

(n)  a certificate
duly executed by a Responsible Officer of the Borrower, in form satisfactory to
the Administrative Agent, certifying that no Default has occurred and is
continuing or will result from such Asset Acquisition, certifying that after
giving Pro Forma Effect to such Asset Acquisition and to any other relevant
transaction occurring during the then most recent twelve (12) month period such
Responsible Officer reasonably believes that such Asset Acquisition will not
result in a violation of any of the financial covenants contained herein during
the twelve (12) month period following such Asset Acquisition, and setting
forth computations demonstrating compliance with all financial covenants
contained herein as of the end of the Fiscal Quarter then most recently
completed, after giving Pro Forma Effect to such Asset Acquisition and to any
other relevant transaction occurring during the then most recent twelve (12)
month period; and

(o)  any other information
with respect to such acquisition reasonably required by Lenders, including,
without limitation, the right of the Administrative Agent to inspect the
properties, books or records of the Target.

4.22         
Acquisition Documents.  Not later than fifteen (15) days after
the consummation of any Asset Acquisition, copies of the executed documents
evidencing the transaction.

 

31

ARTICLE 5

FINANCIAL
COVENANTS

            5.1       Financial Covenants.  Borrower
covenants and agrees that during the term of this Agreement, Borrower shall
not:

(a)        Fixed Charge Coverage.  Permit the Fixed Charge Coverage Ratio as
of the end of (i) the Fiscal Quarters ending on June 30, 2005, September 30,
2005 and December 31, 2005 to be less than 1:10 to 1.00, and (ii) any Fiscal
Quarter thereafter to be less than 1.25 to 1.00.

(b)        Funded Indebtedness to EBITDA.  Permit the Funded Indebtedness to
EBITDA Ratio as of the end of (i) the Fiscal Quarters ending on June 30, 2005,
September 30, 2005 and December 31, 2005 to be greater than 4:25 to 1.00, and
(ii) any Fiscal Quarter thereafter to be greater than 4.00 to 1.00.

5.2       Guarantor Solvency. 
During the term of this Agreement, each of the Guarantors shall at all times be
Solvent.

ARTICLE
6

CONDITIONS
PRECEDENT

            6.1       Deliveries to the Administrative
Agent.  The obligation of the Lenders to make the Loan is subject to the
Administrative Agent's receipt, for the ratable benefit of the Lenders, of each
of the following, all of which shall be in form and substance satisfactory to
the Administrative Agent:

                        (a)        Agreement.  A
counterpart original of this Agreement, duly and validly executed and delivered
by or on behalf of the parties thereto;

                        (b)        Notes.  The Notes,
duly and validly executed and delivered on behalf of Borrower;

                        (c)        Security Documents. 
The Security Agreement, the Guaranty, the Guarantor Security Agreements and all
of the other Security Documents, each duly and validly executed and delivered
by or on behalf of all the appropriate parties thereto, together with (1)
acknowledgment copies of financing statements duly filed under the UCC of all
jurisdictions necessary or, in the opinion of the Administrative Agent,
desirable to perfect the security interests created by such Security Documents,
and (2) evidence of the public recordation or filing of such of the Security
Documents as the Administrative Agent deems it necessary or desirable to record
or file publicly, in such offices as the Administrative Agent shall require;

 

32

                        (d)        Perfected Security
Interest.  Evidence of Lien searches, through a date satisfactory to
Lenders, showing no Liens affecting the Collateral other than Permitted Liens;

                        (e)        Warrants.  The
Warrants, duly and validly executed by Borrower;

                        (f)         SBA Documentation. 
Small Business Administration Forms 480, 652 and 1031 (Part A), all duly and
validly completed, executed and delivered by Borrower;

                        (g)        Organizational
Documents.  Copies of the charters, articles of incorporation, certificates
of incorporation or other organizational documents of Borrower and each
Guarantor, certified by the Secretary of State or other appropriate public official
in each jurisdiction of organization, all in form and substance satisfactory to
the Administrative Agent;

                        (h)        Bylaws.  Copies of
the bylaws, and all amendments thereto, of Borrower and each Guarantor,
together with certificates of the Secretaries or Assistant Secretaries of
Borrower and each Guarantor, dated the date hereof, stating that such copy is
complete and correct;

                        (i)         Good Standing and
Authority.  Certificates of the appropriate governmental officials of each
jurisdiction as the Administrative Agent reasonably may request, dated within
thirty (30) days prior to the date hereof, stating that Borrower and each
Guarantor exists, is in good standing with respect to the payment of franchise
and similar taxes and is duly qualified to transact business therein;

                        (j)         Incumbency.  A
certificate of the Secretary or Assistant Secretary of Borrower and each
Guarantor, dated the date hereof, as to the incumbency and signature of all
officers of Borrower and of Guarantor authorized to execute or attest to this
Agreement, the Notes and the other Loan Documents to which Borrower or any
Guarantor is a party, together with evidence of the incumbency of each such
Secretaries or Assistant Secretaries;

                        (k)        Authorizing Actions. 
Copies of the resolutions of the board of directors or other managers of
Borrower and each Guarantor authorizing, approving and ratifying this
Agreement, the Notes, the Security Documents and the other Loan Documents and
the transactions contemplated herein and therein, duly adopted by the board of
directors or other managers of Borrower and each Guarantor, together with a
certificate of the Secretary or an Assistant Secretary of Borrower and each
Guarantor, dated the date hereof, stating that each such copy is a true and
correct copy of resolutions duly adopted at a meeting, or by action taken on
written consent, of the board of directors or other managers of Borrower and
each Guarantor and that such resolutions have not been modified, amended,
rescinded or revoked in any respect and are in full force and effect as of the
date hereof;

 

33

                        (l)         Legal Opinions of
Borrower's Counsel.  The favorable legal opinion of legal counsel to
Borrower, dated the date hereof, and addressed to the Administrative Agent and
the Lenders;

                        (m)       Financial Statements.

                                    (a)        The
consolidated balance sheet of Borrower and its Subsidiaries as of December 31,
2004, and the related consolidated statements of income, shareholders' equity
and cash flows for the Fiscal Year ended on such date, audited and reported
upon, without qualification, by Corbin & Company, LLP, together with an
unaudited consolidating balance sheet of Borrower and its Subsidiaries as of
the end of such Fiscal Year and an unaudited consolidating statement of income
for Fiscal Year, certified by a Responsible Officer of Borrower;

                                    (b)        The unaudited
consolidated and consolidating balance sheet of Borrower and its Subsidiaries
as of February 28, 2005, and the related consolidated and consolidating
statement of income and the related consolidated statements of shareholders'
equity and cash flows for the period commencing at the beginning of the current
Fiscal Year and ending with the end of the Fiscal Quarter ended on such date,
certified by a Responsible Officer of Borrower;

                        (n)        Consents.  Evidence
that Borrower has obtained all requisite consents and approvals, if any,
required to be obtained from any Person to permit the transactions contemplated
by this Agreement, the Notes and the other Loan Documents to be consummated in
accordance with their respective terms and conditions; and

                        (m)       Cornerstone Acquisition
Documents.  Copies of the executed documents evidencing the Cornerstone
Acquisition.

            (n)        Other
Matters.  All other documents, instruments, agreements, opinions,
certificates, insurance policies, consents and evidences of other legal
matters, in form and substance satisfactory to the Administrative Agent and its
counsel, as the Administrative Agent  reasonably may request.

            6.2       Additional Conditions to Lender's
Obligation to Make the Loan.  The obligation of the Lenders to make the
Loan is subject to the satisfaction of each of the additional conditions
precedent set forth in this Section 6.2:

                        (a)        Performance of
Borrower Obligations.  Borrower shall have performed and complied in all
material respects with all of the covenants, agreements, obligations and
conditions required by this Agreement;

                        (b)        No Default.  No
Default shall have occurred and be continuing;

 

34

                        (c)        Compliance with Laws. 
Borrower and its Subsidiaries shall not be in violation of, and shall not have
received notice of any violation of, any applicable Requirement of Law,
including any building, zoning, occupational safety and health, fair
employment, equal opportunity, pension, environmental control, health care, certificate
of need, health care facility licensing or similar federal, state or local law,
ordinance or regulation, relating to the ownership or operation of its business
or assets, if such violation or non-compliance could have a Material Adverse
Effect, and, if requested by the Administrative Agent, Borrower shall have
furnished to the Administrative Agent copies of all required approvals
(including required operating licenses and permits) of any Governmental
Authority;

                        (d)        No Material Adverse
Change.  Since December 31, 2004, no Material Adverse Change, as reasonably
determined by the Lenders, shall have occurred;

                        (e)        No Material
Misrepresentation.  The representations and warranties of Borrower and its
Subsidiaries set forth in this Agreement, the Notes and the other Loan
Documents and in any certificate, opinion or other statement provided at any
time by or on behalf of Borrower or its Subsidiaries in connection herewith
shall be true and correct on and as of the date of the making of the Loan as if
made on and as of such date, except to the extent that a representation or
warranty is made as of a specific date, in which event such representation or
warranty shall remain true and correct as of such earlier date, and except to
the extent that a representation or warranty is no longer correct by virtue of
changes permitted by the terms of this Agreement; and

                        (f)         Legal Proceedings. 
No action, suit, proceeding or investigation shall be pending before or, to the
knowledge of Borrower, threatened by any court or Governmental Authority with
respect to the transactions contemplated hereby or which, if adversely
determined, would be reasonably likely to have a Material Adverse Effect (as
determined by the Administrative Agent).

ARTICLE
7

DEFAULT
AND REMEDIES

            7.1       Events
of Default.  The occurrence of any of the following shall constitute an
Event of Default hereunder:

                        (a)        Borrower shall fail to
pay the principal of the indebtedness evidenced by the Notes in accordance with
the terms of the Notes or Borrower shall fail to pay the interest on
indebtedness evidenced by the Notes within three (3) business days after the
same is due;

                        (b)        Any misrepresentation by
Borrower or its Subsidiaries as to any material matter hereunder or under any
of the other Loan Documents, or delivery by Borrower or its Subsidiaries of any
schedule, statement, resolution, report, certificate, notice or writing to the
Administrative Agent or the Lenders that is untrue in any material respect on
the date as of which the facts set forth therein are stated or certified;

 

35

                        (c)        Borrower shall fail to
perform any of its obligations, covenants or agreements under Sections 4.2,
4.3, 4.6, 4.12, 4.13, 4.14, 4.15, 4.16,
4.17 or 4.18 or Article 5;

                        (d)        Borrower shall fail to
perform or observe any of its other obligations, covenants or agreements set
forth in this Agreement (other than those described in subsections 7.1(a),
(b), and (c), to the extent one of those subsections is
applicable) or the other Loan Documents, and such failure shall continue for
more than thirty (30) days after the earlier of (a) written notice from Lender
to Borrower of the existence of such Default or (b) the date any Responsible
Officer of Borrower first obtains knowledge of such failure;

                        (e)        Borrower or any of its
Subsidiaries (1) shall admit in writing that it is generally unable to pay its
debts as such debts become due; or (2) shall make an assignment for the benefit
of creditors or petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets; or
(3) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (4) shall have had any
such petition or application filed or any such proceeding commenced against it
in which an order for relief is entered or an adjudication or appointment is
made; or (5) shall indicate, by any act or intentional and purposeful omission,
its consent to, approval of or acquiescence in any such petition, application,
proceeding or order for relief or the appointment of a custodian, receiver or
trustee for it or a substantial part of its assets; or (6) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for a
period of sixty (60) days or more;

                        (f)         Borrower or any of its
Subsidiaries shall be liquidated, dissolved, partitioned or terminated, or the
charter thereof shall expire or be revoked;

                        (g)        A default or event of
default shall occur under any of the other Loan Documents and, if subject to a
cure right, such default or event of default shall not be cured within the
applicable cure period;

                        (h)        Borrower or any of its
Subsidiaries shall default in the timely payment or performance of any
obligation now or hereafter owed to either Lender in connection with any other
Indebtedness of Borrower now or hereafter owed to such Lender; 

                        (i)         Borrower or any of its
Subsidiaries shall (1) fail to pay any Indebtedness for borrowed money (other
than the Indebtedness evidenced by the Notes), or any interest or premium
thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), or (2) fail to perform or observe any term,
covenant or condition on its part to be performed or observed under any
agreement or instrument relating to any such Indebtedness, when required to be
performed or observed, if the effect of such failure to perform or observe is
to accelerate, or to permit the acceleration after the giving of notice or the
passage of time or both, of the maturity of such Indebtedness, regardless of
whether such failure to perform or observe shall be waived by the holder of
such Indebtedness; or any such Indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof;

 

36

                        (j)         Frank Fradella shall
cease to be active in the day-to-day management of Borrower and Borrower shall
fail to name a replacement of Frank Fradella acceptable to the Lenders within
ninety (90) days thereafter; or

                        (k)        Borrower shall fail to
notify the Administrative Agent of two (2) or more meetings of the Board of
Directors or of any committee(s) established by the Board of Directors, or
Borrower shall fail to permit the Administrative Agent to attend any such
meetings.

            7.2       Acceleration of Maturity; Remedies. 
Upon the occurrence of any Event of Default described in subsection 7.1(e),
the indebtedness evidenced by the Notes as well as any and all other
indebtedness of Borrower to Lenders shall be immediately due and payable in
full; and upon the occurrence of any other Event of Default described above,
Lenders at any time thereafter may at their option accelerate the maturity of
the indebtedness evidenced by the Notes as well as any and all other
indebtedness of Borrower to Lenders; all without notice of any kind.  Upon the
occurrence of any such Event of Default and the acceleration of the maturity of
the indebtedness evidenced by the Notes:

                        (a)        the Administrative Agent
shall be immediately entitled to exercise, for the ratable benefit of the
Lenders, any and all rights and remedies available pursuant to the terms of the
Notes and all of the other Loan Documents; and

                        (b)        the Administrative Agent
shall be entitled to exercise, for the ratable benefit of the Lenders, any and
all other rights and remedies available at law, in equity or by statute.

            7.3       Remedies Cumulative; No Waiver. 
No right, power or remedy conferred upon or reserved to the Administrative
Agent or the Lenders by this Agreement or any of the other Loan Documents is
intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or
by statute.  No delay or omission by the Administrative Agent or the Lenders to
exercise any right, power or remedy accruing upon the occurrence of any Event
of Default shall exhaust or impair any such right, power or remedy or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein, and every right, power and remedy given by this Agreement and the
other Loan Documents to the Administrative Agent and the Lenders may be
exercised from time to time and as often as may be deemed expedient by the
Administrative Agent and the Lenders.

 

37

            7.4       Proceeds of Remedies.  Any or
all proceeds resulting from the exercise of any or all of the foregoing
remedies shall be applied as set forth in the Loan Document(s) providing the
remedy or remedies exercised; if none is specified, or if the remedy is
provided by this Agreement, then as follows:

                        First, to the payment of any
fees, expenses, reimbursements or indemnities then due from the Borrower to the
Administrative Agent;

                        Second, to the payment of any
fees, expenses, reimbursements or indemnities then due from the Borrower to the
Lenders, or any of them;

                        Third, to the ratable payment
of the indebtedness and other obligations of Borrower under this Agreement, the
Notes and the Loan Documents, including the payment of the principal of and
interest on the indebtedness evidenced by the Notes; and

                        Fourth, the remainder, if
any, to Borrower or to any other person lawfully thereunto entitled.

ARTICLE 8

THE ADMINISTRATIVE AGENT

            8.1.      Appointment. Each Lender hereby (a) irrevocably
appoints Petra as the Administrative Agent for such Lender and the other
Lenders under this Agreement, the Notes and the other Loan Documents, and
(b) irrevocably authorizes the Administrative Agent to take such action on
its behalf under the provisions of this Agreement, the Notes and the other Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Administrative Agent by the terms of this Agreement, the Notes
and the other Loan Documents, together with such other powers as are reasonably
incidental thereto.  The Administrative Agent shall, among other things, take
such actions as the Administrative Agent is authorized to take pursuant to this
Agreement, the Notes and the other Loan Documents.  As to any matters not
expressly provided for in this Agreement, the Administrative Agent may, but
shall not be required to, exercise any discretion or take any action; however,
the Administrative Agent shall be required to act or to refrain from acting
upon the unanimous written instructions of the Lenders if the Administrative
Agent shall be indemnified to its satisfaction by the Lenders against any and
all liability and expense that may be incurred by it by reason of so acting or
refraining from acting.  Notwithstanding anything to the contrary herein, the
Administrative Agent shall have no duties, responsibilities or fiduciary
relationships with any Lender except those expressly set forth in this
Agreement, the Notes and the other Loan Documents, and no implied covenants,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement, the Notes or the other Loan Documents or otherwise exist against the
Administrative Agent.

            8.2       Delegation of Duties.  The Administrative
Agent may exercise any of its powers or execute any of its duties under this
Agreement, the Notes and the other Loan Documents by or through one or more
agents or attorneys-in-fact and shall be entitled to obtain, and to rely on,
advice of counsel concerning all matters pertaining to such rights and duties. 
The Administrative Agent may utilize the services of such agents and
attorneys-in-fact as the Administrative Agent in its sole discretion reasonably
determines, and all reasonable fees and expenses of such agents and attorneys-in-fact
shall be paid by the Borrower on demand.  The Administrative Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by the Administrative Agent in good faith.

 

38

            8.3       Limitation of Liability.  The Administrative
Agent, its affiliates, and the officers, directors, employees, agents and
attorneys-in-fact of such Persons and affiliates (each, an Agent-Related
Person) shall not be (a) liable for any waiver, consent or approval given
or any action taken or omitted to be taken by any of them under or in
connection with this Agreement, the Notes or the other Loan Documents, if
authorized or permitted hereunder, except for its own gross negligence or
willful misconduct, or (b) responsible for the consequences of any
oversight or error in judgment by it whatsoever, except for its own gross
negligence or willful misconduct.  No Agent‐Related Person shall be
responsible for (i) the execution, validity, genuineness, effectiveness,
sufficiency, enforceability, perfection or priority of this Agreement, the
Notes or the other Loan Documents, (ii) the collectability of any amounts
owing under this Agreement, the Notes or the other Loan Documents,
(iii) the value, sufficiency, enforceability, perfection or collectability
of any Collateral, (iv) the failure by the Borrower or its Subsidiaries to
perform its obligations under this Agreement, the Notes or the other Loan
Documents or to observe any conditions hereof or thereof, (v) the truth,
accuracy and completeness of the recitals, statements, representations or
warranties made by the Borrower or its Subsidiaries or any officer or agent
thereof contained in this Agreement, the Notes or the other Loan Documents, or
in any certificate, report, statement, document or other writing referred to or
provided for in, or received by the Administrative Agent in connection with,
this Agreement, the Notes or the other Loan Documents believed by the
Administrative Agent to be genuine and correct and to have been signed, sent or
made by the proper Person or Persons.

            8.4       Reliance by the Administrative Agent.  The
Administrative Agent shall not have any obligation (a) to ascertain or to
inquire as to the observance or performance of any of the conditions, covenants
or agreements in this Agreement, the Notes or the other Loan Documents or in
any document, instrument or agreement at any time constituting, or intended to
constitute, Collateral, (b) to ascertain or inquire as to whether any
notice, consent, waiver or request delivered to it shall have been duly
authorized or is genuine, accurate and complete or (c) to inspect the
properties, books or records of the Borrower or any of its Subsidiaries.  The
Administrative Agent shall be entitled to rely, and shall be fully protected in
relying (i) upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, facsimile, telex or
teletype message, statement, order or other document, instrument or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and (ii) upon advice and
statements of legal counsel (including counsel to the Borrower and its
Subsidiaries), independent accountants and other experts selected by the
Administrative Agent.  The Administrative Agent may deem and treat the payee of
any Notes as the owner thereof for all purposes unless a written notice of the
assignment, negotiation or transfer thereof, in accordance with the provisions
of this Agreement, shall have been delivered to the Administrative Agent
identifying the name of the subsequent payee or holder thereof.  The
Administrative Agent shall be entitled to fail or refuse, and shall be fully
protected in failing or refusing, to take any action required or permitted by
it under this Agreement, the Notes or the other Loan Documents unless
(A) it first shall receive such advice or concurrence of all of the
Lenders as it deems appropriate, or (B) it first shall be indemnified to
its satisfaction by the Lenders against any and all liability and expense that
may be incurred by it by reason of taking or continuing to take any such
action.  In all cases the Administrative Agent shall be fully protected in
acting, or in refraining from acting, under this Agreement, the Notes or the
other Loan Documents in accordance with a unanimous request of the Lenders, and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Lenders and all future holders of the Notes.

 

39

            8.5       Notice of Default; Action by Administrative Agent. 
The Administrative Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default unless the Administrative Agent has received notice
from a Lender, the Borrower or any of its Subsidiaries referring to this
Agreement, describing such Default and stating that such notice is a
"Notice of Default".  If the Administrative Agent receives such a
notice, the Administrative Agent shall give telephonic and written notice
thereof to the Lenders as soon as is practicable.  The Administrative Agent
shall take such action with respect to an Event of Default as shall be
reasonably directed by all of the Lenders; provided, however, that
unless and until the Administrative Agent shall have received such directions,
the Administrative Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Event of Default as it
deems advisable in the best interests of the Lenders.

            8.6       Non-Reliance on the Administrative Agent by the
Other Lenders.  Each Lender expressly acknowledges that no Agent‐Related
Person has made any representations or warranties to such Lender.  No Agent‐Related
Person shall have any obligation, responsibility or liability to any of the
Lenders regarding the creditworthiness or financial condition of the Borrower
or its Subsidiaries or for any recitals, statements, information,
representations or warranties herein or in any document, certificate or other
writing delivered in connection herewith or for the execution, effectiveness,
genuineness, validity, enforceability, perfection, collectability, priority or
sufficiency of this Agreement or any other Loan Document.  No act by the
Administrative Agent hereinafter taken, including any review of the Borrower or
its Subsidiaries, shall be deemed to constitute any representation or warranty
by any Agent‐Related Person to any Lender.  Each Lender represents to the
Administrative Agent that, independently and without reliance upon any Agent‐Related
Person or any other Lender and based on such documents and information as it
has deemed appropriate, it has made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of the Borrower and its Subsidiaries and has made its own
decision to enter into this Agreement and to make the Loan and otherwise
participate in the transactions hereunder.  Each Lender also represents that,
independently and without reliance upon any Agent‐Related Person or any
other Lender, and based on such documents and information as it deems
appropriate at the time, it shall continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement,
the Notes and the other Loan Documents and to make such investigation as it
deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrower and its
Subsidiaries.  The Administrative Agent shall not be required to make any
inquiry concerning the performance or observance of any of the terms,
provisions or conditions of this Agreement or any other Loan Document, or the
financial condition of the Borrower or its Subsidiaries or the existence or
possible existence of any Default.  Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall have no
obligation or liability to provide any Lender with any credit or other
information concerning the business, operations, property, financial and other
condition or creditworthiness of the Borrower and its Subsidiaries that may
come into the possession of any Agent‐Related Person.

 

40

            8.7       Indemnification.  Each of the Lenders shall
indemnify, defend and hold harmless each Agent‐Related Person (to the
extent not reimbursed by the Borrower and without limiting the obligation of
the Borrower to do so), ratably, from and against any and all claims, demands,
lawsuits, costs, expenses, fees, liabilities, obligations, losses, damages,
actions, recoveries, judgments, suits, costs, expenses or disbursements of any
kind whatsoever, including interest, penalties and reasonable attorneys' and
paralegals' fees and costs and amounts paid in settlement of any of the
foregoing, whether direct, indirect, consequential or incidental, that at any
time (including at any time following the satisfaction of the Loan) may be
imposed on, incurred by or asserted against any Agent‐Related Person in
any way relating to, resulting from or arising out of this Agreement, the Notes
or the other Loan Documents, the transactions contemplated hereby or any action
taken or omitted by the Administrative Agent under or in connection with any of
the foregoing; provided, however, that no Lender shall be liable for the
payment of any portion of such claims, demands, lawsuits, costs, expenses,
fees, liabilities, obligations, losses, damages, actions, remedies, judgments,
suits, costs, expenses or disbursements to the extent such result arose solely
from the purportedly indemnified Person's gross negligence or willful
misconduct.  Action taken in accordance with the directions of all of the
Lenders in no event shall be deemed to constitute gross negligence or willful
misconduct for purposes of this Section 8.7.  The agreements in
this Section 8.7 shall survive the repayment of the Loans and the
satisfaction of the other obligations and shall be in addition to and not in
lieu of any other indemnification agreements set forth in the Loan Documents.

            8.8       Payments.  If in the opinion of the
Administrative Agent, the distribution of any amount received by the
Administrative Agent in such capacity under this Agreement, the Notes or the
other Loan Documents might involve it in liability, the Administrative Agent
may refrain from making the distribution thereof until the Administrative
Agent's right to make such distribution shall have been adjudicated by a court
of competent jurisdiction.  If a court of competent jurisdiction shall adjudge
that any amount received from and distributed by the Administrative Agent in
such capacity as Administrative Agent is to be repaid, each Person to whom any
such distribution shall have been made either (a) shall repay to the
Administrative Agent its proportionate share of the amount so adjudged to be
repaid, or (b) shall repay the same in such manner and to such Persons as
shall be determined by such court.

 

41

            8.9       Administrative Agent in Its Individual Capacity. 
The Administrative Agent in its individual capacity, and its Affiliates, may
make loans and other financial accommodations to, accept deposits from and
generally engage in any kind of business with the Borrower and its Subsidiaries
as though the Administrative Agent were not the Administrative Agent
hereunder.  With respect to Loans made or renewed by it, the Petra Note issued
to it the Administrative Agent in its individual capacity shall have the same
benefits, rights, powers and privileges under this Agreement, the Notes and the
other Loan Documents as any other Lender and may exercise the same as though it
were not the Administrative Agent, and the terms "Lender"
"Lenders" shall include the Administrative Agent in its individual
capacity.

ARTICLE 9

TERMINATION

            This Agreement shall remain in full force and
effect until such time as all indebtedness and other obligations of Borrower to
Lenders and the Administrative Agent have been fully and irreversibly
satisfied, and within a reasonable time thereafter Lenders shall cancel the Notes
and deliver them to Borrower and shall direct the Administrative Agent to take
such actions as are necessary to release any Liens on the Collateral.

ARTICLE 10

MISCELLANEOUS

10.1     Representation of
Lenders.       Each of the Lenders hereby severally represents and warrants
to the Borrower as follows:

            (a)        This
Agreement is made with each Lender in reliance upon such Lender's
representation to the Borrower, which by its acceptance hereof the Lender
hereby confirms that the Note to be received by it will be acquired for
investment for its own account, not as a nominee or agent, and not with a view
to the sale or distribution of any part thereof, and that it has no present
intention of selling, granting participation in, or otherwise distributing the
same. By executing this Agreement, the Lender further represents that it does
not have a contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to such person, or to any third person,
with respect to the Notes.

                        (b)           Each Lender understands that the
Notes have not been registered under the Securities Act on the grounds that the
sale provided for in this Agreement and the issuance of the Notes hereunder is
exempt from registration under the Securities Act, and that the Borrower's
reliance on such exemption is predicated in part upon the Lender's
representations and warranties set forth herein. 

                        (c)            Each Lender represents that he is
an accredited investor, as defined under Regulation D of the Securities Act,
experienced in evaluating companies such as the Borrower, has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of its investments, and has the ability to bear the
economic risks of its investments.

 

42

                        (d)           Each Lender understands that the
Notes may not be sold, transferred or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in
the absence of an effective registration statement covering the Notes or an
available exemption from the registration under the Securities Act, the Notes
must be held indefinitely.  

                        (e)        Each Lender agrees that
in no event will it make a transfer or disposition of the Notes other than in
compliance with all applicable securities laws.

            10.2     Successors and Assigns Included in
Parties.  Whenever in this Agreement one of the parties hereto is named or
referred to, the heirs, legal representatives, successors, successors-in-title
and assigns of such parties shall be included, and all covenants and agreements
contained in this Agreement by or on behalf of Borrower, by or on behalf of
Lender, or by or on behalf of the Administrative Agent shall bind and inure to
the benefit of their respective heirs, legal representatives, successors-in-title
and assigns, whether so expressed or not.

            10.3     Costs and Expenses.  Borrower
agrees to pay all reasonable costs and expenses incurred by Lenders and the
Administrative Agent in connection with the making of the Loan, including
filing fees, recording taxes and reasonable attorneys' fees (provided, however,
that Borrower shall not be obligated to reimburse the Administrative Agent or
Lenders for their respective attorneys' fees and expenses and out-of-pocket
expenses incurred in connection with the initial closing of the Loan to the
extent the amount of such fees and expenses exceeds $50,000.00), and agrees to
pay all reasonable out-of-pocket expenses of the Administrative Agent's
designee incurred in attending meetings of Borrower's board of directors
promptly upon demand of the Administrative Agent.  Borrower further agrees to
pay all premiums for insurance required to be maintained by Borrower pursuant
to the terms of the Loan Documents and all of the out-of-pocket costs and
expenses incurred by the Administrative Agent or the Lenders in connection with
the collection of the Loan, amendment of the Loan Documents or prepayment of
the Loan, including reasonable attorneys' fees, promptly upon demand of the
Administrative Agent or the Lenders.

            10.4     Assignment.  The Notes, this
Agreement and the other Loan Documents may be endorsed, assigned or transferred
in whole or in part by the Administrative Agent or the Lenders, and any such
holder or assignee of the same shall succeed to and be possessed of the rights
and powers of such Lender under all of the same to the extent transferred and
assigned.  Lenders may grant participations in all or any portion of its
interest in the indebtedness evidenced by the Notes, and in such event Borrower
shall continue to make payments due under the Loan Documents to Lenders and
Lenders shall have the sole responsibility of allocating and forwarding such
payments in the appropriate manner and amounts.  Borrower shall not assign any
of its rights nor delegate any of its duties hereunder or under any of the
other Loan Documents without the prior express written consent of Lenders.

 

43

            10.5     Time of the Essence.  Time is of
the essence with respect to each and every covenant, agreement and obligation
of Borrower hereunder and under all of the other Loan Documents.

            10.6     Severability.  If any
provision(s) of this Agreement or the application thereof to any person or
circumstance shall be invalid or unenforceable to any extent, the remainder of
this Agreement and the application of such provisions to other persons or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.

            10.7     Interest and Loan Charges Not to
Exceed Maximum Allowed by Law.  Anything in this Agreement, the Notes or
any of the other Loan Documents to the contrary notwithstanding, in no event
whatsoever, whether by reason of advancement of proceeds of the Loan,
acceleration of the maturity of the unpaid balance of the Loan or otherwise,
shall the interest and loan charges agreed to be paid to Lenders for the use of
the money advanced or to be advanced hereunder exceed the maximum amounts
collectible under applicable laws in effect from time to time.  It is
understood and agreed by the parties that, if for any reason whatsoever the
interest or loan charges paid or contracted to be paid by Borrower in respect
of the indebtedness evidenced by the Notes shall exceed the maximum amounts
collectible under applicable laws in effect from time to time, then ipso
facto, the obligation to pay such interest or loan charges shall be reduced
to the maximum amounts collectible under applicable laws in effect from time to
time, and any amounts collected by Lenders or the Administrative Agent that
exceed such maximum amounts shall be applied to the reduction of the principal
balance of the indebtedness evidenced by the Notes or refunded to Borrower so
that at no time shall the interest or loan charges paid or payable in respect
of the indebtedness evidenced by the Notes exceed the maximum amounts permitted
from time to time by applicable law.

            10.8     Notices.  Any and all notices,
elections or demands permitted or required to be made under this Agreement
shall be in writing, signed by the party giving such notice, election or demand
and shall be delivered personally, telecopied, telexed or sent by certified
mail or by nationally recognized overnight courier service (such as Federal
Express), to the other party at the address set forth below, or at such other
address as may be supplied in writing and of which receipt has been
acknowledged in writing.  The date of personal delivery, telecopy or telex, or
two (2) business days after the date of mailing, or the next business day after
delivery to such courier service, as the case may be, shall be the date of such
notice, election or demand.  For the purposes of this Agreement, the address
for notice purposes shall be as set forth below or, with respect to any Lender,
the address set forth immediately below any Lender's signature:

  	The address of the Administrative	 
	Agent is:  	Petra
Mezzanine Fund, L.P.
	 	172
Second Avenue North, Suite 112
	 	Nashville,
TN  37201
	 	Facsimile: 
(615) 313-5990
	 	Attention: 
Michael W. Blackburn

 

 

44

 

                                                            

	 	with a copy to:
	 	  
	 	Bass,
Berry & Sims PLC
	 	315 Deaderick Street, Suite 2700
	 	Nashville,
TN 37238-0002
	 	Attention: 
Howard Lamar
	 	Facsimile: 
(615) 742-6293
	 	  
	The address of Borrower is:	Home Solutions
of America, Inc.
	 	5565
Red Bird Center Dr   
	 	Suite 150 
	 	Dallas, TX 75237 
	 	Facsimile:
(214) 333-9435
	 	Attention: 
Rick J. O'Brien
	 	  
	 	with a copy to:
	 	  
	 	Patton
Boggs LLP
	 	2001
Ross Avenue, Suite 3000
	 	Dallas,
TX 75201
	 	Facsimile:
(214) 758-1550
	 	Attention:
David P. McLean

            10.9     Entire Agreement.  This
Agreement and the other written agreements between Borrower, Lenders and the
Administrative Agent represent the entire agreement between the parties
concerning the subject matter hereof, and all oral discussions and prior
agreements are merged herein; provided, however, that if there is a
conflict between this Agreement and any other document executed
contemporaneously herewith with respect to or in connection with the Loan, the
provision of this Agreement shall control.  The execution and delivery of this
Agreement and the other Loan Documents by Borrower were not based upon any fact
or material provided by Lenders, nor was Borrower induced or influenced to
enter into this Agreement or the other Loan Documents by any representation,
statement, analysis or promise by Lenders.

            10.10   Governing Law.  This Agreement
shall be construed and enforced under the internal laws of the State of
Tennessee, without reference to the conflict of laws principles thereof.

10.11   Amendments.   No amendment or
waiver of any provision of this Agreement or any other Loan Document shall be
effective unless in writing signed by Requisite Lenders and the Borrower or the
applicable Credit Party, as the case may be, and acknowledged by the
Administrative Agent, and each such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given; provided,
however, that unless signed by each Lender directly affected thereby, no
such amendment, waiver or consent shall:

 

45

 

(a)        extend or postpone any Maturity Date
or any date fixed by this Agreement or any other Loan Document for any payment
(excluding mandatory prepayments) of principal, interest, fees or other amounts
due to the Lenders (or any of them) hereunder or under any other Loan Document;

(b)        reduce the principal of, or the rate
of interest specified herein on, the Loan, or any fees or other amounts payable
hereunder or under any other Loan Document; provided, however, that only
the consent of Requisite Lenders shall be necessary to (A) amend the definition
of "Default Rate" or to waive any obligation of the Borrower to pay
interest at the Default Rate or (B) to amend any financial covenant
hereunder (or any defined term used therein) even if the effect of such
amendment would be to reduce the rate of interest on the Loan or to reduce any
fee payable hereunder;

                        (c)        change any provision of this Section 10.11
or the definition of "Requisite Lenders" or any other provision
hereof specifying the number or percentage of Lenders required to amend, waive
or otherwise modify any rights hereunder or make any determination or grant any
consent hereunder;

                        (d)        release all or substantially all of the
Collateral; or

                        (e)        release the Borrower or substantially
all of the other Credit Parties from its or their obligations under the Loan
Documents;

 The Administrative Agent and Requisite Lenders may modify,
amend, restate, supplement or waive any provision of Article 8  without
the consent of the Borrower or any other Credit Party.

10.12   Incorporation.  All
schedules, exhibits, riders and other documents and instruments referenced
herein shall be deemed to be incorporated herein and made a part hereof.

            10.12   Survival of Representations and
Warranties.  All representations and warranties contained herein or made by
or furnished on behalf of Borrower or any of its Subsidiaries in connection
herewith shall survive the execution and delivery of this Agreement and all
other Loan Documents.

            10.13   Jurisdiction and Venue. Borrower
hereby consents to the jurisdiction of the courts of the State of Tennessee and
the United States District Court for the Middle District of Tennessee, as well
as to the jurisdiction of all courts from which an appeal may be taken from
such courts, for the purpose of any suit, action or other proceeding arising
out of any of its obligations arising under this Agreement or any other Loan
Documents or with respect to the transactions contemplated hereby, and
expressly waives any and all objections it may have as to venue in any of such
courts.

 

46

 

            10.14   Waiver of Jury Trial.  LENDERS,
THE ADMINISTRATIVE AGENT AND BORROWER EACH HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE (TO THE EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT TO A
TRIAL BY JURY OF ANY DISPUTE ARISING UNDER, RELATING TO OR CONNECTED WITH THIS
AGREEMENT, THE COLLATERAL OR ANY OTHER AGREEMENT, INSTRUMENT OR DOCUMENT
CONTEMPLATED HEREBY OR DELIVERED IN CONNECTION HEREWITH AND AGREE THAT ANY SUCH
DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.  THIS PROVISION
IS A MATERIAL INDUCEMENT FOR THE PARTIES TO ENTER INTO THIS AGREEMENT.

            10.15   Counterparts.  This Agreement may
be executed in any number of counterparts and by different parties to this
Agreement in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which taken together shall constitute one and the
same Agreement.

            10.16   Construction and Interpretation. 
Should any provision of this Agreement require judicial interpretation, the
parties hereto agree that the court interpreting or construing the same shall
not apply a presumption that the terms hereof shall be more strictly construed
against one party by reason of the rule of construction that a document is to
be more strictly construed against the party that itself or through its agent
prepared the same, it being agreed that Borrower, Lender and their respective
agents have participated in the preparation hereof.

10.17   Additional Advance.     Following
the Closing Date, the Loan amount may, at the option of the Borrower, be
increased by an aggregate amount of up to $3,000,000 (each an "Additional
Advance") if:

(a)        to the extent it desires
to increase the Loan amount by means of an Additional Advance, the Borrower
shall deliver to the Required Lenders one or more Persons acceptable to the
Requisite Lenders, in the sole discretion of the Requisite Lenders (each an
"Additional Advance Lender"), who agrees to make the
Additional Advance to Borrower upon the terms set forth in this Agreement and
the other Loan Documents, subject to such amendments as may be required by the
Requisite Lenders, in their sole discretion; 

(b)        each Additional Advance
Lender executes a signature page to this Agreement and each Additional Advance
Lender, together with Borrower and any Guarantor, executes such other Loan
Documents and any amendments to the Loan Documents as are required by the
Requisite Lenders; 

(c)        no Default or Event of
Default exists as of the date on which an Additional Advance is to occur; and 

 

47

 

(d)        the Borrower pays to the
Requisite Lenders and the Administrative Agent (or such other parties entitled
thereto) all fees required in connection with (i) the evaluation of any
Additional Advance Lender, whether or not approved by the Requisite Lenders,
and (ii) all costs and expenses (including reasonable attorneys' costs and
fees) incurred by the Administrative Agent and the Requisite Lenders in
documenting or implementing any Additional Advance.  

Notwithstanding anything contained
herein to the contrary, (i) no Additional Advance shall occur after September
26, 2005, (ii) no action or inaction by the Administrative Agent or any
Requisite Lenders with respect to the approval of any Additional Advance Lender
shall create an event of default by the Lenders or the Administrative Agent hereunder,
and (iii) neither the Administrative Agent nor any Requisite Lender shall have
any obligation to use any efforts to seek any Additional Advance Lenders.

            Upon the effectiveness of any Additional Advance pursuant
to this section, all of the terms and conditions of the Loan Documents shall
apply to such increased amounts as if such amounts were in effect as of the
date hereof.  

 

 

48

            IN WITNESS WHEREOF, the parties hereto
have executed this Agreement, or have caused this Agreement to be executed by their
duly authorized officers or other representatives, as of the date first above
written.

                                                                        

  	 ADMINISTRATIVE
AGENT:
	  
	PETRA
MEZZANINE FUND, L.P.
	  
	By: 
Petra Partners, LLC, its general partner
	  
	     By:___________________________
	           Michael W.
Blackburn,
	          
Managing Member
	  
	 BORROWER:
	  
	HOME
SOLUTIONS OF AMERICA, INC.
	  
	By:__________________________________
	     Title:                                                           
      
	  
	 LENDER:
	  
	PETRA
MEZZANINE FUND, L.P.
	  
	By: 
Petra Partners, LLC, its general partner
	  
	     By:___________________________
	           Michael W.
Blackburn,
	          
Managing Member
	  
	Address for notice purpose:
	   
	Petra
Mezzanine Fund, L.P.
	172
Second Avenue North, Suite 112
	Nashville,
TN  37201
	Facsimile: 
(615) 313-5990
	Attention: 
Michael W. Blackburn

 

Index of Exhibits
and Schedules

  	Exhibit A	Form of Assignment of Life Insurance
	Exhibit B	Form
of Note
	Exhibit C	Form
of Security Agreement
	Exhibit D 	Form
of Stock Purchase Warrant
	Schedule 3.1	Corporate
Status
	Schedule 3.2	Capitalization
	Schedule 3.5	Conflicts
	Schedule 3.6	Investments (including Investments in Subsidiaries)
	Schedule 3.7 	Trademarks and Patents
	Schedule 3.9	Indebtedness
and Liens
	Schedule 3.12	Litigation
	Schedule 3.17	Related
Party Transactions
	Schedule 3.19	Significant
Contracts
	Schedule 3.20	Employee
Benefit Plans
	Schedule 3.21	Environmental
Matters
	Schedule 4.12	Restricted
Payments

 

 

50Exhibit 10.2

PROMISSORY NOTE

$4,000,000.00                                                                                                 March
___, 2005

            FOR VALUE RECEIVED, on or before March
31, 2010 (the "Maturity Date"), the undersigned, HOME
SOLUTIONS OF AMERICA, INC., a Delaware corporation ("Maker"),
promises to pay to the order of PETRA MEZZANINE FUND, L.P., a Delaware limited
partnership ("Payee"; Payee and any subsequent holder[s]
hereof are hereinafter referred to individually and collectively as "Holder"),
to Payee's account number 1011832 at Pinnacle National Bank, Nashville,
Tennessee, ABA Routing Number 064008637, or at such other place as Holder may
designate to Maker in writing from time to time, the principal sum of FOUR
MILLION AND NO/100THS DOLLARS ($4,000,000.00), together with interest on the
outstanding principal balance hereof from the date hereof at the rate of twelve
percent (12%) per annum (computed on the basis of a 360-day year and the actual
number of days elapsed, to the extent permitted by applicable law).

            Interest on the outstanding principal balance
hereof shall be due and payable quarterly, in arrears, with the first
installment being payable on the last business day of June, 2005, and subsequent
installments being payable on the last business day of each calendar quarter
thereafter until the indebtedness evidenced hereby has been fully repaid.  On
the Maturity Date, the entire outstanding principal balance, together with all
accrued and unpaid interest, shall be immediately due and payable in full.

            The indebtedness evidenced hereby may be prepaid
in whole or in part, at any time and from time to time, without premium or
penalty.  Any such prepayments shall be credited first to any accrued and
unpaid interest and then to the outstanding principal balance hereof, in
inverse order of maturity.

            Reference is here made to that certain Loan
Agreement of even date herewith, by and between Payee, certain Lenders and
Petra Mezzanine Fund, L.P., as Administrative Agent (together with any and all
amendments, modifications, supplements, extensions, renewals, substitutions
and/or replacements thereof, herein referred to as the "Loan Agreement";
capitalized terms used but not otherwise defined herein shall have the same
meanings as in the Loan Agreement).  This Note is a "Note" as defined
and referred to in the Loan Agreement, and this Note is entitled to the
benefits and security of, and is secured by, the Loan Agreement, the other
Security Documents and the other Loan Documents.

            Upon the occurrence of
an Event of Default, the entire outstanding principal balance of the
indebtedness evidenced hereby, together with all accrued and unpaid interest
thereon, may be declared, and immediately shall become, due and payable in
full, as provided in the Loan Agreement.

 

PAGE 1 OF A 3 PAGE NOTE

 

Upon the occurrence of any Event of
Default, at the option of Holder and without notice to Maker, all accrued and
unpaid interest, if any, shall be added to the outstanding principal balance
hereof, and the entire outstanding principal balance, as so adjusted, shall
bear interest thereafter until paid at an annual rate (the "Default
Rate") equal to the lesser of (1) the rate that is two percentage
points (2.0%) in excess of the above-specified interest rate, or (2) the
maximum rate of interest allowed to be charged under applicable law (the "Maximum
Rate"), regardless of whether there has been an acceleration of the
payment of principal as set forth herein.  All such interest shall be paid at
the time of and as a condition precedent to the curing of any such Event of
Default.

            In the event this Note is placed in the hands of
an attorney for collection or for enforcement or protection of the security, or
if Holder incurs any costs incident to the collection of the indebtedness
evidenced hereby or the enforcement or protection of the security, Maker and
any indorsers hereof agree to pay to Holder an amount equal to all such costs,
including without limitation reasonable attorney's fees and all court and other
costs.

            Presentment for payment, demand, protest and
notice of demand, protest and nonpayment are hereby waived by Maker and all
other parties hereto.  No failure to accelerate the indebtedness evidenced
hereby by reason of default hereunder, acceptance of a past-due installment or
other indulgences granted from time to time, shall be construed as a novation
of this Note or as a waiver of such right of acceleration or of the right of
Holder thereafter to insist upon strict compliance with the terms of this Note
or to prevent the exercise of such right of acceleration or any other right
granted hereunder or by applicable laws.  No extension of the time for payment
of the indebtedness evidenced hereby or any installment due hereunder, made by
agreement with any person now or hereafter liable for payment of the
indebtedness evidenced hereby, shall operate to release, discharge, modify,
change or affect the original liability of Maker hereunder or that of any other
person now or hereafter liable for payment of the indebtedness evidenced
hereby, either in whole or in part, unless Holder agrees otherwise in writing. 
This Note may not be changed orally, but only by an agreement in writing signed
by the party against whom enforcement of any waiver, change, modification or
discharge is sought.

            All agreements herein made are expressly limited
so that in no event whatsoever, whether by reason of advancement of proceeds
hereof, acceleration of maturity of the unpaid balance hereof or otherwise,
shall the interest and loan charges agreed to be paid to Holder for the use of
the money advanced or to be advanced hereunder exceed the maximum amounts
collectible under applicable laws in effect from time to time.  If for any
reason whatsoever the interest or loan charges paid or contracted to be paid in
respect of the indebtedness evidenced hereby shall exceed the maximum amounts
collectible under applicable laws in effect from time to time, then, ipso
facto, the obligation to pay such interest and/or loan charges shall be
reduced to the maximum amounts collectible under applicable laws in effect from
time to time, and any amounts collected by Holder that exceed such maximum
amounts shall be applied to the reduction of the principal balance remaining
unpaid hereunder and/or refunded to Maker so that at no time shall the interest
or loan charges paid or payable in respect of the indebtedness evidenced hereby
exceed the maximum amounts permitted from time to time by applicable law.  This
provision shall control every other provision in any and all other agreements
and instruments now existing or hereafter arising between Maker and Holder with
respect to the indebtedness evidenced hereby.

 

PAGE 2 OF A 3 PAGE NOTE

 

 

            This Note is intended as a contract under and
shall be construed and enforceable in accordance with the laws of the State of
Tennessee, except to the extent that federal law may be applicable to the
determination of the Maximum Rate.

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

                                                                        

  	 MAKER:
	  
	Home
Solutions of America, Inc.
	  
	By:_______________________________________
	              Title:_______________________________

 

 

PAGE 3 OF A 3 PAGE NOTE

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